賓州電力 (PPL) 2020 Q1 法說會逐字稿

Good morning, and welcome to the PPL Corporation first quarter earnings conference call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining the PPL Conference Call on First Quarter 2020 Financial Results. We have provided slides for this presentation and our earnings release issued this morning on the Investors section of our website. Our presentation and earnings release, which we will discuss during today's call, contain forward-looking statement about future operating results or other future event. Actual results may differ materially from these forward-looking statement. Please refer to the appendix of this presentation and PPL's SEC filings for a discussion of factors that could cause actual results to differ from forward-looking statement.

We will also refer to earnings from ongoing operations or ongoing earnings, a non-GAAP measure on this call. For reconciliation to the GAAP measure, you should refer to the appendix of this presentation and our earnings release.

I'll now turn the call over to Bill Spence, PPL Chairman and CEO.

Thank you, Andy, and good morning, everyone. We're pleased that you've joined us for our first quarter earnings call. With me today are Vince Sorgi, PPL President and Chief Operating Officer; and Joe Bergstein, Chief Financial Officer.

Moving to Slide 3. I'll begin this morning's call with an executive overview, including our response to the COVID-19 pandemic and PPL's strong position in the face of this challenge. Joe will then provide a more detailed review of first quarter earnings and discuss our approach to managing certain financial risks relating to COVID. Then Vince will take a few moments on how we are maintaining our safe and reliable operations and focus on PPL's long-term strategy. As always, we'll leave ample time to answer your questions.

Turning to Slide 4. I'm extremely proud of our team's response to the pandemic, which was early and aggressive. This proactive approach helped us adapt quickly to ensure that we continue to provide safe and reliable services during these challenging times. Importantly, we have been able to keep electricity and gas flowing to our over 10 million customers despite the extensive measures necessary to protect our employees and our communities.

First and foremost, we've taken steps to practice social distancing in all of our operations. This has included shifting almost 40% of our workforce to work from home. That represents more than 4,500 employees, and it has included creating additional separation for those who must still report to a PPL facility due to the nature of their job. These measures have proven effective as we've had just a handful of positive COVID-19 cases across our company. These encouraging results are in part due to the substantial investments we've made, which enable our staff to complete a lot of the work remotely and without direct interaction with customers. And in those cases where our employees need to enter our customer premises, we've ensured our employees have the proper equipment to keep them safe. We've experienced shutdowns of nonessential businesses across the regions we serve, which has supported our social distancing effort. In all of our jurisdictions, the support by our local trade union has been fantastic. As we've worked in true partnership to protect our workers and the public. And it's a testament to our employee whose patience, persistence and professionalism continues to shine through in these unprecedented times. Importantly, we continue to deliver an essential service for our customers when they need us most, especially the health care facilities that are literally on the frontline fighting this pandemic.

As we focus on meeting our customers' needs, we also remain well positioned to manage an extended economic downturn brought on by COVID-19. This is a reflection of the low risk, adaptable, great regulated business model that we have strategically built over the past decade. We have a strong liquidity position and took further steps to strengthen our financial position demonstrating our abilities to access the capital markets, which Joe will discuss more in a few moments.

We also have substantial flexibility in our capital plan without major project risk, which enables us to be agile and focused on the immediate needs of our customers, shifting noncritical work without significant implications to our overall capital plan. In short, we are confident in our ability to weather the storm as we confront the challenge of COVID-19.

Lastly, I would note that we are committed to supporting customers who may be struggling financially through these difficult times. Our foundations in Pennsylvania and Kentucky, along with our U.K. business, have pledged $1.6 million combined in donations to coronavirus relief funds and programs that help customers with financial hardship. Our companies have also suspended disconnect and late fees and worked to connect -- reconnect customers who had previously been disconnected. In addition, we continue to offer payment assistant programs and other services to help customers manage their energy bills. We know the road won't be easy for many, and we will continue to look for opportunities to support our local communities going forward.

Now turning to Slide 5. Today, we announced first quarter reported earnings of $0.72 per share compared with $0.64 per share during the same period a year ago. Adjusting for special items, first quarter earnings from ongoing operations were $0.60 per -- $0.67 per share compared to $0.70 per share a year ago. The decrease was driven largely by $0.04 of dilution and lower sales volumes, primarily due to the mild weather in the first quarter. These factors were partially offset by returns on our additional capital investment.

Turning to the full year. We have not changed our 2020 forecast of $2.40 a share to $2.60 per share. And while we're on track through the first quarter with minimal impact from COVID, we have largely been under a lockdown for the past 6 weeks. This has resulted in lower C&I load and higher residential loads in all of our jurisdiction. At this point, it is too early to predict clearly what the pandemic impact will be on full year results. This will depend on how long the pandemic lasts, the pace and extent of the economic recovery and the degree companies continue into employ work-from-home protocols, which is what's driving the higher residential loads. Given these uncertainties and how early we are in the process, we are providing sensitivities in today's material, which Joe will cover in more detail in his remarks. We felt it was more helpful and transparent to provide sensitivities that allow shareowners and analysts to assess the potential impact as time goes on.

As you'll see in our sensitivity analysis, the monthly impact may be manageable, especially if the economies in our jurisdictions recover quickly, and we see more favorable weather, coupled with other levers that we can pull. So while we're bringing stability to our communities and customers in the face of unprecedented challenges, we also remain confident in our long-term prospects for our shareowners, including our 2021 forecast. We see minimal, if any, impact to our capital and rate-based growth plans, and we maintain an attractive dividend and strong investment-grade credit rating.

I'll now turn the call over to Joe for a financial update.

Thank you, Bill, and good morning, everyone. I'll begin with a brief overview of first quarter segment results on Slide 7.

As Bill mentioned, PPL delivered first quarter 2020 earnings from ongoing operations of $0.67 per share versus $0.70 per share in the first quarter of 2019. Walking from our Q1 2019 results on the left, we first make weather adjustments for comparability purposes of the underlying businesses. As felt across much of the U.S. during the first quarter, we experienced a very mild winter, which drove a $0.03 negative variance compared to Q1 2019 and about $0.05 variance to our forecast. Heating degree days were down by about 30% in Pennsylvania and 15% in Kentucky compared to normal weather conditions. We also adjust for the effects of dilution, primarily driven by the November 2019 draw on our equity forward contracts.

Turning to the individual segment drivers, which exclude the impacts of these items, we'll begin first with the U.K. Our U.K. Regulated segment earned $0.39 per share, a $0.02 decrease compared to the same period a year ago. The decrease in U.K. earnings was primarily due to lower other income due to lower pension income and higher operation and maintenance expense. These decreases were partially offset by higher adjusted gross margins, primarily driven by higher prices through the April 1, 2019, price increases. I'll note, foreign currency was not a significant driver for Q1 based on the shape of our hedge portfolio. We remain substantially hedged for the balance of 2020 at an average hedge rate of $1.55 per pound. We'll see the benefit of higher hedge rates compared to 2019 in the balance of the year.

Moving to Pennsylvania. We earned $0.16 per share, which was $0.02 higher than our comparable results for 2019. The increase was primarily driven to -- by higher adjusted gross margins, primarily resulting from returns on additional capital investment and transmission.

Turning to our Kentucky regulated segment, we earned $0.16 per share, a $0.03 increase over our results 1 year ago. The increase was primarily due to higher adjusted gross margins, primarily resulting from higher retail rates effective May 1, 2019. Results at Corporate and Other were $0.01 higher compared to a year ago, driven by several factors, none of which were individually significant.

Turning to Slide 8. As Bill noted, the company is well positioned to manage the challenges of COVID, and we did not see material impacts to our financial results through the first quarter. With that said, there are a number of key areas of potential risk that we have been managing and continue to monitor. Our preliminary estimates reflect the monthly impact of approximately $0.03 to $0.04 per share based on April lockdowns. Importantly, we believe a substantial portion of these risks will be mitigated through constructive regulatory mechanisms, primarily U.K. decoupling.

Breaking down the overall potential risk, starting with customer sales, we are seeing lower C&I volumes across the board, given that each one of our jurisdictions have been operating under some form of mandatory lockdown. However, that has also driven strong increases in residential volumes that partially offset these declines. I'll touch on load-specific sensitivities in each of our jurisdictions on the next slide, but it's important to highlight that any impacts due to U.K. volume variances are fully recoverable in 2 years and are NPV neutral. Domestically, we have various fixed and demand charges in our tariffs that help to reduce the impact to changes in load and about 40% of our Pennsylvania margins come from transmission under a FERC formula rate.

Regarding bad debts, our U.K. operations are very well insulated as we do not directly bill the end-use customer in the U.K. WPD bills about 150 suppliers with the largest 7 suppliers comprising approximately 2/3 of those receivables. And as part of each U.K. supplier license agreement, these counterparties are required to post collateral in the form of letters of credit, escrow account deposits and cash deposits, supporting the DNOs in the event of a supplier default.

Turning to the U.S., while we have experienced some delayed payments, we haven't seen a material drop-off in cash received to date. We believe that is in part due to the unemployment and small business provisions in the stimulus packages approved by Congress. I'll also note that our commissions are encouraging customers to continue to pay their utility bills, including contacting us directly for payment options. In the event we see the trend of delinquent payments rising to a significant level, we will explore regulatory mechanisms with our commissions to recover late or miss payments related to COVID-19.

In regard to our capital plan, in the U.S., we do not expect major changes to our plans and expect to complete as much of our planned capital work as possible with minimal notable delays experienced to date. In the U.K., the national shutdown ordered by Prime Minister Johnson has caused us to dial back capital spending to just the essential work, focused on ensuring reliability and safety of our network. Ofgem has provided guidance branding the network's flexibility in this area to prioritize our work accordingly.

While we could see some modifications in our plan for 2020, we do not expect this to have a significant impact on our overall CapEx planned for RAV growth. We have the flexibility to shift some of the project to the back half of 2020 or into future periods, depending on the duration of the lockdown. As a reminder, under the favorable U.K. regulatory construct for rate making purposes, 80% of our projected totex or total expenditures goes towards increasing the RAV and 20% is recovered as current period revenue. So shifting or deferring capital investment at, at least the amount we are talking about does not materially impact our RAV or our annual revenues. I'll cover our detailed liquidity update in a few moments, but I'll just reaffirm Bill's comment on our strong position and confidence to manage a prolonged downturn. The recent actions we have taken plus the flexibility we have with our low-risk capital plan gives us further levers to pull to effectively manage the company's cash flow and liquidity through these challenges.

Turning to Slide 9. We are providing an update and more detailed view of our load trends by customer class and related sensitivities to better reflect potential risks associated with any prolonged shutdown in our service territory. Of the $0.03 to $0.04 per share of monthly exposure that I mentioned on the prior slide, $0.02 to $0.03 is driven by load. And of that, about $0.02 is recoverable in future periods due to decoupling in the U.K. Based on our observations in April, we estimate the potential impact on C&I load is a decline of approximately 15% to 25% depending on the jurisdiction. The decline in C&I load is partially offset by stronger residential demand, where we observed 1% to 3% increases in the U.K. and 5% to 8% increases domestically. Given this load profile, we are projecting about 2/3 of the impact to come from the U.K. In April, this resulted in Kentucky margins being off about $0.01 per share relative to our original business plan. In Pennsylvania, margins were flat to plan, and we do not have WPD's results yet, given the normal lag in receiving that data from suppliers. If our projections are accurate, it would result in about a $0.02 impact for the U.K. for the month.

On the right side of the slide, we provide an example of the U.K. decoupling mechanism. This is an essential part of the regulation that provides stability to our cash flows, supporting the low business risk profile from the credit rating agencies. One of the key points is that in addition to recovering the lost revenue from any declines in volume, we also receive inflation on top of those revenues to make us whole. So economically, we're very well protected in the U.K. from the potential impacts of COVID, weather or any volume-related variances, despite any current-year impact to earnings.

Turning to Slide 10. I'd now like to take a moment and describe a number of steps we've taken to improve our liquidity position in the face of the COVID-19 pandemic and the uncertainty in the capital markets. As Bill mentioned, we are very well situated with about $5 billion of total available liquidity as we sit here today. During March and April, we secured term loan facilities of $400 million to 12- and 24-month durations. We also issued $1 billion of senior notes at PPL Capital Funding, providing incremental liquidity and prefunding the LKE maturity we have in November of this year. We believe this positions the company very well from a liquidity perspective for the remainder of 2020. While we have $700 million of additional debt maturities at the operating companies in November, we believe we'll have the ability to access the capital markets to refinance that debt.

That concludes my prepared remarks, and I'll turn the call to Vince for a brief operational update. Vince?

Thanks, Joe, and good morning, everyone. I'd first like to echo Bill's commentary on how proud we are of our collective team's response to the challenges of COVID-19. There's no doubt that COVID-19 has had a significant impact on the way we're operating the business. But as a company, we acted early and aggressively to foster social distancing and minimize the spread of the coronavirus.

As a result, I'm pleased to report that we have not had any significant operational issues related to COVID-19. There's no denying how vital our service is to our customers, particularly in times of adversity and uncertainty. We are committed to be a source of stability at this time and to continue to power their lives, regardless of the challenges that are thrown our way.

Turning to Slide 12. I want to take a moment to highlight some of the actions that we've taken to maintain that stability and reliability of service. We've taken extensive measures across PPL to protect our employees in the public in order to deliver gas and electricity safely and reliably for our customers as they cope with the challenges of COVID-19. But simply, safety is our top priority. We are following comprehensive emergency management and pandemic plans as well as the guidance of the CDC and state and local health departments. The work-at-home and social distancing measures that Bill discussed earlier are core to our strategy. In addition, we've taken a number of other measures, including temperature testing, we're using masks and gloves, and enhancing our industrial cleaning. With our critical employees, which are primarily the control room operators, we've split the crews into multiple teams where possible, having them work in different locations, and with the work-from-home numbers that we have, we're able to enforce social distancing much better at our PPL facility. From a customer perspective, we are very focused on maintaining safety and reliability during these challenging times and that starts with not cutting service to customers and deferring the charging of late fees, which we and most utilities in the U.S. have agreed to do.

In the U.K., while WPD does not bill the end customer, we continue to work with a wider energy industry to consider liquidity issues, all focused on helping the end consumer. Despite these changes to how we operate, it has been critically important to ensure our top-tier reliability remains unchanged. We had our first round of spring storms in all 3 of our jurisdictions, and we were able to restore power in all cases without any issues and without mutual assistant. These restoration efforts highlight the importance of preserving a strong supply chain, and we've increased our inventories for storm-related supply. Despite the lockdowns in our jurisdictions, we've been successful in getting our critical suppliers on the list of companies that are permitted to operate. As a result, we're well positioned with sufficient spares and supplies to operate effectively even in the COVID environment. We're also scenario planning in the event this will continue for an extended period of time to ensure we have adequate supplies and to assess the employee working arrangements that we've put in place, both on PPL premises and off.

As Joe indicated, we've already dialed back our U.K. capital spend to essential only work, but we are continuing to execute the original capital plans in the U.S. and expect to continue to do so. Having said that, based on the nature of our capital projects, we have the flexibility in the U.S. as well to defer capital spending into future periods, if necessary. In addition, our planned rate case calendar is relatively light, with no outstanding base rate cases in the U.S., and our current U.K. price control continues through March of 2023.

Turning to Slide 13. I covered the key points of our capital plan on the prior slide, but it's important to point out that a lot of our work in the U.K. is done on our customers' premises. So it's critically important, for the safety of our employees, to take a more conservative approach to work, and we're extremely pleased that Ofgem has been a great supporter of these efforts. At this point, we expect any delayed asset replacement work and/or deferred asset reinforcement work to be completed in future periods. Of course, we'll continue to assess these needs in the context of our overall capital plan and as we look at the deliverables we committed to both our customers and to Ofgem.

Looking forward, we do not expect the current environment to materially impact our overall capital plan, and we continue to see future investment opportunity across the PPL portfolio with about $14 billion of CapEx projected in the next 5 years focused on advancing a cleaner energy future. As discussed on our year-end call, we expect incremental CapEx opportunities of up to $500 million beyond the identified projects in our current plan. And longer term, we continue to see significant opportunities with the electrification initiatives in the U.K. as well as the transition of our coal generation fleet in Kentucky.

And finally, moving to Slide 14. While we are certainly managing the current crisis at hand and ensuring that our customers and employees are protected during these difficult times, I want to further emphasize that we remain focused on the long-term strategy of the company. For PPL, in many utilities, that includes the transition to cleaner energy, and we continue to position our utilities to fight climate change in a manner that balances the needs of our customers and the environment. PPL remains committed to our updated CO2 emission reduction targets announced earlier this year, increasing our reduction target to at least 80% from 2010 levels by 2050. We are also showing a glide path that has already resulted in a 56% reduction in CO2 through the end of last year and at least a 70% reduction by 2040. I want to remind investors that these targets are based on current economics and technologies as well as current legislation and regulation. We believe these targets are credible, and we are confident in our ability to achieve them. Of course, if there are further advancements in technology or the cost of renewables continues to come down, we could certainly see even greater CO2 reduction than what we are currently targeting.

With that, I'll turn the call back to Bill for some closing remarks. Bill?

Thanks, Vince. I'd like to take a moment now to reiterate that PPL remains well positioned for the future. Our strong financial profile consisting of a significant liquidity position and low-risk capital plan will enable us to manage through an extended economic downturn. Our commitment to exceptional operational performance and customer satisfaction shines bright as we continue to deliver electricity and natural gas during this period of uncertainty. We remain steadfast in our goals to advance the cleaner energy future and delivering on commitments to shareowner.

In closing, I would note that this will be the last earnings call led by me as PPL's Chief Executive Officer. As we announced in February, I will be retiring as CEO on June 1, and will become nonexecutive Chairman of the Board of Directors. Vince will become President and CEO of PPL at that time. It has truly been an honor to lead a tremendous team of employees we have here at PPL. They are among the very best our industry has to offer. They are talented, creative, caring and hardworking. And above all, they are dedicated to making life better for our customers and our community. As we look to the future, I'm confident that the company will be in good hands, led by Vince, guided by an outstanding management team, supported by more than 12,000 strong in the U.S. and U.K. and poised to deliver for our share owners moving forward.

Lastly, we talked at length today about the challenge of COVID-19 and PPL's response. And I think it's worth noting that PPL has delivered power safely and reliably for the communities we serve for 100 years, overcoming many difficult challenges in that time. Through World War II, the Great Depression, hurricanes, snowstorms and more generations of PPL employees have answered the call with great determination and creativity. I have no doubt we will continue to do the same once again in the face of this new and unprecedented challenge.

With that, operator, let's open the call for questions, please.

(Operator Instructions) And our first question comes from Michael Lapides of Goldman Sachs.

Congrats both to [Bill and Vince]. One easy question for you. How does -- what's happening with demand impact your thoughts on rate case timing in the U.S. and also the -- kind of the trade-off of filing given a little bit lag and a little bit weaker demand versus the counterbalancing issue of -- with interest rates this low, the impact on authorized ROEs and just the regulatory politics of asking for rate increases, just given what's going on in the world?

Sure. Good question, Michael. And thanks for the comments early on there. Vince, do you want to handle that one? But I think you've set up the question well, Michael, in terms of some of those trade-offs. But Vince, you can probably comment.

Sure. And thanks, Michael. I appreciate the congrats. So when we think about the U.S., right, so Kentucky given the continued high level of investment that we're deploying, not only in '20, but also '21, we would expect a need to file a rate case in Kentucky within the next year or so. To your point, given just the current backdrop with COVID, we are uncertain as to the timing of when we would file that next rate case. Our normal cadence that we've been on in Kentucky was basically every other year, that would have suggested filing something at the end of this year with rates going into effect mid-next year, but we are currently assessing that timing given COVID, just backdrop there. For Pennsylvania, we don't have a rate case in the business plan through our guidance period through, at least, 2021. I don't think COVID, in and of itself, would drive us to alter the timing of any rate case decisions in Pennsylvania. As Joe talked about in his remarks, when we looked at April's results, Pennsylvania was actually flat. So the residential load offset the C&I, the negative impacts on C&I. So again, I think given the tariff structure in PA, I wouldn't say COVID is going to drive us to alter our current plan there in PA.

Got it. And then in the U.K., can you kind of talk to us about -- are there any changes to the time line regarding kind of the RIIO-2 process, both for the T&D transmission in the gas utilities because they're ahead of you in the process? And then for obviously the DISCO.

Sure. Really...

Bill, you want me to take that one?

I'll start and then if you want to supplement then that would be fine. Really, we don't expect, Michael, any impact -- any material impact on the RIIO-ED2 schedule at this point. Our understanding, and we've been in constant contact, mostly because of COVID-19 operational issues, but in constant contact with Ofgem. And they -- in our last conversation with them indicated that as it relates to the gas and transmission proceedings, they are continuing on, and they still expect to issue a decision in the summer. As it relates to the electric distribution, as you know, there is still a lot of work that's scheduled for 2021 and 2022. This year's were -- at least as it relates to the electric distribution segment is still going forward, obviously, virtually versus face to face, but we don't really expect this to have any material impact on the timing. Of course, if the COVID-19 pandemic were to go out in time for a much more extended time frame that could change, but right now, it looks like we're still on track. Vince, I don't know if you have anything else you want to add there.

Maybe just a couple of points. So to your point, Ofgem has indicated that they will issue the draft determinations for gas distribution and transmission at the end of July. So they are working hard to keep that timing. Also, in that Q2, Q3 time frame of this year, Ofgem was scheduled to get the ED2 sector methodology consultation out with the final methodology decision in Q4 of this year. That would feed our initial business plan submission in Q2 of next year. We are continuing to work towards that business plan submission for the middle of next year assuming that Ofgem will be on schedule with both the sector methodology consultation and then the final decision. I could see those slipping a little bit, but I think they would probably just contract the time, the overall time leading up to Q2 next year for the business plan submission. So again, we're preparing to make sure that we can make that submission.

And any upside to CapEx and rate base in the U.K., that's more a RIIO-2, not something that would happen on the next couple of years while you're still under RIIO-1?

Yes, that's correct, Michael.

Our next question comes from Julien Dumoulin-Smith of Bank of America.

Bill, Vince, congratulations. It's been a pleasure. And Vince, I look forward to continuing to work with you here. Wish you all the best in your new role.

Thanks, Julien.

Thanks, Julien.

Absolutely. So perhaps if I could pick it up a little bit where you guys left it off on the last question here. And this might admittedly be a back-headed way to ask about the uplift coming in '22 and '23 out of the U.K. What are you reflecting in your updated expectations for the full year rather than just April in terms of low degradation? And again, I also want to just double check about this. Do you talk about 2/3 of that impact in April being allocated to the U.K.? Out of that full year number, how much of it is coming from the U.K. as well? Just to think about like what that uplift eventually is for '22, '23, if that's my goal here.

Yes, sure. So fortunately, we are going to recover all the volume impacts as we see it from 2020 COVID-19. Volumes will be recoverable plus inflation in '22 and '23, as you noted. So even if we ultimately would have to alter the 2020 forecast due to lower sales in the U.K., economically, we'd be no worse off for our investors. So very fortunate to have that mechanism, and it is 2/3 of the impact, so it is notable in terms of its impact. Joe, do you want to comment specifically on our expectation regarding a full year impact, what that could be based on the sensitivities we provided?

Sure. So we're not projecting the full year impact at this time. As we have the estimate for April, and as I've mentioned in prepared remarks, we don't have all of the data yet just as the normal lag in getting that information from suppliers. So it will be a little bit longer here till we get the actual results. We are starting to -- or the U.K. government is starting to talk about reopening businesses and C&I customers in the U.K. So we could see that number -- that impact number change as we move through the year. Regardless, we would expect the same level of recoverability for any -- or the same ability to recover any shortfall later in the year. So trying to assess the full year impact at this time is a little difficult given the uncertainty as when -- as to when the U.K. will begin reopening.

Got it. Or maybe let me ask this, Joe, if I can keep going. How do you think about cost mitigation efforts, right? So everything is fluid, I understand that the sales side of the things are fluid as well. To the extent to which that we continue to see some amount of degradation, insert whatever that ultimately is here, how do you think about your cost mitigation efforts in tandem, at least as you see today, through the course of this year?

Yes. Go ahead, Joe. You can follow-on with that one as well.

Sure. So we certainly have levers that we can pull, Julien, as we do in typical years to face the challenges that we may see from weather or other headwinds. And obviously, we had a weather impact, a negative impact for the first quarter, yet we still were confident in our forecast through the first quarter results. So I think if you think of it in terms of our ability to manage in a weather year, I think that's kind of what we were about $0.05 short of our business plan for the first quarter. I think at least we have that level of opportunity as we move through the balance of the year. Ultimately, we'll have to assess the full impact. And again, given the recoverability nature of the U.K. with their decoupling mechanism, it's really just a timing difference as we see it. So from a cash flow or credit or dividend perspective, over the next 2 years, we really don't see an impact. So we'll have to just continue to assess the situation and the impact as we move through the balance of the year and decide which levers and how we want to flex them. But of course, I think we'll have the normal levers that we typically have. And then in addition to that, just given the current situation, we'll have things like travel, training, open positions across the company and things like that, that we'll take a look at as well.

Excellent. If I could just clarify the last response. And this has come up a little bit earlier, but why not just fully elect -- I suppose this is part of the Ofgem construct itself, but have some kind of accounting to fully elect for decoupling here, given what seems sort of like an obvious transfer of value from one period to another, but ultimately, that sounds basically canton on to decoupling. Is there any ability to actually reflect that in the ED2 process? Or is it an accounting election? Or -- just to clarify there.

It's really...

Yes. Go ahead, Joe.

Sorry. It's really just driven by the regulatory nature of the U.K. So it's a revenue model, so we don't have -- we don't get the advantage of regulatory accounting in -- under U.S. GAAP. So it's not an election that we chose, and it's not something that would necessarily change in ED2.

Our next question comes from Stephen Byrd of Morgan Stanley.

Bill, congratulations on your retirement. And Vince, congrats on your new role. Look forward to working with you in your new role.

Thanks very much.

Thank you.

I just wanted to -- a lot of topics have been covered, but just hit on the U.K. pension. In the appendix, you lay out the current funded status. And I guess you have a filing midyear with Ofgem. Would you mind just talking a little bit more about the approach to pension funding and just given where you stand or where you stood at March 31, sort of just at a high level, what your thinking is around that pension funding?

Sure. Joe, do you want to take that one?

Sure. So our thinking around pension funding hasn't really changed as -- with respect to the Triennial Review process and future funding requirements from customers in the U.K. We were -- we had already embarked on that process. We work with the pension trustee first. We're largely through that process with them and then we move to the U.K. pension regulator, and we're in that phase now. We're getting ready to kick off that phase of review with the regulator. We'll wrap that up and get to Ofgem and get approval from Ofgem later this year and get that in the November tariff for 2021. And so again, our thinking there has not really changed with respect to the amount of funding required in the future from customers. As we talked about previously, we expect that to decline by about $0.05 per share when we get to that period, just from the funded status and the lower collection that's required over the next several years.

Got it. Okay. Good. That sounds like really nothing is changed there. And then flipping just -- thinking about Kentucky. This is a broader question, but just given solar economics continue to improve. And I was just curious sort of what you're seeing in terms of are we close to sort of tipping points where solar would become more attractive relative to your coal plants? And just whether or not we're at an inflection point or could be seeing one? Or if, broadly, your thinking is unchanged there as well in terms of just your generation mix and the change over time?

Yes. I think I'll start, and then Vince, you can pick up and add any color you want. Overall, the solar costs, as you know, the curves are coming down. We are not quite at the inflection point at this point. It is getting closer. You see in the state, a couple of things dynamically happening already. One is on the commercial/industrial front, we've gotten a lot more requests for solar options. Fortunately, we've been able to provide those to both small, large customers as well, and they are receiving those very well. The economics, at least in their view, have gotten close enough that they believe based on their own corporate environmental objectives and the economics that it makes sense for them to begin placing solar on their facilities at this time. Relative to the coal fleet, as I mentioned, we're still not at the inflection point. However, we do see that on the -- what I would say, the medium-term horizon might be in the next, say, couple of years to 5 years. We're beginning to think about how do we approach that from a -- not only from an economics standpoint but also from an operational and generation mix standpoint going forward. So Vince, did you want to add anything to that?

Yes, Bill, I think I agree with those comments. In the short term, we're not quite at the inflection point, but we do have 100-megawatt RFP in with the commission currently right now, requesting approval. As part of that, we provided a number of future scenarios around cost curves for both gas and coal as well as renewables. And over the long term, the bulk of those scenarios would suggest that, that solar contract is beneficial from a cost perspective, but it does take a number of years to get there. So depending on the time horizon, Stephen, that you're looking at, it would really dictate whether you view renewables, particularly solar as economic in the state, and that's exactly what we're going through with the commission right now.

Our next question comes from Durgesh Chopra, Evercore ISI.

Bill and Vince, I also want to extend my congratulations to you both. Good luck, Bill. And Vince, look forward to working with you.

Thank you very much.

Just -- yes, sure, absolutely. Joe, don't hate me, but I want to go back to the decoupling in the U.K. just so I understand this perfectly. So confirm or deny, you are going to see a 2020 EPS hit if sort of the demand destruction from COVID continues, right? That's right, right? I mean you'll see a hit in EPS and then you'll recover it in 2021? I'm talking about calendar year '20 versus calendar year '21.

That's correct. And it would actually be recovered in 2 years sense. So it's really in the 2022 and 2023 time frame because there's a 2 year lag.

Got it. Perfect. And then the -- so the -- so you've reaffirmed the guidance, so I'm assuming what is sort of built into that is any EPS hit from COVID in the U.K. will be offset by cost savings and other mitigation efforts.

At this point, we -- it's early in the process. So it's really hard to predict exactly what levers we're going to pull to stay within the current range that we have. So the impact in the U.K. is the reason we didn't necessarily adjust the guidance. So the timing of the reopening is expected to be slower in the U.K. than what we're seeing here in the U.S. and we've got a better line of sight domestically to see how that opening looks like it's going to pan out where we don't have that in the U.K. So as a result of that, we didn't change our current range for earnings. So I guess it remains to be seen which levers exactly we want to pull, and particularly looking at the U.K. being 2/3 of the impact that will be the key thing to watch for us and for investors as the months go by here.

Our next question comes from Steven Fleishman of Wolfe Research.

Congrats, Bill and Vince, best of luck to both of you.

Thank you.

Thanks so much.

So just -- yes, you bet. And the different -- the monthly difference, the $0.02 to $0.03 per load that you saw in April versus the $0.03 to $0.04, overall from COVID, what is the other $0.01 or $0.01 to $0.02, just so I know?

Sure. So Joe, do you want to cover that?

Sure. It's for other items that may be related to COVID, Steve. So we had additional interest expense relative to the original plan from the capital funding issuance that we did earlier that we did in April to shore up liquidity. If there's an extended severe lockdown situation, we could see an increase in bad debt. So it's just to cover some other areas that may be outside of what you see just in load.

Okay. And then just to clarify in terms of the guidance for 2020, you're basically not -- you just don't know yet what the impact is and you need to follow it. You're not saying based on your view of the impact, the range is good. You just don't know. So you're not saying either way. Is that fair?

So yes, pretty much. I'd say we certainly still believe that our 2020 forecast can be achieved, which is why we didn't change it today. Reaffirming, I guess, in my mind, implies a high degree of certainty and forecasting outcomes, which I think is challenging at this time being early on, particularly with the more stringent restrictions that we're seeing in the U.K. and that lack of the line of sight that I mentioned not having that in the U.K. where -- versus where we are domestically, where we at least know what the governors are thinking in Kentucky and Pennsylvania, and we can kind of do a better job, I think, of predicting where things might land as we come out of COVID-19 lockdown in both those states, whereas we don't have that just yet in the U.K. So I think we'll know, obviously, a lot more by the time we get to Q2. Fortunately, as we mentioned, any hit in the U.K., which is expected to be our biggest hit, if we have one, at least relative to 2020 earnings will be recoverable plus inflation in 2022 and 2023. So even if we ultimately have to alter our 2020 forecast due to lower sales in the U.K., economically, we're not going to be any worse off.

Right. And I guess to summarize, everything then given that aspect, your comments about the dividend stability, no matter what reflects any outcome of the pandemic?

That's correct. Yes. At this time, I don't expect any change in our dividend strategy or policy as a result of COVID-19.

Okay. And then the -- just then thinking about kind of credit and just I don't know if you talked to the agencies at all, but given that economically, U.K. protects you so well. If your metrics are a little weaker this year, but then you get a boost that you know is going to happen 2 years from now. Are you -- do they kind of understand that in terms of...?

I believe they do, and we've had some recent conversations with the rating agencies. And all those have gone well. Joe, I don't know if you want to add anything on the revenue side?

Sure. Sure. So we've been in regular dialogue with the rating agencies as they've been assessing the impact of COVID on the utility sector. And of course, we were in touch with them ahead of our -- the PPL Cap Funding debt offering in April. They did not express any specific concerns as it relates to PPL. And of course, we remain on stable outlook across the family of companies at both the agencies. And then I think, Steve, you're exactly right from a credit metric perspective, first of all, we'd be able to expect -- we'd expect to be able to manage the near-term pressures from -- on our credit metrics as a result of COVID. But given the forward view of metrics and cash flows that the agencies have and their assessment of credit over a multiyear period and much of the expected impact that's going to come from the U.K. will be recovered over the period of time that they look at while assessing ratings and credit metrics. So we feel comfortable with that aspect as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Spence for any closing remarks.

Thank you, operator, and thanks to everyone for joining us today, and all the best as you individually and collectively deal with the COVID-19. I wish you and your family's safety and health. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.