Executive Summary / Key Takeaways

• PPL Corporation is executing a significant strategic transformation, focusing on its U.S. regulated utility operations in Pennsylvania, Kentucky, and Rhode Island, underpinned by a robust $20 billion capital investment plan through 2028 to enhance grid reliability, integrate cleaner energy, and support substantial load growth.
• The company delivered strong first-quarter 2025 results with ongoing earnings of $0.60 per share, an 11% increase year-over-year, driven by capital investments, favorable weather-related sales volumes, and operational efficiencies.
• PPL is actively leveraging technological advancements like dynamic line rating, predictive analytics, AMI, and AI to improve grid performance, enhance customer experience, and drive operational efficiencies, contributing to its competitive positioning and reliability metrics.
• Significant load growth opportunities, particularly from data centers in Pennsylvania and Kentucky, are expected to drive incremental capital investment and benefit existing customers by reducing transmission costs.
• Management is confident in achieving the top half of its projected 6% to 8% annual earnings per share growth target through at least 2028, supported by a projected 9.8% average annual rate base growth, while targeting dividend growth at the lower end of the same range to fund capital needs and maintain a strong balance sheet.

Powering Forward: PPL's Strategic Evolution and Investment Thesis

PPL Corporation stands as a major U.S. energy company, delivering electricity and natural gas to over 3.5 million customers across Pennsylvania, Kentucky, Virginia, and Rhode Island. Its business model is centered on regulated utility operations, providing essential services within defined geographic areas under regulatory oversight. This structure generally provides stable, predictable revenue streams based on approved rates and capital investments. The company's history is marked by strategic shifts, including the divestiture of its U.K. utility business and the acquisition of Rhode Island Energy, reshaping it into a focused domestic utility operator. This strategic repositioning, completed with the integration of Rhode Island Energy in 2024, has set the stage for PPL's current "Utility of the Future" strategy.

This strategy is a direct response to evolving industry dynamics, including the increasing frequency and severity of extreme weather events, the imperative for decarbonization, and burgeoning electricity demand driven by electrification and new technologies like artificial intelligence and data centers. PPL aims to address these challenges by building smarter, more resilient, and cleaner energy systems while maintaining affordability for its customers.

In the competitive landscape of the U.S. utility sector, PPL operates alongside larger, more diversified players like Duke Energy (DUK) and Public Service Enterprise Group (PEG), as well as independent power producers like NRG Energy (NRG) and global energy companies like AES Corporation (AES). While some competitors boast larger scale or broader renewable portfolios, PPL's competitive positioning is strengthened by its established regulatory compacts in its service territories, providing a degree of insulation from direct market competition on regulated assets. PPL's localized expertise and long-standing customer relationships also provide a competitive edge within its specific service areas. However, compared to some peers, PPL's historical revenue growth has been more modest (0% in Q4 2024 vs. Duke's 4.67% and PEG's 16.74%), and while its net margin (11.49% TTM) is competitive with some peers, its efficiency metrics like Return on Invested Capital (ROIC) and Return on Equity (ROE) are generally in line with or slightly below the sector average based on recent TTM data. The company's debt-to-equity ratio (1.21 TTM) is also competitive, reflecting a solid balance sheet compared to some peers with higher leverage.

A key differentiator for PPL lies in its strategic adoption and development of advanced technologies. In Pennsylvania, the company has invested significantly in its transmission network, leveraging advanced dynamic line rating technology. This technology allows for real-time assessment of transmission line capacity based on current conditions, enabling more efficient use of existing infrastructure and contributing to top decile reliability performance nationwide. PPL Electric Utilities also recently won an industry award for its innovative use of predictive failure technology in its distribution system. This technology helps identify potential equipment issues before they cause outages, improving reliability and safety. The company is also implementing Advanced Metering Functionality (AMF) in Rhode Island, providing customers with near real-time data to better manage energy usage. Across the enterprise, PPL is exploring the application of artificial intelligence (AI) to optimize grid operations, enhance asset planning and maintenance, improve the customer and employee experience through digital solutions, and strengthen cybersecurity. Management sees AI as potentially transformational, driving further efficiencies and improved results. While specific quantifiable benefits for all these technologies are not detailed, the strategic intent is clear: to enhance reliability, improve efficiency, and provide a better customer experience, thereby strengthening PPL's operational performance and competitive standing against peers who may lag in specific technology deployments. The company also engages in R&D, including exploring coal-to-nuclear feasibility and a carbon capture project in Kentucky, signaling a commitment to longer-term low-carbon technology solutions.

Performance Reflecting Strategic Momentum

PPL's recent financial performance demonstrates solid execution against its strategic priorities. For the first quarter of 2025, the company reported GAAP earnings of $0.56 per share. Adjusting for special items, ongoing earnings were $0.60 per share, an increase of $0.06 per share or 11% compared to $0.54 per share in the first quarter of 2024. This growth was primarily fueled by increased returns on capital investments across its regulated segments and higher sales volumes, particularly in Kentucky and Pennsylvania, benefiting from more favorable weather conditions compared to the prior year.

Consolidated operating revenues saw a notable increase of $200 million, rising from $2,304 million in Q1 2024 to $2,504 million in Q1 2025. This growth was distributed across all segments: Kentucky Regulated revenues increased by $75 million, Pennsylvania Regulated by $49 million, and Rhode Island Regulated by $77 million. Key drivers included higher distribution volumes due to weather and usage, increased Provider of Last Resort (PLR) volumes and transmission formula rate returns in Pennsylvania, and higher fuel/energy purchase recoveries and off-system sales in Kentucky. Rhode Island's revenue increase was significantly impacted by the conforming presentation of net metering charges and higher transmission/gas maintenance expense recoveries.

Operating expenses also increased, with fuel costs rising by $25 million and energy purchases by $39 million, largely reflecting higher volumes tied to increased demand and the net metering presentation change in Rhode Island. However, Other Operation and Maintenance expenses decreased by $28 million, benefiting from lower bad debt expenses in Pennsylvania and reduced transition costs related to the Rhode Island Energy acquisition. Taxes, Other Than Income increased by $25 million, primarily due to state gross earnings taxes, including the impact of a tax holiday credit in Rhode Island in the prior year. Interest expense rose by $11 million, reflecting increased borrowings to fund capital investments. Overall, operating income saw a strong increase of $133 million, contributing significantly to the $107 million increase in net income year-over-year.

From a liquidity perspective, PPL's cash provided by operating activities increased substantially in Q1 2025, rising by $231 million compared to Q1 2024. This improvement was driven by higher net income and favorable changes in working capital, including increases in accounts payable and taxes payable and decreases in regulatory assets and unbilled revenues. Net cash used in investing activities increased by $192 million, primarily due to higher capital expenditures across all segments, reflecting the acceleration of infrastructure investments. Net cash provided by financing activities saw a modest increase of $23 million, influenced by higher debt issuances and short-term borrowings, partially offset by increased dividend payments. PPL maintains access to significant credit facilities ($3.55 billion total committed capacity at March 31, 2025) and commercial paper programs ($3.15 billion total capacity), providing financial flexibility. The company's balance sheet remains strong, supporting its financing needs.

Outlook: Capitalizing on Opportunity

PPL's outlook is anchored by its ambitious capital investment plan and confidence in achieving predictable, regulated growth. The company projects $20 billion in infrastructure investments from 2025 through 2028, a significant increase from prior plans. This investment is expected to drive average annual rate base growth of 9.8% over the period. Management is confident this will translate into achieving the top half of its projected 6% to 8% annual earnings per share growth target through at least 2028, based off the 2025 forecast midpoint of $1.81 per share. The 2025 ongoing earnings forecast is reaffirmed at $1.75 to $1.87 per share.

A major driver of this increased capital plan and growth outlook is the significant load growth potential, particularly from data centers. In Pennsylvania, PPL is seeing nearly 11 gigawatts of data center projects in advanced planning stages, representing potential capital investment needs of $700 million to $850 million, with $400 million already included in the current plan. The company has secured fully executed contracts with minimum load commitments for some of these projects, mitigating risk to existing customers. In Kentucky, active data center requests total nearly 6 gigawatts, with 400 megawatts in advanced stages. Management highlights that connecting these large loads is a "win-win," as data centers will share transmission costs, helping to reduce bills for other customers (estimated ~$3/month savings per 1 GW connected in PA).

The capital plan also includes substantial investments in Kentucky generation to meet growing demand and replace aging coal units. Proposals filed with the KPSC include two new 645 MW natural gas combined cycle units, a 400 MW battery energy storage system, and environmental upgrades, with projected capital expenditures of $3.70 billion over 2025-2031. Construction is already underway on previously approved generation projects, including a 640 MW combined cycle unit expected online in 2027.

Regulatory proceedings are key to enabling this investment and growth. PPL Electric recently secured approval to increase its DSIC cap to 7.5%, facilitating more timely recovery of distribution investments. In Rhode Island, recent ISR plan approvals authorize nearly $400 million in infrastructure investments and operating costs. In Kentucky, LGE and KU have filed notice of intent for a base rate case expected to be filed on or after May 30, 2025, seeking rates effective January 1, 2026, to support ongoing investments and load growth. A decision on the Kentucky generation CPCN filing is anticipated in Q4 2025. PPL Electric is also evaluating the timing of its next base rate case, having not had one since 2016, and Rhode Island Energy expects to file a base rate case in Q4 2025.

To finance this significant capital program, PPL expects to need approximately $2.5 billion of equity through 2028. The company established a $2 billion ATM program in February 2025, including a forward sales component, and has already entered into forward contracts for ~4.8 million shares as of April 2025. PPL aims to maintain strong credit metrics, targeting a 16% to 18% FFO-to-debt ratio and a holding company to total debt ratio below 25%. While targeting 6% to 8% annual dividend growth, the company expects it to remain at the lower end of this range through the plan period, prioritizing capital investment and balance sheet strength.

Risks and Considerations

While PPL's outlook is positive, investors should consider potential risks. Regulatory outcomes remain a key uncertainty; unfavorable decisions in rate cases, CPCN proceedings, or other regulatory matters could impact the timing and recovery of capital investments and affect earned returns. Environmental regulations pose significant compliance costs and potential liabilities, particularly concerning coal ash (CCRs) and wastewater (ELGs). Although costs are generally expected to be recoverable through rates, the timing and amount of recovery are subject to regulatory approval. The EPA's announced plan to reconsider several environmental rules in March 2025 introduces uncertainty regarding future requirements and associated costs.

Execution risk is inherent in a $20 billion capital program; delays, cost overruns, or challenges in obtaining necessary permits could impact project timelines and financial performance. Supply chain constraints, particularly for generation equipment like turbines, could affect the in-service dates of new power plants. Inflation and rising interest rates could increase operating costs and the cost of financing, potentially putting pressure on customer affordability and requiring timely rate adjustments. Volumetric risk from weather or economic conditions can impact sales volumes, although regulatory mechanisms like revenue decoupling in Rhode Island help mitigate this. While PPL's balance sheet is strong, the need to issue $2.5 billion in equity could result in dilution depending on market conditions.

Competition, while limited in regulated service areas, exists in attracting large industrial loads and data centers, where other utilities and market participants are also vying for business. PPL's ability to maintain its competitive edge in speed of connection and service quality will be crucial. Legal proceedings and environmental remediation obligations, while not currently expected to be significant, could result in material liabilities depending on future developments.

Conclusion

PPL Corporation is strategically positioned as a U.S.-focused regulated utility poised for significant growth, driven by a substantial capital investment program aimed at modernizing the grid, integrating cleaner energy, and meeting robust load growth, particularly from the burgeoning data center sector. The company's first-quarter 2025 results demonstrate solid operational execution and financial performance, reinforcing confidence in its ability to deliver on its near-term forecast and long-term growth targets.

The investment thesis is underpinned by a clear strategy, a large and visible capital plan expected to drive strong rate base growth, a commitment to operational efficiency to manage customer affordability, and the strategic adoption of technology to enhance reliability and service. While regulatory risks, environmental compliance costs, and execution challenges associated with a large capital program exist, management appears proactive in addressing these through ongoing regulatory engagement, strategic financing, and operational focus. The opportunity presented by data center growth, coupled with the company's efforts to facilitate these connections while benefiting existing customers, adds a compelling dimension to the growth story. Investors should monitor the progress of key regulatory proceedings, the execution of the capital plan, and the realization of O&M efficiencies as key indicators of PPL's ability to achieve its projected growth trajectory and navigate the evolving energy landscape.