01—Abstract
Summary
Summary of the 10-K filed February 19, 2016. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, together with PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company, filed this combined Form 10-K for the fiscal year ended December 31, 2015.
The defining event of the year was the June 1, 2015 spinoff of PPL Energy Supply, which formed Talen Energy; PPL recorded an $879 milliona loss on the spinoff and reported net income of $682 million for 2015, down from $1,737 million in 2014. PPL now describes itself as a fully regulated utility holding company with three segments: U.K. Regulated (WPD), Kentucky Regulated (LKE, LG&E, KU) and Pennsylvania Regulated (PPL Electric).
Earnings from Ongoing Operations rose to $1,489 millionb from $1,349 million in 2014. The U.K. Regulated segment contributed $1,121 million of net income and began the eight-year RIIO-ED1 price control on April 1, 2015, which the filing says will keep earnings relatively flat from 2015 to 2017.
The Kentucky and Pennsylvania segments are expected to drive higher earnings in 2016, supported by base rate increases and rate base growth. Capital expenditure plans total $16.4 billionc for PPL over 2016 through 2020, including $1.9 billion of environmental spending at LKE.
Key risks flagged include the ongoing EPA Clean Power Plan (stayed by the Supreme Court on February 9, 2016), the CCR rule that led to $228 milliond of ARO increases, sterling exposure from the U.K. business, and a $301 million LKE indemnification tied to the former WKE lease, where a counterparty has filed suit. PPL also announced a dividend increase to $1.52 per share annualized on February 4, 2016.
02—Key points
Key Highlights
- Net income attributable to PPL shareowners fell to $682 million in 2015 from $1,737 million in 2014, reflecting the $921 million loss from discontinued operations that includes the $879 million loss on the PPL Energy Supply spinoff.
- Earnings from Ongoing Operations increased to $1,489 million in 2015 from $1,349 million in 2014; the U.K. Regulated segment contributed $968 million of this figure.
- Diluted EPS from continuing operations was $2.37 in 2015 versus $2.16 in 2014, while total diluted EPS was $1.01 versus $2.61.
- PPL's Kentucky Regulated segment received a KPSC-approved rate settlement effective July 1, 2015, with KU base electricity revenue up $125 million and LG&E base gas revenue up $7 million.
- PPL Electric's Pennsylvania distribution base rates rose by $124 million effective January 1, 2016, under a PUC-approved settlement.
- PPL projects 2016 capital expenditures of $3,409 million and total capital expenditures of $16,417 million for 2016 through 2020.
- PPL announced an increase in its quarterly common stock dividend to 38 cents per share on February 4, 2016, equivalent to $1.52 per year.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 19, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $7.67B$7.85B | −2.3% |
| Operating Income | $2.83B$2.87B | −1.3% |
| Interest Expense | $871.00M$843.00M | +3.3% |
| Net Income | $682.00M$1.74B | −60.7% |
| EPS (Basic) | $1.01$2.64 | −61.7% |
| EPS (Diluted) | $1.01$2.61 | −61.3% |
| Shares Outstanding (Basic) | 669.81M653.50M | +2.5% |
| Shares Outstanding (Diluted) | 672.59M665.97M | +1.0% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2015?
The decline is driven by discontinued operations. The spinoff of PPL Energy Supply on June 1, 2015 produced a loss of $879 million, reflecting the difference between PPL's recorded value for the Supply segment and its estimated fair value. Discontinued operations therefore reduced net income by $921 million in total, compared with income of $300 million in 2014.
What is driving expected earnings growth for 2016?
PPL expects higher earnings in 2016 excluding special items, mainly from the Kentucky Regulated and Pennsylvania Regulated segments. The filing cites electric and gas base rate increases effective July 1, 2015 in Kentucky, returns on environmental capital investments, and a distribution base rate increase effective January 1, 2016 in Pennsylvania. U.K. Regulated earnings are projected to be relatively flat in 2016.
What are the main risks flagged for the U.K. business?
The filing highlights foreign currency exposure, since a majority of cash flows and earnings come from the U.K. business, and inflation risk, since WPD's revenues are tied to RPI. It also notes operational performance incentives and penalties under Ofgem, with fines of up to 10% of revenue possible for licence breaches. Starting in 2017, incentive revenues are expected to decline because of more stringent RIIO-ED1 targets.
How much capital does PPL plan to invest, and how will it be funded?
PPL projects total capital expenditures of $16,417 million over 2016 through 2020, including $1,947 million for environmental projects. For 2016 it plans to fund the $3,409 million program with cash on hand, operating cash flows and proceeds from long-term debt, common stock and short-term debt. PPL plans to issue up to approximately $2 billion of long-term debt and no more than $200 million of common stock in 2016.
What environmental and legal matters could affect future results?
LG&E and KU face the EPA's Clean Power Plan, which the Supreme Court stayed on February 9, 2016 pending review, and the CCR rule effective October 19, 2015, which led to $228 million of increased asset retirement obligations. The filing also describes a $301 million exposure from LKE indemnifications tied to the former WKE lease, where a counterparty filed a complaint in February 2016, and several Clean Water Act and Clean Air Act citizen suits.
06—Continue