Good morning, and welcome to the PPL Corporation First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask question. Please note, this event is being recorded. I would now like to turn the conference over to Joe Bergstein, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining the PPL conference call on first quarter results as well as our general business outlook. We're providing slides of this presentation on our website at www.pplweb.com. Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the forward-looking statements. A discussion of factors that could cause actual results to differ is contained in the appendix to this presentation and in the company's SEC filings. We will refer to earnings from ongoing operations or ongoing earnings, a non-GAAP measure for this call. For reconciliations to the GAAP measure, you should refer to the press release, which has been posted on our website and furnished to the SEC. At this time, I'd like to turn the call over to Bill Spence, PPL Chairman, President and CEO.

Thank you, Joe, and good morning, everyone. We're pleased that you've joined us for our first quarter earnings call. With me on the call today are Vince Sorgi, PPL's Chief Financial Officer; Greg Dudkin and Paul Thompson, and the heads of our U.S. utility businesses; and Phil Swift, WPD's Operations Director, who is filling in for Robert Symons today. Moving to slide 3, our agenda for this morning begins with highlights of our 2018 first quarter results, and a brief review of regulatory developments in the UK. Vince will then review our first quarter 2018 segment earnings results and provide a more detailed financial overview. As always, we'll leave ample time to answer your questions. Turning to slide 4, today, we announced strong first quarter reported earnings of $0.65 per share, compared with $0.59 per share a year ago. Adjusting for special items, first quarter earnings from ongoing operations were $0.74 per share, up almost 20% from $0.62 per share a year ago. This increase was driven by higher earnings in our U.S. segments, partially offset by expected lower earnings in the U.K. segment. We performed very well against our business plans in Q1, putting PPL solidly on track to deliver on our 2018 earnings forecast of $2.20 per share to $2.40 per share. Today, we are also affirming our long-term projection of 5% to 6% compound annual earnings growth per share from 2018 through 2020 off of our 2018 forecast midpoint. In addition, we're updating our expected equity needs. On our year-end call, we communicated an equity need of between $2 billion and $3 billion from 2018 to 2020. That was approximately $1 billion to $2 billion higher than our prior plans as a result of tax reform. We are now targeting to be near the low end of…

Thank you, Bill, and good morning, everyone. As Bill mentioned, we delivered strong first quarter results compared to both last year, and compared to budget, that positions us well for the remainder of the year. We are not updating our 2018 annual earnings guidance at this point, given that we are only through Q1, but we are very confident that we can deliver the midpoint of our 2018 ongoing earnings guidance and are tracking above that midpoint today. Let's move to slide 8 for an overview of first quarter segment results. Our first quarter earnings from ongoing operations increased by $0.12 over the prior year, driven by strong results at our domestic utilities. Our Pennsylvania Regulated segment improved by $0.09 and Kentucky Regulated improved by $0.05 compared to 2017. Corporate and Other was also higher by $0.06, primarily due to the timing impact of recording annual estimated taxes in Q1 of 2017. These improved domestic earnings were partially offset by expected lower earnings at the U.K. Regulated segment of $0.08. Before we discuss segment details, I'll review the impact of weather on our Q1 results. Overall, we saw about a $0.02 improvement compared to the prior year due to weather with domestic weather driving a $0.04 improvement from Q1 2017, partially offset by $0.02 of unfavorable weather in the UK. The U.S. returned to more normal weather in Q1 2018 compared to last year's mild winter temperatures. As a result, our Kentucky operations experienced a 30% increase in heating degree days, while we saw more than a 10% increase in Pennsylvania quarter-over-quarter. Weather was not a significant factor compared to our budget for the first quarter 2018. Let's move to a more detailed review of the segment earnings drivers starting with the Pennsylvania results on slide 9. Our Pennsylvania Regulated…

Thank you, Vince. In closing, we had an outstanding quarter as we continued to execute our plans and deliver on our commitments. Our strong operational and financial performance is testament to the fact that our investments are providing positive results for our customers and our shareowners. We're pleased to have the potential of a mid-period review behind us. We believe Ofgem's decision demonstrated the regulatory discipline that's made the UK a premium regulatory jurisdiction. We'll continue to engage with Ofgem regarding RIIO-2 to achieve the best possible outcome for customers and shareowners. And finally, we remain confident in our ability to deliver competitive projected earnings growth and a secure and growing dividend as we invest responsibly in a sustainable energy future. With that operator, let's open the call up for questions, please.

Thank you, Mr. Spence. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question will be from Ali Agha of SunTrust. Please go ahead.

Thank you. Good morning.

Good morning. Good morning, Ali.

Good morning. Bill or Vince, can you update us when you talk about the equity needs over the three years now being $2 billion, how should we think about how they got distributed over the three years? Previously you were talking about $1 billion this year and then the variance was really in the outer years? Is that still the case and how much equity have you issued this year versus your target?

Sure. We are still targeting approximately $1 billion in 2018. To date, we've issued about $160 million primarily through our DRIP and ATM program.

Okay. So the outer years, we should not think about as being $500 million per year, the lower end of your previous ranges?

That would be correct, yes.

Okay. And with regards to equity for the rest of the year, Bill, what is the plan? Are you continuing to utilize ATMs? Some of your peer utilities have gone out and done a block trade, just to get the overhang behind them. Just curious how you're thinking about the various ways to complete the $1 billion this year?

Sure. Yeah, we're continuing to utilize the ATM program and there is more than sufficient liquidity and it is a very cost-effective means to do so. Having said that, we'll also continue to look at other means to effectively and efficiently issue the equity. So that's where we are on that.

Okay. And then, my other question was on the year-end call, you had mentioned that you had built your 5% to 6% growth rate assuming that you were at the high end of the $2 billion to $3 billion plan, and if you ended up on the low end, you could actually exceed the 5% to 6% growth rate. Today, you were telling us you're at the low end of the equity plan, but you'd be (19:15) within the 5% to 6% at the higher end. So what changed between the commentary from year-end to today?

Sure. Well, just fine – and maybe just to make sure I answer the question. You're really asking what changed in terms of the reduction to the equity need or that there was a different...

Well, the growth rate, because if I recall correctly, I think the message was, if we end up at the low end of the equity need, we would exceed the 5% to 6% EPS growth rate. And today, you're saying that you would be within the 5% to 6%. So what changed in terms of reducing your growth rate expectations?

No, we would be at the high-end of the 5% to 6%. If you looked at, and this may have been the question on the Q4 call, was if you looked at a factoring in the forwards then that would really take us above the 6%. So if you assume today all other things being equal that we have $1 billion less of equity need and the forwards continue to hold where they are, we'd actually be in the 6.5% to 7% EPS growth through 2020.

I see. Okay. So you're basing it on your $1.40 exchange rate budget, but the actual forwards would take it higher. That's the way to think about it?

Correct. That is exactly right.

I got it. Thank you.

You're welcome.

The next question will come from Greg Gordon of Evercore ISI. Please go ahead.

Hey, guys. Good morning. It's actually Durgesh Chopra on for Greg. How are you?

Okay. Good morning.

Good. So just in terms of – I just want to ask the hedges. So your plan assumes you're basically settling those hedges in the respective years. So now, the fact that you have 50% hedged versus 35% in the last call, so from a EPS growth perspective, does that mean you're in a better position now? Is that the right way to think about it?

Yeah, correct. Yes. And if you look at the average hedge rate of $1.49, clearly that's above the $1.40 that was in the original plan. So that incremental hedging activity helps solidify, if you will, the growth rate that we're projecting.

I see. And still, I think, when we're modeling this we should still be modeling as if you're going to sell settle those hedges in those respective years?

That's correct. We would settle those in the respective years.

Okay. Perfect. Thank you. And then, just one follow-up for Vince. The income tax – I know, Vince, you did go over this in detail, but just to rehash that, in Kentucky that adjustment was basically the $0.03. Was the implication there that that $0.03 incremental EPS from lower income tax has an incremental lower revenue in the gross margin of $0.03? Was that what you were trying to imply there?

Yeah. So going from 35% to 21% reduced our income tax expense by $0.03 with a corresponding reduction in revenue and gross margin by $0.03. So no impact on net EPS, but those two line items were each impacted by $0.03.

Got it. So the $0.03 number just on that slide – and bear with me as I get to that slide. The $0.03 number on Kentucky, that is net of the lower revenues?

That's correct. The explanations I provided would be $0.06 in gross margins, excluding the lower revenues from income tax.

Perfectly clear. Thank you. Great quarter, guys.

Thank you very much.

The next question will come from Jonathan Arnold of Deutsche Bank. Please go ahead.

Yeah. Yeah. Good morning, guys.

Good morning, Jonathan.

Yeah. Bill, so just to revisit the equity question for a second, obviously, the $1 billion is a 2018 number, and then you've got 2019 and 2020. Can you see a scenario where you consider trying to address everything preemptively or should we really think of 2018 as a discrete period, and then 2019 and 2020 kind of thereafter?

I would say, look, we'll continue to look at means to efficiently issue the equity, and clearly the ATM is the means by which we're doing it today. So we'll continue to assess, but it is very cost effective to do it this way and there seems to be sufficient liquidity to do it without affecting the stock price.

Okay. And if I could just refresh, you've said that you don't see a need beyond 2020 currently. Is that correct?

Beyond DRIP and management comp, yeah.

Yes, that's correct.

Less than $100 million.

Yeah.

Yeah, okay. And then, just sort of to the UK, and obviously, you've had a positive data point here on the MPR. But as you think about ways to perhaps address the disconnect, perhaps, in the stock versus what I imagine is your view of value and where it's reflected today in your stock, would you consider something like a sale of a stake to a third-party that might accomplish a few objectives, like providing a value mark and maybe raising some equity in another means, and then rebalancing the business a little bit. Is there any reason why you couldn't do that?

Well, I don't know that there's a fundamental reason that we couldn't do it. I think we believe there are benefits to keeping the business mix as it currently stands as it does diversify our political risk, the macroeconomic risk or sort of regulatory risk. Divesting the UK, either in part or whole, continues to be value destructive due to significant tax leakage and some other issues, and we've got a fairly long history of this UK business being under a premier regulatory jurisdiction and I think Ofgem's recent decision not to conduct an MPR further supports that view. So our belief is the UK concerns will dissipate longer term and we see value in waiting that out at the moment.

Yeah. I wasn't suggesting a full separation, Bill. More the idea that a small stake might potentially get someone else to support your view of value. That was more the idea.

Yeah.

National pride (26:23).

I think it's a matter of timing and just knowing that there's been an unusual amount of regulatory and political uncertainty over the last 6 to 12 months, in particular. I think to our plan is to continue to wait it out.

Okay. Thanks.

And, Jonathan, it's Vince. I'm sure you've seen some markers on some sales of gas assets in the UK and...

Well, that was what prompted the question, so, yeah.

Yeah.

Yeah. So we think there are some market indications there for value and, again, we think the electric business has better growth than the gas business, and so that would support a higher multiple that we're seeing in our stock and where we historically traded.

Okay. And then, Bill, you mentioned in your prepared remarks that you felt that the sort of the focus on nationalization was waning.

Yeah.

Is there anything specific you can point to that would help us feel more comfortable about that?

Well, I think it's the Labour Party's recent missteps, I'll say, have taken that their currency, if you will, down quite a bit from what I can see and read and hear. And that's certainly a big factor, but I'd say on the flip side on the Conservative Party side, I think Theresa May, her currency has gained some ground, and as Brexit I think moves forward in a positive direction, our view is she'll continue to probably gain ground. So I think those are kind of the macro factors that I see.

So it was more a comment on the sort of relative political fortunes of the two parties then sort of Labour somehow changing its view on this?

Yeah, well, although I would say and this held true previously that there were many in the Labour Party that did not agree that renationalization was feasible, even feasible let alone something that was desirable. So even if the leader of the Labour Party was to push that agenda, I'm not quite sure how far we get anyway.

Okay. Great. I was just – thank you for giving that extra color. Appreciate it.

Yeah. Absolutely.

The next question will be from Steve Fleischman of Wolfe Research. Please go ahead.

Yeah. Hi. Good morning.

Good morning.

Sorry to repeat some of the same questions, but just how much do you have available still on your shelf to do ATM?

I'm looking to Vince to answer that question.

We did a $3 billion.

Okay, so plenty (29:34)...

Yeah. Roughly $3 billion.

Yeah.

And then, can you just remind me outside of ATM, how much equity can you do internally through DRIP and any other internal programs per year?

About $100 million a year.

Okay. And then, could you maybe give a little more color on the additional information that you kind of had on your plan to be at the low end of the $2 billion to $3 billion and tax reform and the like? Was that something more discussion with the rating agencies or just tax planning or other things?

Yeah, I'll let Vince provide a couple more details, but following our Q4 call, we had a constructive dialogue with Moody's on our updated business plan, post-tax reform and the related equity needs and we've continued to refine that plan and are more confident that we can target the lower end of the previously announced equity range. And Vince can give you a couple of details as to why and kind of what's changed since Q4 call.

Yes, Steve. I would say that tax reform, it required significant amount of analysis and calculations in a very short period of time at year end, while we were closing the box trying to redo the business plan in preparation for the year end call. And to be honest, given that is why we issued a range of equity between $2 billion to $3 billion, given how much we tried to get done in a relatively short period of time. Subsequent to the call, we just went back and continued to refine the analysis with a strong focus on FFO, because as we've talked in the past, FFO carries a lot more weight in the FFO to debt metric than reducing debt does. It's about an eight times multiple on the leverage that you get there. And, so as kind of iterated the plan, we found we were a bit too conservative in the way we modeled some depreciation aspects and how that kind of flow through the cash flows and the earnings. That was to be honest with you, the bulk of it. And then there was just a little bit in a bunch of other line items that we found. But reality is it was specifically related to the impacts of tax reform that I think we over-modeled in that initial go at it.

Okay. Better safe than sorry, I guess. And if I recall, you would never put on negative outlook. So...

We were not. That is correct.

So I guess, again – which I assume this updated plan has been cleared with the agencies in that light.

We've had initial dialogue. We'll be going back with all the final numbers. We shared some preliminary information with them, so that that will happen in a couple of months probably.

Okay. And then my last question on equity is my recollection is that you – part of that desired equity was just a front-end loading of equity that was already planned like in years four and five of your five-year plan. Is that still the case, so that when this is all done...

We're pretty much done. So, yeah. So once we're into 2020 or past 2020, through 2020, we'll essentially be done. We'll just have the management comp in DRIP and that's it.

Okay. Good. Thank you.

Okay. Thank you, Steve.

The next question will be from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Please go ahead.

Hey, good morning, everyone.

Good morning, Julien.

Hey. So perhaps to pick up where Steve left off. If I can ask you to elaborate a little bit on where this positions your FFO to debt. Where within the targets does this put you given the reduced equity? And then secondly, can you just quantify a little bit more, how much of this was a shift in cash flows versus just kind of exactly squaring your debt balances? Maybe a little bit of rehash in last one.

Go ahead, Vince. I'll let you answer that.

Sure. So to answer your second question first, it was all pretty much related to cash flows in terms of – it's about $40 million a year of additional FFO to achieve the reduction in $1 billion of equity over a three-year period. And so, we were able to get that with fine tuning the modeling and dialing back some of those assumptions specifically related to tax reform. And then, Julien, what was the first part of your question again? Sorry.

Where does this put you on an FFO to debt basis through the forecasted period.

Yeah. Yeah, so very similar metrics to what we were targeting on the year-end call, mid-to-upper 12s for this year and then quickly getting to 13% by 2020. We're a little closer to 13% in 2019 than we were in the original plan, but basically getting to 13% in the 2019-2020 timeframe.

Got it. Excellent. And then if I can follow-up a little bit. When you talk about cash flows here on slide, I think it's 20 of the deck, can you contrast that a little bit with how you would see that kind of similar metrics for the international side of the house? You can kind of talk about that on the fly, maybe talk about net cash flows in and out, as you think about the business.

Yeah, I'm not I'm not prepared to do that, Julien. I apologize.

No worries. And then, maybe just a kind of follow-up. I think this was Jonathan's question. When you think about some of the media reports out there regarding M&A in the sector domestically, right, in the U.S., how do you think about your own positioning? I mean, clearly you have a view of your own currency, but at the same time I suppose if you look at your CapEx forecast, it's somewhat backwardated. How do you think about sort of finding and establishing the next round of CapEx opportunities? You all have been fairly successful organically, historically, but at the same time I suppose I've got to ask.

Yeah, so you're correct. Our focus, clearly, is on delivering the long-term value through organic growth with our high performing utilities and, at the same time, now we're focused on strengthening the balance sheet. As I've said before, we don't need to do a deal to be successful and we believe there's going to be ample opportunities to continue our growth rate beyond 2020. We mentioned, or I mentioned, in some of my prepared remarks about the UK and how we believe going into the RIIO-ED2 process, we think there's going to be some increased capital requirements and opportunities to meet some of the electrification goals that the government has. Relative to the states, we would continue to look at large projects and smaller ones. On the transmission side, we've been very successful at, what I would consider, kind of mid-size transmission projects. We still have the Compass project out there that we continue to work on. So something like that could be very meaningful from an EPS and growth perspective going forward. So those are the kind of opportunities we see post 2020, let's say.

So not necessarily actively looking in the U.S.?

From a M&A perspective or just from a...

Yeah. Yeah, correct.

No. Absolutely. Yeah, we're focused on growing organically, not on M&A.

Great. Thank you.

Sure.

The next question will be from Paul Patterson of Glenrock Associates. Please go ahead.

Good morning.

Good morning, Paul.

You made some comments about the negative risk-free rate of return, and I just wondered if you could bear with me and just sort of elaborate a little bit more about what you're seeing and what you're expecting, again.

Sure. So when Ofgem initially came out with their kind of initial range of – if they set the cost of equity today, it would be in a range and that range was based on the current market conditions, which are negative in terms of the risk-free rate, negative by about 100 basis points. If you look, historically, at the 10- and 20-year averages, it's not been negative except for, really, the last 12 to 18 months. So this is an anomaly that we're seeing and, clearly, Ofgem is not going to set that rate for us today. So that rate for us will not be set until roughly 2021. So by that point, we would think that Brexit would be well behind us, that the Bank of England would be not fundamentally doing what they've been doing to kind of keep interest rates low, very low, and that the situation would improve. So we think this is kind of a very temporary period of time. And it was really just a comment that the rates are not going to be set today while there's a risk-free rate that's negative. And we don't believe it's going to be negative by the time we get to that 2021 (39:40) period.

Just for these sorts of Central Bank sort of activity there, though, I mean, is it so formulaic that like if there's major interference, I guess, a better way to sort of put it, in the market, would that be taken into account at all? Or is it just so formulaic that they just simply say, well, this is a risk-free rate of return and this is how our formula comes out and that's sort of it? Or do you think that this...

Yeah.

Sorry. Go ahead.

Great questions. So I think there would be either one of two things: either it would be directly taken into account in maybe adjusting the ROE; or, as we've seen in the past, to ensure that the companies are financeable, which is part of the Ofgem requirement, as well as provide opportunities for fair returns to shareowners, Ofgem has in the past adjusted other things, whether it's the fast pot, slow pot or how quickly recover depreciation expense, et cetera. They've adjusted those to provide the opportunity – or on the incentive front to provide the opportunity that shareowners would be able to earn in the past, the double-digit ROE.

Okay. Great.

Sure.

And then, just finally, Jonathan brought up the nationalization thing. It's been some time, but as I recall there was a lot of sort of inefficiencies that were driven out. This is a long time ago. So bear with me. But when they did privatize initially and I'm just sort of wondering what is the value proposition that the people in Labour see, what's driving the nationalization talk that doesn't seem intuitive to me at the moment?

It's not intuitive and in fact, it's not consistent with the actual facts. Since, privatization, customer reliability and interruptions has improved by over 50%. And at the same time, the real cost has gone down of delivering power to consumers and customer satisfaction in the electric distribution segment is in an all-time record high. I think that's not the case for other networks and not to pick on the water companies, but I think the water companies have had a more difficult time of it, with customer satisfaction and other things. So I think that and the Mail service, which was privatized, are two of, I guess, the poster childs, if you want to call that, of what Jeremy Corbyn was focused on at the time of his call for some renationalization. So the distribution companies on the electric side were clearly not a target and the facts would not justify going back to nationalization.

Okay, great. Thanks so much.

You're welcome.

The next question will come from Paul Ridzon of KeyBanc. Please go ahead.

Just to rehash on the lower equity. You didn't pull any CapEx to get there, was that correct?

That is correct. Yeah, we did not. For us, that's really not a great option because we have the ability to recover our investments in a real-time or near real-time basis, so that for us didn't make sense. Yeah.

And when you talked about Kentucky, you talked about offsetting revenue to account for the taxes. Did you also do that in Pennsylvania?

Should I take that?

Yeah, go ahead, Vince. Yeah.

Sure. So Pennsylvania is slightly different. We are currently in the process of dialoguing with the PA PUC on exactly how the industry and specific companies will handle the effects of tax reform. On March 15, the Commission actually report that they had sent out a Secretarial Letter requesting information from all of the utilities. We responded to that on March 15. They set rates to be temporary and then for basically six months with the option to extend it another six months and they are now really assessing the impacts. They also asked if utilities had either capital or other projects that we could redeploy the revenues that we were collecting from the higher tax rate, and so we've submitted ideas around that. So at this point, we're not sure if or when we would have to give the revenue back on the distribution side. And then on transmission, we file our formula rate effective June 1, and that's when we will make the reduction from 35% to 21% in that filing.

And then just back to Kentucky, I mean, you had a gross margin improvement of $0.06 kind of. Can you just run through those drivers again?

Sure.

So, yeah, the two main points are the higher rates from the rate case. That one was effective in July of last year and that was about $0.03 and then weather was about $0.03.

Correct.

And how much was weather in Pennsylvania?

About $0.01. Total weather was $0.04.

Thank you very much.

Okay.

You're welcome.

Thank you.

The next question will come from Michael Lapides of Goldman Sachs. Please go ahead. Michael Lapides - Goldman Sachs & Co. LLC: Hey, guys. Just curious, somebody asked the question about capital spend and how it's kind of backward, meaning tails off in the back end of the years. Just curious when you think about your balance sheet and your financing plan, is there something that might say, hey, let's let it roll down for a few years like maybe that's not such a bad thing, and then we'll generate a lot more free cash flow, use that free cash. I would assume you'd generate a lot more free cash flow if CapEx comes down and use that cash to shore up the balance sheet.

Yeah, Michael, this is Bill. Yeah, that certainly would be an option. We would generate a lot more free cash flow. It's something we'll take a look at and always do as we develop our capital plans. Some of the capital plans are driven by either customer needs. So we would want to continue to do those that we think are imperative for the customers. In the case of the UK, we've already pretty much put forth the plan that was approved through 2023, early 2023. So that plan from a capital perspective is already pretty much set. Michael Lapides - Goldman Sachs & Co. LLC: Got it. And just curious, and this may be a Vince question. When you look out to like 2021 or 2022, are you at a position where maybe cash from operations actually becomes higher than cash from investing activities, and that's kind of rare for utility, but it almost seems that that may be the direction you're heading?

We're getting close to that, Michael. Free cash flow does turn positive about that time actually. I don't have it specifically in front of me, but that sounds about right. Michael Lapides - Goldman Sachs & Co. LLC: Got it. Thank you, guys. Much appreciated.

You're welcome.

Okay. Thanks to everyone for joining us on the call today. And we look forward to talking to you on the Q2 call.

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.