PPL eyes transmission additions to boost earnings, with Pocono project ahead of schedule

PPL Electric Utilities is planning on strong earnings growth through transmission additions in the coming years, with the Northeast Pocono project expected to be completed in May, one year ahead of schedule, PPL Corp. (NYSE:PPL) officials said Feb. 4 during a conference call on 4Q15 earnings.

Through 2018, PPL expects to achieve earnings growth between 5% and 6% compared with 2014 results, and a key driver will be a 14% growth in transmission rate base at PPL Electric Utilities, with $2.7bn in transmission capital expenditures through 2018, said Vincent Sorgi, senior vice president and CFO at PPL.

A big chunk of that spending will be on the Project Compass line, the first segment of which is a 95-mile, 345-kV line between Blakely, Pa., and Ramapo, N.Y., that is expected to cost between $500m and $600m, William Spence, chairman, president and CEO of PPL, said during the call. PPL Electric Utilities in October 2015 filed its interconnection request with the New York ISO for that segment, and the next step in the approval process will be filing a siting application with the New York State Public Service Commission, which is expected in 1Q16, Spence said.

The first segment of Project Compass is expected to be in service in 2023, bringing grid reliability benefits and reduced transmission congestion to utility customers in the region, Spence said.

It is an initial part of a larger project that could span about 475 miles from western Pennsylvania into southeast New York at an estimated cost between $3bn and $4bn, PPL said in its Feb. 4 earnings presentation.

During the call, PPL officials were asked about potential joint venture (JV) partners for other segments of Project Compass.

“We’re prepared to go this alone, but if there’s a JV that makes sense, we’ll certainly look at that,” said Gregory Dudkin, president of PPL Electric Utilities.

The utility is evaluating costs and modeling for the other segments of the project, but for right now, “we’re focused on this segment,” Dudkin said in reference to the first segment.

Spence also addressed the $350m Northeast Pocono transmission project, which involves about 70 miles of 230-kV line, three new substations and rebuilding some 69-kV segments in northeast Pennsylvania.

“We expect to conclude that project this May, which is about a year ahead of our original schedule,” he said.

As TransmissionHub reported, that project was approved by regulators in Pennsylvania in January 2014, with the lines and substations to be added in segments and brought into service in a staged manner, with the planned in-service dates stretching from 2015 into November 2017.

The segments include:

* A nearly 15-mile portion extending between the existing Jenkins 230-69-kV substation in Plains Township, Luzerne County, Pa., and the new West Pocono 230-69-kV substation in Buck Township, Luzerne County

* An approximate 21-mile segment extending between the new West Pocono substation and the new North Pocono 230-69-kV substation in Covington Township, Lackawanna County

* An approximate 22-mile segment extending between the new North Pocono substation and the Paupack 230-69-kV substation in Paupack Township, Wayne County

Other utility capital expenditures through 2018 include investments of $1.7bn in environmental compliance for generation assets in Kentucky, even as the state challenges the U.S. Environmental Protection Agency’s Clean Power Plan (CPP), PPL officials noted. Regulators in both Pennsylvania and Kentucky are expected to work constructively with utilities on CPP implementation plans if efforts to overturn the rule in court fail, said Spence.

Officials in Kentucky have said they will continue to litigate and oppose the rule while seeking an extension of time to file an implementation plan, which would push the deadline for filing an implementation plan into 2018, Sorgi added.

“I think the state recognizes the need to maintain flexibility” and develop its own CPP implementation plan if the legal challenges are not successful, he said.

Looking back at 2015, Spence said it was a “pivotal year,” for PPL, with the June 1, 2015, spinoff of the competitive supply segment changing the company to focus solely on the regulated utility business.

That move affected 2015 earnings, with the 2015 results reflecting a loss from discontinued operations of $921m, or $1.36/share, primarily from the spinoff, PPL noted in its Feb. 4 earnings statement.

For all of 2015, PPL reported earnings of $682m, or $1.01 per share, compared with $1.74bn, or $2.61 per share, for all of 2014.

To close out the year, PPL reported 4Q15 earnings of $399m, or 59 cents per share, compared with earnings of $695m, or $1.04 per share, in 4Q14.