PPL CEO fires back at Talen Energy on earnings call

Morning Call (Allentown, PA)

Nov. 02--PPL Corp.'s CEO put up his dukes Thursday against a Talen Energy Corp. affiliate that has accused the Allentown utility-holding company of stripping the value out of its assets prior to a 2015 spinoff.

"We flatly disagree with Talen," said William H. Spence in a conference call on the company's third-quarter results.

Spence, responding to an analyst's question about the lawsuits totaling $733 million filed by Talen Montana, the Talen Montana Retirement Plan and other plaintiffs, said PPL operated the Montana operations prudently.

"PPL had no control or responsibility over what happened after the spin," he said. "These businesses and all associated assets and liabilities belong entirely to Talen and its owner, Riverstone."

The lawsuits, filed Monday in Montana, argue PPL extracted the value out of its generating assets in that state via a 2014 sale of the company's hydroelectric plants and then wrongly transferred the proceeds up through the chain of PPL ownership. That left the remaining coal-fired operations in Montana insolvent, Talen claims.

Talen Energy, which was spun off in 2015 from PPL, was acquired the next year by New York private equity firm Riverstone Holdings, which later turned Talen into a private company. Five years earlier, PPL began shifting its strategy away from the deregulated, merchant-generation business to less-risky government-regulated utilities.

Spence also said PPL met its pension obligations in Montana, adding the plan was nearly 100 percent funded at the time of the time of the spinoff.

"We ensured this when PPL made a large contribution to the PPL Montana pension fund prior to the spin transaction," he said.

As for earnings, PPL said it made third-quarter net income of $445 million, up from $355 million in the same period last year.

On a per-share basis, that translates to 62 cents, up from 51 cents during the third quarter of 2017. The company posted revenue of $1.87 billion in the period, up from $1.85 billion in the previous-year quarter.

Earnings from ongoing operations adjusted the company's bottom line to $422 million, or 59 cents per share. One item affecting PPL's profit was $5 million in costs associated with job cuts and other changes to its PPL Electric Utilities information technology department. In late September, the company eliminated nine positions from its IT department as part of its plan to restructure the department to meet future needs.

Spence, who is also PPL's chairman and president, said the company raised the midpoint of its earnings guidance for the year based on its strong performance thus far in 2018.

The results surpassed Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research, for example, was for earnings of 56 cents per share.

Along with Air Products, PPL is one of two Fortune 500 companies based in the Lehigh Valley. PPL, which employs about 1,300 people in the area, distributes electricity principally in Pennsylvania, Kentucky and the United Kingdom, and its PPL Electric Utilities subsidiary sells electricity to 1.4 million customers in 29 counties, including Lehigh and Northampton.

PPL's stock closed Thursday at $30.68 per share, up 28 cents, in New York Stock Exchange trading.

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PPL EARNINGS SNAPSHOT

Here are financial highlights from PPL's third quarter:

2018 profit: $445 million

2017 profit: $355 million

2018 revenue: $1.87 billion

2017 revenue: $1.85 billion

2018 earnings per share: 63 cents

2017 earnings per share: 52 cents

Source: PPL Corp.

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