Vincent Sorgi
President, Chief Executive Officer and Director Conference Call Participants at PPL
Thank you, Andy, and good morning, everyone. We appreciate you joining us for our third quarter investor update. Moving to slide three and the agenda for today's call. I'll begin this morning with an update on the progress we continue to make in advancing our strategic repositioning. I'll also share some current initiatives underway to advance PPL's clean energy strategy and provide a brief operational and regulatory update. Joe will then provide a financial update, including a detailed review of third quarter financial results. And as always, we'll leave ample time for your questions.
Turning to slide four. We continue to make excellent progress on our key initiatives to strategically reposition PPL for long-term growth and success. In September, we received FERC approval for our planned acquisition of Narragansett Electric. With FERC's approval, we now have four of the five approvals necessary to close on the transaction. We continue to make progress on securing the final approval from the Rhode Island Division of Public Utilities and Carriers. In its procedural schedule, the division has established February 25 as the target date for a decision.
This would put PPL and National Grid on a path to close on the transaction by March of next year as originally expected. We've included a slide with the division's procedural schedule in the appendix of today's presentation. As we pursue the final regulatory approval, we continue working closely with National Grid on planning to ensure a smooth transition for Rhode Island customers and Narragansett employees upon closing. Together, we've collaborated through 30 functional integration teams to plan and execute a safe, effective and minimally disruptive transition of the Rhode Island operations.
These teams have built robust day one integration plans to execute on identified business requirements; extracted transition service agreements that will be key to providing a stable, seamless transition for customers; redesigned critical business processes to enable the TSAs to effectively operate; designed a new Rhode Island operating model and organization from the ground up, with over 1,100 National Grid employees accepting employment offers pending the close of the transaction. We've initiated an integrated change management and communication strategy to engage our future employees, customers and Rhode Island stakeholders to begin to build relationships for the long term.
And all three labor unions have ratified their new contracts that will be effective under PPL's ownership. As we work to secure final approval, we look forward to partnering with the talented team in Rhode Island to deliver safe, reliable, affordable and sustainable energy. And we are very excited about the opportunity the acquisition presents to build one of the nation's most advanced clean energy-enabling grids in support of Rhode Island's ambitious decarbonization goals. Finally, on this slide, I'm excited to highlight a new valuable addition to PPL's Board of Directors, Heather Redman. Heather is the Co-Founder and Managing Partner of Flying Fish Partners, a venture capital firm that invests in early-stage artificial intelligence and machine learning startups, including energy-related applications.
She brings expertise in disruptive technology, industry transformation, energy development and energy technology at a time when PPL is squarely focused on driving innovation and positioning our company for growth in the clean energy transition. I am confident that Heather will be a fantastic addition to our diverse and experienced Board. With Heather's addition, our Board now has 10 directors, 60% of whom are diverse, and 30% of whom are women. Turning to slide five. In advancing our strategic repositioning, we also continue to make progress in deploying proceeds from the sale of our U.K. assets to maximize shareowner value. And while we recognize cash is fungible, we are showing the major buckets for the use of proceeds on this slide.
And today, we've announced two updates. First, as we continue to develop our business plan, we've identified at least $1 billion in incremental capital investments in Pennsylvania and Kentucky through 2025 to support grid resilience and modernization in advance of sustainable energy future for our customers. We identified capex opportunities, predominantly in the T&D areas, include continued application of smart grid technologies, which improve overall system reliability and reduce O&M costs at the same time. It also includes further hardening of the system to support reliability and resilience in the face of more frequent and stronger storms.
We'll look to make these same types of investments in Rhode Island once we close the transaction and work with Rhode Island stakeholders on the pace of change to the clean energy economy in the state, keeping in mind the cost impacts for customers. In addition to our updates on capex opportunities, we've also revised our expectations for share repurchases and have allocated an additional $500 million to buybacks. We now expect to repurchase a total of approximately $1 billion of PPL common stock by year-end, effectively doubling the amount previously announced on our Q2 call.
We've already completed $550 million in share repurchases through October 31. We're pleased about the progress we've made in evaluating our capital plans and look forward to sharing additional details at an Analyst Day following the closing of the Narragansett acquisition. In the meantime, we'll continue to review our business plans for additional opportunities that will drive value for both customers and shareowners. We are also providing an update on the timing of an expected change to PPL's dividend and reiterate the planned dividend policy following the closing of the Narragansett acquisition.
The dividend has and will remain an important part of PPL's total shareowner return proposition. Given the procedural schedule in place for the required regulatory approval in Rhode Island, we expect to maintain the current quarterly dividend rate through the January 3, 2022, payment. After that date, we plan to realign the dividend, targeting a payout ratio of 60% to 65% of the repositioned PPL earnings as previously communicated. The final decision regarding the dividend will be made by the Board of Directors after the Narragansett closing. Moving to slide six.
We continue to advance our clean energy strategy as we pursue our goal of net zero carbon emissions by 2050. In October, our Kentucky Utilities filed renewable power purchase agreements with the Kentucky Public Service Commission to provide a combined 125 megawatts of solar power to five major customers. Under the 20-year agreements, which will support customer participation in LG&E and KU's green tariff, LG&E and KU will procure 100% of the power from a new solar facility that will be built in Western Kentucky.
The agreements reflect our continued efforts to support the growth of renewable energy and economic development in the state. In another notable third quarter development, we announced in September that we've joined an expanding coalition of U.S. utilities committed to supporting the growth of electric vehicles as we seek additional opportunities to enable third-party decarbonization. The Electric Highway Coalition will focus on development of a seamless network of rapid electric vehicle charging stations, connecting major highway systems from the Northeast to the Midwest down to Texas. The goal is to create convenient options for long-distance EV travel to reduce range anxiety for consumers.
We also continue to expand investments in R&D needed to achieve net zero. Our Kentucky Utilities recently announced a partnership to study the capture of carbon dioxide emissions. The partnership with the University of Kentucky Center for Applied Energy Research or CAER will seek to develop cost-effective, scalable technology to capture carbon dioxide from a natural gas combined cycle plant. We'll be working with CAER and using the carbon capture infrastructure we've already built at our Brown coal facility in 2014 to simulate emissions from a natural gas plant.
The project will also support a study aimed at direct air capture of CO2, potentially creating a negative emissions power plant. In addition to capturing CO2, the system aims to produce two value-added streams, hydrogen and oxygen, that can be sold to offset the cost of capturing and storing the CO2. Additional partners in this R&D initiative include Vanderbilt University and EPRI and GTI through their low carbon resources initiative. The carbon capture unit we've built at the Brown plant is one of only a few carbon capture systems in operation today at power plants in the United States.
Furthering our R&D-related efforts, PPL recently acquired an ownership interest in the SOO Green project, a 350-mile underground transmission project that seeks to connect the MISO and PJM power markets and support growing demand for clean energy. We recognize that expanding the nation's transmission grid will be critical to connecting more wind and solar power and reducing greenhouse gas emissions. Breaking through siting, permitting and other barriers to build this transmission quickly and cost effectively will be key. SOO Green seeks to tackle these challenges by developing high-voltage transmission lines underground along major rail corridors.
PPL's investment in the SOO Green project will enable us to gain valuable insight into this innovative approach. We look forward to lending our capabilities and transmission expertise to support this project's success. Turning to slide seven. On October 19, LG&E and KU submitted their triennial joint Integrated Resource Plan to the Kentucky Public Service Commission.
The IRP provides the commission with information regarding our potential generation sources over the next 15 years to meet forecasted energy demand in a least cost manner. The IRP is submitted for informational purposes and represents a moment-in-time look at ongoing resource planning, using current business assumptions and long-term forecasts. LG&E and KU's 2021 IRP projects a significant reduction in coal's contribution to our generation mix, declining from over 80% of the expected electricity produced in 2021 to about half of the total power produced in 2036.
In our base case scenario for load and fuel prices, we show the retirement of nearly 2,000 megawatts of coal capacity as we economically advance a clean energy transition. These projected retirements are consistent with the depreciation study filed in our last rate case as well as the estimates used in developing our net zero goal announced last quarter. The IRP base demand and base fuel price scenario envision solar power playing a growing role in meeting our customers' demand for energy over the next 15 years, accounting for nearly 20% of all the power we supply to our Kentucky customers by 2036.
This scenario shows an additional 2,100 megawatts of solar combined with 200 megawatts of battery storage, along with simple cycle gas units needed for reliability purposes by the end of the planning period to replace that 2,000 megawatts of expected coal plant retirements. We've also added a high-case scenario to this slide, which reflects the implications of higher demand and higher fuel prices due to several factors.
Under the high-case scenario, we would expect there to be significantly more energy needed by 2036, requiring additional capacity. Based on our assumptions, that would primarily be met with an additional 5,500 megawatts of incremental renewable and storage resources above the base case scenario through that time period. Further, that would result in more than twice as much output from renewable resources by 2036, reflecting approximately 40% of generation output primarily replacing natural gas from the base case scenario.
We've provided a slide in the appendix of today's presentation that outlines the differences in the assumptions for the base and high-case scenarios. We expect the next IRP, which will be filed in 2024, to be an extremely important plan based on the current timing of our next coal plant retirements, which are expected to begin again in 2024. Moving to slide eight. On August 20, PPL Electric Utilities announced a constructive settlement with an alliance of industrial and municipal customers that had challenged the company's FERC-approved base transmission return on equity.
The settlement, which must be approved by FERC, would change PPL Electric's base ROE from 11.18% to 9.9% from May 2020 to May 2022 with the rate stepping up to 10% by June 2023. The settlement also updates the equity component of PPL Electric's capital structure to be the lower of its actual equity component calculated in accordance with the formula rate template or 56%. The settlement also allows PPL Electric to modify the current formula rate, which is based on a historic test year and move the company to a projected rate year.
Further, PPL's formula rate could also be modified to be based on the calendar year moving forward rather than the current rate year that begins June 1. We expect these changes to help reduce regulatory lag as we continue to make additional investments in transmission infrastructure. Overall, the settlement is expected to reduce net income by approximately $25 million to $30 million per year. The details of the FERC transmission ROE settlement are included in the appendix of today's presentation. In other operational developments, our utilities continue to be recognized for our award-winning customer service and innovation.
PPL Electric Utilities and Kentucky Utilities were once again listed as two of the most trusted utility brands in the United States based on a recent study performed by human behavior firm Escalent. The results of the study show that communications played a vital role in building brand trust between utilities and our customers in 2020 during the pandemic. It was the third consecutive year PPL Electric received this recognition and the second consecutive year for Kentucky Utilities.
Also, the Association of Edison Illuminating Companies selected PPL Electric Utilities as a winner of one of their 2021 achievement awards for revolutionary work in vegetation management. Trees are a common cause of outages. Within PPL Electric Utility service territory, it's estimated that about 1/3 of distribution outages over the past five years were caused by trees contacting overhead wires. By using a new approach that leverages data analytics and other new technologies, PPL Electric Utilities found ways to trim and remove the right trees at the right times across 28,000 miles of overhead lines to help prevent outages.
This has led to improved reliability despite an increase in more severe weather without increasing overall vegetation management costs. Additionally, Public Utilities Fortnightly has named PPL Electric Utilities as a top innovator for 2021, thanks to its industry-leading use of dynamic line rating or DLR technology on its transmission line. By using smart sensors that collect real-time information like wind speed and line temperature, operators can relieve transmission congestion and increase the electricity sent over those lines.
PPL Electric Utilities has been recognized for its leading-edge approach to integrating DLR into core operations and using data from the sensors to make prudent investment decisions. And finally, we continue our efforts to support economic development in the regions we serve. One recent major development in this area is Ford's announcement of plans to construct a $6 billion electric battery complex within our LG&E and KU service territory. It is one of, if not the largest economic development announcement in Kentucky's history and will have far-reaching positive impacts on communities around the commonwealth.
In fact, 2021 has been a record year for Kentucky in terms of economic development growth with over $10 billion in new investments being announced within the state. Other recent developments in addition to Ford's announcement include a $460 million investment by Toyota and a $450 million investment by GE at its Appliance Park in Louisville. These decisions exemplify the strengths that Kentucky has to offer large industrial customers.
Specifically, we are known for exceptional reliability to deliver energy 24 hours a day, 365 days a year. Further, we have some of the lowest retail rates in the country, an important characteristic for large industrial customers and something we remain keenly focused on maintaining. Kentucky also has the third lowest business cost in the country and is home to three global shipping hubs. And our Kentucky service territories are located in a centralized region that is well protected from intensifying coastal storms and other natural disasters. We are excited to support the energy needs of these developments and their prospective impact on our surrounding communities.
Before we move to the next slide, in the broader context, I would also note that Kentucky Governor Andy Beshear in the state's Office of Energy Policy unveiled a new energy strategy on October 20 called E3. The strategy considers three Es as key pillars to the strategic vision of a resilient economy in the state: energy, the environment and economic development. And this strategy aligns very well with PPL's clean energy transition strategy.
We're encouraged by several areas included in the strategy where our utilities will play a vital role and we expect will provide future opportunities, including ensuring a transmission grid that supports growing renewable resources; ensuring an electric distribution grid that is self-healing, self-sufficient and auto sensing; supporting a diversified energy supply that is fuel secure, sustainable and resilient; incentivizing sustainable business investments, including hydrogen and other renewable fuels; supporting the development of carbon capture utilization and sequestration industries; and supporting alternative fuel transportation infrastructure.
LG&E and KU participated in working groups associated with affordability and economic development in the lead up to the state announcing its strategy. We believe the strategic framework represents a comprehensive approach to positioning Kentucky for success in a changing energy landscape. We look forward to engaging with the Kentucky administration and other stakeholders as the state further develops its strategy to support sustainability, boost competitiveness and spur job growth and innovation in local and regional economies. I'll now turn the call over to Joe for the financial update. Joe?
