PPL Corporation (PPL) Earnings Call Transcript & Summary

Good day, and welcome to the PPL Corporation Conference Call. [Operator Instructions] Please note, this event is being recorded. I would like now to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to the PPL Corporation Conference Call. We appreciate your attendance on short notice this morning for exciting announcements resulting from the WPD sale process. We have provided slides for today's announcement and the news release issued this morning on the Investors section of our website. Before we get started, I'll point your attention to the disclaimer regarding references to forward-looking statements and non-GAAP measures during our presentation today. Please refer to the appendix of the presentation in PPL's SEC filings for additional information. Participating on our call this morning are Vince Sorgi, PPL President and CEO; Joe Bergstein, Chief Financial Officer; Greg Dudkin, Head of our Pennsylvania Utility Business; and Paul Thompson, Head of our Kentucky Utility Businesses. We'll begin with some prepared remarks before opening the lines for questions. I'll now turn the call over to Vince.

Thank you, Andy, and good morning, everyone, and thank you for joining us today. We're very excited to announce 2 transformative transactions that will achieve the strategic objectives that we outlined for you last summer. These transactions will unlock shareowner value and reposition PPL as a leading high growth, low-risk U.S.-focused energy company. Beginning on Slide 4. Starting with the WPD sale, we've agreed to sell our U.K. utility business to National Grid in an all-cash transaction, which will result in net cash proceeds of over $10 billion. We have continuously expressed our conviction in the value of WPD since we began our investment in the U.K. during the mid 1990s. Since that time, we have advanced WPD into what it is today. The premier collection of U.K. electricity distribution networks with superior operational excellence, customer satisfaction and a proven ability to drive continuous value through capital deployment and incentive revenues. Today's announcement transaction confirms that view. We're fortunate to be able to sell WPD to National Grid, an established utility leader in the U.K. with a strong operating record, which we believe will benefit our 7.9 million customers in the U.K. as well as our 6,500 employees at WPD. In a separate transaction, we've also entered into an agreement with National Grid to acquire Narragansett Electric Company, which is Rhode Island's primary electricity and natural gas utility. The acquisition price for Narragansett is $3.8 billion, reflecting a net equity purchase price of $3.3 billion after taking into consideration expected tax benefits in connection with the transaction. This represents an attractive valuation with a PE multiple of 22x based on normalized earnings for the past 12 months, reflective of Narragansett's strong growth, excellent credit profile and constructive regulatory framework. This valuation represents a rate base multiple of about 1.7x. We're very excited that Narragansett will be joining the PPL family of high-performing domestic utilities. We believe this transaction will create substantial value for Rhode Island customers and employees and PPL shareowners. The remaining funds from the WPD divestiture will be used to strengthen our credit metrics by reducing outstanding debt and support opportunistic growth that maximizes shareowner value. Turning to Slide 5. Today's announcements will strategically reposition PPL with a significantly improved risk profile, strengthening our prospects to deliver long-term value for shareowners. We will be achieving several strategic priorities as a result of these transactions. First, we're addressing the valuation discount while improving prospects for long-term earnings and dividend growth and simplifying our business mix. The sale of WPD unlocks the value of this premium business for our shareowners, which was not being reflected in PPL share price while mitigating foreign currency risk as well as U.K. regulatory and political uncertainty that concerned many U.S. investors. Second, we will be increasing the size of our U.S. utility assets with the acquisition of a high-quality utility in a constructive regulatory jurisdiction. The acquisition will substantially enhance the outlook of our ongoing business profile by further diversifying our current U.S. regulated operations. Additionally, Narragansett's T&D assets, both electric and gas, will reduce the pro forma earnings contributions from coal-fired generation in our portfolio, with T&D and non coal assets accounting for the overwhelming majority of PPL's future earnings. Third, today's transactions provide an opportunity to use our strong operating model to benefit Rhode Island customers and employees and PPL shareowners. Finally, we will be substantially improving PPL's credit metrics that will support our ability to effectively grow the company while providing financial stability and flexibility. We will be able to achieve these objectives while staying true to our disciplined approach of only engaging in value-accretive transactions on the strategic front. In summary, we're pleased that we'll be able to realize the premium value of the top D&Os in the U.K. and at the same time, be able to acquire a high-quality U.S. utility in a transaction that we expect to be earnings, credit and value accretive for our investors. Turning to a brief overview of Narragansett Electric on Slide 6. We're thrilled to add such an exceptional asset to PPL's portfolio. As the primary utility in Rhode Island, Narragansett serves about 510,000 electricity customers and 270,000 gas customers in the state. One of the key strategic attributes of this utility is that a substantial amount of the electric and gas service territories overlap, providing the opportunity to deliver Rhode Island customers with the best energy solutions over time as technologies continue to advance. The state's regulatory construct supports advancing the sustainable energy future in Rhode Island and incentivizing efficient investments for the benefit of customers and it reduces regulatory lag as those investments are being deployed. We believe Narragansett Electric and the Rhode Island regulatory construct aligned very well with our other high-performing domestic utilities, both in Pennsylvania and Kentucky. Taking a deeper look at the key regulatory constructs in Rhode Island on Slide 7. Narragansett has 2 primary regulators: The Rhode Island Public Utilities Commission for electricity and gas distribution service which currently accounts for about 2/3 of rate base; and the FERC for electricity transmission representing the final 1/3 of rate base. Starting with the regulation under the Rhode Island Commission, there are several attributes that highlight the attractiveness of this jurisdiction. First, it's a multiyear framework for base rate cases, which provides transparency for both customers and investors. The regulatory construct also includes various tracking mechanisms, including a capital recovery mechanism referred to as the infrastructure, safety and reliability or ISR and performance incentives. These mechanisms support ongoing operations without the need for continuous rate cases, while providing sharing and incentive mechanisms that support operating efficiency and affordable customer rates. This is something that we know very well from our time operating WPD in the U.K. Further, both the electricity and natural gas operations are fully decoupled, providing another stabilizing mechanism for customers and shareowners. The electric transmission investments are regulated by FERC under formula rate, which provide for prompt recovery of investments and stable cash flows. As a result, Narragansett has been able to earn near its allowed returns. Turning to Slide 8. This regulatory framework has provided a strong foundation for investment in the electricity and natural gas networks in Rhode Island. As you can see, Narragansett has started to increase its level of investment in recent years to help support renewable energy in the state and to modernize the electric and natural gas networks. This level of investment has driven rate base growth of over 9% over the past 5 years. And with the rate recovery mechanisms in both transmission and distribution, over 90% of the capital investment earns return in a very efficient manner. This is compelling for PPL as we look to share best practices with our Rhode Island peers for the benefit of all customers and our shareowners. I'll now turn the call over to Greg and Paul to discuss some of the highlights that they've achieved with their respective utilities. Greg?

Thank you, Vince. Turning to Slide 9. We've outlined the key elements of our electric transmission and distribution strategy that have driven superior results in Pennsylvania. The foundation of this strategy is simple, a virtuous cycle that begins by putting our customers first and investing in technology and our network. Our focus is on making innovative investments in a smarter and more automated grid, while maintaining low operating costs and driving improved cost efficiency. As you can see on the slide, we have kept O&M basically flat over the last 10 years, which has enabled us to invest significantly more capital into our network, while at the same time, maintaining affordability for our customers. This strategy has not only driven significant improvements in reliability, but it's also preparing our network to handle significantly more renewable and distributed energy resources on our grid. This will be a huge benefit for Rhode Island as we work to help the state achieve its aggressive decarbonization goals, which include 100% renewable energy in the state by 2030. Our customers have applauded the results of this strategy as well as PPL Electric Utilities has earned its ninth straight J.D. Power award for residential customer satisfaction in 2020. I'll now turn it over to Paul to briefly discuss the Kentucky gas operations.

Thank you, Greg. Turning to Slide 10. We maintain a similar focus in operating our utilities in Kentucky, but today, I'll focus on our natural gas operations. We were an early mover in upgrading our gas infrastructure away from materials that were prone to leaks, replacing over 500 miles of cast iron and bare steel gas main since the mid 1990s. Now that these legacy materials have been eliminated, our gas distribution system currently consists of protected steel and plastic offering better safety and operating efficiency for our customers and communities. The results of our advanced replacement program are clear as we have experienced a significant decline in leaks per mile, which has declined by half of what we saw just over a decade ago. We've made these enhancements to the system while effectively keeping costs low for our customers. Other areas where our operational success may benefit the Rhode Island business and customers include automating manual work management systems, transitioning to a modern GIS, implementing control room programs, upgrading SCADA systems, implementing asset integrity programs and establishing gas management focus while still gaining cost advantages from joint gas and electrical operations. Our experience in delivering an advanced natural gas system with affordable rates, combined with Narragansett's gas business practices today will serve Rhode Island customers well. I'll now turn the call back over to Vince.

Thanks, Paul. In summary, we believe pairing Narragansett Electric with the PPL family of domestic utilities will create significant value for our collective customers, employees, communities and shareowners. As we just outlined, we have extensive experience in operating electricity and natural gas T&D assets. We've proven our ability to make the right investments for our customers at the right time, while minimizing rate impacts on customer bills. And we continue to strive for more innovative solutions that will keep our customers safe and prepared for the dynamic changes in our energy systems. That focus has been recognized consistently by our customers which is why we have earned a total of 54 J.D. Power Awards for customer satisfaction. We believe that same operating model can be applied to the benefit of Rhode Island customers as well. And we look forward to taking best practices from the Rhode Island team and applying them to our existing utilities. We see Narragansett as very well positioned in a state that has adopted a strong regulatory framework, that incentivizes its utilities to make smart, prudent investments in order to drive real value for customers, something that has been core to our culture and strategy for years. Additionally, we believe our experience in developing automated electricity networks can support Rhode Island's strong vision of 100% renewable energy by 2030. Rhode Island's low carbon ambitions will require automated system balancing on the electric T&D system with significant increases in variable renewable generation. That includes smart grid technology that automatically activates T&D equipment, batteries and behind-the-meter demand response control in order to maintain reliability, power quality and system balance. We've been actively building this technology and capability into our Pennsylvania utilities for years. And we are very well positioned to bring that expertise to Rhode Island. We're also no stranger to aggressive decarbonization policy, as our time operating WPD has provided valuable insight into the types of investments required to achieve such aggressive targets. By utilizing our expertise in advanced reliable electricity networks, we're confident that we can deliver real value to Rhode Island customers. And our experience and expertise in gas operations will help to ensure the gas network in Rhode Island remains safe and reliable and providing energy to the 270,000 customers that rely on that service each and every day. It will be an honor to serve the customers of Rhode Island as we consider it an honor to serve all of our customers. With that, I'll now turn the call over to Joe to discuss some high-level pro forma prospects of the new PPL for investors. Joe?

Thanks, Vince. Let's turn to Slide 12. As Vince highlighted at the outset of the call, these transactions truly position PPL for the future. Following the divestiture of WPD, we'll be focused on our high-performing rate-regulated electric and natural gas utilities in the U.S. The addition of Narragansett further enhances our scale and strengthens PPL's attractive portfolio as a leading U.S. energy company. We believe the new PPL offers investors one of the most compelling, low-risk opportunities in the sector. Turning to Slide 13. Narragansett adds nearly $3 billion of rate base on a pro forma basis, bringing total pro forma rate base to just about $22 billion. The added geographic diversification enhances our growth prospects for potential capital deployment opportunities. In addition, the utilities profile as an electric and gas T&D business will improve our positioning regarding the relative earnings from coal-fired generation. Using the same pro forma view, approximately 80% of PPL's rate base would be related to electric and gas transmission and distribution and non coal-fired assets. That percentage will continue to improve as our non coal rate base is expected to increase each year, and our coal-related rate base is expected to decline. From an earnings perspective, we would expect the percentage of earnings from our coal generation fleet to be in the 15% to 20% range. Turning to a high level pro forma financial outlook on Slide 14. One of the key aspects of this strategic repositioning is to improve clarity in PPL's long-term earnings growth rate. While we are not providing specifics today, I want to stress that we expect to be able to deliver annual earnings growth that is competitive with U.S. utility peers. Growth that will be supported by enhanced rate base growth prospects, our proven track record of operational excellence and our stronger financial profile. A component of that strengthened financial profile is our balance sheet and the improved credit metrics we will achieve following this repositioning. We'll be targeting cash from operations to debt of 16% to 18%, which we believe will put the company in a very strong competitive position within the industry. In addition, our debt reductions are expected to reduce the percentage of holding company debt to total debt to less than 25%. Further, with these transactions, we will bring our debt to capitalization much more in line with U.S. utilities at a 45% to 55% level. Another important element to our strong financial position is that we do not anticipate equity needs following these transactions. Both rating agencies have recently stressed the needs for adequate capacity and cushion to weather various shocks to credit, and we believe we are striking a balance that improves our competitive position while efficiently managing PPL's capitalization. And finally, as we consider the dividend for the repositioned company, once the transactions close, we would expect to target a payout ratio between 60% and 65%. In addition, following the closing of the transactions, we would expect to grow the dividend in line with earnings per share growth. In the meantime, we're not expecting to change the quarterly dividend currently of $0.4150 per share. Turning to Slide 15. We outlined the expected transaction approvals for both the WPD sale and the Narragansett acquisition. We anticipate a relatively short time line in the sale of WPD, but expected closing within 4 months. For the acquisition of Narragansett, we expect to follow a more traditional time line of U.S. utility transactions with federal approvals from the DOJ, FCC and FERC as well as state approval in Rhode Island. Also, National Grid will seek a waiver request in Massachusetts. We expect all approvals related to the acquisition to be completed within the next 12 months. I'll now turn the call back to Vince for some closing remarks before turning to questions. Vince?

Thanks, Joe. In conclusion, we are very excited with the tremendous opportunity today's announcements offer to all stakeholders. These transactions truly represent a win-win for both PPL and National Grid. We have a unique opportunity to expand our U.S. operations with a high-quality electric T&D and gas LDC business and National Grid will expand its operations with a high-quality U.K. distribution business. We will be able to deliver clear value for our shareowners and provide a path to drive real value for the customers, employees and communities in Rhode Island and place WPD customers and employees in the hands of an experienced U.K. operator with a strong track record of execution in the U.K. The result of these transactions will be a stronger PPL with substantial growth prospects, an improved financial profile and an enhanced strategic positioning that is poised to deliver the utilities of the future. With these transactions, we feel confident that we will unlock value for our shareowners that was not being adequately recognized by the market. And this repositioning aligns with our strategy and commitments to continue to deliver value for all of our stakeholders. Overall, we couldn't be more excited about what the future holds for PPL. With that, operator, we'll now open the line for questions.

[Operator Instructions] Our first question will come from Shar Pourreza with Guggenheim Partners.

Just a couple of questions here, if it's okay. So Vince, like leftover cash is roughly $6.4 billion. And obviously, a healthy credit metric post deal would imply even more balance sheet capacity. How do we sort of think about buybacks versus more inorganic opportunities? Are you seeing anything in the near term with the acquisition fund, maybe even potential opportunities in your existing Kentucky footprint that may be coming up with another potential seller? Is there sort of a trigger point for doing something with the balance sheet?

Yes, Shar, maybe I'll just talk in general about how we're thinking about the remaining use of proceeds. So as you said, $6.4 billion as Joe talked about, we're going to be targeting the CFO(FFO) to debt metrics in that 16% to 18% range. The quantum that will -- that we are looking at today to achieve that is about $3 billion to $3.5 billion of the $6.4 billion. So at this point, Shar, the remaining proceeds, certainly, we will be carefully evaluating what our options are there in order to maximize shareholder value as we did with the announcement of the transactions today. But really no -- nothing specific to comment on at this point.

Got it. So there's no bent towards either buybacks or inorganic, it's just let's stay tuned?

Yes, that's right.

Got it. And then just, Joe, maybe just a little bit more specifics on synergies, accretion and even kind of managing some of the dyssynergies? I know you sort of highlight earnings growth that's competitive with peers. But are you kind of pegging that towards like the 5% to 7% growers that seems to be sort of the trend now on the growth trajectory for many of your peers actually. And is the lack of guidance here today prompted by the fact that you just haven't really speculated what the remaining cash proceeds are going to be directed towards?

Well, I'll answer your last part first. You're right on -- the remaining use of proceeds is a significant component to what our future earnings will be and then the growth rate off of that. But so I think you're right on the money there. But in terms of the -- how we're thinking about the growth rate, as you know, our sector peers are anywhere from 4% to 8%. We would be solidly in that range is where we're expecting.

That's perfect. And just lastly, Rhode Island. I know, obviously, you guys highlighted decarbonization within the state and the utility. How are you sort of thinking about maybe offshore wind opportunities? I know there's obviously an upcoming RFP. Is that something you'd want to get involved with?

Well, as we said in our prepared remarks, we think we are uniquely positioned to help support Rhode Island in their clean energy role, and that could come through a variety of ways. You mentioned 1 there, but it's also repositioning the distribution network as well for other renewables, getting ready for the [ ion battery cell ]. We're really looking forward to engaging with the commission in the state around their clean energy goals and how we can support those and look forward to serving the customers up in Rhode Island.

Our next question will come from Julien Dumoulin-Smith with Bank of America.

Congratulations, indeed. If I can -- absolutely. Long time coming. So with respect to the debt paydown, I know you can't speak too specifically on the EPS accretion, et cetera, but just as you think about translating those specific FFO to debt target back to amount of debt paydown, is there any kind of broad range you can speak to? I think implicitly, if you can, how much cash is close to left to deploy for equity purposes? I know that, that's not a specific number, but more of a range, any sense that you can more specifically provide around that?

Yes, Joe, do you want to take that?

Yes, Julien. So from a debt reduction perspective, we think to achieve the 16% to 18% CFO or FFO to debt metric, that will be approximately $3 billion to $3.5 billion.

Okay. All right. And then I suppose, secondarily, how do you think about the prospective growth of the businesses that you have already today? And then maybe specifically on Rhode Island, obviously, you mentioned the 9% rate base CAGR. Can you be a little bit more specific on the trajectory going forward from here? It looks like it's been adding about a couple of hundred million of rate base per year?

Yes. Julien, I don't really want to speculate on what we think the capital plan in Rhode Island will be at this time. As I said earlier, we're really focused on closing these transactions and supporting the state's clean energy ambition. So we'll certainly have more detail to speak to that at the appropriate time. But at this point, we want to speculate on that.

That's fair enough. And actually, if I can press you a little bit more on that Rhode Island piece, how do you think about the other New England regional topic of offshore wind. Is that something that is relevant to Rhode Island and your risk profile?

Well, we do believe that with Rhode Island's clean energy ambitions that offshore wind will continue to be component of that. You may be aware that the first offshore wind project in the United States was off the shore of Block Island, which is part of Rhode Island. So I would fully expect that to continue to be viewed positively as the state looks at their clean energy goals.

Okay. All right. Fair enough. And then you're using what GBP rate versus $1.40 today, $1.35? Sorry, I just want to clarify that.

Yes. We're using $1.35. That's based on significant hedging to date. Joe, if you want to talk about that?

Yes. [indiscernible]. We're about GBP 6 billion hedged today at an average rate of about $1.35.

Our next question will come from Michael Lapides with Goldman Sachs.

Just a couple of questions, easy ones. First of all, to clarify Joe's comment about the debt paydown. That $3 billion to $3.5 billion of debt, you would pay down of holding company debt. Can you remind us how much holding company debt you have outstanding today, just like how much of a percent of total?

Yes, Michael, that is holding company debt. If you think about it on just a domestic basis, we have about $6 billion of holding company debt.

Got it. And the intermediate holdco debt at WPD, was that part of the -- I assume that was part of the total debt you referenced in the slide and in the release, or is that incremental as well? Meaning of the $6 billion of cash.

That's going with WPD in the transaction.

Got it. Super helpful. And then on the Rhode Island business, just curious, your slide deck highlight the $2.8 billion in rate base and trailing 12 months are earnings of $150 million. If I just do like back of the envelope rate base math on $2.8 billion of rate base and even the higher transmission ROE, I don't get -- I get a decent bit percentage-wise beneath $150 million. Are these -- is the Rhode Island business earning at kind of the high end of the incentive mechanisms already or is the band widen up where you could realize even more incentives? I'm just kind of -- the rate base math implies kind of earning a healthy ROE already.

Yes. A couple of clarification points on that, Michael. First of all, the rate base that where we would be thinking about is after closing. So that rate base would be closer to $3 billion as opposed to the $2.8 billion that you referenced. But to your point, the current business is performing very well within the regulatory construct, and they are receiving some of the incentive revenues coming from those positive mechanisms that we talked about earlier. So it's a combination of those 2 things.

Got it. And then last one, do you see Narragansett Electric as kind of a springboard to grow in that part of the country? Meaning you will have significant amount of cash available for redeployment. You also -- your Kentucky and Pennsylvania businesses will generate a decent amount of cash base on your current CapEx forecast. Could you see yourself trying to tuck in other kind of Eastern seaboard regulated utilities in addition to Narragansett over the next couple of years?

Well, I would say, strategically, again, right now, we're focused on closing these 2 transactions. As I think about the use of proceeds, really, we could target, as we've talked in the past, really no change in the messaging. Michael, we could certainly invest further in Pennsylvania and Kentucky as we continue to execute our plans there. The renewables business we talked about. So now having completed the WPD sale, we are expecting our tax position to shift as we've been talking about. That makes our competitiveness in the renewable business shift as well post closing of these transactions. So certainly, we could deploy additional capital into the renewables business. And just, again, to -- as we've discussed in the past, we've only been spending about $100 million a year over the last couple of years in our renewables business. So there's opportunity to deploy more there. On the inorganic side or on the strategic front, really nothing too specific to talk about there. I don't know that I would get into any discussions around geographic areas, whether one would be more appealing than another. Certainly, we will continue to look at strategic opportunities as one of the potentials for deploying that excess capital. But as we've demonstrated today, we are very disciplined in how we do that. We only engage in transactions that we believe will generate shareholder value, as I think you see with the announcement of these 2 transactions. So while we'll certainly take a look at it, we'll continue to be very disciplined in that area, Michael.

Our next question will come from Durgesh Chopra with Evercore ISI.

Congratulations are in order. Just a quick clarification, Joe. The $3 billion, $3.5 billion in debt paydown, so just reconciling back to the $6 billion, $6.5 billion left after the roll-out and purchase. So that leaves you with $3 billion in excess cash, roughly in that neighborhood? Do I have that right?

Roughly, yes.

Okay. Is there sort of a time line? I know you've answered a few questions around it, but is there a time line that you're working on to act on it? Or is it going to, say, sort of give you more room on the balance sheet and you will see what comes by?

Well, we'll certainly look to be efficient in the use of that cash and the deployment of it. So we don't have a time frame to lay out today, but efficiency is certainly going to be key.

Understood. And then maybe just Rhode Island. Can you comment on the 9% historical rate base growth? That's certainly pretty solid, right, much above industry average. What has been driving that 9% growth? And then the outlook for the future to the extent that you can comment to that?

Yes. So -- as I talked about in our prepared remarks around -- over the last few years or 5 years that we showed in the deck, really coming from grid modernization, investing in both the T&D networks on the power side, but also the gas networks. And so that's what's really been driving the historical. At this point, we're not speculating on what the future CapEx plan will look like in Rhode Island. Again, we're focused on getting through the filing process and the approval process. And then at the appropriate time, we'll come out with more details on what we think that looks like going forward.

Understood. Just a quick follow-up on that, again, timing wise. Are you -- is the plan to sort of take a 5-year look or a longer look post the transaction close? Or could you post both these transaction close? Or could you provide us guidance before that?

From a guidance perspective, I think we'll wait until after the close of the Rhode Island transaction before we give guidance.

Yes, which is the later one, [ as you noted ].

Right.

Our next question will come from Steve Fleishman with Wolfe Research.

So I guess, Vince, just on the 16% to 18% FFO to debt target seems relatively high. And I think it might be higher than what you said when you first announced this. Can you just explain -- obviously, nothing wrong with the strong balance sheet. But just explain your thinking there? And is it suggesting maybe that a lot of the incremental -- a lot of the remaining proceeds outside the debt paydown will go to renewables. So that's why you need a better balance sheet?

Yes. I wouldn't -- I'll answer your second part first. I wouldn't necessarily say that, Steve. But what I would say is the combination of these 2 transactions are really transforming PPL, and we are totally repositioning the company for the future. And credit matters in our industry. And for us to go through this transformation, we wanted to make sure that we were set up the best way possible for future growth and flexibility in terms of embarking on a growth strategy. So we feel very comfortable with our strong earnings growth trajectory, as we talked about today in that 4 -- solidly in that 4% to 8% range. But we also want to make sure that we are absolutely positioned well to execute on additional growth opportunities, whatever they may be. And so coming [indiscernible] with a strong balance sheet, you're right. We did talk about mid teens. This is a little bit above that. But we're very confident. Moody's came out, and I'll let Joe talk about that. But Moody's came out with a positive report this morning. And based on where we're targeting, we certainly could see an upgrade there at the conclusion of these transactions, which I think just puts us in a very strong position competitively, Steve. But Joe, do you want to talk about Moody's or anything there?

Yes, sure. So maybe just to reiterate what Vince said, a strong balance sheet is critical to provide us flexibility. And also the agencies, Steve have been concerned about utilities overall and we've been managing credit kind of at or below the credit threshold for several years. So these transactions really provide us with a unique opportunity to recapitalize the balance sheet. You may have seen this morning Moody's issued a release revising our ratings outlook to positive from stable. And that stated that we could see an upgrade if our CFO to debt is above 16% on a sustained basis. And they also said that we can see an upgrade if -- would be considered if the parent debt is reduced significantly. And those are both things that we're targeting with proceeds from this transaction.

Okay. Let me ask another question. So I know you're not going to give us the base for the competitive -- the earnings that you have a competitive growth rate off of. I'm assuming you won't, but feel free if you'd like to. But just conceptually, are -- is the base after you've already put to work the $6.4 billion? Or does that growth rate include putting to work the $6.4 billion?

After the utilization of $6.4 billion.

So a competitive growth rate from the base that you've -- after you've already put that in? Okay.

Right.

One last question, just a cleanup question. This $500 million of tax savings you're applying to the Narragansett purchase price, is that -- could you just explain that, when you're doing the valuations?

Sure. Yes. So we structured the transaction using a 338 election, which results in the transaction being treated as an asset acquisition for tax purposes. So we get a benefit from a tax perspective, that will get utilized in the future. So that's the value of that tax benefit to us.

On an NPV basis.

On an NPV basis, right.

Our next question will come from Anthony Crowdell with Mizuho.

Congratulations on the transaction. If I just follow-up to one of Steve's questions. Steve talked about the, I guess, the growth rate, I guess, includes after you deploy the $6.4 billion. Any thoughts of when -- like when this transition is complete, when does all -- when do we get this guidance? When do we get all this information? Is it months? Is it a 2022 event? I guess the close takes 12 months in Rhode Island. Are we thinking March of '22 where we get this growth rate?

Yes. Joe, do you want to talk about how we're thinking about that?

Yes. Sure. So the approval process in Rhode Island could take up to 12 months, Anthony, and I think we give guidance once we have approval there and the transactions are closed.

Okay. So the thought is that the -- but I guess to Steve's earlier question was that the guidance, everything else is after you deploy all 6 -- whatever, I apologize, $6.5 billion. So the thought is that you will also deploy that money at the time of the closing of the approval in Rhode Island?

I think we'll have to consider the timing of that. But if we think about it today, assuming that those proceeds would be deployed before then, our growth rate is based off the underlying businesses and not because we'd be buying back stock or buying back debt over that period. So it would be true underlying growth in the utilities.

Yes. Anthony, let me just clarify something and make sure that it's clear for everybody that's listening. So we said it a few times, but these are 2 separate transactions. So the WPD transaction is expected to close within 4 months. At that time, we're going to get to $10.5 billion in cash. So we closed that transaction with Grid. And then we will use $3.8 billion of that to purchase Narragansett when the approval happens X number of months later. So we will have the cash in hand to potentially deploy following the WPD closing. We don't have to wait for the Narragansett closing for that.

Great. Great. That's very helpful, Vince. And then more [indiscernible], I guess, if I think of what leftover parent cost or parent drag, roughly, if I assume how much debt there is now, how much debt paydown, roughly $3 billion of parent debt that's potentially left over after the transactions, any other expenses at the parent we should be thinking about that we should be factoring?

Nothing significant. From a dyssynergy perspective, it's really the holdco debt that we had for the acquisition of WPD. That would be part of that $3 billion to $3.5 billion paydown, so that interest to synergy goes away. On the O&M side, with the decentralized structure that we had with WPD, we really have minimal cost at the parent level really dedicated or allocated to WPD. And with the acquisition of the Rhode Island business, we can use those resources to help integrate Rhode Island into the PPL systems, process, et cetera. So we're not concerned at all really on the O&M side from a dyssynergy perspective. It was really just the interest on the debt, and that will go away with the liability management that Joe talked about.

Great. And just lastly, a lot of information on slides. You gave us a slide on, I guess, pro forma PPL, electric and gas mix. Is there a target or an ideal mix that you think about when all this is done, and we think of the new PPL, what would the company target for an electric and gas mix?

I wouldn't say I'm necessarily targeting a mix between those, Anthony. It's really the growth profile and the earning -- the stability and the strength of the earnings profile is backed by strong regulated utilities in very constructive jurisdictions. It's not an electric versus gas issue for us.

[Operator Instructions] Our next question will come from Ryan Levine with Citigroup.

Can you elaborate on what the use of cash is during the timing lag between the WPD closing and the announced acquisition outside of the $3 billion to $3.5 billion of parent debt to be pay down?

Yes. I think as we indicated during this, we'll continue to evaluate the use of those proceeds between now and that.

I mean -- but absent an acquisition or pending any potential strategic capital deployment, is there any way to -- what are you thinking about of return on that cash that would just be sitting there?

No, look, I think we'll have to think about that as we get the cash move through that. We'll clearly want to be efficient in that -- those proceeds and the timing I said isn't maybe the most efficient thing. So we'll try to find the best use for those in the interim.

Okay. And then can you also update us on the company's pro forma tax position? You had -- you highlighted the $0.5 billion of tax benefit from the acquisition. But what's the net tax position of the company and appetite?

Yes. So we will be using our NOL to offset the gain on sale. So we will be a federal -- a U.S. taxpayer following the completion of the WPD sale, which, as we said, would be midyear this year. Anything else Joe on that?

That's right.

What's the kind of pro forma tax rate that we should be looking at for 2022 and beyond?

I think it's a little early to say at this point what the -- the combined company looks like, but...

We'll update that.

We'll give an update when we give guidance.

This concludes our question-and-answer session. I would like to turn the conference back over to Vince Sorgi for any closing remarks.

Thanks. I just want to thank everybody for joining us today. I'll just reiterate how excited we are over the transactions that we announced today and how they will reposition PPL for the future. We will be scheduling investor meetings over the next few days, and we certainly look forward to engaging with you all further. So thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.