Thursday, March 18, 2021
PPL Corporation is purchasing National Grid's Rhode Island utility business, The Narragansett Electric Company, for $5.3 billion including the assumption of $1.5 billion in debt
The Pennsylvania-based PPL announced Thursday that it has entered into definitive agreements for two deals -- to sell its U.K. utility business, Western Power Distribution (WPD), to National Grid plc for £7.8 billion and, the separate transaction, to acquire National Grid’s Rhode Island utility business.
The strategic repositioning will transform PPL into a high-growth, purely U.S.-focused energy company with a strong balance sheet according to the business.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe PPL deal in Rhode Island is just the latest in the recalibration of the state's energy industry. Deepwater Wind was acquired by Ørsted, the Danish power company for over $500 million in October of 2018.
“The strategic transactions we are announcing today immediately unlock value for shareowners and achieve the objectives we set out in launching the process to sell our U.K. utility business,” said Vincent Sorgi, PPL President and Chief Executive Officer. “They will refocus our business mix squarely on strong, rate-regulated U.S. utilities; strengthen our credit metrics; enhance long-term earnings growth and predictability; and provide us with greater financial flexibility to invest in sustainable energy solutions for those we serve.”
It is expected for the Rhode Island deal to clear regulatory reviews over the next year, according to the company.
Badar Khan, President of National Grid U.S., said, "We are proud of our Narragansett Electric colleagues and their success in building a strong, responsible business. Narragansett Electric will be joining a team at PPL that remains safety-driven, locally focused, and committed to the communities we serve. We are confident of a seamless transition, uninterrupted service, and ongoing support of our customers and teams. The U.S. remains the strongest geographic contributor to National Grid’s growth and is a critical driver of our strategy.”
John Pettigrew, Chief Executive of National Grid, said, “Narragansett Electric has always had a reputation for high performance, and PPL is gaining a world-class operation. Western Power Distribution presented a unique opportunity for National Grid to achieve scale in U.K. electricity distribution, a key component of our strategy to be at the heart of a clean, fair, and affordable energy future. Similarly, Narragansett Electric was a coveted business by PPL. We are pleased that this announcement is enabling two highly motivated operators to connect with two high-quality businesses in furtherance of our respective visions. I want to personally thank our colleagues at Narragansett Electric for their hard work, stellar service to customers, and dedication to providing safe and reliable energy to the communities they serve. We are confident in PPL’s ability to continue operating this business in a manner that serves Narragansett Electric’s communities, customers, and stakeholders well.”
Overview of Transactions
The agreements with National Grid follow PPL’s announcement in August 2020 of plans to sell WPD, which comprises four distribution network operators serving 7.9 million customers in central and southwest England and south Wales.
Under the terms of the agreements, PPL will sell its U.K. subsidiary holding the interests in WPD to National Grid in an all-cash transaction valued at £14.4 billion, including the assumption of approximately £6.6 billion of debt. The sale is expected to result in net cash proceeds of approximately $10.2 billion, reflecting taxes and fees and based on a foreign currency exchange rate of $1.35/£, inclusive of currency hedges executed by PPL to date.
Separately, PPL will acquire Narragansett Electric from National Grid in a transaction valued at $5.3 billion, including the assumption of approximately $1.5 billion of Narragansett Electric debt. The company plans to use a portion of the proceeds from the sale of WPD to finance the acquisition.
“We believe these transactions, which follow our highly competitive U.K. sale process, represent wins for PPL, National Grid and the customers we serve,” said Sorgi.
“In National Grid, we’ve found a respected partner that has a long track record of strong operations in the U.K., is eager to build on WPD’s success, is focused on advancing U.K. decarbonization initiatives, and shares a strong commitment to employees, customers and the communities we serve in the U.K.,” said Sorgi. “We believe National Grid will continue to deliver positive outcomes for all of WPD’s stakeholders.”
At the same time, PPL intends to drive compelling value for Narragansett Electric’s existing Rhode Island stakeholders.
“We expect to leverage our proven track record of operational excellence, award-winning customer service, strong reliability and cost efficiency to continue to improve service and deliver energy safely, reliably and affordably to Rhode Island families and businesses,” said Sorgi.
“In addition, we’re eager to play a key role in advancing Rhode Island’s decarbonization goals. We believe our experience in automating electricity networks can help the state achieve its target of 100% renewable energy by 2030. And we look forward to being a strong community partner in Rhode Island, something that has been a hallmark of PPL for more than a century.”
PPL’s Pro Forma Operating Profile
At the conclusion of both transactions, PPL will serve approximately 3.5 million electricity and gas customers across diverse, constructive regulatory jurisdictions in the U.S. This includes approximately 780,000 customers from Narragansett Electric’s electricity transmission and distribution (T&D) and gas distribution businesses in Rhode Island.
The combined company will have significant scale, with rate base of approximately $22 billion, predominantly comprised of electricity and gas T&D assets. In addition, it will offer robust T&D investment opportunities that support growth and deliver value for customers.
Financial highlights
PPL intends to use the net cash proceeds from the transactions to further strengthen its balance sheet and enhance opportunities for strategic growth. The company will continue to evaluate the best use of the remaining proceeds to maximize shareowner value. This includes potentially investing incremental capital at PPL’s utilities or in renewables, and repurchasing shares.
Following the transactions, PPL expects to achieve competitive earnings per share growth supported by enhanced rate base growth and the company’s proven track record of delivering operational efficiencies. In addition, stable earnings from the company’s rate-regulated U.S. utility footprint are expected to support a strong dividend for the repositioned company. PPL expects to target a dividend payout ratio of 60%-65% upon completion of both transactions, with future dividend growth in line with earnings per share growth. The company does not expect a change in its quarterly dividend payments prior to the closing of the Narragansett Electric acquisition.
PPL also expects to maintain a strong balance sheet with an improved credit profile supporting strong, investment-grade credit ratings from Moody’s and S&P with no planned equity issuances required. PPL is targeting a cash from operations to total debt ratio of 16%-18% post transactions, while its Holding Company Debt to Total Debt ratio is expected to decrease below 25%.
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