Good day, and welcome to the PPL Corporation 4th Quarter Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Andy Ludwig, Vice President, Investor Relations.
Please go ahead, sir.
Thank you. Good morning, everyone, and thank you for joining the PPL conference call on Q4 and full year 2020 financial results. We have provided slides for this presentation in our earnings release issued this morning on the Investors section of our website. Our presentation and earnings release, which we will discuss during today's call, contain forward looking statements about future operating results or other future events. Actual results may differ materially from these forward looking statements.
Please refer to the appendix of this presentation, PPL's SEC filings, for a discussion of some of the factors that could cause actual results to differ from the forward looking statements.
We will also refer
to non GAAP measures, including earnings from ongoing operations and adjusted gross margins on this call. For reconciliations to the comparable GAAP measures, you should refer to the appendix of this presentation. I'll now turn the call over to Vince Sorgy, PPL President and CEO.
Thank you, Andy, and good morning, everyone. We appreciate you joining us for our 2020 year end earnings call today. With me as usual are Joe Bergstein, our Chief Financial Officer Greg Dudkin, the Head of our Pennsylvania Utility Business Paul Thompson, the Head of our Kentucky Utility Business and Phil Swift, who heads up our UK Utility Business. Moving to Slide 3, I'll begin this morning with a brief overview of our 2020 performance as we overcame the difficult challenges of COVID-nineteen. I'll also share a few updates on regulatory and ESG matters.
Later, Joe will provide a more detailed overview of year end and 4th quarter financial results. I'll then share some closing thoughts on our key focus areas for 2021. And as always, we'll leave ample time to answer your questions. Turning to Slide 4. I'm incredibly proud of how PPL performed in 2020, a year unlike any we've seen in our lifetimes.
It was a year that tested our resolve, our resilience and our ability to adapt very quickly to dynamic conditions. Importantly, we provided electricity and natural gas safely and reliably to more than 10,500,000 customers when it mattered the most. This included the hospital workers and the first responders who were on the front lines. And it included customers whose homes became offices, whose kitchens and bedrooms became classrooms and who are counting on us to deliver without fail. We're extremely honored that our continued operational excellence resulted in further recognition from these very same customers in 2020.
In the U. S, we earned 3 new J. D. Power awards for customer satisfaction, bringing our total to 54 since J. D.
Power surveys began. This included topping all large utilities in the East for the 9th straight year for residential customer satisfaction and all midsized utilities in the Midwest for both residential and business customer satisfaction. In the UK, at the end of 2020, we again finished with scores of over 9 out of 10 in all 4 of our DNOs and are on track to receive the maximum incentive reward under Ofgem's broad measure of customer satisfaction. We also received the UK's Customer Service Excellence Award for the 28th time since 1992. As we focused on our commitment to provide a superior customer experience, we also recognize the need to support our local communities and assist customers struggling with COVID-nineteen.
With that in mind, we continue to offer payment assistance programs, flexible payment options and referral services to help customers manage their energy bills. Shifting to our financial performance, we achieved financial results that are within our original earnings guidance range despite the challenges of COVID-nineteen. This achievement included overcoming a $0.12 per share unfavorable impact in COVID due primarily to low sales volumes in the UK and lower commercial and industrial demand in Kentucky, as well as the $0.05 per share unfavorable impact due to mild weather compared to normal conditions. We were able to offset some of the impact through effective cost management and several other factors without negatively impacting the long term strength of the business. And as we've discussed previously, the U.
K. Regulatory construct provides recovery for any under collected revenues from lower sales volumes, which was a significant portion of the 2020 impact. We also maintained a strong financial position and delivered on our commitment to return capital to share owners, something PPL has done each quarter for 75 consecutive years. Turning to Slide 5. As we dealt with the challenges of COVID-nineteen during the year, we also remained very focused on the future.
Building on the $27,000,000,000 we had invested over the prior in line with the original expectations we outlined for you at the beginning of the year. The vast majority of this investment, nearly 90%, was focused on transmission and distribution infrastructure to strengthen grid resilience, incorporate new technology and advance our clean energy strategy. Shifting to a few sustainability highlights, we continue to advance our clean energy strategy in 2020. At the outset of the year, we set a more aggressive carbon reduction goal and throughout the remainder of the year, we invested in our networks to enable increased electrification and large scale additions of distributed energy resources in the future. In Kentucky, we secured regulatory approval for 100 Megawatt Solar Power Purchase Agreement to meet increasing customer demand for clean energy solutions.
We also continue to expand customer participation in our solar share program, securing full subscription for 2 additional phases of solar share construction that will begin this spring. In addition, our Safari Energy business also added more than 90 megawatts of solar capacity to its portfolio, increasing its own capacity to 110 Megawatt. This new capacity is all contracted via long term power purchase agreements. And in August, we joined a 5 year industry initiative to accelerate the development of low carbon energy technology and advance affordable pathways to economy wide decarbonization. We recognize that going even further, faster than the goals that we set to address climate change requires new ideas, technology and systems that can be delivered safely, reliably and affordably.
That's why we're partnering with EPRI and GTI on their new low carbon resources initiative. As part of our sustainability efforts, we also remain focused on advancing a culture of diversity, equity and inclusion across PPL and supporting meaningful change and progress in the communities we serve. To build on PPL's prior momentum in this area, the company adopted a new enterprise wide DEI strategy with 5 supporting DEI commitments. In the wake of the killings of George Floyd, Breonna Taylor and others in 2020, PPL led focused discussions with our employees and in our communities on race and social justice that will continue to guide our efforts moving forward. In addition, we provided initial contributions to support local organizations focused on DEI initiatives and launched a new scholarship program that aims to award $1,000,000 over the next decade to support minorities and females pursuing careers in engineering, IT, technical and trade roles.
As a reflection of PPL's continuous focus on embracing diversity, inclusion and advancing equity for all, we were named the Best Place to Work for LGBTQ Equality by the Human Rights Campaign Foundation, once again earning a perfect score. Lastly, on this slide, I would note that we continue to enhance our ESG disclosures in 2020, demonstrating our ongoing commitment to transparency and to keeping stakeholders informed. This included our disclosures around political spending, an area in which the Center For Political Accountability and the Zicklin Center For Business Ethics Research gave PPL their trendsetter ranking on the CPA Zicklin Index. Turning to Slide 6 for some regulatory updates. In November, we took steps at our Louisville Gas and Electric and Kentucky Utilities businesses to support continued infrastructure investments that benefit our customers.
LG and E and KU filed rate requests with the Kentucky Public Service Commission on November 25, seeking approval for a combined revenue increase of about $331,000,000 in electricity and gas base rates. The requested increases will support continued modernization of the grid to strengthen grid resilience as well as upgrades to LG and E's natural gas system to enhance safety and reliability. And an updated net metering tariff. If approved by the commission, LG and E and KU's requested revenue increases would take effect July 1, 2021. Given the COVID pandemic and in an effort to reduce the near term impact of the rate adjustment for our customers, we sought to minimize the size of the requested increase and have included in our request for approval a $53,000,000 economic relief SIR credit to help mitigate the impact of the rate adjustment until mid-twenty 22.
In addition, we have proposed to implement AMI in a manner which based on current projections will not require an increase in the combined revenue of LG and E and Ku in this rate case or in the future as operating cost savings are projected to more than offset the incremental capital cost of the project. Additionally, pending the outcome of the proceeding, it's our goal not to request another base rate adjustment for several years. A detailed procedural schedule for the rate case is available in the appendix of today's presentation. In other notable Kentucky updates, LG and E and KU on January 7 issued a request for proposal for generation capacity to meet a potential energy shortfall that may be created by the anticipated retirements of 1,000 megawatts of coal fired generation during this decade. LG and E and KU's Mill Creek Unit 1 is expected to retire in 2024, while Mill Creek Unit 2 and E.
W. Brown Unit 3 are expected to be retired by 2028 as they reach the end of their economic useful lives. We've also included in the appendix a slide that details the projected economic lives of our base load generation plant. The utilities are seeking 300 megawatts to 900 megawatts of capacity beginning in 2025 to 2028. Additionally, we're asking for proposals for at least 100 megawatts of battery storage.
Proposals are due March 31, and we anticipate making a decision by mid-twenty 21 and potentially filing for regulatory approvals in early 2020 2. Lastly, in the UK, Ofgem issued its RIIO ED2 secondtor specific methodology decision in mid December. The decision was largely in line with our expectations and underscores the vital role DNOs will play in supporting decarbonization in the UK to achieve a net zero economy. In January, WPD became the 1st DNO to issue a draft business plan for RIIO ED2. That draft plan proposes £6,000,000,000 in new investments to support decarbonization, digitalization and enhanced network utilization.
Turning to Slide 7 and the 2021 to 2025 capital plan. We've outlined more than $14,000,000,000 from 2021 to 2025 to support continued modernization of our transmission and distribution networks and to advance a cleaner energy future. This forecast spending represents $1,000,000,000 of incremental CapEx from 2021 to 2024 compared to our prior plan. Those increases include $400,000,000 in Kentucky to support full deployment of advanced metering infrastructure, $300,000,000 in Pennsylvania for additional transmission investments, as well as incremental funding for IT initiatives focused on digital transformation investments in work optimization, smart grid technology and the customer experience. And $200,000,000 in the UK due to a shift of certain investments from 2020 to 2021 as a result of COVID-nineteen, additional funding for telecommunications projects and updates to our RIIO ED2 capital plan.
At this point, I'll now turn the call over to Joe for a more detailed review of our Q4 and year end financial results. Joe?
Thank you, Vince, and good morning, everyone. I'll begin with a brief overview of our 4th quarter results on Slide 9. PPL delivered Q4 2020 earnings from ongoing operations of $0.59 per share compared to $0.57 per share in the Q4 of 2019. Weather in the quarter was about $0.01 unfavorable compared to 2019 as our Kentucky segment experienced slightly milder temperatures. The estimated impact of COVID on our 4th quarter results was about $0.02 per share, $0.01 due to lower UK sales volumes and $0.01 driven by lower demand in Kentucky.
We continue to experience improvement in this area as C and I demand steadily improves across our service territories. These headwinds were more than offset by positive impacts from returns on additional capital investments, lower O and M expenses at our domestic utilities and a higher realized foreign currency exchange rate in the UK. Overall, these results were in line with our expectations. Moving to our full year 2020 earnings results on Slide 10. We achieved 2020 earnings from ongoing operations of $2.40 per share compared to $2.45 per share a year ago.
As Vince mentioned earlier, our 2020 financial results reflect an estimated $0.12 unfavorable variance due to COVID-nineteen. During 2020, we also experienced a $0.06 unfavorable variance due to weather compared to 2019, primarily in Kentucky. In terms of dilution for the year, we experienced $0.11 per share of dilution year over year, primarily reflecting the impact of the Equity Forward settlement in late 2019. Moving to the segment drivers, excluding impacts from weather and dilution. Our U.
K. Regulated segment earned $1.33 per share, a $0.01 year over year decrease. The decrease in U. K. Earnings was primarily due to lower adjusted gross margins, driven by lower sales volumes, primarily due to the impacts of COVID-nineteen lower other income due to lower pension income, higher operation and maintenance expense, and higher depreciation expense.
These decreases were partially offset by higher foreign currency exchange rates compared to the prior period, with 20.20 average rates of $1.47 per pound compared to $1.32 per pound in 2019. In Pennsylvania, we earned $0.65 per share, which was $0.07 higher than our results in 2019. Our Pennsylvania results were primarily driven by higher adjusted gross margins, primarily resulting from returns on additional capital investments in transmission and lower operation and maintenance expense. These increases were partially offset by higher depreciation expense and other factors that were not individually significant. Turning to our Kentucky segment, we earned $0.55 per share in 20 20, a $0.03 increase over comparable results 1 year ago.
The increase was primarily due to higher adjusted gross margins, primarily resulting from higher retail rates effective May 1, 2019 and lower operation and maintenance expense. Partially offsetting these items were lower commercial and industrial demand revenue, primarily due to the impact of COVID-nineteen and higher depreciation expense. Results at Corporate and Other were $0.03 higher compared to the prior year. Factors driving earnings results at Corporate and Other primarily included lower overall corporate expenses and other factors not individually significant. Turning to Slide 11, we outlined the trends we observed in weather normalized sales each segment by customer class since the beginning of the pandemic.
Overall, lower demand in the C and I sectors continued to be partially offset by higher residential load in each of our service territories. We also experienced a steady recovery in the C and I space as certain restrictions were eased during the year. In Pennsylvania, residential usage steadily declined following the sharp spike we experienced at the onset of COVID, yet remains up about 3.5% compared to last year, signaling strong demand from customers still working from home. As for the C and I sector, we saw incremental recovery from the lows experienced in the Q2 and by year end we're tracking less than 3 percent behind prior year levels. The largest declines remain primarily in the retail trade and services industry, which we expect will remain depressed until restrictions are lifted.
In Kentucky, residential usage was up about 7% in Q4 compared to last year, consistent with what we experienced in Q3. We continue to experience a moderate recovery in the C and I sectors in Kentucky, up substantially from the Q2. C and I volumes were down 3.5% from last year's usage in Q4, which was an improvement from the 7% decline observed during Q3. Similar to Pennsylvania, the largest declines in the C and I sector continue to be seen in the services industry. However, sales to the manufacturing sector returned closer to the 2019 levels in Q4.
Finally, in the UK, residential usage also remained higher with volumes being up about 6% compared to last year. Recovery in the UK C and I sectors has lagged our domestic jurisdictions overall, but has continued to make a strong comeback, down about 9% versus the prior year, a substantial improvement from the 2nd quarter lows of over 20%. While additional incremental lockdowns were put in place during the Q4, these impacts did not restrict the construction and housing industries, and we have not seen a slowdown in operational activity in these sectors. And as a reminder, any revenue shortfall in the 2020, 2021 regulatory year will be recovered by WPD in the 2022, 2023 regulatory year adjusted for inflation. That concludes my prepared remarks, and I'll turn the call back over to Vince.
Thank you, Joe. Before I briefly highlight our 2021 strategic priorities, I just want to reiterate how proud I am of what we were able to achieve in 2020 under truly remarkable circumstances. Operationally, we didn't miss a beat delivering very strong results. Financially, we overcame stiff headwinds to achieve our earnings guidance and returned capital to share owners. Internally, I saw our businesses collaborate like never before as we work to keep each other safe and tackle COVID-nineteen.
And at the end of the day, I truly believe we made a positive impact on society And that's the common purpose that really unites employees at all levels across PPL. In 2020, we demonstrated PPL's tremendous resilience and agility. And as I shared with our employees, I truly believe we will emerge from this pandemic stronger and more united than ever before. With that in mind, our clear focus moving forward is on delivering long term value for our customers and our share owners. In 2021, that includes completing the process to sell our U.
K. Utility business and repositioning PPL as a purely U. S. Focused utility company. I'm pleased to report that the process to sell WPD remains on track, and we continue to expect to announce the transaction in the first half of this year.
As we shared previously, we believe a sale of the UK business will simplify our business mix, strengthen our balance sheet and enhance the company's long term earnings growth rate. In addition, we believe it will give the company greater financial flexibility to invest in sustainable energy solutions. Another top priority of ours this year is, as always, delivering electricity and natural gas safely, reliably and affordably. No job we do is more important than that. And this year, we will remain focused on continuous improvement, innovation, benchmarking and best practice sharing as we seek to once again deliver industry leading operational performance and provide a superior customer experience.
Other notable priorities for 2021 include advancing our clean energy strategy and reducing PPL's carbon footprint, further enhancing the DEI culture I spoke about earlier and building strong communities through philanthropy, volunteerism and customer assistance. In conclusion, as we look to 2021 and beyond, I'm excited about the opportunity we have to reposition PPL for future success, and I'm confident we will continue to deliver long term value for our customers, our shareowners and the communities we serve. With that, operator, let's open the call for questions.
Thank you. We will
now begin the question and answer session. Today's first question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team. Thanks so
much for the time.
Hey, Julien. Hey, good morning. First question,
listen, let me
pick up where you just left that conversation off. How do you think about strategic opportunities in terms of the size, right? Realistically, we've seen some developments today and otherwise. So how do you think about the scale of the transformation that you guys are thinking about in reusing those proceeds, right? Could they exceed the size of those proceeds just to kind of put some perhaps parameters or additional parameters around that?
And then I got a more detailed follow-up.
Yes. Julien, on that point, I really don't want to speculate on potential M and A scenarios or hypothetical M and A type scenarios. So just don't think it's appropriate to get into that.
Right. But maybe to simplify this, it doesn't need to be limited by the use of cash proceeds here, right? There's a lot of things you'll look at, etcetera.
I mean, again, I don't want to talk about any specifics.
Okay.
Fair enough. I would okay.
Yes. Sorry. It felt evident to ask here. Secondly, if I can, you guys described a number of potential opportunities here tied to developments in Kentucky. I just wanted to clarify, how do you think about ownership of those investments, right?
Just the process, assumptions, etcetera. Can you walk through that a little bit? I know that the process is underway, but can you speak to your sense of confidence?
Yes. Julian, just clarify, which assets are you referring to?
Just the opportunities that emerge out of the co retirements in Kentucky.
Yes. And I'll ask Paul to maybe comment on kind of what we're thinking there. Certainly, the as we're looking at what's happening at the federal level and the Biden administration, right, it's still early yet in terms of anything specific coming out of the Biden administration. But I think clear that they intend to make policy addressing climate change, right, a priority. And so we will certainly continue to remain engaged with the administration on their goals to advance some of those policies.
Obviously, rejoining the Paris Agreement will certainly lead to more aggressive U. S. Carbon reduction commitments either 2,030, 2,035 remains to be seen there that the targets that are being discussed there certainly would require advancements in technology to be able to achieve those as it's really not feasible today from our industry to really be net 0 by 2,035, which is what they're talking about. So we'll continue to discuss these challenges with the administration as we're engaging with EEI and EPRI and other industry groups, and we'll continue to do that to support what we think is the most efficient way to accomplish those goals. As you know, the industry has been supportive of the overall goals.
We don't quite have agreement on how to get there and the ability of the industry to meet those aggressive targets. But Paul, do you want to talk about maybe how we're kind of thinking about things in Kentucky recognizing that it's pretty early in the game?
Sure. I think I would point out, as you may know, but point out that what we will need to be doing as we have in the past is whatever actions we would be proposing that we would need to demonstrate that it's the lowest, most reasonable cost initiative. And so in that to your question, we will certainly be looking at the build versus the buy opportunities that we have and it will be incumbent upon us then to put forward a good case to the Public Service Commission on actions moving forward. So I think in that construct of demonstrating the lowest, most reasonable cost, that's the way we'll have to operate. And we've done that well in the past, and I expect that to happen again here in the future.
Got it. So in summary, it's just a little early on this RFP?
Absolutely. As Vince indicated, it's the Q1, end of the Q1 where we'll get responses back. As you may have seen, our information put out on coal retirements was the latter part of the decade. So yes, we're still early on for sure. Got it.
Okay. All right. Fair enough. I'll leave it there. Thank you, guys.
And our next question today comes from Durgesh Chopra with Evercore ISI. Please go ahead.
I apologize. Good morning, guys. Thanks for taking my question. Just one quick clarification. Did the Pennsylvania rate base growth, is that lower versus your previous disclosure?
And if so, why?
Yes, Durgesh, in terms of the overall investment in the PA business. As we've indicated, we are we have added on a like for like basis additional capital in the plan. I think what you might be seeing is the effect of 20 21's capital plan versus 20 25's capital plan. And so we were at $3,200,000,000 of spend this year and the current plan has about $2,700,000,000 in 2025. So you'll see a little bit of an impact on the growth rate likely as a result of that.
But plan over plan, as we've talked about, we only include known projects in our capital budgets. And as we've said, historically, as we execute the plan, we tend to find additional capital. And overall, including the U. K, we added about $1,000,000,000 of incremental capital plan over plan. So, but specific to your growth question, it could be just the larger number dropping off versus the 2025 number coming in.
Got it. Okay. So I guess essentially it's allocating more capital towards Kentucky and Pennsylvania as a larger base, right? Is that sort of what I heard? Like your starting point in Pennsylvania is a larger base.
And then going forward, there's higher sort of share of capital towards Kentucky?
Yes, I think that's right.
Okay, perfect. Thank you. And then you did say there are additional opportunities that you may identify as you sort of form up the plan. So that's clear. Just any color, Vince, on the U.
K. Sale process? I mean, are you still in discussion phases? Is that fair to assume here? Or just any sort of update since the last call we had?
Yes. No real updates to guess. I would just say that as you can appreciate, this is a very competitive and confidential process. So not really in a position to provide additional details regarding the specific process. As I indicated in my opening remarks, the process is continuing to progress as we would have expected.
And again, we continue to expect to announce something in the first half of this year.
Understood. That's all I had. Thank you, guys.
And our next question today comes from Steve Fleishman with Wolfe Research. Please go ahead.
Hey, good morning.
Hey,
Steve. Hey, Vince. Couple of questions, maybe at least one of them you can answer. Just on the when you first talked about selling the U. K.
Business, you did talk about the idea of just selling it for cash, the potential maybe like asset swaps being part of it. Is that still on the table potentially or is that less likely now?
Well, I would just unfortunately, I don't think that's one I'm going to be able to get into a lot of detail on. Just given where we are in the process, I just don't think it's appropriate at this stage to get into any details, certainly, on what potential buyers are bidding.
2nd question that I think you might be able to answer. So at some point, you are going to announce an outcome of this. Can you just remind us expected timing for like how long from announcement to closing to actually get the money if you're getting money? My recollection is you've talked about it being pretty fast in the U. K, but can you just maybe give us a little sense of that process after once you have announced whatever you're announcing?
Yes. It's certainly quicker in the U. K. Than it is in the U. S.
We do have a few required approvals that we will need to get as part of this process that we didn't need to get when we acquired Central Networks. So I think I had indicated in the past that we have closed that transaction from announcement to signing in about 30 days. I wouldn't expect us to be able to close this transaction that quickly, but it will still be within just a few months. It's not going to be significantly beyond that.
Okay.
We wouldn't expect it to be anyway.
Okay. And then, I guess, just in thinking about in terms of use of proceeds, I guess, you're going to suddenly have in theory of its cash, a lot of cash to use. Just is there are you willing to just sit on cash for
a while if you need to?
Or just how are you thinking about timing of putting money to work?
Yes. So let me just reiterate kind of the 4 main areas that we've talked about in terms of deploying the use of proceeds and then I'll ask Joe maybe to talk about timing. But the first of those which we've been pretty clear about is strengthening the balance sheet. And again, that would be geared towards targeting a mid teens FFO to debt metric out of the gate and then having our HoldCo debt below 30% of our total debt position. The second is really directly supporting future rate based growth, whether that's via organic with our current utilities or through other investment opportunities in rate regulated assets here in the U.
S. The third is potentially investing in renewables as our tax position could change post sale. We've talked about that as well. So the renewable position could be in a better competitive spot post sale. And then the 4th is really potentially returning capital to our shareowners.
But in terms of sitting on the cash, Joe, why don't you talk about kind of how we think about timing of executing those. And again, those are Steve, those are all levers that we can pull. We really won't know which of those and how much of any of those we would actually execute on until we know what the quantum of proceeds are and then ultimately what the use of proceeds will be. But Joe, anything you want to add on that?
Yes, I think that's right. The only thing I would add, Steve, is that we'll have to look at from a timing perspective on the opportunities in each of those areas that Vince highlighted. And then certainly, we'll want to be disciplined and efficient in whichever which one every one of those we're pursuing. So I don't have a perfect answer for you on the time required, but certainly efficiency on our part. And as always, our disciplined
approach to these things
will be drivers of that timing. Sure.
Sure.
Sure.
And our next question today comes from Anthony Crudell with Mizuho. Please go ahead.
Hey, good morning Vince. Good morning Joe. If I could just follow-up on maybe Steve's question. If I think about a year from now, the 4Q 2021 earnings call slide deck, do you think PPO has fully completed the transition by then? Or do you think that 2022 was a transition year for PPL?
Boy, I really don't want to speculate on that at this point, Anthony. Certainly, we will be looking to maximize the use of proceeds to really maximize the shareholder value there, right? And whether that entails something on the buy side here in the U. S. Or renewables or efficiently deploying it to the balance sheet, that all remains to be seen.
So I think it's really hard for us to indicate today what that twelvethirty onetwenty one deck is going to look like. But we'll probably have a better sense of that when we get closer to execution of the deal. But at this point, I think visibility into that, not quite clear.
Great. And I guess just one last follow-up, and I apologize if you hit this before. Just I believe you're mentioning close to, is it $400,000,000 of AMI investment in Kentucky. I guess, is that included in your CapEx? And I think previously maybe AMI, and maybe I have my jurisdiction to run, was very challenging in Kentucky.
Has that been resolved?
Yes. So of the $400,000,000 increase in the capital plan that we have for Kentucky, dollars 325,000,000 of that is for the AMI investment. So yes, the AMI is in our updated capital plan. We are taking a slightly different approach to the CPCN for this project. Paul, do you want to maybe just touch upon how we're thinking about deploying AMI?
Sure. First of all, I would say that, yes, a few years ago, we were denied the AMI application for CPCM that we put forward with the commission allowing us to and asking us to do some more piloting and then suggesting that we can come back in. We have done all that. We have built what we believe to be a pretty solid business case for providing opportunities and cost benefits to customers. To Vince's point, the approach that we're taking on this is as part of the rate case and the CPCN not having that capital go into the rate base, but rather have AFUDC treatment so that over time the O and M savings that we are projecting to the customers are effectively paying for that capital.
So the basics though of the case that we think that we are putting forward, we think it's very strong and so we're very hopeful that the commission will rule in the positive on that case.
Great. Thanks for taking my questions, guys. I appreciate it.
Sure. Thanks, Anthony.
And ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.
Great. Just want to thank everybody for joining the call today and stay safe out there with this winter weather depending on where you are. Thanks everyone for joining.
And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may disconnect your lines and have a wonderful day.