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PPL Corp (NYSE:PPL)
Q3 2019 Earnings Call
Nov 5, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the PPL Corporation Third Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations, Please go ahead.

Andy Ludwig -- Vice President, Investor Relations

Thank you, Chad. Good morning everyone and thank you for joining the PPL conference call on third quarter 2019 financial results.

We provided slides in the presentation. And our earnings release issued this morning on the Investors section of our website . Our presentation and earnings release, which we'll discuss during today's call contain forward-looking statements about future operating results or other future events, actual results may differ materially from forward-looking statements, please refer to the appendix of this presentation and PPL's SEC filings for a discussion of factors that could cause actual results to differ from the forward-looking statements.

We will also refer to earnings from ongoing operations or ongoing earnings a non-GAAP measure on this call for reconciliations to the GAAP measure, You should refer to the appendix of this presentation and our earnings earnings release. I'll now turn the call over to Will Spence PPL Chairman and CEO.

William H. Spence -- Chairman and Chief Executive Officer

Thank you Andy, and good morning everyone. We're pleased that you've joined us for our third quarter earnings call. With me today are Vince Sorgi PPL President and Chief Operating Officer, Joe Bergstein Chief Financial Officer, Greg Dudkin and Paul Thompson the heads of our US utility businesses and Philip Swift, Head of our Western Power Distribution business in the UK.

Moving to slide 3, Our agenda this morning begins with highlights of our 2019 Quarter Earnings results and a brief review of operational and regulatory developments, Joe will then providing more detailed review of third-quarter earnings as well as an update on our foreign currency hedging status as always we'll leave ample time to answer your questions.

Turning to slide 4, today we announced third quarter reported earnings of $0.65 per share resulting and in total of a $1.89 per share, Through the first nine months of 2019.

Adjusting for special items primarily related to unrealized gains on our UK earnings hedges third quarter earnings from ongoing operations were $0.61 per share compared with $0.59 per share a year ago.

On a year-to-date basis through September total ongoing earnings were $1.88 per share, which was even with last year on a per share basis and in line with our expectations.

Based on our solid financial results through September, we have narrowed our 2019 guidance range to $2.35 per share to $2.45 per share, maintaining our midpoint midpoint of $2.40.

In addition, we remain on track to invest $3.3 billion and infrastructure improvements during 2019 looking beyond 2019. Today we also reaffirmed our projection of 5% to 6% compound annual earnings growth rate per share through 2020 measured against the midpoint of our original 2018 earnings forecast of $2.30 per share, In addition, we maintained our 2021 earnings forecast of $2.50 to $2.80 per share .

We continue to monitor macroeconomic factors for potential impacts on our earnings projections, including impacts on currency exchange rates inflation in the UK and interest rates, shifting the focus to operations PPL continues to modernize and reshape the grid, investing in infrastructure and technology that will further strengthen grid resilience and improve service to customers

Andy Ludwig -- Vice President, Investor Relations

and enable the transition to a cleaner energy future. In the third quarter PPL Electric Utilities near completion of a multi-year advanced meter replacement project in Pennsylvania. This $470 million project involve the installation of 1.4 million advanced meters.

These meters enables us to respond more quickly and efficiently the customer request by remotely connecting and disconnecting service, they also provide customers with more detailed usage information to help them make wise decisions, they also a lot of this wind powers out enabling us to respond more quickly to notify customers when they're not home and to better pinpoint problem areas.In addition, they help us to monitor power quality and better identify and address potential problems before the impact electric service.

We expect to complete the project. This year it's yet another example of our ability to execute, large scale, capital projects on time and on budget. Additionally PPL Electric Utilities was recognized in October by the Association of Edison illuminating companies for groundbreaking technology that safely and automatically cuts power to down power lines protecting the public first responders as well as employees. Safety is paramount to our everyday operations and we're very proud of our team for developing this innovative technology that will enhance the safety of our distribution network.

We expect to have this technology deployed and about 1500 locations across our Pennsylvania service territory by the end of this year. In Kentucky, meanwhile, lower Gas and Electric Company and Kentucky Utilities company continue to look for opportunities to economically add clean energy for our customers. The company has completed construction of a new community solar facility in late July this 1400 panel array, is the first of eight plan solar share developments that will provide an option for customers to support local solar energy without installing equipment on their properties .

We are very close to beginning the installation of the second solar share array as a response from customers has been strong. In addition, Kentucky Utilities announced an agreement to build, own and maintain a solar array at the Makers Mark bourbon distillery operation in Loretta Kentucky as part of the Utilities business solar program.

The company expects to complete construction by the end of the year. Our continuous investment in our reliable electricity system in Kentucky also enables us to continue to pursue these efforts economically advancing renewable generation in the state of Kentucky.

Shifting to the UK and a brief regulatory update, as we noted on our second quarter call Ofgem formerly kicked off the consultation process for the RIIO-ED2 price control in early August. We've since reviewed Ofgem's open letter which outlines its approach to setting the next price control and we've submitted responses on behalf of all stakeholders of both Western Power Distribution and PPL Corporation, including our shareowners.

In PPL's response we highlighted the real value that RIIO-ED1 has delivered and continues to deliver for our UK customers for example, customer interruptions are down 11% on average outage durations have fallen by 9% customer service scores are very strong with distribution network operators, earning on average and 8.7 out of 10 rating from our customers.

Meanwhile DNOs have continued to invest and network improvements and innovation. Four years into the RIIO-ED1 price control. Customers are receiving high levels of service and performance and in our view the focus in RIIO-ED2 should be to be building upon the success of RIIO-ED1 and refining the framework where needed.

As stated in our comments, we welcome the opportunity to support UK decarbonization and electrification initiatives that will play a critical role and achieving the government's target of net zero emissions by the year 2050

We forecast that a significant amount of capital will be required to be invested in the distribution networks to advance these objectives. We believe it's critical that RIIO-ED2 provide DNO's fair and reasonable returns that will attract and sustain the investment necessary to achieve this transition to a low-carbon economy, and we believe the incentive scheme in RIIO-ED2 must drive both innovation and outputs that create long-term value for our customers and enable top performers like WPD to earn strong returns.

Much of these concepts have been echoed by our investors and we provided Ofgem with a summary of that direct feedback as well. In WPD's comprehensive response to the consultation questions we've highlighted areas for improvement and offer ideas on how Ofgem can achieve its objective of continuing to drive efficiencies while preparing the network for the future.

Ofgem is expected to issue its framework decision by the end of the year. As we said on our last call we believe Ofgem agrees that distribution networks are critical to enabling the shift toward a more sustainable energy future. We expect that Ofgem will produce the framework necessary for DNOs to support decarbonization objectives and incentivize the level of investment required to do so. And we believe Ofgem will be focused on differentiating returns among electricity DNOs providing substantial opportunities for outstanding performers like WPD as we enter into RIIO-ED2.

With that, I'll turn it over to Joe for a more detailed financial overview. Joe.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Thank you, Bill and good morning everyone. Let's move to slide 5 for an overview of third quarter segment results. As Bill mentioned PPL delivered third quarter 2019 earnings from ongoing operations of $0.61 per share, which was $0.02 higher compared to the third quarter of 2018 and in line with our expectations.

Our strong results, more than offset $0.02 from share dilution and over the quarter, there was a $0.01 benefit from weather-related variances compared to the prior period. Weather was about $0.02 favorable compared to our forecast for the third quarter of 2019 primarily in Kentucky, where cooling degree days were about 30% higher compared to normalized levels.

Turning to our segment results, our UK regulated segment earned $0.28 per share, a $0.01 decrease compared to the same period a year ago. Excluding the impact of dilution .

The decrease in the UK earnings was primarily due to lower sales volumes and lower realized foreign currency exchange rates compared to 2018 with third quarter 2019 average rates of $1.26 per pound compared to $1.34 per pound in the third quarter of 2018.

These factors were partially offset by higher prices due to the April 1, 2019 price increase and higher other income due to higher pension income.

Moving to the Pennsylvania segment our PA-regulated segment earned $0.16 per share in the third quarter of 2019, which was even compared to the third quarter of 2018. Higher adjusted gross margins, primarily due to returns on additional capital investments in transmission were primarily offset by higher operation and maintenance expense and several other items that were not individually significant.

Turning to the Kentucky segment, our Kentucky regulated segment earned $0.20 per share in the third quarter of 2019, a $0.03 increase compared to the third quarter of 2018, Excluding the impact of dilution and weather.

The increase was primarily due to higher adjusted gross margins which reflect higher retail rates approved by the KPSC effective May 1, 2019 and lower operation and maintenance expense primarily due to lower storm costs .

These positive drivers were partially offset by higher depreciation expense due to additions to PP&E and higher depreciation rates.

And finally, Corporate and Other remained relatively even compared to the same period a year ago. As Bill noted, we narrowed our 2019 forecast range due to our strong third quarter performance, which positions us well to achieve our earnings forecast for this year. For your convenience, a lot of the year to date results is available in the appendix before I turn the call back over to Bill. Let me provide an update on our foreign currency hedging status, which is on Slide 6 for the balance of 2019 we continue to be 100% hedged for our ongoing earnings at an average rate of $1.45 per pound.

For 2020, we increased our hedge percentage by 7% and our play ongoing earnings are now 70% hedged. The average rate for 2020 reflecting these new hedges remain at $1.46 per pound.

We were able to maintain these average hedge rates by optimizing our hedge portfolio given the recent uplift in currency rates following the momentum surrounding Brexit and the strength in our 2019 results to date.

We continue to utilize options in our hedging strategy that preserve upside to the current market rates with about one-third of the 2020 hedge portfolio being option based. And we remain open in 2021 as Bill mentioned, we'll continue to monitor Brexit developments and fluctuations in currency exchange rates, while we evaluate potential impacts to our earnings projections.

The flexibility in our hedging program enables us to take an opportunistic approach as we continue to assess the dynamic political situation, we believe we're well positioned to manage this uncertainty in the near term through our hedge position and we are optimistic that the market will rationalize the currency rates higher than we see today and continue the recent upward trend as the UK moves closer toward a Brexit resolution.

That concludes my prepared remarks and I'll turn the call back over to Bill for the question and answer period. Bill?

William H. Spence -- Chairman and Chief Executive Officer

Thank you, Joe. In closing, our third quarter results exemplify our continued commitment to delivering outstanding operational performance. We remain solidly on track to deliver on our 2019 earnings guidance as we continue to invest in a sustainable energy future as we strengthen grid resilience and reshape electricity networks to enable a low carbon future. I'm very proud of the direction we're headed As we look to close out 2019 with continued strong performance. With that, operator, let's open the call up for questions, please.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session [Operator Instructions]. The first question will come from Ali Agha with SunTrust. Please go ahead.

Ali Agha -- SunTrust -- Analyst

Thank you. Good morning.

William H. Spence -- Chairman and Chief Executive Officer

Good morning. Ali

Ali Agha -- SunTrust -- Analyst

Good morning Bill, first question, can you give us an update on your latest thinking around your UK operations and any strategic actions you may take to address the investor concerns and valuation discount that you're seeing in your stock. I know there has been some new stories out there, but anything you can share with us anything new opportunities or anything that you're looking at today?

William H. Spence -- Chairman and Chief Executive Officer

I appreciate the question. But, as I'm sure you can understand we don't comment on market rumors or speculation and that's consistent with our long-standing policy. As for the overall strategy, We discussed our thoughts extensively on past calls and nothing has changed from that perspective. And as we've said, the company continues to operate exceptionally well, and we believe the current business mix and plan will generate long-term shareowner value.

Ali Agha -- SunTrust -- Analyst

Understood, Fair enough. The second question, as you mentioned you're expecting the framework, a decision from Ofgem later this year. Can you just highlight for us from your vantage point, what are the sort of the important data points you expect to get firmed up in this decision. As it relates to your business and thinking about RIIO-2 etc?

William H. Spence -- Chairman and Chief Executive Officer

Sure, I'll make a general comment and then I'll turn it over to Phil to maybe give you a highlight on some of the specifics that we're looking at as we go into the framework discussion with Ofgem since the process just kicked off there is no major update at the moment, but we do remain encouraged by our continued dialog with Ofgem as they recognize that the distribution networks are an integral part of the future of the UK energy goals to decarbonize the country and we're going to continue to remain engaged with Ofgem and all stakeholders as we establish this framework for the next price control review.

As for the specifics. We're looking at. Phil, do you want to make a couple of comments there.

Philip Swift -- Head of our Western Power Distribution business

Yeah, I mean I think that is the key thing is very early days at the moment, the actual sector methodology consultation is actually next year. When we get more detail on the financial package and everything else right now, our position is very much around focusing Ofgem on the fact that ED1 is working incredibly well and therefore ED2 should be a progression from ED1 and not a sort of a step change away from it, Bill alluded to that in his opening remarks In terms of outcomes for our customers.

The interruptions, and minutes are dramatically down and availability of electricity is run as 99.99% in terms of customer service, we continue to drive that upwards with WPD now at or around over 90% of the whole sector has moved up to around about 87%. So our key messageis with Ofgem and very much around progressing into ED2 with good a good incentive package reflect in the decarbonization agenda, and we see that as the main adjustment going forward. But in terms of decisions in terms of cost of equity and everything else, we won't see that until next year.

Ali Agha -- SunTrust -- Analyst

got you. Last question, Bill. The $15 billion of capex that you've highlighted for us 223. Can you give us some sense of -- as you look at the customer needs, etc. What kind of potential upside there could be particularly in the outer years when you we see that drawdown. And is that full 4.7% rate base really realistic at the end of the day.

Can you give us some sense of what kind of opportunities are out there On the capex front?

William H. Spence -- Chairman and Chief Executive Officer

Sure. Well the capital plan that you have in front of you today reflects only you identified projects and there are certainly opportunities that could arise as we execute the plan, particularly at the back end of the plan. As you know those potential opportunities within that five year time horizon could come from a couple of sources, one would be further grid resiliency efforts in both Pennsylvania and Kentucky, future AMI deployment in Kentucky, which we've talked about in the past, potential renewables expansion, I would just say in general, across the board. Perhaps other generation modifications in Kentucky, that could be required by any new environmental regulations, I think, as you probably know our capital plans in the UK are essentially set until the end of RIIO-ED1 and we do expect beyond that time frame beyond RIIO-ED1 that there could be very significant capital investment opportunities to meet the required electrification initiatives to allow the UK to achieve its recent commitment of a net zero emissions by 2050.

So those are the areas that I would probably highlight at the moment.

Ali Agha -- SunTrust -- Analyst

Yeah, I know, I mean. And if it comes to fruition. But just a sense of the size of that bucket, as you're looking at these opportunities?

William H. Spence -- Chairman and Chief Executive Officer

Well, I would say that they would certainly be in probably the hundred millions of dollars versus the tens of millions of dollars. So I think, particularly as it relates to the UK, we're looking at something that could be several hundred million dollars incremental per year depending on how aggressively Ofgem would like to go for the carbon reductions that the country has already established as a target.

Ali Agha -- SunTrust -- Analyst

Thank you.

William H. Spence -- Chairman and Chief Executive Officer

You're welcome.

Operator

The next question will come from Julien Dumoulin Smith with Bank of America. Please go ahead.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Good morning, guys, it's actually, Ryan Greenwald on for Julian thanks for taking questions.

William H. Spence -- Chairman and Chief Executive Officer

Sure

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Good morning, So can you guys just give a little more color on the hedging strategy in the current environment, it seems like you guys are being pretty patient can you just kind of elaborate there given the improving currency as of late?

William H. Spence -- Chairman and Chief Executive Officer

Sure, I will ask Joe to comment on that.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Sure. There's been no real significant change to our hedging strategy. We are being patient and we continue to monitor Brexit situation and potential impacts from the pending U.K. elections and the January Brexit deadline with the prospects of a no deal Brexit greatly reduced current probabilities set at 90% for a deal or no Brexit at all. Both of those would be positive to the pound, So current forecast 0.2 upside relative to the current FX rate into $1.35, $1.40 area. So we will again continue to wait and see how these events play out over the next several months opportunistically layer on hedges if the opportunity presents itself.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Got it. That's helpful. And then how real do you guys perceive nationalization risk given the latest development ?

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

I think that risk, while we have always said we believed it to be extremely low has gone even lower, the Labour Party has really dropped in the polls their manifesto could only be really achieved if they win that outright majority in the election, that is very unlikely their best shot would be to form a coalition government and very likely the coalition partners that they align with would not be probably likely to want to sign onto a renationalization manifesto. So we believe that things from our perspective are moving in the right direction at that risk continues to go even lower. From a pretty low starting point to begin with.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks for the time.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

you're welcome.

Operator

The next question will be from Praful Mehta with Citigroup. Please go ahead.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi guys,

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

good morning.

Praful Mehta -- Citigroup -- Analyst

Hi. So maybe just on the foreign exchange side and the hedging that you talked about, you reiterated your guidance for 21, can you just give us a sense of what's built into that in terms of the range on the foreign exchange side for 21?

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

yes we're using profits [Phonetic] it's Joe. We're using the forecast that we had for FX rates at the time we gave that guidance, which was a $1.35 to $1.60.

Praful Mehta -- Citigroup -- Analyst

Got you. So the lower end of that is a $1.35 depending on where that goes, obviously the estimates can move as well. I guess.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

That's correct.

Praful Mehta -- Citigroup -- Analyst

Got you. All right, And then the. Secondly, in terms of the strategic side. I'll ask a more generic question, if that's OK. What I'm trying to get a sense of is, I know that in the past you've looked at the U.K strategically and said that the tax leakage, has been a challenge, if there is somebody who can help offset that tax leakage, we're using tax assets of their own. Is that something you see as valuable as a strategic opportunity or do you not really consider that as a, as an opportunity. From your perspective.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Well, as I said, I'm not going to speculate on the strategic front, we have mentioned in the past that we continuously look for opportunities whether they're tax related or not to take strategic action that could certainly improve the shareowner value as we've done over the past decade. So from that perspective, nothing has really changed.

Praful Mehta -- Citigroup -- Analyst

Got you. And just following up on that, do you see from an in-buyer interest perspective on the strategic options in the UK, would you consider now to be a good time or do you think that there is just so much uncertainty on Brexit that if you have to do something you really not, that nobody has got really good clarity on it or do you see that or that is there are different perspective on timing around something to do with the U.K.?

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Well, I would say that we have not tested the market on an outright sale of our UK businesses. At this time. And I think to your point, this may not be the best of times given we are very close to seeing the outcome of Brexit and I think it's clear from our perspective relative to Brexit that Either way, the general election turns out. We think the pound is going to strengthen once the uncertainties of Brexit are removed and and it will be clear, I think if you believe the polls and if they ultimately prove correct the Conservatives will win an outright majority, and it's very unlikely the Labour Party could achieve a majority and as you also probably know that One of the overhangs on all of the utility businesses in the UK has been on the threat of renationalization, which as I indicated earlier, it is dropping pretty significantly in our view.

Praful Mehta -- Citigroup -- Analyst

got you, that's super helpful and congratulations.

Thank you.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

The next question will be from Greg Gordon with Evercore. Please go ahead.

Greg Gordon -- Evercore -- Analyst

Hey, good morning .

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Good morning, Greg.

Greg Gordon -- Evercore -- Analyst

So you guys, I'm noticing that you're talking about in Kentucky, on the margin, there are embracing more renewable energy alternatives it's been a call centric state. Can you talk about what your short, medium, longer term plans might look like, maybe not in this next rate case, but maybe as you think about the mid to late 2020's with regard to aspirations to continue to push a green agenda in that state and what it might mean for rate base growth?

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Sure. Paul, do you want to comment on kind of the landscape in Kentucky and what you see on the ground there?

Paul W. Thompson -- Chairman, Chief Executive Officer and President

Certainly Again, this is Paul Thompson. We have a investor. I mean integrated resource plan that of course we do triennially and it still has coal as our lease cost resource going out into the late '20s, early '30s or we might see some more change but aside from that we're looking at the market all the time and, as Bill said earlier, looking for economic advantages for the customer. So one of the things that we're doing now as we've commented on is going to test the market with an RFP for renewables, we put that out in February that was for upwards of 200MW we're still processing that but based on that we expect to, to see some filings to move forward on some more renewable energy that is economic to the customer set.

So things like that in the near term, we're going to continue to do when you get out into the later '20s and as we had in our Climate Assessment report, we talked about as coal becomes not economic for whatever reason or ages, to the point of not being able to be economically retrofit etc. We will likely be looking at renewables and or gas as the economics may dictate. So I think we're trying to stay on the forefront of what's economic to the customer and some of this renewable certainly can be and that's what we're going to kind of try to keep doing in the state.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

I would just add, Greg. I think that what we're seeing based on some modeling we're doing and other things is that it may not be that we actually shut down some of these larger coal stations. But we supplement them with renewable energy such that the output coal-based output may drop, but it could be there for the customer As Paul mentioned, it could be still economic to to kind of pair that base load generation with some of this variable generation and that could be I think a win-win for the customers .

Paul W. Thompson -- Chairman, Chief Executive Officer and President

good way to balance the reliability agains [Indecipherable]

.

Greg Gordon -- Evercore -- Analyst

Thank you very much guys.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Okay, Greg. Thank you.

Operator

The next question is from Paul Patterson with Glenrock Associates Please go ahead.

Paul Patterson -- Glenrock Associates -- Analyst

Hey, good morning .

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Good morning, Paul.

Paul Patterson -- Glenrock Associates -- Analyst

So like all my questions have been answered but, there was this discussion you guys made about this innovative technology regarding down power lines and cutting off the power to it and I think you guys were talking about in the context of first responders and stuff but, what does this mean for the potential of wildfires or is there any application there at all is a proprietary is there more to this may be then than what it sounds like? I'm just just curious.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Good question, Very good question, I'll ask Greg Dudkin who heads up our PPL Electric Utilities to to make some comments.

Gregory N. Dudkin -- President

Yeah. So just very quickly about the technology, what we're using information that comes back if a power line hits the ground, We're taking information from our relays to determine, hey, we may have a power line down on the ground and we can automatically de-energize it. So as you said the first application is to protect the public and that's application, I think it could be used in areas of at-risk of wildfires. So that could be a potential application in the future as well.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

And how about the proprietary nature of it.

Gregory N. Dudkin -- President

So we, we've applied for our patent on it, but we don't expect to get rich on it, but you we'd be more than happy to talk to other utilities about its use.

Paul Patterson -- Glenrock Associates -- Analyst

OK, just when you say a grounded power line hits the ground. What about if a tree hits the power line. Does that have the same impact?

Gregory N. Dudkin -- President

so we are now taking a look at that as well. This this application is more around where you have a live conductors that are on the ground , but we are taking a look at because, actually I'll call it the signature is similar to be able to identify when treat it's a line as well.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. Well, it sounds interesting. Okay. Well, thanks a lot.

Gregory N. Dudkin -- President

You're welcome.

Operator

The next question will be from Gregg Orill with UBS. Please go ahead.

Greg Orill -- UBS -- Analyst

Yes, thank you. Just in the UK. Where do you stand in terms of returns and achievement of performance incentives versus your plan ?

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

sure, Greg. Generally speaking, we're right on track with the plan in terms of executing the capital in the O&M that was approved and our fast track application in the very beginning of the process or the rain period at the operating

William H. Spence -- Chairman and Chief Executive Officer

company level. So at the four distribution network operations companies. We've been in this roughly 9% to 10% return on on regulatory assets in that range. I don't know, Phil, if you want to comment more specifically, but we've been kind of low, just below about 10%. Yes,

Philip Swift -- Head of our Western Power Distribution business

that's correct. Bill. So we continue to execute in line with the plan as you said, And in terms of incentives, we maximize incentives on customer service we're close to maximizing on 2 of the licenses on many interruptions stakeholder engagement, we were ranked the best in the sector again for the eighth consecutive year, with the highest level of incentive based reward.

So yeah, in line with plan possibly slightly better

William H. Spence -- Chairman and Chief Executive Officer

and that in that roughly mid 9% is on a real basis. As you recall, in the UK. We start with the nominal. And then we built to the real based on incentives and inflation etc.

Greg Orill -- UBS -- Analyst

Thank you

Paul W. Thompson -- Chairman, Chief Executive Officer and President

You're Welcome.

Operator

[Operator Instructions] The next question will come from Anthony Crowdell with Mizuho. Please go ahead.

Anthony Crowdell -- Mizuho -- Analyst

Hey, good morning. Hopefully, two quick questions, one is, and I don't know if you can answer. How far along in 2020 would you go with keeping 2021 completely exposed on the hedge status. ?

William H. Spence -- Chairman and Chief Executive Officer

Sure. I'll ask Joe to comment on that.

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Yeah, hi, Anthony. I think it will again to my earlier points. We want to monitor the events as they occur in the UK over the next several months. With respect to the general election in mid-December and the end of January Brexit timeline. So I think, I don't have a date specific, but we'll monitor those events. Again, we would think based on information we have today relative to those events the pound would move higher. So we'll wait to see what happens then. And as you would have how it materialize over the time and look at hedges sometime in 2020 -- 2021 .

Anthony Crowdell -- Mizuho -- Analyst

And then switching gears to the credit agencies have typically viewed viewed UK regulation I guess is maybe a credit positive or premium jurisdiction has that changed at all as you've seen the other segments, could potentially lower returns?

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Yeah. And so we've had conversations with the rating into. I think they've made comments with regard to this, but in our conversations with them , they don't view the UK differently. At this point with respect to electric distribution RIIO-ED1 goes through the end of March, 2023. So we have a quite a bit of time

and certainty and cash flows to that and I think they'll continue to monitor the UK and developments through the rest of RIIO-ED1 and how that may impact RIIO-ED2 before they make a decision, but I think they continue to view the U.K positively.

Anthony Crowdell -- Mizuho -- Analyst

Great, thanks for taking my questions.

William H. Spence -- Chairman and Chief Executive Officer

You're welcome.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Spence for any closing remarks.

William H. Spence -- Chairman and Chief Executive Officer

Okay. Thank you, operator and thanks for all the participated today and I look forward to seeing many of you next week at the financial conference

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Andy Ludwig -- Vice President, Investor Relations

William H. Spence -- Chairman and Chief Executive Officer

Joseph P. Bergstein -- Senior Vice President and Chief Financial Officer

Philip Swift -- Head of our Western Power Distribution business

Paul W. Thompson -- Chairman, Chief Executive Officer and President

Gregory N. Dudkin -- President

Ali Agha -- SunTrust -- Analyst

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Praful Mehta -- Citigroup -- Analyst

Greg Gordon -- Evercore -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

Greg Orill -- UBS -- Analyst

Anthony Crowdell -- Mizuho -- Analyst

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