The operator introduces Irene Prezelj, Vice President of Investor Relations and Communications for FirstEnergy Corp, who will lead the third quarter 2023 earnings conference call. She is joined by President and CEO Brian Tierney and Senior Vice President and CFO Jon Taylor. Non-GAAP financial measures and forward-looking statements will be discussed, and the appendix includes supplemental information. Tierney discusses the company's strong third quarter results, with GAAP earnings of $0.74 per share and operating earnings of $0.88 per share, thanks to disciplined operating expenses and investments in system reliability.

The company experienced a tax benefit and mild temperatures impacted earnings in the second quarter. Lower pension credit and higher financing costs also affected quarterly results. Despite these challenges, the company reported higher GAAP and operating earnings compared to the previous year. The company's employees demonstrated financial discipline and executed on their capital plan, resulting in a reduction in base O&M and an increase in CapEx. The treasury organization also executed a strategic debt issuance to retire high-cost debt and fund the pension. Overall, the company had strong operational and financial execution, allowing them to meet their targets.

In the third paragraph, the company states its intention to build on its current performance and improve for customers. They provide financial guidance for the fourth quarter and narrow their operating earnings guidance range. The company also addresses the ongoing investigation by the Ohio Organized Crime Investigation Commission and reaffirms its commitment to cooperate and prevent similar activities in the future. The company also mentions its favorable positioning in the current interest rate environment, with plans to close on a transaction and receive $3.5 billion in 2024. They also mention their light debt maturities in the next few years, which supports their robust capital plan for the coming years.

The company has invested $12 billion over a 3-year period, with a focus on transmission and distribution. They have seen a 7% rate base growth and are considering further investments. The company also declared a 5% increase in quarterly dividends and achieved regulatory milestones, including a $28 million revenue increase in Maryland and approval for 30 megawatts of solar generation in West Virginia. They plan to seek approval for an additional 20 megawatts once customer subscriptions reach a certain threshold.

Jon will discuss the progress of regulatory items and filings in Pennsylvania, New Jersey, Ohio, and West Virginia. The company is focused on making investments in its regulated businesses, employees, and systems to improve the customer experience and take advantage of opportunities in the energy transition. The organization is shifting decision-making and accountability closer to the business units, with plans to fill key executive positions. The company is building a strong foundation for operational and financial excellence and is well-positioned for future growth and investment opportunities.

Jon Taylor, the speaker, begins by discussing the company's strong quarter and their commitment to operational excellence and financial discipline. He then mentions the impact of unseasonably mild temperatures on their service territory and how they were still able to meet their guidance. He goes on to mention progress on regulatory initiatives and then moves on to a review of the company's financial performance. He highlights their GAAP and operating earnings for the third quarter and year-to-date, and credits their intense focus on operating expenses for their performance. He notes a 13% reduction in O&M costs and expects a 15% reduction for the full year. He also mentions that about 50% of the cost reduction is sustainable and will continue to benefit the company in the future. Lastly, he mentions that their capital spending in transmission and distribution is ahead of plan.

The company's strong planning and execution resulted in an increase in their 2023 forecasted capital investment. The distribution business saw benefits from a focus on operating expenses and capital investment programs. Mild weather and lower customer demand had a negative impact on earnings, but weather-adjusted usage in the residential and commercial sectors is higher than last year. The transmission business saw an increase in results due to rate base growth.

In the third quarter, the company deployed $1.2 billion in capital for its transmission business, which is a 50% increase from last year and 20% above their plan. The company is currently working on various projects to improve service reliability and accommodate increasing customer demand. They anticipate investing over $1.8 billion in transmission formula rate investments for the full year. In the corporate segment, the company's results were largely influenced by a tax benefit and consistent operational and financial execution. Despite challenges such as pension and lower weather-related distribution sales, the company has managed to offset these with cost control and other financing and tax benefits. The company's employees have played a crucial role in addressing these challenges and supporting their commitments.

The company has completed their 2023 debt financing plan, with 6 long-term debt transactions totaling $1.6 billion and a lower average coupon than planned. They also issued $1.5 billion of convertible debt to refinance expensive borrowings and make a voluntary pension contribution. The company has extended the maturity date on their revolving credit facilities and plans to use proceeds from the sale of an asset to repay costly borrowings and possibly redeem high coupon debt. Their debt financing plan for the next 2 years is minimal, with only $2.1 billion needed for stand-alone transmission companies and $300 million for holdco debt. The company is well positioned for potential interest rate increases.

The company has been working on several rate cases and regulatory activities. They have received an order in their Maryland base rate case that aligns with their goals and new rates have gone into effect. They are also making progress on their New Jersey and West Virginia base rate cases. In Pennsylvania, they have received approval to consolidate their four distribution utilities and a settlement agreement has been filed. The consolidation is expected to close by early 2024 and will simplify their legal entity structure and increase efficiency.

The company has upcoming hearings in Ohio and West Virginia for their Grid Mod II filing and fifth Ohio electric security plan. They have also reached a settlement in their West Virginia depreciation case and received approval for solar generation sites. They plan to file for their New Jersey infrastructure investment program and have a busy regulatory calendar in 2024. The company has had strong operational and financial performance due to their team's focus on what they can control and continuous improvement.

The company has faced challenges but has delivered solid results in the first 9 months of the year and is on track to meet financial commitments and continue growing. The company also announced potential projects in the Dominion and APS service territories and is excited about the opportunity. The call is now open for questions and the first one is about the upcoming Ohio case and potential bill impact.

The speaker discusses the upcoming base rate case and the key drivers of the case, including updating rate base and prudently incurred costs. They mention that there is nothing controversial in the case and that the Ohio Commission has been supportive of wires investments. The speaker also mentions the need to increase return on equity and minimize bill impact for customers. Lastly, they note a significant decrease in O&M expenses due to pension benefits.

The speaker is responding to a question about the sustainability of the company's benefits and pension performance. They mention that about 50% of the savings from the benefits are sustainable, and the other half is unique. They also mention that the pension performance is flat, but they are monitoring it closely. The speaker also thanks the previous caller and mentions the company's search for a COO and President. The next caller asks about the company's financing plans.

The speaker clarifies that there is no equity requirement, and the company has a lot of financial flexibility due to projected cash flow metrics and the $3.5 billion proceeds from the FET sale. There is no decrease in CapEx, and the capital plans for 2023-2025 have actually increased by $300 million.

Nick Campanella of Barclays asks about the potential impact of the PJM transmission opportunity on the company's financials. CEO Jon Taylor and CFO Brian Tierney confirm that it is a significant opportunity, potentially in the hundreds of millions of dollars range, but they are still working on determining the exact size. They hope to provide more details at EEI.

Nick Campanella asks about the cadence of updates and guidance for fiscal year 2024, given the current changes within the company. Brian Tierney assures that guidance will be provided on the fourth quarter call and that there may be some late-breaking news. He wants to avoid surprising investors and will update them as news becomes available. Jon Taylor adds that there will be headwinds in fiscal year 2023, such as pension and tax items, but the company has taken steps to offset these impacts.

The speaker discusses the company's tight cost controls and how they overshadow the benefits of income taxes. They mention the upcoming year and the potential benefits from returning to normal weather, rate cases, and capital programs. The speaker believes the returns from these cases will have a significant impact on the company's earnings. The speaker also mentions the ongoing New Jersey rate case and their efforts to reach a settlement. They are optimistic about the potential for a successful conclusion without going through adjudication.

The speaker was asked about the latest feedback from rating agencies on the company's prospects for achieving investment-grade ratings at the parent level and the FFO to debt outlook for 2024. The speaker stated that they have had constructive conversations with the rating agencies and have projections showing they will be in the 14-15% range in 2024 and 2025. However, due to unseasonable weather, a voluntary pension contribution, and one-off items, their current FFO to debt is closer to 11%. They expect improvement with rate cases and receiving 100% of FET proceeds in 2024. The questioner followed up on the weak FFO for the first nine months and the speaker explained that some improvement is needed for any upgrades.

The company's trailing 12 months have shown a slight decline due to planned actions and non-recurring items, but the company remains confident in their plan and metrics. The outcome of the distribution case in Ohio is a key factor in the company's growth profile, but there are other rate cases that will provide indications of their success before the end of 2025.

The company is discussing their tax benefits and how they were not initially expected, but the team executed on them. The blended effective tax rate is expected to be 17-18% this year and 20-21% in the long term. This is already reflected in their EPS growth plan, which also includes the costs of hiring additional managers. The company will provide an update on the fourth quarter earnings call regarding their long-term plan revisions.

The company plans to provide specific guidance for the upcoming year and update their capital plan. This may include changes in EPS and long-term EPS CAGR, but there will be no change in long-term EPS CAGR. The company expects to earn a normalized ROE of 9.5 to low-10s range through rate cases and updating their rate base. They anticipate a rate base growth of 7%.

Brian Tierney discusses the long-term growth rate of earnings and how it is aligned with the rate base growth due to improvements in ROE. He also mentions active rate cases and continued investment for the benefit of customers, which will contribute to the 6-8% growth rate. The question then shifts to the progress of key management hires and moving beyond legacy investigations. Tierney mentions that they are still in the process of recruiting and that it needs to be done sequentially.

The company is actively working on filling key leadership positions and is confident in the strong candidate pool. They are focused on moving forward and putting past issues behind them. The company is also actively engaging with the OOCIC and providing updates for the DPA with the Department of Justice. They are working to settle remaining litigation and do not anticipate any unexpected issues.

FirstEnergy is currently in the midst of ESP-5 and Grid Mod cases in Ohio. They are actively engaged in settlement discussions in order to come to a settlement similar to what other companies have settled at. There is nothing controversial in these cases and they hope to have them settled before the May '24 rate case. A replay of the call will be available on FirstEnergy's Investor Relations website.

This summary was generated with AI and may contain some inaccuracies.