The FirstEnergy Corp. Fourth Quarter 2023 Earnings Conference Call has begun, with Irene Prezelj, Vice President of Investor Relations and Communications, introducing the host, President and CEO Brian Tierney. The call will include the use of non-GAAP financial measures and forward-looking statements. Tierney expresses his gratitude for the company's employees and their dedication to serving customers. He promises to share the company's success story for 2023.

The speaker will discuss the financial performance of the company for the fourth quarter and full year of 2023, highlighting a significant increase in capital investment for the wires business. The company achieved regulatory milestones and delivered strong earnings despite challenges such as market conditions and mild weather. Through cost-saving efforts, the company was able to meet its operating earnings targets. In 2023, a total of $3.7 billion was invested in improving reliability and customer experience, with the majority going towards the wires business.

In 2023, FirstEnergy saw significant improvements in their balance sheet and were able to take advantage of a better supply chain and favorable weather conditions. They completed a transaction with Brookfield, executed a convertible debt issuance, and made a large pension contribution. The improved financial condition allowed the Board to raise the dividend payout ratio and increase the quarterly dividend for the first time in three years. Going forward, FirstEnergy plans to continue growing their dividend with operating earnings and does not anticipate needing additional equity to fund their growth.

FirstEnergy is implementing a $26 billion capital investment program called Energize 365 to improve reliability and customer experience. This program is expected to result in a 9% average annual growth in rate base over the next five years. The company reaffirms its 6% to 8% long-term annual operating earnings growth rate and expects to maintain a strong customer affordability position. In terms of regulatory outcomes, FirstEnergy has achieved several milestones in Maryland and West Virginia, including a reasonable outcome in a distribution rate case and a settlement with staff and interveners for a recovery of $255 million over three years.

In January, FirstEnergy filed a settlement for a base rate case in West Virginia that reflects a $105 million rate adjustment and demonstrates the state's attractiveness for investment. In New Jersey, a base rate case settlement was filed with support from staff and interveners, reflecting an $85 million rate adjustment and a 3.4% increase in the average residential bill. In Pennsylvania, the consolidation of operating companies and transfer of transmission assets were approved, with a base rate case expected to be filed in April. These recent examples demonstrate FirstEnergy's ability to receive fair and reasonable regulatory outcomes. In Ohio, they are actively involved in regulatory processes and expect constructive outcomes.

FirstEnergy will adopt new segment reporting in 2024, with the Distribution segment housing their Ohio and Pennsylvania pure-play distribution-only companies, the integrated business segment reporting on companies with combinations of distribution, transmission, and generation, a standalone transmission segment, and a Corporate and Other segment. These changes aim to increase simplicity, transparency, and accountability in reporting. The Distribution segment will represent about 45% of forecasted 2024 operating earnings, the integrated business segment will represent about 35%, and the standalone transmission segment will represent about 20%. Quarterly and year-to-date reconciliations will be provided throughout 2024.

The paragraph discusses updates on various topics related to FirstEnergy, including their cooperation with the Ohio organized crime investigations Commission, changes to their greenhouse gas emissions goals, and recent additions to their leadership team. They have decided to remove their 2030 interim goal due to challenges in meeting it, but remain committed to achieving net carbon neutrality by 2050. They have also hired a new Chief Operating Officer and President of FirstEnergy Utilities.

The paragraph discusses the addition of Wade, a seasoned executive, to the leadership team at FirstEnergy. The company is also actively searching for candidates to run various operating businesses. The focus for the company going forward is on growing their five regulated, mostly wires companies and making investments to improve reliability and the customer experience. The company had a challenging year in 2023, but still managed to meet financial commitments and emerge as a stronger company. The focus for the future is on a five-year plan and 2024 guidance.

The company's employees showed resilience and determination in overcoming challenges and improving operational and financial performance. Fourth quarter and full year operating earnings exceeded guidance, with a 7% growth from the previous year. This was achieved through a focus on reducing operating expenses, deploying proceeds from a convertible debt offering, and realizing tax benefits. Operating expenses were reduced by over $200 million, resulting in a $0.32 per share benefit, with about half of the reduction being sustainable. The company also saw improvements in its formulary investment programs, resulting in a $0.20 per share improvement year-over-year. The company successfully deployed $3.7 billion in capital in 2023, exceeding its original plan by close to 10%.

In 2023, the company's transmission business saw an increase in earnings due to investment programs and rate base growth. However, the distribution business saw a decline in earnings due to lower sales and pension credit, but also reflected the impact of investment programs and new rates. The Corporate segment benefited from lower expenses and a lower tax rate. The company also executed a $700 million pension lift-out to reduce future earnings volatility. Going forward, the company will continue to pursue opportunities to derisk their pension plan.

The company has introduced a five-year financial plan that aims to achieve 6% to 8% annual operating earnings growth and improve earnings quality, credit metrics, and dividend growth. The plan includes a $26 billion investment in the Energized 365 grid evolution program, with a focus on formula rate programs that provide real-time returns. The plan also includes annual investments in transmission and distribution systems, with a 9% average annual rate base growth. The company is sunsetting their previous transmission program and prioritizing investments that improve the customer experience and support energy transition. The plan is flexible and can be adjusted as needed. The company expects an increase in earnings from their investment programs and rate base adjustments.

The company's plan is based on approved or settled base rate cases in multiple states and includes scheduled base rate cases in other states later this year. This plan is expected to improve the company's earnings quality and maintain strong affordability for customers. It will be funded through cash from operations, regulated debt issuances, and proceeds from a transaction. The plan does not require any additional equity and supports a strong financial position. The company's 2024 guidance shows a 7% increase from 2023, with back-end loaded earnings due to timing of new rates and O&M plans. The first quarter is projected to have operating earnings of $0.48 to $0.58 per share.

The company's midpoint earnings of $2.71 per share reflects a 12% increase in regulated growth offset by a decline in earnings from Signal Peak. The increase is due to new rates and investments, normal weather, higher operating expenses, and lower depreciation rates. The company's planned O&M is 10% below 2022 levels and their capital investment plan for the year is a 16% increase compared to 2023. The company's cash flow has improved and they are targeting a 14% to 15% FFO to debt ratio by the end of the year.

In paragraph 14, the speaker reflects on the past year as a challenging but successful one for the company. They credit their 12,000 employees for their outstanding operational and financial execution. The company has a comprehensive plan for continued growth and has significantly improved their balance sheet through investments and regulatory milestones. They have a long-term growth trajectory and are committed to delivering value to shareholders. The call is then opened for questions. The first question is from an analyst at Guggenheim Partners.

Shar Pourreza asks a question about the company's expected growth and potential headwinds. Brian Tierney responds that the growth should be linear and not volatile, and that the company will be investing in regulated properties and regularly going in for rate cases. He also mentions a 9% rate base growth and the potential for incremental CapEx opportunities, but states that they have enough cushion in credit metrics to not need to tap equity markets.

The company has been successful in responding to opportunities like the PJM Open Window 3, which has brought in over $800 million in incremental investment. The company anticipates more of these opportunities in the future and is prepared to fund them through cash flow, debt, and equity. The recent equity transactions have put the company in a good financial position. There are no updates on the OOCIC process, and the upcoming K release should not contain any surprises.

Gregg Orrill, an analyst from UBS, congratulates the company on its new plan and asks about the cash from operations guidance. Jon Taylor, the company's representative, clarifies that the cash from operations will be at least $4 billion in all years and more on average over the five-year period. Orrill then asks Brian Tierney, another representative, about the significant increase in capital investment compared to the previous plan. Tierney explains that the company is now in a better financial position and able to invest in its regulated properties for the benefit of its customers.

The operator introduces a question from Nicholas Campanella of Barclays regarding the recent CapEx raise and its impact on customer bill growth. Brian Tierney, the speaker, responds by stating that the increases will be in the single digits over the five-year period. He also mentions that their rates are currently lower than their peers in New Jersey, West Virginia, Maryland, Ohio, and Pennsylvania, and that their customers' electricity share of wallet has decreased. Jon Taylor adds that in cases where they have approvals or settlements, the average annual increase is 1% lower than the last time.

The speaker discusses the recent increases in customer bills, attributing most of it to generation-related costs. They mention that with new generation service in Ohio and Pennsylvania, there could be bill decreases of 4-8%. They also mention the potential for improved returns in Ohio and Pennsylvania, as well as conservative load growth projections.

The speaker discusses the potential for migration and loan growth in their service territory due to factors like electrification of transportation. They also mention upcoming regulatory processes, including ESP V and Grid Mod II, and their expectation for constructive outcomes. They will also be filing a base rate case in April and are working to limit volatility in their pension.

The company has $700 million in former generation pension liabilities and is considering executing a lift-out transaction this year. They have received authority to make a filing in West Virginia and New Jersey as part of settlements and will be thoughtful about next steps. The company has announced a dividend increase and plans to continue increasing dividends in the future. They believe it is time to reward shareholders and treat them like a traditional utility company.

The speaker explains that the company is in a good position to grow its dividend with earnings due to a healthy balance sheet and lack of equity needs. They have been updating their regulatory processes and increasing investments in their regulated properties, leading to a projected rate-based CAGR of 9% and EPS CAGR of 6-8%. This is due to investing in properties and people, operating safely and reliably, and seeking recovery through regulatory processes.

The company is experiencing success in their financing and rate cases, which has led to a virtuous cycle of growth. They anticipate continued success in the future. While there may be a slight decrease in earnings in the near future, it will be offset by traditional rate base growth and efforts to minimize the difference between earned and allowed returns. This will also lead to improved earnings quality and a reduced risk profile. The company is confident in their ability to minimize customer bill impacts.

In this paragraph, the speaker discusses the expected share of wallet for the company's bill in various states, including New Jersey, Pennsylvania, and Ohio. They also mention sustainable O&M costs that have been taken out of the business, and how they plan to manage O&M within a 2% increase level while also ramping up CapEx. The company plans to focus on continuous improvement to reduce O&M costs.

The speaker, Brian Tierney, responds to a question about the potential benefits of the increasing demand for data centers for his company. He acknowledges that his company, mostly a wires company, may not have as much opportunity in terms of generation, but they do see potential for increased transmission investment and improved affordability in their service territories, particularly in Maryland where a large data center development is taking place.

The speaker discusses the upcoming construction of a large data center complex at a former aluminum smelter site, which will bring investment opportunities to the area. They also address concerns about affordability and the impact of potential increases in power prices on their investment plan. However, they note that recent events have already caused some price spikes, but overall, they do not see this as a major concern.

The company's prices are still low compared to other providers, making electricity a significant value for customers in all five states. The rate increases since the last rate case have been low single-digits, with an average increase of less than 1% per year. However, there may be larger increases in the future as the company has not had a rate case in certain states for a long time. The possibility of a settlement for Grid Mod is uncertain, as hearings are now being discussed after a delay in staff testimony.

During a recent conference call, Brian Tierney, CEO of a company, stated that they are open to settling disputes and believe it is the best option. However, they are also prepared to go to hearings, as they have in the past. Tierney also mentioned that settlement discussions help frame people's positions for a hearing. When asked about strategic options for their Signal Peak business, Jon Taylor, another executive, stated that there are limited options in the current environment. However, the business is not a significant part of the company and will not have a major impact moving forward. Finally, when asked about the balance sheet, Tierney stated that they are satisfied with its current shape.

The speaker, Brian Tierney, is pleased with the current state of the company's balance sheet. They have raised $7 billion over the past three years and anticipate an additional $3.5 billion in the near future. The company's goal is to reach a 14-15% FFO by 2024 and improve their credit ratings. The CFO, Jon Taylor, adds that the company's debt has decreased from 30% to 26% and they plan to reach 20% by 2026. They credit their strong balance sheet for their ability to invest in regulated properties. A question from analyst Sophie Karp prompts this response.

Brian Tierney is answering a question from Anthony about the company's progress in the past eight months. He talks about reorganizing the company and making key hires to help execute their plan. He thanks Anthony for his question and the conference call ends.

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