The operator introduces the FirstEnergy Corp. Second Quarter 2024 Earnings Conference Call and turns it over to Vice President Irene Prezelj. Prezelj welcomes everyone and introduces President and CEO Brian Tierney and Senior Vice President and CFO Jon Taylor. Tierney discusses the company's financial performance and highlights for the second quarter, progress with their business plan, and updates on regulatory and legacy issues. He also mentions special items that impacted GAAP earnings, which Taylor will address later.

In the second quarter, the company saw an increase in operating earnings due to rate adjustments and increased customer demand. This was partially offset by higher expenses and dilution from the sale of FET. The company is on track to achieve their goals for 2024 and is reaffirming their operating earnings guidance, CapEx plan, and long-term growth rate. The company has made significant progress in the past year, including restructuring and investing in their employees.

FirstEnergy has made efforts to hire skilled workers and is implementing a new apprenticeship program to better serve customers. They have also launched a new capital investment program, Energize365, which represents a 44% increase in investment. In terms of regulatory matters, they have concluded engagements in several states and have ongoing rate proceedings in Ohio and Pennsylvania. They are seeking to obtain more clarity and reach settlements in these cases. Additionally, they have filed a long-term infrastructure investment plan in Pennsylvania.

FirstEnergy has proposed a five-year plan that will result in $1.6 billion in investments to improve reliability. This plan is twice the size of previous plans and demonstrates the company's ability to use its strong balance sheet for the benefit of customers. They are also in settlement discussions for a $935 million plan in New Jersey. The company has made significant strides in improving its balance sheet, including selling 30% of FET and receiving $1.2 billion in cash. This has allowed them to pay down debt and improve their credit ratings, with S&P recently upgrading FET's rating to BBB+ and retaining a positive outlook. This has significantly strengthened FirstEnergy's balance sheet and sets them apart from their peers.

FirstEnergy's balance sheet is in good shape, allowing them to introduce Energize365 and make investments for the energy transition. They have excess transmission capacity to serve new data centers and are participating in PJM open windows for load growth. They are also working to ensure there is enough capacity to meet growing load and enable the energy transition. They are reviewing their current tariffs to negotiate terms for serving new loads while maintaining customer protections.

FirstEnergy has made progress in resolving legacy issues and has completed its obligations under a deferred prosecution agreement with the U.S. Attorney's Office. They will continue to cooperate with the DOJ and have reached a settlement with the SEC for $100 million. They are also in the final stages of resolving a case with the Ohio Organized Crime Investigations Commission for $19.5 million. Three docketed cases related to these issues are moving forward at the PUCO, with an audit report due on August 28 and hearings scheduled for October 9 and February 3.

FirstEnergy values its shareholders and aims for a 6% to 8% operating earnings growth rate by investing in their system and maintaining a strong balance sheet. They have a low-risk profile and are targeting a 14% to 15% FFO to debt ratio. The company has made progress in strengthening their balance sheet and focusing on operational and financial plans. Two executives have recently announced their retirement after many years of service.

The article thanks Chris and Irene for their years of service and announces their retirement. The financial performance and special items that impacted the second quarter GAAP results are also discussed, including increased asset retirement obligations and costs associated with redeeming high-cost debt. The company's Energize365 capital investment program, financial discipline, and culture of continuous improvement are also highlighted.

In the second quarter of this year, the company delivered operating earnings of $0.56 per share, which exceeded their guidance and was higher than the same quarter last year. This was due to new base rates, strong invested capital, and increased customer demand. The distribution business saw a slight decrease in operating earnings due to planned increases in expenses, but the Integrated segment saw a significant increase thanks to new base rates and rate base growth. The stand-alone transmission segment saw a decrease in earnings due to the sale of a 30% interest in FirstEnergy Transmission LLC. The Corporate segment saw improved losses due to lower financing costs.

The company's second quarter and year-to-date results can be found on their IR website. They have provided guidance for the third quarter and reaffirmed their 2024 guidance and long-term operating earnings growth rate. The region has seen positive economic and load activity, and the company is well-positioned to serve their customers. They have received the remaining proceeds from their FET interest sale to Brookfield earlier this month.

The company has recently completed a series of transactions resulting in $7 billion in equity capital and improved credit ratings. The proceeds were used to reduce high-cost debt and pay off short-term debt. The company is now focused on executing their plan, achieving regulatory outcomes, and financing their investment program in a credit-supportive manner. They have also launched a request for proposal for a second pension lift-out transaction to eliminate remaining non-regulated pension liability.

In Ohio, the company filed a base rate review in May for a $94 million rate adjustment on a $4.3 billion rate base. The proposed adjustment supports investments in the distribution system and customer experience while keeping rates affordable. The filing also includes a request to change the recovery of pension costs and to recover other previously incurred costs. An update to the filing was necessary to reflect actual operating results and the impacts addressed in a recent order. The initial request is estimated to result in a 1.4% average increase for customers in Ohio. The PUCO also issued an order approving the company's ESP V with modifications, including extending Rider DCR and allowing for recovery of vegetation management expenses and deferral of major storm expenses.

The company filed an application for rehearing to seek clarity and modifications for key terms in the ESP V order, which includes shortening the term to three years and ensuring full recovery of investments. The PUCO granted the application for further consideration, with no set deadline for a decision. In Pennsylvania, the company filed the third phase of their LTIP, which includes $1.6 billion in investments over five years to improve reliability and modernize the grid. These investments will be recovered through a distribution system improvement charge with a 9.8% benchmark ROE, resulting in a 2% average residential customer rate increase.

The company expects to begin deploying capital in the first quarter of 2025 pending PUCO approval, with DISC revenues starting in the second quarter of 2026. In Pennsylvania, hearings will begin for a base rate review that includes a $502 million rate adjustment and investments in a modern electric grid and customer-focused programs. The review also proposes changes to pension recovery, a blended federal tax rate, and a pension OPEB normalization mechanism. The company is also engaged in settlement discussions for its Energize New Jersey infrastructure improvement proposal and New Jersey Energy Efficiency and Conservation Plan.

The company has filed a plan with the BPU for the period of January 2025 to June 2027 with a budget of $964 million. The plan includes programs for energy efficiency, peak demand reduction, and building decarbonization with recovery of lost revenues. The BPU has suspended the procedural schedule for settlement discussions and a final decision is expected by October 15th. The company is making good progress in 2024 and has a strong strategy for growth. The analyst asks about potential upside in load growth, and the company is currently evaluating its future load growth rate, with some positive impacts from data centers and EV adoption.

The company is experiencing modest and steady low growth, with data centers having a potential for positive impact on earnings and rates. The company has been awarded opportunities to invest in the transmission system to serve data center load in certain areas. There has been noise about co-located nuclear data center deals in PJM, but it is not business impactful at this point. The company is interested in seeing what FERC's stance is on these deals and their potential impact on existing customers and the capacity market.

The speaker discusses a recent auction in the PJM region and how it may not solve the issue of attracting investment. They mention potential discussions around owning peaking assets and rates, but state regulations may be a hindrance. They also congratulate Irene on her retirement after 40 years with the company and mention being close to settlement actions in Pennsylvania.

Brian Tierney, CEO of FirstEnergy, discussed the company's ongoing discussions for a potential settlement in Pennsylvania, stating that talks are in early stages and they are optimistic about reaching an agreement before the August hearings. He also mentioned their decision to seek a shorter period for the ESP V in Ohio, as the commission has deferred some key aspects of the ESP to the base rate case. Tierney clarified that it is the company's decision to accept an ESP or not. He also mentioned that they have taken a reserve for some Ohio issues and are working towards resolving the DPA 2 period. Paul Patterson also commented on the company's current standing in the industry.

The company has been working hard to take responsibility for past issues and has made significant progress in three areas: the US Attorney's Office recognized compliance with the DPA, progress was made on the OOCIC, and an agreement in principle was reached with the SEC. The company is focused on putting these legacy issues behind them and moving forward. Regarding power prices, the company is considering potential efforts to curb the rise, such as state legislation, strategic reserves, and consolidated IRPs.

The company is analyzing the impact of recent developments on a jurisdiction-by-jurisdiction basis. They expect a minimal impact in West Virginia, which has a mix of traditional and progressive energy policies. They are open to investing in capacity in other states through a regulated basis, such as through state agencies holding auctions for competitive generators to offer into. They are also open to offering a regulated return and recovering fuel and energy costs on a pass-through basis.

The company is not willing to engage in competitive generation, but is considering other opportunities to benefit customers. They are expecting some cost savings from facility optimization, but the bulk of their efforts are focused on improving workforce productivity and investing in technology. They have already achieved $200 million in cost savings in 2023.

The company is targeting $70 million in cost savings this year and will continue to offset inflation. Offshore wind is not a priority for the company, but they are investing in transmission infrastructure to support it. The recent PJM price spike is not a signal, but the company will continue to monitor the situation.

The speaker discusses the recent PJM auction and the lack of new generation that cleared in the auction. They also mention the time it takes to build a new power plant and the need for a robust grid to enable energy transmission. The speaker also mentions their engagement in discussions with states, regulators, and customers about deploying their balance sheet capacity for generation. They do not see the PJM construct as a solution to the energy issue and have focused on derisking their balance sheet this year.

The speaker talks about the company's plans for a future update and how it will affect their capital expenditures. They mention their goal of maintaining a BBB flat credit rating and their current balance sheet capacity. They also discuss the factors that will go into their capital plan, such as regulatory lag and transmission capital. The speaker notes that the company has seen strong load growth in both commercial and residential customer classes and speculates on what may be driving it.

The speaker discusses the company's recent increase in average usage per customer and customer growth in certain jurisdictions, driven by progressive energy policies and economic activity. They also mention the rebound of small and medium-sized businesses after the COVID pandemic. The speaker expresses their desire to reach a settlement in the Ohio rate case, citing previous successful settlements in other cases. However, they note that it is still early in the process.

The speaker responds to a question about the company's rate case filing and states that they will be engaging with interveners and other interested parties. They also mention their belief that a well-run and growing utility should regularly go in for rate cases. The speaker thanks the previous speaker and congratulates someone named Irene.

The speaker responds to a question about which jurisdictions would be more open to the idea of regulated or central procurement. They mention that West Virginia has expressed interest in adding baseload dispatchable generation, while Maryland, Ohio, and Pennsylvania may also be open to it under certain circumstances. The speaker believes that there can still be energy markets and retail choice while also having regulated procurement, and it doesn't have to be one or the other.

During a conference call, Brian Tierney thanks Paul Patterson for his question and Andrew Weisel congratulates Irene and Chris on their careers. Andrew asks about the company's balance sheet, specifically the FFO-to-debt ratio and the potential need for additional equity. Jon Taylor responds that they have made significant improvements in their metrics, with a 200 basis point improvement in debt levels compared to last year. He also mentions that they may not hit the 14% FFO-to-debt target this year due to the SEC and OOCIC accrual, but they expect to reach it next year.

The company predicts that they will reach a 14% level in the first, second, or third quarter of next year. A pension lift out would not require external financing and would be funded through the pension plan. The company eliminated a $720 million liability in December without external financing. A NYSERDA type agency would require legislation changes in all jurisdictions and a process to run an auction. The company hopes to get an order for Grid Mod II in the fourth quarter of this year and start making investments right away.

The speaker discusses the need for legislative change and the creation of a new entity to handle energy procurement for the state. This would provide a sustainable solution and avoid the constant need for auctions and administrations. They also mention the potential impact on economic growth and the need for a regional and statewide approach to address the issue.

The speaker concludes the teleconference webcast and thanks the participants for their participation. They can now disconnect their lines and the speaker wishes them a wonderful day.

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