Q3 2019 Earnings Call
A brief question answer session will follow the formal presentation.
If anyone should require operated assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Irene presented Vice President Investor Relations for first Energy Corp. Thank you Michel you may now begin.
Thanks, Rob welcome to our third quarter earnings call today, we will make various forward looking statements regarding revenues earnings performance strategies and prospects.
These statements are based on current expectations and are subject to risks and uncertainties.
Factors that could cause actual results to differ materially from those indicated by such statements can be found on the investor section of our website under the earnings information link and in our SEC filings.
We will also discuss certain non-GAAP financial measures reconciliations between GAAP and non-GAAP financial measures can be found on the first energy Investor Relations website, along with the presentation, which supports today's discussion.
Participants on today's call include Chuck Jones, President and Chief Executive Officer, Steve Straw, Senior Vice President and Chief Financial Officer, and several other executives in the room, who are available to participate in the queue in a session now I'll turn the call over to Chuck.
Thank you Irene and good morning, everyone.
This morning, we announced strong results for the third quarter with GAAP earnings of 73 cents per share and operating earnings of 76 cents per share.
Consistent with our nearly five year track record of delivering on our commitments to you our third quarter operating earnings exceeded the midpoint of our guidance range.
As a reminder, when we held our second quarter call. We're waiting for a final outcome related to our Ohio distribution modernization writer.
Because of this the third quarter guidance, we provided to you included a six cents benefit from the DMR.
While the light rider was ultimately removed from our Ohio rate plan I'm pleased to say that we were able to offset its absence during the quarter through a combination of favorable weather compared to normal. The continued strong execution of our customer service oriented growth strategy and on M. discipline.
For the full year, we're narrowing our 2019 operating earnings guidance to $2.50 per share to $2.60 per share.
This reflects our solid results year to date as well as the absence of the DMR and the second half.
We're also providing 2020 operating earnings guidance of $2.40 per share to $2.60 per share and affirming our projection for 6% to 8% of compound annual operating earnings growth from 2018 through 2021.
I know you are anxious for us to communicate both our CAGR and equity plans beyond the 2018 to 2021 timeframe. We will provide this information as soon as it makes sense once we've completed our internal financial planning process.
I should not be taken as any indication that either of these will ultimately be disappointing to the market.
It's simply that I am very protective of our five year track record of meeting or exceeding every commitment we have made and I need to get the detailed planning in place before getting ahead of that process.
Now, let's review our progress with our customer focus growth strategies at our utilities.
In late August each of our for Pennsylvania utilities filed new long term infrastructure improvement plans or l. tips for the 2020 through 2024 period.
The filings outline our plans to invest $572 million over that timeframe.
Accelerate infrastructure improvements and enhance service reliability for more than 2 million customers in Pennsylvania.
These investments to build on earlier improvement plans and included targeted projects that are designed to reduce the frequency of electric service interruptions for customers.
And shorten the duration of outages when they do occur.
Major initiatives will include replacing older infrastructure with new polls overhead lines underground cables substation equipment network vaults and Manholes.
Reconfiguring circuits to minimize customers impacted by service interruptions.
And installing more advanced smart devices that can detect and isolate problems to help quickly restore power to impacted customers.
The work outlined in the LTIP programs accelerates infrastructure repairs improvements and replacements also introducing new investments to enhance our distribution infrastructure and service reliability.
We expect to recover the costs associated with the l. tip through the disc rider mechanism.
We look forward to working with the Pennsylvania Public utility Commission to have the plans approved by the end of the year. So work can begin in early 2020.
Before we move from Pennsylvania on our last call. We mentioned that we were in discussions to transfer the responsibility for decommissioning three mile Island unit two to a subsidiary of energy solutions LLC.
This would remove any future nuclear decommissioning obligations from first energy and further simplify our regulated focus.
In October we sign that agreement, which includes transferring the plant property nuclear decommissioning trust and plant license as well as the associated liabilities and responsibility for decommissioning.
While the agreement is subject to regulatory approvals, we expect transfer to take place around the second half of 2020.
Turning to Ohio, we are beginning to implement our $516 million three year grid modernization program, which was approved by the public Utilities Commission in July .
Were laying the groundwork to begin construction on these projects during the first quarter of next year.
Our investments include the installation of 700000 smart meters and related infrastructure.
Building and advance distribution management system, and our Ohio, Edison Alumina and company and Toledo Edison service areas.
Selling automated equipment on at least 200 distribution lines that can automatically isolate problems prevent entire circuit outages.
And quickly restore electric service to customers.
Installing voltage regulators equipment on more than 200 circuits to provide energy efficiency benefits by optimizing voltage levels on the distribution grid.
In addition, we have committed to developing time varying rates that give customers the opportunity to reduce their monthly electric bill by using energy during off peak periods.
Together. These modernization projects are expected to help reduce the number and duration of power outages and allow our customers to make more informed decisions about their energy usage.
As you'll recall the grid model order also fully resolved the impact of the tax cuts in jobs Act and we began implementing those tax savings for customers on September onest.
Later this month, we expect to file plans with the P. USIO to implement a decoupling mechanism in Ohio, as we discussed last quarter decoupling breaks the link between utility revenue and the amount of electricity consumed by customers.
This supports continued energy efficiency efforts, while ensuring that our utilities have adequate resources to continue providing safe and reliable power to our customers.
Our plan ensures that residential and commercial customers pay no more for based distribution service and was charged in 2018.
After our filing the commission will have 60 days to review and approve the application.
Moving to our transmission business last week, we filed a plan with FERC to move our new Jersey transmission assets onto a forward looking formula rate structure effective January Onest 2020.
They CPFL transmission assets are currently on stated rates based on a settlement approved by FERC in February of 2018.
Hey rate moratorium that was part of that settlement work expire on December 30 Onest.
Our forward looking formula rate plan would support energizing the future investment needs in New Jersey.
Including approximately $175 million in capital spending plan for 2020.
We expect an initial response from FERC by the end of December .
Finally in mid October the bankruptcy court approved FCS as plan of reorganization.
Yes has stated that it plans to emerge as an independent company with a new name by the end of this year.
Now, let's look ahead to next week, when we will see many of you at IAI.
At the meeting we look forward to sharing with you our new corporate responsibility report and strategic plan.
These reports support our commitment to increase transparency and engagement with investors customers and other stakeholders, while providing a platform to track our progress as we transition to a cleaner smarter and more sustainable energy future.
Corporate responsibility report is aligned with the five pillars of our mission statement.
It includes extensive detail on our initiatives from reducing the environmental impact of our operations and upholding high standards for corporate governance to advancing employee and public safety, while building a diverse and inclusive workplace.
Report includes our initial steps to provide data in alignment with the global reporting initiative and the sustainability accounting standards board metrics as well as links to our policies.
We plan to update the corporate responsibility report annually.
Including a data refresh next year in alignment with our 2019 annual report.
At IAI, we will also introduce our first public strategic plan.
Using the foundation of our seven core values the planned clearly articulate our vision for the next five years.
It includes our approach to the rapid changes in our industry fueled by involving customer expectations.
Emerging technologies, and a lower carbon economy.
As we've continuously demonstrated over the past several years first energy in our dedicated employees are prepared to meet any challenge as we work together to deliver energy for a brighter future.
Thank you for your time, we've made great progress this year and we remain focused on executing our strategies for sustainable customer focused growth that will continue to build value for our investors customers communities and employees.
Now I'll turn it over to Steve for a review of the third quarter.
Good morning, it's good to speak with you today before I begin I will remind you that all reconciliations and other detailed information about the quarter are available on our website in the strategic and financial highlights document.
Also you will recall that because of the preferred shares issuance in January 2018, we have been presenting our operating results in projections on a fully diluted basis to ensure the best comparative view of our performance.
As of August 1st although the outstanding preferred shares were converted to common stock.
Now, let's review our results.
Third quarter GAAP earnings were 73 cents per share.
Operating earnings were 76 cents per share as Chuck mentioned this was above the midpoint of our guidance.
In the distribution business earnings decreased compared to the third quarter of 2018, primarily as result of more moderate weather compared to the very hot conditions last summer.
Results for the third quarter of 29 team also reflect the absence of the DMR in Ohio, as well as higher expenses and depreciation.
These factors were slightly offset by a lower effective tax rate and lowered mezz financing costs.
Distribution deliveries decreased slightly compared to the third quarter of 28 team both on an actual in weather adjusted basis.
Cooling degree days were 22% above normal normal for the third quarter, but 9% lower than the third quarter of 2018.
Residential sales were down 2.2% on an actual basis compared to the third quarter of 2018, but slightly increased on a weather adjusted basis. We continue to see a very slight increase in weather adjusted residential sales over the last 12 months.
Yeah.
Third quarter sales in the commercial customer class decreased 3.8% on an actual bases and 2.9% when adjusted for weather compared to the third quarter of 2018.
This change was driven largely by lower demand in the education sector, partially due to the implementation of energy efficiency measures.
As well as decreases in the food and beverage and real estate sectors.
In our industrial class third quarter load decreased 1% as continued growth in the shale gas sector was offset by lower usage from steel automotive and chemical manufacturers, including the impact of the shutdown of the GM lowered stone plant.
Earlier this year.
While we continue to watch these trends very closely load for each customer segment remains in line with our forecast with bright spots, including stable residential customer usage and modest growth in both residential and commercial customer count.
Looking at our transmission business earnings increased primarily as a result of higher rate base at or formula rate companies related to the continued investments in the energizing the future program.
And in our corporate segment third quarter results reflect lower operating expenses in the absence of a third quarter 2018 contribution to the first energy Foundation.
Before we open the call to your questions. We have a few other financial matters to discuss.
First it is our custom to provide an estimate of the annual pension and OPEB Mark to market adjustment, which is a noncash item along with third quarter results.
Based on market conditions as of September Thirtyth, we estimate that adjustment to be in the range of $400 million to $1 billion.
As always the final adjustment will be determined by the discount rate and asset returns at the ended the year.
Our return on assets currently stand at a solid 17 plus percent for 29 team.
Looking ahead. If these results hold through the ended the year, we would be on track to decrease our 2022 funding requirements by approximately $140 million.
In addition.
While the lower interest rate environment resulted in a higher pension liability our funded status as slightly improved to 78% from 77% at year end 2018.
Second during the third quarter, we use successfully extended our corporate term loans and now have a 1 billion dollar one year facility and a $750 million two year facility.
We will evaluate refinancing some or all of these amounts into the capital markets sometime next year.
Finally, we met with the rating agencies earlier this quarter to review our progress on our goals as a fully regulated company with an improved risk profile. We expect all three to provide normal course updates honor entities, possibly as soon as E.
Thank you we continue to be committed to executing our strategies and meeting our commitments to investors now let's take your questions.
Thank you well now be conducting a question and answer session.
If you like to ask your question. Please press star one on your telephone keypad and the confirmation Tom indicate your line is the question Q.
You mean first start to feel like to move your question from the Q.
Participants are using seeker equipment, it may be necessary to pick up your handset before pressing the star Keith.
One moment, please let me pull for questions.
Thank you.
First question is coming from the line of Shar Pourreza with Guggenheim Partners. Please proceed with your question.
Hey, good morning, guys.
Good morning sharp.
Just a quick question on the pension so with pension coming in better than expected can you just maybe talk a little bit about how you think about the flexibility that could sort of provide if these results kind of hold E.
Lowering future equity needs post 21, you've talked about pension as being one of those levers.
Versus using that flexibility to deploy additional capital so any thoughts on how we should think about the incremental flexibility that you could get.
I think the way to think about as sharp as what Steve said in his prepared remarks is it we don't have no required pension contribution through 2022.
So and Thats reduced our 2022 requirement by about $140 million. So between now in 2022 I don't think it has any direct impact upon our business. It just has an impact on the funding requirement that will ultimately see out there in the future.
Yes.
Charlotte's sorry.
This is Steve just to put a little finer point on that our next required funding requirement is in 2022 in that looks to be $240 million.
Got it.
Thank you and then just lastly on on JC PNM Allen sort of the transmission opportunities. There as you as you guys look to roll to Formula rates can you just remind us if that makes deploying capital more attractive or are you sort of already at that full run rate. There. So is there are opportunities.
To deploy additional capital by going to Formula rates.
I think formula rates, obviously, our preferred mechanism they provide the benefit of being very transparent.
To investors very transparent to customers and regulators I think they clearly.
Result in a return of cash.
Both return on and return of capital investment and a more timely fashion to allow additional reinvestment back into future projects. So we talked about what we have planned for 2020, NJ CPFL, but as we go forward, obviously I think you know.
Transmission formula weights rates, our preferred mechanism and we will have now.
Pretty much all of our company, except for the former Allegheny transmission system on Formula rates.
Once FERC approved this.
Terrific guys. Thanks, you soon congrats.
Okay. Thank you.
The next question is from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning congratulations.
Thanks Julien.
Absolutely. So just wanted to follow up a little bit on some of the more detailed assumptions embedded in the guidance, especially for 20, what are you thinking about with respect to the decoupling filing in Ohio I suppose how are you thinking about reflect net in 20 to the extent, which it is already I get to that might be more of a risk production profile than earnings impact, but I'd be curious.
And then related to that how do you think about 19 and the inclusion I thought there was a potential for a true up depending on the specific timing here.
As you can.
Elaborate well I'll answer the last part first I don't think it's going to have any impact on 2019, we expect to file.
The decoupling rates and the commission as 60 days to accrue and so they are likely won't approve them. This year I don't think.
As far as how I look at it.
I think it establishes a fixed costs for the base distribution costs in Ohio, obviously the D.
The are and the grid moderators on top of that by establishing this fixed base, it's going to accomplish what the legislature tried to do it allows us to continue to promote energy efficiency with our customers. So that they can get the benefit of that.
Without impacting our base revenues.
I think you pointed out the risk piece of it it fixes our base revenues and essentially it takes about one third of our company and I think makes it somewhat recession proof so I.
I got a question, although a lot about whether I'm worried about a future recession, it's 2 million customers in Ohio that this is going to health.
Make sure that that doesn't impact us.
And I think there are you assuming it or it's unclear.
Assuming way the the decoupling filing in 20.
Yes, it will be ominous welcoming it will get approved in 2020, yes got it okay and then related if you can just clarify the last question just a little bit further the funding requirement in 22 for pension is to 40 or is not sorry, I apologies about the back and forth. There just wanted to clarify that.
It it stands at 240 right now based on our projections Julien.
Got it excellent how do you think about all.
Let me try to backup here and not be too granular how do you think about the overall earnings growth trajectory is enabled by that level of equity funding as you kind of rethink and rebase going forward and I know I'm not.
Hopefully I'm not getting too far ahead of you are more strategic thoughts here, but I'd be curious.
And I'm not sure even understood that question Viasat, how do you how do you think about Rebasing on a go going forward basis as you as he will for next year, given what seems like a better pension outlook.
I don't think it's going to affect our plans for growth in the future in any in any fashion Julien.
I said in my prepared remarks, I mean, we'll get too.
Yes that CAGR.
And our equity plans when I'm comfortable with it.
Plan, a company like ours three to four years out.
The challenging process and it involves 10 operating companies.
Our transmission business looking at project by project, what they plan to execute out in 2022 and beyond.
It involves a lot of.
Analysis around things like market performance and interest rates and growth economy versus recession economy.
And we're doing all that right now and I learned a term in engineering school called slag I've never been willing to apply that to what I give to you and I'm very protective of.
Of this record that we've established of every time, we've given a commitment to you in the last five years, including commitment on a major restructuring initiative, we've hit it and we're getting close but it's just a complex process and as soon as we're done we'll communicate what the the future beyond 2021 looks like.
So let's take the time.
Your next question is from the line of profitable myself with Citigroup. Please proceed with your question.
Thanks, So much high guys and congrats on all the progress.
Good morning, Thank you.
Good morning, So maybe just on the growth if your your guidance as we looked at the six to seven or six to eight grow then you take the midpoint of that imply what it means for 2021 and you compare it against midpoint of 2020 suggests a growth of about five 5.5% between 20 and 21, So I guess.
Just.
The the slope that growth just wanted to check is that just more of what it is between 20 and 21, but not an indication of long term growth he still comfortable with the six to eight longer term from that just wanted to get any color on that would be helpful.
Well I think I've said twice now I'm not going to give you what we expect our CAGR to be beyond that but also said I don't think you're going to be disappointed when we ultimately do give it.
All right.
Big that.
Maybe moving to the credit side, you guys mentioned that you had constructive dialogue with the rating agencies is there you youre in your view going to be a little a threshold of what is required given the improved business just profile and also connected to that how do you think about the holdco leverage at this point is that a certain level that you're looking domain.
And then as a percentage of builders that.
Well I'll, let the rating agencies speak for themselves I, we do.
Talk with them frequently and they're very aware of our plans.
As far as Holdco leverage.
I wish it wasn't what it is but ill, but at the same point as I've discussed in the past.
We are we're comfortable that we can deploy about $3 billion of capital investment and our transmission and distribution system. That's what's driving the growth of this company and do it in a way where the we will eventually grow into a stronger balance sheet.
We could deploy that some of that cash towards maybe some of the holding company debt, but I just don't think thats. That's the right thing to do for shareholders over the long term. So we're going to continue to take our cash investment in growth and and then as I said, we'll tell you what thats going to look like for the future coming up soon.
Okay, and just one final thing in on Slide 24 off your Factbook you have the vetted adjusted distribution deliveries and the growth rates.
It looks like most of the states are negative, except the west, Virginia, which looks like meaningfully constructive and positive, especially on the industrial side. So maybe if you can touch on what's driving the other states and what specifically invest Virginia supporting that growth.
This is Steve straw in West Virginia. The growth is primarily driven by the shale gas industry did it continues to be very resilient and seems immune to any of the the discussion that we've heard about with regard to recessions or.
The trade terror issue, so west Virginia is really driven by that.
Overall as we have talked in our past we project load growth in general however to be flat to slightly positive and that's really just our six they territory in where we see the economy in low going I'd also remind you that within our business.
Plan, we take a conservative approach to these projections and we've proven over time to be very accurate in doing it.
All right greatly appreciate it guys look forward to catching up FDI.
Thank you.
Our next question comes from the line of Stephen Byrd with Morgan Stanley . Please proceed with your questions.
Hi, good morning.
Hey, Steve how are you doing well thank you.
I just wanted to follow up on the New Jersey filing that you put in you mentioned checking your prepared remarks, you expected response from for by the ended the year I'm just not that familiar with this process is this is this something thats fairly procedural and shouldn't be subject to at length. The review or are there sort of.
Elements that that could require more protracted deliberation.
I think it's a pretty simple case I wouldn't see any reason that FERC couldn't act on it.
Understood and then.
Just following up on Shires question, just in terms of the benefits there I appreciate the.
What you had said check in terms of just contemporaneous return been able to redeploy more capital.
Is there a greater potential for further spending in the state do you see and maybe away from this filing specifically, but just other objectives longer term projects or or items that are sort of on your longer term wish list that you might think about further after this filing.
Well I think across our entire footprint, we have already identified about 20 billion dollars' worth of transmission projects that we believe.
Need to be completed.
So it's just a matter of as we look at how do we deploy nearly $3 billion of capital every year. There's a there's a rack and stack processor. We go through that prioritizes, where that money is that for the most effective benefit for customers and if in the end.
Yes.
It means that we would spend more in new Jersey will spend it in new Jersey, but we have formula rates in Pennsylvania, and Ohio also so it's more out of the projects stack up that drive us where to spend I don't think.
You should expect us to materially spend more capital than what we've committed to which is around $3 billion a year.
Understood. That's all I had thank you.
Thank you.
Your next question is from the line of Paul Patterson with Glenrock Associates. Please proceed with your questions.
Hey, good morning.
Morning.
Just.
The FERC is put out a few orders in the last.
Couple of months that seem to be oriented towards increasing.
Oh competition.
Or cost containment with respect to transmission projects.
I'm sort of the sort of FERC order 1000 sort of follow up kind of stuff I guess is the best way to describe it.
And as you know there's also some procedural stuff going on stakeholder process the PJM.
And then just wondering what your thoughts were about.
Your your.
Your perspective on these.
These orders in these efforts.
Well I think.
PJM in particular has a very transparent process already that.
That affects the supplemental projects and since that's where we operate I'll comment on that because its transparent. It's caused some of the questioning that goes on but I will tell you that the projects that we do.
In transmission today about half the money is spent on PGM, our tap projects already so those are already projects at PJM are saying are needed for future reliability reasons and the rest fall into the category of what I call. Good asset management practice, and I think for the right.
The later whether that be FERC.
Or even the state commissions to try to get to involved and how we do asset management as a business would be a mistake because where the one ultimately responsible for making sure that this grid is reliable and resilient and and able to perform for customers not just today, but for the long term.
And the projects that were doing just fall into the typical asset management decisions you make when you're running a bulk elect a piece of the bulk electric system and a system this or 6 million customers.
Okay. So generally speaking you won't see.
These these efforts so bringing about any more competition.
Into the space that you're currently expecting to invest in is that the right way to think about.
Not as it relates to what we're doing it for synergy the average project size inside this building into of transmission spend the average project size for us outside of the our type project is about a million to a million and a half dollars. These are small projects I can't believe any.
But he is going to really be interest and trying to embed them and and I would point out their competitive bid already.
Because we competitive bid if we're putting in a new circuit breaker, we competitive bid that with numerous suppliers. If we're using a contractor to do that work we competitive bid that works. So these projects are already competitive bid and and I don't think you're going to see anybody else that has the buying power.
For the capability that we have to competitive bid them cheaper anyway.
[laughter] your transmission guidance.
Is actually implying a pretty low growth rate relative to the midpoint of your 2019 transmission guidance right. Your 2019 range had about 85 cents is a mid point your current guidance for 2020 transmission couple of cents higher.
Is there a significant slowdown in transmission growth that's starting to kick in is law big numbers, starting named pack to kind of the ability to grow at kind of.
Within the range the six 8% range I'm, just curious how you're thinking about the growth at the transmission business over the next couple of years and especially into 2020 over 90.
Yeah. Michael This is Jason was asking Chief accounting officer, So you're right in 2019, we did have a little bit additional with them in our stated rate transmission companies. So that was about a penny penny and a half of additional with them. So that reduced the 19 off from the original guidance, but as you look into 2020, you'll see in the Fac book on page 56, so that we are showing about four.
Ascent increase year over year, and that's the national transmission growth that Chuck and see we're talking about but we didn't have a little bit higher interest expense, mostly at EFI transmission on that holding company their issuing some additional thats, where some additional interest there.
Got it Okay and then when you think about rate base growth in transmission do you think rate base growth. It in the transmission businesses, 6% to 8% level or is it even higher than that.
It's higher than that I think in attendance 11 right.
Okay, and then one last thing for cash flow can you remind us going forward, what if any cash payments do you have to make to the Fps no state effectively over the next couple of years.
As part of the original settlement now what's left.
Michael This is Steve straw, we have a 225 million dollar payment that's due to appeal to us upon emergence of we will also at that time issue a tax no.
That will be due in 2022, four $628 million. That's our current plan and those are the commitments that have already been.
You know subject to.
Being made public so we're just going to continue to follow the agreement.
Got it and can you walk me through how that the cash flow in the accounting metrics for the tax now will work.
Yeah. Michael This is Jason let's ask you again, so thats going we issued as a note.
And then once its pay that's when it will come through so it's obviously its noncash until we actually paid in 2022.
Got it okay. Thanks, guys much appreciated.
Next question is from the line of Charles Fishman. This Morningstar Research. Please proceed with your question.
Thank you just just one question corporate other up about 10% 20 overnight.
I see what the flat book sales.
Missing in the Frac book is any general corporate expenses, so I'm, making assumption that the.
Downsizing with respect to Lcs is going I went to plan and then any more color you can provide on those other two bullet points on the the Frac book.
The income tax rate going higher and it looks like higher interest expense to thank you.
Charles This is Jason Laskowski again, so our corporate owned them expenses really predominant get allocated out to the distribution transmission. So the only thing really left at corporate is any tax play initiatives that we have Andy holding company interest and so to your point on 19 to 20, we did have a little bit of a tax benefit some discrete items as.
We've got the tax return for 18 finalized in 19 were not expecting those types of benefits to go forward. So you are seeing a little bit higher they are tax rate and hurt if you will 19 or 20 from the effective tax rate.
What about on for six times.
That was less than the scrap book.
Yes, so the interest expenses just related to our holding company debt.
More debt higher rates or.
No it wouldn't be more death in the interest rates are fairly flat, it's not going lower from the term loan. So I'd have to actually going and take a look to find out what's driving it.
Okay, but the important thing as we shouldn't expect that kind of acceleration going forward.
Not at all.
Okay got it that's all have thank you.
The next questions from the line of Paul Fremont with Mizuho. Please proceed with your question.
Hi, Thanks.
I look back to your second quarter disclosure. It looked as if you were expecting sort of the underfunded pension positioned to improve by roughly 500 million is the update today should we assume that that 500 million improvement.
Not take place at least for correctly ended this year.
I'm not sure what you're looking at in the second quarter disclosures, Paul but I think you go from 70%, 77% funded line 59 out of the second quarter attack.
To 82% founded in 2019.
And now it looks like I think from your disclosure or from what you were hearing on your slide your improvement is Nok, 82%, 78% [laughter].
Paul its feet. So the 500 million dollar voluntary pension contribution that we made into first quarter on is the driver. So we went from 77% at the end of 18% to 78%.
Funded status, but the other piece of this is the pension liability increased by 1.5 billion.
Went from 10 point.
I'm, sorry from 9.1 billion.
At the end of 18 to about 10.6 billion.
The at the end of September .
Right. So when you end the year or the underfunded pension should should still be in the range of $2.1 billion at least based on where interest rates are today right.
Everything holds the underfunded pension position will be around $2.3 billion. So it will be up 200 million versus where we ended two.
2018 God Okay.
And then.
On the transfer of the transmission do you need New Jersey approval or is it purely FERC approval.
[noise]. Good morning, this is having Nicholson and vice president of rates and regulatory affairs and FERC is responsible for approving the JCP in our transmission transfer to a forward formula rate.
Okay. So there's no there's no new jersey or approval involved.
You Jersey can certainly participate in the process, but not involved in the approval of the.
Sure.
And then.
On a decoupling in Ohio aside from Rebasing God.
Okay decoupling give you any type of.
Percentage increase on a go forward basis.
Cory decoupling I central region sort of weather assumption.
I think it's it's fixing our base rates and what it does.
Compared to anything else is dependent on what you think's going to happen with the economy, what you think's going to happen with weather, what you think's going to happen with energy efficiency et cetera et cetera. So.
It what it really does is it locks in.
Our fixed base revenues at 2018 levels, right and I don't know how to compare to anything else. So.
That part is gonna be a certainty and then the DMR and the grid models on top of that as we make the investments that we're making and the Ohio company.
Okay, but aside from going back to 2018, we shouldnt, we should not assume percentage increases on a go forward basis associated with that.
No.
Oh, it's going to fix some until our next based distribution rate case in Ohio.
Great. Thank you so much.
Okay.
Thanks, Paul.
The next question is from the line of Andrew We saw with Scotiabank. Please she is a question.
Hey, good morning, everybody.
Good morning, but my first question is on rate cases, the or the fact book now shows that your continuously reviewing considerations for rate cases, New Jersey in West, Virginia, that's a bit of a change in the wording are you intending to signal a changing the messaging and maybe any high level thoughts on when those next rate case is might come in those two states.
[noise] wasn't intending to signal anything, but well have Eileen update you on that we're looking as far as future rate cases.
Thanks, Chuck This is I mean, Nicholson, then again really as it states in the fact that we are continuously reviewing the investments that we're making in our jurisdictions the recovery associated with those investments and using that information to make our best judgments about when it's appropriate to file for future rate cases.
Okay. So so you're not suggesting that it might come sooner given the change in wording is that fair.
I think the change in wording was really trying to be more precise about the process, we use to make that evaluation.
Got it okay. Good to hear then second I'm, hoping you could help me reconcile some of the guidance update so again into Factbook here. It looks like you on the transmission side, you increase your rate base forecast by around 2%, but the capex figures are unchanged and then it's sort of the opposite on distribution, where the Capex numbers are now at the.
Hi ended the prior range is yet to rebase forecast of actually come down a little bit can you, maybe just walk us through what how to reconcile those two things that seem a little bit at odds.
This is I mean, mickelson, we did an evaluation as we always do looking at rate base and.
Particularly as it relates to West, Virginia, and Maryland, we refined our assumptions our separation studies associated with.
Accumulated deferred income taxes, as well as the distribution versus transmission assets. So thats, what you see it kind of that re racking and stacking associated with that further refinement of that analysis.
Got it so certain assets were switched basically from one rate base to a different rate base.
As well as certain balances associated with accumulated deferred income taxes, yes.
Understood. Okay. Thank you so much.
Our next questions from the line of Sophie Karp with Keybanc capital markets. Please proceed with your question.
Hi, Good morning, Thank you for taking my question.
Good morning.
Just.
Well I'm conceptually to ask you about how as I go time mechanisms evolve across the fuel your jurisdictions made you move in transmission in New Jersey two.
I'm sorry, a there is a decoupling in Ohio, if that makes maybe a capital allocation to these distribution utilities to Institute studies jurisdictions really.
More attractive versus transmission growth in the longer term.
I think we're deploying capital where its best fit to serve our customers better.
And it right now out of the average call. It $3 billion about 1.2 billion of that is in transmission $1.8 billion in distribution.
I don't think you're going to see that change a lot, but we clearly do prefer very transparent rate mechanisms. We will you mentioned on the call that we just filed a another long term infrastructure plan and Pennsylvania.
The.
The <unk>.
Our and the grid model in Ohio are you know very transparent writers we have utilized the.
The new writer in New Jersey for the first time, starting last year and then we have transmission formula rates and you know that $3 billion.
Little over 60% of that is being deployed and these mechanisms that are very transparent and return cash back to the business quicker for reinvestment.
Got it.
And Maryland real quick smaller part of your overall picture, but what are your thoughts on how you're going to participate in a potential multiyear right right plane great.
Filings there.
This is I mean Nicholson and we have been actively participating in those stakeholder discussions relative to the multiyear rate plan.
Tools in Maryland, we expect those final rules to be issued beginning of 2020 and then we'll evaluate the application. If those two are Maryland distribution utility at that time.
Thank you.
Thank you.
My question is a follow up from line of Michael Lapidus with Goldman Sachs.
Hey, guys two questions what leads are little bit housekeeping, probably Steve oriented one what's the tax rate for income statement purposes, you're embedding into guidance for 2020, and how should we think about.
Whether you're paying cash taxes. That's the first question and then I'll follow up coming back on the transmission, saying, you're I'm looking at slide 13, you're forecasting 11% rate base growth CAGR put your you're forecasting EPS growth of like not im not quite 5% Im just trying to true up as all of that just hoping you know intermediate holding company level.
George that's weighing on that growth or is there something else in there in 2020 I'm not thinking about.
Michael This is Jason so so on your first question. If you look at 556, so the fact book.
Lower rate and core we know what are assumed a consolidated and business unit segment tax rate. So we're expecting a 2020 to be around 21% to 24%.
I'll just also mentioned that Charles had a question around the core of other the interest expense, that's increasing that's predominately because of that Fps note that $628 million that will be issued upon their merchants. So assuming that will be issued at the end of this year. So have that interest costs next year.
And then going back on that the cash tax payer, we right now do not expect to be a federal cash taxpayer through at least 2024.
Got it thank you Jason much appreciated.
Thank you.
We have a follow up from the line of Greg Oral Lithia. Please proceed with your question.
Thank you.
In Ohio, where do you stand versus achieving the energy efficiency mandates.
From the legislation.
And.
Secondly are there any.
Additional details around the timing of the.
FCS reemergence process.
I'll take the first half and I'll take the second thank you Chuck with respect to the energy efficiency standards. The public Utilities Commission of Ohio Recently released a report really suggesting that all the utilities in the state we're very close to that target and in fact opened up a comment period too.
See comments from folks relative to what happens when we achieved that how still six mandated 17.5% level.
And as far as the FCS process goes.
No it's not our process at this point the court approved the restructuring plan every aspect of it as it affects first energy has been clarified.
But what they've what they've said as they expect.
You get the nuclear licenses transferred yet this year and emerge yet this year.
Thank you.
Thank you.
As I look back to Mr. Zhao Hugh.
So thank you all.
We had a great quarter look forward to Sinjar next week at EEI.
Take care.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.