Q1 2020 Earnings Call
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Greetings and welcome to the first energy Corp. first quarter 2020 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this copper.
This is being recorded it is now my pleasure to introduce your host Irene Purcell, Vice President Investor Relations for first Energy Corp. Thank you Ms. present, you may begin.
Thanks, Melissa welcome to our first 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 could differ materially from those indicated by such statements can be found on our investor section of our website under the earnings information like and in our assay see 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 in today's call include Chuck Jones, President and Chief Executive Officer, and Steve Straw Senior Vice President and Chief Financial Officer.
I'll note that we are all virtually participating in this call and we have several other executives on the phone as well that are available to join us for the Q and a session now I'll turn the call over to check.
[laughter].
Thank you Irene and good morning, everyone. Thanks for joining us.
These are unprecedented times, we hope all of you are listening this morning are safe and healthy.
We realize you have numerous questions on how this public health emergency affects first energy.
Our goal today is obviously to review our first quarter earnings, which once again are solid but also to talk about the journey we've been on during the cold at 19 pandemic.
And the path that we see ahead.
I'll cover the broader story of our business and why we believe our strategy is built for resiliency during this crisis.
Also review the actions we are currently taking to navigate in today's environment.
Overall, I'm confident we're well positioned to manage through these events.
First the diversity and scale of our transmission and distribution operations across 65000 square miles in five states as a fundamental strength for first energy.
We operate critical infrastructure and that means everything our employees do is considered a central work.
But as we continue this important work to maintain our large electric system and provide the energy our customers and communities need.
My number one priority is to help keep our employees their families and our customers safe.
Minimize the risks we have taken significant steps to quickly adapt to the new circumstances.
Protect the health of our employees and customers.
We successfully transitioned more than 7000 employees to work remotely.
Thats more than half of our workforce at it includes moving our call center employees to a work at home environment as well.
For our workforce aren't able to work remotely we've implemented preventative measures to help keep them safe on the job.
You secured protective equipment like surgical masks.
Other supplies like thermometer are being used by our operating companies regulated generation plants and other work groups.
We have also increase cleaning and disinfecting measures relocated job briefs and reporting locations to sites conducive to social distancing.
And adjusted work schedules.
We have positioned crews. So they are working with the same small group of people each day and what we call pods.
They are consistently using the same vehicle and the same equipment to limit exposure.
And we are managing our work to minimize potential exposure with the public.
We continue adjusting our work plans and remain flexible to meet ongoing needs of our workers.
Minimize the spread of this virus and adopt the current guidance from state and federal health agencies.
It takes consistent communication on everyone's part focusing on the health and safety of our employees and customers throughout the process.
This pandemic has become a defining moment for our country and our company.
What encourages me is knowing that will emerge from this stronger because we've come together to learn how to work smarter more creatively and more efficiently.
In fact, we're all very well positioned to manage the impact of the economic slowdown and we believe our distribution and transmission investments will continue to provide stable and predictable earnings.
As a situation continues to develop the diversity and scale of our operations gives us the flexibility to shift our investments if needed and continue deploying capital throughout the system.
While we're keeping a close eye on our supply chain.
Do not anticipate significant disruptions.
Since the middle of March we have been looking at the early impact the pandemic is having on usage trends.
Both from a system wide load perspective, and from a sampling of Pennsylvania smart meter data.
We have seen system wide weather adjusted load dropped by almost 6% from mid March until mid April.
Compared to the same timeframe last year.
We've also seen increases of more than 6% for Pennsylvania residential customers.
Driven by the stay at home order.
We would expect similar increases in residential usage across the rest of our service territory. That's all of our states are operating under stay at home orders.
While our commercial and industrial customer load is down almost 13% compared to our for your average from 2016 to 2019.
I would remind you that prior to the pandemic, we were already seeing reduced industrial sales due to the manufacturing recession.
However, our rate structures provide a measure of stability even in tumultuous times about two thirds of our base distribution revenues come from residential sales, while 28% our from commercial.
Customers at about 7% come from the industrial sector.
And about 20% of our total load is on the decoupled rate structure in Ohio.
In addition, a significant portion of our base distribution revenue isn't directly tied to energy consumption.
But is derived from other but billing determinants.
In fact about 80% of commercial rates and 90% of industrial are made up of customer demand charges.
We're pleased that in Maryland, The public service Commission proactively issued an order this month authorizing deferral for future recovery.
Of all prudent incremental coded 19 related cost.
The strong regulatory policy demonstrates firms support for our customers and our business.
I would like to personally think chairman stanek and the rest of the commissioners in Maryland for their leadership on this important regulatory issue.
We can also recover incremental uncollectible expenses through existing writers in Ohio, and New Jersey.
Our current regulatory can calendar as light through our 2023 planning period.
Active items include the distribution base rate case, we found in New Jersey in February.
Seeking to recover increasing costs associated with providing safe and reliable electric service for our customers.
Along with recovery of storm cost incurred over the last few years.
We expect in AOL, Jay will be assigned to our case soon.
By the issuance of a procedural schedule.
In the meantime, the discovery phase of the case has begun for parties to review the date details of our request.
We anticipate the litigation schedule will provide the opportunity to discuss favorable settlement with the parties in the case.
We also reached an agreement to transfer JCP in ALS portion of the yards Creek plant to LS power.
And we expect that transaction to close in the first half of 2021 pending approvals.
In West, Virginia, we ever requirement to make an informational filing by December Thirtyth 2020 for our integrated resource plan.
RP updates are planned to provide our west Virginia customers with adequate and reliable generation resources.
Reasonably balanced costs and risk.
And finally, we have a commitment to file a rate case for our smallish utility Potomac at us and in Maryland.
Early 223.
Moving now to our first quarter results, which marked another quarter of solid execution as they fully regulated company.
Yesterday after market close we reported GAAP earnings of 14 cents per share.
Along with operating earnings of 66 cents per share.
Which is a penny above the midpoint of our guidance range.
Our results were driven by higher transmission margin and lower expenses, which helped to offset the impact of mild weather on our distribution revenues.
As always Steve will discuss the drivers in more detail later in the call.
We are affirming our 2020 earnings guidance of $2.40 per share to $2.60 per share.
And 60 cents per share. We are also affirming our expected CAGR of 6% to 8% through 2021, and 5% to 7% extending through 2023.
As well as our plan to issue up to a total of $600 million in equity in 2000 22023.
In addition, we are introducing earnings guidance of 48 cents to 58 cents per share for the second quarter of 2020.
The financial markets have been extremely volatile and sometimes illiquid past couple of months first energy continues to be a low risk stable predictable utilities.
We have adequate liquidity of three and half billion dollars strong and proven access to capital markets.
And our pension plan Thats outperform and these volatile market conditions.
To a slow risk conservative asset allocation.
Steve will also cover three property in greater detail.
Finally, let me take a moment to discuss our succession planning I've been getting a lot of questions on us.
This because I look all doesn't mean I feel old.
Well I don't plan on going anywhere yet I know many of you have been wondering about our plans for a transition.
I can tell you that our board has been justice thorough and thoughtful on this topic as they are with any other key governance issue.
We started planning for my replacement literally right after I became CEO.
It started as our typical emergency planning has evolved into a robust secession planning discussions.
In 2018, we made several moves that were designed to broaden the experience of some of our key executives. This included placing Steve into the CFO role, bringing Sam Belcher over from fee knock to become president of the utilities and moving Jon Taylor out of the finance organization into a leadership role in distribution operation.
Yes.
The board and I are continuing discussions and I would expect you may see additional organizational moves within our leadership team in the coming months.
They are part of what I said will be a thoughtful transition and leadership at first energy.
But having said that I have made no decision about my own retirement and as long as to good Lord and my border willing it won't be anytime this year.
Thank you for your time, Hey, well when we look forward to seeing many of you once again when things returned to normal.
Now Steve will review the first quarter.
Good morning, it's great to speak with you today as always.
You'll find the all reconciliations along with other detailed information about the quarter.
Our strategic and financial highlights document the posted on our website.
Now, let's review our results.
We reported first quarter GAAP earnings of 14 cents per share.
Our GAAP results included a $318 million noncash after tax pension and OPEB mark to market adjustment.
We were required to recognize when first energy solutions emerged from bankruptcy.
End of February as an unaffiliated independent company now called Energy Harbor.
This adjustment was considered was consistent with the range, we provided on our fourth quarter earnings call.
I will revisit the status of our pension funding and liquidity position later in my comments.
Adjusting for this charge as well as other special items first quarter operating earnings were 66 cents per share which is above the midpoint of the guidance. We provided on our last earnings call.
In the distribution business earnings decreased compared to the first quarter of 29 C.
Lower revenues were driven by the impact of mild weather.
Customer usage.
This was mostly offset by Ohio, decoupling revenues as well as incremental rider revenue in both Ohio and Pennsylvania.
First quarter 2020 distribution earnings also decreased due to the absence of Ohio, DMR revenue higher depreciation expense and net financing costs, which offset lower expenses.
Customer usage decrease compared to the first quarter 2019 on an actual in weather adjusted basis.
Heating degree days were approximately 18% below normal in the first quarter of 29 team.
This drove a decrease in actual residential sales.
12.6% compared to the first quarter of 2019.
On a weather adjusted basis residential sales decreased 1.3% compared to the same period last year.
We continue to see modest growth in customer count.
Given the Rosa done I'm, sorry in the commercial customer class first quarter sales decreased 7.5% on an actual bases.
And 1.6% when adjusted for weather compared to the first quarter of 2019.
And finally in our industrial class first quarter low decreased 3% compared to the same period last year.
Consistent with our fourth quarter, we only saw growth in the shale gas sector with declines in the other major sectors in our footprint.
Looking at first quarter results in the transmission business.
Our earnings increased primarily due to higher rate base under formula rate companies related to our continuing investments and the other jobs in the future program.
And in our customer segment first quarter results, primarily reflect lower operating expenses.
Last quarter, we discussed our pension performance for 2019 and its impact on future funding requirements I'd like to update that today in light of market volatility than our pension remark from February.
26, though this year.
As we told you on the fourth quarter. The funded status of our plan was 79% at year end.
The strong performance of our planned investments in 2019 resulted in a significant reduction in our planned funding requirements in 2022 in 2023 of about $300 million.
At our February Remeasurement are funded status was 77% and our funding requirements decrease again slightly.
From $159 million down to $140 million for 2022 and from $375 million down to $360 million for 2023.
Our conservative asset allocation has served us well so far in 2020.
Back in mid 2019, we made the decision to move nearly $1 billion supplanted ourselves out of public equities into cash.
At the end of 2019, we held only about 25% of total episodes in equities.
We also have a good story when we're looking at pension so be under the first quarter, while the S&P was down 20% our assets declined only 4.4%.
So march 31st.
After our fourth quarter call, but prior to market volatility related to the virus, we successfully completed refinancing of $1.75 billion in FY Corp.
At a blended rate of 2.9%.
Transaction was us executed.
The best rates ever seen in the utility space.
In March we completed a 250 million dollar debt financing that meets and in April we completed a 250 million dollar debt financing that panel.
Finally in February we use the proceeds from our senior note issuance together with cash on hand to fund the final settlement payment of $853 million to energy Harbor upon their emergence.
The remaining proceeds from the 1.75 billion dollar corp. debt issuance, we're used to refinance $1 billion in bank term loans.
Our maturities are manageable than our liquidity position is strong.
We have remaining debt maturities of only $800 million this year, including $50 million at Toledo Edison.
And a 500 million dollar term loan at EFI Corp.
Which we plan to refinance this summer.
We project liquidity of approximately $3.5 billion over the next 12 months and our liquidity facilities are committed until the year and 2022.
We do not issue commercial paper, so we've avoided liquidity issues experienced by many others in the industry over the past two months.
Before I turn the call over to your questions I'd like to reiterate first energies overall value proposition, which is very simple, but also very unique especially in periods of extreme volatility and uncertainly like we're facing today.
First energy as a low risk fully regulated stable and predictable wires utility that spans five states, including.
Providing scale and diversity.
Our 6 million utility customers provide revenue stability.
Two thirds of our distribution revenues stem from a residential customers, which are higher margin. While only one third is generated from or see an eye customers, which are lower margin.
When combined with Ohio decoupling this mix, partially insulates first energy from recessions.
We have very good regulatory relationships in our jurisdictions and our current regulatory calendar is light through.
Our 2023 planning period, resulting in low regulatory risk across our footprint.
We invest $3 billion annually across our service area and we have long pipeline of regulated capital expenditures.
More than 60% of our investments are under formula rates and riders that minimize regulatory lag and provide timely return on and returns of those investments.
One third of our earnings come from first energy transmission.
Which is not influenced by near term changes in customer load and is primarily supported by capital programs mandated by PJM or required by first energy to maintain safe reliable trends mission service across our very large footprint.
We are an investment grade company targeting triple B credit ratings from all three rating agencies.
Our liquidity is adequate at $3.5 billion, our access to the capital markets is season proven and remains very strong.
In combination all of these attributes support and attractive cagar as well as a sustainable dividend that management aspires to grow.
Both of which are strongly desired by true utility investors.
And finally, our management team has a proven track record of meeting or exceeding its commitments.
Thank you and now let's take your questions.
Thank you we will now be conducting a question answer session.
I would like to ask a question. Please press star one are you telephone keypad a confirmation total indicate your line is in the question Q.
You mean fresh start to if he'd like to remove your question from the Q for participants using speaker equipment, maybe necessary to pick up your handset before Preston This dark.
Our first question comes from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning, Tim. Thank you all and hope you all are well.
Hi.
Just to come back to where you started the conversation actually can you talk about.
More on the operational side, how employees are handling situation and how you think about.
The return to work, especially across the very different states that you operate in and then perhaps in tandem with that if I can throw in there how do you think about executing against your capital spend plans just given having your employees dispersed et cetera, as it stands today and under what scenarios you might reevaluate your capex to first on.
The operational and second on the Capex.
All right. So so first Julian operationally I think I think it's important to point out and first energy is not unique here.
Our industry has prepared for business continuity every company and part of that has been for the last couple of decades at least a pandemic emergency response plan.
We dusted off a few times over the years with Mers and Sars and H, one N one and Ebola.
This time, obviously, we've put it into TOEFL.
Full implementation.
You know the time to prepare for something like this isn't when it's happened, but it's it's in advance when life is normal and we put a lot of thought into how we were going to go about this.
And I'd just tell you I'm very proud of our entire leadership team and literally down to every single employee.
They've all stepped up they have showed creativity ingenuity.
And I think.
Our operations are continuing almost as if normal no even with 7000 people working remotely our field forces have have maintained a positive attitude, we very quickly.
Negotiated memorandums of understanding is with all of our unions across the five states on how we can we're going to operate.
No they have the PDP.
They have the ability to too.
To work and pods as I said in my my call and that's as three or four employees reporting to one location as opposed to haven't you know several dozen coming into a service center and deliver in materials remotely.
I think the the proof is that its work and as we've had nine cases it first energy.
For 13000 employee workforce.
One of those cases in New Jersey, Unfortunately resulted in a death.
But we've had zero cases, where the disease has been transferred at work and I think that shows that the things that we're doing our working.
I think we can stay in this mode for awhile and I think that gives us the flexibility to be very thoughtful and deliberate.
On how and when we want to return to normal operations I honestly don't think the world is going to get back to normal.
Until there's a wide spread distribution of a vaccine for this virus.
So we're evaluating what the new normal is going to remain in the interim but yes to your specific question on Capex.
Big piece of our guidance in our CAGR is driven by those investments and as I said, we don't say supply chain interruptions.
That we're worried about right now and that includes.
The the workforce supply chain because most of the the significant capital investment that we're making is being done with a contracted workforce that we lined up many many years ago lined up really before we started energizing the future seven years ago.
So right now I mean, I don't see anything that I'm worried about taken us off track.
And that's why we're comfortable with being able to not only reaffirm our guidance for this year, but reaffirm our CAGR.
That's helpful. Thank you guys. They talk to you think alright due to Julien.
Thank you. Our next question comes from the line sharper is there with Guggenheim Partners. Please proceed with your question.
Hey, good morning, guys I sure.
So just in New Jersey does the lots going on with the BP workload and I know, we're still kind of waiting for the procedural schedule, but any sort of sense on whether we could see a settlement struck this year from a timing perspective, as we think about cobot related challenges in any sense on the timing of the next IP.
Well first on the rate case.
Got delayed I think a little bit as everybody was you know.
Responding and reacting to this pandemic, but I think they'll get the schedule back on track here soon.
Side, it to a nail Jay get a procedural schedule, we weren't anticipating relating to happen where the final outcome on that case this year anyway.
I think there will be opportunities along the way to have settlement discussions if that would happen it'll be late this year.
At the earliest I would think so I don't.
I just don't expect much impact of that rate case in 2020, and there is none of that in our guidance anyway as far as the IP.
The current IP runs through the end of this year.
And I think right now I'm not I'm not sure that were even going to file for an additional IP.
We're still evaluating it but right now we don't have any plans to do that.
We've got the investments that we're making in capital.
Going on in transmission and other other states in our operating area and I think we're going to be fine with the service to our customers in New Jersey. After this first round.
Got it and then in Pennsylvania, it's been quiet.
Does your sort of experience in Ohio, and kind of the latest macro uncertainty maybe strengthen the case for seeking decoupling, which has been available in some of these usage trends may structurally change over the long term as you kind of obviously highlighted as the new normal or is kind of this de SEC adequate for you until you kind of follow the next year.
Yes.
We don't have any plans for for broad rate case activity in Pennsylvania for the next several years and.
I think that the L. chip and the disc mechanism our work in fine.
And and there theyre generating the type of investment that's needed for customers and they're generating.
You know reliable returns store for shareholders without lag so.
So I think the away things work in Pennsylvania are working fine and I don't see any reason to change it.
Perfect. Thanks, a lot guys that was it this morning and Chuck by the way from a record you do look very young no [laughter].
Texture.
Yes.
Thank you. Our next question comes on line of Stephen Byrd with Morgan Stanley. Please proceed with your question.
Hi, good morning.
Hey, Steven.
Most of the key questions have been addressed I did have one broader question.
Just as we think about going into 2021, if we do have a.
An extended economic downturns, so recovery is slow.
How do you think about just your capex plans ability.
For customers to to handle the the impact.
The.
Capex is that viewed as just this is critical work that needs to be done.
Or is there any you know just consideration of customer ability to pay if we do have a very extended pretty severe economic downturn. How do you just think about that longer term.
Well, we haven't exactly seeing a lot of load growth across our footprint over the last half a dozen years or so.
Really since since the last big recession.
And so the impact on customers is always something that we're very thoughtful about as we make these investments, but I do believe these investments are investments that are needed.
The transmission dust and distribution infrastructure, we have it first energy is old.
It's in some cases in need of repair and modernization.
I think that the automation that we're adding in some areas, where we're making these changes to serve customers better.
And I think we're doing it in a way.
By moving at a round from state to state and and so forth that that we are constantly watching out for the impact on customers.
And and keeping our bills very moderate and keep in our rates amongst the lowest in pretty much every jurisdiction that we work and so I.
I think we keep an eye on that all the time and I don't see I don't see anything happening here, that's kind of caused us to have to significantly adjust our plans.
Well, that's a thoughtful answer that that makes sense, maybe just one last one.
I think you gave a very thorough response on just coven 19 impacts.
If we zeroed in on the supply chain, if we do have an extended sort of shelter in place dynamic.
Are there certain elements of the supply chain that you focus on more as being sort of more at risk if conditions deteriorate or overall do you feel fairly good about supply chain dynamic.
As of right now as I said in my prepared remarks, we're not seeing anything that concerns us we made a decision at first energy.
A number of years ago.
For four and a half years ago to implement a by America strategy.
So we don't rely a whole lot on foreign supplies were 80% plus.
Buying from American made by an American made products from American companies.
And I do think that while in the short term I think into short term the risk was bigger there I think you're going to see these states have to reopen.
And I do think it from our experience there are ways to bring people back to work and and give them the PDP and take their temperatures.
And and introduce at some point.
You know antibody testing and take steps to get people to work and still.
Maintain and maintain a healthy workforce and not have this virus spread. So I think you can accomplish both and I right now I'm not concerned I think that that our supply chain is going to be fine.
That's really helpful. Thank you very much.
Okay. Thank you.
Thank you. Our next question comes from the line Stcs Me with Wolfe Research. Please proceed with your question.
Hey, good morning.
Thank you.
So just a question on the.
Maybe just a little bit of base lining on what you're assuming for.
Sales in terms of like full length of.
The downturn here is there I know your sensitivity is relatively low compared to a lot of other utilities, but just be good to have a rough idea, what kind of economic or base assumption you're using for the.
For the downturn from the virus and alike.
And your planning and how much have you sensitize that.
So let me let me start with an answer here and then maybe I'll ask idling to step in and provide some additional color but.
Have you Steve is it's a jigsaw puzzle that we're still trying to piece all the parts together on.
We talked about the impact of the stay at home orders driving residential usage up 6% to 6.5%.
And and the fact that 65% of our distribution revenues come from this segment.
Yeah, the reduction in load on the commercial and industrial is about 13%.
And but as I said, 80% to 90% of that is collected through customer charges and demand charges and then you layer on top of that the decoupling in Ohio, which represents about 20% of our load.
When you put that altogether.
I'm confident that that there's not going to be any material swing.
And weather adjusted revenues that are going to take us off track from delivering on our guidance because our I wouldn't have reaffirmed guidance.
So.
In the end.
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We don't have a final number that I can give you yet.
But I can tell you. This week, we just we just added one quarter on top of five years now.
Meeting or exceeding every midpoint that we've given you and I don't plan to break that records. So.
Yes, I do think there will be continued lingering effect with the cnine.
Even after the stay at home orders began to be reduced.
But also as I said with our company I don't expect 7000 people to come back to work all at once so I think some of the positive impacts in the residential segment are going to continue for a while to maybe not at 6% to 6.5%.
But.
But but at some level John it above normal so I LNR have anything you want to add.
Thanks, Chuck I think you really now that we continue to look at this very carefully at the only thing I would add is that in addition to our own models, we're looking very carefully and economic indicators from Moody's and others to inform our view of the forecast going forward.
Other than that Chuck spot on what you had to thanks.
Okay. So my read of that is that it's the way your revenues work in the part that's locked up at not volume sensitive plus the.
The way you've got things locked up with seen by more on a demand charge kinda nothing are fully protected but to give you.
Just a decent amount of protection.
To deal with us even if it extends longer than people generally think Fiat and fair at as Steve, Yes, and I add as Steve said did a third of it comes from transmission, which isn't low dependent.
Okay.
Okay. Thank you.
Alright, Thanks, Steve.
Thank you. Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.
Good morning.
I'd like to follow up on that last question on slide four where you show like 80% to 90% of see an eye as fixed rates.
How does.
A good portion of that fixed rate as a demand charge.
How typically does that reset realizing you're you got numerous jurisdiction but.
Does that demand charge reset on an annual basis typically so even though it doesn't impact you this year.
Yes, a commercial or industrial customer cuts back on load.
Would that impact you next year on that fixed component.
For the fixed component is is.
Basically something I resets every month, so and their monthly Bill is based on what the peak demand they hit Nat month is.
And so.
It's not directly tied to the throughput debt that we're talking about when we say usages off by 13%. It's the first to fix customer charge and then the demand charge. So.
If you've got a factory those working three shifts and is now down to work in one shift the demand charge from that one shift is essentially going to set the bill so.
And we don't know we don't reset rates every year. So our rates are in place until we have up until we have a rate case.
Then the demand charges are what the demand charges are and they're based on what demand the customer hits every month, so I lean anything you want to add there.
No Chuck Thank you.
Sure Let me, let me try to put it into more simple or fashion for many okay. Let's say you have a factory just got three three lines of production.
And because of the continue downturn. They said, we're only going to use two lines of production will obviously that cuts down on the demand.
And what you're seeing in is that that that's fixed component does go lower.
After a while correct.
It can go lower in that scenario it would likely go lower for that customer.
Not at that point you'd have to wait for a rate case to reset the to reset rates and recover that correct.
Chuck if I could.
When I'm thinking of pardon me when I think about those demand rates in the scenario you just.
Indicated we have billing demands that are set on a monthly basis, what's the peak demand you hit on a monthly basis. So if a customer is running three separate shifts.
And they go to one share their peak demand isn't necessarily as Chuck said earlier going to change as a result of that elimination of those two extra shifts because it's not.
An aggregate demand over the course in the day, rather it's the peak demand during that day. So we would expect that to be billing demand to remain in place.
Based on that one ship example, you just used.
Well, but I.
I guess, what I'm, saying is what if a customer makes a conscientious decision to lower its demand by reducing the size of its production so irrespective of number of shifts.
In that can add there will there will be a reduction in that customers bill but.
But.
When you think about across the entire segment.
They're not all customers are going to have the ability to do that and and all we're trying to tell you is our experiences during past recessions that even know throughput might be off by 13%.
Revenue is an off by that same amount because of these fixed charges and demand charges that occur in their bills.
Okay. Thanks for your time, explaining that that's up okay. Charles Thank you.
Thank you. Our next question comes from the line of Michael Lapidus with Goldman Sachs. Please proceed with your question.
Thank you for taking my question. They appreciate you taking all the time in today's earnings call.
I have a question about customer counts not necessarily demand, but just the number of customers use or.
Can you talk about trends you had seen both on the residential side and on the industrial side just in terms of the number of customer service go for the last couple of years.
You talk about what happens coming out of 2008 2009 to your customer accounts across that residential and industrial level.
Well the 2008 2009 numbers are not in migraine anymore, maybe their eni lanes or someone else's.
But obviously, we we lost a lot of customers I know the numbers of sticking my brain are we lost 25% of our industrial load.
In one year from from now part of Onein to are part of away to the end of Onein.
And I think I remember in Ohio, I think it was 50000 meters that we lost in Ohio alone. So we.
We are seeing growth in meters every every year.
Maybe eileen can fill in some of those numbers, but the growth in meters is pretty much be also being offset by the fact that.
Energy efficiency is working against that growth, which is what results in pretty much flat to low growth across our footprint. I mean, you have any thing on the numbers.
Yes, Thanks, Chuck I would just they are residential customer accounts have grown quarter over quarter.
It quarter to one in 2020 versus quarter. One in 2019, just about a half a percent in customer growth count. So we've seen that quarter that trend continuing each and every quarter for a number of prior quarters.
Got it. Thank you any just real quick this an easy one.
Can you remind us what is the low growth assumption in your 6% to 8% in your 5% to 7% long term EPS growth rates.
Steve you want to take that one.
Yes, Michael we're assuming basically low to be flat over our planning horizon.
So when you look at the trailing 12 months you, we see that were slightly below that right now, but thats, what we have baked into both these six to eight in the five to seven.
Got it and you're still assuming in the six 8% that it'll still be flat.
Yes.
Okay. Thank you much appreciated.
Thank you.
Thank you. Our next question comes from line of Paul Patterson with Glenrock Associates. Please proceed with your question.
Hey, good morning, how you doing good good morning.
Just a sort of I guess.
This is sort of tie things up here with all these questions on the on the economy.
If if we have a deep recession or you guys thing that you guys are.
Relatively economically or excuse me you guys are relatively insulated or amuse I guess to a big slowdown.
Because the one one thing that comes to mind here is that.
Were potentially leased in this region looking at businesses, maybe never reopening.
It's not out of the question here I mean retail establishments.
Just in general Im just trying to make sure the like it completely clear I guess thing that basically if we have a big deep long term recession.
You don't see any regulatory changes or anything that could impact you guys.
I think what we're trying to say right now is that the the diversity of our footprint.
The diversity of our revenue streams with with a third being transmission, that's not that's not load dependent.
And and 65% of the distribution revenue being residential.
And and that piece at least as long as you stay at home orders are in effect is growing.
That that we see nothing that significant we give yet.
A range of earnings of 20 cents that that's going to take us outside of that range. So we were comfortable reaffirming our guidance.
And as I said I mean, we're big company, we have over over $2 billion of on M. related expenses in our company and if if we need to get a little more diligent at.
At all on M. discipline to offset some of what might be happening on.
The the meter side of things, we'll do that.
We've got a lot of moving parts as being a regulated utility that we can we can work to deliver on our commitments.
So I think I think the way to take that as yeah, I'm I'm certain.
That they're going to be in particular small businesses that don't reopen after this after this pandemic. They just don't have the the working capital and liquidity to to survive something like this with no revenues coming in.
But but I do think in time somebody will replace them.
Because the services, they were providing or where needed by society. So I think.
It's it's going to be deeper than what may be a lot of people think and maybe more U shaped than what some people think.
But I think were built to be able to handle it is the way I would say it first energy.
Okay. That's it.
Thanks for the for the clarity.
And hanging there all right Paul Thank you.
Thank you. Our next question comes from the line Sophie Karp with Keybanc. Please proceed with your question.
Hi, Good morning, I think we're including my question.
Oh, just a follow up on the recovery mechanisms that you have so outside of Maryland, which has established decoded specific I guess rider.
Which riders and trackers are utilizing in other jurisdictions to track record annual maintenance costs, and how we see that they get to separate let's call them, what's not as planned.
Yes.
Well so the biggest piece that I think a lot of people have been worried about is ultimate uncollectible expense and in our case, we have recovery mechanisms in place and Ohio in New Jersey already.
As part of our normal operations to recover those.
Yes, I think we're having conversations with with other regulators and I think you know with with Nehru mix.
Guidance, I think you're going to see regulators across the country realize that there's going to these are unique times and there's going to be a unique approach and as I said for the Maryland Public service Commission be to first ones to step out and take the lead on that.
They should be very proud of their leadership, but.
You know the costs so far.
Anything that have that of concern to me and right now I'd say, we're just treating it as another operating challenge that we need to overcome and still deliver on our commitments and.
Over time.
If.
If they grow we're going to be working with our regulators and we're going to be watching what others do we're not normalizing any of these costs.
Because like I said I'm treating it as a normal operating challenge today, but in the end if our whole industry starts to normalize cove it costs out than im not going to put first as energy at a disadvantage by not doing that but.
Right now it's these costs are not.
They're not anything I'm overly concerned about.
We didn't have anything in the first quarter that we felt any need to have any special treatment for.
And we're having discussions with our regulators in West, Virginia, Pennsylvania to kind of fill the gaps similar to what Maryland is on.
Hi, Thank you and then a real quick on Capex are there any particular types of project you people type of work maybe that.
Cannot be done efficiently social distance in that you need to look into disorder, maybe bring corporate something else.
Yes.
No no I don't think theres anything that that we see that that's problematic.
If you think about our Capex plan and I've I've shared these numbers in the past.
We were we spend $3 billion and.
Average one to one and a half million dollars increments, so they're smaller projects for the most part.
But our crews have been very creative and figure out how to work safely.
And they're doing a fantastic job, we had two pretty significant storms come through with over half a million customer outages.
And they restored service as fast as if not faster as as we would do under normal operations. They are rising to the occasion and saying look were were essential workers and we're going to prove that were essential and they know the challenge.
Of keeping the lights on to 6 million families and businesses.
He is very important right now so I don't see anything there that that that we're worried about either.
Okay, great. Thank you so much.
Okay.
Thank you. Our next question comes from line of Jeremy Tonight with JP Morgan. Please proceed with your question.
Hi, Good morning, just wanted to pick up on the kind of bad debt expense question and I was wondering if you could provide some detail with regards to what that looked like in a way onein.
How that you know we're very early innings here, but how that now compares to then and when you have you talk about recovery mechanisms in Ohio in New Jersey that everything or just any more color there would be very healthy.
Well the first thing that I would say and I've been in this business for 40 years.
Is it.
I don't think it's it's fair to assume that every customer who can't pay their built today.
There's going to end up being a bad debt.
My experiences customers want to pay their bills. They don't want you know a black mark on their their credit history.
And as long as we're flexible and work with them the right way, we can generally get to where we don't end up writing off.
A lot of a lot of what's going to get backed up here today and we are getting you know were worth thinking through how to be even more creative and more flexible and particularly working with our see an eye customers where in the past we when we did not have payment arrangements for c. and I customers and and we're looking at how we do that going forward again.
And to help them.
Help them ease back into business and get back up to.
To more of a normal operations.
Without having this bill B b something they have to have to settle up.
Day, one so.
In Ohio, and and New Jersey, as I said.
It only becomes an uncollectible expense when we write it off.
And and we have the ability then to recover that from.
From a dish other customers through our existing rates little bit of a lag in new Jersey.
Yes, I will now have that ability under what Marilyn dead.
And I think the all of the.
The company's in Pennsylvania will get together and have discussions with the Pennsylvania Public Utilities Commission still early on in this process. So.
While Merrell enacted quick you know the other other regulators are looking at all of these coded related cost too.
That's helpful. That's it for me thanks.
Thank you. Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please proceed with your question.
Hi, Good morning, guys. Thanks for all other car this morning.
And sorry, if I missed this but I just wanted to ask you about your credit metrics in and given the so you talked about a decoupling the transmission rate base. What do you think hub how you're positioned works is your target metrics. This year and maybe joint 21, and then second Bart maybe any color that you can sort of provide.
Just with.
In terms of fuel conversations with credit rating agencies. Thank you.
Yes, so I would just start by saying again I don't think Theres anything significant to report we still plan on no new equity until 2022, and then up to 600 million a year in 2022 in 2023.
The metrics. This year are turning out this is the transition here with the delay in the energy Harbor emergence from 2019 to this year. So.
So the rating agencies, they're all looking beyond this year anyway.
But excluding energy Harbor, we're in good shape with all the current thresholds were at Triple B with Fitch today.
SMP revised our upgrade threshold from.
Front to 12 from 13.
And I think we'll eventually support a positive outlook for us, we're having discussions with Moody's about the upgrade threshold and I think thats. The important thing is our current conversations with the rating agencies are focused on the top end in what is needed for upgrades rather than where we've been in the past which is we're in it.
The bottom end and I think one of the key drivers for the discussions that were haven't is is our low risk profile that the agencies are now starting to see I mean, the impact of the Pandemics a perfect example of our change in risk profile, we're dealing with it we have no material change in our earnings no material change in.
Our pension funding status no material change in our credit metrics.
And were able to do that because of the diversity of our footprint the stable and constructive regulatory environments.
65% of our.
Revenue coming from from.
Residential customers.
And and I would just tell you. There's there's also we have we have a very very small generation footprint. Other large TNT companies like ours with 6 million or you know.
Multimillion customers have large generation businesses, even if regulated the support that we only have a couple of power plants left and so we don't have the risk of the generation side of this business either and there are only one or two other companies in our space space I think with the low risk profile.
That we enjoy it first energy and I think thats whats, forming the foundation of our discussions we're focused on ultimately get into Triple B with all three rating agencies and then a plan to stay there long term.
Got it thank you very much.
Thank you ladies and gentlemen, our final question. This morning comes from the line of Andrew Weisel with Scotia Bank. Please proceed with your question.
Hi, Thanks for squeezing me in here.
Appreciate all the details on mechanisms in downside protection one thing I wanted to ask about was what's the latest thinking on smart meters in New Jersey. Following the end of the moratorium.
Well I think that.
We'll engage in the conversations with with the administration and the BP you in New Jersey.
And we've got a lot of experience now with almost 2 million of them and Pennsylvania that we've already installed we're beginning the process with grid, modern Ohio, where will install.
Around 700000 in Ohio.
I think that that puts us in a position to really share and new Jersey, what what some of the benefits and some of the risks are.
And we'll engage in the discussion and if ultimately that's where the policymakers and New Jersey want to go then will install a million smart meters in New Jersey, just like we have and others in other states.
Okay have you noticed any change in a interest your appetite from regulators are politicians. During this ah stay at home period I think under.
The Governor introduces new energy Master plan.
Just shortly before this pandemic hit.
And I think that right now everybody and and.
State government, including the Beep you are focused on how to best get through this pandemic right now so I think it's those discussions have been put off and they'll get picked back up.
Once once new Jersey gets back into a kind of.
Safe and healthy.
More normal operations.
Got it. Okay. Then one last one if I may I might be looking for something where there's nothing but the new slide decks described the dividend as sustainable and you mentioned that management aspires to grow it is that sort of the potential softening of the dividend policy or can you share your latest views on the dividend growth outlook and if thats changed at all over the past.
Few months.
I think you're reading into something that's not there our dividend policy is what it is.
And and were kind at the high end of that range right now so I think thats that's more what it signaling is that we are in the high range high end at a range that we committed to and and so I don't know that you can expect one every single year, but.
But that's not my decision, that's our boards and and we expect us to honor the dividend policy that we've communicated.
Sure. Okay. Good I just wanted to be sure. There was no change in thinking thank you, so much and stay safe and healthy.
Alright, well, thanks to all of you.
The good call. It's good to have a call where we're talking about regulated operations.
I can't say running a regular regulated utility is boring right now with this pandemic, but.
But I am proud of our team as I've said repeatedly and we're going to get it get through this just fine we're going to deliver on our commitments were going to keep our employees safe and healthy.
We hope all of you can stay safe and healthy too.
And look forward to seeing in person when when that makes sense again.
Thank you take care.
Thank you. This concludes todays teleconference. You may disconnect your lines at this time. Thank you for your participation.