Q3 2021 FirstEnergy Corp Earnings Call
And other detailed information about the quarter can be found in the strategic and financial highlights document on the Investor section of our website.
We'll begin today's call with presentations from Steve's draw, our President and Chief Executive Officer, and John Taylor, Our senior Vice President Chief Financial Officer and strategy.
Several other executives will be available for the Q&A session.
Now I'll turn the call over to Steve.
Thank you Irene good morning, everyone. Thanks for joining us we had another strong quarter and I am excited to talk to you about our progress on many different fronts.
Yesterday, we reported third quarter 2021, GAAP earnings of 85 per share.
Our operating earnings were <unk> 82 per share, which is above the top end of our guidance range.
Our customer focus strategies positive mix of weather adjusted load great operational performance and financial discipline continue to drive solid results.
Furthermore, I'm proud of our progress to resolve important legacy issues and strengthen all aspects of our company.
In Ohio, we continue to take a collaborative approach and we're engaged in settlement discussions with a broad range of parties to resolve several of our pending cases before the PUC co.
Our meetings continue to be productive and we're making good progress.
We are also making progress on the Ohio corporate separation DMR in D C. Our audits.
Corporate separation audit report was filed on September 13th and showed no findings of major noncompliance.
The expanded D C. Our audit report is due by November 19th.
And we continue to work through the DMR audit, which is now due on December 16th.
Since our last earnings call, we've taken additional steps to strengthen our compliance program and instill a culture focused on ethics integrity and accountability across our organization.
These include.
Our new compliance and ethics program charter and policies in multiple areas.
Instructor led business code of conduct awareness training for senior leadership and individuals with significant roles in our control environment.
Training on the concepts of our new internal code of conduct for everyone and leadership with training for all employees planned in the first quarter of 2022.
And publishing our new corporate engagement report.
Additionally, we have started to develop a new integrated risk management platform to enhance our ethics and compliance.
And risk functions.
The new tool will help us streamline case management of ethics and compliance concerns manage the lifecycle of corporate policies.
SaaS and respond to risks.
And report on our compliance with internal controls and regulatory requirements across the organization.
As we've discussed over the last 12 months, our board and management team acted quickly and decisively.
Adding additional independent board members.
Making changes in our management structure.
<unk> effective controls reinforcing our culture change and building a best in class ethics and compliance program.
Our relentless focus in these areas resulted in remediation of the material weakness in internal controls associated with our tone at the top.
While this is an important step we continue driving these cultural changes and keeping compliance and integrity at the center of everything we do.
We are working every day to continue rebuilding stakeholder trust and confidence in Firstenergy.
And to ensure that our employees can be proud of our company and our mission.
Yesterday, we announced another key hires to enhance our leadership team.
Camilo Sirna will joined Firstenergy on November 8th as our new Vice President of rates and regulatory affairs.
Camilo brings a great depth of experience developing and implementing state and federal regulatory strategies.
His experience will be invaluable as we build a smarter electric grid and support the transition to a cleaner energy future.
We continue taking steps to achieve these goals.
For example, last month <unk> submitted a proposal to PJM and the New Jersey Btu for transmission investments that would connect clean energy generated from the states offshore wind farms to the power grid.
While minimizing the impact on the environment and communities.
We expect a decision on this proposal, which supports the clean energy investments driven by the New Jersey Energy Master plan in the second half of 2022.
In West, Virginia, we recognize our responsibility to operate our two regulated fossil plants for the benefit of our customers in the state.
Later this year, we intend to file in the effluent limitation guidelines or LG plan that calls for additional capital expenditures at the two plants to comply with environmental rules and to ensure that they can continue to operate beyond 2028.
At the same time, we intend to begin discussing with stakeholders, our plans for a timely clean energy transition.
As a part of that transition later this year, we plan to file with the West Virginia Public Service Commission for 50 megawatts of utility scale solar generation.
Our wind connection and solar proposals support core components of our climate strategy.
Building, a more climate resilient energy system that meets our customers' changing needs enables the transition to a carbon neutral economy and powers are sustainable and prosperous future for our stakeholders.
And the other recent regulatory activity this month or at sea transmission subsidiary reached a settlement with parties to a FERC proceeding that will address legacy issues associated with <unk> move from MISO to PJM in 2011 and pre.
<unk> four partial recovery of the MISO transmission project costs that will be allocated to etsy in the future.
It's an exciting time for our company, we have a robust long term pipeline to modernize our transmission network.
And we plan to continue embracing renewables in our distribution business, we are incorporating emerging smart technologies and building a technologically advanced distribution platform.
In our industry will play a key role in the infrastructure build out for electric vehicles battery storage and other technologies.
We're pleased with our strong performance through the first nine months of 2021 as.
As we close out the year, we are raising and narrowing our operating earnings guidance from $2 40 to $2 60 per share to $2 55 to.
To $2 65 per share.
The midpoint of this range represents a 9% increase over 2020 operating earnings results.
Finally, I can pass the call over to John without acknowledging that it's been one year since I stepped into my leadership role under very sobering circumstances, it's been a challenging year on many fronts and I want to publicly thank our employees for their hard work and unwavering dedication.
<unk> to our customers.
I continue to be impressed by the grid and the resilience of the entire team.
Together, we are building positive sustainable momentum and creating a new firstenergy that as a forward thinking and industry leading company.
Thank you for your attention. This morning, now John will provide a review of third quarter results and a financial update.
Thanks, Steve and good morning, everyone.
Yesterday, we announced GAAP earnings of <unk> 85 per share for the third quarter of 2021 and operating earnings of <unk> 82 per share as Steve mentioned this exceeded the top end of our guidance range.
And our distribution business results for the third quarter of 2021 as compared to last year reflect the absence of Ohio, decoupling and loss distribution revenue, which totaled <unk> <unk> per share as well as lower weather related usage.
These were partially offset by higher revenues from our capital investment programs new rates from our J C. P&L distribution base rate case, and lower operating expenses.
Consistent with the trends we've discussed over the last few quarters total distribution deliveries increased on both an actual and weather adjusted basis compared to the third quarter of 2020.
While weather was hotter than normal in our region. This summer it was cooler in the third quarter of 2020.
Weather adjusted residential sales for the third quarter of 2021 were essentially flat compared to the third quarter of 2020 as many of our customers continue to work from home.
Comparing our results to the pre pandemic levels in the third quarter of 2019 weather adjusted residential usage with nearly 6% higher this quarter.
While the commercial and industrial classes have not yet recovered to levels. We saw before the pandemic. They are starting to trend in the right direction.
Weather adjusted commercial deliveries increased 3%, while industrial load was up nearly 4% compared to the third quarter of 2020 and.
Industrial load increased in most of the sectors in our service territory. This quarter led by steel chemical and fabricated metal.
And our regulated transmission business, we continue to see benefits from higher transmission investments at our mate and Etsy subsidiaries as part of our energizing the future program.
However, this was offset by higher interest from the debt issuance at <unk> earlier, this year and in prior year formula rate true up.
And in the corporate segment results reflect lower O&M and benefit expenses.
For the first nine months of 2021 operating earnings were $2 10 per share compared to $2 <unk> per share in the first nine months of 2020.
The increase was driven by our ongoing investments in our distribution and transmission systems.
Higher weather related usage and lower expenses.
These items more than offset the 17th.
Of decoupling and loss distribution revenues recognized in the first nine months of 2020.
Our strong results and financial discipline have resulted in year to date adjusted cash from operations of $2 4 billion, which.
Which represents an increase of $600 million versus last year.
While we expect a few offsets in the fourth quarter. We now expect cash from operations of approximately $2 8 billion for the year, which includes approximately $300 million of investigation and other related costs, the largest of which is associated with the $230 million DPA settlement.
Sure.
Earlier this month, we successfully restructured our revolving credit facilities from a two facility model to six.
So selling our commitment to complete this action before the end of the year.
2021 credit facilities provide for aggregate commitments of $4 5 billion and our available until October of 2026 with two separate one year extensions.
The credit facilities and their sub limits are detailed in a strategic and financial highlights.
We're also pleased that following the restructuring of these facilities.
<unk> issued a one notch upgrade to the 10 distribution companies and the three transmission companies.
While we are glad to return to investment grade ratings for these companies with all three rating agencies, we remain committed to improving our balance sheet and the overall credit profile at the parent company.
We previously communicated that we were targeting <unk> to debt in the 12% to 13% range.
We're raising that target to be solidly at 13%, which will provide ample cushion to the new Moody's threshold of 12% and we expect to set the company on a firm glide path to mid teens.
On a number of recent calls we've communicated that we're contemplating a minority asset sale as we consider alternatives to raise equity capital.
Currently we are engaged in a process to sell a minority interest in our transmission holding company Firstenergy transmission, which owns assay may inch railcar the.
The interest is very strong and preliminary indications are very supportive of our financial plan and targets, but given where we are in the process. We cannot comment any further on the details.
We continue to evaluate all options to raise equity capital in an efficient manner to support our longer term outlook.
Which includes traditional rate base growth and formula rate investments.
<unk> rate case activity.
And incremental in strategic Capex.
<unk> the transition to a cleaner electric grid.
We are optimistic that we'll be in a position to share our overall financing plan and our longer term outlook within the next couple of weeks.
In fact, you may have noticed that we've expanded the information in the appendix of our strategic and financial highlights document give.
Given the current status of the proposed asset sale, we recognized at the fact book will be more relevant once we can include the outcome from that transaction during.
During the fourth quarter, we expect to provide you with 2022 guidance and a detailed capital plan.
Along with the runway of our <unk> to debt target longer term capital forecasts and targeted rate base and earnings growth rates.
As always thank you for your time and your interest in Firstenergy and I'd be happy to take your questions.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please open call for questions.
Our first question comes from the line of Jeremy.
<unk> with J P. Morgan.
Hi, good morning.
Good morning.
Just wanted to talk about kind of current results and.
Operations here, how should we thinking about some of these items that have come in ahead of plan. This year that helped you raised the guidance.
And how should we think about these items.
Sustainable into the future or just trying to get a sense for how much might have been weather or other impacts.
I think thats.
Very good question.
As all of the U S and worldwide, we're still adjusting to the impacts of the pandemic.
And with regard to that and the impact on our business plan, we see residential loads.
<unk> not only increased over the year.
But we see that as an ongoing trend as we get back to whatever will be called the new normal in the U S. So.
Based on the impact of residential load on our earnings we see that as promising.
As we kind of work through the process of getting back to normal our commercial and industrial loads.
Basically demand based.
And we see commercial and industrial.
Going back to normal slowly Budd.
Right now, we're trying to figure out whether or not they will get to pre pandemic levels. So that's kind of the ongoing assumptions that we're working on and.
At the end.
Just going to have to see how.
How we end up getting through.
The.
Delta Varian, the pandemic and giving everybody back to work over time.
Got it that's helpful. Thank you for that and then maybe diving into Ohio, a little bit more here. Just wondering if you could give any more color on the Ohio settlement discussions how they look at this stage and I guess, what kind of plays into your confidence in being able to provide in kind of a long term update in the near future here.
Sure.
Well, thanks for that question too.
In terms of Ohio, we're very encouraged by the progress that we've made thus far.
Been a productive constructive and collaborative approach and that's the tone that.
Myself and the management team wanted to said as we get about the prospects for a settlement and we feel as though.
Prospects are very good right now I want to ensure that we keep the integrity of the process together, so I don't want to get too far ahead.
In terms of commenting on it but.
We're achieving a new and different tone, which I think is resonating.
And.
Our goal is to.
We continue to.
Remove where we can invest or uncertainty in Ohio and.
The risks.
Some of those concerns.
In a way.
The ongoing.
By our management team is to continue.
To promote stability and predictability and thats going to start in Ohio for us. So we're going to keep working on it we will keep you updated in terms of our progress.
Once again I'm encouraged.
Got it that's very helpful. Thank you.
Welcome. Thank you.
Our next question comes from the line of Steve Fleishman with Wolfe Research you May proceed.
Yes I.
I guess on the on the same topic of the last question just wanted to clarify that you're not going to give the 'twenty two and long term guidance until.
Ohio.
Kind of.
Okay great.
Great processes.
Settlement of our processes resolved.
Yes, Dave This is John that's our preference obviously, we want to try to get clarity around.
Where we're going to be with Ohio. So.
Like like like Steve said, we're working as hard as we can to get to a resolution on this issue.
As we've talked about.
The collaborative nature of of the meetings and the discussion has been very productive, but we're not there yet.
Okay.
Okay.
And then on.
On the.
On the issue.
It sounds like we'll get something relatively soon on the asset sale. You identified you did mentioned that you continue to look for kind of all efficient ways to to raise equity capital is there other.
Asset sales or equity or other things that you are also considering or is it still is it mainly really focused on this.
This asset sale process.
So Steve I would tell you that the process for FCT is going very well, we're very happy with what we're seeing the.
The interest is very strong.
The preliminary indications on valuations are very supportive of our.
Financial goals.
And.
It's better than the messaging that then we've talked about before but we're not done and we have some work to do on that on that process.
Thanks for us it's important that we continue to think through how to best position the.
The company going forward and ensure we have financial flexibility to support incremental strategic capex, such as formula rate Capex. So we continue to think through different alternatives to accomplish this and my sense is we'll be in a position sometime in the next few weeks to give you an update on that.
That sounds great and.
That's great on <unk> just.
Just one other question on the new balance sheet metric targets to 13%.
<unk> to debt is there.
<unk> sense of how long it would take to kind of get to that level.
So I think we need to work through Ohio, and where we're going to be there.
But my sense is we could be there by.
The end of 'twenty three.
First part of 'twenty four.
But I think we need to get through a few things and then we'll be able to provide you a better outlook on on timing.
Great. Thank you.
Thanks, Steve.
Our next question comes from the line of Julien Dumoulin Smith with Bank of America. You May proceed with your question.
Hey, good morning team thanks for the time.
Well done on the update.
Good morning, Thank you.
Absolutely my pleasure.
Do you expect that to the minority sale of FCT will satisfy all of the equity needs from 'twenty, two through say 25 and <unk>.
Just to clarify from earlier are the indicative valuation is still comparable to the p/e multiples that you previously discussed on prior earnings call.
Yeah to answer that question comparable and better.
So that should hopefully give you a sense of what we're looking at but.
We're still in the middle of the process is still a lot of work to do there.
And as I just told Steve.
Everything's on the table in terms of the go forward plan and so and we continue to think through how to best position the company going forward.
And like I said, I think we will be able to communicate our plan.
And the next few weeks.
Yes, no I hear and again kind of roofing off the last set of questions too here.
I can with respect to the long term guidance is your objective to set an EPS CAGR with 22 as a base here I would presume, yes, but I just want to clarify that and critically prior.
Prior to the Ohio DPA you previously characterized your EPS growth outlook is generally consistent with the industry average is.
Thats still a fair aspiration, both as a base here and the prospective target thereafter.
Yeah. So I think we'll be in a position to give you targeted rate base and earnings growth rates.
We will give you a 'twenty two guidance.
We'll give you 22 cash flow.
22 capital and then high level capital plan for.
Our planning horizon.
So I think we will.
We'll be able to give you that kind of <unk>.
Look in the next few weeks.
Got it and I can tell you so and the answer to your second question is yes, I mean, if you just look at.
Our earnings year over year this year, it's at 9%.
Recall, we even back down on some capital this year.
So my sense is we.
We will have normal utility growth.
Excellent that's great and then just to clarify sorry, just a final point here in Ohio.
Some of the audit items proceedings gating items, if you will for a settlement.
You pointed to this mid.
Mid December data point on the audit report for instance.
Yes, I would say Julian.
We think of our settlement discussions that we're having right now separate from the four audits that are ongoing and if you'll recall and I mentioned it in my prepared remarks, the corporate separation the rider DMR.
We look at political and charitable spending and rider ECR.
Each one of those audits are on their own way right now, we're working very hard and have been very open very responsive.
So the work that's going on there when you start to look at the settlement issue Thats more along the lines of the Quadrennial review.
That we've talked about in our prepared remarks.
And other items so.
We're kind of working all of the proceedings together.
And once again, we're being as open and transparent as we can as we kind of walked that path with our with our regulators.
Other interested parties in Ohio.
Got it alright ill leave it there. Thank you all and best of luck here.
Thank you all the best.
Our next question comes from the line of Shar <unk> with Guggenheim Partners. You May proceed with your question.
Hey, good morning, guys.
Good morning Shar.
Just wanted to.
Just on Ohio, I know, you've obviously had some comments about removing concerns and thinking about predictability.
I understand obviously you guys are in discussions.
But curious if any of the discussions also entail maybe how to think about the construct on a more prospective basis like.
Maybe different rates mechanisms PBR is how to think about a future <unk>.
I think thats a very good question.
We have started this entire process.
Our approach as a company.
It's really starting with a listening tour. If you will so we're listening and we're not missing anything that we're getting in terms of our feedback from.
Our past endeavors, and we're trying to apply some lessons into the future. So.
To the extent in Ohio or other jurisdictions.
Regulators or other interested parties.
New and different ways to look at the future we are.
Certainly open to that so I think we've explored that entire territory presently in Ohio, we're going to remain open to that.
And.
I don't want to kind of open the door too far to what we're attempting to do in Columbus, right now, but once again I'm encouraged that.
All of the parties are meeting around a common table for the common good.
For us that's.
Keeping the customer at the center of that equation.
<unk> been encouraged by that so once again, it's around openness.
Just being able to things differently than what we had in the past.
Got it terrific and then just.
It sounds like your balance sheet and metrics are improving a lot. So other than the sort of the transco stake sale, how do you strategically.
Think about the assets that you may be able to further optimize versus what's absolutely core and this is obviously, especially in light of a recent peer announcing a deal to sell the utility line relatively heavy coal burning Street I guess.
John did you see some incremental value to further simplify sell coal on redeploying to renewables, especially as those decarbonization plans come to fruition.
Several states right, which may have their own kind of financing.
Yes.
I'll take the first cut at that and if you don't mind I will turn it over to John but at the end when.
We look at our current opportunity we've got all the pieces in front of us and we're evaluating all of our options.
Terms of our prepared remarks, and what John has shared we feel as though we have the right strategic options in front of US right now and we are not taking anything unnecessarily off the table, but at the end. We think we're very good place, where we can propel this company forward.
And do that without sacrificing what I believe is a very strong footprint, a very strong business plan and a very strong strategy as being a.
Our pure play T&D kind of regulated environment.
We feel very good about that presently in terms of what we've expressed publicly and we're just going to continue to work our plan right now John I don't know if you have anything to add there yes sure I would just say as we thought about all of our different assets.
Before we started the process with FEP.
We thought about one making sure that we could raise equity in an efficient manner for our shareholders. I think <unk> is going to definitely check that box, but just as important.
As business that we could attract sophisticated high quality investors, where we can align on governance and business strategy type of issues and I think.
So from where we are today.
<unk> meets all of those criteria for us, it's going to be very efficient capital raise will be accretive to earnings.
The investors that are in the mix or our top notch quality firms and they're very supportive.
Of the business plan and very supportive of future transmission opportunities.
Sure I think that helps thanks, guys I appreciate it.
Thank you.
Our next question comes from the line of Angie <unk> with Seaport.
You May proceed with your question.
Thank you just one.
Follow up on that transmission business per one.
Hum.
Earnings power of this business.
Laura.
We expect that and I hear the XL.
Explanation behind some true up but.
The cost to go up but if you could just give me a bit more sense.
And to ensure that earnings range. The updated earnings range also.
Given that you are selling a stake in that business what happens.
Global conditions assigned to ask for.
And Keith.
There is a reduction in the allowed ROE.
For these assets.
Right.
I think going wrong.
So Andrea I'll try to take both of those.
So just in the transmission business.
Year over year, our investment program has added about <unk> <unk>.
And earnings through.
September now that was offset with some additional interest expense from our revolver borrowings earlier this year as well as the long term debt issuance at <unk> back.
Back in I think the March timeframe, and then we had those.
Ill call to sense of Formula rate true ups were really those are accounting true ups of our prior year forward looking right.
We typically use projected rate base in.
We true that up to actuals in the following year and a lot of that is associated with deferred taxes and the like so so those are your primary drivers we continue to be very optimistic about our energizing the future program and it provides a lot of opportunity for us to grow this company in the future.
With respect to your second question I think that's too early to tell and some details that we probably don't want to get into at this point in time, but once we have clarity on all of that will we'll obviously.
Provided that to you.
I think John that spread on target I would just add that it's more.
That for us as a company.
In terms of an investment opportunity it's around.
The value of that customer sees and we've been able to demonstrate as we invest in transmission that reliability.
Continued to improve and Thats very important for us as it is obviously for our customers. So we try to keep that firmly in play in terms of the equation.
Okay, just one follow up.
No.
Yeah.
I think we all had expected an announcement on lots of calls pretty much right now so.
Are you waiting to see how big the scope of work.
You need to sell.
The future of distribution earnings power in Ohio.
Well Angie I mean, we're just working the process I mean.
We launched the process earlier this year and it just takes some time.
We're not going to make a decision on something that significant just too.
Communicated on an earnings call.
We want to make sure that we do it right and that we have the right structure in place and now.
We're just we're just following our process.
Okay, and just one last one so I appreciate the disclosures.
Alright somewhat disclosures on the earnings call.
Can you comment about your ability to grow the dividend.
Thank you for formal proposal that target.
Yes.
Angie.
We certainly understand.
The importance of the dividend.
Its placement within our business plan and we know how important it really is currently are our approach remains unchanged.
Our payout range is 55% to 65% if you were to take a gauge of it right now.
A potential to be within that 60% range with a 4% yield.
Sure.
Obviously I don't want to get ahead of our board of directors Our board reviews. This.
On a routine basis and I would just say John's done a very good job of talking about some of the key pieces that are in front of US right now the clarity in Ohio.
That we're seeking.
I'm confident we will get to here.
Along with the potential for a minority stake sale in transmission.
And it's our ongoing quest to get to that investment grade level that we're working towards and once again just to reiterate we are working towards a 13% <unk> to debt ratio.
Put balance sheet concerns beyond us so we've got some wood to chop so to speak and we're working our process right now.
A dividend discussion is <unk>.
Obviously ongoing with our board as we move ahead.
Very good thank you Steven.
Thank you Angie.
Our next question comes from the line of <unk> Chopra with Evercore ISI you May proceed with your question.
Hey, good morning team. Thank you for taking my question.
John I hate to go back to the.
We're 2022 guidance.
Forward looking projections can you just clarify how many years.
Work with the Capex guidance are you going to give us.
Yes, I think we will probably give you.
Three to four year look on Capex.
So 22 to 25 something like that.
What we're thinking.
Okay, Great and then just in terms of your equity needs.
Yep.
Can you talk about $600 million.
In a year.
Is that a good sort of cadence as we sort of think about your.
Your financing needs through 2025.
Well, so I think we've talked about.
Looking at alternatives in lieu of.
Those equity issuances.
And so that's why.
We've been looking at the minority interest sale at FMT.
And considering other alternatives. So I think we'll be able to give you the longer term look.
Now once we.
Get some clarity on a few things, but I think what we're considering now is in lieu of.
Those issuances in 'twenty, two and 'twenty three.
Sure sure I'm, just trying to see okay. So I guess another way to ask this question is I'm trying to see how much.
What's the dollar amount of it.
The proceeds from the sale that you mean substances, Tennessee, what are the needs in the base plan and I was trying to sort of.
The $600 million a year, that's sort of where I was going with this.
Yes, so I don't know if I can give you all those details right now I think we need to probably wait until.
We get some clarity on Ohio and.
And obviously, we want to be able to articulate to our investors our plan to get to 13%.
I also want to think through ensuring that we have financial flexibility for additional capex.
Specifically formula rate Capex, so as we think about our overall plan will put all of that into the mix and provide you a longer term outlook, including our financing plan.
Understood. Thank you so much for taking my questions I appreciate that Tony.
Thank you.
Our next question comes from the line of Michael <unk> with Goldman Sachs. You May proceed with your question.
Hey, guys. Congrats on a good nine months and thank you for taking my question.
I actually have a couple of little unrelated to each other first of all New Jersey. Your data shows you are under earning in New Jersey by a couple of hundred basis points can you talk with us about your efforts to improve that to get back closer to authorize. That's question a question be more longer term when you think about capital spend opportunities.
Call. It the next two to four years or so somewhere in there where do you think the greatest opportunity to deploy more capital is outside of the offshore wind related transmission across the system like what type of projects what type of opportunities.
Yes, Michael this is Steve I'll take the second half of that question.
I believe that we're in.
A great spot as a company to not only continue our plan in terms of fortifying the transmission distribution business that we have before us with very good classic investments I would call it to improve customer reliability, while maintaining very affordable rates is kind of.
Number one so I see that moving ahead.
The offshore wind I believe as we.
Seek and receiving greater clarity on the clean energy transition that the U S is going to continue to.
Move ahead on I think that's going to provide us great opportunities both in the T&D environment to continue to invest in the embrace renewables.
We're certainly very excited about that opportunity beyond that it's also <unk>.
Making emerging technologies that are coming towards us that are much more affordable for customers such as smart meter and other items in which were going to prepare a T&D platform for renewables over time.
And I think those opportunities not only exist on the transmission system.
Exist in each one of our jurisdictions. So I think it's very.
<unk>.
We've talked about this before it's very important that we keep the customer in the center of that equation in which we can enrich the value, we're providing them, but we keep affordability in mind. So we can get into more details over time about.
Individual initiatives that we could pursue but once again I think we have a very.
<unk> bright future in that rental relative to GC P&L.
I think I'll turn that portion of the question over to John Yes, Michael So we started the year. If you recall it probably around six 5% return on equity in New Jersey for for 2020, we implemented the base distribution case, one one of this year.
And so we've gone from six 5% to eight 2%.
In terms of the row and my sense is that will continue to increase as we roll on the full 12 months of the base distribution case, I think you will always be a little bit below.
Youre allowed return on equity there just because of regulatory lag, but we should be closer to that in the fourth quarter.
Got it and then one follow up can you remind me in Pennsylvania are you currently benefiting from the desk and are there any issues with.
Kind of getting guess correlated revenue increases small, though they would be.
<unk>.
In.
In the near term.
Yes. This revenue is turned on with the exception of Penn power and we're working through a little bit of an issue there with some cost recovery.
But for the other three companies the dis revenue is turned on.
Yes.
Youre getting annual rate increases tied to the desk, even though they're not really big numbers correct correct.
Got it. Thank you guys much appreciate it.
Thanks, Michael.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
One moment, please poll for more questions.
Our next question comes from the line of Andrew Weisel with Scotiabank. You May proceed with your question.
Hey, everyone. Good morning.
I have two questions.
I have two questions about the transmission Capex first one is I know you trimmed. It earlier this year in April and at the time you referenced some uncertainty about the Doj investigation as well as balance sheet balance sheet constraints.
Do you see opportunity to reverse those cuts here should we think of those as more permanent and then the second question is if you do move forward with the sale of minority interest in the business would that impact the capex plans longer term or do you think that's unrelated to the ownership.
Yes, Andrew I'll give you my cut at that and the way I like to think about that is look our company has faced.
Significant uncertainty in the last 18 months period.
We've done what is prudent.
In terms of just ensuring that we can maintain financial flexibility in the present tense and then increases in the future tense. If you will and I think we've done a very good job of managing that I believe our transmission investment opportunities.
While we curtailed them slightly this year I think youll see us continue to ramp that up incrementally.
Just to make sure also that we stayed within our sweet spot.
Within that in other words, we don't want to go too far in terms of.
Earning customers.
In terms of cost, but once again, we are seeing continued reliability improvement. So I think thats really important for us.
When you factor in the <unk>.
Potential for a minority stake sale.
Within the transmission business.
I think thats only going up.
Executing fortify our company moving ahead strengthen our business platform strengthened our balance sheet and I think that will provide a greater opportunity to invest into the future.
Once again I think all of these pieces.
While we can't be more definitive today I think they are starting to align nicely not only.
The minority stake consideration.
Working towards.
Some type of settlement in Ohio that once again will help our business and relieve some level of uncertainty out in the market.
I think all of these pieces are starting to work forward very nicely.
Our main concern as we continue to do that is just to make sure that we keep our company between the guard rails. So to speak we have to continue to execute we've got to continue to keep our employees and the public safe be concerned with.
Our reliability ensure they're financially that were.
Performing not only for shareholders, but all stakeholders.
We feel very good about where we're at right now even though as I said earlier, we have work to do.
That's helpful. Thank you.
Thanks, Andrew.
At this time, we have reached the end of the question and answer session.
I'd like to turn the floor back over to Mr. <unk> for closing comments.
Great well, thank you very much and thanks, everyone for joining us today.
Very proud about the progress that we've made to transform not only our business, but our culture as a company and that will remain front and center for me as CEO.
We're continuing to achieve our financial customer service in the ESG goals, we have more work to do but I am very confident.
We're going to continue to deliver long term value for our shareholders employees or customers.
And our communities that we serve so we look forward to talking to many of you at EI.
I just wish all of you and your families continued safety and great health as we continue to work through this pandemic so with that.
All the best and thank you once again for joining us.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
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Okay.
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