Q4 2021 FirstEnergy Corp Earnings Call

Speaker 1: proud of our progress. This important work, together with our continued strong operational performance, is energizing our company.

This important work together with our continued strong operational performance is energizing our company.

Our efforts in 2021, where the first steps on a journey to transform firstenergy into a more sustainable company centered on our core values and built for the long term.

Speaker 1: Our efforts in 2021 were the 1st steps on a journey to transform 1st energy into a more sustainable company centered on our core values and built for the long term.

Speaker 1: While the Deferred Prosecution Agreement, the Approved Ohio Settlement, and the progress we announced yesterday in resolving outstanding litigation are all very important milestones, most of our significant work over the past year involves the cultural changes at our company. So I'd like to start by talking about that.

While the deferred prosecution agreement the approved Ohio settlement and the progress we announced yesterday in resolving outstanding litigation are all very important milestones most of our significant work over the past year involves the cultural changes at our company. So I would.

Like to start by talking about that.

Speaker 1: We are building a culture where all of us at every level in the organization feel valued and understand the importance of doing what is right.

We are building a culture, where all of us at every level in the organization feel valued and understand the importance of doing what is right.

Speaker 1: This means doing what is in the best interest of our stakeholders as well as the environment.

This means doing what is in the best interest of our stakeholders as well as the environment.

Speaker 1: working as one team across the company, and developing an inclusive and safe culture where employees feel empowered and motivated to speak up and bring their very best every day.

Working as one team across the company and developing an inclusive and safe culture, where employees feel empowered and motivated to speak up and bring their very best every day.

This culture change is the foundation the heart, if you will of a new firstenergy and I am deeply committed to making this change.

Speaker 1: This culture change is the foundation, the heart if you will, of a new first energy and I am deeply committed to making this change.

My vision is to be a company that all stakeholders trust that is focused on delivering value to our customers and where employees bring in innovative and continuous improvement mindset to work every day.

Speaker 1: My vision is to be a company that all stakeholders trust, that is focused on delivering value to our customers, and where employees bring an innovative and continuous improvement mindset to work every day.

Fulfilling this vision starts with our people.

Speaker 1: Fulfilling this vision starts with our people. Through all of the tribulations over the past two years, our employees have risen to every challenge and shown true character. They've delivered strong results while demonstrating a passion for what they do and a passion for serving customers.

Through all of the tribulations over the past two years, our employees have risen to every challenge and shown true character.

<unk> delivered strong results, while demonstrating a passion for what they do and the passion for serving customers.

Speaker 1: They deeply care about the communities we serve and they have a strong sense of pride for this company.

They deeply care about the communities, we serve and they have a strong sense of pride for this company.

But we know that pride was eroded by what happened related to house Bill six.

Speaker 1: But we know that pride was eroded by what happened related to House Bill 6. I, along with the board and the entire management team, am dedicated to restoring their pride by building a company that is grounded in an unwavering culture of compliance, ethics, integrity, and accountability at every level.

I, along with the board and the entire management team and dedicated to restoring their pride by building a company that is grounded in an unwavering culture of compliance ethics integrity and accountability at every level.

People are our greatest asset and through our employee driven forward program, we are implementing their ideas and solutions to create value for our company our customers and other stakeholders buy.

Speaker 1: People are our greatest asset, and through our employee-driven FE Forward program, we are implementing their ideas and solutions to create value for our company, our customers, and other stakeholders.

Speaker 1: By investing $150 million in innovation, digital tools, and technology,

By investing $150 million in innovation digital tools and technologies.

Speaker 2: we can work more safely and efficiently, deliver an exceptional experience for customers, and unlock opportunities for growth that are embedded in the broad energy transition.

We can work more safely and efficiently deliver an exceptional experience for customers and unlock opportunities for growth that are embedded in the broad energy transition.

For example.

Speaker 1: Our employees have determined that we can better serve our customers through a five state operating model, which centrally driven best practices and processes, as opposed to separate operating company management teams. And last week, we made.

Our employees have determined that we can better serve our customers through a five state operating model with centrally driven best practices and processes as opposed to separate operating company management teams.

And last week, we made that transition.

Employees are implementing enhanced communications and self service options to improve the experience for customers when they need our assistance there.

Speaker 1: Employees are implementing enhanced communications and self-service options to improve the experience for customers when they need our assistance.

Speaker 1: They're using data and analytics to drive better decisions around our assets, sourcing, and inventory, resulting in better reliability for customers.

They are using data and analytics to drive better decisions around our assets sourcing and inventory, resulting in better reliability for customers.

Speaker 1: And they're capturing productivity improvements through system integration, automation, and mobility tools that will significantly reduce day-to-day work we outsource currently.

And they're capturing productivity improvements through system integration automation and mobility tools that will significantly reduce day to day work we outsourced currently.

This is important work and coupled with our investments in a more modern and sustainable grid, we expect it to completely transform our company inside and out.

Speaker 1: This is important work and coupled with our investments in a more modern and sustainable grid, we expect it to completely transform our company inside and out.

Speaker 1: We're enabling this transformation in part through an innovation center and digital factory.

We are enabling this transformation in part through an innovation center and digital factory.

Speaker 1: These functions, which will be staffed by over 140 professionals, are focused on enhancing the use of technology across our company.

These functions, which will be staffed by over 140 professionals are focused on enhancing the use of technology across our company.

Speaker 1: together with IT and cyber and physical security.

Together with <unk> and cyber and physical security.

Speaker 1: They're now led by our new chief information officer, Steve Fortune, who joined us this week.

Theyre now led by our new Chief Information Officer, Steve Fortune, who joined US This week Steve.

Speaker 1: Steve was formerly group CIO at BP, where he led a major digital transformation. We're fortunate to be able to bring him on board.

Steve was formerly group CIO at BP, where he led a major digital transformation, we're fortunate to be able to bring him onboard.

We recognize this is a journey and I am sure we will face challenges along the way, but I am confident in our team's ability to execute and meet our commitments as they did through 2021.

Speaker 1: We recognize this is a journey and I'm sure we'll face challenges along the way, but I'm confident in our team's ability to execute and meet our commitments as they did through 2021.

Speaker 1: Now, let's spend a few moments on recent developments. First, in November we announced a $3.4 billion transformational equity financing with two premier global infrastructure funds, Blackstone Infrastructure Partners and Brookfield SuperCore Infrastructure Partners.

Now, let's spend a few moments on recent developments first.

In November we announced a $3 4 billion dollar transformational equity financing with two premier global infrastructure funds Blackstone infrastructure partners and Brookfield Super core infrastructure partners.

Speaker 1: Blackstone purchased $1 billion in First Energy common stock at $39.08 per share in a transaction that closed in December .

Blackstone purchased $1 billion in Firstenergy common stock at $39 eight per share in.

In a transaction that closed in December .

As part of that investment Blackstone has appointed Shawn <unk> to serve as a board observer and we expect to nominate a director candidate recommended by Blackstone in our 2022 shareholder meeting.

Speaker 1: As part of that investment, Blackstone has appointed Sean Klimczak to serve as a board observer and we expect to nominate a director candidate recommended by Blackstone in our 2022 shareholder meeting.

Brookfield is purchasing a 19, 9% stake in <unk>, which owns our assay made and trail co transmission companies.

Speaker 1: Brookfield is purchasing a 19.9% stake in FET, which owns our ATSI, MATE, and Trailco transmission companies.

Speaker 1: With an investment of $2.4 billion, this transaction represents a historic valuation in our industry. We expect that transaction to close in the second quarter.

With an investment of $2 4 billion. This transaction represents a historic valuation in our industry, we expect that transaction to close in.

In the second quarter.

Speaker 1: These strategic financings address all our equity needs, will strengthen our financial position, and support the incremental investment opportunities in our plan, focused on sustainable investments that support the energy transition.

These strategic financings address all our equity needs will strengthen our financial position and support the incremental investment opportunities in our plan focused on sustainable investments that support the energy transition.

We're pleased to be a partner with these experienced and capable infrastructure investors, who fully support the execution and acceleration of our current business strategy and transformation.

Speaker 1: We're pleased to be a partner with these experienced and capable infrastructure investors who fully support the execution and acceleration of our current business strategy and transformation.

Notably these transactions demonstrate confidence in our business plan, our talented team and our vision for long term growth.

Speaker 1: Notably, these transactions demonstrate confidence in our business plan, our talented team, and our vision for long-term growth.

Speaker 1: They are also a key catalyst to executing our strategy for long term six to eight percent customer focused growth.

There are also a key catalyst to executing our strategy for long term, 6% to 8% customer focused growth.

Speaker 1: Also in November , we were pleased to reach a unanimous settlement with a broad range of parties on multiple Ohio proceedings that were under consideration by the Public Utilities Commission.

Also in November we were pleased to reach a unanimous settlement with a broad range of parties on multiple Ohio proceedings that were under consideration by the public Utilities Commission.

The $306 million settlement, which was approved by the PUC O in December benefits, our Ohio customers provides clarity around a wide range of topics and demonstrates our commitment to working openly and collaboratively with our stakeholders.

Speaker 1: The $306 million settlement, which was approved by the PUCO in December , benefits our Ohio customers, provides clarity around a wide range of topics, and demonstrates our commitment to working openly and collaboratively with our stakeholders.

Speaker 1: We also continue to make substantial progress in resolving outstanding litigation in order to provide certainty to stakeholders and focus our attention on the future.

We also continue to make substantial progress in resolving outstanding litigation in order to provide certainty to stakeholders and focus our attention on the future.

Speaker 1: We announced yesterday that in conjunction with the special litigation committee of the board of directors, the company agreed to a settlement to resolve multiple shareholder derivative lawsuits in Ohio.

We announced yesterday that in conjunction with the special Litigation Committee of the board of Directors. The company agreed to a settlement to resolve multiple shareholder derivative lawsuits in Ohio.

Yeah.

Speaker 1: Because these shareholder derivative suits, brought on behalf of the company and for the company's benefit, the settlement includes a payment to FirstEnergy of $180 million less plaintiff's legal fees to be paid by insurance.

Because the shareholder derivative suits brought on behalf of the company and for the Companys benefit. The settlement includes a payment to firstenergy of $180 million less plaintiff's legal fees to be paid by insurance.

Speaker 1: The settlement also stipulates a series of corporate governance enhancements which are outlined in the press release we issued yesterday and complement the substantial actions we have taken as a company to strengthen our governance and compliance program over the last year and a half.

The settlement also stipulates a series of corporate governance enhancements, which are outlined in the press release, we issued yesterday.

And complement the substantial actions, we have taken as a company to strengthen our governance and compliance program over the last year and a half.

Speaker 1: Upon court approval, this settlement fully resolves the derivative action.

Upon court approval this settlement fully resolves the derivative actions.

The settlement contains provisions for enhanced oversight and disclosure of political activities third party audits and action plans and a review of the current executive team to be conducted by a special Board Committee.

Speaker 1: The settlement contains provisions for enhanced oversight and disclosure of political activities, third-party audits and action plans, and a review of the current executive team to be conducted by a special board committee.

And further alignment of financial incentives of senior executives with compliance measures.

Speaker 1: and further alignment of financial incentives of senior executives with compliance measures.

Additionally, six members of the board who have served for a minimum of five years, we will not stand for reelection at the company's 2022 annual shareholder meeting.

Speaker 1: Additionally, six members of the board who have served for a minimum of five years will not stand for re-election at the company's 2022 annual shareholder meeting.

Speaker 1: On behalf of the company, we thank these directors for their commitment and years of service to First Energy.

On behalf of the company, we think these directors for their commitment and years of service to Firstenergy.

Speaker 1: I'll also note we have been evaluating various options to reduce the size of the board following the addition of 7 new directors in 2021 with an 8th from Blackstone to be appointed at this year's annual meeting.

I'll also note we have been evaluating various options to reduce the size of the board. Following the addition of seven new directors in 2021 within the eighth from Blackstone to be appointed at this year's annual meeting.

Speaker 1: The board will continue to comprise an impressive mix of skills, focus areas, and perspectives as it guides our company through the next phase of our growth.

The board will continue to comprise an impressive mix of skills focus areas and perspectives as a guide our company through the next phase of our growth.

Speaker 1: Turning to other regulatory matters, there has also been progress on the Ohio Expanded DCR Audit, the DMR Audit, and the Corporate Separation Audit.

Turning to other regulatory matters. There has also been progress on the Ohio expanded <unk> audit the DMR audit and the corporate separation to audit.

The audit reports have been filed in all of these cases, and we will continue to work through the regulatory process on each.

Speaker 1: The audit reports have been filed in all of these cases, and we'll continue to work through the regulatory process on each.

During our third quarter call in late October we alluded to two forthcoming filings in West Virginia that support the transition to clean energy.

Speaker 1: During our third quarter call in late October , we alluded to two forthcoming filings in West Virginia that support the transition to clean energy.

Speaker 1: In November , we filed with the West Virginia Public Service Commission a plan to build 50 megawatts of utility-scale solar generation in the state at a total cost of approximately $100 million.

In November we filed with the West Virginia Public Service Commission, our plan to build 50 megawatts of utility scale solar generation in the state at a total cost of approximately $100 million.

And in December we filed a plan to comply with environmental rules and responsibly operate our two remaining fossil plants for the benefit of West Virginia customers beyond 2028.

Speaker 1: And in December , we filed a plan to comply with environmental rules and responsibly operate our two remaining fossil plants for the benefit of West Virginia customers beyond 2028.

Speaker 1: We intend to begin a broad stakeholder dialogue regarding our planned operational end dates of 2035 and 2040 for Fort Martin and Harrison, respectively, which further supports.

We intend to begin a broad stakeholder dialogue regarding our planned operational and dates of 2035 and 2044 Fort Martin and Harrison respectively.

Which further supports our climate goals.

Speaker 1: We will also begin preparing for future rate case activity, including base rate case filings in 2023 for Maryland, West Virginia, and likely New Jersey.

We will also begin preparing for future rate case activity, including base rate case filings in 2023 for Maryland, West, Virginia, and likely New Jersey.

And in 2024 for Ohio, as well as the Ohio company's filings to address the end of their current ESP, which expires in may of 2024.

Speaker 1: and in 2024 for Ohio, as well as the Ohio companies filing to address the end of their current ESP, which expires in May of 2024.

Speaker 1: Also in 2022, we will continue our focus on ethics and compliance. These priorities include continuing to build a more centralized and robust compliance organization for updating and refining our processes, policies, and controls.

Also in 2022, we will continue our focus on ethics and compliance. These priorities include continuing to build a more centralized and robust compliance organization for updating and refining our processes policies and controls.

Speaker 1: creating multiple channels for incident reporting, and developing thorough and objective processes to investigate and address incidents of misconduct.

Creating multiple channels for incident reporting and developing thorough and objective processes to investigate and address incidents of misconduct.

Seeking continuous improvement by monitoring benchmarking and obtaining an independent assessment of the program.

Speaker 1: Seeking continuous improvement by monitoring, benchmarking, and obtaining an independent assessment of the program, and completing the training for all employees on our new Code of Conduct and rolling out additional training on our speak-up culture and compliance.

And completing the training for all employees on our new code of conduct and rolling out additional training on our speak up culture and compliance.

Finally.

Speaker 1: Our ongoing commitment to creating a more diverse, equitable, and inclusive work environment is an essential part of our overall cultural transformation taking place at our company.

Our ongoing commitment to creating a more diverse equitable and inclusive work environment is an essential part of our overall cultural transformation taking place at our company.

I am determined to build on our progress in this area.

Speaker 1: I am determined to build on our progress in this area.

Speaker 1: This is a time of historic change at First Energy. Change for the better. As we look to the future, I believe our company will emerge as a premier utility and a leader in our industry.

This is a time of historic change at Firstenergy change for the better as we look to the future I believe our company will emerge as a premier utility.

And a leader in our industry.

Speaker 1: And I believe we can deliver value to our investors that mirrors the value we provide to customers.

And I believe we can deliver value to our investors that mirrors the value we provide to customers in all my years at Firstenergy I've never been more excited about what's to come.

Speaker 1: In all my years at First Energy, I've never been more excited about what's to come.

Speaker 1: Now I'll turn the call over to John for a financial update.

Now I'll turn the call over to Jon for a financial update.

Speaker 3: Thanks Steve. Good morning everyone. I'm also excited about our future and the significant progress we've made to place First Energy in a solid financial position.

Thanks, Steve Good morning, everyone.

I'm also excited about our future and the significant progress we've made to place firstenergy and our solid financial position.

As al discussed we have a lot of moving parts of this year as we absorb the Ohio settlement.

Speaker 3: As I'll discuss, we have a lot of moving parts this year as we absorb the Ohio settlement.

Certain accounting changes and.

Speaker 3: and begin to deploy the proceeds from the equity financings that we announced last year.

And begin to deploy the proceeds from the equity financings that we announced last year.

Speaker 3: As we integrate these elements into our financial plan, 2022 will be a baseline for strong, long-term growth.

As we integrate these elements into our financial plan 2022 will be a baseline for strong long term growth.

As always we provided materials on our website to supplement our discussion today.

Speaker 3: As always, we provided materials on our website to supplement our discussion today. The Factbook has been refreshed to include additional information about our company strategy and our financial plan through 2025.

<unk> has been refreshed to include additional information about our company strategy and our financial plan through 2025.

Speaker 3: While we don't plan to publish the factbook quarterly in 2022, we will expand the quarterly strategic and financial highlights deck to also include updates on our strategic priorities.

While we don't plan to publish the fact the quarterly in 2022.

We will expand the quarterly strategic and financial highlights deck to also include updates on our strategic priorities.

Speaker 3: Now let's take a look at the financial results we reported yesterday. Since we have so much to cover, I'll keep this part of our discussion a little shorter than normal.

Now, let's take a look at the financial results, we reported yesterday since we have so much to cover I'll keep this part of our discussion a little shorter than normal.

Yesterday, we announced 2021 fourth quarter GAAP earnings of <unk> 77 per share and operating earnings of 51 per share, which is at the midpoint of our guidance despite incredibly mild fourth quarter weather.

Speaker 3: Yesterday we announced 2021 fourth quarter gap earnings of 77 cents per share and operating earnings of 51 cents per share, which is at the midpoint of our guidance despite incredibly mild fourth quarter weather.

Speaker 3: There were several special items for the quarter, including a $0.47 per share mark-to-market gain on our pension, due mainly to a higher discount rate, as well as a $0.22 per share regulatory charge, resulting from refunds to customers under our Ohio PUCO settlement and a recent order in Pennsylvania to refund additional tax benefits.

There were several special items for the quarter.

<unk> 47 per share mark to market gain on our pension due mainly to a higher discount rate as.

As well as a 22 per share regulatory charge.

<unk> from refunds to customers.

Our Ohio, PUC, Oh settlement and a recent order in Pennsylvania to refund additional tax benefits.

Speaker 3: In our distribution business, fourth quarter results increased as a result of new base rates in New Jersey and higher revenues from capital investment programs.

And our distribution business fourth quarter results increased as a result of new base rates in New Jersey, and higher revenues from capital investment programs.

Fourth quarter earnings also improved over last year from the absence.

Speaker 3: Fourth quarter earnings also improved over last year from the absence of the charge we took in 2020 related to our strategic decision to forego collection of lost distribution revenues in Ohio.

The charge, we took in 2020 related to our strategic decision to forgo collection of loss distribution revenues in Ohio.

Speaker 3: Also impacting the corridor was lower customer demand and higher operating expenses associated with strategic investments made to enhance reliability for customers.

Also impacting the quarter was lower customer demand and higher operating expenses associated with strategic investments made to enhance reliability for customers.

Speaker 3: For the quarter, total distribution deliveries increased about 1% on both an actual and weather adjusted basis compared to the fourth quarter of 2020.

For the quarter total distribution deliveries increased about 1% on both an actual and weather adjusted basis compared to the fourth quarter of 2020.

Higher industrial and commercial usage was partially offset by a 2% reduction in the higher margin residential customer class.

Speaker 3: Compared to pre-pandemic levels, weather-adjusted demand continues to be strong with our residential customers, reflecting a 4% increase for the year, and although industrial and commercial customer demand continues to be lower than we saw in 2019, we have seen incremental improvement each quarter of 2021, and our fourth-quarter results reflect industrial and commercial demand down just under 2% and 3%, respectively, compared to the fourth quarter of 2019.

Compared to pre pandemic levels weather adjusted demand continues to be strong with our residential customers reflecting.

A 4% increase for the year and although industrial and commercial customer demand continues to be lower than we saw in 2019, we have seen incremental improvement each quarter of 2021, and our fourth quarter results reflect the industrial and commercial demand down just under 2% and 3% respectively.

Compared to the fourth quarter of 2019.

And our regulated transmission business earnings were consistent with our updated forecast benefiting from higher rate base related to our energizing the future investment program, but this was more than offset primarily by higher net financing costs and other charges.

And in our corporate segment, our results for the fourth quarter reflect lower operating expenses and higher discrete income tax benefit as compared to the fourth quarter of 2020.

Speaker 3: For the full year, we reported gap earnings of $2.35 this year and operating earnings of $2.60 this year.

For the full year, we reported GAAP earnings of $2 35, a share and operating earnings of $2 60 census, there.

Speaker 3: which is at the midpoint of the range we provided last fall, representing a 9% increase compared to 2020 operating earnings of $2.39 a share.

Which is at the midpoint of the range, we provided last fall representing a 9% increase compared to 2020 operating earnings of $2 39. This year.

Our strong financial performance also resulted in $2 $8 billion in cash from operations last year.

Speaker 3: Our strong financial performance also resulted in $2.8 billion in cash from operations last year.

Speaker 3: which was $200 million more than our original cash from operations guidance and above the midpoint of the revised guidance range we provided on our third quarter call in October . And also reflects over $300 million of non-recurring cash payments, such as the penalty under our deferred prosecution agreement.

Which was $200 million more than our original cash from operations guidance and above the midpoint of the revised guidance range. We provided on our third quarter call in October and also reflects over $300 million of nonrecurring cash payments such as the penalty under our deferred prosecution agreement.

Last fall, we outlined our $17 billion sustainable investment plan through 2025.

Speaker 3: Last fall, we outlined our $17 billion sustainable investment plan through 2025.

Speaker 3: which includes our $3.3 billion investment plan this year.

Which includes a $3 $3 billion investment plan this year.

Speaker 3: encompassing grid modernization, resiliency, energy efficiency, enabling the energy transition, and base reliability improvement.

Encompassing grid modernization resiliency energy efficiency, enabling the energy transition and base reliability improvements.

Speaker 3: We expect these investments to not only drive our 68% growth rate, but help us emerge as a leader in the energy transition. We also

We expect these investments to not only drive our 68% growth rate.

But help us emerge as a leader in the energy transition.

We also plan to make further improvements to our balance sheet. This year.

Speaker 3: On January 20th, we redeemed $850 million of holding company debt and plan to retire another $500 million in hold code debt expiring later this year.

On January 20th we redeemed $850 million.

Holding company debt and plan to retire another $500 million in Holdco debt expiring later this year.

We have begun to recapitalize certain of our operating companies to fund their capital programs and improve their credit profiles.

Speaker 3: We have begun to recapitalize certain of our operating companies to fund their capital programs and improve their credit profiles.

Speaker 3: For instance, we recently issued redemption notices for $150 million and $25 million of operating company debt at CEI and Toledo Edison, respectively.

For instance, we recently issued redemption notices for $150 million and $25 million of operating company debt at Cei, and Toledo Edison respectively.

Speaker 3: We also plan to recapitalize certain other companies later this year to fund growth and enhance credit metrics and capital structures, as we plan to be much more active with rate payers in the future.

We also plan to recapitalize certain other companies later this year to fund growth and enhanced credit metrics and capital structures as we plan to be much more active with rate proceedings in the future.

Speaker 3: For 2021, our CFO to adjust the debt, as defined by Moody's, was 11.5%.

For 2021, our CFO to adjusted debt is defined by Moody's was 11, 5%.

Speaker 3: This excludes the one-time non-recurring payments I mentioned earlier and that's our $1.5 billion cash position with debt.

This excludes the onetime nonrecurring payments I mentioned earlier and Thats, our $1 5 billion cash position with debt.

Speaker 3: We are pleased with our progress and will remain well-positioned to achieve 13% CFO to debt by 2024.

We are pleased with our progress and we remain well positioned to achieve 13% CFO to debt by 2024.

Speaker 3: As we consider the full deployment of the proceeds from the equity transactions, we will remain flexible considering market conditions to optimize our balance sheet and to fund our capital program.

As we consider the full deployment of the proceeds from the equity transactions, we will remain flexible considering market conditions to optimize our balance sheet.

And to fund our capital programs.

Speaker 3: including further reducing balance sheet debt at our holding company, optimizing utility capital structures to fund capital programs or voluntary

Leaning further reducing balance sheet debt at our holding company.

Optimizing utility capital structures to fund capital programs.

Voluntary pension contributions.

Our qualified pension status has improved to 83% funded given the current interest rate environment.

Speaker 3: Our qualified pension status has improved to 83% funded given the current interest rate environment.

Speaker 3: As Steve discussed, FE Forward is transforming our organization and setting the stage for us to deliver a superior customer experience.

As Steve discussed Effie forward is transforming our organization and setting the stage for us to deliver a superior customer experience.

Speaker 3: In 2021, we achieved $300 million in total cash flow improvements from the program. Compared to our original expectation,

In 2021, we achieved $300 million in total cash flow improvements from the program <unk>.

Compared to our original expectation.

$240 million.

Speaker 3: This included $170 million in net capex efficiencies along with $130 million in working capital improvements.

This included $170 million and net capex efficiencies, along with $130 million and working capital improvements.

As we look through 2025, we anticipate cash flow improvements to fund $1 $6 billion.

Speaker 3: As we look through 2025, we anticipate cash flow improvements to fund $1.6 billion in sustainable investments in our distribution business.

And sustainable investments in our distribution business to support the energy transition, while keeping customer rates affordable.

Speaker 3: to support the energy transition while keeping customer rates affordable.

Steve touched on several of our four focus areas and I'd like to expand on one more.

Speaker 3: Steve touched on several of our FE Forward Focus Series, and I'd like to expand on one more.

Speaker 3: As we all know, unprecedented supply chain issues have impacted virtually all industries throughout the pandemic.

As we all know unprecedented supply chain issues have impacted virtually all industries throughout the pandemic.

Speaker 4: We have successfully served our customers and continued our infrastructure investment programs despite these challenges.

We have successfully served our customers and continued our infrastructure investment programs. Despite these challenges.

However through <unk>, we are investing in our supply chain function to drive more integrated and strategic sourcing and.

Speaker 3: However, through FE Forward, we are investing in our supply chain function to drive more integrated and strategic sourcing, improve market intelligence, resulting in better pricing decisions.

Improved market intelligence, resulting in better pricing decisions.

Speaker 3: and to optimize performance in terms and conditions with our suppliers.

And to optimize performance and terms and conditions with our suppliers.

Speaker 3: We have also integrated our warehouse and inventory management group into our procurement function to complement our demand management forecasting with long-term purchasing decisions.

We have also integrated our warehouse and inventory management groups into our procurement function to complement our demand management forecasting with long term purchasing decisions.

By leveraging technologies and investing in resources, we're streamlining our processes.

Speaker 3: By leveraging technologies and investing in resources, we're streamlining our process.

Achieving cost savings and better cash flow and working to mitigate risk the entire industry is experiencing.

Speaker 3: Achieving cost savings and better cash flow, and working to mitigate risk the entire industry is experiencing.

Speaker 3: While FE Forward is focused on transformation and innovation, we are seeing efficiencies in our operating and maintenance activities, which will provide for flexibility.

<unk> is focused on transformation and innovation, we are seeing efficiencies in our operating and maintenance activities.

Which will provide the flexibility with our operating costs.

Speaker 3: In fact, from our 2022 base O&M of $1.4 billion.

In fact from our 2022 base O&M of $1 4 billion.

Speaker 3: We anticipate that FE Forward will naturally reduce O&M levels at least 1% annually starting in 2023.

We anticipate that <unk> will naturally reduce O&M levels at least 1% annually starting in 2023.

Speaker 5: This will afford added flexibility to be strategic with O&M as we were in 2021 and will also mitigate the impact on customer rates as we think about future rate cases.

This will afford added flexibility to be strategic with O&M as we were in 2021 and will also mitigate the impact on customer rates as we think about future rate cases.

Speaker 6: We recognize that we have a lot of moving parts this year, however, by applying the same focus that has changed our company for the better over the past 12 months, I'm confident we will continue to implement the plans we've outlined and further transform our company into an industry leader.

We recognize that we have a lot of moving parts. This year. However by applying the same focus that has changed our company for the better over the past 12 months.

Confident we will continue to implement the plans we have outlined and further transform our company into an industry leader.

Speaker 3: At the same time, we'll deliver on our financial commitment.

At the same time, we will deliver on our financial commitments.

Speaker 7: including achieving our 2022 operating earnings guidance of $2.30 to $2.50 a share, with growth of 6% to 8% thereafter.

Including achieving our 2022 operating earnings guidance of $2 30 to $2 50, a share with growth of 6% to 8% thereafter deliver.

Speaker 3: Delivering on our 2022 cash from operations target.

Delivering on our 2022 cash from operations target.

A $2 6 billion to $3 billion and growing operating cash flow consistent with earnings over the planning period.

Speaker 3: $2.6 billion to $3 billion in growing operating cash flow consistent with earnings over the planning period.

Executing our $17 billion investment plan, which includes $3 $3 billion of investments in 2022.

Speaker 3: executing our $17 billion investment plan, which includes $3.3 billion of investments in 2022.

Maintaining our anticipated annual dividend rate of $1 56, a share this year with the objective to grow the dividend within our payout ratio as earnings increase consistent with our plan.

Speaker 3: Maintaining our anticipated annual dividend rate of $1.56 a share this year, with the objective to grow the dividend within our payout ratio as earnings increase consistent with our plan. Successfully closing on the FED

Successfully closing on the minority interest sale.

Speaker 8: And finally, making progress toward improving our balance sheet and strengthening the credit profile of First Energy as we work to reach 13% FFO to debt by 2024 with mid-teams thereafter.

And finally, making progress toward improving our balance sheet and strengthening the credit profile of Firstenergy as we work to reach 13% <unk> to debt by 2024 with mid teens thereafter.

Speaker 3: Before we open the line for questions, I want to thank you for your time and your interest in the company.

Before we open the line for questions I want to thank you for your time and your interest in the company.

We are proud to be building, a long term sustainable company and culture centered on our core values and the vision, Steve shared with you today.

Speaker 3: We are proud to be building a long-term sustainable company and culture centered on our core values and the vision Steve shared with you today. I would be happy to take your questions.

And we'd be happy to take your questions.

Thank you we will now be conducting a question and answer session.

Speaker 9: If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from the queue.

Speaker 9: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please while we.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment please poll for questions.

Thank you. Our first question comes from the line of Michael Lapides with Goldman Sachs. Please proceed with your question.

Speaker 9: Our first question comes from the line of Michael Lapidus with Goldman Sachs. Please proceed with your question.

Hey, guys. Thank you for taking my question just curious how do you think about bracketing the potential O&M cost cuts, meaning is the 1% a year kind of a guideline level or do you think you could actually achieve more than that and can you give a little more detail on where in the business do you think it is that youre going to get those.

Speaker 10: Hey guys, thank you for taking my question. Just curious, how do you think about bracketing the potential for O&M cost cuts? Meaning, is the 1% a year kind of a guideline level or do you think you can actually achieve more than that? And can you give a little more detail on where in the business you think it is that you're gonna get those cost cuts? Is it supply chain or is it across a lot of different functions? Yeah, Michael.

Cost cut is it supply chain or is it across a lot of different functions.

Yes, Michael This is this is John thanks for the question. So if you think about.

Where we are for 2022 with a $1 billion for operating costs about 60% of that is labor.

The other 40% is materials and contractors that we have on the property to supplement.

Our labor force.

Our field work and.

Speaker 3: And so, as we think about O&M reductions through the FE-4 program and productivity improvements, that's going to optimize, obviously, how we backfill attrition, but more importantly, it's going to eliminate external contract needs, and we anticipate improved productivity through all the different initiatives that we're working through.

So as we think about O&M reductions through the <unk> program in <unk>.

Road activity improvements.

That's kind of optimize obviously, how we backfill attrition.

But more importantly, it's been eliminate external.

And we anticipate improved productivity.

Through all the different initiatives that we're working through.

We're in the 20% to 25% range and field operations.

Another example that we're working through is around our asset.

Repair replace decision and using better data and analytics to drive better decisions.

And we're piloting a few programs now we've done some benchmarking.

And we think we can get 30% more efficient and those types of programs.

Speaker 3: think we can get 30% more efficient in those types of programs in terms of how we deploy resources.

How we deploy resources.

And then finally, we are modernizing our customer group.

Making it more automated and making it more user friendly.

Customer self service options and alike.

Which will significantly reduce the number of manual transactions and our call centers.

Speaker 3: significantly reduce the number of manual transactions at our call centers.

Take today by up to 40% so.

Speaker 3: improve productivity, it's mostly around driving contractors off the property.

It's improved productivity, it's mostly around driving contractors off the property.

But also it will help us maintain.

Staffing levels with our attrition.

Speaker 10: Got it. Hey, John , one other follow-up. Just curious, I noticed in the slide deck you're talking about kind of a wave of rate cases next year. Any potential change in kind of the structural regulation you're expecting, meaning any efforts to get things like more trackers or forward-looking rate making in places like West Virginia? I think, you know, it's just going to be a traditional, you know, base rate case.

Got it.

Jon one other follow up just curious I noticed in the slide deck Youre talking about kind of bow wave of rate cases next year.

Any potential change.

And kind of the structural regulation youre expecting meaning any efforts to get things like more trackers are forward looking rate, making in places like West Virginia.

No.

I think it's just going to be a traditional base rate case, we have the veg management program in West Virginia.

New Jersey is an area that I think.

We need to address the level of deferred storm cost that we have on the balance sheet.

Speaker 3: We need to address the level of deferred storm costs that we have on the balance sheet. Today we have over $300 million of storm costs that we need to collect. So there will be something that we need to address.

Today, we have over $300 million.

<unk> cost that we need to collect.

So there will be something that we need to address there.

Through some type of mechanism.

I think for the most part these are going to be traditional base rate cases.

We'll try to continue with the riders that we have in place in each of those jurisdictions.

Got it thank you John much appreciated guys.

Thank you. Our next question comes from the line of David Arcaro with Morgan Stanley . Please proceed with your question.

Speaker 9: Thank you. Our next question comes from the line of David Orcaro with Morgan Stanley . Please proceed with your question.

Hi, Thanks, so much for taking my question I was wondering if you could maybe touch on.

Speaker 11: on right now how you're prioritizing use of capital that you generate, the $5.5 billion that the plan generates over the next five years, priorities for deploying that capital, and when you might stage and make those decisions.

Right now kind of how you're prioritizing use of.

Capital that you generate the $5 5 billion.

<unk> generates over the next.

Five years priorities for deploying that capital and when you might kind.

Kind of stage and make those decisions.

Alright can you repeat your question I wasn't sure I totally understood that.

Oh sure.

Speaker 12: Over the course of the plan, there's about $5.5 billion of cash that you're generating. You've mentioned dividend growth, minority interest distributions. Just wondering if there are priorities for how you plan to allocate that capital and make sure.

Over the course of the of the plan there.

About $5 $5 billion of cash and debt.

Sure.

That you're generating.

And you've mentioned dividend growth minority interest distributions just wondering if there are kind of priorities for how you plan to.

I'll keep that capital link and add and make strategic decisions around it.

Yes.

I understand now so so if you look at our just our high level financing plan.

Speaker 13: I understand now. Yeah. So if you look at just our high-level financing plan, you know...

You do the capital program.

Speaker 3: With our cash from operations and our planned financing, there is going to be a pool of cash left over, about five and a half billion dollars. About, you know, there's going to be a portion of that will obviously fund dividends.

With our cash from operations and our planned financings there isn't going to be a pool of cash leftover.

$5 $5 billion.

About.

There's going to be a portion of that will obviously final dividends and dividend growth as we look to the future, but there will be a portion of that available to us as I mentioned in my prepared comments.

We'll remain flexible on either to fund additional capex delever the balance sheet.

<unk> contributions.

Got it that's helpful and just curious on timing of how that might play out over the next several years when you.

Speaker 12: Got it. That's helpful. I'm just curious on timing of how how that might play out over the next several years when you when you might be kind of able to take some of.

And when you might be able to.

<unk>.

It takes some of those initiatives yes.

Speaker 3: Yeah, so my sense is, you know, we're going to try to close on the FET transaction sometime in the second quarter.

Yes.

We're going to try to close on the transaction sometime in the second quarter.

Speaker 3: obviously take some time to assess market conditions and probably make some

Obviously, it takes some time to assess market conditions, and probably make some decisions on that back half of this year.

Speaker 12: Got it. Thanks. And maybe separately just in West Virginia with the dialogue that's going to be undertaken around the coal plants. Wondering if you could give any expectations on how you think that could play out if there's appetite to pull forward closures of Fort Martin or Harrison.

Got it thanks.

And maybe separately just in West Virginia with the dialogue.

That's going to be under undertaken around the coal plants wondering if you could give any expectations on how you think that could play out if theres, an appetite to pull forward closures of Fort Martin Harrison.

Hi.

Speaker 14: David, this is Steve. I think right now it's too early on to really give you a good sense of that.

David This is Steve.

I think right now it's.

Too early on to really give you a good sense of that.

We did.

Speaker 1: You know, we did do the ELG filing, which I think was an important step relative to just living up to our environmental responsibilities to continue to run those plants responsibly, as I said in my prepared remark.

Due to the EOG filing, which I think was an important step realm.

Relative to just living up to our environmental.

Responsibilities to continue to run those plants responsibly as I.

Sudden my prepared remarks.

Speaker 1: As for the ongoing dialogue that we're going to promote for the energy transition in West Virginia, we're really just going to take that one step at a time, and we're going to follow our approach in all matters here, and that's to be open and constructive.

As for the ongoing dire.

Dialog that we're going to promote for the energy transition in West Virginia, We're really just going to take that one step at a time and we're going to follow.

Our approach in all matters here and thats to be open and constructive listened to various concerns along the way I think concerns will lead to opportunities that we could define so we will be thoughtful of and really just take it one step at a time.

Speaker 1: Listen to various concerns along the way. I think concerns will lead to opportunities that we could define that we'll be thoughtful of and really just take it one step at a time.

Understood. Thanks, so much for the color.

Thank you.

Thank you. Our next question comes from the line of Andrew <unk> with Seaport Global. Please proceed with your question.

Speaker 15: Thank you. Our next question comes in line of Angie Schorzynski with Seaport Global.

Thank you.

Speaker 16: Thank you. So, just a couple of things. So, we're still waiting for an SEC settlement. I think we're all surprised that you guys are getting money from the last settlement. So, is there a way to

Just a couple of things so we're still waiting for.

And FCC settlement.

I think we're all surprised that you guys are getting money from the last settlement. So is there a way.

For you to communicate this.

Speaker 16: for you to communicate if net of that cash coming in there's usually you would still expect to have some meaning meaningful cash outflow related to the SEC server

Net of that.

Cash coming in.

Usually you would still expect to have some.

Meaningful cash outflow related to the SEC settlement.

Speaker 17: Angie, thanks for your question. You know, our work with the SEC is continuing, you know, in terms of, once again, being open and collaborative with them. And I want to respect that process and really not get ahead of it at all. With regard to the very nature of a derivative suit,

And thanks for your question.

Our work with the FCC is continuing in.

In terms of once again being open and collaborative with them.

I want to respect that process and really not get ahead of it.

At all with regard to the very nature of a derivative suit.

Speaker 18: you know there was a cash payout from the insurance companies uh... that amounted to the hundred eighty million dollars and less court approved plaintiff's fees that that will be cash returned to to the corporation

There was a cash payout from the insurance companies.

That amounted to the $180 million and less court approved plaintiffs fees that will be cash returned to to the corporation.

Speaker 19: We have several other items that are in litigation beyond the SEC work. And we're going to, once again, tackle those one at a time and just take it on a step-by-step basis.

We have several other items that are in litigation.

Beyond the FCC work.

We're going to once again tackle those one at a time and just take it on a step by step basis.

Speaker 20: Understood. And then secondly, can you comment on ICANN's involvement with the board now that

Understood and.

And then secondly can you comment on.

Aitken involvement with the board to know that.

<unk>.

Speaker 16: you know, it feels like the strategic transformation of the company is almost done.

It feels like the strategic transformation of the company is almost almost done.

Speaker 21: Well, I think their involvement with our board remains unchanged. They've continued to be very constructive, very productive members of our board, and I don't see any change in that, Angie, right now. We have found them to be great colleagues of ours as we've moved ahead.

Well I think their involvement with our board remains unchanged.

Continued to be very constructive very productive members of our board and I don't see any change in that angi right now.

We have found them to be.

Great colleagues of ours as we've moved ahead.

Okay. That's all I have thank you.

Thanks Angie.

Speaker 9: Thank you. Ladies and gentlemen, if you'd like to join the question queue, please press star 1 on your telephone.

Thank you, ladies and gentlemen, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Jeremy Tonet with Jpmorgan. Please proceed with your question.

Speaker 9: Our next question comes from the line of Jeremy Tonight with JPMorgan.

Hey, good morning, its actually Ryan on for Jeremy.

Speaker 22: a good morning thirty ryan under jeremy uh...

Speaker 23: Just wanted to ask one on the FERC audit that came out last week, and you guys are very clear on the different vegetation management changes that are going to be contemplated next year. I'm just wondering, is there anything in there that we could be thinking about that would kind of impact go-forward earnings, thinking about the CWB calculations or the capitalizations, any impacts from that? I'm just wondering.

Just wanted to ask one on the FERC audit that came out last week, you guys kind of very clear on that.

Management changes that are kind of you can contemplate next year I'm. Just wondering is there anything in there that kind of be thinking about that what kind of impact go forward earnings thinking about kind of the.

The seawell calculations or the capitalizations.

Any impacts from that.

Speaker 1: Well, Ryan, let me just provide a couple comments here and then I'll flip it over to John . As you'll recall, in 2019 FERC initiated a routine audit of accounting and reporting under FERC regulations.

Well Ryan let me just provide a couple of comments here and then I'll hop off.

Flip it over to John as Youll recall in 2019, FERC initiated a routine audit of accounting and reporting under FERC regulations.

Speaker 24: Due to the events in 2020, we saw that staff extended the audit. I think importantly, there is nothing that was newly identified that the company wasn't already aware of within the audit itself. And we did that through our own very thorough review of all the matters contained therein.

Due to the events in 2020, we saw that staff extended the audit I think importantly, there is nothing that was newly identified that the company wasn't already aware of within the audit itself and.

And we did that through our own very thorough review of all of the matters contained therein.

Speaker 25: Also, the audit didn't identify any additional lobbying-related expenses for those that had a question around that. As for the details of the key findings, I think I'll pass that over to John Taylor and he can elaborate. Yeah, Ryan. There's really just two major findings that really impact our financial plan that we've already

Also.

The audit did not identify any additional lobbying related expenses for those.

Had a question around that as for the details of the key findings I think I'll pass that over to John Taylor and he can elaborate yes, Ryan there's really just two major.

Findings.

That really impact our financial plan that we've already really incorporate it into the business plan going forward one was the capitalization of.

Of corporate support.

And so we've factored that into our plan, we still got to get through a time study. That's in process right now, but we have included an estimate of what we think.

Speaker 26: We've still got to get through a time study that's in process right now, but we have included an estimate of what we think will be the outcome associated with that. And then the capitalization of veg management, that also...

We will be the outcome associated with that and then the capitalization of bench management.

That also has been incorporated into our business plan. So those are the two primary.

Findings from a financial perspective, and you can see that we provided pro forma return on equities for each of our jurisdictions, which have been significantly lower from where they were on an actual basis in 2021, So I kind of view this as a temporary issue.

Speaker 3: see that you know we provided pro forma return on equities for each of our

Speaker 3: significantly lowered from where they were on an actual basis in 2021. So I kind of view this as a temporary issue in terms of

In terms of being able to recover those costs in the future and rate cases that will be filed soon.

Speaker 27: God, that makes sense. I appreciate all the color there. And then just maybe one on the settlement that was kind of announced last night. And I know I appreciate you don't want to try to get ahead of anything, but just thinking through, you know, how we should be thinking about this kind of from a process standpoint and just when we might kind of get kind of incremental updates or announcements on, you know, all these different items, the moving pieces that are kind of involved in that settlement.

Got it that makes sense I appreciate it.

All the color there and then just maybe one on the settlement I was kind of announced last night and.

I appreciate the what I'm trying to get ahead of anything, but just thinking through how we should be thinking about this kind of a process standpoint, and just when we might kind of get kind of incremental updates or announcements on all these different items that the moving pieces that are kind of <unk>.

Involved in that settlement.

Speaker 28: well ryan though the way i look at the the settlement it's it's one more uh... additional stuff uh... for our company to uh... to put our legacy issues behind us and by each action we take in this regard you know we continue to rebuild the trust and be able to really focus our entire company on what is a very bright future with a excellent business strategy and supporting business plan

Well, Brian the way I look at the settlement.

One more.

Additional step for our company to put our legacy issues behind us and by each action. We've taken in this regard we continue to rebuild the trust and be able to really focus our entire company on what is a very bright future with a excellent business strategy.

And supporting business plan.

Speaker 29: so i don't have details beyond what's contained within the uh... term sheet that that's been made public but as events warrant inspected significant uh... issues are brought forward and moved uh... will certainly keep uh... the investment community uh... up to speed on that understood

So I don't have details beyond what's contained within the term sheet thats been made public.

But as events warrant.

Significant.

Issues are brought forward and moved we will certainly keep the investment community up to speed on that.

Understood. Thank you for taking my questions.

Thank you.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments.

Speaker 30: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Strauch for any final

Speaker 31: Well, thank you. I wanted to thank you for your ongoing interest in First Energy, and thank you very much for joining us today. And please, above all else, please stay healthy and stay safe. Thank you very much.

Well. Thank you I wanted to thank you for your ongoing interest in Firstenergy and thank you very much for joining us today and please above all else. Please stay healthy and stay safe. Thank you very much.

Speaker 32: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your...

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.