Q1 2022 FirstEnergy Corp Earnings Call
With our financial performance operational momentum portfolio of assets and robust long term business model. We are in a strong position and I am optimistic and excited about the future.
Today, we are reaffirming our operating earnings guidance of $2 30 to $2 50 per share for 2022 and growth of 6% to 8% thereafter based on our five year $17 billion investment plan.
And while the dividend is subject to board approval I can affirm that we will still expect to maintain our annual dividend rate of $1 56 per share. This year with the objective to grow the dividend within our payout ratio as earnings increase from our 2022.
Base.
This year, we're focused on continuing our transformation into a company with a strong foundation and unrelenting focus on our customers and a leader in the energy transition.
Over the last couple of years, we've asked a lot of our employees as we implemented a series of changes.
From FTE forward initiatives to our enhanced values numerous updates to policies and procedures and multiple training sessions across the company our employees have accomplished a lot.
And they have done this while executing at a high level across the company I am very grateful for all of them and incredibly appreciative of their work and strong performance over the many years, but especially over the last 18 months.
I am very proud of what they have done.
Building off this momentum we believe that our employees and culture will be the single most important value drivers of our long term strategy.
Earlier this year, we formed a cross functional culture transformation working group to consolidate coordinate and streamline our numerous initiatives designed to drive culture change with the goal of making these changes meaningful and impactful to employees.
By better aligning our culture initiatives and narrowing the focus with a simpler integrated culture change roadmap for 2022, we can help employees make meaningful steps in a few areas at a time.
The outcome of this work resulted in identifying three key focus areas for our culture transformation for 2022.
Embedding our refreshed values integrity safety, the Eni performance excellence and stewardship into every aspect of our culture.
Fostering an open trusting environment, where leaders create opportunities for two way dialogue and employees feel valued and empowered.
And improving advancement and development opportunities for our employees.
We are supporting these efforts by consistently demonstrating our values in action in communicating with employees.
Creating a culture champion network to support our transformation efforts.
Facilitating listening sessions hosted by me and other members of our senior leadership team.
Along with small group employee discussions and quarterly speak up sessions that encourage open and transparent two way dialogue.
And enhancing our focus and accountability around more robust meaningful discussions between employees and their supervisors that support career management and development.
We're striving to empower employees to make their jobs more meaningful and encourage the candor and collaboration that can make our company more innovative customer focused and a great place to work.
Changing our culture takes time trust and persistent modeling as well as alignment with our employees personal values and needs.
I am deeply committed to this as is our leadership team and we view it as critically important work.
By listening being more open and transparent we can do better and produce better results for all of our stakeholders, including our employees customers and investors.
Taking a more open and engaged approach is also a cornerstone of our efforts to prioritize our customers and enhance the customer experience.
Last month before winter utility disconnection moratorium is lifted in our areas. We launched an enhanced campaign to engage residential customers, who may be facing financial hardships.
We recognize that many customers in this position don't reach out for help and they may be unaware of the various utility bill assistance programs available to them.
To reach these customers we produced a video message featuring several members of our customer service team. They spoke passionately about their desire to assist customers.
And we've raised awareness of various programs and payment options that might help during these difficult times.
Our goal was to reach out and invite customers to come to us for help.
At the end of March we had more than a quarter million customers enrolled in the utility assistance programs with $71 million in funding applied to those accounts.
Impaired to the first quarter of 2021, that's an increase of more than 17% in contributions directly benefiting customers enrolled in these assistance programs. This year.
This effort also contributed to a continued decline of past due balances, which are now on par with pre pandemic levels in Ohio, and West, Virginia, reducing the risk of bad debt.
This campaign is the first step to enhance the customer experience show customers that we care.
And we will help them wherever they are on their journey.
Yeah.
As we discussed on our fourth quarter call <unk> forward is our engine for optimizing our organization and customer focused initiatives, including numerous projects designed to enhance communications.
Self service options and.
And provide better experiences for customers who are in need of assistance.
For example.
We've recently enhanced our website to make it easier for customers to understand and pay their bills.
They can also use new features to easily make a payment for a family member or friend enroll in payment plans that level out their billing <unk>.
Identify assistance programs and avoid service disconnection.
From an organization standpoint, now that we've aligned our utility operations into our five state model to enhance collaboration streamline processes and maximize efficiency.
We are beginning a longer term review to consider the possible benefits of combining our Ohio entities as well as those in Pennsylvania from a legal financial operational and branding perspective.
And finally, etsy forward will improve productivity and our cost structure through investments in digital technologies, upgrading and integrating key systems and using data to help us make better more efficient decisions for our customers.
Through these investments, we anticipate significant productivity improvements substantially reducing the need for high cost external contractors that augment our workforce today.
Our commitment to prioritizing customers also means providing excellent service and preparing for the grid of the future.
In Ohio, we are nearing the end of the first phase of our grid Mod program, which began in 2019 and includes investments in smart meters distribution automation and voltage regulating equipment.
The program also supports our advanced distribution management system that is being installed to help automate the outage restoration process and optimize grid performance where.
We're excited about the benefits these investments can provide to our customers, including enhanced reliability improve power quality and greater visibility into their electricity usage.
We plan to file for a second phase of grid Mod investments in Ohio in the third quarter to continue this successful program.
In New Jersey, JC P&L received approval from the Btu to begin installing smart meters on customer homes and businesses in 2023.
The approved plan includes a capital investment of $421 million for the installation of more than $1 1 million smart meters over a 36 month period.
Across our entire footprint, our utilities have installed more than $2 7 million smart meters.
Since 2014 with implementation efforts nearly complete in Pennsylvania, and currently underway in Ohio.
In New Jersey, we are working toward a settlement of our proposed EV driven program.
The four year program is designed to accelerate the adoption of light duty electric vehicles with incentives and rate structures that would support the development of an EV charging infrastructure throughout our JC P&L service territory.
We are also making solid progress to complete our sale of a 19, 9% stake in <unk> to Brookfield.
Last week, <unk> notified <unk> and Brookfield that it's determined there were no unresolved national security issues and its review of the transaction was concluded.
And yesterday FERC issued its orders on the pending applications for Blackstone designees to serve as a voting member on the FTE Corp Board.
And for <unk> to close the transaction with Brookfield.
We remain on track to close the sale of the.
Minority interest in the second quarter of this year and deploy the proceeds thereafter.
We also continue to make progress in resolving outstanding litigation in order to provide certainty to stakeholders and focus our attention on the future.
Last week, we reached a settlement in the ratepayer Civil Rico lawsuit in the amount of $37 $5 million. We previously recognized to reserve for this settlement in our fourth quarter 2021 earnings.
I'm looking forward to working with our refreshed board, including new nominees, Sean <unk> of Blackstone and Jana Croom, who is the chief financial officer for Kimball electronics.
At the same time I would like to express my sincere appreciation to our outgoing board members, Don Misha, Mike Anderson, Julia Johnson, Tom Mitchell, Chris Pappas.
And Luis Reyes.
I am very grateful for their expertise and guidance.
Thank you for your time today, we are committed to continue delivering financial and operational excellence as we execute our long term business strategies and transform our company into a more innovative resilient and industry leading organization.
Now I'll turn the call over to Jon for a financial update.
Thanks, Steve and good morning, everyone. Thanks for joining us.
As Steve said, we're off to a solid start this year, our first quarter GAAP earnings of 51 per share and.
Operating earnings of <unk> 60 per share.
In line with the midpoint of our guidance.
Excluding the impact of our recently issued equity right.
Great credits provided to Ohio customers under our PUC approved stipulation last year.
An accounting policy changes operating earnings increased by <unk> <unk> per share compared to the first quarter of 2021.
Our first quarter results include several special items, the largest being a <unk> <unk> per share charge.
Associated with the redemption and early retirement of an $850 million at the court note in January of this year.
Excluding the items I mentioned and results in our distribution business decreased slightly.
But were consistent with our business plan.
The year over year change was primarily driven by a slight increase in operating and other expenses.
Primarily related to planned plant outages and West Virginia.
And higher storm costs and employee benefits.
The offset by lower uncollectible expense.
These costs were partially offset by higher customer demand and the continued economic recovery in the commercial and industrial segments.
It's important to note that our operating costs were in line with our forecast as discussed on our fourth quarter call.
Our total distribution deliveries increased three 6% compared to the first quarter of 2021, and we're only slightly off our load forecast for the first quarter.
Breaking the year over year impact down by customer class, we saw a two 2% increase in residential demand.
Due primarily to weather and on a weather adjusted basis customer usage decreased only slightly versus the first quarter of 2021.
As customers continue to resuming normal work and social activities.
Deliveries to commercial customers increased seven 6% and four 7% on a weather adjusted basis.
Which is a significant increase in this customer class.
Sales to industrial customers increased two 5% with many sectors, including steel and automotive showing recovery from recessionary conditions.
Overall customer demand continues to slowly return to pre pandemic levels.
Our one year residential sales trend is about 3% higher than 2019 levels, while commercial and industrial deliveries remain about 4% and 2% below 2019.
In our transmission business first quarter results increased <unk> <unk> per share primarily due to rate base growth associated with our ongoing investments.
And our energizing the future program.
And in our corporate segment, our results compared to the first quarter of 2021.
Primarily reflect lower interest expense and higher investment returns.
In addition to our earnings guidance, we are on track to meet our cash from operations target.
A $2 6 billion to $3 billion this year in.
And improve operating cash flow consistent with earnings over time.
We met with the rating agencies earlier this month and had a good conversation about our progress.
<unk> ongoing efforts to improve our balance sheet and strengthen the credit profile of Firstenergy.
We work to reach 13% <unk> to debt by 2020 for targeting mid teens thereafter.
As Steve mentioned, we are on track to close the transaction in the second quarter.
As we said we plan to use a significant portion of the $2 $4 billion in proceeds from the Brookfield transaction.
Together with the $1 billion Blackstone equity investment.
To strengthen our balance sheet by reducing debt or debt like obligations and to fund our capital program.
In addition to the $850 million at the corporate that we retired in January .
We plan to retire an additional $500 million.
At the corporate level after the Brookfield transaction closes and recapitalized certain operating companies to enhance our credit metrics and capital structures.
Later this year, we'll make a determination on the deployment of the remaining $800 million.
Which could be used for a voluntary pension contribution further reductions in Etsy corp debt or to fund capex.
As we have mentioned previously 2022 is a light year on the debt financing front.
With up to $750 million of planned debt issuances.
However, steep increases in interest rates and market volatility has impacted our pension plan.
As of the end of the first quarter the discount rate for pension obligation increased nearly 75 basis points or 25% to 375%.
While the assets in the pension plan had close to a 6% loss for the quarter.
While the funded status has improved from 82% at the end of 2021% to 84%.
The volatility in the interest rate and equity markets has created a potential headwind for higher pension expense in 2023 and beyond.
This is something we will continue to watch throughout the remainder of the year.
But we are already thinking through different opportunities to offset this potential headwind.
Yesterday, we affirmed our 2022 operating earnings guidance and provided guidance for the second quarter and.
<unk> 46 to <unk> 56 per share.
Given the number of moving pieces, we have this year, we recognized consensus estimates by quarter are somewhat challenging for analysts at the moment.
And we appreciate your work to get through this period with this.
We're off to a solid start this year and we've got an excellent transformation plan to continue becoming an industry leading company.
Focused on long term value for investors customers, our communities and employees.
As always I appreciate your time.
And your interest in Firstenergy, and we will open the line for your questions.
Thank you we will now be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and a 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.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions and once again that is star one thank you.
Thank you and our first question is from the line of Jeremy Tonet with Jpmorgan. Please proceed with your questions.
Hi, good morning.
Good morning, Jeremy how are you.
Good good thanks.
Just wanted to start off I guess with the.
The review that you spoke about with potentially combine the Pennsylvania, and Ohio entities in their respective states and just wondering if you could walk us through in a bit more detail what would be kind of the gives and takes of why or why not do that as you think about this process going forward and why why is the review happening now as.
To any point in the past as well just kind of curious on your thought process and what the drivers could be there.
Well. Thanks for your question through our equity forward program, we have aligned our operations into a five state operating model.
We're finding efficiency gains there already even though it's early in the process and we're very excited by that.
We are reviewing.
The legal entity and financial consolidation.
Because we believe the time is right to stand to team up.
And do a very thorough review of the opportunity we have fielded calls and had questions over the last several years and my experience.
Would there be an opportunity here and given our comprehensive review of the organization and opportunities. We thought now was the right time to get a project team stood up and underway.
And while it's early the.
Teams are really going to be charged with assessing the benefits for the company.
Through any kind of consolidation, but then we also have to keep our customers in mind.
What type of benefits.
They may see from any action that we take here.
Potential benefits Jeremy to me.
Are the potential for increased efficiencies and some of our administrative functions.
And there is also a possibility that it could provide us better access to capital markets.
So that's really our view of it.
Got it so it doesn't seem like there's anything out there that would prevent you or dissuade you at this point as long as everything unfolds.
And what you expect in the review process is that kind of a fair way to think about it.
Well I think the team is charged with probably a critical cost benefit analysis and once we are completed with that we're going to do what makes sense here for our customers and for our company and if it makes sense to US we will move ahead.
And we'll keep you updated on our progress.
Got it thanks for that just pivoting here I wanted to touch on some of the accounting changes that you are going through a distribution.
Distribution companies and could you just refresh us walk us through the process that led you to these changes and how we should be thinking about impacts going forward here is everything kind of set at this point as far as what levels of changes there are.
Hey, Jeremy This is John first of all let me apologize in advance for my voice I have been under the weather this weekend.
My voice is a little loss, but but to answer your question. There's really two primary accounting changes one was.
Corporate support costs that we had historically capitalized based on our methodology as we went through the FERC order.
<unk> had maybe a different point of view.
And so we came to a conclusion that some of the corporate costs that we had historically capitalized going forward.
Wouldn't get that level of capitalization going forward and then the second accounting change was around veg management, where we had historically capitalized.
<unk> of our bench management program.
And through various.
Stayed on it.
And the FERC on it.
We decided to move forward with having all of that flowed through the P&L. So on average it's about $150 million a year.
That historically had been capitalized that now flow through the P&L that is baked into our plan for the full year of 2022 and going forward.
Got it sounds good.
Leave it there thank you.
Thank you.
Our next question is from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning team. Thank you for the time, so maybe just.
The high level, how does the full.
Rating agency conversations go how are you thinking about the prospects for fully being I G.
Julian Thanks for the question as John had mentioned in his prepared remarks, we had.
Three what I would characterize as very good meetings.
April to discuss our continued transformation and our ongoing efforts to improve our balance sheet.
I think in all three cases, there was an acknowledgment.
Of the progress that we're making as a company.
Executing.
On what our plan was for the last year to 18 months.
It's also clear to me that we have to continue that track record of executing our business plan.
So our focus as we've said many times is to get to the <unk> to debt.
Goal of 13% no later than 2024, and I think that's well received as well as thereafter getting into the mid teens level.
We also had a dialogue on the use of proceeds for the two transformative transactions that we executed on in the fourth quarter.
And I think we are taking those steps needed to get to investment grade.
As we have stated before that that's very important for us and it is a very key focus for us moving ahead.
John Taylor I don't know if you have anything to add to that perhaps.
Steve I think you said I think you said well I thought the meetings were very productive.
A lot of discussion around culture, and the things that we're doing around our.
Code of conduct and other policies.
As well as our financial plan as you know Julien two of them have it all have us on positive outlook and I think.
As long as we continue to execute I'm optimistic that they're going to be in a position to upgrade us sometime this year it.
It might be later this year.
But as long as we continue to execute against our plan.
Jim.
Im optimistic that there'll be able to do something later this year now for S&P.
<unk> stable outlook, they have a little bit of a different timeline.
But from the conversations that we had I do anticipate that they could be in a position to at least half an.
In outlet change maybe as early as the fourth quarter.
Excellent great and just a couple of more detailed ones here if I can on the pension what does that currently look like given the moves that we've seen in rates just even since 331 can you quantify the potential earnings impact.
And then also on the accounting change was there any amount that would.
The amount of capitalized.
Was that a mountain in what jurisdiction.
Yeah, So Julian on the pension let me just maybe level set the group here on the obviously, there's a lot of moving pieces.
But there has been some volatility in the interest rate environment as well as the equity markets.
On the balance sheet side of things.
It's been positive Ryan it smoothed our funded status from 82% at the end of last year to 84%, which is about a $350 million of improvement.
And the liability, which improves credit metrics by about 20 basis points.
However, pension expense because of the planned losses versus the expected return.
To put some pressure on or at least some potential pressure on pension expense and if you had the market at the end of March it would have been about a <unk> 10 per share headwind.
For US now a couple of thoughts.
First of all we are eight months to go in terms of setting pension expense for next year. So it's early and we have we have time to recover.
But more importantly, the management team is already planning as if this headwinds that exist.
And we will be able to use the O&M benefits associated with our <unk> program.
That we recently announced as offsets as well as we're looking at other opportunities around the timing of maintenance activities. We're looking at our debt financing plan, including voluntary pension contributions and many more opportunities. So bottom line is we wanted to be transparent and more importantly, articulate our plan that will work.
And on.
Obviously this is something that.
We're going to continue to monitor.
But we run our business conservatively and always have levers that we can pull to offset items such as this.
Julien This is Steve I would just also add we have seen volatility surrounding pension performance in our past we have demonstrated in our.
Our paths that we can overcome headwinds.
And also I would add that.
<unk> is our ongoing effort to be transparent about key issues like this.
It's early in the year as John said, we have eight months.
And the team is dedicated to two defeat any headwinds that we will see so I'm very confident in that.
Once again, we will keep you updated throughout the year as we proceed.
Alright, and then.
Jeff Julien Julien I'm sorry.
You had a two part question maybe you could just.
Sorry on the accounting changes just what was in rate base. If you will how is that moving around sizeable super quick clarification.
Yes, so the all of the accounting changes Julian where prospective.
So.
Okay.
The historical rate base. So it was a prospective change.
Excellent.
Thank you guys I appreciate the patience.
Thank you very much Julien.
Thank you.
Our next question is from the line of Steve Fleishman with Wolfe Research. Please proceed with your questions.
Okay, great. Thanks, I think you answered my question on the pension it sounds like that's just math.
Manageable within the 6% to 8%.
Growth rate is that fair.
Yes.
Yes, absolutely.
And <unk>.
Maybe any thoughts on.
You, obviously were very successful with the transmission.
Sell down any any thoughts on.
Whether it might make sense for additional asset sales.
I guess, you don't really have any firm.
Further equity needs except fee.
That's a $100 million a year thing so.
I'm just curious any thoughts there.
Yes, Steve This is John so you're right, we don't have any additional equity needs in our in our plan.
Obviously, we feel like we have the right level of growth and cash flow to get back to investment grade.
Fund our capital programs.
Competitive dividend.
Having said that I think if you look at the track record of this management team.
We're going to do what's right for shareholders and if there was ever an opportunity or need like that again in the future. We would absolutely look at all of our options and capitalize on the difference between.
Public and private market valuations just like we did last year.
Okay, great and just any I.
I guess further update on the shareholder settlement.
Process I think after kind of a little noisy.
That one Josh just how confident are you that thats going again.
Yes.
Well.
Dave Youre, referring to the derivative lawsuit settlement and just love correct everyone.
Got it.
All parties in the shareholder derivative cases agreed to a global settlement and and as you know it's subject to court approval on March 11, the parties submitted.
There are papers to the southern district.
Of Ohio Court.
And the approval process will take a little bit of time and I just wanted to.
To respect that ongoing process.
And Thats, where we stand on it.
Okay, great. Thank you.
Thanks, Steve.
Our next question is from the line of Angie <unk> with Seaport Global. Please proceed with your questions.
Thank you.
Following on.
Investigations can you give us an update on what's going on with the FTC investigation.
Sure Angie Thanks for your question the investigations are ongoing.
We as a company continue to fully cooperate and we're ready to do that.
Can't really speculate on any timing for completion right now.
Somewhat on their timetable and we respect that so I don't want to get too far ahead of the process.
And that's really where we stand with it right now.
And you haven't provisioned.
So theres no Theres no reserve provision for that.
Potential.
Settlement of last time, whatever you call it.
No.
We've noted in our 10-Q that we believe that.
It's probable that we will incur a loss, but we can't reasonably estimated at this time.
Okay, and then secondly.
John you mentioned that.
The O&M is tracking to our annual plan.
A little bit surprising to me to see maintenance outage.
Sure.
For power plants.
Our first quarter, which is the peak.
Usage season for power.
Sure.
Sure.
It's both looking at that time the outage happened.
The recognition of the cost.
Yes. The outage was in late February March So March being kind of a shoulder month I don't I don't feel like that.
Unusual at all.
Okay, and then lastly.
I think that you guys mentioned that the <unk>.
Grid Mod capex filing in Ohio.
No because I actually didn't expect any regulatory proceedings. Besides just the pending audits in Ohio This year.
Angie that's something that we've had on our radar for quite some time.
We started the grid Mod one program.
Three years ago.
And that was always the intention that there would be different phases.
The grid Mod program.
And so that's something that we'll file probably later this year or we will file later this year we've already.
Okay.
<unk>.
Had some discussions with some of the intervening parties around.
The plan and some of the thoughts, but it'll be kind of a continuation of our our grid Mod one program smart meters distribution automation voltage regulation.
We might do some some pilot work around.
Trip savers and utility owned storage.
Battery storage those types of.
Programs, but.
This has always been in the plan.
Okay, and then one last one when do you expect to be.
On the preferred to that part of the end of this year.
So from a from an.
S&P perspective will be over 11%.
And from a Moody's perspective will be somewhere.
Queen 10, 511%.
So.
That's kind of where we're targeting a lot of it is going to depend on what we do with the final $800 million.
Of the proceeds whether we fund the pension.
Take out additional holding company debt.
So those numbers could change quite a bit but.
Current our current thinking.
Great. Thank you.
Thanks, Andy.
Our next question comes from the line of Michael <unk> with Goldman Sachs. Please proceed with your question.
Everybody. Thank you for taking my question just curious can you remind us ex the accounting changes what was embedded in 2022 guidance for OEM growth or O&M savings rate year over year.
Yeah, So Michael.
If you adjust last year's O&M for the accounting changes.
Just our base level operating costs.
We're going to be at about $1 billion for this year last year, we were a little bit north of that number.
So as you start to think through the rest of this year, especially in the second half of this year you will start to see.
Some some O&M reductions relative to the prior year based on our <unk> program.
And then that will continue.
Into the following year, so we're super excited about it.
And it's meaningful.
Reductions and Youll start to see that in the second half of this year and that's going to give us some flexibility to do some things.
Strategically, where we want to put some additional O&M in certain jurisdictions or do some other things. It just gives us a lot of flexibility when you have that type of program.
Got it.
Oh go ahead sorry.
Steve I was just going to add even while youre going to see that impact on O&M, which will be a lowering impact.
We're keeping our customers at the center of the equation here also and that is even as we lower O&M by the reinvestment in certain ways.
Our various computer systems, the ability to streamline service to customers the customer experience will be.
The install at the same time, so I just wanted to add that sorry has stepped down there.
Just one follow up when I think about the long term.
Did the long term kind of whatever O&M assumption is embedded in guidance does that include the benefit you may realize from the utility consolidations in Ohio and Pennsylvania.
Well, Michael so the benefit associated with the.
With the consolidation of <unk>.
Pennsylvania and Ohio.
That's not necessarily an O&M benefit there might be some administrative things.
Our streamlined but in the main it's not it's.
Not an O&M benefit because as Steve mentioned, we've already we've already gone to a five state operating model operation.
And so we're already operating like that.
And Thats, where some of the benefits on the O&M side is the streamlining.
The operations into that five state operating loss.
Model.
The benefits associated with consolidating.
Some of the.
Legal entities is on the financing side right I mean, right now those companies smaller companies and they are accessing the private debt markets.
There's a little bit more expensive than if you were to access the public markets.
Got it okay.
And then finally just come into one of the regulatory items light vehicle charging program in New Jersey that you're kind of trying to reach settlement for can you remind us what's the capital required in that.
Okay.
So.
I think we're going to.
It's going to be south of a $100 billion I think it's going to be probably somewhere around $50 million.
That will be rate base, but.
But yes, we're working to settlement.
And hopefully we'll have some clarity around that soon.
Got it. Thank you John Thanks, Steve much appreciated guys.
Thank you Michael.
Our next question is from the line of Xinjiang <unk> with Barclays. Please proceed with your questions.
Hi, Good morning, guys. Thanks for taking the question maybe a couple of one so you mentioned optical recapitalization could you remind us which of those you would.
I think we target.
And just how much of the <unk>.
Proceeds from the disposal easy to allocate there and then secondly around the $800 million that can be used for pension contribution our holdco debt a leaning towards one or the other right now with Moody's before you.
I'll get it more towards holdco debt reduction and could that accelerate the upgrade to investment grade.
Yes, so so when it comes to the the equity contributions into the operating companies, that's primarily going to be in our in our Pennsylvania companies.
Mon power.
West Virginia.
Maybe a little bit in Ohio.
But primarily Pennsylvania, and West Virginia, and then like I said, just a little bit in Ohio, So thats kind of what we're targeting right now.
A lot of those cap structures over the years have moved down to the mid Forty's. We're.
We're going to get those back up to 50% so we.
We feel good about about that plan when it comes to the $800 million, obviously, a lot of it depends on the interest rate environment, where the funded status of the pension plan as incremental capital opportunities. Our focus is on improving the balance sheet enhancing our credit metrics, but also to make sure anything we.
We do is accretive to earnings the conversations that we had with Moody's specifically.
I didn't get the sense that they now.
Sure.
Pension pension contribution versus Holdco debt take out I don't think they accounted adjusted debt to them anyway.
And so I didn't think they had a view one way or the other but we're obviously as we.
Kind of make these decisions will.
We'll run things will run things by them.
Thank you. Thank you very much.
A quick follow up.
When you have conversations with the agencies did you get a sense that they were looking for anything else outside of the.
The sale of the minority stake.
So conclusion, if any of the investigations with the SEC.
I guess just curious.
No I didn't get that.
Hey.
I said I think for us, it's just a matter of executing our plan.
And.
Deploying the proceeds from the Brookfield transaction.
And.
I think they are very very <unk>.
Pleased with the changes that we've made.
They're very interested.
Our cultural changes and the things that we're doing.
Round, our compliance program.
And stuff like that so I don't I didn't get the system in that there was anything else that they were looking for.
But I don't want to speak for them, but I, just don't recall that in the conversation being a big issue.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Paul Fremont with Mizuho. Please proceed with your questions.
Thanks.
It does.
Does it.
The debt Paydown at the Holdco and the potential recapitalization of utilities in any way change your equity.
Guidance for the next five years.
And if not to we just expect.
That capital spending.
<unk>.
Sure.
What will ultimately be funded all with debt.
So so.
<unk>.
Let me let me maybe address your question there.
If you think about.
Our $17 billion capital program.
And the equity proceeds that we have coming in.
Plus the cash from operations that will generate over the five year period.
We're only going to fund our capital program with 30% debt.
$5 billion.
In the meantime, we're going to take out $1 billion five so.
Over the forecast period.
Our balance sheet debt is only going to grow by $3 $5 billion, even though where we're going to invest $17 billion.
And does that.
Does that include expected funding additional funding at the holding company.
But we won't I mean, so so.
The plan right now.
<unk>.
The holding company debt.
After we take out the $500 million this year will be at $6 5 billion.
So it will not we will not have any more holding company debt and in fact, if we make a decision that we're going to take out more holding company that it will be less than that.
Okay.
And then.
I guess you are talking about possible pension funding have you determined on on a target number for pension funding this year.
It would be voluntary voluntary.
Contribution so.
I guess no required.
It's been like around $500 million is that sort of a reasonable assumption that that would continue.
So the remaining proceeds Paul at $800 million from the to transact.
And if we decide to make.
Pension contribution that that's totally up to us so it could be the full $800 million.
We decided to go a different route and maybe take out additional holding company debt.
Maybe.
We fund the pension three years to $400 million Theres, a lot to be worked out and so I can't give you a good answer.
But.
It's a voluntary contribution.
Mandatory or a required contribution.
Yes.
Great. That's it thank you very much.
Thank you Paul.
Our next question is from the line of Gregg <unk> with UBS. Please proceed with your questions.
Yes. Thank you.
I was wondering how youre thinking about the 50 basis point <unk> adder.
And I know you've disclosed sort of your sensitivities to that but.
And sort of the downside scenario, how does that affect.
Thoughts around earnings guidance.
I don't think it's going to have a material impact on earnings guidance Greg.
I think we've been fairly clear that the.
The sensitivity that we do have for it.
Not materially.
Throw us off track in terms of achieving our goals.
We also continue to believe that the adder is appropriate and it's helpful for us as we continue to.
Build out and improve transmission reliability.
For our system and our five state footprint.
That's where we stand on it.
Got it thank you.
Sure. Thank you.
Thank you.
There are no further questions at this time I would like to turn the floor over to Mr. <unk> for closing remarks.
Well, thank you very much and thanks for your ongoing support and attention today I did want to just take a brief moment and wish everyone. A very happy Earth day, which is today actually.
At Firstenergy, we're really proud of our commitment to the environment. This week.
Stated a goal in which we're going to plan 20000 trees throughout our service territory. It's just one of a number of different.
<unk> organized by our Green teams, which are employee volunteers.
Important environmental initiatives.
And a full range of items from planting trees to beach clean ups to recycling and I'm just very very proud of our employees that are engaged in such an important activity for us and I just wanted to acknowledge and thank.
Thanks.
For that today.
With that I'll call it close to the call. Thank you for your continued.
Attention and support and we'll be talking to you soon thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.