Q2 2022 FirstEnergy Corp Earnings Call
Excellent and stewardship.
We've recently launched a new employee communication campaign to focus on each of these values and how they drive our success. In addition, I personally connected with thousands of employees over the past several months to discuss our core values.
And to hear directly from them on what we can do to get better as a company.
Since March I've held about 50 virtual and in person listening sessions with more than 4000 employees across firstenergy.
We've had a lot of great engagement. During these sessions and it's been incredibly valuable for me to interact with employees and get their feedback.
I am very proud of how our employees are executing on our plan.
And of the company and the culture, we're creating together.
I'd also like to take a moment to welcome two new directors, who were elected to the board at our annual meeting in May Sean <unk> of Blackstone and Jana Croom of Kimball electronics.
In related developments John Summer holder was elected board chair and no longer serves as an executive of the company.
And Lisa Winston Hicks was elected lead independent director I welcome the guidance leadership and support from our refreshed Board.
Now, let's turn to some key accomplishments in the quarter.
First in May we completed the sale of the $19 nine minority stake in Firstenergy transmission LLC to Brookfield for approximately $2 4 billion.
The proceeds from this historic transaction together with the $1 billion Blackstone equity investment that closed in December .
Been deployed to strengthen our balance sheet and fund our regulated capital investments.
And as John will discuss in more detail later by paying down over $2 $5 billion in long term debt. This year, we are driving meaningful progress and are ahead of our original plan to improve the credit profile of the company.
Our transmission business continues to be one of the focal points of our strategy. Our energizing the future program has a relentless focus on reliability improvements for our customers.
We began the investment program in the FC region in 2014, and since that time, we have seen.
A 53% reduction interruptions to customers caused by transmission outages of.
A 49% decrease in transmission line outages.
And an 88% improvement of our protection systems.
We're striving to build on this success within Etsy and across our territory as we continue to expand this investment program.
So far this year, we've completed important work across our footprint to reconfigure several substations rebuild transmission lines replace transformers, and enhanced network cyber and physical security.
These projects improve operational flexibility upgrade the condition of equipment and enhance system performance.
Our goals for the transmission business are aggressive yet achievable and we have the right strategies in place to ensure our success.
We're also making continued progress to advance our customer focus sustainable growth strategies on the distribution side of our business in Ohio earlier. This month, we filed for the second phase of our grid modernization program, which builds off the system upgrades we've.
<unk> in the state since the PUC approved our grid Mod one program in 2019.
The new four year grid Mod to plan proposes a $626 million capital investment to expand our deployment of grid Mod technologies designed to enhance the delivery of safe reliable power.
Promote modern experiences for customers offering emerging technologies and provide opportunities to help lower customer bills.
The second phase of our grid Mod program includes installing automated equipment on nearly 240 distribution circuits that can isolate problems minimize the number of customers impacted by an outage and quickly restore electric service.
Energy saving voltage regulating equipment on nearly 220 circuits that can reduce the amount of energy that must be generated and more evenly distribute electricity down a power line.
And an additional 700000 smart meters, along with the supporting communications infrastructure and data management systems.
In addition, the filing includes several pilot programs expected to provide enhanced customer benefits. These include supporting the adoption of <unk> across our Ohio service territory by offering incentives to residential and commercial customers.
Who participate in utility managed charging of their electric vehicles.
And installing a battery storage system, along the Ohio Turnpike, that's designed to support increased EV charging load.
And enhance grid reliability.
In the aggregate, we estimate the benefits to our Ohio customers of enhanced reliability.
Energy efficiency opportunities and the innovative products and services to exceed the cost of the grid Mod to program by nearly $280 million in today's dollars.
Moving to West Virginia in April the public Service Commission provided conditional approval of our requested tariff to build a total of 50 megawatts of utility scale solar generation in the state at a cost of approximately $100 million.
And their order the PSC required our Mon power and Potomac Edison subsidiaries.
To subscribe at least 85% of the output before beginning construction on these facilities.
We began accepting commitments from residential commercial and industrial customers to purchase solar Rex in May we're making progress to meet the 85% threshold and at that time, Mon power and Potomac Edison will seek final approval from the commission for a surge.
Charge to cover the balance of the project costs and begin full scale construction.
We expect the first solar generation site to be in service by the end of 2023 with the construction completed at the four other sites no later than the end of 2025.
Finally in New Jersey, <unk> reached a settlement on our electric vehicle program with Btu staff, New Jersey rate counsel and others.
Which was approved by the Btu without modifications in June .
Our four year $40 million EV driven program is designed to accelerate the adoption of light duty electric vehicles with incentives and rate structures that continue to support the development of EV charging infrastructure throughout our <unk> service territory.
The cost of the program will be deferred into a regulatory asset cap.
Capital costs will earn a return of nine 6% with recovery of those costs determined in <unk> next base rate case.
Before I pass the call over to John we recognize there is significant interest in our pension plan performance in light of rising interest rates and the current bear market.
We're committed to being transparent and flexible on this issue and we will keep you informed on our expectations and our plan as the year progresses.
In addition to the details John will provide on today's call. We have also published two new slides on this topic in our highlights document.
I am very pleased with our progress throughout the first half of this year, we remain committed to continuing our transformation and becoming an industry, leading utility that provides value to our investors customers employees and communities.
Now I'll turn the call over to John .
Thanks, Steve and good morning, everyone. Thanks for being here.
Start with some additional perspective on the attention and we will move into a discussion of our earnings and other financial matters.
To put this all in context, the impact of the pandemic worn Ukraine and other macroeconomic factors has resulted in extreme inflation and market volatility that we haven't seen in over 40 years.
And so we recognize that this is a topic that has a lot of attention today, but we don't consider this an issue that impacts the long term value proposition of the company.
Through the first half of this year interest rates have increased significantly with the discount rate that measures our pension obligation increasing from 3% at the end of 2021 to approximately four 8% as of the end of June .
Likewise equity markets across the globe are down significantly with asset performance in our pension trust down approximately 15% through June .
Although this resulted in an estimated earnings headwind of approximately <unk> 30 per share beginning in 2023, which reduces the noncash benefit from the pension from <unk> 40 per share in 2022 to an estimated <unk> <unk> per share in 2023.
Funded status of our quantify pension plan has improved from 82% at the end of 2021% to 84%.
At the end of June .
Although we believe the earnings impact associated with the pension will normalize over time, we recognize that the historic market environment presents a challenge in the near term from an earnings perspective.
So let me take a minute to address this.
Our regulated strategy and capital investment program continues to be strong as we transition more of our capital investments to formula rates with real time returns.
While working to lower our base operating expenses. Our base plan includes formula rate investments of approximately $2 4 billion in 2023, and $2 6 billion in 2024 that earn solid returns.
In addition, as Steve mentioned the outlook for 2022 is very strong given the successful tender offer completed in June at our holding company and higher than anticipated income from legacy commodity based investments.
And our <unk> forward program continues to be part of our plan, allowing us to optimize our cost structure and be more strategic with our operating costs and.
In combination these items allow us to accelerate future planned maintenance work.
Into 2022 that will provide flexibility with operating expenses in future years, while meeting our financial commitments for this year.
We have also identified a number of other steps to address the pension headwind. These include accelerating additional capital investments and optimizer optimizing our financing plans, which includes moving $1 billion of planned debt financings from 2023 to future years, reducing corporate costs and our real estate footprint.
As well as anticipated benefits from continued improvements we are seeing in customer arrears.
From a regulatory perspective, we are exploring proposed changes to rate treatment for our pension to moderate impacts of market volatility between rate cases, but this will take some time and will likely be executed as we filed base rate cases in each jurisdiction over the next few years.
And so I'll conclude the pension discussion to say this we realize this is complicated and recognize the potential near term earnings impact to the company but.
But we do believe there is a clear silver lining.
As markets became volatile in interest rates increased we were able to take advantage of the situation by retiring high coupon debt.
And amounts well above our original plan at the same time rising interest rates reduced our pension liability by $550 million.
And as a result, as Steve mentioned earlier, we made significant progress through the first half of this year to improve our balance sheet and strengthen the credit profile of Firstenergy.
Utilizing the proceeds from the Brookfield and Blackstone transactions, we eliminated approximately $2 4 billion of Holdco debt in the first six months of the year, which equates to a $125 million and saved interest cost on an annual basis.
This includes the early retirement of an $850 million at the Corp January a $500 million Etsy.
At the core of note in June and the repurchase of $1 billion and high coupon Etsy notes through our successful tender offer last month.
This surpasses our original plan for holding company debt reduction and brings Firstenergy holdco debt as a percentage of total debt to 26% from 33% at the end of 2021.
And based on our current forecast with these enhancements we are tracking just under 12% <unk> to debt in 2022 and plan to be at 13% <unk> to debt in 2023.
A year ahead of what we initially targeted.
Last week Fitch upgraded Firstenergy NTT to investment grade and upgraded our utilities to a triple B flat rating.
Electing the successful completion of our equity transactions use of those proceeds to pay down company debt and the expected strengthening of our credit metrics.
Our settlement to address key, Ohio regulatory issues and are meaningful improvements on governance matters.
We are proud of the progress we made.
And as we saw with the SEC transaction premium valuations of our businesses in the private sector gives us significant optionality to further improve the balance sheet and increase value for shareholders.
And now, let's turn to a discussion of our financial performance for the quarter.
Second quarter GAAP earnings of 33 per share and operating earnings were <unk> 53 per share in within the upper end of our earnings guidance range.
The 20 <unk> of special items in the quarter included a charge of <unk> 17 per share associated with the redemption and early retirement of Etsy Corp notes that we discussed earlier.
On a pro forma basis, excluding the impact of accounting changes rate credits provided to Ohio customers and equity financing transactions.
Operating earnings increased by <unk>, <unk> per share or 13% compared to the second quarter of 2021.
On a year to date basis, we reported GAAP earnings of <unk> 83 per share and operating earnings of $1 12 per share again adjusting for the impacts of accounting policy changes, Ohio rate credits and dilution. This represents a <unk> <unk> improvement versus our operating earnings for the first half of 2002.
91, or approximately 6% year over year growth.
Results for the quarter in our distribution business decreased slightly compared to the second quarter of 2021, but remained.
Consistent with our expectations.
A positive impact of our investment programs in Pennsylvania, Ohio, and New Jersey was offset by slightly lower residential customer to customer demand as I'll discuss in a moment and higher planned operating expenses, including planned maintenance outages at our generation facilities as well as the impact of accelerated maintenance work, we mentioned earlier.
I do want to note. Despite the inflationary conditions our year to date based on M expenses are consistent with our operating plan, reflecting strong financial discipline.
Total and weather adjusted distribution deliveries increased approximately 1% compared to the second quarter of 2021, as a result of stronger demand from commercial and industrial customers.
<unk> improving conditions versus last year.
Residential sales decreased one 6% on a year over year basis, due primarily to milder weather compared to the second quarter of 2021.
On a weather adjusted basis residential usage decreased slightly due to a continued shift to more normal work and social activities, albeit sales in this class continued to be elevated as compared to pre pandemic levels.
Deliveries to commercial customers increased one 5% or one 9% on a weather adjusted basis and sales to industrial customers increased two 4% versus last year.
And for the first time industrial sales were higher than pre pandemic levels by close to 1%.
Reflecting strong recovery and growth in many sectors, including steel fabricated metals automotive and food manufacturing.
In our transmission business second quarter results benefited from strong rate base growth associated with our ongoing investments in the energizing the future program to improve reliability for our customers.
We currently have more than 1000 transmission projects underway across our footprint.
And we've been successful working through acute supply chain challenges to remain on track with our plan to invest $1 5 billion in our system. This year.
And finally in our corporate segment, our results improved by <unk> <unk> per share compared to the second quarter of 2021.
Largely impacted by higher profits from our legacy investment in a mining operation in Montana.
As well as lower interest costs from our efforts around the balance sheet I mentioned earlier.
The legacy investment is from the late two thousands where we're a minority investor with a 33% share in the facility.
Historically, it has not been a significant driver of our results.
However, given higher commodity prices. The mine is outperforming our expectations for 2022 with both earnings and cash distributions, which as I mentioned before provides us significant flexibility to accelerate reliability and maintenance work.
In our distribution business.
Although earnings from this investment May continue into future years. Our original plan did not include any earnings contribution beyond 2022.
We're off to a solid start for the first half of the year with strong with a strong outlook for the second half.
As Steve mentioned, we are confirming our 2022 operating earnings guidance range of $2 30.
At $2 50 per share and are also providing third quarter earnings guidance of 70 to.
To <unk> 80 per share.
While we are disappointed in our relative stock price performance since our first quarter call given the progress we have made over the last few years on many fronts where.
We're confident that our superior assets and clear strategy place us on strong footing to perform well in the future.
With that we'll go ahead and open the line for your questions as always thank you for your time and your interest in Firstenergy.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for your questions.
Our first questions come from the lineup Shar <unk> with Guggenheim Partners. Please proceed with your questions.
Hey, guys good.
Sure.
So no surprise I'm going to start with the pension question here if I may.
I guess, what sort of proposed changes to rate treatment would you be exploring for your pension to sort of moderate the volatility in between cases, what could that look like I mean have you started any dialogues with the commission on this ahead of the filings and then just as a follow up would you consider moving away from them.
Sort of that MTM accounting and towards maybe the smoothing of actual gains and losses like some of your peers do whether thats the quarter method or some other approach.
Hey, Shar. This is John So I think we've had some internal discussions about this we have not talked to.
Any of the regulatory commissions about this but it is something that we're looking at.
We're trying to figure out mechanisms that can protect the company from the volatility that we're seeing.
Today, and so nothing nothing necessarily set in stone, but looking forward like tracking mechanisms or some type of deferral mechanism that could protect the utilities from.
The volatility that we're seeing and then to your second question and when we adopted the mark to market accounting I think back in the.
And the 2010 11 timeframe.
That was our preferred method of accounting and so we can't go back to another method.
Got it okay. That's helpful. Thank you for that and then just.
Lastly, I know, obviously you reiterated the six to eight growth rate and we clearly see the strategy you guys have laid out to try and mitigate the pension driven headwinds, but 30 drag is still somewhat material in the near term.
Just all else equal if <unk>.
Ends up being the final number I guess, what would that kind of puts you in terms of that six to eight at least at the front end knowing some of these mitigation measures you could be deploying.
Sure.
Sure before I turn it over to John for a couple of comments I just wanted to on an overall basis just acknowledge this very fluid situation for us.
We have put a plan together that John outlined in his prepared remarks, and it's up to us to work it.
We continue to be very clear and transparent in our disclosures.
During the first quarter call, we were very upfront and straightforward about the the challenge.
We also have found a way to find a path forward and we're going to continue to be very transparent.
The issue there is some things within our plan that are within our control some outside of our control as I said, it's fluid.
And look we're going to be committed to do what's reasonable to address the gap, but be careful that we're not.
Unduly impact our customers' experience with us and get our company off track. So I just wanted to make those introductory comments before I turn it back over to John .
And so I am not going to obviously commit to low end or high end of 6% to 8% but.
I would tell you is it's a very volatile situation. In fact, if you just look through the month of July given the broader markets are up there has been some softening in the interest rates.
The earnings headwind associated with the pension has improved at the same time, our funded status has also improved.
So, it's a very volatile environment and something that we're staying close to.
I think let me maybe take a minute and talk about this in two ways.
First if you just look at year over year earnings growth based on what we know relative to the pension.
It starts with our regulatory strategy strong formula rate investments across transmission and distribution as well as the rate structures. We have in place from the Ohio <unk> settlement that provides really strong regulatory earnings growth.
Next year, you'll also start to see the full year the interest savings from the Holdco debt reduction initiatives, which is about <unk> 18, a share annually that.
That will start to flow through in the beginning next year, obviously, that's going to be partially offset by new debt issuances, but it will be a benefit to year over year earnings.
And then as I mentioned.
We have planned operating inefficiencies from Matthew forward as well as the benefits from the tender transaction and the investment earnings on the corporate side the mining operation.
Giving us flexibility to pull ahead some planned maintenance work this year from future years, and then the remainder of the issue will be addressed.
Address by Optionality across a broad spectrum of initiatives, including increased capital investments on the transmission system.
Permanent reductions in corporate and support costs for instance, external branding and communication.
Cost as well as reducing our real estate footprint.
And then we might even have uplift from from the mining operation next year that we would consider that is not in our on our plan.
So I say that because I think the most important way to maybe look at it as what's changed relative to our plan to deal with a <unk> <unk> headwind.
I think you can kind of frame it this way about 40% of the headwind.
We will be addressed by the moves we're making now to move operating expenses around <unk>.
25% of the headwind will be addressed through changes in our financing plan.
And then the remaining third will be.
Associated with the reductions in corporate costs, and new capital investments that I mentioned earlier.
That's extremely good color John that very much appreciated that one appreciate it guys. Thank you.
Thanks sure.
Thank you. Our next question is coming from the line of Steve Fleishman with Wolfe Research. Please proceed with your questions.
Yes, thank you could.
Can you hear me Okay Steve.
Yes, we got you good morning, guys.
Great. Thanks.
So just just to kind of follow up to the answer to that last question John .
You gave the buckets of kind of the offsets, but it kind of implied that those offsets might be enough to degree at 30.
Is the right number because I know that number won't be.
Set in stone.
Offset at least maybe most of that is that correct or.
Is that.
Yes.
That's correct I mean, the items that we have in place around increasing our capital investments.
Reductions in corporate and support costs.
Customer arrears, the improvement and uncollectible expense that we're seeing.
We feel very comfortable based on what we know right now as well as the changes in the financing plan.
That I mentioned earlier, we feel good about the <unk>.
Okay and.
And then obviously, you'll flex Steve if that 30 become smaller.
Maybe you don't do as much.
But you are kind of finding ways to manage this issue so far okay.
Good and then.
Second question is the comment on the.
The value of private market values relative to public market could you maybe give a little more color on why you kind of highlighted that in the.
In the slide deck.
What you might be thinking there.
Steve This is Steven.
It's really all around just considering.
But given the success that we had with the <unk> transaction.
And we're just going to continue to examine ways of creating shareholder value if it makes sense.
Step one is to understand potential value.
It's something that we look at.
Very much a routine basis.
We do have the opportunity to create some new optionality, we believe based on valuations and where.
Those valuations are right now.
It's just part of our ongoing planning process.
Yes, Steve I would just add on to that that we continually look at various options to create value and if there are ways to be opportunistic to take advantage of the difference between.
Public valuations and private market valuations, we're going to consider that and I would tell you that utility asset valuations in the private sector are continue to be strong.
Okay.
And then that's helpful and then my.
My last question is just on the <unk> of that improvement.
Kind of happening sooner could you talk to.
Whether that has any.
Kind of implications on the timing.
You mentioned that the Fitch going to investment grade maybe the other agencies and also the timing of when you might consider.
Growing the dividend again.
Yeah, So maybe I'll take the discussion with the rating agencies, we've provided them, our new plan, which reflects the.
The tender transaction the changes that we've made in our financing plan as well as the mitigating actions that we're going to take to offset the pension and it clearly shows that we're going to get to 13%.
Next year, as we execute but I'm not going to speak for the rating agencies, it's up to us to execute against our plan Moody's has us on positive outlook, but as we talked about with with them, it's really important for us to execute against that plan too.
To ensure that they feel comfortable with moving to an upgrade.
And then on dividend on the dividend, yes, I mean, obviously, we're focused on on dividend growth.
We realize that it's been flat for a couple of three years now and so as earnings start to grow we will continue.
To consider dividend growth.
Okay. Thank you.
Thanks, Steve Thank you.
Thank you. Our next question is coming from the line of Nicholas Campanella with Credit Suisse. Please proceed with your questions.
Hey, Thanks, Thanks for taking the question I appreciate it.
Just wanted to ask again on the public versus private comment.
You do have kind of a track record for doing more R&D.
Level, so yes, just curious.
Something similar to that transaction that youre exploring or it's kind of like another entire portfolio overview.
Give us more details.
Yes.
If we look at different options each and every year just look at all the assets that we have.
We're not necessarily.
Targeting a set of assets at this point in time, but it is something that we take a look at it from time to time and if there is like I said options to create value for shareholders.
<unk> takes advantage of these.
These high private valuations then we're going to consider that.
Got it thanks, a lot and then just.
Back on the pension absolutes here.
You kind of mentioned working to kind of smooth that the regulatory level, just what states kind of have the most meaningful impacts for like an ultimate offset.
Is it really just like Ohio, and then it would be 2024, Ohio rate review.
Adam to launch or maybe you can give us more clarity there.
Well I mean, I think you could probably.
Based on the number of customers, we serve and the size of the.
The states.
Our service territory in those states it probably mirrors that.
Pretty good so I don't have the breakout by by state but.
We've been able to do some things in certain states.
New Jersey, West Virginia, Maryland.
When.
We have had recent rate cases, and we were able to get some some different treatment there.
Ohio, and Pennsylvania, it's been more traditional in Ohio, We recover service cost only Pennsylvania is based on cash contributions.
To the pension trust so the.
The exposure probably you can just kind of.
Pro rata based on the number of customers each of those utilities are each of those states have.
But what we're really looking to do is try to protect.
The company from the the volatility that we're seeing for instance, this year.
Alright, thank you.
Thank you.
Thank you. Our next question is coming from the line of Michael Lapides with Goldman Sachs. Please proceed with your questions.
Hey, guys. Thank you for taking my questions. A couple of ones first of all I noticed in the back of the slide deck, you did not change our capital spending forecast.
Some of the commentary you make about pulling forward spend is what youre, saying Youll pulled forward O&M means for 2022 are you talking about Poe important capital or both.
Michael our plan calls for the pulling forward of O&M, primarily.
Okay.
The other question is your regulatory section.
Still highlight plans to file rate cases everywhere next year, except Ohio in Ohio in 2024.
Jean.
Filing those cases to fix rate design for filing those cases, because you think you are under earning in all three of those states.
Well I think if you look at the ROE that we published for.
For New Jersey, West, Virginia, and Maryland, and they're all sub 8%.
Yes.
As of Q2.
T M. So I would tell you that I feel like we're not.
Earning a reasonable return at this point in time, so I think there's nothing that I'm aware of that that gets the right structure and rate design at this point on the obviously, we have a little bit of time to.
To plan and prepare for that but this is mostly.
Sure.
Earn a reasonable return on our investments.
Got it and can you remind me.
Which of those states have forward looking test years, and which of those are more on a historical test year and is there anything you can do to fix the one to improve the ratemaking designed for the ones that are on historical.
Yes, So west, Virginia, and Maryland, I think our historical test year. So we will likely use 2022 as a test year.
I think new Jersey is a little bit of a hybrid where you use some historical but you can project.
For certain things in <unk>.
Project into the future so.
Don't think Theres a lot that we can do to change that.
In those states, but.
That's kind of where we are at this point.
And in Pennsylvania are you are you under earning.
Even though you are utilizing the desk or do you not have the gets turned on.
We had the desk turned on all of our operating companies have a disc turned on.
So.
At least according to what we published where we're earning about eight 1% on a pro forma basis, which includes the full year of accounting changes.
That hasn't flowed through the actual results yet, but we will over time.
Yes.
Got it. Thank you Tom Thanks, guys much appreciate it.
Thank you Michael.
Thank you. Our next question is coming from the line of Jeremy Tonet with J P. Morgan. Please proceed with your questions.
Hi, good morning, good morning.
Just wanted to come back to the pension situation real quickly if I could just to put a bow on it all it sounds like you guys believe you have all the tools needed to fully offset that <unk> <unk> headwind as it stands right now is that a fair way to think about it.
Yes based on what we know today Jeremy.
We have identified everything we need to offset.
The <unk> <unk> headwind I would just remind you just to.
Going to be fluid right and so that's going to change from time to time, and we're just going to have to keep.
A close eye on it and we will be transparent with you on exactly where we are.
But based on what we know as of this point in time, we feel like we can address the <unk> headwind.
That's very helpful. Thank you for that and then just wanted to circle back to the management review process, just wondering timeline to conclusion, there when we'd hear more do we need resolution of all actions in federal court or just wondering whats the gating items to complete at this point.
So Jeremy as we previously disclosed there was a management review committee created.
As part of our board of directors and the work is underway.
So that sets off a 90 day clock to complete the review.
I would say I would be thinking around mid.
September by the time it is completed.
The board is following their process I really can't comment beyond that.
Got it I'll leave it there thank you.
Thank you.
Thank you. Our next question is come from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your questions.
Hey, guys, sorry, a couple of clarifications here just to confirm are you still guiding to the approximately $2 55 to $2 60 for 'twenty three rate and I know you said things are fluid, but the 23 number specifically here.
Got it and when you say things are fluid, obviously pension mark to market is fluid or the offset fluid.
If you can repeat what elements of our fluid I mean I'd be curious I mean, how do you think about the coal contribution CRB prices seem to be abating here.
Also I suppose the Pennsylvania tax rate moving around is that kind of more of a structural uplift here just if you could talk to that.
Offsets being fluid and then some of the components there those two.
There is.
Some ability to be flexible with some of the offsets in terms of how we accelerated expenses from future years into this year.
The level of.
Increased transmission spend that we want to put in place.
The mining operation is somewhat fluid.
So there is some.
Fluid next to all of this.
My point on on.
On the.
The pension was mostly around we know 30 today has gotten a little bit better.
As of last Friday.
But the markets are volatile right and the <unk> could be.
Lower it could be higher and so we're just going to have to keep an eye on it but.
But based on what we know today.
We feel pretty good about where we are.
Right and so maybe just to clarify the fluidity of this because pension is fluid you're moving costs around.
How structural is that the reasons offset though right I mean, maybe.
On the side of the cycle.
I get that the Pennsylvania tax rate benefit could be structural or at least until the next rate case, but what are the dynamics here. If you can think about that.
So just real quickly because you mentioned it twice now the Pennsylvania tax rate, that's not going to that's not structural that's going to flow back to customers.
So that won't be an earnings impact to us going forward.
But.
A lot of the things that we're doing around corporate and support costs, reducing our real estate footprint that is structural changes that we're going to make.
The improvement in customer arrears, and being able to reduce uncollectible expense that could be structural.
The level of contribution from the mining operation, that's probably fluid right because a lot of it depends on.
Commodity prices and the ability for the mine to execute against our plan.
So there's a lot of moving pieces here.
Alright excellent.
Well, thank you I'll leave it there I appreciate it.
Thank you Julien.
Thank you. Our next question is coming from the line of David Arcaro with Morgan Stanley . Please proceed with your questions.
Hi, Thanks for taking my question I was wondering if you could talk a little bit about the load growth that youre seeing pretty good growth this quarter and I'm wondering if there are any.
It's of weakness or recession risks that you see coming up particularly around the industrial sales.
Or how things are shaping up from that.
Yes, so David I would tell you that.
We're seeing pretty pretty good growth in the industrial set.
Sector quarter over quarter I mean, if you look at the last three or four quarters on average, it's growing anywhere from 2% to 3% and Thats what were seeing in the second quarter I would tell you on the industrial side the trends.
And many of the sectors are better than what we saw in the first quarter for instance, steel was up 10% quarter.
Quarter over quarter versus 4% in Q1.
Auto was up 7% versus 4% in Q1.
So we're seeing a lot of trends move in the right direction.
Which we feel good about and in fact, as we mentioned on the prepared remarks. This is the first quarter, we've seen since the pandemic that our industrial load was better than what we saw in 2019.
And that was across a lot of different industries.
Got it thanks for that color.
Just one clarifying question on the pension you had mentioned.
40 cents benefit goes down to a 10 cent noncash benefit I was wondering if you how do you look at that Tencent pension benefit is that kind of transitory and goes away over time I know, it's going to fluctuate obviously in that in the near term with that with the pension and with the markets.
<unk> is the Tencent.
Sensitive to rate cases going forward again.
Pass along thanks.
So each jurisdiction has different rate treatments.
Four.
For customers and so.
No.
And then the states that we file.
We will file in next year that will use 22 as a test year.
It'll be at that 40% level.
So they won't see the.
The change to the <unk> 10, a share next year.
Sure.
Okay understood. Thanks, so much.
Thank you. Our next question is coming from the line of Gregg <unk> with UBS. Please proceed with your questions.
Yes. Thank you.
Just to follow up on the O&M.
Pull forward just sort of if you could address.
How you've thought about.
Supply chain challenges in inflation in <unk>.
Labor issues.
The labor you need.
Yes, Greg I would say a lot of the work.
We've already started to execute on and so we.
We have the contractors and the labor to support that.
That's not to say that we don't have.
Challenges with with supply chain.
We are seeing.
A lot of different impacts spin.
Specifically around lead times around equipment.
Across a number of categories Transformers breakers regulators.
All have extended lead times, but this is more around just.
Getting planned maintenance work.
Done ahead of schedule and in 'twenty, two as opposed to future years. So.
It's not necessarily a contract or a labor issue.
Alright. Thanks.
Thanks, Greg Thank you.
Our next question is coming from the line of <unk> <unk> with Barclays. Please proceed with your questions.
Hi, Good morning, guys. Thanks for taking my question so.
Obviously, congratulations on the Fitch upgrade for the other rating agencies any specific catalysts, you think theyre waiting for I think Moody's.
Mentioned sort of before the board level management review is one to clarify.
That number you are giving 13% does that does that add back pensions.
Well.
I'll use the pension obligation at the end of 'twenty, one that's in there and theyre metrics, which supports the 13%.
That that we provided them that's correct.
With respect to catalyst I'm not aware of anything specifically that either Moody's or S&P youre looking for I think it's just <unk>.
<unk> execution against our plan.
And seeing how the cultural changes continue to progress.
The changes around compliance and ethics that we're executing on all of the recommendations that came out of the.
The investigation and how we're executing on those will be important as well, but nothing specifically that they have said.
As a catalyst for the upgrade that I'm aware of.
Thank you.
Just in terms of the use of proceeds from that from the various transactions I think the total was around $2 5 billion. So both the SVT minority stake sale in the new equity as well.
You did mentioned $2 5 billion of course gone to Holdco debt reduction how are you thinking about the remaining $1 billion.
It'll be deployed at the operating company level to strengthen capital structures to fund their capital programs.
So.
<unk>.
That's the plan.
Got it and should we think of that as sort of accelerated debt repayment at any of those op goes or does it more just sort of reduce.
Coming debt issuance needs there.
The latter upcoming debt issuances.
Got it and then just one final one you mentioned the.
Potential for future asset sales or minority stake sales.
How are you thinking about that in terms of.
What will drive the use of proceeds there.
Well I would tell you.
Given where some of our high coupon debt is trading today I mean, it's very attractive to to maybe continue to further delever the holding company if you could.
But I think we'd cross that bridge when we when we got to it.
Thank you very much.
Thank you.
Thank you. Our next question is coming from the line and if Sophie Karp with Keybanc. Please proceed with your question.
Hi, Good morning, and thank you for taking my question.
Good morning, So quick question.
A quick question on the Montana mining I guess have duration that you highlighted this quarter.
You mentioned that it's not in the plan beyond 2022 is that just simply not sector. I mean, the contributions from there or are you planning to.
Dispose of that asset or that investment.
Yes Sophie.
Just in our original plan that we announced back in November and February of this year, we didn't assume earnings contribution from.
The mine in 2003 or beyond we just had a modest amount factored in in 'twenty two.
And it's exceeding our expectations.
And this year.
So the plan is to continue that to continue.
Well.
I would tell you we've looked at exploring how we transition out of that debt.
That facility over time.
As you can imagine it's a challenge to do something like that just given.
The situation, but it is something that we look at from time to time and will have discussions with the other owners.
Got it. Thank you for that color and then on the grid Mod alright, great.
Filed in Ohio can you remind us did I go through the cadence of that.
Should we be.
Fortunately as far as dates and rigorous discussion.
Discussions with regulators et cetera.
Yes, so so I would say.
To be determined I think.
The staff and the commission will need to set a schedule.
And depending on how things go.
That will drive the schedule I can't give you a sense of the timeline at this point in time.
Alright got it.
For me not to beat the dead horse with pension, but just maybe I missed that.
Remark.
Absence of different regulatory treatment that you might get layer on rates and year I pursue it is there a reason why you cannot smooth out the impact.
When volatility just strictly from the accounting standpoint.
No I mean, because your pension is.
The pension just if you just look at the pure accounting.
Mark the pension everybody mark the pension to market.
And Seth pension expense based on the year end market.
Market conditions and so on.
That's really what sets pension expense and so if you look at just the interest component.
Seeing significant increases in interest rates.
And then the assets are down 15% and so that creates the volatility in the what I'll call the normal.
Pension exposure for us and quite frankly for other companies.
Alright, thank you.
Thank you Sophie.
Thank you there are no further questions at this time I would like to turn the floor back over to Mr. <unk> for any closing comments.
Great. Thank you very much I just wanted to take a moment to thank everyone for joining us today and for your continued support and we'll talk to you soon thank you.
This does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.