Q3 2022 FirstEnergy Corp Earnings Call
We continue to execute against our strategy to become a more resilient and forward looking company that is positioned for long term stability and success.
We are building positive momentum through our ongoing efforts to strengthen our culture rebuild shareholder trust accelerate improvements of our balance sheet and drive operational excellence through innovation and continuous improvement efforts.
And we are positioning our company to capitalize on significant opportunities for growth through long term customer focused investments.
I am privileged to work alongside the strong leadership team in this interim role and I'm confident that this team and our committed employees will continue to execute on these strategies to transform the company into a best in class utility.
And we intend to continue this momentum as we transition to our new Chief Executive Officer.
Our board's external search is well underway and we remain hopeful that we can make an announcement late this year or early 2023.
The key attributes where safety and include a strong track record of executive leadership within the utility industry.
Demonstrated ability to execute on the regulatory front.
Leading operational and financial discipline, and impeccable credibility with with external stakeholders.
Our board is excited about the future of the company and is confident in the leadership team and our strategy we.
We expect to continue driving the efforts that are already underway to ensure firstenergy is built for long term success.
And it's our expectation that the new CEO will see the same strong future that we see for Firstenergy.
We are entering this new chapter from a position of strength.
As we continue to focus on balance sheet improvements through organic growth and operating cash flow and our plan to sell an additional minority interest in one of our distribution or transmission assets.
We will further accelerate improvements in our credit metrics, improving our balance sheet to be on par with premium utilities will support higher levels of capital deployment to harden and modernize the electric grid and support the energy transition.
Before I turn the call over to John I want to thank our employees for their efforts to move Firstenergy forward over the last few years.
I have been asked to step up time and time again to serve our customers meet our commitments to stakeholders and stay focused on strengthening our company for the future.
They continually rise to the challenge there.
Their hard work is helping us make great strides towards implementing our strategy and achieving our vision and the board remains committed to providing them with the support and resources they need to carry this company forward.
I am confident in the strength and talent of our team and our future.
Now I will turn the call over to John Taylor.
Thanks, John and good morning, everyone.
I'm glad you can join us for today's call.
We continue to execute on our strategies as we drive strong operational and financial performance.
I'll start my remarks, with a review of some regulatory and business updates and we'll move to a discussion of financial results and expectations.
Starting in Ohio, we are nearing completion of the first phase of our grid modernization program, which began in 2019.
And included in selling more than 700000 smart meters with supporting communications and data management systems and voltage regulating and distribution automation equipment on over 200 circuits to help provide our customers with enhanced reliability and power quality, along with greater visibility into their electric usage.
We continue the successful work in July of this year, we filed for our grid modernization phase two a four year $626 million capital investment program that proposes to deploy an additional 700000 smart meters distribution automation equipment on nearly 240 circuits and.
And voltage regulating equipment on nearly 220 circuits.
It also includes pilot programs related to electric vehicle charging and battery storage.
Together. These programs are designed to enhance the delivery of safe reliable power, while offering our customers modern experiences emerging technologies and opportunities to help lower their bills.
In West Virginia Public Service Commission approved a settlement agreement for environmental compliance projects at Fort Martin Harris power stations to meet the U S. Epa's current affluent limitation guidelines required to operate both plants beyond 2028, as well as a surcharge to recover the expected 142 million.
<unk> of.
Capital investment along with annual operation and maintenance expenses.
We currently expect to complete this construction by the end of 2025.
These projects allow us to responsibly operate these power plants for the benefit of our customers and the state through 2035 and 2040 as we continue to support a timely and clean energy transition.
At the same time, we continue securing commitments from residential commercial and industrial customers in West Virginia to purchase solar Rex from our Fi planned utility scale solar generation facilities totaling 50 megawatts.
As part of the conditional approval by the West Virginia Public Service Commission.
John powers required to obtain subscriptions for at least 85% of the facilities prior to filing for final approval.
The customer response has been favorable and we expect to reach the 85% threshold before the end of the year.
Our expectation is that our first solar generation site will be in service in 2023 with others to followed by 2025 at a total investment of approximately $100 million.
This progress coupled with other regulatory outcomes this year around smart meter and electric vehicle programs in New Jersey go a long way in executing on our strategy to improve the customer experience through investments that modernize the grid and support the energy transition.
As we think about the future we are preparing for an active regulatory calendar 'twenty three 'twenty four.
We have planned rate case filings in New Jersey, Maryland, and West Virginia, All in the first half of 2023 for.
<unk> last file the case in 2020 and for West, Virginia, and Maryland, Our last base rate case was filed in 2014 and 2018, respectively.
The planned rate cases will primarily address our lower equity returns as highlighted in the presentation, which are the result of the significant capital investments. We have made since our last rate case and changes in operating expenses and include the accounting changes that we have previously discussed.
Such as vegetation management and corporate support costs.
In addition, the.
New Jersey rate case would address our smart meter and electric vehicle programs.
<unk> case would address our electric distribution infrastructure investment in EV program.
And in West, Virginia, we plan to file for new depreciation rates, resulting from a depreciation case to be submitted later this year.
Also as you recall, our existing Ohio Electric security plan expires on May 31, 2024, thus we plan to file a new ESP in the first half.
2023, which will include a proposal around our generation procurement plan.
And <unk> also provides an opportunity for provisions regarding distribution service such as capital recovery riders as well as additional programs that can provide benefits to our customers such as energy efficiency.
In the months ahead, we intend to engage Ohio stakeholders and a discussion about our proposed ESP five.
As we've mentioned on previous calls we have been considering the potential consolidation of our Pennsylvania, and Ohio operating companies into two state utilities.
While we continue to evaluate our options in terms of timing for a potential Ohio consolidation, we expect to file an application in Pennsylvania within the next six months.
Consolidating these utilities will align with our five state operating model simplifying our legal entity structure and increase the flexibility and efficiency of our financing needs.
In 2024, we are required to file a base rate case for our Ohio utilities, and we are beginning to explore the option of filing a rate case in Pennsylvania at some point within our current planning cycle.
Finally in these regulatory filings, we plan to address recovery of regulatory asset balances such as deferred storm costs, which currently amounts to approximately $680 million across all of our jurisdictions.
In September , Ohio, Edison issued $300 million of 10 year notes at five 5%.
And we have one more transaction to complete this year at West Penn power as we continue executing our debt financing plan.
While interest rates have increased interest expense remains manageable through 2024, as our new money requirements are minimal and our debt maturities over this same period had higher coupons, averaging near 5%.
Additionally, filing for new base distribution rates in all of our just jurisdictions over the near term.
Now us an opportunity to address the increased cost of debt.
We remain focused on improving the credit profile of the company.
During the third quarter, we repurchased approximately $140 million of holding company debt in the open market, bringing our total holding company debt reduction to $2 $5 billion. This year, which is more than a 30% reduction from the end of 2021.
Also as John mentioned, we are pursuing the sale of additional minority stake in one of our distribution or transmission businesses.
This would follow our very successful transaction with Brookfield Super core infrastructure partners for a 19, 9% interest in Firstenergy transmission LLC that was completed in May of this year at a 40 times p/e multiple or three times rate base for approximately $2 4 billion.
While we don't have any additional details at this time regarding the proposed transaction, we remain focused on accelerating our balance sheet improvement efforts in a cost effective manner with a goal of achieving 14% to 15% <unk> to debt much sooner than originally planned.
We had a robust discussion about the pension during our second quarter call and our approach has not changed.
Extreme volatility in both interest rates and global equity markets continue the.
The discount rate that measures our pension obligation increased from 3% at the end of 2021 to approximately five 5% as of September 30th.
While asset losses, and our qualified pension trust were approximately 22% through.
Through the same date.
Despite the asset performance, our net qualified pension obligation improved over $400 million from 2021 to approximately $1 6 billion.
At the end of the third quarter with the plan's funded status at 81%.
The potential 2023, EPS headwind from the qualified pension plan has increased from 30.
As of June so approximately 45 as of September 30th.
As we communicated in July and we are confident in our mitigation plan to address the 30.
This includes costs, we have already begun accelerating into 2022 the.
The benefits from our balance sheet improvement efforts, specifically the $1 billion of high coupon debt that we retired in June and the expected uplift from other corporate cost reductions and earnings from our legacy investment in the signal peak mining operation.
We will also continue contemplating longer term regulatory approaches to moderate the impact of market volatility on our pension plan and we would look for additional offsets if the outcome as of December 31 exceeds 30.
While an impact larger than 30 would affect 2023 earnings we don't plan to pursue shortsighted gains that could take us off track for the future.
Our solid and sustainable investment pipeline focused on providing reliable service to customers continues to firmly support.
Our long term plan for 6% to 8% growth.
Our focus remains on controlling what we can control and creating value over the long term through regulated investments operational and financial discipline and an improved credit profile.
Our financial performance this quarter speaks to the continued resiliency of our business.
Third quarter GAAP earnings were <unk> 58 per share and operating earnings were <unk> 79 per share near the top of our guidance range GAAP results, primarily reflect a onetime charge as a result of implementing recommendations from the FERC audit, which covered the period going back to 2015 and resulted in certain write offs and <unk>.
<unk> refunds.
On a pro forma basis, excluding the impact of accounting changes rate credits provided to Ohio customers and equity financing transactions, which are all unique drivers. This year, our third quarter operating earnings increased <unk> 11 per share or 16% compared to the same period in 2021.
On a year to date basis, we reported GAAP earnings of $1 42 per share and operating earnings of $1 91 per share.
On a pro forma basis adjusting for the accounting changes, the Ohio rate credits and equity transactions, we achieved a 17% improvement in operating earnings compared to the first nine months of 2021 or nearly 10% year over year growth.
Third quarter results and our distribution business benefited from higher weather related demand.
The positive impact of our capital investment programs and lower financing costs.
These benefits.
Offset higher operating expenses associated with accelerating future planned maintenance work from 2023 into 2022 and higher material costs.
Total and weather adjusted distribution deliveries were essentially flat compared to the third quarter of 2021.
Warmer summer weather and stronger demand from industrial customers, reflecting the continued rebound in many industrial sectors within our service territory was partially offset by lower year over year weather adjusted residential usage.
Residential sales decreased 1% from the third quarter of 2021, and a little less than 2% on a weather adjusted basis.
However, sales to residential customers remain higher than pre pandemic levels by nearly 3% on a trailing 12 month basis, reflecting a permanent structural shift in this high margin customer class.
Deliveries to commercial customers decreased 1% or close to 2% on a weather adjusted basis.
Sales to industrial customers increased approximately 2% led by growth in fabricated metals automotive food manufacturing education services in plastic and rubber.
Third quarter industrial sales were down approximately 1% compared to pre pandemic sales.
In our transmission business third quarter results, primarily benefited from continued formula rate base growth associated with our energizing the future investment program and lower financing costs.
Our ongoing investments in this important program have added more than $5 billion in additional rate base since the third quarter of 2021.
Key projects currently underway include replacing more than 1100 insulators, along a 68 mile transmission line corridor in northeast, Ohio to ensure power reliability and resilience.
A new substation in Ashland County, Ohio to meet the areas future energy demands in supporting economic growth and.
In planning for a new high voltage substation to support a data center campus that is underdevelopment in Frederick Maryland.
And finally in our corporate segment benefited from higher investment earnings from the signal peak mining operation and.
And lower financing costs, primarily related to our holding company debt redemptions throughout the year.
With our strong results so far this year and our outlook for the next two months assuming normal weather, we expect 2022 operating earnings at the top half of our guidance range.
Additionally, we are on track to meet our cash from operations target of $2 6 billion to $3 billion. This year and improve operating cash flow consistent with earnings over time.
In mid February along with announcing our fourth quarter and full year 2022 results. We plan to provide you with 2023 guidance along with updated capital and other plant to support our future growth.
Im proud of our progress to revitalize our culture optimize our performance and improve our financial profile. We are energized by our transformation and look forward to taking the next steps to become a premium utility.
Now I will open the line to your questions as always I appreciate your time and your interest in Firstenergy.
Thank you we will now be conducting a question and answer session.
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Our first questions come from the line of sharp <unk> with Guggenheim Partners. Please proceed with your questions.
Hey, guys.
Good morning Shar.
Good morning, John just I guess, just given some of the pressures we've seen with inflation and interest rates I guess, how much of the 30 <unk> of pension headwind that you previously disclosed have you sort of been able to offset to date with some of the O&M and financing moves you've done recently, especially.
As we're layering in signal peak, which essentially is printing money given sort of the coal price moves and just on the incremental 15 tense.
You mentioned, obviously you are looking at additional offsetting opportunities.
Yeah sure.
Sure. Thanks for the question, obviously, it's been a very.
Fluid situation with the pension during the quarter the pension improved from 30 since as of the second quarter to close to a <unk> 20 headwind.
Mid August timeframe, and then it's ratcheted back up.
The 45 stones I would tell you with the moves that we've already made with our financing plan the opex that we're accelerating.
End of 'twenty, two and the insight that we have into signal peak earnings for next year at least the sales that they have locked in at this point in time, we've captured the majority of the <unk>.
And we just have a little bit left to do on the remaining 30, which we feel very confident in so with respect.
Back to the authority, we feel very strong about it.
But like we said in our prepared remarks, if it's above <unk>.
<unk> in a material way and we will look for opportunities, but we're not going to take the business off track for the long term.
Got it got it and then just maybe a strategic question and maybe a little bit more theoretical just.
Just wanted to ask the optimization obviously.
Been a bit more challenging doing deals at this kind of like an interest rate environment. The buyer pool I would think has shrunk a little bit.
Are you still only open to selling a minority stake of let's say, Pennsylvania or could we see can we can we see you make could it make more sense kind of in this environment to look at an entire opco, which could actually expand the buyer pool to bring in more strategics versus just financial players obviously.
Some utilities are looking for assets right now, but not sure they want a small stake in one thanks.
Yes.
Soon continued strong interest for minority interests.
Other than the distribution business or additional sale of transmission facilities.
Since that has remained strong and that works very well for us either.
19, 9% interest in the distribution business, which has tax benefits or potentially with strong value. We continue to see in transmission, even though there will be some tax consequences of that that has value. So that's the direction that we think makes the most sense and based upon what we're seeing to date, we feel good.
That direction John Yes.
I would agree I mean, when we made the announcement in September we had several inbounds.
From financial players showing strong interest in either a transmission or distribution business and we've had some conversations with several parties and the interest continues to be strong.
So we're continuing to work the process internally and hopefully we can get into a position where we can make an announcement.
Late this year or the first part of next year.
Terrific. Thank you guys, that's actually very good color I appreciate it.
Yeah.
Thank you. Our next question is coming from the line of Steve Fleishman with Wolfe Research. Please proceed with your questions.
Yes, hi, good morning, John and John .
Just.
For John Taylor.
Tension.
I know you probably don't want to get into markings pension everyday but.
The markets back to Q2 levels.
I think it's up almost 8% this month so if.
And I know bond market's still weakened further but just overall, if you kind of updated to roughly where things are now.
Where would you be relative to that 30.
Or the <unk> 45.
45.
Steve.
It's probably in the same place.
Or maybe modestly improved since September .
Interest rates have continued to increase corporate spreads have expanded a little bit which not only impacts the interest costs on the liability, but also impacts the value of our fixed income assets in the <unk>.
And the trust so I think it's modestly better.
And then the 45, but not not significant.
Okay great.
And then on the CEO .
The comments on.
That you made John some of our older on just.
What youre looking for to see I mean, those are all great and.
Yeah.
I guess the real question is what's your conviction that you can find somebody.
Okay, who combat that meet all these credentials from what you've kind of seen so far.
The good news is the processes we have.
Made good progress already on it and we.
We've identified more than a couple dozen individuals that meet these.
The criteria it could be very good.
And I would say that.
The interest level has been solid and strong as well. So we anticipate that we will have a <unk>.
Shortly list, but still list approaching 10 individuals' that both are very well qualified.
Fit very well with our strategy and have interest at this point. So we're encouraged at this point.
Okay. That's good and then.
Lastly, just on <unk>.
On the continued balance sheet progress any sense.
From the standpoint of the rating agencies on.
The potential for getting upgraded to investment grade.
Late this year by the end of the year I guess John .
Yes, we talked to them just a few days ago and the conversation was was constructive I think we continue to execute against the plan that we provided them.
And we continue to have conversations on timing.
I think theyre just waiting for.
I just want to see us continue to execute they are interested in what we're going to do with the minority interest sale and how that improves the metrics.
And once we get into a place where we can make an announcement will put that into the forecast and start having conversations.
But the conversations have been very constructive I think it's just a matter of time.
Okay, great. Thanks, a lot.
Thanks, Steve.
Thank you. Our next question is coming from the line of David Arcaro with Morgan Stanley . Please proceed with your questions.
Hi, Thanks, so much for taking my question.
Maybe just starting on the pension first I was just wondering could you consider selling part of the pension.
Or is there a regulatory approach that you could pursue we saw peg in New Jersey filed a request with the Btu.
With a different way to consider accounting for the pension there I'm wondering if either of those might be feasible options that you're looking at.
Yeah, So Dave I think for us to I don't know.
If we were to try to sell the pension obligation I mean, given its funded status.
That might be a little bit of a challenge to us.
<unk> debt obligation to like an insurance company or something like that so.
I'm not sure that would be something that we will pursue with respect to regulatory mechanisms as we file based distribution cases over the course of the next couple of three years, we will absolutely look at ways that we can limit volatility exposure.
In the pension plan at our regulated companies. So that is something that is definitely on the table at this point in time.
Okay, Great that's helpful and then.
In the slides you had mentioned 20 to 40 bps of <unk>.
<unk> to debt impact coming from A&P and I was just wondering would you consider that to be kind of structurally permanent going forward or are there potential offsets that you can find on the cash flow forecast.
To help with debt that.
That drag coming from A&P.
Yes, so I mean, obviously, we need much more clarity from the internal revenue service on the mechanics of the minimum tax I mean, the 20% to.
The 40 basis points is not.
Significant in the Grand scheme of things when you think about <unk> approaching three to $3 3 billion.
Over the course of the next handful of years so.
Obviously, we will look for opportunities to offset that.
Either through regulatory mechanisms or just further refinement in our operations.
But I think to understand the final impact or the real impact, we just need a little bit more clarity from the IRS.
Yes, and David I'd mentioned that.
We do see that impact as we move forward, but we have the other positives of.
Just when we looked at our ability to fund capital and an increase in capital we have enough.
Cash is to pay dividends do that in the balance sheet improves moving forward. So just just our plan we will continue to improve the balance sheet as we move forward and then obviously the minority interest sale further accelerates that so we do have other very positive ways to move the balance sheet, where it needs to be even even.
With this 20 to 40 basis points of impact from AT&T.
Yes that makes sense, yeah definitely smaller than some of the big positive changes that youre that youre looking for.
Thanks, so much thanks.
Thanks, David.
Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed with your questions.
Hey, John and John Thank you for taking my questions.
Real quick on Ohio can you just remind us with the ESP expiring late day next year.
And also the potential for having a file a full blown rate case at some point.
Do you think about it.
And in your conversation with stakeholders, there, whether there's potential for a global settlement of some time when you wrap all of those things into one kind of multiyear ratemaking regime.
And rather than have potentially kind of two different proceedings or dockets.
Kind of somehow resolving prolonged who cannot create more long term certainty about the regulatory framework in the state.
Well so so Michael Thanks for the question. So I would tell you that.
We'll file for the ESP five sometime next year.
We have to.
Make sure that we have a plan to procure generation for our customers beginning in June of 'twenty four.
Also need to make sure that we have clarity on the capital recovery riders that we have in place and any other types of programs.
That will provide.
Service to customers.
Grid modernization program in types of energy efficiency programs that we want to put in place. So I kind of see these as two separate work streams, one ESP five which needs to be approved.
<unk>, we get into the June 2024 time period, and then with the rate case that we have to file in may of 2004.
Obviously, we have a history of settling but given where we are right now my sense is thats going to be a fully litigated case.
It might take us out into the.
Late 'twenty five timeframe before we get final approval on that.
Got it Super helpful. And then one thing on signal paint benefited from.
What's happening.
<unk> prices, although we've had a bit of a pullback over the last couple of months.
Part of that is macro or China shut in.
Thanks.
There a scenario, where you look at yourself and say youre not the logical owner of that stake and how should we think about the market robustness for something like your stake in signal peak as well as the tax ramifications and implications for you all of you what would it be a seller of that state.
Yes, I wouldn't say.
The market is robust for that type of asset even with commodity prices.
Where they are I wouldn't consider it a robust market. We've had some interest in terms of people, calling us about the asset.
As we started the dialogue it just didn't make sense.
And we're continuing to be open to those types of.
Transactions and those types of discussions but at this point in time I wouldn't consider it robust.
Got it and last one can you remind me what's the capital you're deploying in West Virginia to meet environmental requirements.
Getting up forward looking or historical looking cash restaurant on that.
It's a $140 million capital investment for the affluent limit guidelines.
And I think it's in the form of a surcharge that will be recovered based on the capital you spend.
And importantly, I believe the depreciation rate for those dollars are in line with what we see is a logical end of life closer to 2035.
Our 2044 for the two plants, so we have that positive as well.
Got it thank you Tom Thanks, Scott.
Thanks, Michael.
Thank you. Our next question is coming from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your questions.
Hey, good morning team. Thanks for the time appreciate it.
I know things are going real time here in parallel with that with the New Jersey Btu can you comment at all about offshore opportunities here. It seems like you may have just won in recent minutes here.
A decent chunk on that effort here, but can you comment as best you understand and your positioning here I get that this is happening literally in real time, but any commentary or initial thoughts or at least provide some perspective about what you guys are already if you can.
Yes.
Is happening in real time.
We have not yet reviewed the order or the details, but we do understand that.
Our proposal has been successful.
Large extent.
Something potentially approaching a $1 billion of $1 billion of investment over the next eight to 10 years, which which we view as very positive and additive to our plan and why it's so important to have our balance sheet the strength that we're targeting.
So we're pleased with that we're very happy to be a part of meeting new Jersey's clean energy needs.
That really works for the customers and.
We're using more existing or we're using existing right away impacts are less so.
We're very positive, but we will need to review the order and make sure that we have more detail like like you said Julian it's late breaking and I'd ask John Sam.
No other update if there's anything else that I missed on that.
I think I don't have anything else I mean, obviously it would be incremental to the plan that we have provided.
To investors I think the capital would probably start being deployed sometime in 2000.
$24 25 potentially so.
And the last couple of years of our current planning cycle, but would be in <unk>.
Up lift to our our plan going forward. So we're excited about that but yes.
Like John said need to review the order and make sure we understand it.
Yes understood. Thank you guys for at least.
Attempting to broach that one here.
Meanwhile, back to the scheduled program.
2023, I know theres been a lot of talk about pension here and the puts and takes but can we talk about two other comments first off Pennsylvania.
I understand this is the first time, we've seen you guys indicate your filing.
For case can you talk about just.
How much of 2023, we could see an uplift I mean your document.
In your slides here, earning.
A high 7% earned ROE.
How swiftly could we see that improve potentially again I don't want to prejudge rate case outcome, but certainly some potential revenue.
<unk> deficiency.
Is there how much of an offset could that be to the <unk> 45.
And in tandem I know in the Q. There was discussed this allocation question on a new methodology that you guys have implemented and it seems like that's shifting some capex to expense can you comment a little bit more prospectively on on how much more expense that would drive in.
In 2003 onwards versus your earlier rate base and Capex forecast.
It's not entirely clear here.
Yes, Okay Julien So let me maybe just take those one at a time, so with respect to Pennsylvania.
To file three cases next year, New Jersey, West, Virginia, and Maryland.
<unk> will file those sometime in the first part of next year, you probably won't see new rates until the end of next year or first part of 'twenty four.
<unk>.
As part of those cases, so I'm not anticipating really any uplift from those three cases in the plan for next year.
Will they start rates effective sometime in 'twenty four with respect to Pennsylvania, We said, we're considering to file.
Case that the thing about Pennsylvania, it's a forward looking.
Test year.
So we could file that sometime late next year first part of 'twenty four.
With rates effective probably six to nine to 12 months thereafter so.
I don't anticipate anything from Pennsylvania next.
Next year, given our current regulatory plan.
With respect to the cost allocations.
<unk>.
That's the accounting changes that we've been talking about since late last year, Julian where we.
Reclassified certain of our costs from capital corporate support costs from capital to O&M. That's already in the plan that's already in the 6% to 8% growth, so theres not going to be any impact from that.
Going forward.
Got it excellent and then just with respect to Pennsylvania, presumably that also enables you to accelerate some.
Some of the capital spend there and some considerations maybe around enabling the desk.
Yes, so the current <unk> program expires at the end of 'twenty four so.
So obviously, we would have.
File another application.
To expand the L tip.
Beyond that period, so I think all of that would happen together.
And I do see Pennsylvania is an area, where we could start to increase our capex. There just given some reliability enhancements that we want to make.
Got it excellent all right I'll leave it there. Thank you guys. Good luck with the search.
Thanks Joey.
Thank you. Our next question is coming from the line of Angie <unk> with Seaport Global. Please proceed with your questions.
Thank you so first of all in Pennsylvania.
Unlike the consolidation of your distribution company.
Do you still have it done before you potentially file an already spoke in these businesses.
You don't have to have it done if you were to go to if you were going to explore like for instance in minority interest in our Pennsylvania business.
Could do it at the same time right you could probably make a filing to consolidate.
Pennsylvania companies and file an application to sell a minority interest.
Well, maybe not exactly at the same time, maybe one.
The consolidation first but then the minority interest sale slightly or shortly thereafter, but you could you could do it commensurate.
Okay, and then separately.
Pointed out.
Very busy regulatory calendar for the next few years.
And it happens at a timeline.
Thank you ladies subsequent to <unk>, the affordability of electric sales.
I mean, how do you plan to address this issue and how do you think it works well.
Likely to impact the outcome of those proceedings.
Yes, so the three states that we file in next year. If you just look at our total customer bills.
On our residential basis, we're probably 30, 15% to 30% lower than the peers in the state in those states.
And so we feel like.
We have a good story to tell in terms of our.
Customer bills, we recognize that generation prices are increasing but.
But at the same time I think it's important to make sure that you have strong in.
And financially healthy utilities to make sure that we can provide the level of service that's needed give.
Given the fact that customer expectations are only increasing as we transition to more electrification. So I feel like we have a good story, but we do recognize the concern that you mentioned.
Okay, and then lastly is there any update on the <unk>.
Pending SEC investigation.
On the pending SEC investigation, no update yet at this point in time.
Okay. Thank you.
Thanks Angie.
Thank you. Our next question comes from the line, it's Nick Campanella with Credit Suisse. Please proceed with your questions.
Yes.
Hey, Thanks for taking my question.
I just wanted to come back to the pension headwind in 'twenty, three and kind of recognizing the fact that you.
Our reaffirmed the long term six to eight CAGR still can you just give us a sense of just <unk>.
Overall kind of confidence level in maintaining that into 'twenty, four and 'twenty five.
And what are the drivers that you see that kind of keep you.
In that six to eight kind of range I know you kind of brought up new rate filing then.
Obviously, there is interest expense reductions from the debt pay down strategy, but could you just give us a better sense of your your overall confidence level on the CAGR. Please.
Yes, I think we tried to highlight that.
Previously we feel really good about the plan for next year.
Beyond I mean, obviously, we're moving some expenses around this year to help offset 23, which gives us a lot of flexibility going into next year, we're going to have the permanent benefits associated with the debt.
Debt tender transactions that we previously completed and then.
We have line of sight into signal peaks earnings for next year at least a modest portion of what they plan to contribute to the company.
And then we have other opportunities as we've highlighted before around corporate cost reductions whether it be facilities costs.
In our communications advertising sponsorships that we look at each and every year. So we have a lot of opportunity and flexibility as we think about the long term growth of the company.
Yes, I'd add to that it's not only those items, but.
As we mentioned getting the balance sheet, where we want if there's good opportunities we think in the benefit the benefit of our customers on reliability and those type issues to continue to invest in the business. So we see with our balance sheet strong good affordability of position we start at even though we'll have to take into account commodity prices being up.
We do see opportunity to invest more moving forward and grow earnings from those investments.
And then John you mentioned on signal peak that you locked in.
The sales largely for next year, so should we be kind of thinking about that earning distribution of more fixed now rather than tied to commodities.
Yes.
I think I highlighted they've locked in a modest amount of their production for next year at prices consistent with what we're seeing this.
This year. So we do have line of sight into some level of earnings contribution.
For 2003, so they havent locked in their full production schedule at this point in time, but likely to get that done.
By the end of the year.
Thanks for the clarification I appreciate it.
Thanks, Nick Thanks, Greg.
Thank you. Our next question is coming from the line of Paul Fremont with Mizuho. Please proceed with your questions.
Thank you Mike.
My first question is does your plan mid 'twenty three Ohio.
<unk> does that represent a change in timing from what from when you had originally planned to file.
<unk> in Ohio.
No no.
Separate filings Paul the base distribution rate case, we will file in may of 'twenty four.
Okay, and then the ESP.
We will file for some.
Sometime early next year first part of next year.
It's going to take a little bit of time to get that in place and get that approved by.
By mid 'twenty four when it needs to go into effect.
Okay and what's the difference then between.
The ESP filing and the <unk> filing I mean.
Aren't they essentially setting.
Prices for the same electricity.
So the ESP the electric security plan as a more broad.
Plan that deals with generation service that youre going to be providing to customers, how youre going to procure.
Those services from third party suppliers, but also allows you to look at your current.
Riders distribution capital recovery riders other programs that you want to provide.
Customers, so, it's really everything but distribution rates and distribution rates would be part of the base rate case.
In 2004, which likely won't go into effect at the earliest until sometime late 'twenty five.
And then.
Can you quantify what the signal peak contribution is expected to be for the full year 2002.
It'll be north of 20.
Probably somewhere 20% to 25 is what I'm guessing.
Okay.
And last question for me.
If you file to consolidate.
The Pennsylvania operations do you plan any type of capital contribution to Matt and Pat of lag before that happens.
We haven't we haven't contemplated that Paul.
Wow.
If I look at the.
Capital to the equity ratios and those businesses today.
Robley high $40, if not in the low 50% range. So I wouldn't see a need to make any type of capital contributions into those companies.
Okay.
Thats It for me. Thank you. Thanks.
Thanks, Paul.
Sure.
Thank you. Our next question comes from the line of Sophie Karp with Keybanc capital markets. Please proceed with your questions.
Hi, Good morning, Thank you for taking my question.
Right.
Wanted to ask you about the O&M absentee rate how much.
Do you have.
The higher cost excluding pension headwinds right.
Inflationary pressures are there any mechanisms that you have now that could help you with those.
Do you have to manage and absorb the ingredients until you're getting rates.
Yes, we don't have for our base.
I will call our base day to day operating expenses, we don't have any type of.
Regulatory mechanisms to mitigate inflationary pressures or anything like that.
So.
It's really us to up to the company to manage our operating costs in between rate cases.
Okay.
Is there any way that you could get interim rates in your file.
Yes.
When you say interim rates are you just referring to some type of tracker.
So we've seen kind of in it.
Youre right that are put in place until the rate cases decided to help with the liquidity situation now like open the case in various jurisdictions.
I don't think that is something that at least that I've seen obviously, we would.
We would explore that but but I haven't seen that before.
Especially in the states in which we operate in now I have seen companies get trackers for instance for vegetation management.
Our other big spend that they have.
Where they can defer costs over a certain level.
And then take care of that in the next rate case or have some type of amortization of those costs.
Built into their rates, but.
Right now we would have to file for a case and then get those types of mechanisms in place going forward.
Okay got it thank you and then.
I'm not personally Pennsylvania utilities.
Or would you contemplate consolidating those operations right would that happen concurrently with filing rate cases before or after I would that I guess, we're working together.
Yes, My sense is we'll file the consolidated one.
Right. So we're going to plan to we'll plan to file sometime within the next couple of three months or six months.
And then we'll likely file a rate case at some point after that.
Got it thank you and this is opening.
Thanks Sophie.
Thank you. Our next question is coming from the line of Greg Oro UBS. Please proceed with your questions.
Yeah.
Yes. Thank you.
Just a follow up on the.
Offshore wind in New Jersey.
What return would you be allowed in the.
Transmission that you were talking about.
Yeah, So Greg in the filing we filed a 10, 2% return on equity.
So that was what was in our filing.
And how are you thinking about that 20%.
Equity stake option.
The project.
Yes, obviously that gives us optionality, we have the option to buy into the offshore component of the project.
So that definitely gives us another opportunity to invest in our transmission like investment.
But we have not made any final decisions on that I think that's a good option for us to evaluate for our board to consider but we have not made final decisions on that.
Okay.
Alright, thank you.
Thank you Greg.
Thank you there are no further questions at this time I would now like to turn the call back over to John <unk> for any closing comments.
Yes, Thank you and thanks, everyone for joining US today. We appreciate your continued support and we look forward to seeing many of you at the EI Conference next month.
This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.