Q4 2022 FirstEnergy Corp Earnings Call
Speaker 1: Thank you. Welcome to our fourth quarter and full year 2022 earnings call. Today we will make various forward-looking statements regarding revenues, earnings, performance, strategies, prospects, and other matters. These statements are based on current expectations and are subject to risks and uncertainties.
Speaker 1: Factors that could cause actual results to differ materially from those indicated by these statements can be found on the investor section of our website under the earnings information link and in our SEC filings.
Speaker 1: We will also discuss certain non-gape financial measures. Reconciliation between gap and non-gape financial measures, the presentation that supports today's discussion, and other detailed information about the quarter and year can be found in the Strategic and Financial Highlight document on the Investor section of our website.
Speaker 1: We'll begin today's call with presentations from John Summerhalder, our board chair and interim president and chief executive officer, and John Taylor, our senior vice president and chief financial officer.
Speaker 1: Several other executives will be available for the Q&A session. Now I'll turn the call over to John Semmerhalder.
Speaker 2: Thanks Irene, good morning everyone. Thanks for joining us.
Speaker 2: We had a strong year in 2022, and we are excited to make even more progress on our goals in 2023.
Speaker 2: Our full year 2022 gap earnings are 71 cents per share and operating earnings are $2.41 per share.
Speaker 2: which is slightly above the midpoint of our guidance range.
Speaker 2: Before I get started today, I would like to take a minute to say thank you to all of our employees for their efforts over the past year. I'm proud of what they've accomplished and the company we have become.
Speaker 2: Our progress this past year is due to the efforts of our 12,000 employees who are serving our customers and working to make this company better for the long term.
Speaker 2: efforts of our 12,000 in-toys who are serving our customers and working to make this company better for the long term. Thank you.
Speaker 2: With that, we have a lot of ground to cover today, so let's get started.
Speaker 2: Two years ago, we were taking some of the first steps to transform first energy.
Speaker 2: In 2022, we hit full stride.
Speaker 2: stretching ourselves to strengthen and enhance nearly every aspect of our organization.
Speaker 2: The sculpting pace of these changes have been remarkable.
Speaker 2: just to touch on the field of the highlights.
Speaker 2: First, we made significant improvements in our financial position.
Speaker 2: This includes deploying proceeds from the billion dollar common equity issuance that closed in late 2021, together with a $2.4 billion, 19.9% interest sale and first energy transmission LLC that closed mid-year.
Speaker 2: to reduce debt by nearly $3 billion in 2022, most of which was at FECorp. As a result, we lowered holding company debt as a percentage of total debt to 24% from 33% at the end of 2021.
Speaker 2: From the operational front, we transitioned to a new five-state operating model and engaged in more than 175 projects across the company to modernize the way we work and deliver a superior customer experience as part of our FE Forward program.
Speaker 2: At the same time, we continue to enrich our culture with an unwavering commitment to our core values.
Speaker 2: As a result of this work,
Speaker 2: We're entering 2023 as a more innovative, efficient, and forward-thinking organization. Where employees are sharing ideas and working to move the company forward.
Speaker 2: This year we intend to build on our moment.
Speaker 2: We're working to be a premier electric company with a strong foundation and a customer center focus that is enabling the clean energy transition.
Speaker 2: Earlier this month, we announced an agreement to sell an additional 30% interest in first energy transmission LLC to Brookfield Super Core infrastructure partners with $3.5 billion.
Speaker 2: This transaction, which is expected to close in early 2024, supports our plans to improve our balance sheet and for approximately $1 billion of incremental capital investments, which we believe will drive long-term value for all our stakeholders.
Speaker 2: And, as John will discuss, our regulatory calendar will address the critical investments that support reliability and a smarter and cleaner electric grid.
Speaker 2: We are introducing 2023 guidance.
Speaker 2: of $2.44 to $2.64 per share.
Speaker 2: The midpoint of this range represents a 6% growth from our original 2022 midpoint of $2.40 cents per share.
Speaker 2: and it offsets the pinch of impacts we discussed last year.
Speaker 2: We are also introducing first quarter 2023 guidance.
Speaker 2: a 56 cents to 66 cents per share.
Speaker 2: In addition, we are affirming our targeted 6-8% annual operating earnings growth rate, which represents year-over-year growth based off of the prior year guidance midpoint.
Speaker 2: I'd like to extend a moment to provide an update on the CEO search process.
Speaker 2: and I realize there is much interest in this important topic.
Speaker 2: Last year, we shared the broad criteria that we were looking for a strong track record of executive leadership within the utility industry.
Speaker 2: a demonstrated ability to execute on the regular to our front.
Speaker 2: leading operational and financial discipline, and impeccable credibility with external stakeholders.
Speaker 2: and we always anticipate a three to six months timeline.
Speaker 2: I can share that interest has been strong.
Speaker 2: The process has been quite active since the beginning of the year and discussions among the board and select candidates continue.
Speaker 2: The Board is committed to selecting the right individual to lead our talented team, and we trust you will respect the process through its conclusion. We look forward to sharing the announcement when the Board completes its work.
Speaker 2: In the meantime, we continue to execute on the strategy we have in place.
Speaker 2: the board and the management team are fully committed to this path.
Speaker 2: And the expectation is that the new CEO , once named, will be as well.
Speaker 2: It's an exciting time for first energy as we're poised to leverage our many strengths.
Speaker 2: from our diverse assets to the transformation that has taken place since 2020 to the talented employees who are making the company stronger with their drive, passion, and ingenuity.
Speaker 2: I appreciate your continued support.
Speaker 2: We are concentrating our efforts on long-term stability and success as a leading utility.
Speaker 2: We will continue to navigate our path with the same determined focus you've seen over the last few years.
Speaker 2: Now I'll turn the call over to John Taylor.
Speaker 3: Thanks, John , and good morning, everyone. Thank you for joining us.
Speaker 3: I join John in thanking our employees for their incredible work this past year. Their perseverance and commitment made it possible for us to navigate challenging conditions.
Speaker 3: and make important progress on our goals.
Speaker 3: We have a busy year ahead of us as we continue driving towards our aspirations and laying additional groundwork for our future success.
Speaker 3: I'll start my remarks with a review of our top regulatory and business priorities.
Speaker 3: then we'll move to a discussion of 2022 financial results in 2023 expectations.
Speaker 3: We have an active regulatory calendar this year.
Speaker 3: Later this quarter will file for new distribution rates in New Jersey and Maryland, and file an application to consolidate our Pennsylvania legal entities.
Speaker 3: Then by mid-year we plan to file a rate case in West Virginia.
Speaker 3: an Electric Security Plan in Ohio and an Infrastructure Investment Program or IIP in New Jersey.
Speaker 3: Broadly speaking, the rate cases will address the significant customer-focused investments we've made since our last rate cases in each of the states and provide an opportunity to bring our distribution equity returns in line with the industry average allow returns.
Speaker 3: At the end of 2022, our weighted average ROE was 7.7% while authorized ROE's ranged from 9.6% to 5-10.5%.
Speaker 3: Our current residential rates are 10 to 40% below our peers in the states we serve, and we are sensitive to the pressures of the current inflationary environment on our customers.
Speaker 3: Our rate cases this year will ensure we maintain our affordability position.
Speaker 3: while enhancing the customer experience.
Speaker 3: provide further support for low-income customers and support the critical investments.
Speaker 3: for a more reliable, resilient, and smarter electric grid.
Speaker 3: Each filing will address unique elements to better serve customers in that state.
Speaker 3: For example, the Maryland and New Jersey rate cases will highlight our plans to improve distribution reliability through incremental investments.
Speaker 3: In Maryland, we plan to file concurrently with the rate case for continuation of the electric distribution investment search arch.
Speaker 3: And in New Jersey, our rate case will highlight our plan to file an infrastructure investment program by the middle of this year.
Speaker 3: These programs will focus on investments such as circuit resiliency and reliability.
Speaker 3: Feeder sectionalization and distribution automation and substation upgrades.
Speaker 3: In West Virginia, the rate case will reflect our recently filed proposal.
Speaker 3: with the Commission to update depreciation rates associated with mine powers to coal-fired generation assets, which based on the depreciation study.
Speaker 3: would have retirement dates of 2035 and 2040.
Speaker 3: Any increase in depreciation rates would not take effect until conclusion of the upcoming base rate case.
Speaker 3: Turning to consolidation of our four Pennsylvania utilities, this is an important step to align with our new state operating model.
Speaker 3: simplify our legal entity structure and increase the flexibility and efficiency of our financing strategy.
Speaker 3: This consolidation won't represent any changes in current electric rates for our Pennsylvania customers.
Speaker 3: Those will be combined as appropriate over time through future rate case activity.
Speaker 3: In Ohio, our ESP-5 will adjust generation procurement for non-shopping customers after the current ESP expires in May of next year.
Speaker 3: In addition, this filing will address other regulatory programs and mechanisms.
Speaker 3: such as continuation of existing capital writers such as the DCR and AMI.
Speaker 3: And as we extend our commitment to have a broad stakeholder dialogue, we are considering programs that support energy efficiency, low income, and additional customer-related initiatives.
Speaker 3: We also look forward to advancing the $626 million Ohio grid mod phase 2 capital investment plan.
Speaker 3: which was filed last July .
Speaker 3: If approved by the Commission, GridMod 2 will continue our work to enhance the delivery of safe, reliable power, offer modern customer experiences, and support emerging technologies.
Speaker 3: As we make each major regulatory filing, we'll post a convenient and comprehensive summary to our IR website.
Speaker 3: You'll find this information on the investor materials page of the site in a new section named Regulatory Corner.
Speaker 3: Turning to financial matters, our recent agreement with Brookfield represents
Speaker 3: an exciting milestone in our progress to be a premier utility.
Speaker 3: with a strong financial position and sustainable long-term growth.
Speaker 3: The $3.5 billion transaction will deliver highly attractive, efficient equity financing.
Speaker 3: The transaction is structured with a $1.75 billion do it closing and align with our investment in financing plans an 18 month $1.75 billion note at $5.75 per cent interest.
Speaker 3: Once the transaction closes, we intend to deploy the proceeds to further improve our credit metrics and our balance sheet targeting FFO to debt metrics.
Speaker 3: 14 to 15 percent.
Speaker 3: The proceeds also supported more than 10% increase in our 2024 and 2025 capital investment plans.
Speaker 3: We're infusing nearly $1 billion into the CAPEX plan, bringing our target to approximately $18 billion over the 2021 to 25 period.
Speaker 3: Through this plan, we're targeting 75% formula rate investments and more than 7% average annual rate base growth beginning in 2024.
Speaker 3: Well, we will use NOLs and existing tax credits to offset most of the taxable gain on the transaction, resulting in expected cash taxes of approximately $50 million.
Speaker 3: Beginning in 2023 and moving forward, we expect to be a federal cash taxpayer at approximately $200 million annually.
Speaker 3: Our agreement to sell an additional 30% interest in FET triggered a deferred gain on the prior 19.9% sale that was completed in 2022.
Speaker 3: As a result, we recognize a $752 million non-cast charge in our fourth quarter, 22 gap results.
Speaker 3: Operating earnings were 50 cents per share for the fourth quarter of 2022.
Speaker 3: And on an adjusted basis, excluding unique drivers this year, which include the impact of accounting changes.
Speaker 3: rate credits provided to Ohio customers and equity financing transactions.
Speaker 3: Fourth-quarter operating earnings increase $0.9 per share or 22% compared to the same period
Speaker 3: And our distribution business, fourth quarter results benefited from weather-related demand, along with the impact of our capital investment programs.
Speaker 3: These results nearly offset higher operating expenses, primarily associated with accelerating.
Speaker 3: Certain planned maintenance work, incremental reliability activities, and higher material and storm costs.
Speaker 3: Total distribution deliveries increased 2% resulting from weather that was closer to historic norms compared to the very mild fourth quarter of 2021.
Speaker 3: and increase demand from industrial customers.
Speaker 3: Residential sales increased 3% from the fourth quarter of 2021, but decreased slightly on a weather-adjusted basis.
Speaker 3: Consistent with our observations on the October call, sales to residential customers remain about 3% higher than pre-pandemic levels.
Speaker 3: In the commercial sector, fourth quarter deliveries were up slightly from the prior year due to weather and decreased almost 2% on a weather-adjusted basis.
Speaker 3: While sales to commercial customers increase slightly overall in 2022, they continue to lag 2019 levels by more than 4%.
Speaker 3: Finally, sales to industrial customers increased nearly 2% compared to the fourth quarter of 2021.
Speaker 3: Led by continued recovery in the automotive, mining, fabricated metals, and steel sectors.
Speaker 3: Overall, industrial cells are trending closer to pre-pandemic levels.
Speaker 3: With full year 2022 sales less than 1% below 2019, in fourth quarter 2022 sales flat to 2019 levels.
Speaker 3: In our transmission business, fourth quarter results benefited from continued formula rate base growth of 9% year-over-year.
Speaker 3: associated with our energizing the Future Investment Program.
Speaker 3: with our energizing the future investment program, as well as lower financing costs.
Speaker 3: I want to take a quick second to recognize our transmissions, supply chain, and materials operations teams.
Speaker 3: who overcame significant supply chain and other issues in 2022, investing nearly $1.4 billion in projects to improve grid reliability and resiliency.
Speaker 3: For example, we successfully completed the first segment of a 64-mile transmission line rebuild that will enhance service reliability for customers in eastern Ohio.
Speaker 3: And in Central New Jersey, construction is underway on two projects that will upgrade 19 miles of transmission lines and benefit 50,000 customers.
Speaker 3: In 2023, our transmission investment plan is $1.7 billion.
Speaker 3: and we have a long project pipeline ahead of us in this premium business.
Speaker 3: Finally, our corporate segment benefited from higher investment earnings from the signal peak mining operation and lower financing costs associated with the holding company debt Redemptions
Speaker 3: earlier this year.
Speaker 3: For the full year we reported gap earnings of 71 cents per share, largely reflecting the non-cash tax charge I mentioned earlier.
Speaker 3: Full year 2022 operating earnings were $2.41 per share.
Speaker 3: slightly above the midpoint of our guidance.
Speaker 3: Again, on an adjusted basis.
Speaker 3: excluding the accounting changes, Ohio rate credits and equity transactions.
Speaker 3: We achieved a 26-cent improvement in operating earnings compared to 2021, which represents 12% year-over-year growth.
Speaker 3: Our solid financial performance resulted in $2.7 billion in cash of operations last year, which is in line with our expectations.
Speaker 3: And we made more than $3.2 billion in customer-focused regulated investments and planned to execute our 2023 capital investment plan.
Speaker 3: than $3.2 billion in customer-focused regulated investments and plan to execute our 2023 capital investment plan of $3.4 billion.
Speaker 3: And we met our 2022 FFO to debt target, executed our financing plan, and achieved investment grade credit ratings with Fitch, and just recently received a positive outlook from S&P.
Speaker 3: The materials posted to our website yesterday afternoon contain an updated financial outlook through 2025, including our capital plan, load forecast, and financing plan.
Speaker 3: It's our expectation that we will extend our outlook beyond 2025 later this year.
Speaker 3: As John mentioned, our 2023 Arning's guidance to $2.44 to $2.64 per year.
Speaker 3: Reflects overcoming the enormous challenge we face related to the pension, which year over year was a 38 cent impact to our 2023 plan.
Speaker 3: The combination of accelerating ONM into 2022, together with lower interest expense resulting from debt reductions and earnings from signal fee, support our projection for 6% growth year over year at the guidance midpoint.
Speaker 3: Our focus is executing on our plan to drive strong regulated earnings growth, resulting in our long-term 6-day percent growth outlook.
Speaker 3: anchored by increasing transmission and distribution utility investments.
Speaker 3: While pension and the positive offset provided in the near term by signal peak have complicated our earning story, we are laser focused as a management team to improve the earnings quality over time by replacing earnings from the signal peak and pension with high quality core TND earnings growth and the significant benefits associated with improving our balance sheet.
Speaker 3: In terms of other 2023 drivers, our expectation is for the continued strong growth from the investments we're making for our 6 million customers.
Speaker 3: and our distribution and transmission businesses.
Speaker 3: and an improvement in our cost structure driven in part by the work we accelerated into 2022.
Speaker 3: But this is certainly an area we will need to keep an eye on with respect to inflationary pressures.
Speaker 3: And ending on another positive note, we are fresh off a recent board meeting where we discuss the importance of the dividend to our investors.
Speaker 3: The board approved a new dividend policy that raises our targeted payout ratio to 60-70%.
Speaker 3: Up from 55 to 65% previously.
Speaker 3: And we also expect to resume dividend growth, subject to water approval for dividends payable late this year.
Speaker 3: Our new payout ratio is more in line with our peers and from a flex to the steps we take into improve our credit profile and our commitment to enhancing value for investors.
Speaker 3: And as I mentioned on Friday, S&P moved first energy to a positive outlook based on the announcement of the asset cell and our strategy to use those proceeds.
Speaker 3: in a credit supportive manner.
Speaker 3: Replace with this action which recognize our work to deliver on our commitments.
Speaker 3: I'm excited about our plans for this year and for the future.
Speaker 3: We've taken significant steps over the past few years in a broad range of areas to move the company forward.
Speaker 3: from the cultural changes, the improvements to our financial and credit profile, and the execution on our regulatory strategy focused on benefiting our customers.
Speaker 3: We feel like we have great momentum for the future focused on delivering value for our customers, shareholders, and all of our stakeholders.
Speaker 3: As always thank you for your time and your interest in first energy.
Speaker 3: Before we take your questions, I'm going to turn the call back over to John .
Speaker 2: Thanks, John .
Speaker 2: We'll have plenty of time for your questions, but I want to take another opportunity to say how pleased I am with first energy's progress.
Speaker 2: As you've heard this morning, this team has delivered on our goals.
Speaker 2: They have dolegially executed our plan.
Speaker 2: and they have exemplified our commitment to performance excellence.
Speaker 2: I'm proud of where we are as a company and I'm excited about our future.
Speaker 2: Now let's open the Q&A.
Speaker 4: Thank you.
Speaker 5: We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands at before pressing the star keys.
Speaker 5: Our first question comes from the line of Nick Campanella with Credit Suisse. Please proceed with your question.
Speaker 6: Hey, thanks everyone for taking my question and appreciate all the disclosures a lot in the deck here.
Speaker 6: So I guess John on the CEO timeline, can you just help us understand what the expectation is on the timeline now? Should you have someone announced before the second quarter call, can you kind of help narrow that down for us a little bit more? Thank you.
Speaker 2: Yeah, thanks, Nick. You know.
Speaker 2: consistent with what we've talked about earlier, which is not only the criteria, what we're looking for, and we talked about that as part of the prepared remarks, the timeline that we talked about, three to six months. Everything we're reviewing now is still consistent with that. I can tell you that we've had quite a bit of activity.
Speaker 2: You know, we're related to the board search process so far this year. It's been very active and that continues as we speak right now. I think a couple of positives.
Speaker 2: are that because we've continued to execute as a company, we see good progress, and that's what we indicated, that even though we are going through the CEO search process that we continue to execute on things like the FET transactions, that's been a very positive, also the board.
Speaker 2: has been very focused on getting the right individual. But saying that, we do realize that we want to address this issue. The board has a high priority right now and is very active on concluding the search.
Speaker 6: Okay, all right, thank you. And then I guess you guys have done a good job like offsetting the pension headwind with a signal peak earnings, which do seem material and just acknowledging your prepared remarks. Those are probably more cyclical type earnings. So just...
Speaker 6: As we think about the fact that you're going to extend the plan in the coming later part of this year and the fact that maybe by 25 the signal peak earnings may not be there, just what are the offsets that kind of keep you within that annual 6 to 8 percent growth trajectory that you can kind of share with us if you've identified anything?
Speaker 3: the earnings year over year of the business mainly because of the actions that we took last year to accelerate maintenance expenses and the plans that we put in place for additional cost controls this year.
Speaker 3: The interest expense benefits from improving the balance sheet at the holding company as well as continued growth in our transmission business.
Speaker 3: And those items more than I'll set the decline in signal peak and pension that was close to 30% of our earnings in 2022. And now for this year's projected to be about 15% of our earnings in 2023.
Speaker 3: So if I think about the plan going forward, I think what you'll see is above average growth from the business X pension X signal peak.
Speaker 3: from new base rates and formula program capital spend in our distribution companies, you know, the continued organic growth from our transmission business and then how we're going to deploy the proceeds.
Speaker 3: in an EPS-accretive way from the FET transaction.
Speaker 3: And so our current plan, you know, pension signal peak is going to be less of a contribution in those outer years.
Speaker 3: representing probably around 10% of the total earnings of the company. So obviously, what's going to be important for us is regulatory outcomes, cost control is going to be very important.
Speaker 3: And that along with our transmission business continuing to drive significant year-over-year earnings will drive the overall growth of the company.
Speaker 4: Thank you.
Speaker 5: Thank you. Our next question comes from a line of Andy Sturgeon's key receive for global please proceed with your question.
Speaker 5: Thank you. So just wanted to ask about the CO search. So, John , I think you mentioned that there's an expectation from the boards that the new upwind team is going to stick with the current strategy.
Speaker 7: So does that mean that we shouldn't expect any changes to your EPS?
Speaker 7: Growth target, 325.
Speaker 7: But by the new CEO .
Speaker 2: Yeah, I mean we view our
Speaker 2: strategy is very straightforward.
Speaker 2: what we're going to focus on related to investment in the business, controlling our cost, executing on that strategy, the management team very strongly supports that strategy, the board very strongly supports that strategy. So yes, we're looking for a CEO .
Speaker 2: that would be very much in line and be able to execute on that strategy.
Speaker 7: Okay, and then the other Jones. I'm just wondering if you have any expectations for the ESP and then the distribution case in Ohio, given the backdrop and the state and then ongoing.
Speaker 7: investigations related to HP 6. I mean, how do you think about the potential earnings impact impacts related to those two proceedings?
Speaker 3: Yeah, I guess from my perspective, there's a difference between the ESP and a base rate case.
Speaker 3: So the ESP is primarily focused on the procurement of generation services for those customers that don't shop.
Speaker 3: Having said that, there are some writer programs in the ESP that we will ask to continue on, such as our distribution capital recovery writer, and so those are important to us.
Speaker 3: But in the main, that's not nearly as significant as a base distribution case. I would tell you in our plan, we're not planning for anything extraordinary. We're going to file an ESP that's consistent with our peer companies in the state, and that's kind of how we plan for the future. Thank you.
Speaker 7: Okay, and lastly.
Speaker 7: I mean if I understand correctly you will start growing the dividends maybe as soon as the mid-year maybe a little bit later. So when you talk about the FSO to debt targets those already account for the fact that the dividend will start growing.
Speaker 3: Yep, that's all in our plan. Yep, Angie, that's correct.
Speaker 8: Thank you.
Speaker 5: Thank you. Our next question comes from Ryan, a Steve Fleischmann with Wolf Research. Please proceed with your question.
Speaker 9: Yeah, hi. Thank you. So just to follow up with the prior question.
Speaker 9: So when you kind of summarize the earnings outlook, is it fair to say then that the...
Speaker 9: The utility earnings and the parent should be growing better than the 68% essentially.
Speaker 9: while the
Speaker 9: Yeah, well, it's they've you finish up that yeah, now what the other part drinks is it?
Speaker 9: Yeah, and what is that just because you're on you're gonna
Speaker 9: You've got the rate-based growth and you'll be able to, I guess, improve. You see this under-learning situation improve over the next few years.
Speaker 3: Right, right. So, I mean, if you just look at the cases that we'll file next year.
Speaker 3: You know New Jersey or excuse me this year New Jersey West Virginia Maryland all of them except for Maryland have fairly Low return on equity so New Jersey 7% West Virginia 6.6%
Speaker 3: We're also filing for capital programs in the distribution business, the Gridmod program in Ohio, where we're going to file for an IIP in New Jersey. So all that will provide significant growth to the distribution business.
Speaker 3: You know about the transmission company and the robustness of that business. And then how we deploy the proceeds into the balance sheet from the FET transaction will reduce otherwise incurred interest expense. And so as we look at the business.
Speaker 3: X-pension, X-signal peak, you'll see above average growth.
Speaker 3: X signal peak, you'll see above average growth. OK.
Speaker 9: And then I guess a question for Johnson or Alder just on the CEO's surgery you're still looking for the same characteristics that you mentioned from the beginning and I guess.
Speaker 9: The other question is it takes longer, is there any?
Speaker 9: You're also reviewing strategic options separately as part of this too.
Speaker 2: Yeah, you know, the requirements, what we're looking for, Steve, are very consistent with what we've talked about. We have not changed that, as we've said, we've had good interest from individuals that have that. What I can tell you consistent with what we've said earlier is the board truly supports and believes in the plan.
Speaker 5: Thank you. Our next question comes from a line of Shahra Paraza with Guggenheim Partners. Please proceed with your question.
Speaker 10: Hi guys, good morning. It's James Warton for Shah. How are you?
Speaker 3: Hi, James, how you doing?
Speaker 10: Thank you for taking our question. We're glad to see in the slides that the 6 to 8 percent annual growth rate target continues beyond 2025. The recently announced FEP transaction obviously gives you a lot of flexibility in terms of deploying capital as you've mentioned, either towards rate-based growth or...
Speaker 10: that repayment, both of which yield recurring benefits to earnings. But specifically on the investment side, you've highlighted the step up in annual rate based growth from 6% to 7% in 24 and 25.
Speaker 10: Is 7% just the 24 and 25 expectation or like the 6 to 8% annual EPS target continuing post 2025 should we be assuming that 7% rate base growth also applies annually post 25 just kind of
Speaker 10: make sure we're thinking correctly about the drivers of earnings in that period, even though you're not officially guiding beyond 25 in terms of a capital plan at this point in time.
Speaker 3: So just high love. Yeah, James. So I think, you know.
Speaker 3: From my perspective, you know, the CAPEX plan is...
Speaker 3: increasing from $3.3 billion last year to over $4 billion by the time we get out to 2025.
Speaker 3: And quite frankly, I see that trend.
Speaker 3: you know, continuing into the back half of the decade. So post-2025 obviously will provide you much more in the way of details once we announce a longer term plan. But I do see the need for significant capital investments post-2025 to really support resiliency reliability.
Speaker 3: to support the electrification of different industries, continuation of our transmission CAPEX program. So I do see that level and more increasing through the back half of the decade.
Speaker 10: Thank you. That's very clear. Appreciate the response. That's all from me.
Speaker 5: Thank you. Our next question comes from a line of David Arcaro with Morgan Stanley . Please proceed with your question.
Speaker 11: Good morning. Thanks so much for taking my question.
Speaker 11: I was wondering if you could speak to the Pleasants plant in West Virginia, just the considerations there around potentially acquiring that plant and how it could factor into the resource planning outlook in the state.
Speaker 2: Yeah David, the Pleasant plant has, you know,
Speaker 2: some improved environmental controls compared to at least one of our facilities.
Speaker 2: and the Commission in West Virginia has asked us to look at, could it make sense to continue to operate that plant as part of the generation that we would own to support our customer load?
Speaker 2: We are consistent with what we've been asked by the commission. We are evaluating that at this time and I think we'll have some results in late March that will inform that decision. West Virginia and the...
Speaker 2: The load for the customers and the economy there are keen interests so we will work hard to see if that could make sense but I can't pre-judge at this time what the result may be. But we will comply with what we're asked to do there and do a good faith analysis to see if that could make sense and we'll be able to let you know as we conclude that.
Speaker 11: dug into for the pension in 2022, the $0.38. I was wondering if there's a or.
Speaker 11: or the 38th sense that you've pointed out said, I was wondering how much of that ends up being one time in nature and doesn't recur, you know, kind of what's in your control is to, is there any of that that you would see recurring going forward as a more sustainable source of earnings? Yeah, David, so if you think about just...
Speaker 3: the open market repurchases that we executed in the back half of last year. Signal peak is a contribution to the 38th and offset, and it's some other, what I'll call, cost initiatives and other benefits that we're driving towards, round out the difference.
Speaker 3: There is some timing or some of those benefits that aren't necessarily sustainable into the future, but we are trying to put in programs and controls in place to continue to drive out costs throughout the entire organization. So, that's kind of the way that we're thinking about it at this point in time.
Speaker 11: Okay, got it. Thanks so much. Appreciate it.
Speaker 5: Thank you. Our next question comes from line of Julian Dumolin Smith with Bank of America. Please proceed with your question. Thank you. Good morning, team. Thanks for the time and the opportunity. Appreciate it. Hey, listen, just coming back to the rate based growth question, I want to understand a little bit more.
Speaker 12: how to think about the net rate-based growth relative to the 7% growth, this growth, and how you think about that accelerating here. I know you said in your comments, you expect to revisit some of the growth later this year potentially, but just to understand what the baseline is in terms of net growth back to yourself in rate-based, and how that might accelerate here.
Speaker 12: at the Reckonsout, but it's the core six days. We're alternatively, how much of the outlook, when you think about the six days, is driven by some of the under-earning improvements that you alluded to earlier.
Speaker 3: Well, maybe I'll answer it this way. So the 7% rate base growth 24 and 25.
Speaker 3: support the earnings of the 6-day percent through that time period. We continue to look at the capital plans post-2025 and based on some work that we've done over the last year or so, we believe there's even incremental capital to that to support capital.
Speaker 3: You know, the electrification, you know, support EVs and support other reliability and resiliency type of program initiatives. So I do think you could see that annual CAPX numbers start to increase.
Speaker 3: beginning in 2026, but like I said, we'll provide all that color in that detail when we're ready.
Speaker 12: And just to clarify, when you're ready, that's the event later this year that you're alluding to? And then related to that, just the rate-based growth, that 7%, what's the delta that's not owned in terms of the FET shell down, just to clarify that as a baseline?
Speaker 3: So, yes, so when we sell off the 30%, let's say that...
Speaker 3: that the total transmission business, by that time would have $11 billion or so in rate base.
Speaker 2: Yeah, that's a different 30%. If we sell off 30% additional, plus the 19.9% represents about 30% of our total transmission. So the math works just like John indicated, but two different 30%.
Speaker 12: Yeah, but just to reconcile the allocator, you're going to provide a roll forward later this year that would include an updated capex look beyond 25 that should show an exiled and capex budget for 26 onwards. And just try to set expectations on what that update will look like later this year.
Speaker 3: I mean, you know, Julian, it's hard to tell you exactly what the outlook is going to, I mean, what we're going to provide you, I think, you know, we are going to extend the outlook and we'll provide the normal detail that we typically provide when we extend the outlook. But I would just ask that we just kind of wait to see, you know, wait until that time and then we can provide you all the detail. Thank you.
Speaker 5: All right, fair enough. Thank you guys. Good luck and speak to you soon. Thank you. Our next question comes from Lionel Sofi Carp with Heaving Capital Markets. Please proceed with your question.
Speaker 7: All of my questions have been answered, but maybe I can ask you a high-level question here. So your stated rate-based growth and your EPS growth targets are consistent with the
Speaker 7: what your peers, some of your peers also forecast in much higher grow-interior restrictions, right? And so, or higher up in Slovenia, jurisdictions where you guys operate are not really characterized by high population growth. And so, with that in mind, how do you feel about
Speaker 7: build pressure going forward considering that you will not have that tailwind of growing population and necessarily to help spread the pain, right? So how do you think about that and what supports that growth on the ground? Maybe you can comment about local economy something that maybe we are missing. Thank you
Speaker 2: Yeah, Sophie, yeah, that's a key point. The good news is in all of our states, we start out very affordable when we compare to our peer rates in those states. We're anywhere from single digit up to approaching 30% more affordable in the different states.
Speaker 2: So it does give us the ability to invest.
Speaker 2: And as everyone knows, we've under invested in some of our jurisdictions. And so there's a need to invest for reliability and other things that really benefit the customers. So as you said, even without some of the high customer use and growth rates.
Speaker 2: of some other jurisdictions because we're very affordable, because we have these needs for reliability and other, we feel like that's very manageable, starting with where we're starting from on that. And then we do see that with electrification, first of transportation, we will see as we move out later in the plan.
Speaker 2: you know, out to the five to 10 year period, we do see low growth that can help support additional investment. So that's how we view it and that's how we view that we can remain affordable and deal with our customers affordability issues, even with this more robust capital plan.
Speaker 7: Thank you. And then if I'm on signal peak, what is maybe you can read or read? What is your exit path here? Do you plan to, I can sell it or is it just going to naturally diminish in your earnings profile over time? And if you're up and into the sell it, could you just remind us what the book value of it is? Or is that the meaning of what the book value, whether its?brrheavy.org, you wouldn't stress the unmined picture of? Not always, but we know it only for Amazon.
That has been difficult, but we continue to look for those opportunities and we'll continue to do that into the future. From a balance sheet perspective, I think the investment on the balance sheet is about $60 million, so not significant given the size of our balance sheet.
I try to thank so much for that opening.
Thank you. Our next question comes from line of Anthony Crowdell with Mizzoubo Securities. Please proceed with your question.
Hey, good morning, just maybe two quick housekeeping questions. What is, I guess, following up on Sophie's question, just in 2023, what is your assumption for signal peak and pension earnings?
So it represents about 15% of the total learnings of the $2.54 midpoint.
Great. And then I think on Steve's question earlier, Steve was talking, you answered his question. I think the utility growth rates or maybe earnings will be ramping up as signal peak and pension earnings decline. Just how much of that additional capital that maybe is going into the utility?
is eligible for a rider refund for, you know, eligible for rider recovery versus rate filing.
Yeah, so I think, you know, if you look at our plan, you know, we're trying to ramp up our formula rate cap ex at about 75% overall, you know, 100% of the capital in the transmission business is formula rate. And I think we're targeting 50% by the time we get out to 25 in the distribution business. So a fairly significant amount of...
formula rate cap X in the plan. And just lastly, if I could jump on the CEO question, Ben Wagon, just over the last three or four months, the company's made some great strides in transition or transformation for the company. Just thought John on does the title move from interim to like full-time CEO ?
I wasn't expecting that question. My thoughts are we have strong interest. So my thoughts are that we're focused on concluding that and transitioning me back to the board is what my thoughts are.
Great. Thanks for all my taking my questions.
Great. Thanks for all my taking my questions. Thank you, Anthony.
Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Sommerholder for any final comments. Thank you. And thank you all for joining us today. We very much appreciate your interest and support of First Energy. Thank you.
Thank you. This concludes today's conference. You may disconnect your line at this time. Thank you for your participation.