Q3 2024 FirstEnergy Corp Earnings Call
<unk> 85 per share compared to 88, and 2023, which included state tax benefits that did not repeat this year earnings for the quarter benefited from higher distribution sales primarily for more normal weather versus 2023, the envelope mentation of new base rates and our integrated segment.
And the impact of formula rate investments across all of our businesses.
These items were primarily offset by higher storm related expenses dilution from the 30% sale of Firstenergy transmission and the absence of state tax benefits that were recognized in 2023 and our corporate segment.
Our team continues to do a great job maintaining their focus on efficient operations and financial discipline, while executing against our plan we.
We experienced headwinds in the quarter, including significant storm expenses, some of which were not deferred for recovery.
Our team responded to the headwinds demonstrating resilience and discipline to achieve third quarter earnings within our guidance range I'm proud of their work and I'm confident that we are building the right team and culture.
<unk> on our core values and priorities to ensure that we deliver sustainable value for our customers communities and shareholders.
Today, we are narrowing our.
2000, <unk>, creating earnings range to $2 61 answer sure.
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From our previous range of $2 61.
To $2 81 per share.
During 2024, we were able to offset a number of financial headwinds through cost savings and focusing on capital work.
In the quarter, we realized significant storm costs that did not meet the regulatory requirements for deferral.
This development is leading us to make the guidance adjustment.
We are reaffirming our five year Capex plan of $26 billion through 2028, as well as our 6% to 8% long term annual operating earnings growth rate, which is driven by average annual rate base growth of 9%.
We plan to provide a more comprehensive update including a 2025 to 2029 financial plan early next year.
We've put in the foundational work to support our goals now we're executing against our operational financial and regulatory plans to become a premier Electric company.
We'll continue to make meaningful investments that deliver value to our customers.
Through the third quarter, our capital investments totaled $3 1 billion, an increase of 22% compared to the first nine months of 2023.
We are increasing our 2024 investment plan from $4 3 billion.
To $4 6 billion.
With over 70% and formula rate investments.
The enhanced 2024 investment plan reflects increased reliability investments, primarily in our distribution and standalone transmission businesses.
We're also participating in Pjm's 2024 regional transmission expansion plan, which is incremental to our $26 billion energized 365 investment plan, we entered into a joint development agreement with Dominion Energy, Virginia, and American electric power to proposed several new regional transmission.
Mission projects across multiple states within the PJM footprint.
These include several new 765, 500, and 345 kv transmission lines and our collective service territories.
We believe this collaboration will facilitate joint analysis of constraints development of long range Buildable solutions and execution of those solutions in a cost effective and timely manner.
Leveraging each company's strengths ranging from expertise in constructing and operating different transmission voltage systems to the use of existing corridors and community relationships will allow for higher confidence in the execution of our proposals.
In September the joint development parties collected we submitted multiple portfolios of solutions to the competitive planning process. The.
The most comprehensive of these options totaled $3 $8 billion in investment.
Firstenergy also submitted nearly $1 billion of individual projects to PJM for needs that are outside the joint development agreement.
PJM staff is expected to select recommended projects by the end of the year with final approval expected at the PJM Board meeting in late February.
From an operation standpoint, we're seeing great results from our new business unit structure and yesterday, we made another key addition to our leadership team.
Karen Mclendon has been named senior Vice President and Chief Human Resources Officer effective November 11th.
Karen brings to Firstenergy more than three decades of human resources experience. Most recently as the Chr row at Paychex.
She will spearhead our efforts to integrate and advance our human capital strategy, ensuring alignment with our strategic vision.
She will be responsible for functions, including talent management benefits and compensation labor and employee relations as well as our commitment to building an inclusive workforce and a workplace reflective of the communities we serve.
I am pleased to welcome Karen to Firstenergy.
Our new business unit structure is driving strong performance. This summer four of our new business unit executives recruited from inside and outside the company took the helm at our New Jersey, Ohio, Pennsylvania, and Standalone transmission businesses.
John Hawkins President of our Pennsylvania business led the team to craft. The recent rate case settlement, demonstrating our commitment to building constructive regulatory relationships and driving results that support our customers.
Torrance Hinton and Doug Mcquoid, let a tremendous response to challenging summer storms in Ohio, and New Jersey.
In New Jersey, Doug, let JC P&L through 10 separate storm response events since he came on board at the beginning of the summer.
These back to back events had our crews and storm rotation for six consecutive weeks as they restored service to our customers.
In Ohio, and Historic Storm on August 6th in the Cleveland area disrupted power for more than 600000 customers.
This included five confirmed tornadoes, resulting in significant damage to the electric distribution system.
It was the most impactful storm to hit the Cleveland area since 1993.
Our response to this storm total more than $120 million and involved more than 7500 workers, including thousands of Firstenergy employees and contractors from 12 states.
This massive restoration effort with coordination and collaboration across state and local government agencies was executed at a high level and allowed us to restore power ahead of our original targets in Ohio, We received positive media coverage and community recognition for our storm response and are consistent.
Reliable communications.
Coming together to help our communities is a hallmark of our industry. We're grateful for the assistance, we receive from outside crews and we're proud to step in when were needed elsewhere.
More than a thousand of our own employees and contractors were dispatched this fall to help restore power and communities devastated by Hurricanes Helene and Milton.
The work that these men and women do is critical to our country and I thank them for their service.
Turning to regulatory matters in Pennsylvania, as I mentioned, John Hawkins led the effort to engage with parties and reach a settlement in our rate review the $225 million.
It reflects a carefully balanced compromised with key stakeholders, including public utility Commission staff, the office of consumer advocate and various industrial energy user groups and unions.
The rate adjustment builds on the service reliability enhancements, we've made in Pennsylvania in recent years. It supports upgrading additional distribution grid equipment on.
Ongoing tree trimming and improving customer service levels.
At the same time it provides additional resources to help vulnerable and low income customers manage their bills.
This month the administrative law judge recommended that the commission approved the settlement.
We anticipate approval in December with new rates, taking effect on January one of 2025.
In Ohio yesterday after careful consideration, we filed to withdraw our fifth electric security plan referred to as ESP five.
As we have discussed previously the ESP five order did not give us clarity on key conditions throughout the term of the ESP.
Specifically conditions for our distribution capital recovery rider and the vegetation management rider, where only defined through the base rate case and not the five year period of the ESP.
Although we had previously requested a rehearing on these issues a recent Ohio Supreme Court ruling limited the timeframe. The commission has to grant rehearing effectively resulting in our application for rehearing being denied by operation of law.
Withdraw which is subject to a commission order will result in the Ohio companies reverting back to ESP for until an ESP six is filed and approved.
We expect to file ESP six by early next year better aligning the review of that ESP with the review of our Ohio base rate case.
This alignment should reduce risk and provide needed.
<unk> for our customers and the company.
Turning to other regulatory matters, we anticipate an order by the end of the year and our Ohio grid Mod to case, you will recall, we filed a partial settlement agreement in April focused on deploying automated meters for all of our Ohio customers similar to our instate peers.
In New Jersey, we expect <unk> approval this week for <unk> energy efficiency and conservation plan.
Graham costs of $817 million from January 2025 to June 2027 are included in our financial plan.
As a reminder, J C P&L earn its authorized return on the included program investments.
Currently we are in settlement discussions on <unk> infrastructure investment plan energized, New Jersey, which includes significant investments over five years to provide customer benefits through system, resiliency and grit and substation modernization.
As we look to the future needs of our customers. We must address the challenges that are rapidly coming to the U S electric system.
Analysts forecast that data center and AI share of U S. Electricity consumption will triple to 390 Terawatt hours by 2030 equal to the energy use of approximately one third of U S homes.
And our own footprint load study requests for facilities of 500 megawatts or more have already more than tripled compared to 2023, while we have transmission capacity to support data center investments, we are being thoughtful about our approach to ensure that our existing customers have adequate protections.
And that we appropriately manage risks.
In PJM the July capacity auction produced record high prices that will impact monthly residential bills by 11% to 19% beginning in June of next year.
Despite the increase in prices there wasn't any new dispatch of generation that cleared the auction.
This is concerning to us on behalf of our 6 million customers as we think about service reliability and customer affordability.
These are complex demand and supply side issues that require long term thinking and strategy to appropriately support customers' energy needs. We will always advocate on behalf of our customers to ensure reliable and affordable electric service and we're committed to working collaboratively across the industry.
To address this challenge on our customers' behalf.
We are laser focused on executing against our plan, which significantly improves the customer experience through resiliency and reliability investments grid modernization investments and enhanced tools and communications.
It also supports a cleaner grid and increased load growth through operational flexibility.
Delivering these benefits to our customers and communities fuels attractive returns.
And the compelling value proposition, we offer to shareholders.
Our updated 2020 for capital investment plan of $4 $6 billion is 24% more than we invested in the full year of 2023, and 7% more than originally budgeted or prudent infrastructure investments to support the customer experience together with incremental opportunities.
<unk>, such as PJM Saar type process offer firstenergy, a long runway for growth.
With our Pennsylvania rate case settlement, we achieved another milestone demonstrating our ability to reach constructive and reasonable regulatory outcomes that support our customers, our strong affordability position and our attractive risk profile.
Our year to date results represent improved earnings quality that is driven by growth in our core regulated business. This earnings growth and strong dividend yield represent a compelling shareholder return with upside potential.
We are building the right team and culture, and we have the financial strength to deliver on this plan.
This is a new firstenergy I'm proud of the progress we've made and excited about our future.
With that I'll turn the call over to John.
John Hawkins: Thanks, Brian and good morning, Thank you for joining the call.
John Hawkins: I'll provide a few more details on our financial performance and regulatory matters addressed economic and customer trends and provide an update on our financial initiatives let's.
John Hawkins: Let's start with a review of our financial performance.
John Hawkins: Our third quarter earnings of <unk> 85, a share were at the low end of our guidance range operating earnings versus plan were mostly impacted by storm restoration expenses.
John Hawkins: As Brian mentioned, we experienced a number of storms in new Jersey, and Ohio, including a large number that did not meet the regulatory threshold for deferral.
John Hawkins: Restoration activity resulted in about $30 million of non deferred storm O&M, which represents 10% of the consolidated O&M in the quarter.
John Hawkins: Absent this unusual storm activity, we would have been closer to the midpoint of our guidance range.
John Hawkins: In fact total year to date storm restoration costs are $550 million of which about $60 million were included in O&M with the remaining amount included in our investment plan or deferred to the balance sheet.
John Hawkins: The <unk> 85 per share for Q3 compares to 88 per share in the third quarter of last year, which included a significant state tax benefit in our corporate segment.
John Hawkins: In our distribution business earnings were <unk> 39, a share in the quarter compared to 37 cents a share in 2023.
This reflects higher customer demand, mostly from the mild temperatures last year and rate base growth and formula rate investment programs, partially offset by other items, mainly the impact of the Ohio ESP five that was effective June one of this year.
John Hawkins: Operating expense reductions in this business were offset by higher storm restoration expenses.
John Hawkins: And our integrated segment consistent with what we have seen throughout the year earnings increased <unk> <unk>. This year, which is a 32% increase over last year. This reflects the implementation of new base rates in Maryland, West, Virginia, and New Jersey.
John Hawkins: Base growth in distribution and transmission formula rate investment programs and lower financing costs, partially offset by higher storm restoration expenses.
John Hawkins: And our Standalone transmission segment operating earnings were <unk> 13 cents, a share compared to 17 cents a share in the third quarter of last year.
John Hawkins: Rate base increased more than 10% year over year as a result of our transmission investment program, but this was offset by the dilution from the 30% interest sale.
Firstenergy transmission to Brookfield, which closed in March of this year when adjusted for this transaction results increased <unk> <unk> a share for the quarter.
John Hawkins: Finally in our corporate segment, we reported a third quarter loss of <unk>, a share versus earnings of $6 a share in Q3 of last year, a difference of 10 cents a share the largest drivers were the absence of a state tax benefit recognized in 2023 that resulted in a 10% consolidated effective tax rate.
John Hawkins: As well as lower planned earnings from signal peak these.
John Hawkins: These were partially offset by lower interest expense from a decrease in average total debt outstanding at the court a reduction from $6 9 billion in the third quarter of 2023 to $6 1 billion in the third quarter of 2024.
John Hawkins: Turning to our year to date results I'll remind you that in the second quarter, we took charges for the resolution.
John Hawkins: The CIC and SEC investigations those settlements were completed during the third quarter as we work to move beyond legacy House Bill six matters.
John Hawkins: Year to date operating earnings primarily reflect new base rates in our integrated business growth from formula rate investment programs and stronger customer demand compared to last year, although weather related sales are still below normal on a year to date basis.
John Hawkins: These were partially offset by higher planned operating and storm restoration expenses the impact related to the <unk> transaction and lower planned signal peak earnings among other drivers.
Speaker Change: And as Brian mentioned, we narrowed our guidance for the year from $2, 61% to 281, a share to $2 61 to $2 71 per share, reflecting a midpoint of $2 66 per share versus our original midpoint of $2 71 a share.
Speaker Change: This reflects a series of unique items in the year and Q3 that impacted our guidance.
Speaker Change: Residential demand is down 2% year to date versus plan, reflecting the impact of mild weather from this winter, although we did see some of that turnaround in Q2 the.
Speaker Change: The impact of the Ohio, ESP, five which reduced <unk> revenue relative to our guidance by $50 million annually beginning beginning June one of this year.
Speaker Change: And although we have captured O&M reductions to address these challenges the increased storm restoration O&M expenses in Q3 required us to adjust the midpoint of our guidance.
Speaker Change: More detail on our third quarter and year to date results can be found in the strategic and financial highlights document we posted to our IR website yesterday afternoon.
Speaker Change: Turning to regulatory matters as Brian mentioned in Pennsylvania, We filed a settlement on the base rate case, and the ALJ recommended the Pennsylvania Commission approved the settlement we.
Speaker Change: We view this settlement as constructive and supportive of our investment strategy there.
The agreement, which includes the increase in net revenues of $225 million.
Speaker Change: Supports investments to strengthen the grid and service reliability, while enhancing assistance programs and the customer experience.
Speaker Change: It also provides for an enhanced vegetation management program to improve reliability metrics.
Speaker Change: The settlement was based on a 2025 projected rate base of $7 billion and related cost of service.
Speaker Change: The difference between our original request of approximately $500 million.
Speaker Change: And the $225 million and the settlement, mostly relates to proposed future expenses, such as accelerated storm cost recovery and higher depreciation expenses, which will now not be incurred.
Speaker Change: The revenue.
Speaker Change: The adjustment represents a four 7% rate increase for residential customers.
Speaker Change: In our residential rates remained 2% below the average of our instate peers.
Speaker Change: To stabilize electric bills. The settlement includes a stay out provision for new rates until January one 2027, which is consistent with our plan.
Speaker Change: This settlement once approved would result in for constructive outcomes and base rate cases over a 14 month period.
Speaker Change: These cases provide annual revenue adjustments of nearly $450 million.
Speaker Change: Allowing our regulated utilities to increase investments to better serve our customers.
Speaker Change: And Ohio, Brian mentioned that the decision to withdraw our Ohio ESP five.
Speaker Change: The objective is to avoid the uncertainty and ESP five with respect to certain conditions.
Speaker Change: Work to get clarity on key rider provisions and ensure that rider programs are addressed in the appropriate form of an ESP.
Speaker Change: The Ohio political charitable spending audit was also completed in the quarter with no New House Bill six related findings.
Speaker Change: Audit report concluded that approximately $15000 was charged to pole attachment customers.
Speaker Change: And the report acknowledges that we already agreed to refund this amount with interest. Additionally.
Speaker Change: Additionally, hearings were held in the corporate separation audit earlier this month.
Speaker Change: In New Jersey, as Brian mentioned, we expect a final order this week and our energy efficiency and Conservation program for January 2025 through June 2027 that addresses energy efficiency peak demand reduction and building de carbonization.
Speaker Change: The $817 million total program includes $784 million of investments that will earn a return on equity of nine 6% and an equity ratio of 52% and be recovered over 10 years looking at economic and load activity in our region economic trends remain positive, including GDP grow.
In all five states and an unemployment rate in line with the U S average.
Speaker Change: Customer demand remains positive overall, we're seeing weather adjusted load growth of about 1% over the last 12 months while.
Speaker Change: While residential and commercial load are essentially flat industrial demand increased approximately 3% led by the chemical and automotive sectors with growth of 7% and 4% respectively.
Speaker Change: Turning to our liquidity position and financing plan on October 24th we enhanced the company's overall liquidity position by increasing J J C. P&L credit facility by $250 million to accommodate its increasing investment programs in.
Speaker Change: And extended the maturity date on all eight liquidity facilities by one year.
Speaker Change: Moving forward Firstenergy and its subsidiaries have $5 9 billion of committed liquidity to support growth.
Speaker Change: As of October 28th Firstenergy has total liquidity, including cash on hand was approximately $6 billion.
Speaker Change: So far in 2024, we've completed four long term debt transactions at our regulated operating companies totaling $1 $4 billion at.
Speaker Change: At a weighted average coupon of five 1%.
Speaker Change: In early September as part of our strategic financing plan.
Launched in $800 million debt transaction in a private offering with SEC registration rights.
Speaker Change: We priced the senior unsecured notes in two tranches at a weighted average coupon of 478%.
Speaker Change: This transaction, which will be used to redeem $600 million of FEP.
Speaker Change: Notes resulted in greater transparency and broadening the investor audience.
Speaker Change: With the deal being 10 times oversubscribed.
Speaker Change: JC P&L is considering a similar structure transaction.
Speaker Change: And finally earlier this month, recognizing our progress on legacy issues, our improved credit profile and constructive regulatory outcomes Fitch upgraded Effie corp's issuer and unsecured credit ratings to triple B flat from Triple B minus and several subsidiaries received a one notch upgrade.
Speaker Change: Effie Corp, and certain subsidiaries remain on positive outlook with S&P.
Speaker Change: 2024 has been an exciting year marked by several important milestones in our transformation. We believe we are in a very good position with the financial strength and opportunity to build on our momentum and become a premier electric company that delivers value to our customers communities and investors.
Speaker Change: With that let's open the call to Q&A.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Any price start to remove yourself from the queue for participants using speaker equipment, it may be necessary to pick up the handset before Christian Turkey.
Speaker Change: And one more in Cleveland the call for questions.
Speaker Change: Our first question comes from the line of Shar <unk> with Guggenheim partners.
Speaker Change: Proceed with your question.
Speaker Change: Hey, guys good morning.
Speaker Change: Sure.
Speaker Change: Brian last week, you guys filed in the PJM load committee, indicating kind of load increases of four gigs and at seen three gigs and Aps zones. Those slides that you guys submitted indicated some customers over 700 megawatts with one being one two gigs in Ohio, and some similar trends in Pennsylvania with one customer.
Speaker Change: Or being a gigawatt I guess, how real of these projects is the spending commensal.
Speaker Change: Any of these kind of correlate with co located deals with certain nuclear assets in the area I guess some color there would be great. Thanks.
Thanks for the question. So we are definitely seeing an increase in these large load requests for conceptual and.
Speaker Change: Specific design.
Speaker Change: Load studies.
Speaker Change: Yeah.
Speaker Change: In 2024, we've had over 60 requests for either conceptual or detailed load studies of 500 megawatts or more.
Speaker Change: And so we think it's real these people are talking to us about specific location specific investment plans.
Speaker Change: As you know we have a number of places where we previously had our own power plants and where there are other industrial centers places like aluminum smelters that have shut down where we have transmission capacity to serve large customers at this scale. So we think our we have the.
Capacity people are looking to us there's land available and we believe it's real from the discussions that we're having with these folks. Some of these things are public you have seen in places like.
Speaker Change: The pan handle of Maryland.
Speaker Change: <unk> heard about things like quantum.
Speaker Change: Quantum loophole, there, which is a very very large load and it's meant to be expansive capacity relative to the northern Virginia data load center campuses and we're seeing other interest in what they call. The Panhandle of West, Virginia, which is just across the border from Maryland, There and then along the Lake and the Ohio River.
Speaker Change: <unk> Valley so.
Speaker Change: It's real it's coming.
Speaker Change: The conversations we're having with people are detailed about when and where they are going to be investing on our system and we look forward to.
Speaker Change: To serving those customers as they come online.
Speaker Change: Can you confirm Brian ex any of the ones that are over a gigawatt because just mentioned customer one customer two are they are they data centers.
Speaker Change: I would say, yes they are.
Speaker Change: Okay Perfect and then just lastly on ESP five withdrawal can you maybe just dig into kind of the financial impacts from reverting back to ESP for and does vetting through.
Speaker Change: <unk> six <unk> and <unk> kind of complicate things just given the number of unrelated moving pieces in the current <unk> filing like goodwill treatment. I mean, this is kind of the first time in a while the <unk> is looking at all of the riders. It has a lot to juggle. So maybe just some sense there. Thanks.
Speaker Change: Yes.
Speaker Change: Thanks for the questions here are the financial implications of the withdraw of the ESP five are not significant it's really more of a risk play.
Speaker Change: The idea that certain of the riders.
Speaker Change: Didn't better covered should be covered in ESP five were punted to the general rate case. So we didn't know what their treatment would be beyond that and this really allows us the opportunity to time the alignment of ESP six now with when the general rate case will come out.
Speaker Change: We've talked to our people and rates about this and said does it complicate things in the general rate case and the answer we got was this actually simplifies the general rate case and puts the riders were they appropriately belong in ESP six.
Speaker Change: This is not this is something we're hoping to avoid on rehearing and then an order out of the Ohio Supreme Court really withdrew the opportunity to address these and rehearing and that really tipped our hand, but it's much more of a risk reduction play rather than a financial play around.
Speaker Change: ASP for versus ESP, five or six.
Speaker Change: Okay. That's perfect. That's super helpful. I'll see you guys in about a week. Thanks.
Speaker Change: Thanks sure.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Nick Campanella with Barclays. Please proceed with your question.
Nick Campanella: Hey, good morning, Thanks for taking my question.
Speaker Change: Good morning.
Speaker Change: Morning, just a quick follow up on <unk> question, just to tie that one off just the large loan requests how much capacity is on your transmission system today to facilitate those requests.
Speaker Change: And then separately, but still.
Speaker Change: One related just with these large loads potentially things still targeting for behind the meter.
Speaker Change: And you've kind of flagging the higher bills in PJM, how should we kind of think about like an 11% to 19% increase.
Speaker Change: Against like a 6% distribution rate base growth outlook can you still kind of execute on that against that bill outlook. Thank you.
Speaker Change: Thank you for the.
Speaker Change: Question that.
Speaker Change: First on the capacity that we have we think we have several thousand megawatts of.
Speaker Change: Transmission capacity to be able to serve data center and other loads and like I said earlier, it's mostly associated with transmission capacity that was used for either power plants that are no longer operating or large industrial customers that have moved on to other places. So we think we have a significant amount of unused.
Speaker Change: <unk> capacity, that's available to be consumed by.
Speaker Change: <unk> datacenter or other large loads.
Speaker Change: And I just want to remind people that that's actually good for existing customers right. We're.
Speaker Change: We're taking that existing capacity and spreading it over more units for more customers and thats a positive for existing customers.
Speaker Change: They are consuming unused capacity in terms of the rate impacts of capacity auctions and the like.
Speaker Change: Those capacity auctions take up headroom and.
Speaker Change: And cost our customers real dollars and the thing that we're concerned about there is that.
Speaker Change: Are they actually getting increased capacity and enhance reliability for the dollars that they're spending in 2025 and 26.
Speaker Change: People talk about sending price signals.
Speaker Change: We're not sure that.
Speaker Change: These price signals are in the near term or long term going to result in incremental net new capacity and so we're concerned about that we're talking to.
Speaker Change: <unk> slater's regulators customers about solutions that would actually add net new capacity at reasonable costs and are looking to be.
Positively engaged in discussions to bring that about.
We don't think.
Today that the.
Speaker Change: Costs that are being passed on are going to impair our ability to get regulatory recovery for the investments that we're making.
Speaker Change: I think that we as well as others need to be prudent with every dollar that we're asking our customers to spend on for electric service.
Speaker Change: Yes that makes that makes a lot of sense and I appreciate your comments there.
Speaker Change: Quick question just.
Speaker Change: Good to see the Pennsylvania settlement filed in November.
Speaker Change: September and I know, we'll have that order in December but you are showing like a two 5% earned ROE in Pennsylvania and every seven.
Speaker Change: For 100 bps improvement.
Speaker Change: And ROE does seem like it would be material just could you get back to <unk>.
Speaker Change: <unk> return here in 'twenty five.
Speaker Change: Is that the way to kind of think about this or are you still going to be lagging.
Speaker Change: Hey, Nick this is John so that two 5% was based on the filing that we made in the application. So requesting the $500 million net revenue adjustment. So that included a lot of proposed expenses.
Speaker Change: To support that rate increase.
Speaker Change: Now that we have the the settlement in place we'll be at a much more normalized level in terms of the return there.
Nick Campanella: Okay. Thanks for that clarification and have a good day.
John Hawkins: Thanks, Nick.
Nick Campanella: Thank you.
Speaker Change: Our next question comes from the line of David Arcaro with Morgan Stanley. Please proceed with your question.
David Arcaro: Oh, Hey, thanks, good morning.
David Arcaro: David.
David Arcaro: I'm wondering if you might be able to elaborate on some of those options that you mentioned youre discussing in terms of getting more generation built in PJM.
Speaker Change: Yes, so I think that there are some solutions that could be outside of <unk>.
Speaker Change: A a PJM capacity auction construct that might bring certainty of net new capacity coming on board.
Speaker Change: Relative to the sending of price signals that we hope will result in incremental capacity coming on and I think there are market construct or their contracts that we've seen out there that have work things like <unk> <unk>, where you have state agencies that run auctions to bring in certain types.
Speaker Change: <unk> of capacity I could see that being effective in places like Ohio, Pennsylvania.
Speaker Change: Maryland, and others, where a state agency.
Speaker Change: Ask all comers to bid on net new capacity in a given year of a certain type I'd say dispatch a bowl.
Speaker Change: Generation in a year like 2000 32031 of a.
Speaker Change: Combined cycle nature, and allow everyone to bid on delivering that.
Speaker Change: Ipp's could.
Speaker Change: Investment companies could utility companies could.
Speaker Change: And you'd be certain through a contract and certain design milestones that you would know that that net new capacity was going to be delivered in that state and I think it's just solutions like that rather than sending price signals you hope will be effective actually have real auction.
Speaker Change: <unk> with real Counterparties with real milestones, so you'll know that that capacity will be there when the state needs. It.
Speaker Change: Got it got it that's helpful. And then I guess as you look at it all of this Oh these load requests out over the next several years just wondering what your.
Speaker Change: Rights are in terms of looking at your own load forecast.
Speaker Change: When might you reassess and give a new longer term outlook in terms of what youre expecting for load growth.
Speaker Change: Yeah, Dave So I think the current plan right now is to provide that update early next year likely on the fourth quarter call as we update the longer term plan.
Speaker Change: So I think the plan is to give.
Speaker Change: 2025 guidance as well as the 2025 to 2000, 2009, Capex and long term growth rate plan.
Sometime yes.
Speaker Change: In the fourth quarter call.
Speaker Change: Okay, great. Thanks.
Speaker Change: Thanks, so much.
Speaker Change: Thanks, Dave.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question.
Speaker Change: Okay.
Steve Fleishman: Yes, excuse me good morning. Thanks.
Speaker Change: Good morning, Steve.
Steve Fleishman: So I know there's been some challenges this year, but just I just wanted to clarify you reaffirm the 6% to 8% growth.
Off basically last year's midpoint.
Steve Fleishman: Is that right.
Speaker Change: The way to think about it the $2 71 was based off last year's midpoint of $2 50 for our growth going forward is going to be based off the $2 71.
Speaker Change: Okay, so youre not going to.
Speaker Change: Right Youre not going to go down to the lower half.
Speaker Change: Correct for <unk>.
Speaker Change: Okay.
Speaker Change: Good and then just for 25, specifically just as you.
On the one hand, you have to manage this period with the.
Speaker Change: Going back to the prior ESP.
Speaker Change: But you do get the TCR back, but then the other hand, you get Pennsylvania rate relief.
Speaker Change: So is 20.
Speaker Change: 25.
Speaker Change: Okay to be within that 6% to 8% growth rate.
Speaker Change: Oh, yes, absolutely I mean, if you think about the Pennsylvania rate case, you think about our Capex plan.
Speaker Change: In terms of the amount that's formula rate driven.
Plus the financial discipline that we need to create in the organization, we feel really good about our plan for next year.
Speaker Change: Okay.
Speaker Change: Good and then maybe Brian back to the prior question about generation solutions.
Speaker Change: The idea you mentioned of like State agency or the like in the key in your key states with those require.
Speaker Change: Our legislation or would they be feasible without a bill.
Speaker Change: I think solutions like what I described where you'd have a state agency would definitely require.
Speaker Change: Legislative action.
Speaker Change: Things like utility builds in and of themselves would not necessarily include.
Speaker Change: Legislation changes in West, Virginia, Maryland, and <unk>.
Speaker Change: Ohio, but would require legislative changes in Pennsylvania, and New Jersey.
Speaker Change: We are not interested in building.
Speaker Change: <unk> generation.
Speaker Change: If a state would like us to when we would come to agreement, we would consider adding long term regulated generation if that was in the state's interest to do that.
Speaker Change: I think we'd get a lot of opposition from places like <unk> and others, if they would like to commit to build in something that looked like a state auction I think that would be a way to have all comers.
Speaker Change: Bring their solutions to the problems that the states are facing.
Speaker Change: It might be less likely to have strong opposition from others in the IPP camp.
Speaker Change: Got it thank you.
Steve Fleishman: Thank you Steve.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Michael Millman again with Evercore ISI. Please proceed with your question.
Michael Millman: Hi, Thanks for taking my questions.
Michael Millman: So you have no equity in your financing plan beyond the employee benefit program.
Speaker Change: Youre highlighting a lot of incremental investment opportunity how should we think about financing that additional spending what portion you see that needed to be.
Speaker Change: And with new equity.
Speaker Change: Yes, so Michael I mean, we talked about before we have some cushion in the metrics.
Speaker Change: That would equate to about 5% of additional capex to the $26 billion and if you look at some of the.
Transmission opportunities that we're pursuing depending on the.
Speaker Change: The different types of solutions some of that might even fall outside of our current planning window and would be in 2019 and beyond and a lot of that quite frankly is going to be at the <unk> business, which would be obviously, a 50% ownership with Brookfield. So based on everything we know right now.
Speaker Change: We're comfortable with our current plan.
Speaker Change: Great. Thanks, and then secondly can you just talked about some cushion in your matrix.
Speaker Change: You, obviously increased your 2024 capital program and had higher storm costs during the quarter, where do you expect to end this year on <unk> versus the targeted 14 of 15%.
Yes. So this year, we will probably be just under 13%.
Speaker Change: And a lot of that was impacted by the SEC and OS EIC payment as well as that unusual storm event, we saw in Cleveland back in August.
Speaker Change: Those two events alone were about $200 million of <unk>. So if you were to strip that out and normalize that I think we'd be closer to 14%.
Speaker Change: Thanks for taking my questions.
Speaker Change: Thank you Michael.
IRA: Thank you IRA.
Speaker Change: Our next question comes from the line of Anthony Corrado with Mizuho Securities. Please proceed with your question.
Anthony Corrado: Hey, good morning, if I could follow up on the storm question.
Speaker Change: I think you said.
Anthony Corrado: Some of the cost didn't meet.
Anthony Corrado: Regulatory threshold for recovery or I guess, maybe the recapitalization does that change how you to respond to storms going forward or anything utility could do to maybe get a rider or something that prevents that from happening again.
Speaker Change: Would never change how we respond to storms Anthony we are.
Speaker Change: Going to work with dispatch and with all haste to.
Speaker Change: To return our customers, who are not out of service due to storm activity.
Speaker Change: Restoring customers to service safely and as quickly as possible will always be a key priority for us we will always at the same time.
Speaker Change: With regulators and others to make sure that we get timely recovery for what we spend on storms I don't think.
Speaker Change: People would like us to even consider we won't.
Speaker Change: How much it cost to get people back as quickly as we can but we should also have some comfort and certainty that we will get timely recovery for what we prudently incur restoring people to service so.
I think theres a balance there I think regulators want us to spend what we need to to prudently get people back to service not wasting any dollars at all but to be thoughtful about the dollars we spend them to have a comfort that we'll get recovery for everything we prudently prudently spend it's been a remarkable year for storms and it's not just.
Speaker Change: So I think you're seeing it with other utilities across the country.
Speaker Change: And I see things like mutual assistance and how they actually happened. It was fascinating. The August six storm that we had in the Cleveland area right. It was such a localized event that it basically hit only.
Speaker Change: US in the Cleveland area, and Cleveland public power and our neighbors right My friends at AEP, our friends at <unk> P. P&L and others, who are neighboring US offered resources immediately and they were on the ground. The next day, helping us get people restored.
It was a privilege for US then to be able to return those favors during the hurricane events.
Speaker Change: We had and our people were.
Speaker Change: Interested to go willing to go happy to go help in those circumstances that our employees tell me, where absolute dire circumstances for the communities that they helped restore to service so.
Speaker Change: We're going to spend what we need to prudently to get people back and we think it's fair that we have comfort and certainty that we'll get recovery for what we do spend returning people.
Speaker Change: Great and lastly, when you unveiled a 6% to 8% growth rate and capital plan.
You had said some of it up.
Speaker Change: Today, I think our capital plan is roughly seven 7% higher than you. Originally thought does that change where you think you would land in the 6% to 8% EPS growth rate should we think of now you are trending more towards the higher end as you've increased your capex by 7%.
Speaker Change: So Anthony that increase of Capex for 7% was 2024 over originally budgeted.
The plan that we laid out previously that 26 billion.
Speaker Change: Five year Capex plan really gives us about 9% of rate base growth on average over that period, and that's what drives the 6% to 8% growth. So we're still within that range, it's still being driven by our investment in our regulated properties.
Speaker Change: And timely regulatory recovery of that and remember a significant percentage about 70% of the investments that we make are covered by trackers and riders.
Speaker Change: Great if I could just squeak one in I guess the Steves question. David's question, you talked about solutions and options Amy to add generation a reasonable cost you mentioned from state agencies here in New York I'm. Just curious what do you think the timing is on a solution like how long do you think.
Customer bills are impacted by the capacity charges before like the state or.
The government will act to mitigate it.
Yes, so thats the concern Anthony is the disconnect between the timing of adding significant amounts of load whether it be data center or other load that you can really add to the system in about two to three years and the construct to permit construct and procure for a power plant.
Speaker Change: Probably takes in the order of about six years.
So are our customers going to pay higher capacity auction prints for the next six years before any net new capacity shows up from the price signals that are being sent to this.
Speaker Change: Market.
Speaker Change: It's a concern.
Speaker Change: And I think states would do better to take these matters into their own hands the way traditional ERP states do.
Speaker Change: Like West Virginia and.
Speaker Change: And be sure that the capacity is there when the state needs it rather than hoping price signals have the intended effect six years from now.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you Anthony.
Anthony Corrado: Thank you.
Our next question comes from the line of Angie stores.
Speaker Change: Seaport Global Please proceed with your question.
Thank you. So just wanted to follow up on those last comments about 50 to 60 year right. I mean, that's how long it would take to build a new plant power plant anyway right.
Speaker Change: So how different would it be.
Versus seven intervention in that competitive market.
Speaker Change: So I don't recall you guys have at making the applegate comment when capacity prices are clearing at 30 Bucks I don't remember you guys mentioning that you're concerned about.
Speaker Change: How do you smell capacity prices will impact the availability of dispatch of coal power plants and in PJM.
Speaker Change: But to your last comment I'm not sure there was a question but.
Speaker Change: To your first part of your comments.
Speaker Change: It does take about six years to permit and build a power plant from the time that you can see we're doing that the difference for.
Speaker Change: And actual auction.
Speaker Change: Where you are contracting with someone to do that is you can monitor their permitting procurement and construction during those six years versus the PJM capacity construct where you're hoping that people respond in a way you would like them to today to have a rig.
Speaker Change: <unk>.
Speaker Change: Six years from now so it's a difference between contracting monitoring and verification versus hope and those are two different things.
Speaker Change: Entirely.
Speaker Change: That one is a regulated set up but the other one is a competitive market.
Speaker Change: That's right.
Speaker Change: It works now.
Speaker Change: No that's not that's not right what I'm talking about is a a construct that is a market where you do have an auction where state would have an auction say all comers ipp's utilities.
Speaker Change: Investment companies insurance companies can common offer to build what would you charge me to do it what would your price B and then we would have and you'd have a winner from that auction. So it would be a market.
Speaker Change: <unk>.
Speaker Change: And you would go from there.
Speaker Change: Yeah.
Speaker Change: So both of our markets is what I'm, saying and both our market solutions.
Speaker Change: Hey.
Speaker Change: I understand and then secondly.
Speaker Change: Are you talking about the excess transmission capacity in Ohio.
Speaker Change: But when I actually look at the power flows in PJM in Ohio.
Speaker Change: Of power.
Speaker Change: <unk>, Pennsylvania, especially I think your area, so and now Pennsylvania once the clarity built up demand for electricity and it stays that way.
Speaker Change: Sydney in Illinois flows of power into Ohio. So.
Speaker Change: So is that you know.
So AD load in in Ohio, given the fact that the state already airlines unemployed with pilot.
Speaker Change: Yes, so when I talk about capacity I am talking about transmission capacity. So we have the wires capacity to be able to serve load we are in a reasonable read.
Speaker Change: Regional power pool, where there are power flows from states, who are long the states who are short and Thats currently handled generally through the PJM.
Speaker Change: Power markets, what's needed because of this situation.
Speaker Change: The situation that we find ourselves in with resource adequacy, we do need as a region and then as you divide that out in the states.
Speaker Change: We need net new dispatcher bowl capacity to be added and whatever construct enables us surety around that happening at a reasonable cost to our customers.
Speaker Change: We're in supportive.
Speaker Change: Okay, and then changing topics about the theater withdrawal of ESG side.
Speaker Change: Yeah. So.
Speaker Change: So now I mean, I understand that there was not optimal.
Speaker Change: Now, let's look at the entire 2025, we will be waiting for us to have visibility into the earnings power.
Speaker Change: I'll go to your earnings power in Ohio.
I mean.
Speaker Change: I don't quite understand how that helps to add visibility I mean, it almost suggests we have now two proceedings. So isn't this doubling down on the I guess the risk associated with Ohio.
No Andrew really the opposite.
Speaker Change: We're going back to the certainty and transparency that we had in ESP for.
Speaker Change: That we knew.
Speaker Change: What our earnings power was there we knew the timing of it and this actually better aligns. The result of an ESP six that we're going to file with the.
With the Ohio base rate case, so rather than creating uncertainty it actually will bring more certainty and actually reduce risk.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Right.
Speaker Change: Thank you.
Speaker Change: And we do have an analyst asking a question. Please limit themselves to one question and one follow up.
Speaker Change: In the interest of time thanks.
Speaker Change: Our next question comes from the line Oh I'm sorry.
Speaker Change: Associates.
Speaker Change: Proceed with your question.
Speaker Change: Hey, good morning.
Speaker Change: Good morning, Paul.
Speaker Change: So just back to the.
Speaker Change: To the capacity alternatives that's what.
Speaker Change: You're mentioning I think.
Steve's question, you mentioned the ability of doing perhaps something in rate base. If I heard you correctly in West, Virginia, Maryland, and Ohio was that correct.
Speaker Change: So.
Speaker Change: In West Virginia, certainly.
And in Ohio, and Maryland, there are <unk>.
Speaker Change: Provisions in current law that would allow a regulated utility to build.
Speaker Change: Generating capacity and get recovery for it.
Speaker Change: So.
Speaker Change: I heard everything you've said a lot of it makes a lot of sense, obviously, considering what's going on with the capacity markets, but when I when I think about this.
Speaker Change: Just you guys building.
Speaker Change: Modest levels of capacity, we can have a dramatic impact on the <unk>.
On the capacity market so to speak given.
Speaker Change: The vertical demand curve and what have you that's what P. Three and others have said and I'm just wondering it would seem to me that when it just be.
Speaker Change: A modest or a.
Speaker Change: We usable calls to customers, who would actually maybe perhaps lower cost to customers.
If you were to take into account the wholesale market impact.
Speaker Change: So I guess, what I'm wondering is is.
Speaker Change: That seems like something you've given what Maryland, and and Ohio, and Pennsylvania, and New Jersey. All these this concern that's already been voiced about the capacity market.
Speaker Change: What's your sense about the appetite or for simply just going forward with that as opposed to <unk>.
Speaker Change: Rather more arcane I don't know how to put it to the stakeholder process the FERC process of.
Speaker Change: Of going through the PJM capacity market, a stakeholder process. If you follow what I'm, saying do you do something more almost more of a lot more efficient maybe just to go that way.
Speaker Change: I do Paul.
Speaker Change: So this company just spent a lot of time and balance sheet capacity getting out of the generation business and moving into a deregulated wires only stance.
Speaker Change:
Speaker Change: We're going to be very thoughtful about.
Speaker Change: Returning to investments in generation in states, where we just got out of it at many of their Oh.
Speaker Change: Being responsive to many of their energy policies that got us here.
Speaker Change: We're going to be thoughtful and try and come up with solutions that don't add undue capacity to undue risk to the company, but help solve the solution. So we're open to a number of solutions and when we're not open to us is going into the competitive generation business.
Speaker Change: The virtual business, Okay fair enough I guess I'll stay tuned I guess right yes.
Speaker Change: Yes.
Speaker Change: Okay. So then just finally, just a follow up.
Speaker Change: The approval process for withdrawing this ESP five and what have you. It sounds like you would need something from Farooq I'm sorry from Hugo on this.
Speaker Change: But it seems like is that a do you see that as being it doesn't look that controversial to me from the outside but could it be missing something.
Speaker Change: It.
Speaker Change: Should not be controversial Paul it's something that we've seen it happen before with other instate peers and in getting that approval took about a month from.
Speaker Change: From the time that they ask for it. So you just going back to a construct that everyone was comfortable with previously and obviously, we can't put our own rates into effect. So we need to go through the regulatory process, but it should be a brief process and it should not be controversial.
Speaker Change: Awesome. Thanks, so much.
Speaker Change: Thanks, Paul.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Sophie Karp with Keybanc capital markets. Please proceed with your question.
Speaker Change: Hi, Thank you for a person named here Dan.
I wanted to ask a quick follow up on the well on the discussion about the potential changes in the market construct right that you're talking about.
Speaker Change: Given that there are several states that you mentioned right with this power flows between them.
Speaker Change: New Jersey, Pennsylvania, Ohio.
Speaker Change: Would those states have to act.
Speaker Change: Simultaneously.
Speaker Change: In this.
Speaker Change: New design of the market.
Speaker Change: To avoid one stayed cross subsidize and secondly, another where they're at there's money from that stake how would that work. Thank you.
Speaker Change: Thank you for your questions.
Speaker Change: I don't think so.
Speaker Change: According to the Federal Power Act each state is responsible for.
Speaker Change: Making sure that it has the amount of generation that's needed to serve its state's needs.
States like West, Virginia, do that through a traditional ERP process and other states do that through <unk>.
Speaker Change: P J M.
Solution using the capacity construct that PJM has so having signed onto that construct.
Speaker Change: That's what many of the states are using if they think that's working for them and their customers. They can stick with that if they'd like to take matters.
Speaker Change: Into their own hands more directly they can avail themselves of some of the alternative solutions that we suggested but no. They could act on their own and in many states have done that already even in in PJM.
Speaker Change: Got it got it and just to clarify you're saying that even though.
Speaker Change: Deregulated markets.
Speaker Change: <unk> is allowed to own generation in the states in the current the legal framework.
Speaker Change: Yes.
Alright and again.
Speaker Change: Those are issues that are driven by state law.
Speaker Change: And then in our states state of West Virginia.
Speaker Change: Ohio and Maryland.
Speaker Change: The states do allow for utility owned generation.
Speaker Change: Alright, thank you so much.
Speaker Change: Thank you for your question.
Speaker Change: Thank you.
Speaker Change #100: Our next question comes from the line of Andrew Weisel with Scotiabank. Please proceed with your question.
Andrew Weisel: Hi, Thanks, everyone. Good morning, I'll be brief here just quickly on the Capex increase for 2024, specifically drove the increase what kind of spending was it and was it a pull forward 2025 or where these incremental opportunities that you didn't anticipate six or 12 months ago.
Speaker Change #102: Yes, so some of the increase Andrew was storm related so in our distribution business.
Speaker Change #102: Specifically in Ohio had they had a big storm in August.
Speaker Change #102: So some of it was storm Capex related there was some <unk> work in Pennsylvania that we needed to fund.
Speaker Change #102: As well in our distribution segment and then the rest of it was what I would consider transmission opportunities incremental opportunities for this year.
Speaker Change #103: So the $26 billion is still intact I mean.
Speaker Change #102: But but.
Speaker Change #102: I don't think its going to take us off track in terms of the Capex that we planned for next year.
Speaker Change #104: Okay, Great and then just a quick follow up you mentioned, John that Youre going to do a refresh and roll forward on the fourth quarter call. Early next year do you have a sense in terms of timing around the PJM transmission opportunities will you have a sense about potential wins, there or would you make assumptions around that.
John Hawkins: We'll have a pretty good sense by that time I think there are several advisory committee meetings between now and then with the final PJM Board approval expected in the February timeframe. So we will have a good sense of that and.
John Hawkins: If we don't have final approval will kind of let you know where we stand and what we have in the plan and what maybe is to come depending on the outcome of that.
Speaker Change #105: Very good thank you.
Andrew Weisel: Thank you Andrew.
Speaker Change #106: Thank you. Our next question comes from Ohio, Paul Fremont with Ladenburg Thalmann. Please proceed with your question.
Paul Fremont: Thank you very much.
Paul Fremont: I was going to ask if you could walk us through the procedural path to withdraw ESP five at the peer at the PUC, how does well will it involved testimony and hearings.
Paul Fremont: What what's involved in in terms of getting PUC approval.
Speaker Change #108: Yes, so Paul that we have precedent, where there was a case in 2019. The application was filed there were comments filed amongst different intervening parties there were no hearings.
Speaker Change #108: In that particular case and then there was a commission order on the application to withdraw within a month, so thats kind of the timeline that we're working on so my sense is there would be comments filed.
Speaker Change #108: On the withdrawal application. The commission then wed consider those comments and then rule on the withdrawal sometime within 30 days based on that precedent.
Speaker Change #109: And the precedent that you were talking about was.
Speaker Change #109: Was the application to withdraw.
Speaker Change #109: Contested.
Speaker Change #110: By intervenor parties or was it a widely accepted by intervening parties I'm sure. It was mixed.
Speaker Change #111: There's probably some that objected to the withdrawal there was probably some that supported the withdrawal but.
Speaker Change #111: I'm sure just like any regulatory proceeding there was.
Speaker Change #111: Some that objective someday supported.
Speaker Change #111: The ability to withdraw his quote codified in Ohio legislation. So it's it's there it's a real thing it's been tested before and actually.
Speaker Change #111: Administered and executed by utility previously.
Speaker Change #111: Proved by the commission. So there is there is precedent for doing exactly what it is we're asking them to do.
Speaker Change #112: Great and last question, what what type of proceeding was it that Oh.
Speaker Change #113: That you were referring to in 2019.
Speaker Change #113: Because it was C R.
Speaker Change #113: You can put up it was Dayton power and light and their ESP and their current ESP and you can pull up the docket I'm sure on the utility Commission website.
Speaker Change #114: Perfect. Thank you so much.
Paul Fremont: Thank you Paul.
Paul Fremont: Thank you.
Speaker Change #115: We have reached the end of our question and answer session and ladies and gentlemen. This does conclude today's teleconference. You.
Speaker Change #115: You may disconnect your lines at this time and have a wonderful day.
We thank you for your participation.
Speaker Change #115: [music].