FirstEnergy Corp. (NYSE:FE) announced a solid start to the year with its first quarter 2024 earnings call, reporting operating earnings of $0.55 per share, which surpassed the midpoint of their guidance.
Despite a dip in GAAP earnings from $0.51 to $0.44 per share compared to the same quarter last year, the company confirmed its commitment to a 6% to 8% long-term operating growth rate. The energy firm also declared an increased quarterly dividend and shared updates on regulatory initiatives and credit rating improvements.
Key Takeaways
- FirstEnergy reported operating earnings of $0.55 per share for Q1 2024, exceeding guidance expectations.
- The company's GAAP earnings were $0.44 per share, down from $0.51 per share in Q1 2023.
- A dividend increase to $0.425 per share was announced, up 6.25% from the previous year.
- FirstEnergy completed a $7 billion equity raise with Brookfield, enhancing its balance sheet.
- Credit ratings have been upgraded by Moody's (NYSE:MCO) and S&P, reflecting improved financial health.
- Regulatory updates included rate case settlements and upcoming filings across several states.
Company Outlook
- FirstEnergy affirmed a long-term operating growth rate of 6% to 8%.
- The company maintained its operating earnings guidance range for 2024 at $2.61 to $2.81 per share.
- A planned capital expenditure (CapEx) of $4.3 billion for 2024 indicates a focus on grid modernization and infrastructure.
Bearish Highlights
- GAAP earnings per share decreased year-over-year from $0.51 to $0.44.
- The company discussed potential fines from the Ohio Office of Consumer's Counsel (OOCIC) and plans to resolve the issue.
Bullish Highlights
- Dividend per share increased by 6.25% for 2024.
- Positive outlook on regulated returns and affordable customer rates due to recent base rate case orders.
- Upgrades to investment-grade credit ratings by Moody's and S&P with a positive outlook.
Misses
- There were no specific financial misses reported during the call.
Q&A Highlights
- The company addressed questions regarding the impact of data centers on the power grid's reliability and resource adequacy.
- FirstEnergy is open to owning generation on a regulated basis if requested by states.
- Interest rates and their impact on growth plans were discussed, with a planned coupon rate for new debt deals at 5.75%.
FirstEnergy's focus on infrastructure investment is underscored by their planned increase in CapEx from $3.7 billion in 2023 to $4.3 billion in 2024. The company's regulatory initiatives include rate case settlements in New Jersey and West Virginia, with upcoming filings in Ohio and Pennsylvania.
The successful $7 billion equity raise and the credit rating upgrades are testaments to FirstEnergy's solid balance sheet management. Moreover, the company's commitment to clean energy initiatives and the DOE GRIP program showcases its dedication to a sustainable future.
The earnings call also shed light on the company's strategic realignment, which includes new hires and decentralized decision-making. With less than 10% of their $26 billion CapEx plan dedicated to clean energy initiatives, FirstEnergy is still heavily invested in traditional infrastructure while exploring solar generation and energy efficiency projects.
In terms of challenges, the company is navigating potential cost increases and the impact of pension volatility on its finances. However, FirstEnergy remains confident in its ability to manage these issues effectively.
The earnings call concluded with an optimistic outlook for FirstEnergy's future, emphasizing its robust financial position, strategic investments, and commitment to growth. As the company continues to adapt to the evolving energy landscape, it remains a key player in the industry, with a clear focus on delivering value to both customers and investors.
InvestingPro Insights
FirstEnergy Corp. (FE) has demonstrated resilience and strategic growth in its Q1 2024 earnings, and the latest data from InvestingPro provides further context to the company’s financial health and stock performance. With a market capitalization of $22.3 billion, FirstEnergy is a significant player in the utilities sector.
InvestingPro Data highlights include a P/E ratio of 20.88, indicating that the stock is trading at a multiple of its earnings. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands at a slightly lower 20.02. This is coupled with a robust gross profit margin of 68.61%, showcasing the company's ability to retain a significant portion of its revenue as gross profit.
The dividend yield as of the beginning of 2024 is 4.46%, which is a testament to FirstEnergy's commitment to returning value to shareholders, as evidenced by the company’s announcement of its increased quarterly dividend. This aligns with the InvestingPro Tip that FirstEnergy has maintained dividend payments for 27 consecutive years, highlighting the firm's reliability in providing steady income to investors.
InvestingPro Tips also suggest a positive outlook for FirstEnergy's stock. Analysts have revised their earnings upwards for the upcoming period, and the stock is noted for trading with low price volatility, which may appeal to investors looking for stability in their portfolio. Moreover, the company is expected to be profitable this year, which is a continuation of its profitability over the last twelve months.
For readers interested in further analysis and tips, there are additional InvestingPro Tips available at https://www.investing.com/pro/FE. These tips can provide more detailed insights into FirstEnergy's stock performance and financial health. To access these insights, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - First Energy (FE) Q1 2024:
Operator: Hello, and welcome to the FirstEnergy Corp. First Quarter 2024 Earnings Conference Call [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Irene Prezelj, Vice President, Investor Relations and Communications. Please go ahead, Irene.
Irene Prezelj: Thank you. Good morning, everyone. And welcome to FirstEnergy’s first quarter 2024 earnings review. Our President and Chief Executive Officer, Brian Tierney, will lead our call today and he will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. Our earnings release, presentation slides and related financial information are available on our Web site at firstenergycorp.com. Today’s session will include the use of non-GAAP financial measures and forward-looking statements. Factors that could cause our results to differ materially from those statements can be found in our SEC filings. The appendix of today’s presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Now, it’s my pleasure to turn the call over to Brian.
Brian Tierney: Thank you, Irene. Good morning, everyone. Thank you for joining us today and for your interest in FirstEnergy. This morning, I will review financial performance and highlights for the first quarter, provide some updates on key regulatory developments and review FirstEnergy's shareholder value proposition. For the first quarter, FirstEnergy delivered GAAP earnings of $0.44 per share compared to $0.51 per share in 2023. Operating earnings were $0.55 per share, $0.02 higher than the midpoint of guidance for the quarter versus $0.60 per share last year. It is important to note that higher revenues from investments to better serve our customers and more favorable weather compared to last year were offset by higher planned O&M expenses and the expected decrease in Signal Peak earnings resulted in higher quality utility earnings for the quarter. Jon will provide additional details later in the call. During the last earnings call, we announced our five year $26 billion investment program to better serve our customers, branded as Energize 365. That plan, combined with our ongoing regulatory updates and our continuous improvement program, give us the confidence to affirm our 6% to 8% long term operating growth rate. We are also affirming our operating earnings guidance range of $2.61 to $2.81 per share for 2024. We are providing guidance of $0.50 to $0.60 per share for the second quarter of this year. Our confidence in the future gave us the opportunity to increase our dividend again to $0.425 per share payable in June. On an annual basis, this would represent an increase of 6.25% versus dividends declared in 2023. We are continuing to make progress on recruiting and hiring executives to run our five primary businesses. We expect to make announcements in the near term. Earlier this month, we announced the hiring of John Combs as our Senior Vice President of Shared Services. John was most recently an SVP and Chief Technology Officer at JPMorgan Chase (NYSE:JPM). John's deep background in technology and leadership, as well as his financial acumen make him the perfect person to lead our IT, supply chain, flight operations and corporate and cybersecurity organizations. We are thrilled to welcome John to the team. On March 25th, FirstEnergy closed on the final phase of our multiyear $7 billion equity raise to improve our balance sheet and fuel our growth. We received $2.3 billion of the $3.5 billion proceeds with the balance in interest bearing notes that are expected to be repaid this year. We are excited to have Brookfield as our partner in the fast growing transmission segment of our business. The impact of this transaction on FirstEnergy as the final phase of the $7 billion equity raise cannot be overstated. The total equity on the balance sheet increased 25% in the three months ended March 31st, that's truly remarkable for a company of FirstEnergy size. For the first time in this company's history, we are fully regulated, mostly wires with a strong balance sheet that enables organic investment in our utility companies to improve reliability and our customers' experience. Following the closing of the transaction, Moody's recognized the impact of the company by upgrading FirstEnergy Corp. senior unsecured rating to investment grade. On Tuesday, S&P upgraded FirstEnergy's corporate credit rating to BBB and our senior unsecured rating to investment grade with a positive outlook. The balance sheet strength and clean business model represented on this slide capture a lot about what excited me to come to FirstEnergy. Let me provide some updates on key regulatory initiatives. People have asked us how they will know when we are making progress on our regulatory plan. I tell them to look for milestones where we are getting fair and reasonable regulatory outcomes. During the quarter, we proved that we can obtain constructive regulatory outcomes across our jurisdictions. We received approval of our rate case settlement in New Jersey authorizing a 9.6% ROE and a 52% equity capitalization ratio. Even with this increase, JCP&L's rates remain 26% below our in state peers. The West Virginia Public Service Commission approved constructive depreciation and base rate case settlements. In addition, they approved an expanded net energy fuel charge settlement for recovery of about $0.25 billion through 2026 with no disallowances. For investors looking for milestones that FirstEnergy can obtain fair and reasonable regulatory outcomes, we provided several examples during the quarter. Jon will provide additional detail on the results in his remarks. For the balance of the year, we have an active regulatory schedule. In Ohio, we filed a settlement in our GRID Mod II case asking for the opportunity to complete our advanced meter infrastructure rollout over four years. A hearing is scheduled for June 5th. Approval of this noncontroversial settlement will bring us to parity with our in state peers. We are expecting approval of our ESP V filing this quarter and we will file a base rate case next month. That case will seek a modest increase in base rates but will reset a number of riders since the last base rate case. Earlier this month, in Pennsylvania, we filed a base rate case requesting an 11.3% ROE and a 53.8% equity ratio. We expect the decision in December with rates effective in January of next year. Before I turn the call over to Jon, I would like to highlight the value proposition that FirstEnergy offers to shareholders. We have completed the multiyear overhaul of our balance sheet and have achieved investment grade status at both Moody's and S&P. Our strong balance sheet differentiates FirstEnergy from many of our industry peers and that we do not anticipate incremental equity needs to fund our $26 billion investment plan. Our long term annual operating earnings growth rate combined with our dividend yield represent a total shareholder return potential of 10% to 12%. Our earnings quality is vastly improved driven by growth in our core regulated businesses, and our customers' affordability remains strong throughout the investment period. At the end of a significant business transition led by our Board of Directors and management team, FirstEnergy represents a high quality and attractive risk value proposition to our shareholders. With that, I will turn the call over to Jon.
Jon Taylor: Thank you, Brian. And good morning, everyone. Despite another mild winter, we are off to a good start this year with strong execution and financial discipline from our team that resulted in operating earnings above the midpoint of our guidance. And we are reaffirming our full year operating earnings guidance range of $2.61 to $2.81 a share, which represents a 7% increase versus the midpoint of our 2023 guidance. Today, I'll review financial performance for the quarter, our progress on key strategic regulatory initiatives and close with some details around the balance sheet. Looking at our financial performance for the quarter. Operating earnings were $0.55 a share, which is above the midpoint of our guidance despite the mild temperatures this winter that impacted retail sales and includes a planned increase in operating expenses as discussed on the fourth quarter call. This compares to 2023 first quarter operating earnings of $0.60 a share. As we also mentioned on the fourth quarter call, earnings growth this year will be back end loaded, given the effective dates of rate cases in West Virginia and New Jersey and planned increases in operating expenses in the first half of this year associated with the timing of maintenance work. Our first quarter results are detailed in the strategic and financial highlights document we posted to our IR Web site last night. At a consolidated level, first quarter earnings of $0.55 per share were impacted by higher planned operating expenses and improved earnings quality from an expected decrease in earnings from Signal Peak, partially offset by increases from new base rates and rate base growth in formula rate programs. And although customer demand was not a significant driver year-over-year given the mild winter in the first quarter of 2023, retail sales were down 6% versus planned, primarily associated with heating degree days that were 14% below normal, impacting results by $0.07 a share versus our plan. Let's also take a few minutes to review our segment results, which you will notice in our filings and presentation the segment reporting change consistent with how we're managing the business. We are now organized into easy-to-follow segments of distribution, integrated standalone transmission and corporate. This streamlined and transparent reporting places entire companies and individual segments, simplifying reporting and eliminating reconciliations. In our distribution business, operating earnings were $0.30 a share versus $0.33 per share in the first quarter of last year, impacted largely by the planned increase in operating expenses I mentioned earlier, specifically around vegetation management work, partially offset by an increase in rates from capital investment programs and lower rate credits in Ohio. In our integrated segment, operating earnings were $0.15 a share compared to $0.14 per share in the first quarter of last year. Results increased largely due to the implementation of base rates in all three jurisdictions in this business and rate based growth in formula rate programs, including integrated transmission investments, partially offset by planned increases in operating expenses. In our standalone transmission segment, operating earnings were $0.18 a share versus $0.17 per share in the first quarter of 2023, resulting from a 9% year-over-year rate base growth from our formula rate transmission capital investment program. And finally, in our corporate segment, losses were $0.08 per share versus $0.04 per share in the first quarter of 2023, primarily reflecting the lower planned earnings contribution from our one third ownership interest in the Signal Peak mining operation, decreasing from $0.08 per share in the first quarter of last year to $0.03 per share in the first quarter of this year. Turning briefly to capital investments. First quarter CapEx totaled just under $900 million, an increase of nearly 22% versus 2023 levels and slightly ahead of our plan across each of our businesses, focusing on grid modernization, transmission and infrastructure renewal investments. As a reminder, CapEx for this year is planned at $4.3 billion versus $3.7 billion in 2023. Turning to regulatory activity. We are very pleased with the outcomes in the recent base rate case orders, consistent with our plan that allows for solid regulated returns for our investors while keeping rates affordable for customers. And we're committed to our customers and our communities to enhance reliability performance and support the energy transition through our Energize 365 capital investment program. As Brian mentioned, in mid-February, the New Jersey BPU issued a final order on JCP&L's base rate case. The new rates, which customers will see effective June 1st and continue to be well below our in-state peer average, represent an $85 million rate adjustment on rate base totaling $3 billion, an ROE of 9.6% and a 52% equity capitalization ratio. And we are currently working through our Energize New Jersey infrastructure improvement proposal initially filed in November, including over $900 million in capital investments over five years aimed to enhance reliability and modernize the distribution system. In West Virginia, on March 26th, we received a final order from the Public Service Commission on our base rate case with rates effective March 27th. The case resulted in a $105 million rate adjustment on rate base of $3.2 billion, an allowed ROE of 9.8% and a 49.6% equity ratio. Rates for our West Virginia customers remain about 22% below our in-state peers. Additionally, as Brian mentioned, in West Virginia, we received an order on our ENEC case for an increase of $55 million. We have been successful in reducing the $255 million deferral down to $168 million with full recovery expected by 2026. Now let's move on to current activity with Pennsylvania. Earlier this month, we filed a base rate case requesting a $502 million rate adjustment on rate base of $7.2 billion, an 11.3% proposed return on equity and a 53.8% equity capitalization ratio. The case builds on our service reliability enhancements in the state with additional investments in a smart, modern energy grid and customer focused programs while keeping rates comparable to other Pennsylvania utilities. Key components of the case include implementing a 10 year enhanced vegetation management program to reduce tree caused outages, reduce outage restoration time and reduce future maintenance costs, recovery of costs associated with major storms, COVID-19 and LED streetlight conversions and changing pension and OPEB recovery to the delayed recognition method, which is based on traditional pension expense with amortization of previously recognized cumulative actuarial losses. The case also includes a blended federal state statutory tax rate of approximately 27% but also continues to provide customer savings from previous changes to federal and state tax rates. Additionally, the application proposes a pension OPEB normalization mechanism to track and defer differences between actual and test year expense using the delayed recognition method. In addition to the base rate case, we plan to file a third phase of our long term infrastructure improvement program this summer, which will include capital investment programs to improve reliability for the customers of Pennsylvania. And finally, turning to Ohio. Earlier this month, we filed a settlement for the second phase of our distribution grid modernization plan, Grid Mod II. The settlement includes a $421 million four year capital investment program to continue modernizing the distribution electric system by completing the deployment of 1.4 million smart meters to our customers in Ohio. Finally, next week, we plan to file a prefiling notice of our Ohio base rate case with a full application and supporting schedules by the end of May. Key highlights of the case will include a 2024 test year with over $4.3 billion in rate base and an equity capitalization ratio reflecting the actual capital structure of the companies, a plan to recover investments in riders' DCR and AMI, which includes the Grid Mod capital investments in base rates and reset those riders to zero, and some of the same other features that we included in other rate case applications, including pension recovery and pension tracking mechanisms. The current expectation is a proposal of a modest net increase to customers of less than $100 million compared to current revenues and an overall average impact of less than 5% of total revenues across all customers, which will be refined over the coming months. And finally, just to touch on the balance sheet and the closing of the FET transaction. Obviously, a lot of hard work goes into any transaction like this but this was a great team effort, and we couldn't be more pleased with the results. Of the $3.5 billion in total proceeds, $2.3 billion was received at the end of March and was deployed immediately consistent with our plan to pay off short term debt and to redeem long term debt totaling close to $1.4 billion, of which $460 million was at FE Corp. We expect to receive the remaining $1.2 billion later this year, which will be used to fund our capital programs and additional liability management depending on market conditions. This transaction completes a series of transactions over the last two and half years that resulted in over $3 billion in high cost debt redemptions at FE Corp., close to $2 billion in utility long term debt redemptions and $2 billion to pay off short term debt that would have otherwise been financed with long term debt at our utilities. And we are pleased to be back with an investment grade credit rating with all three rating agencies and understand and appreciate and respect the importance of this to all of our stakeholders. Thank you for your time today. And we're off to a solid start this year with strong execution and a significantly stronger balance sheet to fuel our growth going forward. Now let's open the call to Q&A.
Operator: [Operator Instructions] Our first question is coming from Shar Pourreza from Guggenheim Partners.
Shar Pourreza: So Brian, I know obviously -- Jon and Brian thanks for the color on the Ohio case, I think it touched on some of the questions I had on that. But look, the state is likely going to become sort of this epicenter for hyperscalers. So I guess I'm curious if there's going to be any sort of kind of data center focused rate design or tariff filings in this case to maybe account kind of for these opportunities, especially to trying to balance the impact to other customers while trying to track this business? And then maybe just as a follow-up there, Brian, how is the dialog going with data centers in general?
Brian Tierney: So let me start with the second one. The dialog with data centers is really positive. We've been out to see Josh Snowhorn, and his team out of Quantum (NASDAQ:QMCO) Loophole right outside of Frederick, Maryland, it's amazing what they have going on there. It's kind of fascinating to see. We have two 230 kV lines that end in an open field where there used to be an aluminum smelter and now Josh and his team are building that huge data center complex. So we're in direct dialog with them, they will be one of our biggest customers over time and look forward to continuing that dialog. We're also seeing as things like expand out from data center hubs from Northern Virginia. Now you're seeing in the Panhandle of Maryland, the Quantum Loophole folks, we're seeing the same thing in Ohio. And as things expand out from Central Ohio, the place where I used to work and it's coming up into our service territory as well, and we're also seeing interest in Pennsylvania. Given what's happened with a number of power plant retirements over the years, our service territory has ample brownfield sites that have land available and connectivity to the high voltage transmission system. So we think we're well positioned for some of that growth. We're continuing to invest as we go forward. The PJM open data center three that we're able to fund about $800 million to help enable that growth, we're excited about the opportunity going forward. John, I don't know, are we doing anything tariff wise to attract these, or are we well set up given the tariffs that we have?
Jon Taylor: I think it's something that we will take a look at over time. Our tariffs are set up were such that some of these customers would be transmission related customers. So the revenue uplift to the distribution companies wouldn't be as significant as you would see maybe in a residential customer, and that's by design. So it is something that I think over time we'll take a look at as well as I'm sure other utilities will take a look at. But at this point in time, we don't have anything that we're planning for.
Shar Pourreza: And then, Brian, lastly for me and sorry, I got to ask this, but it's causing a little bit of angst this morning with investors. There's some new language in the queue kind of mentioning on potential fines coming from the OOCIC, I guess how do you book in the range of outcomes there? I know, obviously, the language is not going to be super material. But is there any kind of sort of read throughs or knock-on effects on the ongoing PUCO investigations or any other investigations there?
Brian Tierney: I don't think so, Shar. There are two new things that we raised in that OOCIC disclosure. One was at the beginning of the disclosure, we talked about -- we have traditionally talked about there being nothing that we were aware of that was outside of the DPA. Well, during the quarter, the OOCIC brought indictments against householder for things that had nothing to do with the DPA and we were unaware of that activity, which they found and obtained indictments on. And the other component is in regards to that investigation, as well as the Attorney General has a civil suit against the company. We'd like to put both those past us and we may have to put a little bit of money on the table to do that. So we don't think it will be material but we'd like to put a period on both those issues as it relates to the company and move on. I think some of you saw the language that the Attorney General used in the prior indictments when he complemented the company on its cooperation with his office and viewed us as a victim of the offenses that took place. So we think it's a constructive relationship and we just like to put a period on it and move on from there.
Operator: Your next question today is coming from Michael Sullivan from Wolfe Research.
Michael Sullivan: Maybe just -- I know you're about to file this year and I appreciate all the kind of upfront detail in Ohio. But maybe if you could just give a little more on how you are able to keep the rate hike request so low in Ohio after being out for so long?
Brian Tierney: So a lot of the activity that we're doing is taking things that have been handled in riders during that interim period and putting it in base rates. So things that customers were always paying for but they weren't in base rates. So there's no customer increase associated with that. And then we're looking at refreshing the ROE, some cost structures. And we anticipate that those things will be $100 million or less in terms of gross increase and we expect the net impact on customer rates to be less than 5%.
Jon Taylor: Michael, I'll expand just a little bit. If you think about rider DCR, that's been in place for over 10 years now and we've been able to earn on pretty much all of our investments in the distribution system over those 10 years. And to give you a sense of magnitude that rider alone is close to $400 million annually. And then if you look at the Grid Mod rider that probably got kicked off a few years ago with our Grid Mod I implementation, it's close to $100 million. So over the years, even though base rates haven't changed in over 10 plus years, we've been able to increase the returns on our investments through those riders, and a lot of this case is just moving those riders into base rates.
Michael Sullivan: Just a quick follow-up on that. With respect to the riders, does the outcome here in the next month in ESP V and how riders are treated there have any impact on how you approach the base rate case filing?
Brian Tierney: No, I don't think so, Michael. I mean, this is capital that has been prudently spent. It's been on distribution reliability. I think it's been subject to audits in the past. So I think that is simply going to be moved from those riders into base rates. And if you look at the path in other jurisdictions, you really don't have an issue with moving capital that you've deployed in riders in the base rates, that's typically fairly straightforward in any type of rate proceeding.
Michael Sullivan: And last one for me, Jon. Just the -- congrats on getting back to IG. And just what are we thinking for timing and prospects for maybe even mid-BBB? Sounds like you have the metrics to support it. Is it doable at both agencies and potential timing there?
Jon Taylor: I'm not going to speak for the agencies. But S&P left us on a positive outlook and I think they're looking for the expiration of the deferred prosecution agreement, which will be in July of this year. I think we also need to build a track record of hitting our forecast and I think that's going to take some time to do that. And so that's what I think they're looking for and that's what our plan is.
Operator: Next question is coming from Jeremy Tonet from JPMorgan.
Jeremy Tonet: Just wanted to kind of touch base, I guess, on how things are progressing against strategic initiatives to kind of realign the organization, bring in new hires, decentralized decision making and assign KPIs further down the structure. How is that being received? How do you see, I guess, the culture changing? Just wondering any thoughts on how that's progressing?
Brian Tierney: It's progressing really well. So we've added Toby Thomas as the Chief Operating Officer. Wade Smith, as the head of FE Utilities. And we just announced John Combs coming in. And these folks are hitting the ground running, making an impact right away. If you look at how we're managing the company, we're managing it the way we're reporting it in segments now by those five major operating companies that we have. And things like Energize 365, that is organized and planned according to those major business units. So the plans that summarize up to that $26 billion spend over five years are all coming from those major business units and they have the plans to put that capital to work for the benefit of our customers by business unit. And so it's working the way we thought it would. We've transitioned from a CapEx that's kind of break fix, repair in kind to one that gets our customers ahead in terms of reliability and gives us the opportunity to improve the customer experience rather than just treading water. And the transaction that both Jon and I talked about in our remarks enables that, right? You can't make the type of investments that we're talking about making without the strong balance sheet that we've had through the capital raises over time. So everything is coming together and working as it should. The moneys come in the door, the balance sheet is strong and we have the plans by business unit to put the dollars to work. And you're seeing it from '23 to '24 and we have plans going out for four additional years as well to make this happen. So it's working the way it should, the way we envision it, and we're off and running.
Jeremy Tonet: And maybe following up on -- putting the dollars to work, with regards to the Energize 365 CapEx plan. Could you walk through the clean energy part a little bit more within the overall plan? And just wondering how that breaks down between solar energy efficiency, EV infrastructure, energy storage, different initiatives and how you see the time line for that unfolding? And where could that go over time, I guess?
Brian Tierney: So a lot of it, Jeremy, is some things that we're doing on the wire side to enable the energy transition. So you've seen two major pieces of that. One was the PJM Open Window 3 where we're able to put $800 million to work and the other is the New Jersey offshore wind transmission component where we're putting over $700 million to work. So significant components well over $1 billion in those initiatives, in addition to what we're doing with solar generation in the state of West Virginia on our way to rounding out a 50-megawatt commitment that we have there and would like to see two more of those 50-megawatt commitments as we get further subscriptions. But a lot of it rather than being on the generation side is really on the wires component of the business, and that's where the bulk of that $26 billion spend is going to be.
Jon Taylor: Jeremy, I'd just would add on a little bit. If you just look at the clean energy component of the $26 billion, it's a little less than 10% of the total portfolio. And like Brian said, a lot of that is in the state of West Virginia with the expected build out of additional solar, as well as the energy efficiency investments that we need to make in New Jersey to hit the state required goals on consumption usage. So we're working through that program right now as we speak. And we should have clarity, I think, later this year on the energy efficiency CapEx in New Jersey sometime later this year.
Brian Tierney: One final piece that we've gotten questions on also, Jeremy, is that the DOE GRIP program and whether or not we've made applications for that, we proposed five projects and four of them we were asked by the DOE to proceed. And they include everything like distributed energy management, AMI, grid resilience, smart grid and storage. And so about $500 million worth of projects we're moving forward with in the GRIP program and hope to get some positive results on that later this summer.
Jeremy Tonet: And just one last one, if I could, regarding Signal Peak and recognize it's a shrinking part of the plan over time here. But I think there's just been some reports out there about BLM delays and how that impacts operations down the line there, whether it has to shut at a certain time. Just wondering any thoughts you could share with us there?
Jon Taylor: No disruptions in the mine that we're aware of. In fact, we have in the plan about $0.12 of earnings contribution for the year. They contributed $0.03 in the first quarter. So they're on track with their plan.
Operator: Your next question today is coming from Carly Davenport from Goldman Sachs (NYSE:GS).
Carly Davenport: Maybe just on the pension volatility relative to what you've done so far. How good things like the proposals you've got in the Pennsylvania rate case around pension and OPEB recovery and the normalization mechanism impact the volatility levels that you see going forward?
Jon Taylor: Well, if we're able to successfully get the pension tracking mechanism, that goes a long way in deferring the volatility on to the balance sheet, because essentially, you would be tracking to your test year expense and any changes from that point forward, both positive or negative to that would be deferred on the balance sheet. So the volatility would be significantly reduced if you're able to achieve some of those pension tracking mechanisms. Now we've applied for that in West Virginia, Maryland and New Jersey. Last year, we were unsuccessful there. We'll apply for those mechanisms in Pennsylvania and Ohio this year. But it is something that we'll continually go after even if we're not successful this year, because I think it's important for us to make sure that we manage that volatility accordingly. I mean the other thing we did last year is we did the pension lift out where we looked at our former competitive business and lifted out about half of that liability at a favorable pricing, about a 95% of par, about a 5% discount, which also reduces the volatility in the pension plan by about 5%, 10%. And we plan to do another pension lift out at some point in time either later this year or towards the end of the year. So something that we're looking at right now.
Brian Tierney: Carly, the beauty of that tracking mechanism is that the regulator is never wrong, like there's always the true up. And so we're never making more or less than what we're asking for in rates and it's always the right amount because it's based on the numbers. So we think it has a virtue that should be appealing to the regulators and others in our cases as well.
Carly Davenport: And then maybe just as you think about the balance sheet. Are there any factors that we should be thinking about that could push the receipt of those remaining FET proceeds beyond the latter part of this year?
Brian Tierney: So they've already filed for application with the last co-investor and they've asked for accelerated approval. So I'm not anticipating any delay in that. So my expectation is that we should get the proceeds later this year.
Operator: Next question today is coming from David Arcaro from Morgan Stanley (NYSE:MS).
David Arcaro: Maybe back on the Ohio rate case, I was wondering, are there any new mechanisms or new capital programs that we should watch for that might come with the filling? It didn't sound like it, but anything new that you would plan to bring into this case?
Brian Tierney: David, no, this will be a more traditional base rate case. I mean, obviously, we have the DCR in place, which really covers most of all of the capital in the Ohio companies, specifically targeting distribution reliability enhancements. So we'll have the Grid Mod program as well. So no new capital programs in this particular proceeding.
Jon Taylor: Grid Mod, which we do have a settlement in is a little over $400 million and that will allow us to get on parity with our in-state peers in that we're doing just the noncontroversial AMI implementation, which we hope to get. I just bought a house here in Akron. I've got 40 year old analog meter on my house. It would be nice to be able to have that AMI technology in place, and that's not controversial. The other component of Grid Mod II where we hope to be able to put more capital to work is in the distribution automation. And we've asked in that case to be able to demonstrate the benefits that customers got in Grid Mod I from the distribution automation and then come back at a later date and ask to be able to advance that program further.
David Arcaro: And then back on the topic of data centers, I was wondering how do you see the transmission opportunity growing over time in PJM? It sounds like you could be seeing greater load growth whether it's in Ohio, in Pennsylvania. Just what's the transmission CapEx upside opportunity that you're seeing, is that growing rapidly potentially as we see data centers move to that region?
Brian Tierney: I'll just say this, it's a little lumpy. So as these things are coming about, we're seeing things like the PJM Open Window 3, right? That was somewhat of an unanticipated opportunity that we don't have opportunities like that in our $26 billion plan. But as they come about, they'll be incremental to that plan. And so we've seen that process play out last year. I anticipate that we'll see more processes through future open windows from PJM as they're looking to build capacity on the grid to enable the type of load growth that data centers represent. So you've seen it concentrated, like I said before, in that Northern Virginia, Central Ohio area and now it's branching out into other areas. And we anticipated -- we know it's moving into our service territories in Maryland, Pennsylvania and Ohio.
David Arcaro: And I guess on that, just a quick follow-up. In your conversations with these data center customers, do you have a sense of the timing of when these are coming in and trying to connect to the grid when we could see a bigger increase in the load in interconnections coming?
Brian Tierney: So I'd say it's in the year's time frame but they're frequently getting more aggressive about wanting sooner service, and that's all coming into things like their supply chain. Do they have the equipment necessary to put the equipment in, the cooling that they need, the generation that they need, all those things. And so we have time to see it coming but I think they're getting increasingly aggressive about wanting service sooner and quicker than what they had previously.
Operator: Your next question today is coming from Gregg Orrill from UBS.
Gregg Orrill: Just another follow-up regarding the DCR and how you see that getting rolled into -- getting recovery around that. Is it going to be sort of along the time line of the new ESP V or will it be tied to the base rate case, and how does that impact your guidance?
Brian Tierney: So our anticipation is that the accounts that we're recovering in the DCR should be fully recovered in either ESP V or the base rates, and there's been some discussion about that in the staff's filing and our responses. The accounts have been fully recovered for the last 12 or so years in the ESP V and they've been audited and deemed appropriate and approved on an annual basis. So whether they're -- all the accounts are in ESP V or in the base rate case, we're sort of indifferent to that but fully believe that what's been approved and recovered and invested in for the last 12 years will continue to be in either one of those venues.
Operator: Your next question is coming from Anthony Crowdell from Mizuho.
Anthony Crowdell: Just hopefully two quick ones. One on the deferred prosecution agreement. Is there a date in June where it expires or will there be an announcement, or is an office issue a notice out?
Jon Taylor: I think that's late July. It's not June, so it's late July. I think it's like the 20th or 22nd.
Brian Tierney: And if we could make a filing prior to that, we'd like to be able to do that as well. Anthony, just meaning not waiting until the absolute terminal date. If we've done everything we need to, to allow us to file sooner than that, we will.
Anthony Crowdell: And if I take that with Shar's question earlier, you mentioned to clear that potential suit out -- suit up. Are those the last two items of deferred prosecution agreement and that potential loss that Shar had brought up earlier?
Brian Tierney: No, there's what we talked about earlier, there's the DPA, there's the securities case and then there are the audit cases in front of the Ohio Commission, which we asked if they could proceed currently and hopefully get those behind us as well.
Anthony Crowdell: And then just lastly, the move to investment grade, was there any existing debt that maybe was triggered to a higher interest rate because you were sub-investment grade? And is there -- will those rates maybe trigger lower and is there any significant interest savings going forward because of that?
Brian Tierney: So not meaningful interest savings. But with the Moody's upgrade, we had an interest rate step-up because we were sub-investment grade. Now that's been eliminated effective with the upgrade, although, it will start with the next interest payment later this year. I think on an annual basis, that's less than $10 million. But nonetheless, I mean, it's meaningful. And then I think we also got some better pricing on the revolving credit facility by about 25 basis points. So I mean, all those things help, they may not be material in the grand scheme of things but it is important to us.
Jon Taylor: Anthony, there's one more that I forgot to put on the list. There's the SEC investigation that we'd like to get settled as well.
Operator: Next question today is coming from Paul Patterson from Glenrock Associates.
Paul Patterson: Just a follow-up, I think it might have been Jeremy's question on Signal Peak. There's discussion about maybe being forced to shut down in 2025. Any thoughts there about how we should think about that? And if that happens, is it just a $0.12 maybe not being there or is there a potential for a negative EPS impact or something like that?
Jon Taylor: As we've kind of outlined in the plan, Signal Peak was $0.12 this year, but we really had them going to a very de minimis level of earnings contribution beginning in '25 and beyond. So not significant to the plan in the grand scheme of things. And I don't think it would ever go to where we're incurring losses, but just kind of a breakeven proposition if it were to have to shut down.
Paul Patterson: And then with respect to the Grid Mod settlement, is there any potential for having additional parties sign on to that or are we just going to go through what, I guess, has been outlined in the procedural -- the hearing examiners, are we pretty much just going to go down that road, do you think?
Jon Taylor: I think we're just going to go down that road, Paul. It's June 25th is when I think we're expecting to have the hearing on it. And we have a majority of the interveners signed on to the settlement. And there's like there's really nothing controversial about it. We're just trying to deploy the AMI that all the other in-state peers are either at or close to 100% of we're trying to round out and finish the remaining two thirds of our customers on.
Paul Patterson: And then this has been a topic that's been coming up a lot in policy circles about trying to get more grid enhancing technologies to be deployed as opposed to the substantial build out and all the issues that are being seen with that in terms of cost and timing and stuff. I'm just wondering how do you think about grid enhancing technologies, and do you have any thoughts about how they might be deployed at FirstEnergy or industry wide?
Brian Tierney: So there are responses to the GRIP, I think, are grid enhancing technologies, grid resilient, smart grid storage, DERMS and the like. And so with the Department of Energy, we're looking to take that money that they're looking to help jump start some of those initiatives and get our fair share of those for investment for the benefit of our customers. That's about $500 million of investment that we're looking to. And the Department of Energy is looking to put those dollars to work and make these pilots a reality, and we're looking to take advantage of that for the benefit of our customers. So it's happening. The dollars are being put to work and we're trying to get our share of those dollars.
Paul Patterson: But you don't expect any -- do you expect any widespread adoption of those in the near term or beyond just the pilots and the DOE funding and what have you? Is there any sense -- I know it's kind of a big question, so I apologize. But maybe I guess -- I mean, do you see this as -- what the potential opportunity or threat might be associated with these technologies being deployed?
Brian Tierney: I don't see it as being strategically disruptive for our industry. These new technologies, I think it's best to take a crawl-walk-run approach. And you've seen that in other places in the industry, Paul, not as big of a deal for us but things like carbon capture and sequestration, right? To do it at a plant level, I don't think has been done on a commercial scale in this country with a coal fired power plant. So you look at the new EPA rules, which would either call for that or retirement of the plants, I think if that rule were to go into effect, I think it would cause a lot of plants to retire, because the economic technology just isn't there. Some of the things that we're proposing doing on a pilot basis, I think, are best done on a pilot basis. But I don't see any of these technologies at this point strategically disrupting our industry.
Operator: Next question is coming from Angie Storozynski from Seaport Global.
Angie Storozynski: So I'm just wondering, so all these additions of data centers, especially those that are reliant on renewable power assume that there's a well functioning grid with de minimis congestion issues. That doesn't seem right to me at least. And I was starting to hear from other PJM wires on the utilities that they might be forced to building generation assets, again, and granted not maybe the next year or two, but in the foreseeable future. I mean I understand that, that's a major change to a competitive power market, but those utilities think that, that might be needed for reliability reasons. Is this something you see as well? Again, it seems like we're trying to manage a 24/7 load growth with intermittent resources. And I know transmission upgrades are an answer, but just wondering how you see it going forward.
Brian Tierney: We're having more and more discussions with regulators and other companies around the issue that you identified, which we're kind of calling resource adequacy. And certainly, it's something that people are talking more and more about it. You can't just have a robust wire system, you have to have a commodity to put on the wires. And so our five states have sort of different stances relative to that. For us, in New Jersey and Pennsylvania, we would require legislative changes. In Maryland, there's an -- in Ohio, there's an opportunity to -- for utilities to own generation on a very limited basis. And of course, West Virginia is a traditional integrated resource plan state. But for the region altogether, it is -- an increasingly talked about issue is, will there be enough commodity to put on the wires in the face of the load growth that we're facing and the coal unit retirements that we're facing as well. So there's going to need to be a solution to it. For us, in four of our states were mostly wires, I don't think we'd ever be interested in owning generation in those states on a merchant basis. But if a state were to come to us and ask us to build on a regulated basis for a long term, I think that's something that we'd consider. But I don't think any of our states are near that point right now.
Angie Storozynski: And then changing topics on interest rates. So we're starting to hear from some of the utilities that they were counting on some tailwinds from interest rates in the back half of the year. I mean that might still happen. But just wondering how do you see your growth plans and your financing plans, especially from an EPS perspective, if this current interest rate environment were to persist beyond this year?
Jon Taylor: So in our plan for this year, the planned coupon rate for all new debt deals was 5.75%. And then we had it elevated through the planning period over the five years. And so it is something that we'll keep an eye on. If you look at the two bond deals that we've done this year, it's on a blended basis, it's right at 5.75%. So we feel good about that and I think we'll just have to keep an eye on interest rates.
Operator: We reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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