FirstEnergy Corp. (NYSE:FE) Q4 2023 Earnings Call Transcript

FirstEnergy Corp. (NYSE:FE) Q4 2023 Earnings Call Transcript February 9, 2024

FirstEnergy Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the FirstEnergy Corp. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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 for FirstEnergy Corp. Thank you. Ms. Prezelj, you may begin.

Irene Prezelj: Thank you. Good morning everyone and welcome to FirstEnergy’s fourth quarter 2023 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 website at firstenergycorp.com and we plan to file our Form 10-K next week. 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 these 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. It’s hard for me to believe that I’ve been with the company for eight months already. Time has flown by, as I’ve gotten to know the fantastic employees of this company who are dedicated to serving our customers every day. Some of you have heard me say previously that I consider myself to be a good teller of great stories. While our employees have given me a great story to tell for 2023 and I’ll do my best to tell it well. This morning, I’ll provide an overview of our financial performance for the fourth quarter and full year of 2023. I will discuss some regulatory milestones that we recently achieved. We are also unveiling today an exciting capital investment program focused almost entirely on our wires business.

Over the next five years, we plan to invest $26 billion in our regulated system to improve reliability and the customer experience. This represents an increase of more than 44% compared to our last five-year plan. We will maintain our vigilance on affordability as our current rates are below our in-state peers. Jon will provide more detail on this later. For the fourth quarter of 2023, FirstEnergy delivered GAAP earnings from continuing operations of $0.30 per share compared to a loss of $0.71 per share in the fourth quarter of 2022. Operating earnings for the quarter were $0.62 per share, which was above the midpoint of our quarterly guidance range and compared to $0.50 per share in the fourth quarter of 2022. For the year 2023, the company delivered GAAP earnings from continuing operations of $1.96 per share and operating earnings of $2.56 per share, $0.02 above the midpoint of our guidance range.

Employees work diligently throughout the year to overcome significant headwinds. The impact of market conditions on our pension plan created an earnings drag of $0.30 per share and unusually mild weather impacted earnings by $0.28 per share. Through our continuous improvement program, employees were able to drive base O&M down over $200 million or 14% versus 2022. Half of those savings are sustainable and this tremendous effort buoyed our full year results by $0.32 per share, allowing us to meet our operating earnings targets. In 2023, the company put $3.7 billion of CapEx to work to improve reliability and the customer experience. This was 16% more than was invested in 2022 and 9% more than budget. 93% of the 2023 CapEx was invested directly into our wires businesses.

Our projects and construction organizations were able to take advantage of the improving supply chain environment and the mild weather to put the incremental dollars to work. 2023 was a game-changing year for the company in terms of strengthening its balance sheet to enable future investment and growth and are mostly wires regulated business. In February 2023, the company announced a second transaction with Brookfield to sell 30% of FET for $3.5 billion. With the successful completion of our Pennsylvania consolidation, and the anticipated order approving the filed settlement of the transaction, we are on track to close on this asset sale by the end of March. At that time, we will receive the majority of the proceeds in cash with the balance to be paid before the end of the year.

In May, we successfully executed a $1.5 billion convertible debt issuance at a 4% coupon. We used these proceeds to pay down debt and make a $750 million contribution to our pension assets. In late December, we executed a $700 million pension lift-out representing over 8% of our total pension liability and reducing volatility in our pension plan by 10%. Our improved financial condition gave the Board the confidence to raise the targeted dividend payout ratio to 60% to 70% of operating earnings. In September, the Board had the confidence to raise the quarterly dividend for the first time in more than three years. Of course, subject to Board approval, our 2024 plan includes dividend declarations of $1.70 per share versus $1.60 per share in 2023.

This represents a 6.25% increase. Going forward, we anticipate growing our dividend with operating earnings growth. The significant improvement in our balance sheet puts FirstEnergy energy in a growth and investment mode. The fact that we do not expect incremental equity to fund our CapEx growth beyond our employee benefit programs differentiates FirstEnergy for many of our peers. We are introducing a $26 billion five-year capital investment program to improve reliability and our customers’ experience. We are branding this program, Energize 365 and John will provide more details in his remarks. These investments should enable 9% average annual growth in rate base over the period. We are guiding to $4.3 billion of investment in 2024, an increase of 15% over 2023.

Energize 365 represents a significant increase in our investments and rate base with improved earnings quality. We expect to maintain a strong customer affordability position versus our in-state peers. We are reaffirming our 6% to 8% long-term annual operating earnings growth rate. FirstEnergy plans to execute on our long-term growth rate year-by-year. This is why we are announcing a 2024 operating earnings guidance range of $2.61 per share to $2.81 per share. The midpoint is 7% above 2023’s operating earnings guidance midpoint. Turning to slide 6. Let’s take a look at our regulatory calendar. One of the questions investors have asked is, how will we know what FirstEnergy can obtain fair and reasonable regulatory outcomes? The answer that we have given is, to look for milestones in our near-term results.

In 2023 and early 2024, we have achieved several milestones demonstrating constructive regulatory outcomes. Let me highlight a few. As we mentioned in our last call, we received a reasonable outcome in our Maryland distribution rate case. The commission there approved a $29 million revenue increase that supports equity returns of 9.5% and an equity ratio of 53%. We are pleased to serve and invest in Maryland to provide reliable and affordable electricity to our customers. In West Virginia, we filed a settlement in our ENEC case with staff of broad intervener support for a recovery of $255 million over three years with a carrying cost after year one. The settlement has no disallowances. In January of this year, we filed a settlement in our base rate case with staff and broaden and leaner support for $105 million rate adjustment based on a 9.8% allowed ROE and 49.6% equity ratio.

This settlement reflects the $700 million increase in rate base since our last base rate case in 2014. Of course, we did not get everything we asked for, but the settlement is fair and constructive and it demonstrates West Virginia as an attractive place to invest for our customers. In New Jersey, JCP&L filed a base rate case settlement last Friday, with staff and broad intervener support that reflects an $85 million rate adjustment based on an ROE of 9.6% and a 52% equity ratio. The settlement reflects the $400 million increase in rate base since our last base rate case in 2021. The settlement will have a modest 3.4% increase in the average residential bill and JCP&L’s rates will be 26% below our in-state peers. If approved, the settlement will be a fair and reasonable outcome that will incentivize JCP&L to make investments to improve customer reliability.

In Pennsylvania, we received an order in December, improving the consolidation of our Pennsylvania operating companies and approving the transfer of West Pan Power’s transmission assets to CATCo. Both transactions were executed on January 1 of this year. We are awaiting commission approval of the filed settlement for the bit minority interest sale, which is anticipated soon. We anticipate filing a base rate case in Pennsylvania by April. For investors looking for milestones of FirstEnergy’s ability to receive reasonable and constructive regulatory outcomes, these recent examples provide convincing evidence. In Ohio, we are actively working our way through our ESP 5 and Grid Mod 2 cases. We are fully engaged in the regulatory process with staff and interveners and expect constructive outcomes in both cases.

We plan to file a base rate case in May. Turning to slide 7. I want to briefly review the new segment reporting that FirstEnergy will adopt in 2024, to reflect how we are managing the company. Individual companies will not be split among the segments, leading to simplicity and transparency in reporting as well as accountability and management. Our Distribution segment will house our Ohio and Pennsylvania pure-play distribution-only companies. Our Pennsylvania consolidation and the transfer of the West Penn Power transmission assets to KATCo make this segment transparent and clean. This segment will represent about $10.9 billion in rate base serve 4.2 million customers, and account for about 45% of forecasted 2024 operating earnings. A senior executive will lead each of FE Pennsylvania and Ohio.

Our integrated business segment will report on JCP&L, Potomac Edison and Mon Power, our companies with combinations of distribution, transmission and generation. This segment will represent about $8.7 billion in rate base, serve 2 million customers, and account for about 35% of forecasted 2024 operating earnings. A senior executive will lead JCP&L and another will leave Mon Power and Potomac Edison. Our last major business segment will be standalone transmission and it will house our pure-play transmission-only companies, consisting of our ownership interest in FET as well as KATCo. This segment will represent about $7.7 billion in consolidated rate base, and account for about 20% of forecasted 2024 operating earnings. One executive will be responsible for these businesses.

Finally, the Corporate and Other segment will be similar to the current segment with Aetna. It will report holding company interest, legacy investments, former subsidiaries and pension and OPEB. A recast of 2023 into the new segments is available in our fact book and we will provide quarterly and year-to-date reconciliations throughout 2024. Let me provide some key updates on Slide 8. In regard to the Ohio organized crime investigations Commission, there’s nothing new to report. We continue to cooperate with the commission and answer any questions they ask. The deferred prosecution agreement with the DOJ details FirstEnergy’s involvement and there is nothing new with respect to the company. In the updated climate strategy published to our corporate responsibility website yesterday, we are providing an update to our greenhouse gas emissions goals.

In 2020, we set a goal of achieving net carbon neutrality by 2050, with an interim goal of reducing our Scope 1 greenhouse gas emissions by 30% by 2030. Achieving the 2030 interim goal was predicated on meaningful emissions reductions at our Fort Martin and Harrison power plants in West Virginia, which account for approximately 99% of our greenhouse gas emissions. We’ve identified several challenges to our ability to meet that interim goal, including resource adequacy concerns in the PJM region and state energy policy initiatives. Given these challenges, we have decided to remove our 2030 interim goal. Through regulatory filings in West Virginia, we have forecast the end of the useful life of Fort Martin in 2035 and for Harrison in 2040. We remain focused on achieving our aspirational goal of net carbon neutrality by 2050.

In the fourth quarter of last year, we made two-key additions to our leadership team. In November, we announced our hiring of Toby Thomas, as Chief Operating Officer. Toby joined us from American Electric Power, where he spent more than two decades in various leadership positions, including growing and managing one of the largest wires businesses in the country. He is responsible for system planning and protection, transmission, substation and engineering, project and construction management and system operations. Wade Smith joined the company in December, as the President of FirstEnergy Utilities. He was previously the Chief Operating Officer of Puget Sound Energy. Wade brings more than three decades of experience running large-scale multi-state transmission and distribution companies.

The presidents of our five operating businesses will report to him. Ohio, Pennsylvania, JCP&L, our standalone transmission business and Mon Power and Potomac Edison. We are actively reviewing internal and external candidates to run these businesses and expect to make hiring announcements in the coming months. Wade and Toby are key additions to the leadership team that will grow and transform this company into a premier electric utility. In 2023, and continuing into 2024, we have made transformational strides to improve the financial strength of FirstEnergy. We have organized our company with a singular focus on growing our five regulated, mostly wires companies. We are making the investments needed to improve reliability and the customer experience.

Our strong balance sheet and organic investment opportunities differentiate FirstEnergy for many of our peers. With that, I will turn the call over to Jon.

Jon Taylor: Thank you, Brian, and good morning, everyone. I’m also very proud of our performance in 2023, and I’m excited to turn a new page in our company’s history. Today, I’ll briefly review our 2023 results, but more importantly, discuss our enhanced five-year plan and 2024 guidance. Our results in 2023 speak to our employees’ dedication and tremendous performance, which included strategic and transformational initiatives, while doing the hard work to meet our financial commitments in a very challenging year and emerge as a stronger, more nimble company. Since I’ve been at the company, I can’t recall a more challenging year in terms of the financial headwinds we faced including the most abnormal weather conditions that I can remember, the extremely volatile interest rate environment and a significant impact on our pension plan from the interest rate and equity market performance in 2022.

But at the same time, our employees demonstrated their grid and resiliency to overcome these adversities while making strategic advancements to improve our operational and financial performance. Fourth quarter operating earnings were $0.62 a share, which is above the midpoint of our guidance. This compares to 2022 fourth quarter operating earnings of $0.50 a share. For the year, operating earnings were $2.56 a year, also above the midpoint of our guidance range. This represents 7% growth of 2022’s guidance midpoint and compares favorably to operating earnings of $2.41 a share in 2022. Fourth quarter and full year results are detailed in the strategic and financial highlights document we posted to our IR website last night. As we pointed to throughout the year, we largely offset the headwinds I mentioned earlier through a strong focus on reduced operating expenses across each of our business units.

The deployment of proceeds from the low-cost convertible debt offering in the spring and certain tax benefits realized in the third quarter. Our focus on operating expenses across the company resulted in a 14% or over $200 million reduction year-over-year, representing a $0.32 per share year-over-year benefit. As we’ve discussed, about 50% of that represents unique items or work that was accelerated in 2022 from 2023, the other 50%, which largely includes productivity improvements across the company, lower contractor usage, and reduced corporate spending on areas such as branding and advertising are sustainable reductions to our cost structure. Our 2023 results benefited from our formulary investment programs across our transmission and distribution businesses, which resulted in a $0.20 per share improvement year-over-year.

As Brian mentioned, we successfully deployed $3.7 billion of capital in 2023, about $300 million or close to 10% above our original capital investment plan for the year. In our transmission business, earnings increased $0.08 a share or close to 10% for the year, primarily from our investment programs, which resulted in rate base growth of 9% compared to 2022. Formula rate investments in our transmission business were $1.8 billion, an increase of 28% compared to 2022 and $100 million or 6% above our original plan due to emergent projects. In our distribution business, earnings declined year-over-year, primarily from the lower weather-related distribution sales and the lower pension credit I spoke of earlier, but also reflect the impact of our formula rate investment programs, new rates that went into effect in Maryland in mid-October, higher weather-adjusted demand, and lower operating costs that I spoke of.

Distribution CapEx of $1.9 billion represents an increase of 5% compared to 2022, and exceeded our original plan by $220 million or 13% as part of our planned increases we announced last year. Finally, in our Corporate segment, 2023 results benefited from lower O&M and a consolidated effective tax rate of about 16% versus nearly 21% in 2022, mostly as a result of planned use of state net operating loss carryforwards. And a final point on 2023, as Brian discussed, we executed a $700 million pension lift-out in December, representing about 8% of our total pension liability associated with our former generation subsidiaries. Removing this obligation from our balance sheet at a 5% discount will reduce future earnings volatility related to fluctuations in pension assets and liabilities and lowers overall pension plan costs.

We will continue pursuing opportunities to further derisk the pension plan through additional lift-outs and pursuing pension tracking mechanisms through the regulatory process. Now, let’s shift gears and talk about our outlook going forward. We are very pleased to introduce our five-year financial plan supporting our commitments to our investors, including 6% to 8% long-term annual operating earnings growth with significantly improved earnings quality, investment-grade credit metrics, and dividend growth in line with earnings growth. The cornerstone of this plan is a robust Energized 365 grid evolution investment plan of $26 billion, with approximately 75% of planned investments in formula rate programs that provide real-time returns. The plan includes increasing annual investments in our transmission and distribution system each year, resulting in 9% average annual rate base growth.

Energize 365 supersedes our long-standing Energizing the Future transmission program, which we’re sunsetting after a decade of strong performance. Our planned targets investments that improve the customer experience and supports the energy transition or new load requirements, while ensuring a fair and reasonable regulated return for our investors. The capital program is 45% weighted in FERC-regulated transmission investments in our stand-alone transmission and integrated businesses, and includes investments to enhance and upgrade the transmission system, add operational flexibility to support projects like New Jersey offshore wind and new data center load and regulatory required projects. On the distribution system, the plan includes investments by our distribution and integrated segments to improve the customer experience through reliability enhancements, grid modernization and clean energy investments such as smart meter deployment, distribution automation and energy efficiency programs.

This comprehensive five-year instrument plan is very solid with flexibility to adjust as projects and programs emerge. Over the next couple of years, we anticipate an increase in earnings from our formula rate investment programs and as we rerate base distribution rates for over $19 billion of state regulated rate base. Our plan builds off the approved or settled base rate cases in Maryland, West Virginia and New Jersey, our integrated segment, representing $7 billion in rate base that was earnings 400 basis points below the allowed returns, as well as scheduled base rate cases in Pennsylvania and Ohio later this year, where we have $12 billion in projected rate base in our distribution segment. It is also forecasted to be under earning. The true-up of returns will allow us to earn closer to our allowed regulated returns and to significantly improve the earnings quality of the company with the expected declines in the earnings contribution from Signal Peak.

In longer term, annual rate base growth with planned investments in formula rate programs, more timely recovery of base capital investments and cost discipline with our operating expenses will result in less regulatory lag than we’ve seen historically with modest and reasonable customer bill impacts. We expect our utilities to maintain their strong affordability position and keep rates at/or below our in-state peers. Energize 365 will be funded with cash from operations, which we expect to average $4 billion-plus annually, building off our 2024 cash flow projections, as well as regulated long-term debt issuances and a portion of the $3.5 billion in proceeds from the FET transaction. And our plan does not include any incremental equity needs beyond our existing employee equity programs and it supports FFO to debt of 14% to 15% and FE Corp debt at/or below 20% of total debt.

Our 2024 guidance range of $2.61 to $2.81 a share represents a 7% increase off the midpoint of our 2023 guidance, which will largely be back-end loaded given the timing of new rates in West Virginia and New Jersey and O&M mark plan for Q1 of this year. With this in mind, our projection for the first quarter are operating earnings of $0.48 a share to $0.58 a share. To give you some color on the year-over-year increase, our midpoint of $2.71 a share reflects 12% consolidated regulated growth offset by a decline in Signal Peak’s earnings contribution. The increase reflects new rates and investments largely from approved or settled base rate cases in our integrated segment, where we anticipate new rates for our West Virginia and New Jersey settlements to be implemented late in the first quarter and ongoing formula rate investments in each of our businesses.

A return to normal weather-related customer demand, higher operating expenses reflecting the timing of O&M activities that I spoke of earlier, and new depreciation rates on our fossil generating facilities as part of the settlement we reached in West Virginia. It’s important to note that our 2024 planned O&M is $140 million or 10% below 2022 levels. And when you adjust for timing such as planned generation outages, our O&M is $100 million or 6% below 2022, reflecting permanent cost reductions. Other drivers include improved earnings quality from the lower earnings contribution from our Signal Peak mining asset and a higher effective tax rate. The dilution from the FET transaction is largely offset by lower interest expense, representing planned debt retirements and interest income from the vendor take-back note as part of the FET transaction.

Our $4.3 billion capital investment plan for this year represents a 16% increase compared to 2023. And is largely funded with $4 billion in cash from operations, which has improved year-over-year from several unique items that occurred in 2023, such as the $750 million pension contribution, contract termination costs and severance and employee separation costs, as well as increases from growth and cost recovery in our regulated businesses and improved working capital. With the improvement in cash flow, closing on our FET minority interest sale and deployment of those proceeds, we’re targeting 14% to 15% FFO to debt by year-end. 2023 was a challenging but remarkable year, a year of significant transition, innovation and improvement with outstanding operational and financial execution from our 12,000 employees.

Today, our company is a much stronger position, and we have a comprehensive plan for continued growth. Thank you for your time today. But before we go to Q&A, I’ll turn the call back over to Brian.

Brian Tierney: Thank you all for joining us today. I’m excited about our company. We’re building a strong track record of execution. We have a fantastic business model and a robust plan for the future. Starting with the initial Brookfield and Blackstone investments announced in late 2021, we have significantly improved the balance sheet via $7 billion in equity capital, and it was raised in a very shareholder-friendly manner, the equivalent of issuing common equity at $87 per share. In the past year, we’ve achieved several important regulatory milestones, representing constructive outcomes for FirstEnergy and our customers. This includes $219 million of increased revenues through base rate cases that will fuel our investments in reliable and affordable service.

Energize 365, our five-year $26 billion investment plan is an increase of more than 44% from our previous five-year capital investment plan and it’s funded with organic internal cash flow and utility debt, not incremental equity. We have a long-term 6% to 8% annual operating earnings growth trajectory with significantly improved earnings quality. This tremendous work together with the cultural changes and focus on continuous improvement has transformed our company. We have accomplished a lot and we’re committed to executing on our plan to deliver the full value of this company to shareholders. Now, let’s open the call to your questions.

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Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Shar Pourreza with Guggenheim Partners. Please proceed with your question.

Shar Pourreza: Hey, guys. Good morning.

Brian Tierney: Good morning, Shar.

Shar Pourreza: Good morning, morning. Just, Brian, good to see the roll forward of the 6% to 8%. I guess as we’re thinking about some of the sort of the earnings headwinds like Signal Peak becoming sort of immaterial next year and potential maybe future pension drag, I guess, any sense on how we should think about the linearity of that growth off the 2024 base, could we see some maybe near-term gyrations around the 6% to 8%? Or you have enough contingencies to maintain that linearity?

Brian Tierney: Shar, it’s going to be really linear. We’re not going to see much volatility. We’re getting back to where a normal utility should look like. We’re going to be investing in our regulated properties. And obviously, a lot of that recovery is going to come through formula-based rates. So that is — tends to be linear, about 75% through formula-based rates. And then we’re going to be regularly going in for rate cases. And it’s just the normal cadence of how a utility operates. You invest, you operate, you recover and you finance. And that’s the cadence that we’re going to be on.

Shar Pourreza: Got it. And the 9% rate base growth is obviously very solid. Is there still I guess, some incremental CapEx opportunities we should be thinking about in the five-year plan. I know, obviously, Jon highlighted some flexibility there in the prepareds, and then any sort of rule of thumb we should think about if there is incremental equity — incremental CapEx? Could it come with incremental equity? Or you have enough cushion in the credit metrics to not have to tap the equity markets even if there’s incremental CapEx?

Brian Tierney: Yes. I think we have enough cushion for sure. And we’re seeing things like the PJM Open Window 3 that we responded to, where the team worked really hard to put together a solution in a short period of time, and we were able to garner over $800 million of incremental investment through that opportunity. I see more of those coming. They’re not in our capital plan yet, and they won’t be until we win the projects. But there’s significant amounts of new CapEx that’s not in our plan that I anticipate will see coming down, and we’ll be able to fund that through a combination of cash flow from operations, debt equity issuances and things like the $3.5 billion of equity that’s going to come into our system in 2024 from the transaction. So we’re ready to fund these incremental CapEx, the way a traditional utility would without having to see much access for equity from the equity capital markets.

Shar Pourreza: Okay. And I think – sorry…

Brian Tierney: No, no. I would just reiterate kind of what you said. I mean had we not done the transactions over the course of the last couple of years, raising $7 billion of equity capital, really at the equivalent of a 36 times PE multiple, we wouldn’t be in this position today. I think a lot of it depends on formula rate CapEx versus base capital. I think if you look at some of our utility capital structures, they have equity layers that are a little bit better than our targeted equity capital structure. So we have some flexibility in the plan.

Shar Pourreza : Perfect. And just real quick, lastly, on just — Brian, I think you answered this, but on the OOCIC process. It doesn’t sound like there’s any updates its status close. So is it fair to assume — I haven’t seen the K yet, but when it’s released, we shouldn’t see anything surprising in that.

Brian Tierney: Yes. No surprises at all, Shar. Status quo, they ask questions, we answer them, and nothing new with regards to the company from what was disclosed in the deferred prosecution agreement.

Shar Pourreza : Fantastic guys. Really Brian, awesome execution. Appreciate it.

Brian Tierney: Thanks, Shar.

Operator: Our next question is from Gregg Orrill with UBS. Please proceed with your question.

Gregg Orrill: Yes. Thanks. Congratulations on rolling out the new plan.

Brian Tierney: Thank you, Gregg.

Gregg Orrill: So, just on cash from operations guidance. Is the guidance that the new base for growth is $4 billion and you grow off of that? Or it that’s the average over the plan and there’s sort of — it’s down and then you’re above that level toward the end of the plan?

Jon Taylor: Yes, Gregg, this is Jon. In all years, it will be $4 billion or more of cash from operations. Some of it will be just growth in our regulated programs, offset by maybe some changes in working capital. But on average, over the five-year period, it will be north of $4 billion.

Gregg Orrill : Okay. Maybe just a follow-up for Brian. How do you sort of reconcile the idea of coming forward with the new plan that adds such a significant amount of new capital to the prior plan?

Brian Tierney: We’re in a different place, Gregg. The work that’s been done on the balance sheet since 2021, as we laid out, has been truly transformative. For the first time, I think, in the company’s history, we’re not distracted by M&A. We don’t have a competitive arm. We have a strong balance sheet with the opportunity to invest in our regulated, mostly wires companies that, to be honest with, we got behind in the capital investment in them. And that’s why our rate base is lower. It’s why our rates are lower. And it’s why we have some significant opportunities with regards to reliability and the customer experience. We are here for the first time, ready, willing and able to put the money into our regulated properties for the benefit of our customers, and it is a significant difference from what you’ve seen in the past.

Gregg Orrill : Okay. Thanks a lot. Appreciate it.

Brian Tierney: Thank you.

Operator: Our next question is from Nicholas Campanella with Barclays. Please proceed with your question.

Nicholas Campanella: Hey, good morning. Happy Friday. Thanks for all the updates. I guess, just to follow-up on Gregg’s question, because the CapEx raise is pretty material across the board, obviously it’s good to see, Just how should we kind of think about customer bill growth to achieve this plan, as it relates to just the upcoming filings and then just through the plan as well, please?

Brian Tierney: Yes. So we think the increases will be in the single-digit for most of the time for the five-year period. If you look Nicholas, at Page 23 in the fact book that we put out there in New Jersey through West Virginia and Maryland, our rates are 22% to 30% below our in-state peers. And in Ohio, they’re — and in Pennsylvania, they’re 3% to 7% below our in-state peers. A lot of that in New Jersey, West Virginia, Maryland represents opportunities to invest in the rate base and improve the customer experience. But also more importantly, if you look at things like customer affordability between 1997 and 2022, our customers’ electricity share of wallet has decreased to 1.3% from 1.6%. So, when we talk to smart people who cover our industry and they say that you need to start getting concerned when you’re at 4% to 5% share of your customers’ wallet, we’re nowhere near that.

And electricity, whether it’s for home heating, whether it’s to power your vehicles or whatever, still represents a considerable value for the customers in the states we serve.

Jon Taylor: Nick, this is Jon and I’ll just add on to that. If you look at the cases where we have approvals or settlements on file in our integrated business, if you just kind of compare to where we were since the last rate case, it’s an average of 1% or 1% lower than the last time, if you do that on an annual basis. And in fact, if you step back a little bit more and just look at the increases in customer bills over the last couple of years, most of that is generation related. And if we were to snap the line today with new generation service, for instance, in Ohio and Pennsylvania, you would see bill decreases of somewhere between 4% and 8%.

Nicholas Campanella: Got it. That’s helpful. And then I guess just kind of a similar question on what’s embedded in the plan here. And I’m just thinking about earned ROEs, obviously, New Jersey is pretty low here, that will improve with the settlement. How do we think about kind of Ohio? And if you get an improvement versus your slides here, is that baked into the plan or just how should we kind of think about that?

Brian Tierney: Yes. As we talked about, the next couple of years will be very important as we true-up our state-regulated returns to more of their allowed return. So, I think about Ohio and Pennsylvania, which will be next to file. Ohio right now is earning sub-6%. Some of that is weather-driven, but we do see an opportunity to true-up the return there. And then in Pennsylvania, although it’s above 9%, a lot of the O&M that’s coming back in the system will be in our Pennsylvania company, which will reduce the ROE there. And we use a projected test year for our Pennsylvania company. So, you’ll be adding about $1 billion of rate base between where it is today and the filing that we’ll make later this year.

Nicholas Campanella: Okay. And then just one last one, just on the load growth, 1% embedded in the plan. Places at PJM have just continued to see demand revisions higher and I’m just wondering if that’s conservative at all?