FirstEnergy Corp.

Greetings and welcome to the First Energy Corp First Quarter 2020 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Irene Prezel, Vice President, Investor Relations for First Energy Corp. Thank you, Ms. Prezel. You may begin.

Thanks, Melissa. Welcome to our first quarter earnings call. Today we will make various forward-looking statements regarding revenues, earnings, performance, strategies, and prospects. These statements are based on current expectations and are subject to risk and uncertainties. Factors that could cause actual results to differ materially from those indicated by such statements can be found on our investor section of our website under the earnings information link and in our SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures can be found on the First Energy Investor Relations website along with the presentation which supports today's discussion. Participants in today's call include Chuck Jones, President and Chief Executive Officer, and Steve Straw, Senior Vice President and Chief Financial Officer. I'll note that we are all virtually participating in this call, and we have several other executives on the phone as well that are available to join us for the Q&A session. Now I'll turn the call over to Chuck.

Thank you, Irene, and good morning, everyone. Thanks for joining us. These are unprecedented times. We hope all of you who are listening this morning are safe and healthy. We realize you have numerous questions on how this public health emergency affects First Energy. Our goal today is obviously to review our first quarter earnings, which once again are solid, but also to talk about the journey we've been on during the COVID-19 pandemic and the path that we see ahead. I'll cover the broader story of our business and why we believe our strategy is built for resiliency during this crisis. I'll also review the actions we are currently taking to navigate in today's environment. Overall, I'm confident we are well positioned to manage through these events. First, the diversity and scale of our transmission and distribution operations across 65,000 square miles in five states is a fundamental strength for First Energy. We operate critical infrastructure. and that means everything our employees do is considered essential work. But as we continue this important work to maintain our large electric system and provide the energy our customers and communities need, my number one priority is to help keep our employees, their families, and our customers safe. To minimize the risks, we have taken significant steps to quickly adapt to the new circumstances and protect the health of our employees and customers. We successfully transitioned more than 7,000 employees to work remotely. That's more than half of our workforce, and it includes moving our call center employees to a work-at-home environment as well. For our workforce unable to work remotely, we've implemented preventative measures to help keep them safe on the job. We've secured protective equipment like surgical masks and other supplies like thermometers that are being used by our operating companies, regulated generation plants, and other work groups. We have also increased cleaning and disinfecting measures, relocated job briefs and reporting locations to sites conducive to social distancing, and adjusted work schedules. We have positioned crews so they are working with the same small group of people each day in what we call pods. They are consistently using the same vehicle and the same equipment to limit exposure. And we are managing our work to minimize potential exposure with the public. We continue adjusting our work plans and remain flexible to meet the ongoing needs of our workers, minimize the spread of this virus, and adopt the current guidance from state and federal health agencies. It takes consistent communication on everyone's part. focusing on the health and safety of our employees and customers throughout the process. This pandemic has become a defining moment for our country and our company. What encourages me is knowing that we'll emerge from this stronger because we've come together to learn how to work smarter, more creatively, and more efficiently. In fact, we're all very well positioned to manage the impact of the economic slowdown. and we believe our distribution and transmission investments will continue to provide stable and predictable earnings. As the situation continues to develop, the diversity and scale of our operations gives us the flexibility to shift our investments if needed and continue deploying capital throughout the system. While we are keeping a close eye on our supply chain, we do not anticipate significant disruptions. Since the middle of March, we have been looking at the early impact the pandemic is having on usage trends, both from a system-wide load perspective and from a sampling of Pennsylvania smart meter data. We have seen system-wide weather-adjusted load drop by almost 6% from mid-March until mid-April compared to the same timeframe last year. We've also seen increases of more than 6% for Pennsylvania residential customers driven by the stay-at-home order. We would expect similar increases in residential usage across the rest of our service territory since all of our states are operating under stay-at-home orders. While our commercial and industrial customer load is down almost 13% compared to our four-year average from 2016 to 2019, I would remind you that prior to the pandemic, we were already seeing reduced industrial sales due to the manufacturing recession. However, our rate structures provide a measure of stability, even in tumultuous times. About two-thirds of our base distribution revenues come from residential sales, while 28% are from commercial customers and about 7% come from the industrial sector. And about 20% of our total load is on the decoupled rate structure in Ohio. In addition, a significant portion of our base distribution revenue isn't directly tied to energy consumption. but is derived from other billing determinants. In fact, about 80% of commercial rates and 90% of industrial are made up of customer and demand charges. We are pleased that in Maryland, the Public Service Commission proactively issued an order this month authorizing deferral for future recovery of all prudent incremental COVID-19 related costs. This strong regulatory policy demonstrates firm support for our customers and our business. I would like to personally thank Chairman Stanek and the rest of the commissioners in Maryland for their leadership on this important regulatory issue. We can also recover incremental and collectible expenses through existing riders in Ohio and New Jersey. Our current regulatory calendar is light through our 2023 planning period. The active items include the distribution-based rate case we filed in New Jersey in February, seeking to recover increasing costs associated with providing safe and reliable electric service for our customers, along with recovery of storm costs incurred over the last few years. We expect an ALJ will be assigned to our case soon, followed by the issuance of a procedural schedule. In the meantime, the discovery phase of the case has begun for parties to review the date details of our request. We anticipate the litigation schedule will provide the opportunity to discuss favorable settlement with the parties in the case. We also reached an agreement to transfer JCP&L's portion of the Yards Creek plant to LS Power, and we expect that transaction to close in the first half of 2021 pending approvals. In West Virginia, we have a requirement to make an informational filing by December 30th, 2020 for our integrated resource plan. The IRP updates our plan to provide our West Virginia customers with adequate and reliable generation resources that reasonably balance cost and risk. And finally, we have a commitment to file a rate case for our smallest utility, Potomac Edison in Maryland by early 2023. Moving now to our first quarter results, which marked another quarter of solid execution as a fully regulated company. Yesterday, after market closed, we reported gap earnings of 14 cents per share, along with operating earnings of 66 cents per share, which is a penny above the midpoint of our guidance range. Our results were driven by higher transmission margin and lower expenses. which helped to offset the impact of mild weather on our distribution revenues. As always, Steve will discuss the drivers in more detail later in the call. We are affirming our 2020 earnings guidance of $2.40 per share to $2.60 per share. and $0.60 per share. We are also affirming our expected CAGR of 6% to 8% through 2021 and 5% to 7% extending through 2023, as well as our plan to issue up to a total of $600 million in equity in 2022-2023. In addition, we are introducing earnings guidance of $0.48 to $0.58 per share for the second quarter of 2020. While the financial markets have been extremely volatile and sometimes illiquid these past couple of months, First Energy continues to be a low-risk, stable, predictable utility. We have adequate liquidity of $3.5 billion, strong and proven access to the capital markets, and a pension plan that's outperformed in these volatile market conditions due to its low-risk conservative asset allocation. Steve will also cover these three topics in greater detail. Finally, let me take a moment to discuss our succession planning. I've been getting a lot of questions on this. Just because I look old doesn't mean I feel old. While I don't plan on going anywhere yet, I know many of you have been wondering about our plans for a transition. I can tell you that our Board has been just as thorough and thoughtful on this topic as they are with any other key governance issue. We started planning for my replacement literally right after I became CEO. What started as our typical emergency planning has evolved into robust succession planning discussions. In 2018, we made several moves that were designed to broaden the experience of some of our key executives. This included placing Steve into the CFO role, bringing Sam Belcher over from Phenoc to become president of utilities, and moving John Taylor out of the finance organization into a leadership role in distribution operations. The Board and I are continuing discussions, and I would expect you may see additional organizational moves within our leadership team in the coming months. They are part of what I said will be a thoughtful transition in leadership at First Energy. But having said that, I have made no decision about my own retirement, and as long as the good Lord and my Board are willing, It won't be any time this year. Thank you for your time. Stay well, and we look forward to seeing many of you once again when things return to normal. Now Steve will review the first quarter.