FirstEnergy Corp.

Greetings and welcome to the FIRST Energy Corp First Quarter Earnings 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, and Communications for First Energy Corp. Thank you, Ms. Prezel. You may begin.

Thank you. Welcome to our first quarter 2023 earnings call. Today, we will make various forward-looking statements regarding revenues, earnings, performance, strategies, prospects, and other matters. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by these statements can be found on the investor section of our website under the earnings information link and in our SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures, the presentation that supports today's discussion, and other detailed information about the quarter can be found in the strategic and financial highlights document on the investor section of our website. We'll begin today's call with presentations from John Somerhalder, our board chair, interim president, and chief executive officer, and John Taylor, our senior vice president and chief financial officer. Several other executives will be available for the Q&A session. Now I'll turn the call over to John Somerhalder.

Thanks, Irene. Good morning, everyone. Thank you for joining us today. we've accomplished a lot since our last earnings call and continue to build on the positive momentum we have seen over the last couple of years. Our first quarter gap earnings are 51 cents per share. Despite the impact of extremely mild first quarter temperatures, operating earnings are 60 cents per share, which is within the guidance range and reflects the continued execution of our long-term regulated growth strategy. We continue to position First Energy for greater resiliency and growth by strengthening our financial position, enhancing our operations, optimizing the customer experience, and transforming our culture. When Brian Tierney joins us as president and CEO on June 1st, he will hit the ground running to build on these efforts. We're very excited to welcome him on board. Clearly, we recognize how important it was to find the right leader for our company. And in Brian, we have a CEO who understands our industry and business and is the right leader to drive our strategy and accelerate our momentum. I know many of you worked with Brian during his time at AEP, and you know him as a highly respected executive with a unique blend of operational, financial, and strategic skills and achievements. His strong track record of driving results is very well aligned with our goals at First Energy. He has expressed his support for the steps we've taken to position our company and he intends to continue to advance our business strategy, building on the strong foundation we have in place today. We know we found the right person to lead our company. I know everyone is looking forward to hearing from him and we will certainly give you that opportunity. He will have a busy calendar starting on June 1st. In the meantime, I'm so proud of our employees and their excellent work to position our company for the future. I know they will double down in their efforts to support Brian to drive long-term sustainable value for all of our stakeholders. This work includes a very busy regulatory calendar that addresses the critical investments that support reliability and a smarter and cleaner electric grid. John will review our recent distribution filings in a few minutes, but first I'll take a moment to provide an update on our transmission business. In early February, we announced an agreement to sell an additional 30% interest in First Energy Transmission, LLC, to Brookfield Supercore Infrastructure Partners for $3.5 billion. and this transaction remains on track to close in early 2024. Brookfield's partnership in FET supports our substantial long-term investments to build a more resilient and modern electric grid. We have a $1.7 billion transmission investment program this year, and that's increasing to $1.9 billion by 2025. The mild first quarter weather coupled with strong planning and execution helped us get off to a great start with our construction program. Our transmission capital investments of nearly $350 million are about 60% ahead of the first quarter of 2022 and about 50% ahead of our internal plan. Examples of this work include upgrading an eight-mile 138 KV transmission line in Ottawa County, Ohio, near Toledo. This project, which is scheduled for completion in May, includes stringing new, larger conductor that can handle additional demand, replacing older structures with monopoles, and installing more than 40 new components and insulators. Upgrading the high voltage transmission line in New Jersey that is expected to improve system reliability for more than 3,000 customers. This project includes the installation of 53 new wood pole structures to fortify and strengthen the line and help prevent outages. And our transmission program is also facilitating the energy transition by connecting clean energy resources to the grid. Earlier this year, JCP&L completed a grid connection for a 19.8 megawatt solar project located at a former landfill property in Mount Olive, New Jersey, that is now delivering clean energy through First Energy's transmission lines. We are excited to continue making these types of investments across our service territory in support of a clean energy future. We are affirming our 2023 guidance of $2.44 to $2.64 per share. As we discussed last quarter, the midpoint of this range represents 6% growth over our original 2022 midpoint of $2.40 per share. We are also introducing second quarter 2023 guidance of $0.40 to $0.50 per share. In addition, we are affirming our targeted 6% to 8% annual operating earnings growth rate. This represents year-over-year growth based off of prior year guidance midpoint. I want to spend a moment discussing our regulated earnings and earnings quality, particularly in light of the current contribution from the Signal Peak mining operation. While this is a legacy investment that we neither control nor operate, it has taken on a higher profile over the last year. Based on our plan, the earnings contribution from Signal Peak in 2023 is expected to be less than 15% of our $2.54 guidance midpoint. And the expectation longer term is that Signal Peak contribution will decline on an absolute and relative basis, representing less than 10% of 2024 and 2025 consolidated earnings, improving the company's earnings quality over time. We intend to continue providing transparency around Signal Peak's contribution going forward. Our focus is on our regulated operations, our state distribution companies and our transmission businesses, and on improving the credit quality of the company. We expect significant growth from our regulated operations given current returns in our distribution companies and our customer-focused investment strategies across both distribution and transmission, which will more than offset the decline in signal peak and support our expectations of 68% consolidated average annual earnings growth. I believe we are on the right path to leverage our strengths and deliver value to all of our stakeholders. Now, I'll turn the call over to John Taylor.

Thanks, John, and good morning, everyone. Although we were significantly impacted by the record-breaking mild temperatures this winter, our underlying business fundamentals remain strong and on track. I'll begin my remarks with a regulatory update, then I'll review our first quarter financial results. Last month, we kicked off a period of significant regulatory activity. Since early March, this includes an application to consolidate our four Pennsylvania utilities, which is an important step to align with our state operating model, simplify our legal entity structure, and increase the flexibility and efficiency of our financing strategy. We also filed rate cases in New Jersey and Maryland that support critical reliability investments, a modern electric grid, and enhancements to the customer experience, while maintaining the lowest residential customer rates among regulated electric distribution companies in both states. Since our last JCP&L rate case in 2020, we've made nearly $800 million in investments to modernize and strengthen the electric grid. The JCP&L proposal represents a $185 million revenue increase and supports distribution equity returns of 10.4%. It features enhanced recovery of storm balance costs, expanded vegetation management programs, recovery of program costs related to AMI and electric vehicles, and a proposal to normalize pension OPEB costs. The proposal also confirms our plan to file an infrastructure investment program later this year. In Maryland, our proposal for a $44 million net revenue increase supports equity returns of 10.6%. It includes a proposal for the second phase of the electric distribution investment surcharge program, a pension OPEB normalization mechanism, and a cost recovery proposal related to COVID and electric vehicle balances. And in Ohio, we filed our fifth electric security plan to support our generation procurement process for non-shopping customers, continued investments in the distribution system, storm and vegetation management riders, and energy efficiency programs. The filing also includes proposals to support low-income customers and the electric vehicle customer experience. We requested approval for the new ESP to be effective on June 1, 2024, when the ESP4 ends. We've included a summary of the key filings together with news releases and links to the dockets on the new regulatory corner section of our IR website. We've received a lot of positive feedback about this resource and will continue to update the site as we move through each of the proceedings. Later this quarter, we plan to file a rate case in West Virginia, and looking further ahead, we are considering the appropriate time to file for new base rates in our third long-term infrastructure investment program in Pennsylvania. and we will file a rate case in Ohio in May of 2024. While each utility and each case have unique circumstances, we have noted that recent base rate cases involving other investor-owned utilities in Ohio have been resolved with equity capital structures in the 50 to 54% range and supportive ROEs in the 9.5 to 9.9% range. These outcomes align with our plan, which includes the financial impact of our 2021 approved settlement that provided for over $300 million in refunds and bill credits to customers, as well as continued rate-based growth and the accounting changes that we previously discussed, all of which significantly lowered the returns at our Ohio utilities. I want to spend a few extra minutes on the recent generation filing in West Virginia, where we're working with a broad group of stakeholders to ensure we find the best outcome for our customers. Last December, the Public Service Commission ordered MonPower to provide an evaluation of purchasing and operating the Pleasance Power Station, a coal-fired plant that we understand is currently slated for closure on May 31st. The concept of a potential acquisition of Pleasance was suggested by stakeholders in West Virginia as a replacement for our Fort Martin station, which has a proposed end-of-life date of 2035. We responded to the Commission last month indicating that additional time and analysis are needed to properly complete the necessary and complex assessment. Monpower proposed an option to enter into an interim arrangement with Pleasant's current owner that would keep the plant operational beyond its May 31st deactivation date. This would allow the needed time to do a thorough analysis and evaluation as requested by the West Virginia PSC. On Monday, the Commission approved our proposal. We will begin negotiations with the plant's current owner. If we reach an interim agreement that we believe is in the interest of customers and First Energy, we will submit it to the commission. And if approved, this would allow recovery of associated costs through a surcharge. If we can't reach an agreement that is in the interest of our customers, we will file an update with the commission. To be clear, we don't see it as a viable option for MonPower to operate three coal-fired power plants in West Virginia. we will continue to work through the process with the PSC and strive for an outcome that best serves our customers, communities, and employees in West Virginia. At the same time, we are moving forward with our efforts to support the energy transition across our footprint, and we remain committed to our climate strategy and our goal to achieve carbon neutrality from our scope one emissions by 2050. Monpower continues securing commitments from residential, commercial, and industrial customers in the state to purchase solar RECs from our five planned utility scale solar generation facilities, totaling 50 megawatts. This week, we filed an update with the Commission to begin moving forward with three of the five sites, totaling 30 megawatts of capacity, and to obtain approval of a small surcharge. Turning to first quarter results and other financial matters, first quarter gap earnings were 51 cents per share, and operating earnings were 60 cents per share. which is just below the midpoint of our guidance, despite the impact of a very mild winter across our footprint. Absent the impact of weather, we were on plan for the quarter. In our distribution business, first quarter results benefited primarily from our capital investment programs, higher weather, adjusted load, and lower operating expenses, including employee benefit costs and the maintenance work we accelerated into 2022. These were offset by a significant decrease in weather-related demand Lower pension credits and higher financing costs related to our financing activity in the second half of 2022. Record setting mild temperatures this winter with heating degree days 18% below last year impacted total customer demand by 8% or 12 cents per share. On a weather adjusted basis, distribution deliveries increased more than 2%, which was very nice to see. Residential sales decreased 8% from the first quarter of 2022, but increased 5% on a weather-adjusted basis. Compared to pre-pandemic levels, weather-adjusted sales to residential customers are trending about 4% higher. In the commercial sector, deliveries decreased 7% compared to the first quarter of 2022 due to lower weather-related demand, but increased almost 2% on a weather-adjusted basis. While sales to commercial customers continue to recover, they lagged 2019 levels by more than 4%. Finally, first quarter 2023 sales to industrial customers decreased slightly compared to the first quarter of 2022, driven by the chemicals, metals, and plastics sectors. Industrial sales remain just below pre-pandemic levels, but we continue to see fairly strong growth in some of our other industrial sectors, such as steel, services, and other manufacturing. As for weather-adjusted load, we do expect a positive trend to continue relative to our plan, especially in the residential class, helping offset some of the lower weather-related sales we experienced in the first quarter. Additionally, operating expenses in our distribution business reflect the continued focus on our cost structure, and we are pursuing additional cost reductions to further offset the impact of mild first quarter temperatures. Turning to first quarter drivers in our transmission business, results primarily benefited from rate-based growth of 8% compared to the first quarter of 2022 associated with our Energizing the Future investment program, offset by dilution from the minority interest sale in FET that closed in May of 2022. As John mentioned, we started the year off strong with our capital investment program in our transmission business, deploying nearly $350 million of capital, which is significantly above our internal plan. First quarter results in our corporate segment benefited from higher investment earnings from Signal Peak and lower financing costs associated with holding company debt redemptions in 2022, which more than offset the lower pension credit. Signal Peak's contribution in Q1 of this year was $0.08 per share, but we expect a slight decrease to its projected earnings for the full year due to current forward market prices for coal. While weather had a significant impact for the first three months of the year, it's not taking us off our plan. We expect to offset the weather impact this quarter as well as projected lower earnings contribution from Signal Peak through stronger weather adjusted load, additional cost reduction opportunities, as well as opportunities to optimize our financing plans. Thank you for your time this morning. We recognize we have some work to do given the mild winter temperatures this quarter, but we see this as manageable. We remain focused on executing our plan. and creating long-term value for our investors, customers, communities, and employees.

Now let's open the call to your questions.

Thank you. We will now be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is from Shar Perez with Guggenheim Partners. Please proceed with your question.

Hey, good morning, guys. Morning, Shar. Just a couple ones here. We're sort of thinking about the upcoming Ohio rate case, just maybe from a high level. What sort of, what are the asks there? Is it primary capital and rate-based deferred cost, O&M, true-ups? Do you sort of anticipate something to be more rate neutral? And kind of related to that, how should we be thinking about historical precedence with sort of a newer commission as we think about some of the key regulatory items like goodwill and how that may be treated differently in this upcoming case?

Yeah, well, Char, so if you look at the returns for the Ohio utilities, they've been trending down over the last few years. If you go back to 2020, we were reporting returns in the 13% range versus 8.3% as of the end of March. You know, obviously the seat settlement that we reached back in 2021 impacted the returns significantly with those annual rate credits to customers. The accounting changes that we made around veg management and corporate support costs had an impact on our returns, as well as just continued investment in rate base with about a billion five of incremental rate base, which is over 50% since the last rate case, which comes with the associated increases in depreciation and property taxes. And to your point, if you look at recently approved rate cases in Ohio, ROEs have averaged somewhere between 9.5% to 9.9%, and capital structures with equity between 50% to 54%. And that's really in line with what's included in our DCR and AMI riders that recovers our distribution reliability and grid mod capital investment programs. So I feel like we've positioned the Ohio companies the best we can, and we're looking forward to the opportunity to file the case next year.

Got it. And then lastly for me, just, you know, obviously it's impacting the stock a little bit this morning, just in your queue, there's some new language around potentially using hybrids. Can you just maybe expand on that, how it ties into your thinking around equity? Are you kind of looking at converts in the traditional sense or ones that have been utilized lately, you know, with some of your peers where the window to convert is shorter, it's less dilutive, you don't really get the equity credit. I guess really the question here is, is are you looking for equity credit or not? Thanks.

Well, I would say our first focus is, you know, filing the application for the Brookfield transaction and to get that closed. And if you think about that transaction coupled with the other transactions that we've already closed on, we will have raised $7 billion of equity or equity like capital. When it comes to other instruments that you're referring to, we look at all types of instruments all the time to see if we can maximize or optimize our financing plan. And that's exactly what we do. If you're looking at our short-term borrowing rate at 6.5%, 7%, we feel like we need to look at opportunities to find cheap financing to offset those costs.

Got it. So just to summarize, your language around not needing equity has not changed with the plan? Correct. Correct. Okay. Perfect. Thank you, guys. Appreciate it.

Thank you. Our next question is from Jeremy Tonnet with JP Morgan. Please proceed with your question.

Hi. Good morning. Good morning. Good morning, Jeremy. Just wanted to come back to Signal Peak a little bit, if you could. Just wondering, I guess beyond 2024, what's the run rate EPS contribution? How should we think about that over time? And is there a strategic plan for the asset going forward?

So, Jeremy, we've talked about before, you know, in our plan today, we see, you know, signal peaks, earnings contribution declining on an absolute basis as well as a relative basis. So less than 10% of the earnings going forward. And right now, if you look at the price curve for Newcastle coal, on average about $175 a ton, that supports that assumption. Strategically, we've looked at that asset before. It's a very difficult asset to monetize, but it is something that we look at from time to time. We'll continue to do so.

Got it. That's helpful. Thanks for that. And then just want to kind of dive into weather a little bit more if I could. And clearly outlined before, I guess, you know, offsets to 38 cent pension headwind, but then weather is probably a bit more of an impact on the plan than when the guidance was originally provided. And you talked about, I guess, you know, signal peak, whether just load additional cost reduction opportunities in optimizing the finance plan to offset weather. But just wondering if you could quantify a little bit more how you've seen the weather impact versus plan for, you know, year to date or expectations at this point in, in which of those buckets, uh, present kind of the bigger opportunities to, uh, deliver offsets.

Yeah. So, so the weather for Q1 was about a 12 cent impact to the plan. Uh, you know, absent, you know, the abnormal conditions we saw in Q1, we would be slightly ahead of plan, uh, for the first quarter. Now, we have seen positive, what I'll call weather-adjusted load, primarily in our residential sector. We've seen that trend over the last several months. In fact, if you look at the last few years, our residential load typically comes in, you know, anywhere from 1 to 2 percent better than our load forecast. And so we see a little bit of a tailwind associated with weather-adjusted load for the rest of the year. As you mentioned, we are looking at, you know, further cost reduction opportunities. You probably saw we've terminated some sponsorship agreements. We announced a facility optimization plan to consolidate real estate. And we're also being very selective in backfilling attrition, especially for our non-bargaining, you know, employees. And then we're also looking at our financing plan, as I mentioned earlier, in terms of how we can reduce short-term borrowings and get better cost of capital associated with our debt financings.

Got it. That's helpful. So even if 2Q guidance was below, I guess, where the street was, things are still kind of progressing in line with your expectations. And these offsets can keep you firmly towards the midpoint of your plan?

That's right. In fact, if you look at just you know, quarter by quarter. And if you think about last year, you know, really what's going to help us offset the pension is some of the actions we took last year to accelerate operating expenses from 23 into 22. And we really didn't make that decision until the third quarter. So you'll really see the uplift in earnings beginning in the third quarter.

Got it. That's helpful. I'll leave it there. Thanks.

Thank you.

Our next question is from Steve Fleishman with Wolf Research. Please proceed with your question.

Yeah. Hi. Thanks. Good morning. John, maybe just a little more color on kind of the board's thoughts on hiring Brian and kind of what you think he brings to the company.

Yeah, I mean, as we've talked about, Steve, Brian was always someone that we thought would be very good in this role because of his deep experience in this industry. Also his time at Blackstone, that was a very valuable experience. So we always viewed him as a really good candidate. We were very pleased that early this year, We saw him as available. We did not before that, but we saw that he saw the great fit as well. So there was mutual belief that he could be the right person. And truly his experience around regulatory environment in Ohio, other locations, all of his experience around The best way to run the operations and optimize operations over time all fit with our plan. Heavy investments in our wires business, our T&D business. So the more we discussed earlier this year with Brian, the more we saw that as the right fit. And obviously the board really feels good about the fact that Brian will be joining us on June 1st. We've been able to spend some time with Brian. He's been very busy, but we've spent some very good quality time. And I continue to be very confident that he's the right person. And I'm very confident in his ability to execute and deliver on our plan.

Okay. And just along those lines, there seems to be kind of, I know it's kind of hard to speak for Brian, but just, you know, there's been some narrative that maybe Brian comes in and like rebases the plan. Um, just any, any, any thoughts on like, is that, you know, unlikely, you know, I assuming people are thinking rebates lower when they say that. Yeah.

Yeah. I mean, we have spent a good amount of time with Brian and provided a lot of good information, you know, based upon my, uh, interactions with Brian. I'm confident that he's committed to execute on our plan.

Yeah. And then just on the whole issue with the kind of thinking about... Oh, I'm sorry. Just on the hybrid comment, I just wanted to just clarify that one more time. The... When you're thinking about optimizing the financing cost, this is more of like a hybrid that's focused on a debt-like instrument like PPL and Southern and Alliant and a bunch of people have just done and not something that's more equity-focused?

That's correct.

Okay. Thank you.

Thank you.

Our next question is from David Acaro with Morgan Stanley. Please proceed with your question.

Hey, good morning. Thanks for taking my question. I noticed that another phase of the New Jersey offshore wind transmission need was issued recently, and you had success in the first one. So I was wondering if you had any early read, if you could speak to your prospects for this next round of transmission need.

Yeah, Dave, I mean, I think we'll take a look at all of those types of proposals as they come up. You know, I think it's too early to handicap at this stage, you know, our prospects. But, you know, something that we're very interested in participating in, we think we're well positioned in the state, you know, to provide value and support those plans and and we'll keep the investor community up to speed as we progress.

Got it. Thanks for that. And on coal-driven earnings this year and on Signal Peak, I guess we've seen domestic coal prices notch down quite a bit since the beginning of the year. I was wondering if there's any view of a declining earnings contribution for this year, specifically versus what you had been, originally contemplating in the guidance, or do you have visibility into contracted levels that would potentially insulate you there?

Yeah, I mean, we have seen some decline in Newcastle power prices or coal prices, but you've got to remember that about 60% of their volume was already locked in at a fixed price, and about 40% of it was indexed to Newcastle coal prices. So we have seen with those index times, a slight deterioration in the earnings contribution for Signal Peak, but it's not nearly as dramatic as the decline in Newcastle Ford prices, and it's manageable in the context of what we're thinking about for this year.

Yeah, I mean, there is a fairly big disconnect between domestic coal prices in the U.S. compared to seaborne coal prices, and the good news is the first quarter came in very much in line with what our expectations were. And if you look at the forward curve, even though it's coming down, it's very much in line and supportive of what we have in our 24 and 25 plan. The real impact we see is this year, the prices because of the supply-demand fundamentals, milder conditions in Europe, fairly robust supply from some areas that supply Newcastle Coal, Australia and others, The impact tends to be over the next several quarters, where we see the impact and as john said that's what we're putting together plans to make sure we have other other ways to address that and and stay on track with our with our plan.

yeah okay thanks that makes sense. One more quick question for me, I was curious just with the New Jersey management audit report that came out. recently, wondering if you could just give your view, your perspective on that and initiatives you might be pursuing in the state around some of the recommendations there.

Well, it was a very comprehensive report. We're continuing to review the recommendations. I think we have an opportunity to provide feedback at some point down the road, and we'll do that at the right time. But we're going through the recommendations. I think there are many recommendations that we'll accept, but there are probably some recommendations that we'll need to have further discussion on.

Okay. Thanks very much. I appreciate it.

Thank you.

Our next question is from Angie Starzynski with Seaport Global. Please proceed with your question.

Thank you. So maybe first with 2024 and how you plan to manage your pension costs. So yes, I see the OPEB and pension cost trackers embedded in the New Jersey and Maryland applications, the Ohio. issue and the Pennsylvania issue won't be addressed for a while. You'll have lower contributions from Signal Peak, as you just noted. And yes, I know that the market has recovered somewhat, but looking at your allocation, you have an issue on the credit side with the investments, at least based on the latest disclosures on how you allocated your pension pension accounts. So should we brace for another year of weakness in earnings in 24 associated with pension?

Well, I mean, Angie, I think through the first quarter, the pension has performed very well. I think the returns were 7%. The discount rate had come down about 20 basis points. And we're tracking to that level as we speak today. And so, you know, in the plan, we have pension, the pension kind of at the same level we have, you know, this year. And we're working to get trackers to protect, you know, the companies from volatility in the pension plan in New Jersey, in Maryland. and will likely propose something like that in West Virginia. So we are doing what we can to protect customers as well as investors from the volatility in the pension plan. But based on everything we know today, everything's tracking a little bit better than we had anticipated.

Okay. Okay. And then changing topics, the other John maybe. So, okay, so we have gone through a couple of catalysts. that were supposed to benefit the stock. The discount on the relative basis hasn't really changed. I understand that we're still waiting for upgrades to investment grade at the whole core level. But is there, as the board looks at what's been happening, is there any suggestions maybe to change the course? Or is it just sticking to the current plan and then over time, the execution against the plan will basically be reflected in the stock?

Yeah, I think absolutely the latter. The board strongly supports the plan. I mean, we view this as, you know, the most important thing is that we execute on the plan and continue to execute on the plan. I think our track record over the last year or two related to, you know, the Brookfield transaction, first transaction John talked about, the second transaction, What we've done related to even with supply chain issues, making sure that we are investing in our business and meeting our schedules on capital deployment. The board really views that the steps we've taken to date, the good progress we've made, and continued execution on that plan is what will deliver the value and close that discount gap that you referenced. So the board is firmly committed to that plan.

Okay, thank you. Thank you. Our next question is from Sophie Karp with KeyBank.

Please proceed with your question.

Sophie Karp Hi, good morning. Thank you for taking my question. Maybe first about the Ohio rate case that you'll be filing in the not so distant future. I was wondering if you guys considered or it's under consideration to combine the three utilities in Ohio and what kind of challenges would that present if you were to request something like that?

I do think at some point down the road we are going to look to consolidate our Ohio utilities just like we've proposed in Pennsylvania. The timing is a little bit to be determined. We're just working through that. But regardless of whether we propose to consolidate, you're still going to likely have three sets of rate books, right? And you'll kind of get to parity within the tariffs over time. I think we've had other utilities in the state that have consolidated their entities as well as their rate books, and that took some time. The legal entity consolidation is one step, but then to consolidate from a rate perspective, probably takes, you know, several rate cases, you know, a few years, that type of thing. So, it is something that we're looking at and will likely execute on, but the timing is a little bit to be determined.

Got it. Thank you. And my follow-up is on West Virginia. So, the acquisitions, the potential acquisition of Pleasant that you're exploring there, I don't know how to phrase it, but is there a way that, is it possible that if you could pay political price there if you decided to not go through with that? In other words, is it almost like an impossible situation for you where you have to acquire it?

What we're committed to do is work very closely with the state of West Virginia, with the commission, and they've instructed us to do this analysis. I mean, we see this as we all have an interest to make sure this is in the best interest of the customers in West Virginia, the state of West Virginia, and that because of the fact that the plant is a newer plant, has enhanced environmental controls, it's a good question that needs to be evaluated. So we see it as an appropriate thing to do. We do... need to make sure it's in the best interest of our customers and all. And so we see this as an opportunity to truly evaluate whether this is the right path forward. We're committed to work with the group or with all the stakeholders in West Virginia.

All right. Thank you for the comments.

Appreciate it. That's all from me. Thank you.

Our next question is from Mr. Greg Orrell with UBS. Please proceed with your question.

Yeah, thank you. Just following up on sort of the Ohio audits and, you know, the ability to, you know, what is sort ability to maybe accelerate those? You've got the stay there. Obviously, it's not a process that you've set out, but is there any flexibility there to maybe get that resolved faster?

Hey, Greg. This is John Taylor. Those audits have been stayed for another six-month period. I think that happened back in February. So you're looking at the August timeframe where they could potentially start back up. But in between and then there's really nothing that we can do to resolve those or to continue with that work. It's just really up to the Commission who ordered the stay. As soon as the stay is lifted, then we hope to get back to working to resolve those.

Sounds good. Thanks.

Thank you.

Our next question is from Mr. Julian Doolin-Smith with Bank of America. Please proceed with your question.

Hey, good morning, team. Thank you guys for the time. I appreciate it. Just first off, coming back to some of the FD Forward conversation, you guys alluded to it at the start of the call, whether that's real estate optimization or otherwise. Can you elaborate at least today on what that total run rate is, how much of an opportunity and offset the pension that is over time, say, in the outer years? And then separately, was that hedged out to 2435? How much, if any, is actually hedged at this point?

Yeah, I mean, so the facility optimization effort, you know, is probably, you know, a two-cent run rate type of impact if you look at the lease costs, if you look at the maintenance costs, you know, those types of expenses that we incur associated with the facility. So, you know, it's not a significant, you know, driver in the terms of, you know, the level of O&M that we spend, but it's important. Those types of things add up. And with respect to your second question on signal peak, they'll probably start hedging 24, I would say, later either this summer or early fall, which is consistent with their past practices. But at this point in time, that's open.

Yeah, that's what I thought. Thank you, guys. If I can, just pivoting the conversation back to where Steve was going earlier about kind of a longer-term view, at what point in time do you think you come back with a little bit more of a longer-term perspective? I also appreciate that you guys very carefully have focused on this targeted 68% on sort of an annualized basis rather than having these multi-year categories or what have you. But Is there at some point where you give kind of a view that gives an extended perspective kind of beyond kind of the noise of, you know, what Signal Peak is providing, maybe that adjusts for the pace of rate-based growth and reflects something that really is a buy-in from Brian?

Yeah. Julian, I don't want to commit to a timeframe. You know, obviously we want to get Brian on board and get him ready to go with the plan and, you know, put his fingerprint on it So, I'm going to leave it as kind of a to-be-determined, but my sense is we'll give you that outlook at some point in time, but I just want Brian to come in and really get into the details of the plan and really try to drive where he wants to take the company going forward.

Got it. And if I can clarify one further point, do you feel good about the 6% to 8% perspective beyond kind of the signal peak 24-25 period, if I hear you right?

Yeah, if you look at the level of capital investment that is needed across the system, yeah, I feel really good about the 6% to 8% long-term.

Got it. Okay, excellent. Thank you guys very much. Have a great day. See you soon.

Thank you. Our next question is from Anthony Cradell with Mizuho.

Please proceed with your question.

Hey, good morning. Apologies for not yelling into the phone, but just quickly, just some more housekeeping questions. I guess on slide 11, you talk about sales data, really strong residential sales at over 5%, slight industrial decline. I guess if you just talk about the drivers of what's really driving the residential growth, is it

know people moving into the service territory or evs or something like that yeah so so the five percent you know um when you have like extreme weather conditions like we saw in the first quarter uh you know coming up with your the weather impact and the weather adjusted impact it's a little bit more of an art than a science um just because of the stream extreme circumstances so But what I would say is that the trends over the last few quarters, and quite frankly, if you look at our performance over the last few years, the trends have been favorable relative to our forecast in the residential sector, increasing 1% to 3% depending on the month, depending on the time of year. So that's what we're seeing, and that's what we're kind of forecasting for the rest of this year?

We've seen the right trend related to EVs and other factors, not really people moving into the service territory, but that's starting to drive, but that's a fairly small issue right now. Most of what we've seen is really just the trend over the last couple years of usage residentially with people more working from home and other factors that have influenced it And we're now being able to take that into account, you know, with our weather-adjusted load moving forward.

Is the industrial – and I guess, you know, I understand with the extreme weather and the, as John mentioned, art over science, just a slight decline in industrial load. I think in your prepared remarks, was that more related to just one segment of the economy there?

No. I mean, we saw it a little bit like autos taking a little bit of – a downturn in terms of what we're seeing in the industrial sector. Metals was slightly down. Plastic and rubber was a little bit down. But we're also seeing some bright points. Steel continues to perform very well. Food and manufacturing tends to perform very well. So it's a little bit of a mix.

And then if I could switch gears on slide eight where you give us the walkthrough and maybe a little different path in Julian's question on the FE forward to achieve. Just I think you removed five cents of non-recurring earnings from GAAP to operating. Just how do we think about those charges as we work through the year? Is it likely that we continue to see those charges? Do you think that... One time in nature, we don't really see a repetition of that throughout 23.

Well, the five cent charge in Q1 was primarily the termination agreement for a sponsorship we had. You won't see that level of cost to achieve going forward.

Great. I got it. The Browns.

Okay. Great. I'll leave it there. Thanks for taking my question.

Thank you.

Thank you. Our next question is from Mr. Andrew Weissel with Scotiabank. Please proceed with your question.

Hi, good morning, everyone. Anthony beat me to it. I was going to say we'll miss hearing your name during the Brown Games, but understand the decision there. Most of the questions were asked and answered. Just one quick on episode of debt. I know you were at 11% last year. You're very clear on the 14% to 15% target over time. My question is kind of what's your latest thinking on when you might get there? Given the FET sale and some moving parts around coal, could we see that level in 2024 or is it going to take a couple more years of growth?

No, we definitely have a solid plan to get there by 2025. I think a lot of it depends on the level of proceeds that comes in from the FET sale initially. You know, we have, we'll see 50% of the proceeds. That's a minimum. but we could see more and put that money to work. And if we receive more of the money up front, then there's a possibility we could be at that 14% level. If you net the receivable against the debt, we would absolutely be at 14%. But once we get the proceeds and put that to work, we'll be in that 14% to 15% range. Okay, thank you so much.

Thank you.

There are no further questions at this time. I would like to turn the floor back over to Mr. Somerhalder for closing comments.

Thank you. Thank you everyone for joining us today. We very much appreciate your continued support this year.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.