Greetings, and welcome to the FirstEnergy Corp. third quarter 2021 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 Prezelj, Vice President, Investor Relations for FirstEnergy Corp. Thank you, Ms. Prezelj. You may begin.
Good morning, and welcome to our third quarter 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 Steven Strah, our President and Chief Executive Officer and Jon Taylor, our Senior Vice President, Chief Financial Officer and Strategy.
Several other executives will be available for the Q&A session. Now I'll turn the call over to Steve.
Thank you, Irene. Good morning, everyone. Thanks for joining us. We had another strong quarter, and I'm excited to talk to you about our progress on many different fronts. Yesterday, we reported third quarter 2021 GAAP earnings of $0.85 per share. Our operating earnings were $0.82 per share, which is above the top end of our guidance range. Our customer-focused strategies, positive mix of weather-adjusted load, great operational performance, and financial discipline continue to drive solid results. Furthermore, I'm proud of our progress to resolve important legacy issues and strengthen all aspects of our company. In Ohio, we continue to take a collaborative approach, and we're engaged in settlement discussions with a broad range of parties to resolve several of our pending cases before the PUCO. Our meetings continue to be productive, and we're making good progress.
We are also making progress on the Ohio corporate separation, DMR, and DCR audits. The corporate separation audit report was filed on September thirteenth and showed no findings of major noncompliance. The expanded DCR audit report is due by November nineteenth, and we continue to work through the DMR audit, which is now due on December sixteenth. Since our last earnings call, we've taken additional steps to strengthen our compliance program and instill a culture focused on ethics, integrity, and accountability across our organization. These include a new compliance and ethics program charter and policies in multiple areas, instructor-led business code of conduct awareness training for senior leadership and individuals with significant roles in our control environment.
Training on the concepts of our new internal code of conduct for everyone in leadership, with training for all employees planned in the first quarter of 2022, and publishing our new corporate engagement report. Additionally, we have started to develop a new integrated risk management platform to enhance our ethics and compliance, audit, and risk functions. The new tool will help us streamline case management of ethics and compliance concerns, manage the lifecycle of corporate policies, assess and respond to risks, and report on our compliance with internal controls and regulatory requirements across the organization. As we've discussed, over the last 12 months, our board and management team acted quickly and decisively, adding additional independent board members, making changes in our management structure, establishing effective controls, reinforcing our culture change, and building a best-in-class ethics and compliance program.
Our relentless focus in these areas resulted in remediation of the material weakness in internal controls associated with our tone at the top. While this is an important step, we continue driving these cultural changes and keeping compliance and integrity at the center of everything we do. We are working every day to continue rebuilding stakeholder trust and confidence in FirstEnergy, and to ensure that our employees can be proud of our company and our mission. Yesterday, we announced another key hire to enhance our leadership team. Camilo Serna will join FirstEnergy on November eighth as our new Vice President of Rates and Regulatory Affairs. Camilo brings a great depth of experience developing and implementing state and federal regulatory strategies. His experience will be invaluable as we build a smarter electric grid and support the transition to a cleaner energy future. We continue taking steps to achieve these goals.
For example, last month, JCP&L submitted a proposal to PJM and the New Jersey BPU for transmission investments that would connect clean energy generated from the state's offshore wind farms to the power grid, while minimizing the impact on the environment and communities. We expect a decision on this proposal, which supports the clean energy investments driven by the New Jersey Energy Master Plan in the second half of 2022. In West Virginia, we recognize our responsibility to operate our two regulated fossil plants for the benefit of our customers in the state. Later this year, we intend to file an Effluent Limitation Guideline or ELG plan that calls for additional capital expenditures at the two plants to comply with environmental rules and to ensure that they can continue to operate beyond 2028.
At the same time, we intend to begin discussing with stakeholders our plans for a timely, clean energy transition. As a part of that transition, later this year, we plan to file with the Public Service Commission of West Virginia for 50 MW of utility scale solar generation. Our wind connection and solar proposals support core components of our climate strategy, building a more climate resilient energy system that meets our customers' changing needs, enables the transition to a carbon neutral economy, and powers a sustainable and prosperous future for our stakeholders. In other recent regulatory activity, this month, our ATSI transmission subsidiary reached a settlement with parties to a FERC proceeding that will address legacy issues associated with ATSI's move from MISO to PJM in 2011, and provide for partial recovery of the MISO transmission project costs that will be allocated to ATSI in the future.
It's an exciting time for our company. We have a robust long-term pipeline to modernize our transmission network, and we plan to continue embracing renewables. In our distribution business, we're incorporating emerging smart technologies and building a technologically advanced distribution platform. In our industry, we'll play a key role in the infrastructure build-out for electric vehicles, battery storage, and other technologies. We're pleased with our strong performance through the first nine months of 2021. As we close out the year, we are raising and narrowing our operating earnings guidance from $2.40-$2.60 per share to $2.55-$2.65 per share. The midpoint of this range represents a 9% increase over 2020 operating earnings results.
Finally, I can't pass the call over to Jon without acknowledging that it's been one year since I stepped into my leadership role under very sobering circumstances. It's been a challenging year on many fronts, and I want to publicly thank our employees for their hard work and unwavering dedication to our customers. I continue to be impressed by the grit and the resilience of the entire team. Together, we are building positive, sustainable momentum and creating a new FirstEnergy that is a forward-thinking and industry-leading company. Thank you for your attention this morning. Now Jon will provide a review of third quarter results and a financial update.
Thanks, Steve, and good morning, everyone. Yesterday, we announced GAAP earnings of $0.85 per share for the third quarter of 2021 and operating earnings of $0.82 per share. As Steve mentioned, this exceeded the top end of our guidance range. In our distribution business, results for the third quarter of 2021 as compared to last year, reflect the absence of Ohio decoupling and lost distribution revenue, which totaled $0.04 per share, as well as lower weather-related usage. These were partially offset by higher revenues from our capital investment programs, new rates from our JCP&L distribution-based rate case, and lower operating expenses. Consistent with the trends we've discussed over the last few quarters, total distribution deliveries increased on both an actual and weather-adjusted basis compared to the third quarter of 2020.
While weather was hotter than normal in our region this summer, it was cooler in the third quarter of 2020. Weather-adjusted residential sales for the third quarter of 2021 were essentially flat compared to the third quarter of 2020 as many of our customers continue to work from home. Comparing our results to the pre-pandemic levels in the third quarter of 2019, weather-adjusted residential usage was nearly 6% higher this quarter. While the commercial and industrial classes have not yet recovered to levels we saw before the pandemic, they are starting to trend in the right direction. Weather-adjusted commercial deliveries increased 3%, while industrial load was up nearly 4% compared to the third quarter of 2020. Industrial load increased in most of the sectors in our service territory this quarter, led by steel, chemical, and fabricated metal.
In our regulated transmission business, we continue to see benefits from higher transmission investments at our MAIT and ATSI subsidiaries as part of our Energizing the Future program. However, this was offset by higher interest from the debt issuance at FET earlier this year and a prior year formula rate true-up. In the corporate segment, results reflect lower O&M and benefit expenses. For the first nine months of 2021, operating earnings were $2.10 per share compared to $2.07 per share in the first nine months of 2020. The increase was driven by our ongoing investments in our distribution and transmission systems, higher weather-related usage, and lower expenses. These items more than offset the $0.17 of decoupling and lost distribution revenues recognized in the first nine months of 2020.
Our strong results and financial discipline have resulted in year-to-date adjusted cash from operations of $2.4 billion, which represents an increase of $600 million versus last year. While we expect a few offsets in the fourth quarter, we now expect cash from operations of approximately $2.8 billion for the year, which includes approximately $300 million of investigation and other related costs, the largest of which is associated with the $230 million DPA settlement. Earlier this month, we successfully restructured our revolving credit facilities from a 2-facility model to 6, fulfilling our commitment to complete this action before the end of the year. The 2021 credit facilities provide for aggregate commitments of $4.5 billion and are available until October 2026, with two separate 1-year extensions.
The credit facilities and their sublimits are detailed in the strategic and financial highlights. We're also pleased that following the restructuring of these facilities, S&P issued a one-notch upgrade to the 10 distribution companies and the 3 transmission companies. While we're glad to return to investment-grade ratings for these companies with all three rating agencies, we remain committed to improving our balance sheet and the overall credit profile at the parent company. We previously communicated that we were targeting FFO to debt in the 12%-13% range. We're raising that target to be solidly at 13%, which will provide ample cushion to the new Moody's threshold of 12%, and we expect to set the company on a firm glide path to mid-teens. On a number of recent calls, we've communicated that we're contemplating a minority asset sale as we consider alternatives to raise equity capital.
Currently, we are engaged in a process to sell a minority interest in our transmission holding company, FirstEnergy Transmission, which owns ATSI, MAIT, and TrAILCo. The interest is very strong, and preliminary indications are very supportive of our financial plan and targets. Given where we are in the process, we can't comment any further on the details. We continue to evaluate all options to raise equity capital in an efficient manner to support our longer-term outlook, which includes traditional rate-based growth and formula rate investments, planned rate case activity, and incremental and strategic CapEx that supports the transition to a cleaner electric grid. We are optimistic that we'll be in a position to share our overall financing plan and our longer-term outlook within the next couple of weeks. In fact, you may have noticed that we've expanded the information in the appendix of our strategic and financial highlights document.
Given the current status of the proposed asset sale, we recognize that the fact book will be more relevant once we can include the outcome from that transaction. During the fourth quarter, we expect to provide you with 2022 guidance and a detailed capital plan, along with the runway of our FFO to debt target, longer-term capital forecasts, and targeted rate base and earnings growth rates. As always, thank you for your time and your interest in FirstEnergy. I'd be happy to take 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 one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 poll for questions. Our first question comes from the line of Jeremy Tonet with J.P. Morgan.
Hi, good morning.
Morning.
Just wanted to talk about kind of current results and operations here. How should we be thinking about some of these items that have come in ahead of plan this year that helped you raise the guidance? How should we think about these items as sustainable into the future, or just trying to get a sense for how much might have been weather or other impact?
Yeah, I think that's a very good question. As all of the U.S. and worldwide, we're still adjusting to the impacts of the pandemic. With regard to that and the impact on our business plan, we see residential loads not only increased over the year, but we see that as an ongoing trend as we get back to whatever will be called the new normal in the U.S. You know, based on the impact of residential load on our earnings, we see that as promising as we kind of work through the process of getting back to normal. Our commercial and industrial loads, they're basically demand-based. We see commercial and industrial coming back to normal slowly.
Right now we're trying to figure out whether or not they'll get to pre-pandemic levels. That's kind of the ongoing assumptions that we're working on. You know, at the end, we're just gonna have to see how we end up getting through the Delta variant, the pandemic and getting everybody back to work over time.
Got it. That's helpful. Thank you for that. Maybe diving into Ohio a little bit more here. Just wondering if you could give any more color on the Ohio settlement discussions, how they're looking at this stage, and I guess what kind of pleases your confidence in being able to provide a kind of a long-term update in the near future here.
Well, thanks for that question too. You know, in terms of Ohio, we're very encouraged by the progress that we've made thus far. It's been a productive, constructive, and collaborative approach, and that's the tone that myself and the management team wanted to set as we go about the prospects for a settlement. We feel as though those prospects are very good right now. I wanna ensure that we keep the integrity of the process together, so I don't wanna get too far ahead in terms of commenting on it. You know, we're achieving a new and different tone, which I think is resonating. Our goal is to, you know, continue to remove where we can investor uncertainty in Ohio and, you know, de-risk, you know, some of those concerns in a way.
The ongoing effort by our management team is to continue to promote stability and predictability, and that's gonna start in Ohio for us. We're gonna keep working on it. We'll keep you updated in terms of our progress. You know, once again, I'm encouraged.
Got it. That's very helpful. Thank you.
Welcome. Thank you.
Our next question comes from the line of Steve Fleishman of Wolfe Research. You may proceed with it.
Yeah. I guess on the same topic of the last question, just wanted to clarify that you're not gonna give the 2022 and long-term guidance until the Ohio kind of that rate process, settlement talks process, is resolved.
Yeah, Steve, this is John. That's our preference, obviously. We wanna try to get clarity around where we're gonna be with Ohio. You know, like Steve said, you know, we're working as hard as we can to get to a resolution on this issue. You know, as we talked about, you know, the collaborative nature of the meetings and the discussions has been very productive, but we're not there yet.
Okay. On the issue of it, you know, sounds like we'll get something relatively soon on the asset sale you identified. You did mention that you continue to look for kind of all efficient ways to raise equity capital. Is there other asset sales or equity or other things that you're also considering, or is it still mainly really focused on this asset sale process?
Steve, I would tell you that the process for FET is going very well. We're very happy with what we're seeing. The interest is very strong. The preliminary indications on valuations are very supportive of our, you know, financial goals. You know, it's better than the messaging than we've talked about before. We're not done and we have some work to do on that process. I just think for us it's important that we continue to think through how to best position the company going forward and ensure we have financial flexibility to support incremental and strategic CapEx, such as formula rate CapEx. We continue to think through different alternatives to accomplish this.
My sense is we'll be in a position sometime in the next few weeks to give you an update on that.
That sounds great. That's great on FET. Just one other question on the new balance sheet metric targets, the 13% FFO to debt. Is there a rough sense of how long it would take to kind of get to that level?
You know, I think we need to work through Ohio and where we're gonna be there. My sense is we could be there by the end of 2023, maybe first part of 2024. You know, I think we need to get through a few things, and then we'll be able to provide you a better outlook on timing.
Great. Thank you.
Thanks, Steve.
Our next question comes from the line of Julien Dumoulin-Smith with Bank of America. You may proceed with your question.
Hey, good morning, team. Thanks for the time. Well done on the updates.
Good morning. Thank you.
Absolutely. My pleasure. Do you expect that the minority sale of FET will satisfy all of the equity needs from 2022 through, say, 2025? Just to clarify from earlier, are the indicative valuations still comparable to the P/E multiples that you previously discussed on prior earnings calls?
Yeah. To answer that question, comparable and better. You know, that should hopefully give you a sense of what we're looking at. You know, we're still in the middle of the process, still a lot of work to do there. As I just told Steve, you know, I think everything's on the table in terms of you know, the go forward plan. You know, we continue to think through how to best position the company going forward. Like I said, you know, I think we'll be able to communicate our plan, you know, in the next few weeks.
No, I hear you. Again, kind of riffing off the last set of questions too here, if I can, with respect to the long-term guidance, is your objective to set an EPS CAGR with 2022 as a base year? I would presume yes, but I just want to clarify that. Critically, prior to the Ohio DPA, you previously characterized your EPS growth outlook as generally consistent with the industry average. Is that still a fair aspiration, both as a base year and the prospective target thereafter?
Yeah. I think we'll be in a position to give you targeted rate base and earnings growth rates. We'll give you 2022 guidance. We'll give you 2022 cash flow, 2022 capital and then high-level capital plan for our planning horizon. I think we'll be able to give you that kind of look in the next few weeks. The answer to your-
Got it. I appreciate the time.
The answer to your second question is yes. I mean, if you just look at, you know, our earnings year-over-year this year, it's at 9%. Recall we even backed down on some capital this year. My sense is, you know, we'll have normal utility growth.
Excellent. That's great. Just to clarify, sorry, just a finer point here. In Ohio, are some of the audit item proceedings gaining items, if you will, for a settlement? I mean, you pointed to this, you know, mid-December data point on the audit report, for instance.
Yeah. I would say, Julien, I would think of our settlement discussions that we're having right now separate from the four audits that are ongoing. If you'll recall, I mentioned it in my prepared remarks, the corporate separation, the Rider DMR, the look at political and charitable spending and Rider DCR, each one of those audits are on their own way right now. We're working very hard and have been very open, very responsive to the work that's going on there. When you start to look at the settlement issue, that's more along the lines of the quadrennial review that we talked about in our prepared remarks and other items. You know, we're kind of working all the proceedings together.
You know, once again, we're being as open and transparent as we can as we kind of walk that path with our regulators and other interested parties in Ohio.
Got it. All right, I'll leave it there. Thank you all, and best of luck here.
Thank you. All the best.
Our next question comes from the line of Shar Pourreza with Guggenheim Partners. You may proceed with your question.
Hey, Good morning, guys.
Good morning, Shar.
Steve, I just wanna just on Ohio, I know you obviously had some comments about removing concerns and thinking about predictability. You know, I understand obviously you guys are in discussions and it's sensitive, right? Curious if any of the discussions also entail maybe how to think about the construct on a more prospective basis, like, you know, maybe different rates mechanisms, PBRs, how to think about a future GRC or not.
I think that's a very good question. I think we have started this entire process, and our approach as a company is really starting with a listening tour, if you will. We're listening, and we're not missing anything that we're getting in terms of our feedback from our past endeavors, and we're trying to apply some lessons into the future. To the extent in Ohio or other jurisdictions, regulators or other interested parties have new and different ways to look at the future. We are certainly open to that. You know, I think we've explored that entire territory, presently in Ohio, and we're gonna remain open to that. You know, I don't wanna kinda open the door too far to what we're attempting to do in Columbus right now.
Once again, I'm encouraged that all the parties are meeting around a common table for the common good. For us, that's keeping the customer at the center of that equation. You know, we've been encouraged by that. Once again, it's around openness and just being able to think differently than what we have had in the past.
Got it. Terrific. Then just, you know, it sounds like your balance sheet and metrics are improving a lot. Other than sort of the TransCo stake sale, you know, how do you strategically think about the assets that you may be able to further optimize versus what's absolutely core? This is obviously especially in light of a recent peer, you know, announcing a deal to sell a utility in a relatively, you know, heavy coal burning state. I guess, you know, Jon, do you see, you know, some incremental value to further simplify, sell coal, and redeploy into renewables, especially as those decarbonization plans come to fruition in, you know, several states, right? Which may have their own kind of financing.
Yeah. Well, Shar, I'll take the first cut at that, and if you don't mind, I'll turn it over to John. At the end, when you know, we look at our current opportunity, we've got all the pieces in front of us, and we're evaluating all of our options. You know, in terms of our prepared remarks and what John has shared, we feel as though we have the right strategic options in front of us right now. We are not taking anything unnecessarily off the table. At the end, we think we're in a very good place where we can propel this company forward and do that without sacrificing what I believe is a very strong footprint, a very strong business plan, and a very strong strategy as being a pure play T&D kinda regulated environment.
You know, we feel very good about that presently in terms of what we've expressed publicly. We're just gonna continue to work our plan right now. John, I don't know if you have anything to add there.
Yeah, Shar, I would just say, you know, as we thought about all of our different assets before we started the process with FET, you know, we thought about, one, making sure that we could raise equity in an efficient manner for our shareholders. I think FET is gonna definitely check that box. But just as important, you know, is business that we could attract, you know, sophisticated, high quality investors where we can align on governance and business strategy type of issues. I think, you know, from where we are today, FET meets all of those criteria for us. It's gonna be very efficient capital raise, will be accretive to earnings. The investors that are in the mix are top-notch quality firms, and they're very supportive of the business plan and very supportive of future transmission opportunities.
Terrific. I think that helps. Thanks, guys. Appreciate it.
Thank you.
Our next question comes from the line of Angie Storozynski with Seaport. You may proceed with your question.
Thank you. Just one follow-up on the transmission business. The earnings power of this business this year is a bit lower than we expected. I hear the explanation behind some true-up, but cost true-up, but if you could just give me a bit more sense of that earnings range, the updated earnings range. Also, given that you're selling a stake in that business, what happens, is there any condition assigned to that sale, in case there is a reduction in the allowed ROE for these assets, in light of the RTO adder likely going away?
Angie, I'll try to take both of those. Just in the transmission business, year-over-year, our investment program has added about $0.05 in earnings through September. Now, that was offset with some additional interest expense from our revolver borrowings earlier this year, as well as the long-term debt issuance at FET back in the March timeframe. We had those, what I'll call $0.02 of formula rate true-ups, where really those are accounting true-ups of a prior year forward-looking rate. You know, we typically use projected rate base and, you know, we true that up to actuals in the following year. A lot of that is associated with deferred taxes and the like. Those are your primary drivers.
We continue to be very optimistic about our Energizing the Future program, and it provides a lot of opportunity for us to grow this company in the future. With respect to your second question, I think that's too early to tell and some details that we probably don't wanna get into at this point in time. You know, once we have clarity in all that, we'll obviously provide that to you.
Yeah. I think, John, that's right on target. I would just add that it's more than that for us as a company, in terms of an investment opportunity. It's around the value customers see. You know, we've been able to demonstrate as we invest in transmission, that reliability has continued to improve, and that's very important for us as it is obviously for our customers. We try to keep that firmly in play in terms of the equation.
Just one follow-up. I mean, we all had expected an announcement on the asset sales pretty much right now. Are you waiting to see, you know, how big a stake of FET you need to sell based on, you know, the future distribution earnings power in Ohio?
No, no, Angie. I mean, we're just working the process. I mean, we launched the process earlier this year, and it just takes some time. You know, we're not gonna make a decision on something that significant just to communicate it on an earnings call. We wanna make sure that we do it right and that we have the right structure in place. You know, we're just following our process.
Okay. Just one last one. I appreciate the somewhat disclosures on the earnings growth. Can you comment about your ability to grow the dividend given this 13% FFO to debt target?
Yeah. Well, Angie, you know, we certainly understand the importance of the dividend, its placement within our business plan, and we know how important it really is. Currently, you know, our approach remains unchanged. You know, our payout range is 55%-65%. If you were to take a gauge of it right now, you know, we have a potential to be within that 60% range with a 4% yield. Obviously, I don't wanna get ahead of our board of directors. Our board reviews us on a routine basis. I would just say John's done a very good job of talking about some of the key pieces that are in front of us right now.
The clarity in Ohio that we're seeking and that I'm confident we'll get to here along with the potential for a minority stake sale in transmission. It's our ongoing quest to get to that investment grade level that we're working towards. Once again, just to reiterate, we are working towards a 13% FFO to debt ratio to put balance sheet concerns beyond us. We've got some wood to chop, so to speak, and we're working our process right now. A dividend discussion is, you know, obviously ongoing with our board as we move ahead.
Very good. Thank you, Susan. Bye-bye.
Thank you, Angie.
Our next question comes from the line of Durgesh Chopra with Evercore ISI. You may proceed with your question.
Hey, good morning, team. Thank you for taking my question. Jon, I hate to go back to the 2022 guidance and forward-looking projections. Can you just clarify how many years worth of CapEx guidance are you gonna give us?
Yeah. I think we'll probably give you a, you know, a 3- 4-year look on CapEx. You know, 2022-2025, something like that, is probably what we're thinking.
Okay. Great. Then just, you know, in terms of your equity needs, you know, you previously talked about $600 million a year. Is that a good sort of cadence as we sort of think about, you know, your financing needs to 2025?
Well, I think, you know, we've talked about, you know, looking at alternatives in lieu of those equity issuances. That's why, you know, we've been looking at the minority interest sale at FET and considering other alternatives. I think we'll be able to give you the longer term look, you know, once we get some clarity on a few things. I think what we're considering now is in lieu of those issuances in 2022 and 2023.
Right. Sure, sure. I'm just trying to see. Okay. I guess another way to ask this question is I'm trying to see how much, what's the dollar amount of the proceeds from the sale that you released. I was just trying to see what are the needs in the base plan, and I was trying to sort of, you know, peg it to $600 million a year. That's sort of where I was going with this.
Yeah. I don't know if I can give you all those details right now. I think we need to probably wait until we you know get some clarity in Ohio and you know obviously we wanna be able to articulate to our investors our plan to get to 13%. We also wanna think through you know ensuring that we have financial flexibility for additional CapEx specifically formula rate CapEx. As we think about our overall plan, we'll put all of that into the mix and provide you a longer term outlook, including our financing plan.
Understood. Thank you so much for taking my questions. Appreciate the time.
Thank you.
Our next question comes from the line of Michael Lapides with Goldman Sachs. You may proceed with your question.
Hey guys, congrats on a good nine months, and thank you for taking my question. I actually have a couple little unrelated to each other. First of all, New Jersey. Your data shows you're under earning in New Jersey by a couple hundred basis points. Can you talk with us about your efforts to improve that to get back closer to authorized? That's question A. Question B, more longer term, when you think about capital spend opportunities, call it the next two to four years or so, somewhere in there, where do you think the greatest opportunity to deploy more capital is outside of the offshore winds-related transmission across the system? Like what type of projects, what type of opportunities?
Yeah. Michael, this is Steve. I'll take the second half of that question. Look, I believe that we're in a great spot as a company to not only continue our plan in terms of fortifying the transmission distribution business that we have before us with very good classic investments, I would call it, to improve customer reliability while maintaining very affordable rates is kind of number one. I see that moving ahead. Beyond the offshore wind, I believe as we seek and end up receiving greater clarity on the clean energy transition that the U.S. is gonna continue to move ahead on, I think that's going to provide us great opportunities, both in the T&D environment to continue to invest and embrace renewables. You know, we're certainly very excited about that opportunity.
Beyond that, it's also taking emerging technologies that are coming towards us that are much more affordable for customers such as smart meter and other items in which we're gonna prepare a T&D platform for renewables over time. I think those opportunities not only exist on the transmission system, but they exist in each one of our jurisdictions. I think it's very important, you know, we've talked about this before, that we keep the customer in the center of that equation in which we can enrich the value we're providing them, but we keep affordability in mind. We can get into more details over time about, you know, individual initiatives that we could pursue. Once again, I think we have a very bright future in that realm.
Relative to JCP&L, I think I'll turn that portion of the question over to John.
Yeah, Michael, we started the year, if you recall, at probably around 6.5% return on equity in New Jersey for 2020. We implemented the base distribution case 101 of this year. We've gone from 6.5% to 8.2%, you know, in terms of the ROE, and my sense is that will continue to increase as we roll out the full 12 months of the base distribution case. I think we'll always be a little bit below our allowed return on equity there just because of regulatory lag, but we should be closer to that in the fourth quarter.
Got it. One follow-up. Can you remind me, in Pennsylvania, are you currently benefiting from the DISC, and are there any issues with kind of getting DISC-related revenue increases, small though they be, in the near term?
Yeah. DISC revenue is turned on with the exception of Penn Power, and we're working through a little bit of an issue there with some cost recovery. For the other three companies, the DISC revenue is turned on.
Yeah.
Got it. You're getting annual rate increases tied to the DISC, even though they're not really big numbers.
Correct. Correct.
Got it. Thank you, guys. Much appreciated.
Thanks, Michael.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. One moment please, while we pull for more questions. Our next question comes from the line of Andrew Weisel with Scotiabank. You may proceed with your question.
Hey, everyone. Good morning.
Good morning, Andrew.
I have two questions about the transmission CapEx. First one is, I know you trimmed it earlier this year in April, and at the time you referenced some uncertainty about the DOJ investigation as well as balance sheet constraints. Do you see opportunity to reverse those cuts, or should we think of those as more permanent? The second question is, if you do move forward with a sale of minority interest in the business, would that impact the CapEx plans longer term, or do you think that's unrelated to the ownership?
Yeah. Andrew, I'll give you my cut at that. The way I like to think about that is, look, our company has faced, you know, significant uncertainty in the last 18-month period, and we've done what is prudent, you know, in terms of just ensuring that we can maintain financial flexibility in the present tense and then increase it in the future tense, if you will. I think we've done a very good job of managing that. I believe our transmission investment opportunities, while we curtailed them slightly this year, I think you'll see us continue to ramp that up incrementally, just to make sure also that we stay within our sweet spot within that. In other words, we don't wanna go too far in terms of burdening customers, you know, in terms of cost.
Once again, we are seeing continued reliability improvements, so I think that's really important for us. When you factor in the potential for a minority stake sale within the transmission business, I think that's only gonna, if executed, fortify our company moving ahead, strengthen our business platform, strengthen our balance sheet, and I think that will provide a greater opportunity to invest into the future. You know, once again, I think all of these pieces, while we can't be more definitive today, I think they're starting to align nicely. Not only the minority stake consideration working towards you know, some type of settlement in Ohio that once again will help our business and relieve some level of uncertainty out in the market.
You know, I think all of these pieces are starting to work forward, very nicely. You know, our main concern as we continue to do that is just to make sure that we keep our company between the guard rails, so to speak. We have to continue to execute. We've gotta continue to keep our employees and the public safe, be concerned with our reliability, ensure that financially that we're performing, not only for shareholders, but all stakeholders. You know, we feel very good about where we're at right now, even though, as I said earlier, we have work to do.
That's helpful. Thank you.
Thanks, Andrew.
At this time, we have reached the end of the question-and-answer session. I'd like to turn the floor back over to Mr. Strah for closing comments.
Great. Well, thank you very much. Thanks, everyone, for joining us today. I'm very proud about the progress that we've made to transform not only our business, but our culture as a company. That will remain front and center for me as CEO. We're continuing to achieve our financial customer service and ESG goals. We have more work to do, but I am very confident that we're gonna continue to deliver long-term value for our shareholders, employees, our customers, and our communities that we serve. We look forward to talking to many of you at EEI, and I just wish all of you and your families continued safety and great health as we continue to work through this pandemic. With that, all the best and thank you once again for joining us.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.