Earnings Call: Q3 2019

Nov 4, 2019

Greetings, and welcome to the FirstEnergy Corp. Third Quarter 2019 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Irene Frizzell, Vice President, Investor Relations for FirstEnergy Corp. Thank you, Ms. Frizzell. You may now begin. Thanks, Rob. Welcome to our Q3 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 risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by such statements can be found on the Investors 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 FirstEnergy 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 Steve Strah, Senior Vice President and Chief Financial Officer and several other executives in the room who are available to participate in the Q and A session. Now, I'll turn the call over to Chuck. Thank you, Irene, and good morning, everyone. This morning, we announced strong results for the Q3 with GAAP earnings of $0.73 per share and operating earnings of $0.76 per share. Consistent with our nearly 5 year track record of delivering on our commitments to you, our 3rd quarter operating earnings exceeded the midpoint of our guidance range. As a reminder, when we held our 2nd quarter call, we were waiting for a final outcome related to our Ohio distribution modernization rider. Because of this, the Q3 guidance we provided to you included a $0.06 benefit from the DMR. While the rider was ultimately removed from our Ohio rate plan, I'm pleased to say that we were able to offset its absence during the quarter through a combination of favorable weather compared to normal, the continued strong execution of our customer service oriented growth strategy and O and M discipline. For the full year, we are narrowing our 2019 operating earnings guidance to $2.50 per share to $2.60 per share. This reflects our solid results year to date as well as the absence of the DMR in the second half. We're also providing 2020 operating earnings guidance of $2.40 per share to $2.60 per share and affirming our projection for 6% to 8% of compound annual operating earnings growth from 2018 through 2021. I know you're anxious for us to communicate both our CAGR and equity plans beyond the 2018 to 2021 timeframe. We will provide this information as soon as it makes sense once we've completed our internal financial planning process. That should not be taken as any indication that either of these will ultimately be disappointing to the market. It's simply that I am very protective of our 5 year track record of our 5 year track record of meeting or exceeding every commitment we have made and I need to get the detailed planning in place before getting ahead of that process. Now let's review our progress with our customer focused growth strategies at our utilities. In late August, each of our 4 Pennsylvania utilities filed new long term infrastructure improvement plans or LTIPs for the 2020 through 2024 period. The filings outline our plans to invest $572,000,000 over that timeframe to accelerate infrastructure improvements and enhance service reliability for more than 2,000,000 customers in Pennsylvania. These investments build on earlier improvement plans and included targeted projects that are designed to reduce the frequency of electric service interruptions for customers and shorten the duration of outages when they do occur. Major initiatives will include replacing older infrastructure with new poles, overhead lines, underground cables, substation equipment, network vaults and manholes. Reconfiguring circuits to minimize customers impacted by service interruptions and installing more advanced smart devices that can detect and isolate problems to help quickly restore power to impacted customers. The work outlined in the LTIP programs accelerates infrastructure repairs, improvements and replacements, while also introducing new investments to enhance our distribution infrastructure and service reliability. We expect to recover the costs associated with the LTIP through the disk rider mechanism. We look forward to working with the Pennsylvania Public Utility Commission to have the plans approved by the end of the year, so work can begin in early 2020. Before we move from Pennsylvania, on our last call, we mentioned that we were in discussions to transfer the responsibility for decommissioning 3 Mile Island Unit 2 to a subsidiary of Energy Solutions LLC. This would remove any future nuclear decommission obligations from FirstEnergy and further simplify our regulated focus. In October, we signed that agreement, which includes transferring the plant, property, nuclear decommissioning trust and plant license, as well as the associated liabilities and responsibility for decommissioning. While the agreement is subject to regulatory approvals, we expect transfer to take place around the second half of twenty twenty. Turning to Ohio, we are beginning to implement our $516,000,000 3 year grid modernization program, which was approved by the Public Utilities Commission in July. We are laying the groundwork to begin construction on these projects during the Q1 of next year. Our investments include the installation of 700,000 smart meters and related infrastructure, building an advanced distribution management system in our Ohio Edison Illuminating Company and Toledo Edison service areas, Selling automated equipment on at least 200 distribution lines that can automatically isolate problems prevent entire circuit outages and quickly restore electric service to customers. Installing voltage regulating equipment on more than 200 circuits to provide energy efficiency benefits by optimizing voltage levels on the distribution grid. In addition, we have committed to developing time varying rates that give customers the opportunity to reduce their monthly electric bill by using energy during off peak periods. Together, these modernization projects are expected to help reduce the number and duration of power outages and allow our customers to make more informed decisions about their energy usage. As you'll recall, the grid mod order also fully resolved the impact of the Tax Cuts and Jobs Act and we began implementing those tax savings for customers on September 1. Later this month, we expect to file plans with the PUCO to implement a decoupling mechanism in Ohio. As we discussed last quarter, decoupling breaks the link between utility revenue and the amount of electricity consumed by customers. This supports continued energy efficiency efforts while ensuring that our utilities have adequate resources to continue providing safe and reliable power to our customers. Our plan ensures that residential and commercial customers pay no more for base distribution service than was charged in 2018. After our filing, the commission will have 60 days to review and approve the application. Moving to our transmission business. Last week, we filed a plan with FERC to move our New Jersey transmission assets onto a forward looking formula rate structure effective January 1, 2020. JCP and L transmission assets are currently on stated rates based on a settlement approved by FERC in February of 2018. A rate moratorium that was part of that settlement will expire on December 31. Our forward looking formula rate plan would support energizing the future investment needs in New Jersey, including approximately $175,000,000 in capital spending planned for 2020. We expect an initial response from FERC by the end of December. Finally, in mid October, the bankruptcy court approved FES's plan of reorganization. FES has stated that it plans to emerge as an independent company with a new name by the end of this year. Now let's look ahead to next week when we will see many of you at EEI. At the meeting, we look forward to sharing with you our new corporate responsibility report and strategic plan. These reports support our commitment to increased transparency and engagement with investors, customers and other stakeholders, while providing a platform to track our progress as we transition to a cleaner, smarter and more sustainable energy future. Corporate responsibility report is aligned with the 5 pillars of our mission statement. It includes extensive detail on our initiatives from reducing the environmental impact of our operations and upholding high standards for corporate governance to advancing employee and public safety while building a diverse and inclusive workplace. The report includes our initial steps to provide data in alignment with the global reporting initiative and the Sustainability Accounting Standards Board metrics as well as links to our policies. We plan to update the corporate responsibility report annually, including a data refresh next year in alignment with our 2019 annual report. At EEI, we will also introduce our 1st public strategic plan using the foundation of our 7 core values. The plan clearly articulates our vision for the next 5 years. It includes our approach the rapid changes in our industry fueled by involving customer expectations, emerging technologies and a lower carbon economy. As we have continuously demonstrated over the past several years, FirstEnergy and our dedicated employees are prepared to meet any challenge as we work together to deliver energy for a brighter future. Thank you for your time. We've made great progress this year and we remain focused on executing our strategies for sustainable customer focused growth that will continue to build value for our investors, customers, communities and employees. Now I'll turn it over to Steve for a review of the Q3. Good morning. It's good to speak with you today. Before I begin, I will remind you that all reconciliations and other detailed information about the quarter are available on our website in the strategic and financial highlights document. Also, you will recall that because of the preferred shares issuance in January 2018, we have been presenting our operating results and projections on a fully diluted basis to ensure the best comparative view of our performance. As of August 1, all of the outstanding preferred shares were converted to common stock. Now let's review our results. Our 3rd quarter GAAP earnings were $0.73 per share. Operating earnings were 0.76 dollars per share. As Chuck mentioned, this was above the midpoint of our guidance. In the distribution business, earnings decreased compared to the Q3 of 2018, primarily as a result of more moderate weather compared to the very hot conditions last summer. Results for the Q3 of 2019 also reflect the absence of the DMR in Ohio as well as higher expenses and depreciation. These factors were slightly offset by a lower effective tax rate and lower net financing costs. Distribution deliveries decreased slightly compared to the Q3 of 2018 both on an actual and weather adjusted basis. Cooling degree days were 22% above normal for the Q3, but 9% lower than the Q3 of 2018. Residential sales were down 2.2% on an actual basis compared to the Q3 of 2018, but slightly increased on a weather adjusted basis. We continue to see a very slight increase in weather adjusted residential sales over the last 12 months. 3rd quarter sales in the commercial customer class decreased 3.8% on an actual basis and 2.9% when adjusted for weather compared to the Q3 of 2018. This change was driven largely by lower demand in the education sector, partially due to the implementation of efficiency measures as well as decreases in the food and beverage and real estate sectors. In our industrial class, 3rd quarter load decreased 1% as continued growth in the shale gas sector was offset by lower usage from steel, automotive and chemical manufacturers, including the impact of the shutdown of the GM Lordstown plant earlier this year. While we continue to watch these trends very closely, load for each customer segment remains in line with our forecast with bright spots including stable residential customer usage and modest growth in both residential and commercial customer count. Looking at our transmission business, earnings increased primarily as a result of higher rate base at our formula rate companies related to the continued investments in the Energizing the Future program. And in our corporate segment, 3rd quarter results reflect lower operating expenses in the absence of a third quarter 2018 contribution to the FirstEnergy Foundation. Before we open the call to your questions, we have a few other financial matters to discuss. First, it is our custom to provide an estimate of the annual pension and OFEB mark to market adjustment, which is a non cash item along with 3rd quarter results. Based on market conditions as of September 30, we estimate that adjustment to be in the range of $400,000,000 to $1,000,000,000 As always, the final adjustment will be determined by the discount rate and asset returns at the end of the year. Our return on assets currently stand at a solid 17 plus percent for 2019. Looking ahead, if these results hold through the end of the year, we would be on track to decrease our 2022 funding requirements by approximately $140,000,000 In addition, while the lower interest rate environment resulted in a higher pension liability, our funded status has slightly improved to 78% from 77% at year end 2018. 2nd, during the Q3, we successfully extended our corporate term loans and now have a $1,000,000,000 1 year facility and a $750,000,000 2 year facility. We will evaluate refinancing some or all of these amounts into the capital markets sometime next year. Finally, we met with the rating agencies earlier this quarter to review our progress on our goals as a fully regulated company with an improved risk profile. We expect all three to provide normal course updates on our entities possibly as soon as EEI. Thank you. We continue to be committed to executing our strategies and meeting our commitments to investors. Now let's take your questions. Thank you. We'll now be conducting a question and answer Thank you. Our first question is coming from the line of Shar Pourreza with Guggenheim Partners. Please proceed with your question. Hey, good morning guys. Good morning, Shar. Just a quick question on the pension. So with pension coming in better than expected, can you just maybe talk a little bit about how you think about the flexibility that could sort of provide if these results kind of hold, I. E, lowering future equity needs post 'twenty one? You've talked about pension as being one of those levers, versus using that I I think the way to think about it, Shar, is what Steve said in his prepared remarks is that we don't have no required pension contribution through 2022. So and it's reduced our 2022 requirement by about $140,000,000 So between now 2020 2, I don't think it has any direct impact on our business. It just has an impact on the funding requirement that we'll ultimately see out there in the future. Got it. And then Shar, this is Steve. Just to put a little finer point on that. Our next required funding requirement is in 2022 and that looks to be $240,000,000 Got it. Thank you. And then just lastly on JCP and L and sort of the transmission opportunity there. As you guys look to roll to formula rates, can you just remind us if that makes deploying capital more attractive or you sort of already at that full run rate there? So is there opportunities to deploy additional capital by going to formula rates? I think formula rates obviously are preferred mechanism. They provide the benefit of being very transparent to investors, very transparent to customers and regulators. I think they clearly result in a return of cash based both return on and return of capital investment in a more timely fashion to allow additional reinvestment back into future projects. So, we talked about what we have planned for 2020 in JCP and L. But as we go forward, obviously, I think transmission formula rates are our preferred mechanism. And we will have now pretty much all of our company except for the former Allegheny transmission system on formula rates once FERC approves this. The next question is from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your questions. [SPEAKER JULIEN DUMOULIN SMITH:] Hey, good morning. Congratulations. Absolutely. So just wanted to follow-up a little bit on some of the more detailed assumptions embedded in the guidance, especially for 2020. What are you thinking about with respect to the decoupling filing in Ohio? I suppose how are you thinking about reflecting that in 2020 to the extent to which it is already? I guess that that might be more of a risk reduction profile than the earnings impact, but I'd be curious. And then related to that, how do you think about 2019 and the inclusion? I thought there was a potential for a true up depending on the specific timing here, if you can elaborate. Well, I'll answer the last part first. I don't think it's going to have any impact on 2019. We expect to file the decoupling rates and the commission has 60 days to approve them. So they likely won't approve them this year, I don't think. As far as how I look at it, I think it establishes a fixed cost for the base distribution costs in Ohio. Obviously, the DCR and the grid mod riders are on top of that. But by establishing this fixed base, it's going to accomplish what the legislature tried to do. It allows us to continue to promote energy efficiency with our customers so that they can get the benefit of that without impacting our base revenues. I think you pointed out the risk piece of it. It fixes our base revenues and essentially it takes about 1 third of our company and I think makes it somewhat recession proof. So I get a question a lot about whether I'm worried about a future recession. It's 2,000,000 customers in Ohio that this is going to help make sure that that doesn't impact us. Are you assuming it or it's unclear? Assuming what? The decoupling filing in 2020. Yes. We're assuming it will get approved in 2020, yes. Got it. Okay. And then related if you can just clarify the last question just a little bit further. The funding requirement in 'twenty two for pension is $240,000,000 or is not? Sorry, I apologize about the back and forth there. Just want to clarify that. It stands at $240,000,000 right now based on our projections, Julian. Got it. Excellent. How do you think about let me try to back up here and not be too granular. How do you think about the overall earnings growth trajectories enabled by that level of equity funding as you kind of rethink and rebase going forward? And I know I'm not hopefully I'm not getting too far ahead of your more strategic thoughts here, but I'd be curious. Domin, I'm not sure I even understood that question, to be honest with you. How do you think about rebasing on a going forward basis as you roll forward next year given what seems like a better pension outlook? I don't think it's going to affect our plans for growth in the future in any fashion, Julien. And as I said in my prepared remarks, I mean, we'll get to giving you the CAGR and our equity plans when I'm comfortable with it. To plan a company like ours 3 to 4 years out is a challenging process and it involves 10 operating companies including our transmission business, look at project by project, what they plan to execute out in 2022 and beyond. It involves a lot of analysis around things like market performance and interest rates and growth economy versus recession economy. And we're doing all that right now. And I learned a term in engineering school called swag. I've never been willing to apply that to what I give to you. And I'm very protective of this record that we've established of every time we've given a commitment to you in the last 5 years, including commitment on a major restructuring initiative, we've hit it. And we're getting close, but it's just a complex process. And as soon as we're done, we'll communicate what the future beyond 2021 looks like. Excellent. Thank you for the time. Our next question is from the line of Praful Mehta with Citigroup. Please proceed with your question. Thanks so much. Hi, guys, and congrats on all the progress. Good morning. Thank you. Good morning. So maybe just on the growth, if your guidance as we looked at the 6% to 7% or 6% to 8% growth and you take the midpoint of that and imply what it means for 2021 and you compare it against midpoint of 2020 suggests a growth of about 5%, 5.5% between 2020 2021. So I guess just the slope of that growth, just wanted to check, is that just more of what it is between 2020 2021, but not an indication of long term growth? Are you still comfortable with the 6% to 8% longer term from there? Just wanted to get any color on that would be helpful. Well, I think I've said twice now. I'm not going to give you what we expect our CAGR to be beyond that. But I also said, I don't think you're going to be disappointed when ultimately do give it. All right. I'll take that. Maybe moving to the credit side, you guys mentioned that you had constructive dialogue with the rating agencies. Is there in your view going to be a lower threshold of what is required given the improved business risk profile? And also connected to that, how do you think about the Holdco leverage at this point? Is there a certain level that you're looking to maintain as a percentage of total debt? Well, I'll let the rating agencies speak for themselves. We do talk with them frequently and they're very aware of our plans. As far as Holdco leverage, I wish it wasn't what it is, but at the same point, as I've discussed in the past, we are comfortable that we can deploy about $3,000,000,000 of capital investment in our transmission and distribution system. That's what's driving the growth of this company and do it in a way where we will eventually grow into a stronger balance sheet. We could deploy that some of that cash towards maybe some of the holding company debt, but I just don't think that's the right thing to do for shareholders over the long term. So we're going to continue to take our cash investment in growth. And then as I said, we'll tell you what that's going to look like for the future coming up soon. Got you. And just one final thing, on Slide 24 of your fact book, you have the weather adjusted distribution deliveries and the growth rates. It looks like most of the states are negative except West Virginia, which looks like meaningfully constructive and positive, especially on the industrial side. So maybe if you can touch on what's driving the other states and what specifically in West Virginia is supporting that growth? This is Steve Strahd. In West Virginia, the growth is primarily driven by the shale gas industry. It continues to be very resilient and seems immune to any of the discussion that we've heard about with regard recessions or the trade tariff issue. So, West Virginia is really driven by that. Overall, as we have talked in our past, we project load growth in general, however, to be flat to slightly positive. And that's really just our 6 day territory and where we see the economy in load going. I would also remind you that within our business plan, we take a conservative approach to these projections and we've proven over time to be very accurate in doing it. All right. Really appreciate it guys. Look forward to catching up at EEI. Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed with your questions. Hi, good morning. Hey, Stephen. How are you? Doing well. Thank you. I just wanted to follow-up on the New Jersey filing that you put in. You mentioned checking your prepared remarks, you expected a response from FERC by the end of the year. I'm just not that familiar with this process. Is this something that's fairly procedural and shouldn't be subject to a lengthy review or are there sort of elements that could require a more protracted deliberation? I think it's a pretty simple case. I wouldn't see any reason that FERC couldn't act on it. Understood. And then, just following up on Shar's question, just in terms of the benefits there, I appreciate what you had said Chuck in terms of just contemporaneous return, being able to redeploy more capital. Is there a greater potential for further spending in the state? Do you see and maybe away from this filing specifically, but just other objectives, longer term projects or items that are sort of on your longer term wish list that you might think about further after this filing? Well, I think across our entire footprint, we have already identified about $20,000,000,000 worth of transmission projects that we believe need to be completed. So it's just a matter of as we look at how do we deploy nearly $3,000,000,000 of capital every year. There is a rack and stack process that we go through that prioritizes where that money is spent for the most effective benefit for customers. And if in the end, it means that we would spend more in New Jersey, we'll spend it in New Jersey, but we have formula rates in Pennsylvania and Ohio also. So it's more how do the projects stack up that drive us where to spend. I don't think you should expect us to materially spend more capital than what we've committed to, which is around $3,000,000,000 a year. Understood. That's all I had. Thank you. Okay. Thank you. Our next question is from the line of Paul Patterson with Glenrock Associates. Please proceed with your Just the FERC has put out a few orders in the last couple of months that seem to be oriented towards increasing competition or cost containment with respect to transmission projects, sort of Q1 1,000 sort of follow-up kind of stuff, I guess, is the best way to describe it. And as you know, there's also some procedural stuff going on, stakeholder process at PJM. And I was just wondering what your thoughts were about your perspective on these orders and these efforts? Well, I think PJM in particular has a very transparent process already that affects these supplemental projects. And since that's where we operate, I'll comment on that. Because it's transparent, it's caused some of the questioning that goes on. But I will tell you that the projects that we do in transmission today, about half the money is spent on PGM RTAP projects already. So those are already projects that PGM are saying are needed for future reliability reasons. And the rest fall into the category of what I call good asset management practice. And I think for the regulator, whether that be FERC or even the state commissions to try to get too involved in how we do asset management as a business would be a mistake, because we're the one ultimately responsible for making sure that this grid is reliable and resilient and able to perform for customers not just today, but for the long term. And the projects that we're doing just fall into the typical asset management decisions you make when you're running a bulk a piece of the bulk electric system and a system that serves 6,000,000 customers. Okay. So generally speaking, you don't see these efforts bringing about any more competition into the space that you're currently expecting to invest in? Is that the right way to think about it? Not as it relates to what we're doing at FirstEnergy. The average project size inside this $1,200,000,000 of transmission spend, the average project size for us outside of the RTEP project is about $1,000,000 to $1,500,000 These are small projects. I can't believe anybody is going to really be interested in trying to bid them. And I would point out, their competitive bid already, because we competitive bid if we're putting in a new circuit breaker, we competitive bid that with numerous suppliers. If we're using a contractor to do that work, we competitive bid that work. So these projects are already competitive bid. And I don't think you're going to see anybody else that has the buying power or the capability that we have to competitive bid them cheaper anyway. Okay. And the other projects you don't think are going to be subject to it either, the larger ones? Some of them are already subject to that. But no, I don't see it changing significantly from the way we do business today. Okay, great. Thanks so much. Thank you. The next question is from the line of Michael Lapides with Goldman Sachs. Please proceed with your question. Hey, guys. Thanks for taking my question. I know a lot of people want to ask about 2029 guidance, but I'd actually like to focus on next year first. Your transmission guidance is actually implying a pretty low growth rate relative to the midpoint of your 2019 transmission guidance, right? Your 2019 range had about $0.85 as a midpoint. Your current guidance for 2020 transmission, a couple of cents higher. Is there a significant slowdown in transmission growth if that's starting to kick in? Is law of big numbers starting to impact kind of the ability to grow at kind of within the range of the 6% to 8% range? I'm just curious how you're thinking about the growth of the transmission business over the next couple of years and especially into 2020 over 2019? Yes, Michael, this is Jason Lisowski, Chief Accounting Officer. So you're right, in 2019, we did have a little bit additional O and M in our stated rated transmission companies. And so that was about a penny, penny and a half of additional O and M. So that reduced to 2019 from the original guidance. But as you look into 2020, you'll see in the fact book on Page 56 that we are showing about $0.04 increase year over year and that's the natural transmission growth that Chuck and Steve were talking about. But we do have a little bit higher interest expense mostly at FE Transmission that holding company there issuing some additional debt. So we have some additional interest there. Got it. Okay. And then when you think about rate base growth in transmission, do you think rate base growth in the transmission business is a 6% to 8% level or is it even higher than that? It's higher than that. I think in the 10% to 11% range. Okay. And then one last thing for cash flow. Can you remind us going forward, what if any cash payments do you have to make to the FES estate effectively over the next couple of years? As part of the original settlement, what's left? Michael, this is Steve Strah. We have a $225,000,000 payment that's due to FES upon emergence. We will also at that time issue a tax note that will be due in 2022 for $628,000,000 That's our current plan and those are the commitments that have already been subject to being made public. So we're just going to continue to follow the agreement. Got it. And can you walk me through how the cash flow in the accounting metrics for the tax note will work? Yes. Michael, this is Jason Lusowski again. So that's going to be issued as a note, and then once it's paid, that's when it will come through. So it's obviously it's non cash until we actually pay it in 2022. Got it. Okay. Thanks guys. Much appreciated. Next question is from the line of Charles Fishman with Morningstar Research. Please proceed with your question. Thank you. Just one question. Corporate other up about 10% 20% over 2019%. I see what the fact book says. Missing in the fact book is any general corporate expenses. So I'm making the assumption that the downsizing with respect to FES is going or went to plan. And then any more color you can provide on those other two bullet points on the fact book, the income tax rate going higher and it looks like higher interest expense too? Thank you. Yes, Charles. This is Jason Lisowski again. So our corporate O and M expenses really predominantly get allocated out to the distribution and transmission. So the only thing really left at corporate is any tax plan initiatives that we have and the holding company interest. And so to your point on 2019 to 2020, we did have a little bit of a tax benefit, some discrete items as we got the tax return for 2018 finalized in 2019. We're not expecting those types of benefits to go forward. So you are seeing a little bit higher of a tax rate and a hurt, if you will, 'nineteen to 'twenty from the effective tax rate. And what about interest expense? That was listed in the fact book. Yes. So the interest expense is just related to that holding company debt. More debt, higher rates or? No, it wouldn't be more debt and the interest rates are fairly flat, not going lower from the term loan. So I'd have to actually go in and take a look to find out what's driving it. Okay. But the important thing is we shouldn't expect that kind of acceleration going forward? Not at all. Okay, got it. That's all I had. Thank you. The next question is from the line of Paul Fremont with Mizuho. Please proceed with your question. Thanks. If I look back to your 2nd quarter disclosure, it looked as if you were expecting sort of the underfunded pension position to improve by roughly 500,000,000 dollars Is the update today, should we assume that, that $500,000,000 improvement does not take place at least for at the end of this year? I'm not sure what you're looking at in the second quarter disclosures, Paul, but I think you go from 77% funded, this is Slide 59 of the 2nd quarter fact book, to 82% funded in 2019. And now it looks like, I think from your disclosure or from what you were saying on your slide, your improvement is not to 82%, but it's to 78%. So Paul, it's Steve. So the $500,000,000 voluntary pension contribution that we made in the So Pablo, it's Steve. So the $500,000,000 voluntary pension contribution that we made in the Q1 is the driver. So we went from 77% at the end of 2018 to 78% on its status. But the other piece of this is the pension liability increased by $1,500,000,000 So we went from 10 point I'm sorry, from $9,100,000,000 at the end of 2018 to about $10,600,000,000 at the end of September. Right. So when you end the year, the underfunded pension should still be in the range of $2,100,000,000 at least based on where interest rates are today, right? Everything holds. The underfunded pension position will be around $2,300,000,000 So it will be up $200,000,000 versus where we ended 2018. Got it. Okay. And then on the transfer of the transmission, do you need New Jersey approval or is it purely FERC approval? Good morning. This is Eileen Nicholson, and I'm Vice President of Rates and Regulatory Affairs. And FERC is responsible for approving the JCP and L transmission transfer to a forward formula rate. Okay. So there's no New Jersey approval involved? New Jersey can certainly participate in the process, but not involved in the approval of the application. And then, on the decoupling in Ohio, aside from rebasing, does decoupling give you any type of assumed percentage increase on a go forward basis? Or is decoupling essentially just sort of a weather assumption? I think it's fixing our base rates and what it does compared to anything else is it what it what it really does is it locks in our fixed base revenues at 2018 levels. Right. And I don't know how to compare it to anything else. So that part is going to be a certainty. And then the DMR and the grid mod is on top of that as we make the investments that we are making in the Ohio company. Okay. But aside from going back to 2018, we should not assume percentage increases on a go forward basis associated with that? No. It's going to fix them until our next base distribution rate case in Ohio. Great. Thank you so much. Thanks, Paul. The next question is from the line of Andrew Weisel with Scotiabank. Please proceed with your question. Hey, good morning, everybody. Good morning. My first question is on rate cases. The fact book now shows that you're continuously reviewing considerations for rate cases in New Jersey and West Virginia. That's a bit of a change in the wording. Are you intending to signal a change in the messaging and maybe any high level thoughts on when those next rate cases might come in those 2 states? I wasn't intending to signal anything, but I'll have Eileen update you on what we're looking at as far as future rate cases. Thanks, Chuck. This is Eileen Mikkelsen. And again, really as it states in the fact that we are continuously reviewing the investments that we're making in our jurisdictions, the recovery associated with those investments and using that information to make our best judgments about when it's appropriate to file for future rate cases. Okay. So you're not suggesting that it might come sooner given the change in wording, is that fair? I think the change in wording was really trying to be more precise about the process we use to make that evaluation. Got it. Okay, good to hear. Then second, I'm hoping you could help me reconcile some of the guidance updates. Again, in the fact book here, it looks like you've on the transmission side, you increased your rate base forecast by around 2%, but the CapEx figures are unchanged. And then it's sort of the opposite on distribution where the CapEx numbers are now at the high end of the prior ranges, yet the rate base forecasts have actually come down a little bit. Can you maybe just walk us through how to reconcile those two things that seem a little bit at odds? This is Eileen Mikkelsen. We did an evaluation as we always do looking at rate base. And particularly as it relates to West Virginia and Maryland, we refined our assumptions, our separation studies associated with accumulated deferred income taxes as well as the distribution versus transmission assets. So that's what you see as kind of that reracking and stacking associated with that further refinement of that analysis. Got it. So certain assets were switched basically from one rate base to a different rate base? As well as certain balances associated with accumulated deferred income taxes, yes. Understood. Okay. Thank you so much. Our next question is from the line of Sophie Karp with KeyBanc Capital Markets. Please proceed with your question. Hi, good morning. Thank you for taking my question. Good morning. Just wanted conceptually to ask you about how as the regulatory mechanisms evolve across a few of your jurisdictions, you're moving transmission in New Jersey to formula rates, there's decoupling in Ohio. If that makes maybe capital allocation to these distribution utilities or do these jurisdictions really more attractive versus transmission growth in the longer term? I think we're deploying capital where it's best fit to serve our customers better. And right now, out of average, call it, dollars 3,000,000,000 about $1,200,000,000 of that is in transmission, dollars 1,800,000,000 is in distribution. I don't think you're going to see that change a lot, but we clearly do prefer very transparent rate mechanisms. We mentioned on the call that we just filed another long term infrastructure plan in Pennsylvania. The CR and the grid mod in Ohio are very transparent writers. We have utilized the new rider in New Jersey for the first time starting last year. And then we have transmission formula rates. And out of that $3,000,000,000 a little over 60% of that is being deployed in these mechanisms that are very transparent and return cash back to the business quicker for reinvestment. Got it. And on Maryland real quick, smaller part of your overall picture, but what are your thoughts? Are you going to participate in the potential multi year rate filings there? This is Eileen Mikkelsen, and we have been actively participating in those stakeholder discussions relative to the multi year rate plan rules in Maryland. We expect those final rules to be issued beginning of 2020. And then we'll evaluate the application of those to our Maryland distribution utility at that time. Thank you. Thank you. Our next question is a follow-up from the line of Michael Lapides with Goldman Sachs. Hey, guys. Two questions. These are a little bit housekeeping, probably Steve oriented. 1, what's the tax rate for income statement purposes you're embedding in guidance for 2020? And how should we think about whether you're paying cash taxes? That's the first question. And then a follow-up, coming back on the transmission thing, you're I'm looking at Slide 13, you're forecasting 11% rate base growth CAGR, but you're forecasting EPS growth of like not quite 5%. I'm just trying to true up, is all of that just intermediate holding company leverage that's weighing on that growth or is there something else in there in 2020 I'm not thinking about? Michael, this is Jason. So on your first question, if you look at Slide 56 of the fact book, in the lower right hand corner, we note what our assumed consolidated and business unit segment tax rate. So we're expecting in 2020 to be around 21% to 24%. I'll just also mention that Charles had a question around the corp other the interest expense that's increasing. That's predominantly because of that FES note that $628,000,000 that will be issued upon their emergence. So we're assuming that will be issued at the end of this year, so we'll have that interest cost next year. And then going back on the cash taxpayer, we right now do not expect to be a federal cash taxpayer through at least 2024. Got it. Thank you, Jason. Much appreciated. Thank you. And we have a follow-up from the line of Greg Orrill with UBS. Please proceed with your question. Thank you. In Ohio, where do you stand versus achieving the energy efficiency mandates from the legislation? And secondly, are there any additional details around the timing of the FES reemergence process? Eileen will take the first half and I'll take the second. Thank you, Chuck. With respect to the energy efficiency standards, the Public Utilities Commission of Ohio recently released a report really suggesting that all the utilities in the state were very close to that target and in fact opened up a comment period to seek comments from folks relative to what happens when we achieve that House Bill 6 mandated 17.5% level. And as far as the FES process goes, it's not our process at this point. The court approved the restructuring plan. Every aspect of it as it affects FirstEnergy has been clarified. But what they've said is they expect to get the nuclear licenses transferred yet this year and emerge yet this year. Thank you. Thank you. Okay. I would like to turn the floor back to Mr. Jones. Thank you. So, thank you all. We had a great quarter. Look forward to seeing you all next week at EEI. Take care. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.