Greetings, welcome to the FirstEnergy Corp Fourth Quarter and Full year 2022 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 0 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Irene Prezelj, Vice President, Investor Relations and Communications for FirstEnergy Corp. Thank you. Ms. Prezelj, you may begin.
Thank you. Welcome to our Fourth Quarter and Full Year 2022 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 and year 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 and Interim President and Chief Executive Officer, and Jon 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. Thanks for joining us. We had a strong year in 2022. We are excited to make even more progress on our goals in 2023. Our full year 2022 GAAP earnings are $0.71 per share, and operating earnings are $2.41 per share, which is slightly above the midpoint of our guidance range. Before I get started today, I would like to take a minute to say thank you to all of our employees for their efforts over the past year. I'm proud of what they've accomplished and the company we have become. Our progress this past year is due to the efforts of our 12,000 employees who are serving our customers and working to make this company better for the long term. Thank you.
With that, we have a lot of ground to cover today. Let's get started. Two years ago, we were taking some of the first steps to transform FirstEnergy. In 2022, we hit full stride, stretching ourselves to strengthen and enhance nearly every aspect of our organization. The scope and pace of these changes have been remarkable. Just to touch on a few of the highlights. First, we made significant improvements in our financial position. This includes deploying proceeds from the billion-dollar common equity issuance that closed in late 2021, together with a $2.4 billion, 19.9% interest sale in FirstEnergy Transmission, LLC that closed mid-year to reduce debt by nearly $3 billion in 2022, most of which was at FE Corp.
As a result, we lowered holding company debt as a percentage of total debt to 24% from 33% at the end of 2021. On the operational front, we transitioned to a new five-state operating model and engaged in more than 175 projects across the company to modernize the way we work and deliver a superior customer experience as part of our FE Forward program. At the same time, we continue to enrich our culture with an unwavering commitment to our core values. As a result of this work, we're entering 2023 as a more innovative, efficient, and forward-thinking organization, where employees are sharing ideas and working to move the company forward. This year, we intend to build on our momentum. We're working to be a premier electric company with a strong foundation and a customer-centered focus that is enabling the clean energy transition.
Earlier this month, we announced an agreement to sell an additional 30% interest in FirstEnergy Transmission, LLC to Brookfield Super-Core Infrastructure Partners for $3.5 billion. This transaction, which is expected to close in early 2024, supports our plans to improve our balance sheet and for approximately $1 billion of incremental capital investments, which we believe will drive long-term value for all our stakeholders. As Jon will discuss, our regulatory calendar will address the critical investments that support reliability and smarter and cleaner electric grid. We are introducing 2023 guidance of $2.44-$2.64 per share. The midpoint of this range represents a 6% growth from our original 2022 midpoint of $2.40 per share, and it offsets the pension impacts we discussed last year.
We are also introducing first quarter 2023 guidance of $0.56-$0.66 per share. We are affirming our targeted 6%-8% annual operating earnings growth rate, which represents year-over-year growth based off of the prior year guidance midpoint. I'd like to spend a moment to provide an update on the CEO search process, and I realize there is much interest in this important topic. Late last year, we shared the broad criteria that we were looking for a strong track record of executive leadership within the utility industry, a demonstrated ability to execute on the regulatory front, leading operational and financial discipline, and impeccable credibility with external stakeholders. We always anticipated a 3–6-month timeline. I can share that interest has been strong.
The process has been quite active since the beginning of the year, and discussions among the board and select candidates continue. The board is committed to selecting the right individual to lead our talented team, and we trust you will respect the process through its conclusion. We look forward to sharing the announcement when the board completes its work. In the meantime, we continue to execute on the strategy we have in place. The board and the management team are fully committed to this path, and the expectation is that the new CEO, once named, will be as well. It's an exciting time for FirstEnergy as we're poised to leverage our many strengths, from our diverse assets to the transformation that has taken place since 2020, to the talented employees who are making the company stronger with their drive, passion and ingenuity. I appreciate your continued support.
We are concentrating our efforts on long-term stability and success as a leading utility. We will continue to navigate our path with the same determined focus you've seen over the last few years. I'll turn the call over to Jon Taylor.
Thanks, John, good morning, everyone. Thank you for joining us. I join John in thanking our employees for their incredible work this past year. Their perseverance and commitment made it possible for us to navigate challenging conditions and make important progress on our goals. We have a busy year ahead of us as we continue driving towards our aspirations and laying additional groundwork for our future success. I'll start my remarks with a review of our top regulatory and business priorities. We'll move to a discussion of 2022 financial results and 2023 expectations. We have an active regulatory calendar this year. Later this quarter, we'll file for new distribution rates in New Jersey and Maryland and file an application to consolidate our Pennsylvania legal entities.
By mid-year, we plan to file a rate case in West Virginia, an Electric Security Plan in Ohio, and an Infrastructure Investment Program or IIP in New Jersey. Broadly speaking, the rate cases will address the significant customer-focused investments we've made since our last rate cases in each of the states and provide an opportunity to bring our distribution equity returns in line with the industry average allowed returns. At the end of 2022, our weighted average ROE was 7.7%, while authorized ROEs ranged from 9.6% to 10.5%. Our current residential rates are 10%-40% below our peers in the states we serve, and we are sensitive to the pressures of the current inflationary environment on our customers.
Our rate cases this year will ensure we maintain our affordability position while enhancing the customer experience, provide further support for low-income customers, and support the critical investments for a more reliable, resilient, and smarter electric grid. Each filing will address unique elements to better serve customers in that state. For example, the Maryland and New Jersey rate cases will highlight our plans to improve distribution reliability through incremental investments. In Maryland, we plan to file concurrently with the rate case for continuation of the Electric Distribution Investment Surcharge. In New Jersey, our rate case will highlight our plan to file an infrastructure investment program by the middle of this year. These programs will focus on investments such as circuit resiliency and reliability, feeder sectionalization, and distribution automation and substation upgrades.
In West Virginia, the rate case will reflect our recently filed proposal with the commission to update depreciation rates associated with Mon Power's two coal-fired generation assets, which, based on the depreciation study, would have retirement dates of 2035 and 2040. Any increase in depreciation rates would not take effect until conclusion of the upcoming base rate case. Turning to consolidation of our four Pennsylvania utilities, this is an important step to align with our new state operating model, simplify our legal entity structure, and increase the flexibility and efficiency of our financing strategy. This consolidation won't represent any changes in current electric rates for our Pennsylvania customers. Those will be combined as appropriate over time through future rate case activity. In Ohio, our ESP5 will adjust generation procurement for non-shopping customers after the current ESP expires in May of next year.
In addition, this filing will address other regulatory programs and mechanisms, such as continuation of existing capital riders, such as the DCR and AMI. As we extend our commitment to have a broad stakeholder dialogue, we are considering programs that support energy efficiency, low income, and additional customer-related initiatives. We also look forward to advancing the $626 million Ohio Grid Mod II capital investment plan, which was filed last July. If approved by the commission, Grid Mod II will continue our work to enhance the delivery of safe, reliable power, offer modern customer experiences, and support emerging technologies. As we make each major regulatory filing, we'll post a convenient and comprehensive summary to our IR website. You'll find this information on the Investor Materials page of the site in a new section named Regulatory Corner.
Turning to financial matters, our recent agreement with Brookfield represents an exciting milestone in our progress to be a premier utility with a strong financial position and sustainable long-term growth. The $3.5 billion transaction will deliver highly attractive, efficient equity financing. The transaction is structured with a $1.75 billion due at closing and aligned with our investment and financing plans, an 18-month, $1.75 billion note at 5.75% interest. Once the transaction closes, we intend to deploy the proceeds to further improve our credit metrics and our balance sheet, targeting FFO to debt metrics of 14%-15%. The proceeds also supported more than 10% increase in our 2024 and 2025 capital investment plans.
We're infusing nearly $1 billion into the CapEx plan, bringing our target to approximately $18 billion over the 2021-2025 period. Through this plan, we're targeting 75% formula rate investments and more than 7% average annual rate base growth beginning in 2024. We will use NOLs and existing tax credits to offset most of the taxable gain on the transaction, resulting in expected cash taxes of approximately $50 million. Beginning in 2023 and moving forward, we expect to be a federal cash taxpayer at approximately $200 million annually. Our agreement to sell an additional 30% interest in FET triggered a deferred gain on the prior 19.9% sale that was completed in 2022.
We recognized a $752 million non-cash charge in our fourth quarter 2022 GAAP results. Operating earnings were $0.50 per share for the fourth quarter of 2022. On an adjusted basis, excluding unique drivers this year, which include the impact of accounting changes, rate credits provided to Ohio customers, and equity financing transactions, fourth quarter operating earnings increased $0.09 per share or 22% compared to the same period in 2021. In our distribution business, fourth quarter results benefited from weather-related demand, along with the impact of our capital investment programs. These results nearly offset higher operating expenses, primarily associated with accelerating certain planned maintenance work, incremental reliability activities, and higher material and storm costs.
Total distribution deliveries increased 2% resulting from weather that was closer to historic norms compared to the very mild fourth quarter of 2021 and increased demand from industrial customers. Residential sales increased 3% from the fourth quarter of 2021, but decreased slightly on a weather-adjusted basis. Consistent with our observations on the October call, sales to residential customers remain about 3% higher than pre-pandemic levels. In the commercial sector, fourth quarter deliveries were up slightly from the prior year due to weather and decreased almost 2% on a weather-adjusted basis. While sales to commercial customers increased slightly overall in 2022, they continue to lag 2019 levels by more than 4%.
Sales to industrial customers increased nearly 2% compared to the fourth quarter of 2021, led by continued recovery in the automotive, mining, fabricated metals, and steel sectors. Industrial sales are trending closer to pre-pandemic levels with full year 2022 sales less than 1% below 2019 and fourth quarter 2022 sales flat to 2019 levels. In our transmission business, fourth quarter results benefited from continued formula rate base growth of 9% year-over-year associated with our Energizing the Future investment program, as well as lower financing costs.
I wanna take a quick second to recognize our transmission, supply chain, and materials operations teams who overcame significant supply chain and other issues in 2022, investing nearly $1.4 billion in projects to improve grid reliability and resiliency. For example, we successfully completed the first segment of a 64-mile transmission line rebuild that will enhance service reliability for customers in Eastern Ohio. In Central New Jersey, construction is underway on two projects that will upgrade 19 miles of transmission lines and benefit 50,000 customers. In 2023, our transmission investment plan is $1.7 billion. We have a long project pipeline ahead of us in this premium business.
Finally, our corporate segment benefited from higher investment earnings from the Signal Peak mining operation and lower financing costs associated with the holding company debt redemptions earlier this year. For the full year, we reported GAAP earnings of $0.71 per share, largely reflecting the non-cash tax charge I mentioned earlier. Full year 2022 operating earnings were $2.41 per share, slightly above the midpoint of our guidance. On an adjusted basis, excluding the accounting changes, Ohio rate credits, and equity transactions, we achieved a $0.26 improvement in operating earnings compared to 2021, which represents 12% year-over-year growth. Our solid financial performance resulted in $2.7 billion in cash from operations last year, which is in line with our expectations.
We made more than $3.2 billion in customer-focused regulated investments and plan to execute our 2023 capital investment plan of $3.4 billion. We met our 2022 FFO to debt target, executed our financing plan, and achieved investment-grade credit ratings with Fitch, and just recently received a positive outlook from S&P. The materials posted to our website yesterday afternoon contain an updated financial outlook through 2025, including our capital plan, load forecast, and financing plan. It's our expectation that we will extend our outlook beyond 2025 later this year.
As John mentioned, our 2023 earnings guidance of $2.44 to $2.64 per share reflects overcoming the enormous challenge we face related to the pension, which year-over-year was a $0.38 impact to our 2023 plan. The combination of accelerating O&M into 2022, together with lower interest expense resulting from debt reductions and earnings from Signal Peak, support our projection for 6% growth year-over-year at the guidance midpoint. Our focus is executing on our plan to drive strong regulated earnings growth, resulting in our long-term 6%-8% growth outlook, anchored by increasing transmission and distribution utility investments.
While pension and the positive offset provided in the near term by Signal Peak have complicated our earnings story, we are laser-focused as a management team to improve the earnings quality over time by replacing earnings from the Signal Peak and pension with high-quality core T&D earnings growth and the significant benefits associated with improving our balance sheet. In terms of other 2023 drivers, our expectation is for the continued strong growth from the investments we're making for our 6 million customers in our distribution and transmission businesses, and an improvement in our cost structure, driven in part by the work we accelerated into 2022. This is certainly an area we will need to keep an eye on with respect to inflationary pressures.
Ending on another positive note, we are fresh off a recent board meeting where we discussed the importance of the dividend to our investors. The board approved a new dividend policy that raises our targeted payout ratio to 60%-70%, up from 55%-65% previously. We also expect to resume dividend growth, subject to board approval, for dividends payable late this year. Our new payout ratio is more in line with our peers and reflects the steps we've taken to improve our credit profile and our commitment to enhancing value for investors. As I mentioned, on Friday, S&P moved FirstEnergy to a positive outlook based on the announcement of the asset sale and our strategy to use those proceeds in a credit-supportive manner. We're pleased with this action, which recognize our work to deliver on our commitments.
I'm excited about our plans for this year and for the future. We've taken significant steps over the past few years in a broad range of areas to move the company forward, from the cultural changes, the improvements to our financial and credit profile, and the execution on our regulatory strategy focused on benefiting our customers. We feel like we have great momentum for the future, focused on delivering value for our customers, shareholders, and all of our stakeholders. As always, thank you for your time and your interest in FirstEnergy. Before we take your questions, I'm gonna turn the call back over to John.
Thanks, Jon. We'll have plenty of time for your questions. I wanted to take another opportunity to say how pleased I am with FirstEnergy's progress. As you've heard this morning, this team has delivered on our goals. They have diligently executed our plan. They have exemplified our commitment to performance excellence. I'm proud of where we are as a company. I'm excited about our future. Now let's open the Q&A.
Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. Our first question comes from the line of Nick Campanella with Credit Suisse. Please proceed with your question.
Hey, thanks everyone for taking my question and appreciate all the disclosures. A lot in the deck here. I guess, John, on the CEO timeline, you know, can you just help us understand what the expectation is on the timeline now? You know, should you have someone announced before the second quarter call? Can you kind of help narrow that down for us a little bit more? Thank you.
Yeah, thanks, Nick. you know, consistent with what we've talked about earlier, which is not only the criteria, what we're looking for, and we talked about that as part of the prepared remarks. The timeline that we talked about, 3 to 6 months, everything we're reviewing now is still consistent with that. I can tell you that we've had quite a bit of activity, you know, related, you know, to the board search process so far this year. It's been very active, and that continues as we speak right now.
I think a couple of positives are that because we've continued to execute as a company, you know, we see good progress, and that's what we indicated, that even though we are going through the CEO search process, that we continue to execute on things like the FET transactions. That's been a very positive. Also, the board has been very focused on getting the right individual. Saying that, we do realize that we want to, you know, address this issue. The board has a high priority right now and is very active on concluding the search.
Okay. All right. Thank you. I guess, you know, you guys have done a good job, like, offsetting the pension headwind with the Signal Peak earnings, which do seem material and just...
Acknowledging your prepared remarks, those are probably more cyclical type earnings. Just as we think about the fact that you're going to extend the plan in the coming, you know, later part of this year and the fact that, you know, maybe by 25, the Signal Peak earnings may not be there, just what are the offsets that kind of keep you within that annual 6%-8% growth trajectory that you can kind of share with us if you've identified anything? Thanks.
Hey, Nick, this is Jon Taylor. Let me maybe take a few minutes to kind of explain how we're thinking about the long term. If you think about, you know, 2023 ex pension and ex Signal Peak, there's going to be obviously significant improvement in the earnings year-over-year of the business, mainly because of the actions that we took last year to accelerate maintenance expenses and the plans that we put in place for additional cost controls this year. You know, the interest expense benefits from improving the balance sheet at the holding company, as well as continued growth in our transmission business.
Those items more than offset the decline in Signal Peak and pension that was close to 30% of our earnings in 2022, and now for this year is projected to be about 15% of our earnings in 2023. If I think about the plan going forward, I think what you'll see is above average growth from the business ex pension, ex Signal Peak from new base rates and formula program capital spend in our distribution companies, you know, the continued organic growth from our transmission business, and then how we're going to deploy the proceeds, you know, in an EPS accretive way from the FET transaction.
Our current plan, you know, pension Signal Peak is going to be less of a contribution in those outer years, representing probably around 10% of the total earnings of the company. Obviously, you know, what's going to be important for us is, you know, regulatory outcomes. Cost control is going to be very important. That along with our, you know, our transmission business continuing to drive significant year-over-year earnings will drive the overall growth of the company.
Thank you.
Thank you. Our next question comes from the line of Angie Storozynski with Seaport Global. Please proceed with your question.
Thank you. Just wanted to ask about the CEO search. John, I think you mentioned that, you know, that there's an expectation from the board that the new appointee is gonna stick with the current strategy. Does that mean that we shouldn't expect any changes to your, you know, EPS growth targets at least till 25 by the new CEO?
Yeah. I mean, we view our strategy as very, very straightforward. You know, what we're going to focus on related to investment in the business, you know, controlling our costs, you know, executing on that strategy. The management team very strongly supports that strategy. The board very strongly supports that strategy. Yes, we're looking for a CEO that would be very much in line and be able to execute on that strategy.
Okay. Then the other Jon, the, I'm just wondering if you have, you know, any expectations for, you know, the ESP and then the distribution case in Ohio, you know, given the backdrop in the state and then ongoing investigations related to HB 6. I mean, How do you think about the potential earnings impacts related to those two proceedings?
Yeah, I guess from my perspective, you know, there's a difference between the ESP and a base rate case, right? The ESP is primarily focused on the procurement of generation services for those customers that don't shop. You know, having said that, there are some rider programs in the ESP that we will ask to continue on, such as our, you know, Delivery Capital Recovery Rider. Those are important to us. In the main, you know, that's not nearly as significant as a base distribution case. I would tell you in our plan, you know, we're not, you know, planning for anything extraordinary. We're gonna file an ESP that's consistent with our peer companies in the state, that's kinda how we plan for the future.
Okay. Lastly, I mean, if I understand correctly, you will start growing the dividend, maybe as soon as the mid-year, maybe a little bit later. When you talk about the FFO to debt targets, those already account for the fact that the dividend will start growing?
Yep, that's all in our plan. Yep, Angie, that's correct.
Thank you.
Thank you. Our next question comes from line of Steve Fleishman with Wolfe Research. Please proceed with your question.
Yeah. Hi. Thank you. Just to follow up with a prior question. When you kind of summarize the earnings outlook, is it fair to say then that the utility earnings and the parent should be growing better than the 6%-8%, essentially?
Yeah.
While the... Yeah.
Go ahead, Steve. You can finish up.
Yeah. No, while the other part shrinks, is it?
Yeah.
Is that just 'cause you've got the rate base growth, and you'll be able to, I guess, improve, you see this underearning situation improve over the next few years?
Right. Right. I mean, if you just look at the cases that we'll file next year, you know, this year, New Jersey, West Virginia, Maryland, all of them except for Maryland, have fairly low return on equity. New Jersey, 7%, West Virginia, 6.6%. We're also filing for, you know, capital programs in the distribution business, you know, with the Grid Mod program in Ohio, we're gonna file for an IIP in New Jersey. All that will provide, you know, significant growth to the distribution business. You know about the transmission company and the robustness of that business. How we deploy the proceeds into the balance sheet from the FET transaction will, you know, reduce otherwise incurred interest expense.
As we look at the business ex-pension, ex-Signal Peak, you'll see above average growth.
I guess a question for John Somerhalder. Just on the CEO search, are you still looking for the same characteristics that you mentioned from the beginning? I guess the other question, as it takes longer, is there any chance you're also reviewing, like, strategic options separately as part of this too?
Yeah. You know, the requirements, what we're looking for, Steve, are very consistent with what we've talked about. We have not changed that. As we've said, we've had good interest from individuals that have that. What I can tell you, consistent with what we've said earlier, is, the board truly supports and believes in the plan, and we are, you know, really focused on finding the right CEO that can execute on that plan. That is the path that the board is headed down.
Okay. Thank you.
Thanks, Steve.
Thank you. Our next question comes from a line of Shar Pourreza with Guggenheim Securities. Please proceed with your question.
Hi, guys. Good morning. It's James Ward on for Shar. How are you?
Hi, James. How you doing?
Hi. Doing well. Thank you for taking our question. We're glad to see in the slides that the 6%-8% annual growth rate target continues beyond 2025. The recently announced FET transaction obviously gives you a lot of flexibility in terms of deploying capital, as you've mentioned, either towards rate-based growth or debt repayment, both of which yield recurring benefits to earnings. Specifically on the investment side, you've highlighted the step-up in annual rate-based growth from 6% to 7% in 2024 and 2025. Is 7% just the 2024 and 2025 expectation or like the 6%-8% annual EPS target continuing post-2025? Should we be assuming that 7% rate-based growth also applies annually post 2025?
Just trying to make sure we're thinking correctly about the drivers of earnings, in that period, even though you're not officially guiding beyond, 25 in terms of a capital plan at this point in time. Just high level.
James. I think, you know, from my perspective, you know, the CapEx plan is, you know, increasing from, you know, $3.3 billion last year to over $4 billion by the time we get out to 2025. Quite frankly, I see that trend, you know, continuing into the back half of the decade, so post 2025. Obviously, we'll provide you much more in the way of details once we announce a longer-term plan. I do see the need for significant capital investments post 2025 to really support resiliency, reliability, to support, you know, the electrification of different industries, a continuation of our transmission CapEx program. I do see that level and more, you know, increasing through the back half of the decade.
Thank you. That's very clear. I appreciate the response. That's all for me.
Thank you. Our next question comes from a line of David Arcaro with Morgan Stanley. Please proceed with your question.
Hi. Good morning. Thanks so much for taking my question. I was wondering if you could speak to the Pleasants plant in West Virginia, just the considerations there around potentially acquiring that plant and how it could factor into the resource planning outlook in the state.
David, the Pleasants plant has, you know, some improved environmental controls compared to at least one of our facilities. The commission in West Virginia has asked us to look at could it make sense to continue to operate that plant as part of the generation that we would own to support our customer load. We are consistent with what we've been asked by the commission. We are evaluating that at this time, and I think we'll have some results in late March that will inform that decision. West Virginia and the load for the customers and the economy there are keen interests, so we will work hard to see if that could make sense. I can't prejudge at this time what the result may be.
We will comply with what we're asked to do there and do a good faith analysis to see if that can make sense. We'll be able to let you know as we conclude that what the next steps could be or what additional steps the commission may take to further evaluate that depending on the evaluation.
Okay, great. Thanks. That's helpful. Then, I was curious, just in terms of the offsets that you dug into for the pension in 2022, the $0.38, I was wondering or the $0.38 that you planned to offset, I was wondering how much of that ends up being one-time in nature, doesn't recur? You know, kind of what's in your control as to, is there any of that that you would see recurring going forward, as a more sustainable source of earnings? Thanks.
Yeah. Yeah, David. If you think about just year-over-year, the $0.38, I would say probably, you know, 25% of that is coming from OpEx that, you know, we accelerated from 2023 into 2022. Our financing plan, which would be permanent, you know, the debt tender as well as the open market repurchases that we executed in the back half of last year. Signal Peak is, you know, a contribution to the $0.38 offset. Then some other, what I'll call cost initiatives aaand other benefits that we're driving towards, you know, round out the difference.
There is, you know, some timing or some of those benefits that aren't necessarily sustainable into the future. We are, you know, trying to put in programs and controls in place to continue to drive out costs throughout the entire organization. You know, that's kind of the way that we're thinking about it at this point in time.
Okay. Got it. Thanks so much. Appreciate it.
Thank you. Our next question comes from line of Julien Dumoulin-Smith with Bank of America. Please proceed with your question.
Hey, good morning, team. Thanks for the time and the opportunity. Appreciate it. Hey, listen, just coming back to the rate base growth question, just I wanted to understand a little bit more, how to think about the net rate base growth relative to the 7% growth disclosed, and how you think about that accelerating here. I know you said in your comments you expect to revisit some of the growth later this year, potentially. Just to understand, like, what the baseline is in terms of, like, net growth back to yourself from rate base and how that might accelerate here just to kind of have to reconcile the 6%-8%.
Alternatively, how much of the outlook when you think about the 6 to 8 is driven by some of the underearning improvements that you alluded to earlier?
Well, maybe I'll answer it this way. The 7%, you know, rate base growth, 2024 and 2025, you know, supports the earnings of the 6%-8% through that time period. We continue to look at the capital plans post 2025, and based on some work that we've done over the last year or so, we believe there's even incremental capital to that to support, you know, the electrification, you know, support EVs and support other reliability and resiliency type of program initiatives. I do think you could see that annual CapEx number start to increase, you know, beginning in 2026. Like I said, we'll provide all that color and that detail, you know, when we're ready.
Just to clarify, when you're ready, that's the event later this year that you're alluding to? Related to that, again, just the rate base growth, that 7%, what's the delta that's not owned in terms of the FET sell down? Just to clarify that as a baseline.
Yeah. You know, when we sell off the 30%, you know, let's say that the total transmission business, you know, by that time would have $11 billion or so in rate base. 30% of that would be owned by Brookfield effectively.
Yeah, that's a different 30%. We if we sell off 30% additional plus the 19.9 represents about 30% of our total transmission. The math works just like Jon indicated, but two different 30%s.
Got it. Just to reconcile the outlook here, you're gonna provide a roll forward later this year that would include an updated CapEx look beyond 25 that should show an accelerating CapEx budget for 26 onwards? Just trying to set expectations on what that update will look like later this year.
I mean, you know, Julien, it's hard to tell you exactly what the outlook's I mean, what we're gonna provide you. I think, you know, we are gonna extend the outlook, and we'll provide the normal detail that we typically provide when we extend the outlook. I would just ask that we just kind of wait to see, you know, wait till that time, and we can provide you all the detail.
All right. Fair enough. Thank you, guys. Good luck. We'll speak to you soon.
Thank you. Our next question comes from line of Sophie Karp with KeyBanc Capital Markets. Please proceed with your question.
Hi. Good morning. Thank you for taking my question. A lot of my questions have been answered, but maybe I can ask you a high-level question here. Your stated rate-based growth and your EPS growth targets are consistent with what your peers, some of your peers also forecast in much higher growing jurisdictions, right? Ohio, Pennsylvania jurisdictions where you guys operate are not really characterized by higher population growth. With that in mind, how do you feel about bill pressure going forward, considering that you will not have that tailwind of growing population and necessarily to help spread the pain, right? How do you think about that and what supports that growth on the ground? Maybe you can comment about local economy, something that maybe we are missing. Thank you.
Sophie, that's a key point. The good news is, you know, in all of our states, we start out very affordable. When we compare to our peer rates in those states or anywhere from single digit up to approaching 30% more affordable in the different states. It does give us the ability to invest. As everyone knows, we've under-invested in some of our jurisdictions. There's a need to invest for reliability and other things that really benefit the customers. As you said, even without, you know, some of the high customer count, customer usage growth rates of some other jurisdictions, because we're very affordable, because we have these needs for reliability and other, we feel like that's very manageable, you know, starting with where we're starting from on that.
We do see that with electrification, first of transportation, we will see as we move out later in the plan, you know, out through the 5-10-year period, we do see load growth that can help support additional investment. That's how we view it, and that's how we view that we can remain affordable and deal with our customers' affordability issues, even with this more robust capital plan.
Got it. Thank you. If I may, on Signal Peak, maybe if you can reiterate, what is your kinda exit path here? Do you plan to, kinda sell it or is it just gonna naturally diminish in your earnings profile over time? If you are planning to sell it, could you just remind us what the book value of it is and if there's a possibility of impairment in the balance sheet impact?
Sophie, I mean, the plan does call for diminishing earnings contribution from Signal Peak. As we've talked about before, we have looked at, you know, monetizing our investment. That has been difficult, but we continue to look for those opportunities, and we'll continue to do that into the future. You know, from a balance sheet perspective, I think the investment on the balance sheet's about $60 million, so, you know, not significant given the size of our balance sheet.
Got it. Thanks so much. That's all for me.
Thank you. Our next question comes from the line of Anthony Crowdell with Mizuho Securities. Please proceed with your question.
Good morning. Maybe two quick housekeeping questions. One is, I guess, following up on Sophie's question. In 2023, what is your assumption for Signal Peak and pension earnings?
It represents about 15% of the total earnings of the $2.54 midpoint.
Great. I think on Steve's question earlier, You answered his question, I think, the utility growth rates or maybe earnings will be ramping up as Signal Peak and pension earnings decline. Just how much of that additional capital that maybe is going into the utility is eligible for a rider refund you know, eligible for rider recovery versus a rate filing?
I think, you know, if you look at our plan, you know, we're trying to ramp up our formula rate CapEx at about 75% overall. You know, 100% of the capital in the transmission business is formula rate, and I think we're targeting 50% by the time we get out to 2025 in the distribution business. A fairly significant amount of formula rate CapEx in the plan.
Just lastly, if I could jump on the CEO question bandwagon. Just over the last three or four months, the company's made some great strides in transitioning or transformation for the company. Just thoughts, John, on does the title move from interim to, like, full-time CEO?
Wasn't expecting that question. My thoughts are, you know, we have strong interest. My thoughts are that we're focused on concluding that and transitioning me back to the board is what my thoughts are.
Great. Thanks for taking my questions.
Thank you, Anthony.
Thank you. Ladies and gentlemen, that concludes our question- and- answer session. I'll turn the floor back to Mr. Somerhalder for any final comments.
Thank you. Thank you all for joining us today. We very much appreciate your interest in and support of FirstEnergy. Thank you.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.