Earnings Call: Q1 2021

Apr 23, 2021

Greetings, and welcome to the FirstEnergy Corp. First 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. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Irene Prezel, Vice President, Investor Relations for FirstEnergy Corp. Thank you. Ms. Purzel, you may begin. Thank you. Good morning, everyone, and welcome to our Q1 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 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, 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 Investors section of our website. Participants in today's call include our President and Chief Executive Officer, Steve Strah Senior Vice President and Chief Financial Officer, John Taylor and our Vice Chairperson and Executive Director, John Somerhalder. We will also have several other executives available to join us for the Q and A session. Now, I'll turn the call over to Steve. Thank you, Irene, and good morning, everyone. Yesterday, we reported Q1 2021 GAAP earnings of $0.62 per share and operating earnings of $0.69 per share, which is in the upper end of our guidance range. As John will discuss, our results reflect The continued successful implementation of our investment strategies, higher weather adjusted load In our residential class and strong financial discipline in managing our operating expenses. Last month, I was honored to be named FirstEnergy's CEO and appointed to the Board of Directors. I greatly appreciate the trust The confidence the Board has placed in me since I was named President last May and acting CEO in October. I have great pride in FirstEnergy and the work our employees do to serve our customers and communities. It's my privilege to continue leading the company as we navigate our current challenges and position our business for long term stability and success. As we work to move FirstEnergy forward, my priorities are the continued safety of our employees and customers, Ensuring that ethics, accountability and integrity are deeply ingrained in our culture And supported by a strong corporate compliance program. Executing FE Forward, Our transformational effort to capitalize on our potential, deliver long term results and maximize near term financial flexibility and continuing our investments in infrastructure growth opportunities from electrification, grid modernization and renewable integration to benefit our customers. During today's call, I'll provide an update on the Department of Justice John Somerhalder will join us for an update on the Board and management's work towards instilling a culture of compliance built upon the highest standards of ethics and integrity. Then John Taylor will review our results and other financial topics before we open it up for your questions. As we discussed on our Q4 call, We are committed to taking decisive actions to rebuild our reputation and focus on the future and continuing to cooperate with the ongoing government investigations. We have begun discussions with the DOJ regarding the resolution of this matter, including the possibility FirstEnergy entering into A deferred prosecution agreement. We can't currently predict the timing, outcome or the impact of The possible resolution with the DOJ. Our goal is to take a holistic and transparent approach with a range of stakeholders across the spectrum of matters under review. This approach is consistent with the changes we're making in our political and legislative engagement and advocacy. For example, We are stopping all contributions to 501c4s. We've paused all other political disbursements, including from our political action committee and we've limited our participation in the political process. We have also suspended and or terminated various political consulting relationships. In addition, we'll be expanding our disclosures around political spending in order to provide increased transparency. For example, we have committed to post updates on our website on our corporate political activity, relationship with trade associations and our corporate political activity policy, which is under revision. A comprehensive and open approach is also the cornerstone in our regulatory activity. In Ohio, we continue taking proactive steps to reduce the regulatory uncertainty affecting our utilities in the state. This includes our decision in late March to credit our Ohio utility customers approximately $27,000,000 This comprises the revenues that were collected through the decoupling mechanism authorized under Ohio law plus interest. The partial settlement with the Ohio Attorney General to stop collections of decoupling revenues and our decision not to seek recovery of lost distribution revenues from our Ohio customers. Together, these actions fully address the requirements approved in Ohio House Bill 128, as well as the related rate impact of House Bill 6 on our customers. These are important steps to put this matter behind us. In other Ohio regulatory matters, we proactively updated our testimony in the ESP Quadrennial review case to provide prospective seat values on an individual company basis. We are engaged in settlement discussions with interested parties on this matter, as well as the 2017, 2018 2019 seat cases that were consolidated into this proceeding. During our last call, we mentioned that we were Proactively engaging with our regulators to refund customers for certain vendor payments. Those conversations are underway in each affected jurisdiction. In Ohio, at the PUCO's request, The scope of our annual audit of Ryder DCR has been expanded to include a review of these payments. Outside of Ohio, our state regulatory activity is concentrated on customer focused initiatives that will support the transition to a cleaner climate. For example, on March 1, JCP and L Filed a petition with the New Jersey Board of Public Utilities seeking approval for its proposed EV driven program. If approved, the 4 year $50,000,000 program would offer incentives and rate structures to support the development of EV charging infrastructure throughout our New Jersey service territory in an effort to accelerate the adoption of electric vehicles and provide benefits to our residential, Commercial and Industrial Customers. And in late March, the Pennsylvania PUC approved our 5 year Consumption reduction targets. In other recent developments, last week FERC approved Our uncontested JCP and L forward looking formula rate settlement without any modifications. In March, we closed the transaction to sell JCP and L's 50% interest in the Yards Creek pump storage hydro plant and received proceeds of $155,000,000 And we also announced plans to sell Pennilex Waverly New York distribution assets, which serves about 3,800 customers to a local co op. The deal, which is subject to regulatory approval, will simplify PennElec's business by solely focusing on Pennsylvania customers. During our Q4 call, we introduced you to FE Forward, our company wide effort to transform FirstEnergy into a more resilient, effective industry leader, delivering superior customer value and shareholder returns. We expect the FE Forward initiatives to provide a more modern experience for our customers With efficiencies in operating and capital expenditures that can be strategically reinvested into our business, Supporting our growth and investments in a smarter and cleaner electric grid, while also maintaining affordable electric bills. During the first phase of the project, we evaluated our processes, We found opportunities in many areas to enhance and automate processes, Take a more strategic focus on operating expenditures and modernize experiences for our customers and employees. We've identified more than 300 opportunities and now we are diving deeper into these ideas, Developing detailed executable plans as we prepare for implementation beginning later this quarter. Examples of this work include improving the planning and scheduling through integration of systems to allow our employees to deliver Their best to our customers. Leveraging advanced technologies such as drones and satellite imagery to improve Our vegetation management programs, using predictive analytics and web based tools to provide our customers with more self-service options and improve their experience and leverage purchasing power to optimize payment terms. As part of these efforts, we intend to evaluate the appropriate cadence to initiate rate cases on a state by state basis to best support our customer focused strategic priorities. We will also remain focused On emerging technologies, smart grid, electric vehicle infrastructure and our customers' evolving energy needs as we think through how to reduce our carbon footprint. We're off to a great start this year And yesterday, we reaffirmed our 2021 operating earnings guidance of $2.40 to $2.60 per share. Our leadership team is committed to upholding our core values and behaviors and executing on our proven strategies as we put our customers at the center of everything we do. We will take the appropriate steps to deliver on our promise to make FirstEnergy a better company, one that is respected by our customers, the investment community, regulators and our employees. Thank you for your time and confidence. Now I'll turn the call over to John Somerhalder. Thanks, Steve, and hello, everyone. It's a privilege and a pleasure to join you today. I'd like to start by Sharing my impressions of FirstEnergy after almost 2 months in this role. This is a company with a firm foundation, including a commitment to improve In the area of governance and compliance, a commitment to customers by embracing innovation and technology to help ensure the strength, Resilience and reliability of its transmission and distribution businesses, a deep seated and strong safety culture And a strong potential to deliver significant value to investors through customer focused growth. Since joining the team, I've been supporting Senior leadership in advancing the company's priorities, strengthening our governance and compliance functions, and enhancing our relationships with external stakeholders, including regulators and the financial community. Steve spoke about our business priorities. So I will focus my remarks today on our compliance work, including remedial actions. First, I'd like to update you on our internal investigation, which has revealed no new material issues since our last earnings call. The focus of the internal investigation has Transition from a proactive investigation to continued cooperation with the ongoing government investigations. Management and the Board, with the assistance of the compliance subcommittee of the Audit Committee, have been working together to build a best in class compliance program. Through these efforts, we have identified improvement opportunities in 5 broad categories, including governance, risk management, Training and communications, concerns management and 3rd party management. As part of these efforts, FirstEnergy is embracing a commitment to enhancing its compliance culture to be best in class. Some of the actions completed to date Include hiring our Senior Vice President and Chief Legal Officer, Yun Park, in January Antonio Fernandez, who joined as Vice President and Chief Ethics and Compliance Officer last week and myself. On the Board side, Jesse Lynn and Andrew Tino joined us from Icahn Capital in March and the Board has nominated A new independent member, Melvin Williams, for election at the Annual Shareholders Meeting when Sandy Pia Malto's term ends next month. I believe the insights and experience of the new leaders are helping to round out a very committed and confident Board and management team. In March, the Board affirmed our confidence in Steve by naming him CEO. Steve has consistently demonstrated the integrity, leadership skills, These changes along with the Board's reinforcement of and the executive team's commitment to setting the appropriate tone at the top will support a culture of compliance going forward. For instance, we recently held an event where the Chairman and the Chair of the Compliance Subcommittee addressed the company's top 140 leaders regarding the expectations to act with integrity in everything we do. Our legal department recently completed training on up the ladder reporting and we have enhanced our onboarding process for new employees and for third parties on expectations around our code of business conduct. Over the course of the next few months, there will be many more steps the company will take to enhance our Such as continuing to build the new, more centralized compliance organization under Antonio's leadership, Addressing our processes, policies and controls, which include additional oversight for political contributions, Clients into our goals and performance metrics and holding all employees regardless of title to the same standards, Enhancing the channels for incident reporting and developing thorough and objective processes to investigate and address allegations of misconduct and ensuring increased communications with and training of employees with respect to our commitment to ethical standards and integrity of our business Procedures, compliance requirements, our code of business conduct and other company policies and understanding and utilizing the process We have also enhanced Our internal controls around disbursements to require additional approvals, targeted reviews of any suspicious payments and a reassessment of approval levels across the entire company. Additionally, in the area of disbursements, We will update and clarify policies and procedures, conduct training and institute a regular audit program that reviews payments and services performed. A detailed list of the corrective actions we are taking can be found on Pages 89 of our Q1 fact book. Over the next several months, we expect to make significant progress in the areas of compliance led by Antonio's organization, where it will continue to be overseen by the Board and the newly established management steering committee for ethics and compliance. Through these efforts, we expect the material weakness associated with The Tone at the Top to be remediated by the time we file our 4th quarter earnings. Our leaders are continuing to elevate the importance of compliance and working to regain the trust of employees and our stakeholders By modeling appropriate behavior and consistently communicating that compliance and ethics are core values, just like safety. We are committed to ensuring that employees understand what is expected of them and are comfortable reporting ethical violations without fear of repercussions. By continually emphasizing the importance of compliance to our strategies and future, as well as demonstrating that we are setting the right Tone at the top, we strive to bolster confidence among our employees that the management team and the Board are taking the Proper decisive actions to move the company forward. I believe we have learned a lot from recent challenges and are taking the right actions to emerge as a better, stronger company with a bright future. Now I'll turn the floor over to John Taylor for a review of Q1 results and a financial update. Thanks, John. Before I review the quarter, you have probably noticed a new look to the materials posted to our website. We have provided new disclosures in 3 main areas within our investor fact book: Our steps to support a cleaner, smarter grid and the movement to more green and renewable resources additional disclosures on our balance sheet, including our funds from operations target and the steps we're taking to achieve our goals and third, enhanced ESG disclosures. Also note that we continue to provide more robust disclosures on ROEs, including more granular sensitivities. Yesterday, we announced GAAP earnings of $0.62 per share for the Q1 of 2021 and operating earnings of $0.69 per share, which was at the upper end of our guidance range. GAAP results for 2021 include 2 special items, Regulatory charges related to customer refunds associated with previously collected Ohio decoupling revenues and expenses associated with the investigation. In our distribution business, our results for the Q1 of this year as compared to 2020 reflect higher residential usage on both an actual and weather adjusted basis as well as growth from incremental riders and rate increases, including DCR and grid modernization in Ohio, The distribution system improvement charge in Pennsylvania and the implementation of our base rate case settlement in New Jersey. These drivers were partially offset by $0.10 per share related to the absence of Ohio decoupling revenues and our decision to forego the collection of lost distribution revenues from our residential and commercial customers. Our total distribution deliveries for the Q1 of 2021 decreased 2% on a weather adjusted basis as compared to the last year, reflecting an increase in residential sales of 2% as customers continue to spend more time at home in the Q1 of 2021, A decline of 7% in commercial sales and in our industrial class, 1st quarter load decreased 3%. It's worth noting that total distribution deliveries through the Q1 are consistent with our internal load forecast. With residential demand 2% higher versus our forecast, while industrial load is down 2%. In our regulated transmission business, earnings decreased as a result of higher net financing costs, which included an adjustment to previously capitalized interest, partially offset by the impact of rate based growth at our ATSI and MAIT Subsidiaries. Finally, in our corporate segment, results reflect lower operating expenses, offset by the absence of a as well as higher interest expense. We are off to a solid start for the year and are reaffirming our operating earnings guidance of $2.40 to $2.60 per share for 2021. We've also introduced 2nd quarter guidance of $0.48 to $0.58 per share. In addition, our strong focus on cash helped drive $125,000,000 increase and adjusted cash from operations and $185,000,000 increase in free cash flow versus our internal plan for the Q1. As to a couple of other financial updates, our 2021 debt financing plan remains on track. In March, FirstEnergy Transmission issued $500,000,000 in senior notes in a strong Well supported bond offering that showcased the strength of our transmission business. The deal was oversubscribed and on par with an investment grade offering. We used the proceeds to repay $500,000,000 in short term borrowings under the FET revolving credit facility. In addition, we repaid $250,000,000 at the FirstEnergy Holding Company. We also successfully issued $200,000,000 in 1st mortgage bonds at Mon Power in April that was also very well supported. This supports our earlier commitment to reduce short term borrowings as well as our goal to improve our credit metrics at First return to investment grade as quickly as possible and maintain the strong credit ratings at our utilities. We continue to provide the rating agencies with regular updates on our business and we are working with them to develop a clear outline of what is needed to return FirstEnergy to investment grade credit ratings. Key milestones include governance and compliance changes at our company, Resolution of the DOJ investigation and solid credit metrics. As to more longer term financing needs, through the execution of FE Ford, we have reduced our debt financing plan $1,000,000,000 through 2023, mainly at the FirstEnergy and FirstEnergy Transmission Holding Companies. Additionally, as we have previously mentioned, equity is an important part of our overall financing plan with plans to raise up to $1,200,000,000 Equity over 20222023. As we said previously, we'll flex these plans as needed And we are also exploring various alternatives to raise equity capital in a manner that could be more value enhancing to all stakeholders. These actions combined with new rates at JCP and L and our 60% plus formula Capital investment program will generate $150,000,000 to $200,000,000 of incremental cash flow each year, while maintaining relatively flat adjusted debt levels through 2023, all of which will support our targeted 12% to 13% FFO to debt range. Turning to our pension. Our funding status was 81% at March 31st, up from 78% at the end of last year, resulted in a $500,000,000 reduction and our unfunded pension obligation, which improves our adjusted debt position with the rating agencies. The extended funding timeframe permitted under the American Rescue Plan, together with the modification of interest rate stabilization rules, means that we do not expect any funding requirements for the foreseeable future, assuming our plan achieves a 7.5% expected As Steve mentioned, discussions have begun with the Department of Justice. While no contingency has been reflected in our consolidated financial We believe that it is probable we will incur a loss in connection with the resolution of this investigation. However, we cannot yet reasonably estimate Finally, last month, President Biden introduced the American Jobs Plan, which includes a corporate tax increase and proposed minimum tax as well as potential opportunities related to Impusion into the electric vehicle infrastructure and the energy grid. Clearly, it's very early in the process, but the corporate tax provision could be slightly cash positive for us if implemented in its current form. Our solid Q1 results and expectations for the year reflect our strong operating fundamentals and the continued success of our strategies to modernize and enhance our distribution and transmission systems. As we move our company forward, We are laser focused on unlocking opportunities and increasing value for our shareholders, customers and employees. Thank you for your time. Now let's open the call to your Q and A. Thank you. Now we will be conducting a question and answer session. Our first question comes from the line of Michael Lapides with Goldman Sachs. Please proceed with your question. Hey, everybody. Thank you for taking my question. Real quickly, this one is probably for John. Your prior guidance and disclosure before The act passed in March of this year that impacts pension assume pretty sizable pension funding requirements in 2022 and beyond. If you're no longer making those pension funding requirements, why wouldn't the equity funding requirements go down in lockstep? Well, Michael, I appreciate the question. At least from my perspective, the equity is an important part of achieving our targeted FFO owed a debt of 12% to 13%. So if it's not used to Pay down pension obligations it would be used to pay down other balance sheet related debt. So we are laser focused on Improving the balance sheet, getting it up to that 12% to 13% and equity is a key component of that. In other words, what you're basically saying is you're saving cash from not having to make pension requirements, but you're looking to delever Like you recognize, hey, we need to delever, we're more levered than our peer group, let's delever, reduce the risk profile play for the higher ratings From the credit side. That's right. Okay. That's right. If you look at where we're going to be this year somewhere around 10% to 10.5% That's not acceptable for us. We want to be at the 12% to 13% and then have a plan to improve going forward. Got it. Makes a ton of sense. Okay. One follow-up. You all gave great detail on a lot of the distribution CapEx CapEx projects or potential projects, meaning state by state, etcetera. What I'm struggling a little bit to understand is aligning that detail With what's actually in your CapEx guidance on the distribution segment, meaning, are things that you filed for, say the You see in Pennsylvania or the EV project in New Jersey, granted that one's kind of small. What's in guidance and which of these are not in guidance or are these all upside to guidance? So Michael, I would tell you that Some of the filings that we've made that have not been approved are not in our CapEx forecast currently. So that would be upside to The CapEx programs. What we have that's in our forecast now are those items that have been approved Other than I think in 2022 and 'twenty three, we do assume that we are going to roll into a Grid Mod 2 program. So I think that would be the only item out there that's in our forecast that has not been approved. I'm sorry, Michael, that's in Ohio, Grid Mod 2 in Ohio. Right. Okay. Thank you, guys. Much appreciated. Thanks, Michael. Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question. Yes. Hi, good morning. Thanks. So just a question on your comments on Ohio Regulatory updates. So last call, you talked about pursuing kind of a goal to comprehensively Resolve all regulatory issues in Ohio. And then it sounds like on this call, you are now officially engaged in settlement talks on the seat Issues both backward and looking forward, is that correct? Yes, good morning. It's Eileen Mickelson. I'm Vice President of Rates and Regulatory Affairs. Thanks, Steve, for your question. We have engaged With a broad range of parties in Ohio, in open transparent kind of constructive Discussions about a whole range of issues that are pending in Ohio. We had our first broad based meeting March 31st This past quarter, very well attended, represented by folks that represent really all of our customer groups. And in the course of that We are talking about the quadrennial review, the seat cases, both historical and prospective, as well as many, many other matters. I would say that In the course of those discussions, I think the parties expressed to us generally an appreciation for the approach that we were taking in Ohio Okay. To put it another way, you put out the Olive branch to have these discussions and it does appear that the parties, the key parties At least are willing to talk through in settlement talks of these various issues? Yes. Steve, I want to be sensitive to the ongoing discussions, but at the end, we felt good as a team about the level of engagement. And as we had talked through on our prior call, part of this for us is a listening tour, right, just to Listen to the various constituencies, work to understand where we can find common ground. And I think that process is off and running just as we had committed to. Okay. And is this something that is because I don't think it's been something that's going to come up in any of the dockets for those all those different cases. So is this something That's going to continue on kind of outside the dockets of the cases? I think the conversations with the parties We'll continue ultimately if there's resolution of matters related to specific dockets, that resolution would be posted to those dockets, but the conversations are outside of the formal proceedings at this point. Great. Thanks. One other question just for John. On the equity alternatives that you're That you talk about reviewing for that, is that the only thing I can really think of that would maybe fit that would be asset sales? And maybe you could just talk about, if you are reviewing that, what would be your objectives, just like lower cost, Less dilution or would there be other like strategic things that you might be looking at if you are reviewing asset sales. Yes, Steve. I mean, I guess the way I think about it, there are many different alternatives to raise Capital that would be much more accretive than issuing common equity. For instance, something like the Duke Indiana transaction that was announced earlier this year. Obviously, it would have to be in line with our balance sheet priorities, our focus on long term customer focused growth. But yes, we're looking at a range of options to maximize value given our equity needs. Okay, great. Thank you very much. Thanks, Steve. Thank you. Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question. Hey, good morning, everyone. Thanks for the time and the opportunity. Perhaps if I can to follow-up on the last couple of questions. First, Can you elaborate a little bit more on what we could expect out of any resolution in Ohio? I know you provided some parameters about how you're engaging But what would you expect to the extent successful over here? I mean, could this be more than just resolution of the seat test for instance? Any additional color would be appreciated. As well as whether the deferred prosecution agreement is a prerequisite. I suspect not, but I just want to ask that explicitly. It's Eileen and I'm going to address the regulatory discussions and then I'll defer to others on the question with respect to the deferred prosecution agreement. But with respect to the settlement, we are, as Steve said, we are engaged in kind of Listening exercise, our first meeting we spent really just listening to all the parties, what areas were of interest to them And it addressed a broad range of issues beyond necessarily the seat and the quadrennial review cases. So We're going to continue to let that process play out. It's a little too early to call what the outcome will be, but we are committed So being as open and as transparent as we can be throughout the process, listening and trying to react to what's important to the other parties. Yes, Julian, on your second point, I'd like to just separate The potential for deferred prosecution agreement from anything that we're doing in Ohio, that's the way I'm viewing it right now. And let me just spend a moment on the developments with the Department of Justice because I suspect I'll get a question later even. But The resolution discussions that we spoke of today are constructive and they're a positive development for our company. As for the details of timing, the potential for finer penalties, I really can't speculate on that at all. And I just do want to say though, I'm encouraged by our dialogue and I'm encouraged that We are certainly going to continue to fully cooperate with the Department of Justice and I just want to be very respectful of that process and not get ahead of it at all. Okay. If you don't mind, can I clarify the last question, I think you were responding to Mike here, On the FFO to debt metrics and where you stand today versus prospectively, could you talk about this FFO increase here of $150,000,000 to $200,000,000 annually in FFO off of 2020 through 'twenty three now? And then you talk about adjusted debt being relatively flat. Shouldn't that sizably itself already address the delta that you need to get back to where you want in your credit metrics? I just want to understand where the starting position when you're thinking about any equity alternatives or incremental equity beyond what's already in the plan at 600,000,000 Well, Julien, I would say that our adjusted debt levels remaining relatively flat assume up to $1,200,000,000 of equity. So that's part of the plan to keep our adjusted debt relatively flat to where it was at the end of 2020. And then from an FFO perspective, I mean, if you if 60% of your CapEx program is on formula rates, You're going to see some slight load benefits over the next 2 or 3 years as industrial and commercial come back. We have the JCP and L rate case that's going to be implementing new rates at the end of this year. That's going to be cash flow positive At the end of this year and the next year, so that's really going to be driving that incremental FFO up to $150,000,000 $200,000,000 a year for the next few years. And so if we keep our adjusted debt levels and naturally you'll grow into that 12% to 13%. Right. Said differently, status quo, you're already on track to get back And we should be thinking about any incremental equity as addressing any incremental needs that might not come out of the organic business, But rather specific to funding requirements from a DPA or otherwise or CapEx? Correct. Excellent. Thank you for clarifying that guys. Have a great day. Thanks Julien. Thank you. Our next question comes from the line of Jeremy Tonet with JPMorgan. Please proceed with your question. Hi, good morning. Good morning. Just want to shift gears a bit here if I could. And with the Biden infrastructure plan granted it's very early ending And things can still kind of change shape over time, but just wondering at this stage, what do you see the opportunities For FE at this point, if the plan were to come to fruition as kind of broadly proposed right now? Well, I think there is potential for our company very clearly. We have, being a fully regulated transmission and distribution company In a 5 state area with the diversity of assets that we have that may well be impacted of course in the transition In whatever form it takes to clean our energy, we'll certainly benefit our company and I think we're well positioned for that. I believe there's other factors that will come into consideration as the administration goes through the necessary next steps. We have to have a very thoughtful transition embedded in this plan. There are economic impacts, Potential reliability impacts for the T and D systems that we want to stay mindful of. And look, The issue is not going to go away. Climate and some of the planning in the United States is progressing forward and we all have to do our part. As you look at the overall goals and you look at our ESG Greenhouse Gas Reduction goals, We have already placed out there a goal of a 30% reduction in carbon from 2019 levels by the year 2030 and we are on our way to achieving that. And we have a carbon neutrality goal In 2,050. So I think our goal, our business plan, our strategy is consistent with what But I think there's a lot of work to do to take it from a policy statement to on the ground improvements. Got it. That makes sense. And then turning over to FERC, it seems like there's possibly some developments there on the RTO adder side and was just Wondering if you could provide any thoughts that you have there on that broadly speaking and what impact that could have to FE if that does happen? Yes, happy to address that question. Thank you. When we look at the impact, if in fact with this supplemental NOBAR that FERC issued, which Really maybe puts to rest this issue of the 50 basis point incentive that transmission organizations have been given for across all our transmission organizations. But I think it's also important to recognize this is just a supplemental notice of proposed rulemaking, Has to go through a comment, reply comment period and then take FERC action. And I would also point out that at the same time, FERC really initiated Technical conference with respect to transmission incentives related to performance rate making, Shared savings mechanisms in order to incent transmission and that meeting is scheduled to occur in September of 2021. So I think there is some puts and takes discussions. Yes, I think that's excellent, Eileen. And I would just add, obviously, our transmission business is very important to our strategy. As Eileen outlined, the $0.04 to $0.05 is a concern. Obviously, we'll monitor it, but it's not enough to Throw our company off track certainly. We also have the advantage as a company to as I stated earlier, we have A very large footprint of diverse transmission and distribution assets In which we can invest in multiple opportunities should this development become a little bit more impactful to us. That's really helpful. Last one if I could real quick here. With regards to equity alternatives as you kind of touch on there And looking at where recent asset sales have traded, is there any reason you would issue equity at these levels instead of an asset sale? And given how The plan is for $600,000,000 next year. Should we expect kind of more news on that front sooner if it takes a period of time to execute a sale if you do choose to go that route? Well, Jeremy, I think that's one of the reasons we're looking at a trade like that. I mean if you just take the Duke Indiana Ford multiple, It's like issuing common equity at $50 a share. And so you have to take a look at those types of options when you have an equity need like we do. So I mean I think that's one of the reasons we are looking at something similar to that type of transaction. Got it. That makes sense. That's really helpful. Thank you. Thank you. Our next question comes from the line of Steven Burke with Morgan Stanley. Please proceed with your question. Thanks for the really thorough update. Just a couple of additional questions for me. On governance, I understand you're sort of under revision on your entire approach. You mentioned more limited involvement in the political process. I wonder if you could just add a little bit more color unless it's sort of premature given you're sort of under Well, as you said, Stephen, it's under review. We are integrating our thinking in terms of Formalizing a revised political activity policy. So that's currently under revision. In the interim, I thought it was very important for our company to take the necessary actions that we did in terms of You know, ceasing giving the 501c4s as an example, the activity that We talked about in terms of no disbursements out of our political action committee. We are taking a deep breath, Putting a revision together that makes sense that will help define that limited scope in the political arena. And the way I view it is, You'll see increased openness and transparency in what we're involved in, accountability around that, And we are going to get involved in things in which I could sit down and talk to any of my employees about or any of our customers about, for For example, because it would make sense for our company to engage in it for the betterment of all And that's just my current view right now. There will be more to come as we really stand up our new compliance program That John Somerhalder spoke of, but that's just our current thinking right now. That's really, really helpful color. And then just One other question for me. Just in terms of the internal investigation, the review that you've been going through, Would you characterize that as sort of broadly complete in terms of sort of fact finding, determining, just going back through and Understand everything that happened or would you say there's sort of significant additional work needed to kind of complete that investigation? I think the good news, this is John Somerhalder, is that since the last earnings call, the investigation has not revealed any new material issues. So we are now transitioning that from proactive investigation to An investigation that will continue to cooperate with ongoing government investigations. So that transition has occurred or is occurring. That's very helpful. That's all I had. Thank you very much. Thank you. Our next question comes from the line of Angie Storozynski with Seaport Global Please proceed with your question. Thank you. So Steve, you mentioned that there is a separation between The DOJ negotiations and what's happening in Ohio. Then again, it seems like the agreement with the Ohio Attorney General is more of a standstill agreement, at least to me, as everybody awaits the outcome of the The DOJ negotiations, it seems like you guys are waiting with issuing debt, Well, at least at JCP and L and Toledo, again, in anticipation of the potential DOJ settlement. And I'm just wondering if it's a fair assessment of what's happening? Well, Angie, the way I would look at it is we have certainly a lot of moving pieces here that we have to coordinate appropriately. And to the extent, we're going to deal with and fully cooperate with the DOJ. In my view, That's one work stream that we're working on. All the activity that we have in Ohio, which I find Encouraging, but we have a lot more work to do there. That's a separate work stream. We have multiple others that we're working through. The way I would look at it is to the extent that that may or may not influence our financing plan, We just integrate that into the way the pieces are moving for us. And once again, John Taylor outlined the success that we've had in the markets. And I think we are all with all the moving pieces we have, We're in a stable environment with regard to all of that. So I guess that's perhaps my best way to approach your question. Okay. And separately, thank you for the additional disclosures in the fact book. These are greatly appreciated. One of the things that you guys mentioned there is that you are considering distribution rate cases in all of your jurisdictions, which I take includes Ohio. So far you've mentioned seats As the issue that is being discussed with different interveners in Ohio, how about Filing a distribution rate case early in the state. Well, I want to remind folks that January 1st this year, we actually implemented our JCP and distribution based rate case settlement. John mentioned how that will be accretive from a cash Perspective, starting later this year, I think last week FERC approved our JCP P and L Transmission forward looking formula uncontested rate settlement. Beginning January 1 this year, we moved our remaining Transmission assets to a forward looking formula rate subject to hearing and settlement procedures. We are scheduled to have a rate case filed for our 3 Ohio companies by the end of our ESP, which is May of 2024. And so beyond that, We kind of are continually evaluating how our costs stack up against our revenues to make judgments about if and when It would be appropriate to seek base rate cases. Okay. Thank you. Thanks, Angie. Thank you. Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please proceed with your question. Hey, good morning guys. Thanks for taking my question here. Just wanted to clarify something. John, in your commentary you mentioned Removal of a material weakness, driven by the actions you're taking on the governance front, is that sort of a Audit driven requirement or is that something that sort of you're working within in tandem with credit agencies? Well, I would tell you that this is John Taylor. We have 2 Johns on the call. So I'll take the first piece of it and then if there's some follow-up that John Summerhalter wants to add, we can do that as well. But I do think the material weakness is important to be remediated as part of our Steps around the culture and around the tone at the top, around governance and compliance. So I do think We spoke a little bit with the rating agencies about the plans around the material weakness. So I do think that's important to them. But also I think what's Important to them is just more broadly the enhancements that we want to make to the compliance program. Yes. This is John Summerhalter. Just to follow-up on that. The set of Recommendations and if you look in the fact book on Pages 89, those are things that we're pursuing In combination with our subcommittee of the compliance subcommittee of the audit committee, those are the type of recommendations that address A number of issues related to having best in class compliance, ethics and compliance program. That's very important to us. We're putting a high priority on that, but then that will allow our internal Jason and the internal folks as well as our External auditor to then work through the issues related to the material weakness. That's why we indicate We have a plan both to implement those recommendations and deal with the material weakness that we anticipate will allow us to deal with remediate material weakness by the time we file our Q4 Q or the K and announce our 4th quarter earnings. Understood. Thank you. Just a quick follow-up to that. Is there sort of I think you sort of touched on this in your prepared remarks, but is there sort of a road map or sort of boxes you need to check-in terms of actions you need to From a governance standpoint for the credit rating agents to get more constructive, have they shared sort of any qualitative or quantitative information with you to that effect? Yes. We are working through that, Durgesh, right now with them. I mean, I think they are going to want to see us institute some of these enhancements that we have laid In the fact book around governance and compliance, as well as maybe some of the detailed controls that we've implemented around disbursements that we spoke of in our prepared remarks. They want to be sure that this type of issue will not happen again, That we have the control structure, the culture to ensure that this type of issue will not happen again Whether we built the controls and the culture that would prohibit that type of those types of issues. So I think They'll be focused on those types of issues. Understood. Appreciate the color guys. Thanks for the time. Thank you. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed with your question. Hey, good morning. Good morning. Just on the And I apologize for this, but the decoupling, it looked like it was a $0.10 impact on the quarter. And I'm wondering if I was reading that correctly and just sort of can you walk us again through what the impact for the year is supposed to be sort of? Yes. So Paul, just if you think about last year decoupling was implemented in the Q1. So there was an adjustment In the Q1 to true up 2019 revenues to the decoupling level. So that was a piece of it. The other piece of it that was fairly significant was the fact that in 2020 the temperatures were very, very mild. And so the decoupling adjusted for the mild temperatures and the impact on load. And then a smaller piece was the lost distribution revenues that we're not pursuing collection So those are the components that made up the $0.10 that kind of like $0.04 $0.04 $0.02 kind of thing. I think going forward in the second quarter, you'll probably see a $0.03 headwind and then in the Q3, it will be $0.04 headwind. And then obviously when we get into the Q4 that's when we took the charge associated reversing all of that And so that will flip for us. Okay. Okay, great. And then just back to the 501c4 stuff, Is that I wasn't clear whether or not the how much of this was permanent or not. And Part of the statement seems to be a pause on the PAC stuff and then I just wasn't clear, is the 501c4 Policy that you guys are implementing, is that perceived to be a permanent impact, more or less? And if so, kind of is there a benefit from in terms of just financially speaking in terms of not distributing that? Paul, the way I would put it I'm sorry. No, no, you go ahead. I apologize. Go ahead. The way I would put it is that decision is Currently under review with our company. 501c4s, when you look at it, there is A societal benefit component to it in which you can help community based organizations. The other component of it, the way I look at it is the political end of that spectrum and that's certainly An area that we are not going to participate in period. So, as we work this through, Our going forward measure will be not to contribute to 501(4s). Okay. And is there any When we take all this stuff into account, what have you, is there any significant financial impact? I've Depending on different companies, is there a significant number sometimes? Is there a potential Economic benefit that we could see as a result of this that's worth mentioning or is it still under review? No, Paul, I would not look at it in that way. The way I would look at it is, look, we're going to continue to be An excellent corporate citizen in helping the communities and our customers in the areas in which we work and live with them. And that's the way I'm viewing our giving levels going forward, a large part of it. So, There won't be a large financial impact or embedded savings, I would say. Awesome. Thanks for the clarification. Thank you. Okay. Thank you, Paul. Thank you. Our final question this morning comes from the line of Charles Fishman with Morningstar. Please proceed with your question. Thank you. Guess I'm batting cleanup. Hey, just one question on transmission. Your Forecasted investments went down about $100,000,000 in Q1. We lowered the bottom of the range My question would be, is that reduction project specific or is Do you want to see a little more clarity on some of the third cases? Is it balance sheet enhancement just slowing down the cadence of the investment or I guess 4th choice or maybe all of us, is it to do with the Biden plan of the $100,000,000 in transmission and what impact or what opportunities that Regulated Transmission. Yes. Charles, this is John. So you're right that we did adjust some of the CapEx Programs in transmission. That was mainly associated with the FE Ford program That we are rolling out. Some of that will impact transmission as we look to lower our overall cost structure and become more efficient as we Transform the company. We will consider ramping up CapEx Once we get clarity around the Department of Justice investigation and outcomes, so that's why we kind of Took it off the bottom end of the range in those future years to give us a little bit of flexibility if we wanted to ramp up capital. We could get more work done with less money. Got it. Okay. I understand for Lowering the range from $22,000,000 to $23,000,000 the $100,000,000 this year, is that project specific, Tom? So it's not necessarily project specific, but it is associated with restructuring some vendor contracts that we've had. We looked at some of the projects from a health perspective and decided to pull back a little bit until we run it through our new process around asset health modeling. Okay, great. Excellent. Real helpful. Thank you. That's all I had. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Straw for any final comments. Thank you. I'd like to thank everyone for being with us today and your continued support. Our leadership team is committed To transforming FirstEnergy into an industry leader that can deliver exceptional value to our customers and shareholders. And I hope everyone stays healthy and safe and we'll talk to you all soon again. Thanks. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.