Charles E. Jones, FirstEnergy president and CEO
May 17, 2016
Thank you, George. Good morning, and thanks for joining us today.
2015 was a productive and pivotal year for FirstEnergy. We made good progress on a number of key initiatives and focused our efforts on achieving more regulated, customer-centered growth.
But before I touch on some of those achievements, I would like to discuss several recent developments that have already made 2016 an eventful year for your company.
In March, I was pleased when the Public Utilities Commission of Ohio approved, with certain modifications, our Electric Security Plan, or ESP Four, for our Ohio utilities, which is expected to deliver significant benefits to our customers and communities. These include a move toward smart grid technologies in Ohio, and a goal to reduce carbon dioxide emissions by at least 90 percent companywide over 2005 levels by 2045. This is one of the most aggressive carbon reduction targets in our industry.
As a result of our ESP, we also filed comprehensive plans with the Ohio Commission that would offer a wide range of energy efficiency programs for our Ohio customers. These programs include incentives that would provide more energy-efficient housing for low-income customers, as well as rebates that customers can use to purchase more energy-efficient appliances and home heating and cooling systems. This plan was shaped through a collaborative process with key stakeholders – including environmental groups, consumer advocates and energy efficiency service providers – and we are confident that it will play a significant and measurable role in helping our customers save energy and money.
Unfortunately, the good news regarding our ESP was quickly followed by an adverse ruling from the Federal Energy Regulatory Commission, which called for a review of an eight-year Purchased Power Agreement, or PPA, that involved our Davis-Besse and Sammis plants. We were disappointed by this decision, because we viewed the PPA as an effective way to help ensure future price stability for customers by maintaining a more diverse mix of generating resources in Ohio and helping us avoid up to $4.1 billion in additional charges to customers for new transmission projects.
In response, we filed an application for rehearing on May 2, asking the Ohio Public Utilities Commission to consider changes to a single element of our ESP that would provide the same price protection for customers without the need for the PPA or FERC approval. The Commission will set a procedural schedule for the rehearing of our ESP.
In addition, FirstEnergy Solutions is offering Davis-Besse and Sammis into this month’s PJM capacity auction, which could provide future operating revenue for those units. And I can assure you, we will remain laser-focused on resolving this important issue for our Ohio customers.
In other recent news, on April 28, our four utilities in Pennsylvania filed distribution rate plans that will help them continue to provide reliable, responsive service to our customers. And the need for these plans should be apparent to all stakeholders. Our most recent rate cases in Pennsylvania were about two years ago: At that time, we had not had a rate increase for 26 years at Penn Power and in about 20 years at West Penn Power – and since then, the costs related to maintaining reliable service for customers have continued to rise.
Also on April 28, we filed a $142 million rate request for Jersey Central Power & Light that would result in a 5.58 percent increase for the average Jersey Central residential customer. The plan will help extend the improvements that enabled Jersey Central to achieve its best service reliability in more than a decade last year, including an 18 percent reduction in outages. As in all rate cases we pursue, our overall goal is to ensure that the revenues earned by our utilities reflect the true cost of providing customers with the level of service they expect and deserve.
We reached another important milestone earlier this year when we passed the halfway point of the first phase of our Energizing the Future program – a $4.2 billion investment to modernize and strengthen our transmission system. During the first two years of the program, we have spent $2.4 billion on projects designed to make our system more robust, secure, and resistant to extreme weather events.
This year alone, we expect to spend $1 billion on vital projects such as a substation in western Pennsylvania that will provide essential voltage support and other reliability enhancements to the grid serving our Penn Power customers. We also are building infrastructure needed to support load growth driven by new, energy-intensive shale gas operations in West Virginia.
We expect to expand the scope of this program in the years ahead as we identify new projects that offer the greatest potential to improve service to customers.
Most recently, we received a positive ruling from Administrative Law Judges in Pennsylvania regarding our proposal to transfer the transmission assets owned by Met-Ed and Penelec to a new affiliate, Mid-Atlantic Interstate Transmission, or MAIT. The move will help us more effectively finance and build transmission facilities within these service territories while providing stronger support to our Energizing the Future initiative as it expands eastward. We expect final approval from the Pennsylvania Public Utility Commission by mid-year.
Simply put, it’s been both a challenging and promising year for your company – and we’re not even halfway through it yet! But we’re also benefiting from the strong progress we made in 2015.
Although many of the details around this progress can be found in our Annual Report, let me share with you a few key highlights from last year:
- We generated $3.4 billion in cash from operations, and total revenues of more than $15 billion.
- We achieved top-quartile performance in our industry for our companywide OSHA rate – which reflects the high priority we place on safe work practices in every facet of our operations.
- We initiated our Cash Flow Improvement Project – a comprehensive effort conducted by our employees to reduce expenses and enhance revenue throughout our operations. By next year, we expect to achieve $240 million in annual savings through this project.
- We received approval of settlements in distribution rate cases for six of our utilities, as well as resolution of our rate case in New Jersey – resulting in an overall revenue increase of $321 million.
- We secured a 20-year license extension from the Nuclear Regulatory Commission for our Davis-Besse plant – a key milestone for this facility.
- On the competitive side of our business, we continue to execute a conservative sales and generation strategy that offers less risk to our company – for example, by limiting our exposure to weather-sensitive load.
- And we launched a new branding campaign – The Switch is On – that highlights our environmental achievements and commitment to a cleaner energy future. You can read more about these efforts in our Sustainability Report, which is available in the lobby or on our website. As part of the branding campaign, we are offering Green e-certified wind power to customers including the Cleveland Indians, who signed up to power Progressive Field with 100 percent green energy from FirstEnergy Solutions.
These and many other accomplishments in 2015 and so far this year reflect the dedicated efforts of our employees and their longstanding commitment to provide safe, reliable, clean and affordable electricity to our customers. FirstEnergy’s continued success is a tribute to their hard work and resourcefulness.
Before I close, I’ll touch on one more example of why I’m confident about your company’s future – our new Mission Statement.
You can see it here on the screen: “We are a forward-thinking electric utility powered by a diverse team of employees committed to making customers’ lives brighter, the environment better and our communities stronger.”
Now you might think, these are just a few words that show up on our intranet site or maybe an employee poster. But I can assure you, this statement resonates with our team because it seems to perfectly summarize where we stand today as a company.
It speaks to our proud tradition of providing a basic, essential and primarily regulated service to homes and businesses throughout this region…
…the spirit of innovation that has enabled us to overcome the challenges we have faced over the years…
…a workforce that will become even more diverse in the years ahead…
…and a recognition that diversity will be one of our key strengths.
It also speaks to the many benefits of a product that brings comfort, convenience, safety and productivity to our 6 million customers… And it speaks to our responsibility to the communities we are privileged to serve and the natural resources that sustain the planet.
As you can tell, we are proud of this mission statement. But it would not mean much without the people behind it.
Our dedicated, talented employees are the best in the business… and I look forward to working alongside them as we take this company to the next level.
Now I would like to open the meeting for a few questions from the audience. If you have a question, please raise your hand and wait for a microphone. I apologize in advance if we cannot answer every question. We have a very busy Board meeting following this Annual Shareholders Meeting.
Thank you for joining us here this morning. And on behalf of our FirstEnergy team, we appreciate your continued support of our company. See you next year.
Forward Looking Statement: This speech includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management's intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate," "plan" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following: the speed and nature of increased competition in the electric utility industry, in general, and the retail sales market in particular; the ability to experience growth in the Regulated Distribution and Regulated Transmission segments and to successfully implement our sales strategy for the Competitive Energy Services segment; the accomplishment of our regulatory and operational goals in connection with our transmission investment plan, including, but not limited to, the proposed transmission asset transfer to Mid-Atlantic Interstate Transmission, LLC, and the effectiveness of our strategy to reflect a more regulated business profile; changes in assumptions regarding economic conditions within our territories, assessment of the reliability of our transmission system, or the availability of capital or other resources supporting identified transmission investment opportunities; the impact of the regulatory process on the matters at the federal level and in the various states in which we do business including, but not limited to, matters related to rates and the Electric Security Plan IV (ESP IV) in Ohio, specifically the order issued by the Federal Energy Regulatory Commission (FERC) that rescinds the waiver regarding Electric Security Plan IV Purchase Power Agreement (ESP IV PPA) by and between FirstEnergy Solutions Corp. and The Cleveland Electric Illuminating Company, Ohio Edison Company and The Toledo Edison Company, and other future rehearing requests, complaints or challenges that could impact the ESP IV and the ESP IV PPA; the impact of the federal regulatory process on FERC-regulated entities and transactions, in particular FERC regulation of wholesale energy and capacity markets, including PJM Interconnection, L.L.C. (PJM) markets and FERC-jurisdictional wholesale transactions; FERC regulation of cost-of-service rates, including FERC Opinion No. 531's revised Return on Equity methodology for FERC-jurisdictional wholesale generation and transmission utility service; and FERC’s compliance and enforcement activity, including compliance and enforcement activity related to North American Electric Reliability Corporation’s mandatory reliability standards; the uncertainties of various cost recovery and cost allocation issues resulting from American Transmission Systems, Incorporated's realignment into PJM; economic or weather conditions affecting future sales and margins such as a polar vortex or other significant weather events, and all associated regulatory events or actions; changing energy, capacity and commodity market prices including, but not limited to, coal, natural gas and oil prices, and their availability and impact on margins and asset valuations; the continued ability of our regulated utilities to recover their costs; costs being higher than anticipated and the success of our policies to control costs and to mitigate low energy, capacity and market prices; other legislative and regulatory changes, and revised environmental requirements, including, but not limited to, the effects of the United States Environmental Protection Agency's Clean Power Plan, Coal Combustion Residuals regulations, Cross-State Air Pollution Rule and Mercury and Air Toxics Standards programs, including our estimated costs of compliance, Clean Water Act (CWA) waste water effluent limitations for power plants, and CWA 316(b) water intake regulation; the uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any litigation, including New Source Review litigation, or potential regulatory initiatives or rulemakings (including that such initiatives or rulemakings could result in our decision to deactivate or idle certain generating units); the uncertainties associated with the deactivation of certain older regulated and competitive fossil units, including the impact on vendor commitments and as it relates to the reliability of the transmission grid, the timing thereof; the impact of other future changes to the operational status or availability of our generating units and any capacity performance charges associated with unit unavailability; adverse regulatory or legal decisions and outcomes with respect to our nuclear operations (including, but not limited to, the revocation or non-renewal of necessary licenses, approvals or operating permits by the Nuclear Regulatory Commission or as a result of the incident at Japan's Fukushima Daiichi Nuclear Plant); issues arising from the indications of cracking in the shield building at Davis-Besse; the risks and uncertainties associated with litigation, arbitration, mediation and like proceedings, including, but not limited to, any such proceedings related to vendor commitments; the impact of labor disruptions by our unionized workforce; replacement power costs being higher than anticipated or not fully hedged; the ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction mandates; changes in customers' demand for power, including, but not limited to, changes resulting from the implementation of state and federal energy efficiency and peak demand reduction mandates; the ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, the ability to continue to reduce costs and to successfully execute our financial plans designed to improve our credit metrics and strengthen our balance sheet through, among other actions, our cash flow improvement plan and other proposed capital raising initiatives; our ability to improve electric commodity margins and the impact of, among other factors, the increased cost of fuel and fuel transportation on such margins; changing market conditions that could affect the measurement of certain liabilities and the value of assets held in our Nuclear Decommissioning Trusts, pension trusts and other trust funds, and cause us and/or our subsidiaries to make additional contributions sooner, or in amounts that are larger than currently anticipated; the impact of changes to material accounting policies; the ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us and our subsidiaries; actions that may be taken by credit rating agencies that could negatively affect us and/or our subsidiaries' access to financing, increase the costs thereof, and increase requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial guarantees; changes in national and regional economic conditions affecting us, our subsidiaries and/or our major industrial and commercial customers, and other counterparties with which we do business, including fuel suppliers; the impact of any changes in tax laws or regulations or adverse tax audit results or rulings; issues concerning the stability of domestic and foreign financial institutions and counterparties with which we do business; the risks associated with cyber-attacks and other disruptions to our information technology system that may compromise our generation, transmission and/or distribution services and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information regarding our business, employees, shareholders, customers, suppliers, business partners and other individuals in our data centers and on our networks; and the risks and other factors discussed from time to time in our United States Securities and Exchange Commission (SEC) filings, and other similar factors. Dividends declared from time to time on FirstEnergy Corp.'s common stock during any period may in the aggregate vary from prior periods due to circumstances considered by FirstEnergy Corp.'s Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our filings with the SEC, including but not limited to the most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on FirstEnergy's business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. FirstEnergy expressly disclaims any current intention to update, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.