FirstEnergy Q1 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • Irene M. Prezelj
    Vice President of Investor Relations and Communications
  • John Somerhalder
    Board Chair, Interim President and Chief Executive Officer
  • K. Jon Taylor
    Senior Vice President, Chief Financial Officer, Strategy

Presentation

Operator

Greetings and welcome to the FirstEnergy Corp First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is 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.

Irene M. Prezelj
Vice President of Investor Relations and Communications at FirstEnergy

Thank you. Welcome to our First Quarter 2023 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.

We'll begin today's call with presentations from John Somerhalder, our Board Chair, 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 will turn the call over to John Somerhalder.

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Thanks, Irene. Good morning, everyone. Thank you for joining us today. We've accomplished a lot since our last earnings call, and continue to build on the positive momentum we have seen over the last couple of years.

Our first-quarter GAAP earnings are $0.51 per share. Despite the impact of extremely mild first-quarter temperatures, operating earnings or $0.60 per share, which is within the guidance range and reflects the continued execution of our long-term regulated growth strategy. We continue to position FirstEnergy for greater resiliency and growth by strengthening our financial position, enhancing our operations, optimizing the customer experience and transforming our culture.

When Brian Tierney joins us as President and CEO on June 1, he will hit the ground running to build on these efforts. We're very excited to welcome him on board. Clearly, we recognize how important it is [Phonetic] [Technical Issue] to find the right leader for our company. And in Brian, we have a CEO who understands our industry and business and is the right leader to drive our strategy and accelerate our momentum. I know many of you worked with Brian during his time at AEP and we know him as a highly respected executive with a unique blend of operational, financial and strategic skills and achievements. His strong track record of driving results is very well aligned with our goals at FirstEnergy. He has expressed his support for the steps we've taken to position our company and he intends to continue to advance our business strategy, building on the strong foundation we have in place today.

We know we've found the right person to lead our company. I know everyone is looking forward to hearing from him and we will certainly give you that opportunity. He will have a busy calendar starting on June 1. In the meantime, I'm so proud of our employees and their excellent work to position our company for the future. I know they will double down in their efforts to support Brian to drive long-term sustainable value for all of our stakeholders.

This work includes a very busy regulatory calendar that addresses the critical investments that support reliability and a smarter and cleaner electric grid. Jon will review our recent distribution filings in a few minutes, but first I'll take a moment to provide an update on our transmission business.

In early February, we announced an agreement to sell an additional 30% interest in FirstEnergy Transmission LLC to Brookfield Super-Core Infrastructure Partners for $3.5 billion. And this transaction remains on track to close in early 2024. Brookfield's partnership in FET supports our substantial long-term investments to build a more resilient and modern electric grid.

We have a $1.7 billion transmission investment program this year and that's increasing $1.9 billion by 2025. The mild first-quarter weather coupled with strong planning and execution helped us get off to a great start with our construction program. Our transmission capital investments of nearly $350 million are about 60% ahead of the first quarter of 2022 and about 50% ahead of our internal plan. Examples of this work include upgrading an eight-mile 138 kV transmission line in Ottawa County, Ohio, near Toledo. This project, which is scheduled for completion in May, includes streaming new, larger conductor that can handle additional demand, replacing older structures with long poles and installing more than 40 new components and insulators.

Upgrading the high-voltage transmission line in New Jersey that is expected to improve system reliability for more than 3,000 customers. This project includes the installation of 53 new wood-pole structures to fortify and strengthen the line and help prevent outages.

And our transmission program is also facilitating the energy transition by connecting clean energy resources to the grid. Earlier this year, JCP&L completed a grid connection for a 19.8-megawatt solar project, located at a formal landfill property in Mount Olive, New Jersey, that is now delivering clean energy through FirstEnergy's transmission lines. We are excited to continue making these types of investments across our service territory and support for the clean energy future.

We are affirming our 2023 guidance of $2.44 to $2.64 per share. As we discussed last quarter, the midpoint of this range represents 6% growth over our original 2022 midpoint of $2.40 per share. We are also introducing second-quarter 2023 guidance of $0.40 to $0.50 per share. In addition, we are affirming our targeted 6% to 8% annual operating earnings growth rate. This represents a year-over-year growth based off the prior-year guidance midpoint.

I want to spend a moment discussing our regulated earnings and earnings quality, particularly in light of the current contribution from the Signal Peak mining operation. While this is a legacy investment that we neither control nor operate, it has taken on a higher profile over the last year. Based on our plan, the earnings contribution from Signal Peak in 2023 is expected to be less than 15% of our $2.54 guidance midpoint. And the expectation longer-term is that Signal Peak contribution will decline on an absolute and relative basis, representing less than 10% of 2024 and 2025 consolidated earnings, improving the company's earnings quality over time.

We intend to continue providing transparency around Signal Peak's contribution going forward. Our focus is on our regulated operations. Our state distribution companies and our transmission businesses, and on improving the credit quality of the company. We expect significant growth from our regulated operations given current returns in our distribution companies at our customer-focused investment strategies across both distribution and transmission, which will more than offset the decline in Signal Peak and support our expectations of 6% to 8% consolidated average annual earnings growth.

I believe we are on the right path to leverage our strengths and deliver value to all of our stakeholders. Now, I'll turn the call over to Jon Taylor.

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Thanks, John, and good morning, everyone.

Although we were significantly impacted by the record-breaking mild temperatures this winter, our underlying business fundamentals remain strong and on track. I'll begin my remarks with a regulatory update, then I'll review our first-quarter financial results. Last month, we kicked off a period of significant regulatory activity. Since early March, this includes an application to consolidate our four Pennsylvania utilities, which is an important step to align with our state operating model, simplify our legal entity structure and increase the flexibility and efficiency of our financing strategy.

We also filed rate cases in New Jersey and Maryland that support critical reliability investments, a modern electric grid and enhancements to the customer experience while maintaining the lowest residential customer rates among regulated electric distribution companies in both states.

Since our last JCP&L rate case in 2020, we've made nearly $800 million in investments to modernize and strengthen the electric grid. The JCP&L proposal represents a $185 million revenue increase and supports distribution equity returns of 10.4%. It features enhanced recovery of storm balance costs, expanded vegetation management programs, recovery of program costs related to AMI and electric vehicles, and a proposal to normalize pension OPEB costs. The proposal also confirms our plan to file an infrastructure investment program later this year.

In Maryland, our proposal for a $44 million net revenue increase supports equity returns of 10.6%. It includes a proposal for the second phase of the Electric Distribution Investment surcharge program, a pension OPEB normalization mechanism, and a cost recovery proposal related to COVID and electric vehicle balances.

And in Ohio, we filed our fifth electric security plan to support our generation procurement process for non-shopping customers, continued investments in the distribution system, storm and vegetation management riders, and energy efficiency programs. The filing also includes proposals to support low-income customers and the electric vehicle customer experience.

We requested approval for the new ESP to be effective on June 1, 2024, when the ESP IV ends. We've included a summary of the key filings together with news releases and links to the dockets on the new regulatory corner section of our IR website. We received a lot of positive feedback about this resource and we'll continue to update the site as we move through each of the proceedings.

Later this quarter, we plan to file a rate case in West Virginia. And looking further ahead, we are considering the appropriate time to file for new base rates in our third long-term Infrastructure Investment program in Pennsylvania. And we will file a rate case in Ohio, in May of 2024.

While each utility in each case have unique circumstances, we have noted that recent base rate cases involving other investor-owned utilities in Ohio have been resolved with equity capital structures in the 50% to 54% range and supportive ROEs in the 9.5% to 9.9% range. These outcomes align with our plan, which includes the financial impact of our 2021 approved settlement that provided for over $300 million in refunds and bill credits to customers, as well as continued rate base growth in the accounting changes that we previously discussed, all of which significantly lower the returns at our Ohio utilities.

I want to spend a few extra minutes on the recent generation filing in West Virginia, where we're working with a broad group of stakeholders to ensure we find the best outcome for our customers. Last December, the Public Service Commission ordered Mon Power to provide an evaluation of purchasing and operating the Pleasants Power Station, the coal-fired plant that we understand is currently slated for closure on May 31. The concept of a potential acquisition of Pleasants was suggested by stakeholders in West Virginia as a replacement for our Fort Martin station which has a proposed end-of-life date of 2035. We responded to the Commission last month indicating that additional time and analysis are needed to properly complete the necessary and complex assessment. Mon Power proposed an option to enter into an interim arrangement with Pleasants' current owner that would keep the plant operational beyond its May 31 deactivation date. This would allow the needed time to do a thorough analysis and evaluation as requested by the West Virginia PSC.

On Monday, the Commission approved our proposal. We will begin negotiations with the plant's current owner. If we reach an interim agreement that we believe is in the interest of customers and FirstEnergy, we will submit it to the Commission, and if approved, this would allow recovery of associated costs through a surcharge. If we can't reach an agreement that is in the interest of our customers, we will file an update with the commission. To be clear, we don't see it as a viable option for Mon Power to operate three coal-fired power plants in West Virginia. We will continue to work through the process with the PSC and strive for an outcome that best serves our customers, communities and employees in West Virginia.

At the same time, we are moving forward with our efforts to support the energy transition across our footprint and we remain committed to our climate strategy and our goal to achieve carbon neutrality from our Scope 1 Emissions by 2050. Mon Power continues securing commitments from residential, commercial and industrial customers in the state to purchase Solarex [Phonetic], and on our [Phonetic] five-plan utility-scale solar generation facilities totaling 50 megawatts. This week, we filed an update with the Commission to begin moving forward with three of the five sites, totaling 30 megawatts of capacity and to obtain approval of a small surcharge.

Turning to first-quarter results and other financial matters. First-quarter GAAP earnings were $0.51 per share and operating earnings were $0.60 per share, which is just below the midpoint of our guidance, despite the impact of a very mild winter across our footprint. Absent the impact of weather, we were on plan for the quarter. In our distribution business, first-quarter results benefited primarily from our capital investment programs, higher weather-adjusted load and lower operating expenses, including employee benefit costs and the maintenance work we accelerated into 2022. These were offset by a significant decrease in weather-related demand, lower pension credits and higher financing costs related to our financing activity in the second half of 2022.

Record-setting mild temperatures this winter with heating degree days 18% below last year impacted total customer demand by 8% or $0.12 per share. On a weather-adjusted basis, distribution deliveries increased more than 2%, which was very nice to see. Residential sales decreased 8% from the first quarter of 2022, but increased 5% on a weather-adjusted basis. Compared to pre-pandemic levels, weather-adjusted sales to residential customers are trending about 4% higher.

In the commercial sector, deliveries decreased 7% compared to the first quarter of 2022 due to lower weather-related demand but increased almost 2% on a weather-adjusted basis. While sales to commercial customers continue to recover, they lack 2019 levels by more than 4%. Finally, first quarter 2023 sales to industrial customers decreased slightly compared to the first quarter of 2022, driven by the chemicals, metals and plastic sectors. Industrial sales remained just below pre-pandemic levels, but we continue to see fairly strong growth in some of our other industrial sectors such as steel, services and other manufacturing.

As for weather-adjusted load, we do expect a positive trend to continue relative to our plan, especially in the residential class, helping offset some of the lower weather-related sales we experienced in the first quarter. Additionally, operating expenses in our distribution business reflect the continued focus on our cost structure and we are pursuing additional cost reductions to further offset the impact of mild first-quarter temperatures.

Turning to first-quarter drivers in our transmission business, results primarily benefited from rate base growth of 8% compared to the first quarter of 2022, associated with our Energizing the Future investment program, offset by dilution from the minority interest sale in FET that closed in May of 2022. As John mentioned, we started the year off strong with our Capital Investment program and our transmission business, deploying nearly $350 million of capital, which is significantly above our internal plan.

First-quarter results in our Corporate segment benefited from higher investment earnings from Signal Peak and lower financing costs associated with holding company debt redemptions in 2022, which more than offset the lower pension credit. Signal Peak's contribution in Q1 of this year was $0.08 per share, but we expect a slight decrease to its projected earnings for the full year due to current forward market prices for coal. While weather had a significant impact for the first three months of the year, it's not taking us off our plan. We expect to offset the weather impacts this quarter as well as projected lower earnings contribution from Signal Peak through stronger weather-adjusted load, additional cost-reduction opportunities, as well as opportunities to optimize our financing plans.

Thank you for your time this morning. We recognize we have some work to do, given the mild winter temperatures this quarter, but we see this as manageable. We remain focused on executing our plan and creating long-term value for our investors, customers, communities and employees. Now, let's open the call to your questions.

Questions and Answers

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] One moment please while we poll for questions. Thank you. Our first question is from Shar Pourreza with Guggenheim Partners. Please proceed with your question.

Shar Pourreza
Analyst at Guggenheim Partners

Hey. Good morning guys.

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Good morning, Shar.

Shar Pourreza
Analyst at Guggenheim Partners

Just a couple ones here. As we're sort of thinking about the upcoming Ohio rate case, just maybe from a high level, what sort of -- what are the asks there? Is it primary capital and rate base deferred cost O&M true-ups? Do you sort of anticipate something to be more rate-neutral? And kind of related to that, how should we be thinking about historical precedents with sort of a newer commission as we think about some of the key regulatory items like goodwill and how that may be treated differently in this upcoming case?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yeah, well, sure. So if you look at the returns for the Ohio utilities, they've been trending down over the last few years. If you go back to 2020, we were reporting returns in the 13% range versus 8.3% as of the end of March. Obviously, the seat settlement that we reached back in 2021, impacted the returns significantly with those annual rate credits to customers. Now, the accounting changes that we made around veg management and corporate support costs had an impact on our returns, as well as just the continued investment in rate base with about $1.5 billion of incremental rate base, which is over 50% since the last rate case, which comes with the associated increases in depreciation and property taxes.

And to your point, if you look at recently approved rate cases in Ohio, ROEs have averaged somewhere between 9.5% to 9.9%, and capital structures with equity between 50% to 54%. And that's really in line with what's included in our DCR and AMI writers that recovers our distribution reliability and in-grid mod capital investment programs.

So, I feel like we've positioned the Ohio companies the best we can and we're looking forward to the opportunity to file the case next year.

Shar Pourreza
Analyst at Guggenheim Partners

Got it. And then lastly for me, just obviously it's impacting the stock a little bit this morning, just in your Q, there's some new language around potentially using hybrids. Can you just maybe expand on that, how it ties into your thinking around equity? Are you kind of looking at converts in the traditional sense or ones that have been utilized lately with some of your peers where the window to convert is shorter, it's less dilutive, you don't really get the equity credit. I guess really the question here is, are you looking for equity credit or not? Thanks.

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

I would say our first focus is filing the application for the Brookfield transaction and to get that closed. And if you think about that transaction coupled with the other transactions that we've already closed on, we will have raised $7 billion of equity or equity-like capital.

When it comes to other instruments that you're referring to, we look at all types of instruments all the time to see if we can maximize or optimize our financing plan and that's exactly what we do. If you're looking at our short-term borrowing rate at 6.5%, 7%, we feel like we need to look at opportunities to find cheap financing to offset those costs.

Shar Pourreza
Analyst at Guggenheim Partners

Got it. So just to summarize your language around not needing equity has not changed the plan?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Correct, correct.

Shar Pourreza
Analyst at Guggenheim Partners

Okay. Perfect. Thank you guys. Appreciate it.

Operator

Thank you. Our next question is from Jeremy Tonet with JP Morgan. Please proceed with your question.

Jeremy Tonet
Analyst at JP Morgan Cazenove

Hi. Good morning.

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Good morning.

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Good morning, Jeremy.

Jeremy Tonet
Analyst at JP Morgan Cazenove

Just wanted to come back to Signal Peak a little bit if you could. Just wondering, I guess, beyond 2024, what's the run rate EPS contribution? How should we think about that over time? And is there a strategic plan for the asset going forward?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

So Jeremy, we've talked about before in our plan today, we see Signal Peak's earnings contribution declining on an absolute basis as well as a relative basis, so less than 10% of the earnings going forward. And right now, if you look at the price curve for New Castle coal, on average about $175 a ton. That supports that assumption. Strategically, we've looked at that asset before. It's a very difficult asset to monetize, but it is something that we look at from time to time, we'll continue to do so.

Jeremy Tonet
Analyst at JP Morgan Cazenove

Got it. That's helpful. Thanks for that. And then just wanted to kind of dive into weather -- or a bit more if I could in the -- clearly outlined before, I guess offsets to $0.38 pension headwind, but then, weather is probably a bit more of an impact on the plan then when the guidance was originally provided. And you talked about, I guess, Signal Peak weather-adjusted load additional cost reduction opportunities in optimizing the financing plan to offset weather. But just wondering if you'd quantify a little bit more how you're seeing the weather impact versus plan for year-to-date or expectations at this point, and which of those buckets present kind of the bigger opportunities to deliver offsets?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yeah, so the weather for Q1 was about a $0.12 impact to the plan. Absent the abnormal conditions we saw in Q1, we would be slightly ahead of plan for the first quarter. Now, we have seen positive, what I'll call weather-adjusted load, primarily in our residential sector. We've seen that trend over the last several months. In fact, if you look at the last few years, our residential mode typically comes in anywhere from 1% to 2% better than our load forecast. And so we see a little bit of a tailwind associated with weather-adjusted load for the rest of the year.

As you mentioned, we are looking at further cost-reduction opportunities. You probably saw, we've terminated some sponsorship agreements. We announced a facility optimization plan to consolidate real estate, and we're also being very selective in backfilling attrition, especially, for our non-bargaining employees.

And then we're also looking at our financing plan, as I mentioned earlier, in terms of how we can reduce short-term borrowings and get better cost-of-capital associated with our debt financings.

Jeremy Tonet
Analyst at JP Morgan Cazenove

Got it. That's helpful. So even if 2Q guidance was below, I guess, where the Street was, things are still kind of progressing in line with your expectations, and these offsets can keep you firmly towards the midpoint of your plan?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

That's right. In fact, if you look at just quarter-by-quarter, and if you think about last year, really what's going to help us offset the pension is some of the actions we took last year to accelerate operating expenses from '23 into '22, and we really didn't make that decision until the third quarter. So, you'll really see the uplift in earnings beginning in the third quarter.

Jeremy Tonet
Analyst at JP Morgan Cazenove

Got it. That's helpful. I'll leave it there. Thanks.

Operator

Thank you. Our next question is from Steve Fleishman with Wolfe Research. Please proceed with your question.

Steve Fleishman
Analyst at Wolfe Research

Yeah, hi. Thanks. Good morning.

John, maybe just -- Jon, two Johns, Somerhalder, just little more color on kind of the Board's thoughts on hiring Brian and kind of what you think he brings to the company?

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Yeah. I mean, as we've talked about, Steve, Brian was always someone that we thought would be very good in this role because of his deep experience in this industry. Also his time at Blackstone, that was very valuable experience. So, we always viewed him as a really good candidate. We were very pleased that early this year we saw him as available, we did not before that. But we saw that he saw the -- great fit as well. So there was neutral belief that he could be the right person.

And truly his experience around regulatory environment in Ohio, other locations, all of his experience around the best way to run the operations and optimize operations over time, all fit with our plan. Heavy investments in our wires business, our T&D business. And so the more we discussed earlier this year with Brian, the more we saw that he's the right fit, and obviously, the Board really feels good about the fact that Brian will be joining us on June 1.

We've been able to spend some time with Brian. He's been very busy. But we've spent some very good quality time, and I continue to be very confident that he's the right person and I'm very confident in his ability to execute and deliver on our plan.

Steve Fleishman
Analyst at Wolfe Research

Okay. And just along those lines, there seems to be kind of, I know it's kind of hard to speak for Brian, but just -- there has been some narrative that maybe Brian comes in and like rebases the plan. Just any any thoughts on like is that unlikely, assuming people are thinking rebase lower when they say that, yeah.

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

I mean we have spent a good amount of time with Brian and provided a lot of good information. And based upon my interactions with Brian, I'm confident that he's committed to execute on our plan.

Steve Fleishman
Analyst at Wolfe Research

Yeah. And then just on the whole issue with the kind of thinking about -- I'm sorry, just on the hybrid comment. I just wanted to just clarify that one more time. The -- when you're thinking about optimizing the financing costs, this is more of like a hybrid that's focused on a debt-like instrument like PPL and Southern and Allegheny, [Phonetic] and a bunch of people have just done and not something that's more equity-focused?

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

That's correct.

Steve Fleishman
Analyst at Wolfe Research

Okay. Thank you.

Operator

Thank you. Our next question is from David Arcaro [Phonetic] with Morgan Stanley. Please proceed with your question.

David Arcaro
Analyst at Morgan Stanley

Hey. Good morning. Thanks for taking my question. Noticed that another phase of the New Jersey offshore wind transmission need was issued recently and you had success in the first one, so I was wondering if you had any early read, if you could speak to your prospects for this next round of transmission need?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Dave, I mean, I think we'll take a look at all of those types of proposals as they come up. We -- I don't -- I think it's too early to handicap at this stage -- our prospects. But something that we're very interested in participating in, we think, we're well-positioned in the state to provide value and support those plans. And we'll keep the investor community up to speed as we progress.

David Arcaro
Analyst at Morgan Stanley

Got it. Thanks for that. And on the coal-driven earnings this year and on Signal Peak, I guess we've seen domestic coal prices notch down quite a bit since the beginning of the year. I was wondering if there is any view of declining earnings contribution for this year, specifically versus what you had been originally contemplating in the guidance or do you have visibility into contracted levels that would potentially insulate you there?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yeah, I mean, we have seen some decline in New Castle power prices or coal prices. But you got to remember that about 60% of their volume was already locked in at a fixed price, and about 40% of it was indexed to New Castle coal prices. So, we have seen with those indexed stocks [Phonetic] a slight deterioration in the earnings contribution for Signal Peak, but it's not nearly as dramatic as the decline in New Castle forward prices. And it's manageable in the context of what we're thinking about for this year.

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Yeah, I mean there are -- there is a fairly big disconnect between domestic coal prices in the US compared to seaborne coal prices. And the good news is, the first quarter came in very much in line with what our expectations were, and if you look at the forward curve, even though it's coming down, it's very much in line and supportive of what we have in our '24 and '25 plan.

The real impact we see is, this year, the prices because of the supply-demand fundamentals, milder conditions in Europe, fairly robust supply from some areas that supply New Castle coal, Australia and others, the impact tends to be over the next several quarters where we see the impact. And as Jon said, that's what we're putting together plans to make sure we have other ways to address that and stay on track with our plan. [Phonetic]

David Arcaro
Analyst at Morgan Stanley

Yeah, okay. Thanks. That makes sense. One more quick question for me, I was curious just with the New Jersey management audit report that came out recently, wondering if you could just give your view, your perspective on that, and initiatives you might be pursuing in the state around some of the recommendations there?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Well, it was a very comprehensive report. We're continuing to review the recommendations. I think we have an opportunity to provide feedback at some point down the road, and we'll do that at the right time. But we're going through the recommendations. I think there are many recommendations that we'll accept, but there are probably some recommendations that we'll need to have further discussion on.

David Arcaro
Analyst at Morgan Stanley

Okay. Thanks very much. I appreciate it.

Operator

Thank you. Our next question is from Angie Storozynski with Seaport Global. Please proceed with your question.

Angie Storozynski
Analyst at Seaport Global Securities

Thank you. So maybe first with the 2024 and how you plan to manage your pension costs? So yes, I see the OPEB and pension cost trackers embedded in the New Jersey and Maryland applications. The Ohio issues and the Pennsylvania issue won't be addressed for a while. You will have lower contributions from Signal Peak, as you just noted. And yes, I know that the market has recovered somewhat, but looking at your allocation, you have an issue on the credit side, right, with the investments that is based on the latest disclosures on how you -- well, how you allocated your pension accounts.

So, should we brace for another weakness, another year of weakness in earnings in '24 associated with pension?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Well, I mean, Angie, I think, through the first quarter, the pension has performed very well. I think the returns were 7%. The discount rate had come down about 20 basis points. And we're tracking to that level as we speak today. And so in the plan, we have pension -- the pension kind of at the same level we have this year. And we're working to get trackers to protect the companies from volatility in the pension plan in New Jersey, in Maryland, and we'll likely propose something like that in West Virginia.

So, we are doing what we can to protect customers as well as investors from the volatility in the pension plan. But based on everything we know today, everything is tracking a little bit better than we had anticipated.

Angie Storozynski
Analyst at Seaport Global Securities

Okay, okay. And then change in capex, the other, John, maybe. So -- okay, so we have gone through a couple of catalysts that was supposed to benefit the stock. The discount on a relative basis hasn't been changed. I understand that we're still waiting for upgrades to investment grade at the Holdco level. But is there -- as the Board looks at what's been happening, is there -- any suggestions maybe to change the course or is it just sticking to the current plan, and then over time, the execution against the plan will basically be reflected in the stock?

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Yeah, I think, absolutely the latter. The Board strongly supports the plan. I mean, we view this as the most important thing is that we execute on the plan and continue to execute on plan. I think our track record over the last year, too, related to the Brookfield transaction -- first transaction Jon talked about, the second transaction, what we've done related to even with supply-chain issues, making sure that we are investing in our business and meeting our schedules on capital deployment. The more the re-reviews that the steps we've taken to date, the good progress we've made, and continued execution on that plan is what will deliver the value and close that discount gap that you referenced.

So, Board is firmly committed to that plan.

Angie Storozynski
Analyst at Seaport Global Securities

Okay. Thank you.

Operator

Thank you. Our next question is from Sophie Karp with KeyBanc. Please proceed with your question.

Sophie Karp
Analyst at KeyBanc

Hi. Good morning and thank you for taking my question. Maybe first about the Ohio rate case, that you'll be filed in -- filing in the not-so-distant future. I was wondering if you guys considered or is it under consideration to combine the two -- three utilities in Ohio in the -- what kind of challenges would that present if you were to request something like that?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

I do think, at some point down the road, we are going to look to consolidate our Ohio utilities, just like we've proposed in Pennsylvania. The timing is a little bit to-be-determined. And so we're just working through that, but regardless of whether we propose to consolidate, you're still going to likely have three sets of rate books, right? And you'll kind of get to parity within the tariffs over time.

I think we've had other utilities in the state that have consolidated their entities as well as their rate books, and that took some time. The legal entity consolidation is one step, but then to consolidate from a rate perspective probably takes several rate cases, a few years, that type of thing. So it is something that we're looking at and will likely execute on, but the timing is a little bit to-be-determined.

Sophie Karp
Analyst at KeyBanc

Got it. Thank you. And my follow-up is on West Virginia. So the acquisition, the potential acquisition of Pleasants that you're exploring there, it can -- I don't know how to rephrase it, but is there a way that -- is it possible that if you could pay political price there if you decided to not go through with that? Like in other words, is it almost like an impossible situation for you where you have to acquire it?

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

What we're committed to do is work very closely with the state of West Virginia, with the Commission. And they've instructed us to do this analysis. I mean, we see this as we all have an interest to make sure this is in the best interest of the customers in West Virginia, the state of West Virginia. And that because of the fact that the plant is a newer plant, has enhanced environmental controls, it's a good question that needs to be evaluated.

So, we see it as an appropriate thing to do. We do need to make sure it's in the best interest of our customers and all. And so we see this as an opportunity to truly evaluate whether this is the right path forward. We're committed to work with the group -- or with all the stakeholders in West Virginia.

Sophie Karp
Analyst at KeyBanc

All right. Thank you for the comments. Appreciate it. That's all from me.

Operator

Thank you. Our next question is from Mr. Gregg Orrill with UBS. Please proceed with your question.

Gregg Orrill
Analyst at UBS Group

Yeah, thank you. Just following up on sort of the Ohio audits and the ability to -- what is sort of the ability to maybe accelerate those? You've got the the stay there. Obviously, it's not a process that you set out, but is there any flexibility there to maybe get that resolved faster?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Hey, Gregg. This is Jon Taylor. Those audits have been stayed for another six-month period. I think that happened back in February. So you're looking at the August time frame, where they could potentially start back up. But in between now and then, there's really nothing that we can do to resolve those or to continue with that work. It's just really up to the Commission to order the stay. And as soon as the stay is lifted, then we hope to get back to working to resolve those.

Gregg Orrill
Analyst at UBS Group

Sounds good. Thanks.

Operator

Thank you. Our next question is from Mr. Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

Julien Dumoulin-Smith
Analyst at Bank of America

Hey. Good morning. Thank you, guys, for the time. I appreciate it. Just first off, coming back to some of the FE forward conversation you guys alluded to at the start of the call, whether that's a real-estate optimization, otherwise, can you elaborate these today on what that total run rate is? How much of an opportunity and offset to pension that is over time, so I'd say in the outer years?

And then, separately, at Signal Peak, was that hedged out to '24, '25? How much, if any, is actually [Technical Issue]

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yeah, I mean, so the facility optimization effort is probably a $0.02 run rate type of impact, if you look at the lease costs, if you look at the maintenance costs. Those types of expenses that we incur are associated with the facility. So it's not a significant driver in the terms of the level of O&M that we spend but it's important. Those types of things add up.

And with respect to your second question on Signal Peak, 20 -- they'll probably start hedging '24, or I would say, later either this summer or early fall, which is consistent with their past practices. But at this point in time that's open.

Julien Dumoulin-Smith
Analyst at Bank of America

Yeah, so that's what I thought. Thank you, guys. If I can, just pivoting the conversation back to where Steve was going earlier about kind of a longer-term view, at what point of time did you come back with a little bit more of a longer-term perspective? I also appreciate that you guys very carefully have focused on this targeted 6% to 8% on sort of an annualized basis rather than having these multi-year CAGRs and what have you. But is there at some point, will you give kind of a view that gives us an extended perspective, kind of beyond kind of noise of what Signal Peak is providing? Maybe that'd adjust for the pace of rate base growth and reflect something that really is a buy in from [Technical Issue]

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yeah. Julien, I don't want to commit to a timeframe. Obviously, we want to get Brian onboard and get him ready to go with the plan and put his fingerprint on it. So I'm going to leave it as kind of a to-be-determined. But my sense is, we'll give you that outlook at some point in time, but I just want Brian to come in and really get into the details of the plan and really try to drive where he wants to take the company going forward.

Julien Dumoulin-Smith
Analyst at Bank of America

Got it. And if I can clarify one further point, you feel good about the 6% to 8% perspective beyond kind of this Signal Peak '24, '25 period, if I hear you right?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yeah, if you look at the level of capital investment that is needed across the system, yeah, I feel really good about the 6% to 8%, long term.

Julien Dumoulin-Smith
Analyst at Bank of America

Got it. Okay. Excellent. Thank you guys very much. Have a great day. See you soon.

Operator

Thank you. Our next question is from Anthony Crowdell with Mizuho. Please proceed with your question.

Anthony Crowdell
Analyst at Mizuho

Hey. Good morning. Apologies for not yelling into the phone, but just quick -- quickly, just some more housekeeping questions. I guess, on Slide 11, you talk about sales data, really strong residential sales at over 5%. Slight industrial decline. I guess if you just talk about the drivers of what's really driving the residential growth, is it people moving into the service territory or EVs or something like that?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Yes, so the 5%, when you have like extreme weather conditions like we saw in the first quarter, coming up with your -- the weather impact and the weather-adjusted impact, it's a little bit more of an art than a science, just because of the extreme, extreme circumstances, so. But what I would say is that the trends over the last few quarters, and quite frankly, if you look at our performance over the last few years, the trends have been favorable relative to our forecast in the residential sector, increasing 1% to 3%, depending on the month, depending on the type of the time of year. So, that's what we're seeing and that's what we're kind of forecasting for the rest of this year.

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Yeah, I mean, we've seen the right trend related to EVs and other factors, not really people moving into the service territory. But that's starting to drive -- but that's a fairly small issue right now. Most of what we're seeing is really just the trend over the last couple of years of usage residentially, with people more working from home and other factors that have influenced it. And we're now being able to take that into account with our weather-adjusted load move moving forward.

Anthony Crowdell
Analyst at Mizuho

Is the industrial -- I guess, I understand with the extreme weather and the -- as Jon mentioned, art over science, just a slight decline in industrial load. I think in your prepared remarks, was that more related to just one segment of the economy there?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

No I mean, we saw it a little bit like auto has taken a little bit of a downturn in terms of what we're seeing in the industrial sector. Metals was slightly down, plastic and rubber was a little bit down. But we're also seeing some bright points, steel continues to perform very well; food and manufacturing tends to perform very well. So it's a little bit of a mix.

Anthony Crowdell
Analyst at Mizuho

And then if I could switch gears on Slide 8, where you give us a walkthrough, and maybe a little different path in Julien's question on the -- FE forward to achieve, just I think in -- you removed $0.05 of earnings -- of nonrecurring earnings from GAAP to operating. Just how do we think about charge -- those charges as we work through the year? Is it likely that we continue to see those charges? Do you think that one time in nature, we don't really see a repetition of that throughout '23?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Well, the $0.05 charge in Q1 was primarily the termination agreement for a sponsorship we had. You won't see that level of cost-to-achieve going forward.

Anthony Crowdell
Analyst at Mizuho

Great. I got it, LeBron. [Phonetic] Okay. Great. I'll leave it there. Thanks for taking my question.

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

Okay. Thank you.

Operator

Thank you. Our next question is from Mr. Andrew Weisel with Scotiabank. Please proceed with your question.

Andrew Weisel
Analyst at Scotiabank

Hi. Good morning, everyone. Anthony, if we can get to it, I was going to say we'll miss hearing your name here as LeBron James but understand the decision there.

Moving to the questions that were asked and answered, just one quick on FFO-to-debt. I know you were on 11% last year. You're very clear on the 14% to 15% target over time. My question is kind of what's your latest thinking on when you might get there given the FET sale and some moving parts around coal? Could we see that level in 2024 or is it going to take a couple more years of growth?

K. Jon Taylor
Senior Vice President, Chief Financial Officer, Strategy at FirstEnergy

So we definitely have a solid plan to get there by 2025. I think a lot of it depends on the level of proceeds that comes in from the FET sale, initially. We have -- we'll see 50% of the proceeds, that's a minimum, but we could see more and put that money to work. And if we receive more of the money upfront, then there is a possibility we could be at that 14% level. If you net the receivable against the debt, we would absolutely be at 14%. But once we get the proceeds and put that to work, we'll be in that 14% to 15% range.

Andrew Weisel
Analyst at Scotiabank

Okay. Thank you so much.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Somerhalder for closing comments.

John Somerhalder
Board Chair, Interim President and Chief Executive Officer at FirstEnergy

Thank you. Thank you, everyone, for joining us today. We very much appreciate your continued support this year. [Operator Closing Remarks]

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