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FirstEnergy Corp  (NYSE:FE)
Q3 2018 Earnings Conference Call
Oct. 26, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the FirstEnergy Corp. Third Quarter 2018 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. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Irene Prezelj, Vice President, Investor Relations for FirstEnergy Corp. Thank you. Ms. Prezelj, you may begin.

Irene M. Prezelj -- Vice President,Investor Relations

Thanks, Melissa. Welcome to our third quarter earnings call. Today we will make various forward-looking statements regarding revenues, earnings, performance, strategies, and prospects. These statements are based on current expectations and are subject to risk and uncertainties. Factors that could cause actual results to differ materially from those indicated by such statements can be found on the investors section of our website under the earnings information link and in our SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures can be found on the FirstEnergy Investor Relations website along with the presentation, which supports today's discussion. Participants in today's call include Chuck Jones, President and Chief Executive Officer; Steve Strah, Senior Vice President and Chief Financial Officer; and several other executives in the room who are available to participate in the Q&A session.

Now I'll turn the call over to Chuck.

Charles E. Jones -- President and Chief Executive Officer

Thank you, Irene, and good morning, everyone. We had a great quarter and I'm pleased to have this chance to speak with you about our results and our progress on key initiatives. Since our last call in August, we have successfully carried out several of the critical steps necessary to complete our transition to a fully regulated utility. As I'm sure you know, on September 25th, the bankruptcy court approved our definitive settlement agreement in the Chapter 11 proceedings of FirstEnergy Solutions, its subsidiaries, and FENOC. This very positive development marks perhaps the most important milestone in our exit from competitive generation. While you may occasionally see news about the progress of FES, FENOC, and their affiliates as they work with the bankruptcy court; to be clear, we expect that none of this will impact our ability to execute our regulated strategy.

We are also in the final stages of implementing our FE Tomorrow initiative, which will align our cost structure and shared services workforce to efficiently and effectively support our regulated businesses going forward. In total, 960 positions in our shared service organization were impacted by this effort. In addition to the nearly 500 employees who accepted our voluntary enhanced retirement package, we eliminated nearly 230 open positions, transitioned some employees into opportunities in our utility business, and created a flatter leaner management structure by reducing layers and increasing spans of control. As part of this streamlining effort, there are nearly 45% fewer leadership positions in our shared services organization including 46 Director, Executive Director, and Vice President positions and 163 supervisory and manager level positions. The majority of these organizational changes went into effect during the third quarter.

As part of the FE Tomorrow effort, our teams identified opportunities that will eliminate the $300 million of costs that were associated with our competitive operations. In addition, we expect to fully offset the $30 million of depreciation associated with common systems shared with FES. We also identified an additional $20 million of O&M and interest and $35 million in capital reductions for total incremental cash savings of $85 million. The expected savings include reductions in labor costs and less reliance on contractor work and will be reflected in the 2019 earnings guidance we will provide at EEI next month. The FE Tomorrow initiative has been an outstanding effort by our teams across our corporate functions. In fact a level of projected operating expenses associated with our shared services organization benchmarked solidly within the top quartile of our industry and we are confident that we have the proper organization and cost structure to support our fully regulated business.

Past two years and this year in particular have been a period of rapid change in our company. I'm extremely proud of our employees' ability to remain focused on the execution of our objectives. As you saw in the results we posted last night, our regulated businesses continued to perform very well. We reported strong third quarter results and exceeded our guidance largely due to the hot summer weather that has lingered through the end of September. Steve will discuss our earnings drivers in more detail. But we were very pleased that in addition to the benefits from the heat, we saw a second consecutive quarter of growth in residential weather adjusted usage and at the same time, industrial usage was up 2.5% compared to the third quarter of 2017 marking the ninth quarter of growth in that class. On the regulatory front, we continue to execute on our plans.

In August, we filed the first base rate case for Potomac Edison in Maryland in nearly 25 years and this week we supplemented the filing to update the partially forecasted test year with a full 12 months of actual data. The $19.7 million request addresses recovery of the investments we have made in our Maryland distribution system to ensure continued safe and reliable service. The request is net of $7.3 million in customer savings related to federal tax reform. The Maryland Public Service Commission provided a procedural schedule that includes evidentiary hearings beginning on January 22nd. We expect a final order by March 23rd. In Ohio, our application for our $450 million distribution platform modernization plan is pending at the PUCO. The three-year plan would focus on distribution automation, voltage control, and preparing for the grid of the future.

Now that the commission's PowerForward initiative is complete, we believe that PUCO will be able to focus on the distribution platform modernization proceeding and grid modernization issues. In New Jersey, our four-year $400 million JCP&L Reliability Plus infrastructure investment plan is pending at the BPU. As we discussed last quarter, this plan is designed to enhance the safety, reliability, and resiliency of the distribution system for the benefit of our customers in New Jersey. We are hopeful that we will receive a procedural schedule soon to facilitate timely approval by the BPU. Finally, we continue to execute our Energizing the Future transmission plans across our footprint and we remain on track to invest $1.1 billion in our system this year. Consistent with our eastward expansion of this initiative, this summer we completed the $51 million East Towanda-South Troy line rebuild project in Bradford County, Pennsylvania.

This project, which is part of our mid-Atlantic interstate transmission subsidiary, involved rebuilding an existing 19.6 mile 115 kilovolt transmission line using 230 kilovolt construction standards. The rebuilt line was designed to allow for the construction of a second 230 kilovolt circuit when needed in the future. Also in May earlier this year, we finished rebuilding a 7.2-mile section of a 115 kilovolt line on an existing right-of-way in Bedford County in South Central Pennsylvania. This will connect to a new 10.6-mile span of line that stretches into neighboring Somerset County. When this $50 million reliability project is complete in 2019, it will connect several substations and address the risk of thermal overloads and low-voltage conditions that could impact service reliability in that region.

We have updated our full-year 2018 GAAP earnings forecast to $1.68 to $2.60 per share, which reflects the deconsolidation and court-approved bankruptcy settlement with FES and FENOC and an estimate for the annual pension and OPEB mark-to-market adjustments. With our strong performance and the impact of favorable weather through the first nine months of the year, we are raising and narrowing our full-year 2018 operating earnings guidance range to $2.50 to $2.60 per share from the previous range of $2.25 to $2.55 per share. We're also reaffirming our longer-term operating earnings growth projection of 6% to 8% through 2021.

Now Steve will provide a review of our strong third quarter results and our financial developments.

Steven E. Strah -- Senior Vice President and Chief Financial Officer

Thanks, Chuck, and good morning, everyone. It's great to speak with you today. Our results are very straightforward for this quarter so this will be a quick discussion with plenty of time for your questions. Starting with our GAAP results. Yesterday we reported a third quarter GAAP loss of $1.02 per share. This is due to a pre-tax charge of $1.2 billion representing the expected obligations under our current agreement with FES and FENOC bankruptcy cases. And with the court's approval of that settlement, we moved the Pleasants plant to discontinued operations to reflect its upcoming transfer to FES and excluded the plant from operating earnings starting in the third quarter. Before I move on to the discussion of operating earnings drivers, I'll remind you that we continue presenting operating earnings and projections on a fully diluted basis. This allows us to show preferred shares as fully converted and it eliminates the impact of conversion timing.

For your reference, about 56% of preferred shares had been converted as of September 30th. In accordance with the terms of the equity issuance, we expect the majority of the remaining preferred shares to be converted by the end of July 2019. As always, we provide reconciliations and detailed information about the quarter in our consolidated report to the investment community, which is posted on our website. Our third quarter operating earnings of $0.80 per share surpassed the top end of our guidance with weather driving the bulk of the $0.17 per share increase compared to the third quarter of 2017. Results in our distribution business benefited by higher deliveries along with lower expenses, lower financing costs, and higher regulated commodity margin. These factors more than offset related -- costs related to increased vegetation management work in Pennsylvania, higher depreciation expense, and general taxes.

Total distribution deliveries across all customer segments increased 6.3% compared to the third quarter of 2017. This was largely due to cooling degree days that were 28% higher than last year and 29% above normal. Sales to residential customers increased 12.9% while commercial deliveries were up 2.7%. On a weather-adjusted basis, deliveries to commercial customers were down 0.7% compared to last year. The decrease primarily reflects the continued impact of energy efficiency measures in that sector. However, as Chuck said, we continue to see positive developments in our residential customer class where third quarter weather-adjusted sales increased 1.7%. This is the second consecutive quarter where we have seen a meaningful uptick in weather-adjusted residential load. Paired with the continued modest increases in our residential customer count, we are cautiously optimistic that these promising metrics will form a trend.

In the industrial sector, total deliveries increased 2.5% compared to the third quarter of 2017 for nine straight quarters of improvement over the prior year period. The increase in demand primarily came from our customers in the shale gas and steel industries, but we also saw higher usage of hospitals and universities which was weather related. Moving on to our transmission business, third quarter earnings increased $0.02 per share compared to last year. This reflects the higher rate base at our MAIT and ATSI subsidiaries as well as higher revenues at JCP&L. And in our customer segment, our results reflected higher operating expenses and the impact of lower federal tax rate compared to the same period in 2017. Finally, I want to give you a quick update on our liquidity facilities. As a fully regulated company with stable predictable earnings and cash flow, we have a much improved risk profile that comes with lower liquidity requirements.

On October 19th, we reduced aggregate commitments under our revolving credit facilities to $3.5 billion from $5 billion and extended their maturity dates to December 2022. We also entered into two new term loans totaling $1.75 billion to refinance our revolver borrowings. These credit facility changes reduced interest expense in connection with our FE Tomorrow initiative. We had an excellent quarter with strong financial results. We also achieved very important milestones in our corporate transformation, including an upgrade to investment grade by S&P. We remain focused on execution and we are committed to positioning FirstEnergy for stable predictable and customer service oriented growth to benefit our shareholders, customers, and employees.

Thank you for your time and your interest in FirstEnergy. Now, let's take your questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Julien Dumoulin-Smith from Bank of America Merrill Lynch. Please proceed with your question.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. Congratulations.

Charles E. Jones -- President and Chief Executive Officer

Thanks, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

So, maybe to just as a follow up here. What are the ramifications of the cost savings here is potential additional latitude from a balance sheet perspective? Can you talk about how you're thinking through the additional FFO to debt latitude and what kind of metrics you want to be targeting? And ultimately given perhaps the litany of opportunities you already described on the call, where you're trending within your own CapEx budget and if you would see yourself being in a position to increase that Capex budget whether because of the additional FFO to debt latitude or simply because you wanted to pursue external financing to raise external funds to finance some of the additional CapEx?

Charles E. Jones -- President and Chief Executive Officer

All right. So, that's like five questions in one there, Julien. But I will try to take them all on. So first, FE Tomorrow. The obvious first objective was to deal with the $300 million of shared services cost, which has been supporting the competitive business throughout basically the history of our company, in a way where none of that become a drag on our ability to execute our regulated plan. We accomplished that. Second was to deal with the $30 million of depreciation associated with the common systems that we shared with FES. We accomplished that. On top of that then $20 million O&M and interest and $35 million of capital, that isn't going to be substantial in terms of moving our credit metrics. It will be down in the third decimal place. So, it's not going to make a big difference. Where we're targeting is 12% to 13%, which keeps us above the Moody's 12% guideline and the S&P 9% guideline and we expect to be there for the foreseeable future. And did I get them all?

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Well, what about just the pursuing external financing? I mean I know a few months ago you all committed to perhaps staying away from the capital markets and living within your means, if you will, with respect to hitting your CapEx. But obviously, there's a lot of different opportunities and many continue to materialize here. Is there any chance that you all are looking at or would contemplate raising your CapEx budget to reflect some of these beyond the ranges that you've already articulated?

Charles E. Jones -- President and Chief Executive Officer

Okay. So first of all, we've said we don't contemplate any new equity through 2021 and we'll evaluate it at that point. Between now and then, we'll invest $7.5 billion in infrastructure at FirstEnergy. And at some point equity might be a necessary component, but not through 2021. As far as that CapEx plan today, I do not see increasing it. The plan we have generates 6% to 8% per year combined growth for our company. I don't see any reason to take it above that and I think that's an appropriate number for FirstEnergy at this time.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. And if I can clarify quickly. Just with respect to the cost savings identified, '19 run rate or how do you think about that flowing into '20 onwards, right, as you think about the various pieces there annualizing year-over-year if you will? More of a timing question.

Charles E. Jones -- President and Chief Executive Officer

We'll see it in '19 and beyond.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

The full-year '19 to be clear.

Charles E. Jones -- President and Chief Executive Officer

Yes.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Okay, great.

Steven E. Strah -- Senior Vice President and Chief Financial Officer

And Julien, this is Steve Strah. And I would also just say those savings are in support and blended in within our 6% to 8% growth rate.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Right. But there's not an annualizing factor such that perhaps that's more of a '20 figure than a '19 figure or to the extent which that you --

Steven E. Strah -- Senior Vice President and Chief Financial Officer

No.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Okay, great. I'll leave it there. Thank you.

Operator

Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question.

Steve Fleishman -- Wolfe Research -- Analyst

Thanks. Could you give a little bit more color on what you're seeing in terms of the local economy and the weather normalized sales and how it looks for next year too right now?

Charles E. Jones -- President and Chief Executive Officer

Well, the good news is we are seeing some positive developments when we adjust out the warm weather that we had this summer. 1.7% growth in the residential segment is probably the most positive. Now we did add 35,000 new residential customers between the third quarter of 2017 and today. So, that's contributing to the growth. In the past as we were adding customers, we were seeing that kind of eroded by energy efficiency and fuel switching to natural gas and other things. But I think 35,000 new customers and 1.7% growth and it's the second quarter in a row where we've seen some growth is a good thing. 2.5% growth in the industrial sector. That's now, as I said in my opening remarks, nine quarters where we've seen growth in that sector. So, I think what we're seeing is some of the growth in the natural -- national economy is starting to move into the FirstEnergy footprint.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. And then just any thoughts on the Ohio tax reform order earlier this week and it seems to gets flexibility in addressing? Do you have any thoughts on it?

Charles E. Jones -- President and Chief Executive Officer

Yes, I'll give you my thoughts. Obviously tax reform is an issue we've been dealing with across the board. We're done in Pennsylvania. We're done in West Virginia. We're done in New Jersey. We'll be done in Maryland with the resolve of the rate case there. In transmission, the formula rates adjust automatically. We filed a case for the AYE stated rates to make the appropriate adjustments there as FERC requested. That only leaves Ohio left to deal with and we have frozen rates for several more years in Ohio. But despite that, I expect we'll be able to sit down and work with the Public Utilities Commission on some type of a settlement that makes sense for them, for us, and all the interested parties.

Steve Fleishman -- Wolfe Research -- Analyst

Great. And then just lastly, I might have missed this at the beginning. Just at the upcoming Edison Conference, the -- what if any incremental disclosure are you providing?

Charles E. Jones -- President and Chief Executive Officer

The only thing on the plate right now is 2019 guidance.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed with your question.

Stephen Byrd -- Morgan Stanley -- Analyst

Good morning.

Charles E. Jones -- President and Chief Executive Officer

Hey, Stephen.

Stephen Byrd -- Morgan Stanley -- Analyst

I wanted to step back and talk about changes to the generation mix in Ohio. I guess you have a number of moving pieces. You have numerous potential shutdowns as well as I guess there's a possibility of legislation that it could increase the amount of renewables in Ohio. So I'm thinking about this from an opportunity set in terms of both additional changes to the grid over time that would be needed if there is a number of shutdowns, possibility of FirstEnergy directly investing in renewables, if the target renewables amount goes up. Just generally, I know this is longer term, but I'd like to hear more -- some of your thinking around what that might require in terms of incremental spending, incremental changes to the grid, or involvement in renewables. Anything else on Ohio that you might comment on?

Charles E. Jones -- President and Chief Executive Officer

Right now in Ohio, FirstEnergy is a fully regulated transmission and distribution company. We have no generation regulated or competitive any longer and we're focused on what the needs of customers are from a T&D perspective. Should there be additional closures in Ohio, there's a process within PJM to review those closures and identify any changes in the transmission networking capability to handle those. Those would be dealt with through the RTAP (ph) process and of course we would make those changes on our transmission system as necessary. At this point in time under Ohio law, regulated utilities aren't allowed to invest in generation. So, I'm not spending any time worrying about generation in Ohio at this point in time. We're worried about the T&D infrastructure and serving our customers the right way there.

Stephen Byrd -- Morgan Stanley -- Analyst

Understood. And then just switching over to your cost cutting and making great progress there. I was curious as part of that cost cutting effort, did you do any kind of a benchmarking of your cost structure relative to neighboring or peer utilities just in terms of how your cost structure looks? And just curious if there's any commentary you could provide on pro forma what your cost structure looks like relative to peers?

Charles E. Jones -- President and Chief Executive Officer

Yes, we did and we used Accenture to help us with this process, Stephen. And they brought a number of benchmarks to the table to assist us, including benchmarkings of costs at a high level with our peers; but also things like layers of management between me and the people doing the work in the corporate office, spans of control for our leadership in the corporate office. That's what drove the entire reduction. As I said in my opening remarks, now that it's all done, our corporate structure costs are in the top quartile within our industry.

Stephen Byrd -- Morgan Stanley -- Analyst

Understood. And Chuck, just at the utility level. Are there any of your units that are noticeably high in terms of the costs whether it be just because of lack of scale or any other drivers? Just I appreciate at the parent level you've gotten your cost down pretty massively. Just curious if sort of any of the subsidiaries stand out as having a cost structure that's quite a bit higher than peers?

Charles E. Jones -- President and Chief Executive Officer

No. In fact there, it's just the opposite. Our utility cost structure is generally benchmarked in the top quartile and top decile for both capital and O&M even at our current CapEx levels.

Stephen Byrd -- Morgan Stanley -- Analyst

Perfect. That's all I had. Thank you.

Operator

Thank you. Our next question comes the line of Jonathan Arnold with Deutsche Bank. Please proceed with your question.

Jonathan Arnold -- Deutsche Bank -- Analyst

Good morning, guys.

Charles E. Jones -- President and Chief Executive Officer

Hi Jonathan.

Jonathan Arnold -- Deutsche Bank -- Analyst

Hi. Could I just talk to the EEI question. If not at the EEI, when would be reasonable for us to expect you to think about rolling forward your current outlook that if I'm not wrong goes through 2021?

Charles E. Jones -- President and Chief Executive Officer

I don't think you'll see anything at EEI this year that goes beyond 2021.

Jonathan Arnold -- Deutsche Bank -- Analyst

And is that something you think, Chuck, you would do sort of with your year-end call or more sort of later in the year next year?

Charles E. Jones -- President and Chief Executive Officer

I think it will be some time later in 2019.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. And I mean if I can, what are you particularly waiting to see before adding another year to the outlook let's say?

Charles E. Jones -- President and Chief Executive Officer

Well, there's a number of things we're waiting to see. First of all, we've got a lot of things to focus on now that we're fully regulated. I want to see whether two months make a trend in terms of load growth in our territory or not. I think that could be a big factor. And beyond that, I just think given you have four years out, what I'd like to do is give you plans that I know that we have nailed down and we can execute on. And four years out is a little bit outside the planning window that I think is prudent for us to go to.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. Thank you. And then just on transmission, do you -- any comments on the recent FERC order? I realize you have rates that have settled. As you look at the sort of potential shift to the new model, can you just give us some context of how you think that would sit versus where your earnings are?

Charles E. Jones -- President and Chief Executive Officer

Well, here's how I look at it. Our formula rates of return are fairly new right now. The MAIT one was just set recently. I think that bodes well for those rates going forward. I think longer-term if there's much done to change FERC ROEs, it's going to compress them with the state ROEs and it's going to work against what FERC is trying to do to stimulate transmission investment because it's going to shift money not just in our case, but probably in many other cases, down toward this regional system and away from transmission. So, I think that is going to kind of be a control rod in the process. But even if they decide to move forward, here's how I think about it. A 0.5% change in the ROE is about a $15 million impact on FirstEnergy's earnings. That is not significant and it's something we can make up within the rest of our plan and not something that will take us off track from a 6% to 8% growth rate in any way.

Operator

Very clear. Thank you, Chuck.

Thank you. Our next question comes from the line of Greg Gordon with Evercore ISI. Please proceed with your question.

Greg Gordon -- Evercore ISI -- Analyst

Thanks. Hey, guys. I think maybe we should all just email our questions to Julien and just let him ask them all. Sorry, Julien, couldn't help myself. Talk to you later. So just to rebase -- go back and rebase the conversation around earnings. If I recall correctly, your 6% to 8% growth target is based on a 2017 $2.15 number. Is that -- am I remembering correctly?

Charles E. Jones -- President and Chief Executive Officer

2018 fully diluted number ex-DMR.

Greg Gordon -- Evercore ISI -- Analyst

Right. It's a 2018 number?

Charles E. Jones -- President and Chief Executive Officer

Yes.

Greg Gordon -- Evercore ISI -- Analyst

Okay. Just wanted to make sure I had that. That's right, 2018 number. So if I look at that then, where within the guidance -- that 6% to 8% guidance range or maybe you don't want to comment on this, would you sort of feel like you were trending now that you've the CapEx plan sort of solidified, the cost cutting in the books, FES exiting. And if these types of load growth numbers were to be consistent, would you be confident in your ability to be sort of at the midpoint or toward the upper end of that range at this point or are you -- is it too early for you to discuss that?

Charles E. Jones -- President and Chief Executive Officer

So number one, I'm not going to give 2019 guidance until EEI. So, that number you'll hear in a few weeks. And beyond that, we give a 6% to 8% range. We expect to be within that range and we don't guide right now to the bottom or the top of that range. So, I think you can assume that we should be somewhere within that range and a lot of factors can affect that. As I said earlier if two months of residential growth becomes a trend, that will drive more to the top end of that range. If something happens with FERC ROEs, that might move us a little bit down. There's going to be puts and takes throughout that. But I'm confident and we've reaffirmed that that 6% to 8% growth range over the next three years is something you can count on.

Greg Gordon -- Evercore ISI -- Analyst

Great. And you guys just paid the dividend at the same rate that you paid it since it was cut several years back?

Charles E. Jones -- President and Chief Executive Officer

Yes.

Greg Gordon -- Evercore ISI -- Analyst

Can you give us some guidance as to when you think it's appropriate to go to the board to recommend a policy that's more comparable to your peers both in terms of payout ratio and growth?

Charles E. Jones -- President and Chief Executive Officer

Yes. So, we've being a fully regulated company now for all of about a month since the filing was approved by the court.

Greg Gordon -- Evercore ISI -- Analyst

So, what's keeping you?

Charles E. Jones -- President and Chief Executive Officer

So I've said all along if we expect to be treated in the market like our regulated peers, at some point in time we're going to need to have a dividend policy. In the immediate future what's keeping me is our yield on our dividend is nothing to be ashamed of. It's in the 3.8% to 4% range depending on where the stock price is moving. We began discussions internally with the leadership team to see what we might recommend to the board and I think just be patient, it will come and I know we need to do it.

Greg Gordon -- Evercore ISI -- Analyst

Okay. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Praful Mehta with Citigroup. Please proceed with your question.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi guys.

Charles E. Jones -- President and Chief Executive Officer

Hey Praful.

Praful Mehta -- Citigroup -- Analyst

Hi. So, just maybe following up on the earnings side thinking about the DMR and the extension to the DMR. How do you see that positioned and if that doesn't come through in terms of an extension, what kind of EPS dropoff do you with DMR going away?

Charles E. Jones -- President and Chief Executive Officer

So, all of our earnings projections that we've given you exclude DMR. So, it would be no dropoff whatsoever regardless. We expect to file a case for extension of the DMR early next year. We're hopeful that the commission will rule on it by the end of next year and we'll have the answer about what happens with those last two years at that point in time. But it can only be positive, it cannot be negative.

Praful Mehta -- Citigroup -- Analyst

Yes, I know. Fair enough. And that I guess where I was going with this. If you do get it, let's put the other way then, what is the upside that you see for the DMR going forward?

Charles E. Jones -- President and Chief Executive Officer

Well, if you can calculate what two years of it will be worth, I wouldn't see us taking that money and doing anything with it that would take us off track long term that we can't continue. That's why we've taken it out of the numbers that we're sharing with you now.

Praful Mehta -- Citigroup -- Analyst

Got you. Fair enough. And I guess moving on to the credit side and the total debt. I was looking at Slide 31, which had your balance sheet debt and the HoldCo debt has gone up to about $7 billion. Just wanted to understand is there a target of like what HoldCo debts you would like to have as you go through this restructuring process? I know that there was a term loan that was taken as well. So, just wanted to get a little more context on the HoldCo debt and where you see that going as a percentage of total debt as well.

Charles E. Jones -- President and Chief Executive Officer

No higher than the $7 billion that it's at right now.

Praful Mehta -- Citigroup -- Analyst

Got you. And is there any target in terms of what proportion it will be of total debt going forward or will that only reduce as your rest of the balance sheet I guess grows with the growth of the utility side?

Steven E. Strah -- Senior Vice President and Chief Financial Officer

Praful, this is Steve. So, right now holding company debt as a percentage of total debt will be around 35% to 40%. Over time we expect it to go down to about 30%.

Praful Mehta -- Citigroup -- Analyst

Got you. Thanks. And just to clarify. On Slide 31, it says it does not include the term loans that you have recently taken. Is that not included within the $7 billion or is within the $7 billion?

Steven E. Strah -- Senior Vice President and Chief Financial Officer

So, basically our holding company debt over time will average to be about $7 billion. So, it's going to be a little give and take. So, it does include the term loans.

Praful Mehta -- Citigroup -- Analyst

I got you. Thank you. Alright. Thank you, guys. I appreciate it.

Operator

Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed with your question.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. I'll ask them in an order. First of all, going back to Slide 4 and the FE Tomorrow, the $300 million of costs associated with competitive ops, who does that actually accrue to? Meaning does that come back and benefit FE, the new FE, the regulated FE? Does that benefit kind of FES on the way out in prep for emergence? I'm just trying to make sure I understand what's happening there and whether that's capital O&M or something else?

Charles E. Jones -- President and Chief Executive Officer

It doesn't benefit anybody, Michael. It is the actual shared services costs that we've incurred in the past to support the FES and FENOC part of our company that have been traditionally shared with them through our shared services allocations. If we did not deal with it, it would have been a drag on our ability to execute our regulated strategy. So the goal was as FES ultimately says we don't want these shared services anymore, we needed to make them go away. So, it's a -- basically a dollar for dollar elimination of the costs that were previously built to FES so that there's no drag on our ability to move forward.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. A follow-up, unrelated question. Chuck, you talked a little bit about the yield where your stock trades and we recognize that maybe on a valuation perspective, it trades a little bit differently than some of the other kind of pure-play regulated utilities. Are there strategic thoughts you and the board are having or discussions of whether there are other changes to the corporate structure that might be possible? Meaning you've got a great transmission company, if you think the market doesn't value the transmission assets correctly, are there ways to monetize parts of that order to highlight or accentuate the value of that to the market? How are you guys thinking about kind of the value inherent within FE and the FE business family?

Charles E. Jones -- President and Chief Executive Officer

Well, how I think about it is it's much more valuable than a lot of you think it is based on a 6% to 8% growth rate and a dividend on top of that. But having said that, as I said we're about one month into now being finally a fully regulated company and me as the CEO being able to focus on a fully regulated company. Probably two-thirds of my focus over the first four years in this job has been on the competitive business and what we were going to do about it and how we were going to exit it and the entire exit process. Now I'm able to focus on the fully regulated side of our company.

A company with 6% to 8% growth isn't something that I think we want to -- that we need to necessarily do anything with at this point in time. Strategically to restructure our company, I think it's perfectly structured. We have regulated distribution utilities across five states. We've got now three investment regimes in transmission that are under formula rates. Down the road if it makes sense for the Allegheny transmission system to be moved to a formula rate, we'll look at that. But it's all going to be driven about how do we maximize investment for customers and subsequent growth for shareholders out of what we have.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, Chuck. Much appreciated.

Charles E. Jones -- President and Chief Executive Officer

Okay.

Operator

Thank you. Our next question comes from the line of Charles Fishman with MorningStar Research. Please proceed with your question.

Charles Fishman -- Morningstar Research. -- Analyst

Good morning. I just had a quick housekeeping thing. When you initiated the 6% to 8% off the $2.15 base, you talked about shares growing to 545 million in '21. Now you're talking fully diluted 538 and no equity. Should we just assume we're 538 flat through 2021 for our modeling?

Steven R. Staub -- Vice President and Treasurer

Hey. This is Steve Staub. No. We have a DRIP program that we issue shares under each year. So, it's about $75 million to $100 million of equity value. So, you can do your calculation based on that.

Charles Fishman -- Morningstar Research. -- Analyst

Got it, OK. That's all I had. Thank you very much.

Operator

Thank you. Our next question comes from the line of Andrew Weisel with Howard Scotia Weil. Please proceed with your question.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Thanks. Lot of the topics have been delved into pretty deeply. So, I just have a couple more details I wanted to dig into. First on O&Ms, just a quick one on timing. Given the favorable weather this summer, were you able to accelerate some O&Ms from 2019 into 2018 that might support the guidance?

Charles E. Jones -- President and Chief Executive Officer

No. There was none of that and in fact because of some reliability issues, we spent a little extra O&M in one operating company Penelec than what the original budget has. But when you get nine months into a year and you start trying to move money around within a budget, it takes people and contractors to execute what we do in this regulated business. It's a very complex maneuver and I just want to keep the team focused on executing the plans that we have in front of them. So, there was none of that done.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Okay. Fair enough. Then two questions on Capex. First of all, how would you describe the conversations with regulators and interveners around the IIP New Jersey and the DPM and potential extension of DMR in Ohio?

Charles E. Jones -- President and Chief Executive Officer

So IIP in New Jersey, we're having discussions with both the staff and interveners. We're waiting on commission to issue procedural schedule. I think those discussions will go on throughout the first part of next year and we'll be able to give you a little more guidance on where it stands. I think in general the reaction to the IIP has been favorable in New Jersey and obviously the commission views it favorably or they'd never put in place. So I think that one bodes well, but it will get clarity early into next year. On the DMP, as I said, the commission in Ohio spent a lot of time on their PowerForward initiative this year. Now that that's done, I think they're going to have time to focus on our filing and we're hopeful that we can get that to a conclusion soon. And on the DMR, we'll make our filing in early next year and we'll see where that goes. Obviously we expect to make a case for why the last two years should be continued, but we haven't built any of that into our 6% to 8% growth.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Okay. If I heard it correctly, you said that you don't anticipate upside in the current CapEx plan. My understanding (technical difficulty) anything would be incremental. So if they are approved, should we think about that?

Charles E. Jones -- President and Chief Executive Officer

Ask the question again. Your voice was garbled and maybe get closer to your phone.

Andrew Weisel -- Scotia Howard Weil -- Analyst

If I heard you correctly, you said that the current CapEx plan did not really have upside potential. (technical difficulty)

Charles E. Jones -- President and Chief Executive Officer

I think you should think of the current CapEx plan as the CapEx plan for the next three years and if we decide to make any changes to it beyond that, we'll let you know then. But I think you can count on it being what it is for the next three years.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Paul Fremont with Mizuho. Please proceed with your question.

Paul Fremont -- Mizuho Securities -- Analyst

Thanks. Just a quick point of clarification I guess on PowerForward. Do they need to make determinations under that proceeding that seems to kick off in early December before they're able to actually act on your request, which looks like it would be sort of covered under the general topic that they're looking at?

Charles E. Jones -- President and Chief Executive Officer

No. They're free to act on our request at any time.

Paul Fremont -- Mizuho Securities -- Analyst

Okay. And so, you would expect then that yours will move forward independently from that proceeding. When would you expect the scheduling order?

Charles E. Jones -- President and Chief Executive Officer

Paul, as I said, I think the commission now has time to focus on it. We're having active discussions with the staff on it. I can't give you a date as when I expect an order, but I'm optimistic that we can get something done on it in the not-too-distant future.

Paul Fremont -- Mizuho Securities -- Analyst

Terrific, that's it. Thank you.

Operator

Thank you. Ladies and gentlemen, we have come to the end of our time allowed for questions. I'll turn the floor back to Mr. Jones for any final comments.

Charles E. Jones -- President and Chief Executive Officer

Okay. Well, I'd like to thank you all for your support of FirstEnergy. We look forward to seeing you at EEI in a few weeks. Take care.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 49 minutes

Call participants:

Irene M. Prezelj -- Vice President,Investor Relations

Charles E. Jones -- President and Chief Executive Officer

Steven E. Strah -- Senior Vice President and Chief Financial Officer

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Stephen Byrd -- Morgan Stanley -- Analyst

Jonathan Arnold -- Deutsche Bank -- Analyst

Greg Gordon -- Evercore ISI -- Analyst

Praful Mehta -- Citigroup -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Charles Fishman -- Morningstar Research. -- Analyst

Steven R. Staub -- Vice President and Treasurer

Andrew Weisel -- Scotia Howard Weil -- Analyst

Paul Fremont -- Mizuho Securities -- Analyst

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