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FirstEnergy Corp  (NYSE:FE)
Q4 2018 Earnings Conference Call
Feb. 20, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the FirstEnergy Corp. Fourth 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, Irene Prezelj, Vice President, Investor Relations for FirstEnergy Corp. Thank you. Ms. Prezelj, you may begin.

Irene M. Prezelj -- Vice President, Investor Relations

Thanks, Christine. Welcome to our fourth 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

Thanks, Irene. Good morning, everyone. 2018 was perhaps the most pivotal year in FirstEnergy's history. Through a series of careful coordinated actions, we met our commitment to fully transform FirstEnergy into a premier high performance pure play regulated utility. I will spend just a few moments recapping the year, then move to our opportunities for 2019 and beyond. We began 2018 by announcing a $2.5 billion equity investment from several prominent investors. Among other things, this new investment enabled us to reduce our holding company debt by $1.45 billion, eliminate the need to issue additional equity outside of our employee benefit and stock purchase plans through 2021, and contribute a total of $1.25 billion to our pension plan in 2018. That investment also helped us accelerate our regulated growth and infrastructure improvement plans and for the first time ever, introduce a long-term growth rate projection for our regulated operating earnings.

In April, we reached an agreement-in-principle to address our obligations in the Chapter 11 bankruptcy proceedings of FirstEnergy Solutions and all of its subsidiaries and FirstEnergy Nuclear Operating Company. Our final definitive agreement was approved by the bankruptcy court in September. Reaching a fair settlement with the debtors, Unsecured Creditors Committee, and key creditor groups within months of the bankruptcy filing helped us deliver on our commitment to quickly and thoughtfully exit competitive generation allowing us to turn our attention to FirstEnergy's future as a fully regulated utility. The settlement and our improved risk profile as a utility with stable predictable earnings and cash flow cleared the way for an across the board upgrade at S&P, including an upgraded issuer credit rating at FE Corp. and a positive credit outlook with Fitch. In turn, we had lower liquidity requirements and took several steps in October to reduce our financing costs.

We reduced the aggregate commitments under our revolving credit facilities to $3.5 billion from $5 billion and extended the maturity dates to December of 2022. At the same time, we refinanced our revolver borrowings through two new term loans totaling $1.75 billion. To effectively and efficiently support the growth of our regulated transmission and distribution businesses, we completed our FirstEnergy Tomorrow initiative to realign our shared service organization and cost structure. Through a voluntary enhanced retirement package and the elimination of open positions, we reduced headcount in our corporate support functions by 40% and expenses by 43% without any involuntary employee layoffs, which is an accomplishment I'm very proud of. At the same time, we created a flatter leaner management team by reducing layers and increasing spans of control.

We identified and eliminated $300 million in costs associated with our previous support of competitive operations and we expect to realize an incremental $85 million in savings due to additional reductions in capital, interest, and O&M expenses. As a capstone to our transformation, our Board approved a new dividend policy along with an initial 6% dividend increase in November that reflects confidence in our regulated long-term sustainable growth plans. With a targeted payout ratio of 55% to 65% of operating earnings, the new policy supports increased shareholder returns and continued investments in our strategic initiatives. Our stock ended the year with a total shareholder return of 27.7% making FirstEnergy the top performer in the EEI Index. I know many of you have been long-term investors in FirstEnergy and we thank you for both your confidence and patience.

With all of this going on, I couldn't be prouder of the way our employees stayed focused and executed on our growth initiatives. Last night we reported full-year 2018 GAAP earnings of $1.99 per share and operating earnings of $2.59 per share. Operating earnings exceeded our initial 2018 guidance and were at the top end of the range we provided in October. This makes four consecutive years of consistently meeting or exceeding our guidance to the financial community. Our 2018 results benefited from weather, solid execution of our growth strategy in the transmission and distribution businesses, and modest load growth in all three of our distribution customer classes. We remain encouraged with the overall trends in our distribution business. Industrial sales have increased steadily for two-and-a-half years. While most of that growth is driven by the shale gas industry, we're also seeing sustained improvement in the steel sector.

Our weather-adjusted sales to residential and commercial customers were modestly positive across the full year and we are pleased to see continued gains in the number of new customers in these segments. In our transmission business, we are entering our sixth year of Energizing the Future program. We continue to efficiently execute our long-term customer-focused strategy to modernize the transmission grid across our service area. Our transmission rate base at 30% of our total regulated assets ranks among the largest in the nation and our transmission spend as a percentage of market capitalization is at the top of our industry. We're excited about the future and I believe we are poised for a strong year ahead. Let's shift gears to recap some of our ongoing initiatives and expectations starting with our regulatory activities. First, our Ohio utilities have a supplemental settlement pending with the Public Utilities Commission in the matter of tax reform and grid modernization.

The original settlement filed last November was signed by the PUCO staff, representatives of industrial and commercial customers, environmental advocates, hospitals, competitive generation suppliers, and other parties. The supplemental settlement added the support of residential customer and low income advocates. This settlement addresses how all the tax savings associated with federal tax reform would be returned to customers and seeks approval for the initial phase of our grid modernization program with investments of $516 million. Earlier this month, our Ohio utilities also made a filing with the PUCO to request approval for a two-year extension to the Distribution Modernization Rider. Rider DMR was first authorized by the PUCO in 2016 to provide additional revenues to ensure our Ohio utilities have access to lower cost capital that promotes a faster and more economical path to modernizing the distribution system for the benefit of our Ohio customers.

While we believe we have a strong case to continue this rider, I will remind you that it is not factored into our earnings growth projections. In Maryland, hearings took place in January and we expect a final order by late March in our first Potomac Edison base rate case in nearly 25 years. As we have discussed, our request of $17.6 million will address recovery of investments to provide safe and reliable service to our Maryland customers and it is net of $7.3 million in customer savings related to federal tax reform. And in New Jersey, the procedural schedule for our four-year $400 million JCP&L Reliability Plus infrastructure investment plan was suspended due to settlement discussions. JCP&L Reliability Plus will enhance the safety, reliability, and resiliency of our New Jersey distribution system.

Throughout this year, we expect our newly formed Emerging Technologies group to continue identifying opportunities for future investments that will allow us to better serve our customers by analyzing and implementing advanced technologies and working with state and federal policies designed to improve grid performance and energy security. We are affirming our 2019 full-year guidance of $2.45 to $2.75 per fully diluted share as well as our long-term operating earnings growth projection of 6% to 8% through 2021.

Now let's turn to Steve for a review of our results for the fourth quarter and other 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. First, a reminder. Reconciliations and other detailed information about the quarter and the year are posted on our website in our Consolidated Report to the Financial Community. Also, consistent with our practice over the past year, we present operating earnings and projections on a fully diluted basis. This allows us to show preferred shares as fully converted and eliminates the impact of conversion timing. About 87% of the preferred shares had been converted as of January 31st. We expect the majority of the remaining preferred shares to be converted by the end of July in accordance with the terms of the equity issuance. With that said, let's get started at a look at the fourth quarter. GAAP earnings were $0.25 per share. This includes a pension mark-to-market adjustment and other special items. Operating earnings were $0.50 per share, in line with the top end of our guidance.

In our distribution business; our results benefited from higher deliveries, lower financing costs, and stronger regulated commodity margin in West Virginia. These factors offset higher depreciation and O&M and which was primarily related to additional vegetation management work in Pennsylvania. Total distribution deliveries across all customer segments increased 1.2% compared to the fourth quarter of 2017. Residential sales increased 0.5% while commercial deliveries were up 1.7%. Weather had a modest impact on sales with heating degree days about 7% higher than the fourth quarter of 2017. On a weather adjusted basis, commercial deliveries increased 1.8% and residential deliveries were essentially flat. In our industrial sector, the trend of steady growth now is stretched into 10 consecutive quarters. Fourth quarter deliveries increased 1.4% compared to the same period of 2017. This was led by gains in the shale gas, steel, and electric equipment manufacturing industries.

In our transmission business, fourth quarter operating earnings at our formula rate companies were $0.02 favorable due to higher rate base at MAIT and ATSI. This was offset by higher O&M in our stated rate transmission companies. And in our corporate segment, we had slightly lower operating earnings offset by higher income taxes and the non-deductible portion of interest compared to the same period in 2017. Now I'd like to take a moment on this month's $500 million pension contribution. First, a quick history. Beginning in 2011, we adopted the mark-to-mark method for our pension and other post-employment benefit accounting. Each year, typically in the fourth quarter, we remeasure our pension assets and liabilities to recognize changes in discount rates, actual return on planned assets, and other differences to the actuarial assumptions. The loss or gain is recognized in our GAAP results.

This is a preferred method of accounting under GAAP because it recognizes the actuarial gain or loss in the year it occurs instead of amortizing it over a longer period. We exclude this adjustment from our non-GAAP operating earnings to provide greater transparency to our ongoing operational performance. In 2018 our mark-to-market adjustment was a non-cash charge of $0.19 per share. Lower than expected returns were partially offset by a higher discount rate, which was on the high side of the estimate we provided in our third quarter materials. So we ended 2018 with approximately $3.9 billion of liquidity, of which $367 million was cash. We expected this favorable cash position to remain through 2020 so we decided to put the cash to work for us now by making the $500 million voluntary cash contribution to our pension plan on February 1st of this year. This contribution improves our pension plan's funded status to 82% and it eliminates any projected minimum funding requirements through 2021.

As Chuck noted earlier, we're making great progress with the rating agencies. We're now investment grade across the board by S&P, Moody's, and Fitch; and we expect further ratings improvements over time as we execute the regulated growth plan that we've outlined. As many of you know, S&P tracks an FFO to total debt metric with a minimum threshold of 9%; Moody's tracks a CFO working capital to total debt metric which has a current minimum threshold of 12%; and Fitch tracks an FFO adjusted leverage metric with a maximum threshold multiple of 6.5 times. We expect to be compliant with all three rating agencies and their respective thresholds through our 2021 planning period. Our actions during 2018 redefined FirstEnergy. We're excited about our future as a premier fully regulated utility. Today more than ever, we're focused on three things; implementing our strategies, delivering on our commitments, and building a brighter future for our shareholders, customers, and employees.

And now before we turn it over for your questions, Chuck would like to share a few additional comments.

Charles E. Jones -- President and Chief Executive Officer

Thanks, Steve. Today marks the final earnings call for two longtime members of our executive team who many of you know well, Leila Vespoli and Jim Pearson. Leila and Jim are both retiring in the next couple of months following long and distinguished careers with our Company. They both played key roles in our mergers, various acquisitions, and our transformation into a fully regulated utility; and both have been key trusted advisors to me during my tenure as CEO. I want to thank -- take this opportunity to recognize their strong and thoughtful leadership and to wish them a happy and healthy retirement.

Now I'd like to open the call for your questions.

Questions and Answers:

Operator

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

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

Hey, good morning, everyone. And again congrats to Leila and Jim here, it's been a pleasure.

Charles E. Jones -- President and Chief Executive Officer

Good morning, Julien.

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

Good morning. I wanted to follow-up quickly on I suppose starting first with the commentary on New Jersey, the Reliability Plus program, just the commentary on a suspended timeline here in settlement discussions. How do you think this could advance just procedurally here through the course of the year and against the CapEx that you've already outlined? And then separately, I noticed you kind of mentioned this in conjunction with the newly formed Emerging Technologies Group. How do you think about the total potential size of spend here especially as you go through the settlement process?

Charles E. Jones -- President and Chief Executive Officer

Okay. So first in New Jersey, what I mentioned is that the procedural schedule has been suspended to allow the settlement discussions to continue. Obviously we don't have a settlement to announce or I would have announced it today so, but we're hopeful that we can get to a settlement. But your second question I think is an important one and that is we are planning to spend just shy of $3 billion of CapEx per year for the next several years in our footprint. So when I think about the New Jersey spend, obviously we filed that plan because that's where we would like to spend $400 million over the next four years. But in the event we don't get to a settlement and then we get back on to the procedural schedule and that doesn't work out either, we have plenty of opportunity around FirstEnergy and four other states and transmission to make these investments in order to support the 6% to 8% growth that we are committing to.

As far as the Emerging Technologies piece, I think that's one of the most exciting things about where we're at as a company that we actually now have the time and the resources to start thinking about what -- what do we want FirstEnergy to be in the future. We've committed to kind of what we're going to do over the next three years as far as capital deployment; but we're really looking state by state, utility by utility, and transmission at what are those new emerging technologies that makes sense for us to invest in on behalf of our customers, what are the regulatory and legislative impediments to being able to do that, and then we've got three years to start working on how do we deal with those impediments. And as I said, it's just I think an exciting time because I've just finished or just started my 41st year, I guess I would say, with this Company. The first 40 years we've been working in one form or another to always put some of the past behind us and today for the first time, we're really in a position to start looking to the future.

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

Excellent. And then quick second question here. I suppose the conversations are kicking off in Ohio again about any potential legislation. Is there anything that you all would be looking toward on the utility side specifically here if anything at all?

Charles E. Jones -- President and Chief Executive Officer

Not in any specific form, Julien. Obviously if our new leaders of the states; we have a new governor, a new speaker of the house, we're going to have a new Chairman of the Public Utilities Commission; if they determine that they think the time is right to really put energy policy for the state back on the table in some fashion legislatively, then we would expect to engage and provide our input. But it's too early in the process for me to talk about what that might mean.

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

I'll leave it there. Thank you all very much. Congrats again.

Charles E. Jones -- President and Chief Executive Officer

Okay. Thanks, Julien.

Operator

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

Greg Gordon -- Evercore ISI -- Analyst

Hi guys, thanks. Good morning.

Charles E. Jones -- President and Chief Executive Officer

Good morning, Greg.

Greg Gordon -- Evercore ISI -- Analyst

Just a quick question on the -- you guys said that -- in your prepared remarks that you expect to be compliant with all three rating agencies' minimum thresholds over the course of the financing period -- over the course of the forecast period. Given your 2019, I guess when I think about the Moody's metric in particular, right, the FFO forecast is lower now because of the pension contribution but that should basically be trading math since it reduces your assumed pension deficit, which all things equal would be sort of neutral to the calculation. Is that -- is that the right way to think about it?

Charles E. Jones -- President and Chief Executive Officer

So yes, we expect to be in the right place with all three rating agencies throughout the planning period. 2019 has some unique attributes because of the remaining liabilities for the exit of competitive generation that are -- that will be gone in 2019. And I think in our conversations with Moody's, they're looking beyond that period at more where we're going to be in the 2020-2021 time frame. So, we're confident that we're going to stay above the threshold for all three rating agencies and hopeful that we can even get to a position where we see further positive movement from them.

Greg Gordon -- Evercore ISI -- Analyst

Okay. That I guess without being -- I was trying to be less blunt, but I just didn't see you guys at above 12% in '19 based on the cash flow profile you laid out in this guidance, but your explanation of that is that the CFO is negatively impacted by the remaining exit costs from FDS so that should look better in '20 and '21.

Charles E. Jones -- President and Chief Executive Officer

That's right. There is a little dip below 12% this year, but it rights itself next year.

Greg Gordon -- Evercore ISI -- Analyst

Okay. You're always very direct and I appreciate that. Thank you. That was my question.

Charles E. Jones -- President and Chief Executive Officer

Thanks, Greg.

Operator

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

Jonathan Arnold -- Deutsche Bank -- Analyst

Great. Good morning, guys.

Charles E. Jones -- President and Chief Executive Officer

Good morning.

Jonathan Arnold -- Deutsche Bank -- Analyst

Just on the pension, you mentioned expecting that kind of cash position to continue to be strong into 2020 is -- and you don't expect to have to make any minimum contributions. But is there a scenario where we might see further voluntary contributions along the way here and just kind of how you're thinking about that as the -- as you'd be moving the funding up?

Charles E. Jones -- President and Chief Executive Officer

I'm not thinking about any further voluntary contributions right now. This one the timing was such that we did have cash available to do it. And as you all know, our pension plan was hurt by the performance of the fund in 2018 as well as everyone else's and taking this step early helps offset some of those losses that we incurred last year. But right now, we don't have any plans to do anything. The next mandatory contribution is in 2022.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. And can you share what would the size of that be, Chuck, just kind of as you look at it today? I think you -- before you had a $330 million for 2021 was the number you gave us at EEI. Is the '22 number in the same ballpark or something smaller?

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

Jonathan, this is Steve Strah. It is in the same ballpark. Right now we have that estimated at just about $380 million, once again that's in 2022 and we'll -- that will be subject to how the market performs over the next several year period and we're comfortable.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay, great. Thank you. And then just one other thing on the -- we haven't had time to review the filing on the DMR in as much detail as we'd like. But Chuck, could you just give us the sort of high level on how -- how you're justifying the request to extend and whether it's similar or evolved a little from the original request?

Charles E. Jones -- President and Chief Executive Officer

So first, obviously we're very thankful that the Public Utilities Commission of Ohio did this for us several years ago. It helps ensure, as I said in my prepared remarks, low cost capital to begin the process of modernizing the grid in Ohio. Our filing pretty much is along those same lines and I think we have a strong case to argue for two years of additional DMR funding. But I also have said repeatedly we don't have that in any of our growth plans, the 6% to 8% growth rates are not depending on it. And even if we get it for two more years both, those of you who evaluate our stock and the rating agencies, are going to factor it out because it's only for two more years. But having said that, the cash and the availability of that cash to make meaningful investments in the grid in Ohio is important to us going forward.

Jonathan Arnold -- Deutsche Bank -- Analyst

Thank you very much.

Operator

Our next question comes from the line of Praful Mehta with Citi. Please proceed with your question.

Praful Mehta -- Citi Research -- Analyst

Thanks so much. Hi guys.

Charles E. Jones -- President and Chief Executive Officer

Hi Praful.

Praful Mehta -- Citi Research -- Analyst

Hi. So, I just wanted to touch on pension again just to clarify. Is the proportion of equity versus debt products that are invested from a pension plan changing as a result of the performance in '18 or is that consistently a high proportion of equity? Just so I understand going forward how should we think about the volatility of that fund?

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

This is Steve Strah again. We are not going to change our approach in terms of the composition of the investment portfolio. Roughly 70% of that portfolio is return seeking and I don't see any meaningful change coming.

Praful Mehta -- Citi Research -- Analyst

Understood. And the change in discount rate that offset a lot of that earnings impact, is that also one-time or how do you see that discount rate changing?

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

We ended up moving to the full yield curve last year so that turned out to be beneficial for us and I think we'll just see how the market and interest rates move over the course of the year, Once again, we see no change in our approach.

Praful Mehta -- Citi Research -- Analyst

Got you. On the credit side, it was very helpful to have the full context of all rating agencies. I wanted to understand is there any threshold from a holding company debt perspective that you're also looking to achieve within the targets from a rating agency perspective?

Steven R. Staub -- Vice President and Treasurer

Praful, this is Steve. So from a holding company debt perspective, we're targeting right around 35% to 37% holding company debt as a percentage of total debt and Moody's specifically is aware of that and they have no issues with it.

Praful Mehta -- Citi Research -- Analyst

Understood. Well, that's super helpful. And finally, just from a strategic perspective, clearly the transition has gone really well, your metrics are in line. Apart from the small pension stuff, everything seems to be working well. Is there at some point apart from pure execution a thought around strategic intent both on the buy or sell side in terms of how you're thinking about that or is it purely just execution mode at this point?

Charles E. Jones -- President and Chief Executive Officer

So, obviously I've been getting this question a lot lately and those are the types of things that number one, even if there was something we were thinking about, we wouldn't talk about it. But number two, growth through M&A in this industry is becoming increasingly difficult, increasingly costly to get the regulatory approvals necessary. I think many of our regulatory commissions are -- it seems to be concluding that bigger companies aren't necessarily better. But having said that, any opportunity that presents itself, we would take a hard look at and if it makes sense both short term and long term for shareholders. I think we've demonstrated we're willing to tackle tough decisions to make this Company more valuable for our shareholders so we would do that. And as you know how that part of what we do works, Gary Benz, who is my Chief Strategy Officer, is listening to proposals from investment bankers all the time about things that they think can make our Company stronger. We evaluate every single one of them and if everyone presents itself that really does make our Company stronger, we're going to make it happen.

Praful Mehta -- Citi Research -- Analyst

Got you. I hear investment bankers do that so I appreciate it. Thank you for the color.

Operator

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. Congrats on a good year. Just looking at Slide 23 and it has the distribution ROEs versus authorized and a lot of these are pretty well below what the target and obviously Ohio is a different animal given how rate making is done there. But just curious how you're looking at some of the other subsidiaries; whether West Penn, one or two others, maybe even New Jersey; where it looks like these things kind of imply pretty sizable under-earning. How you're thinking about rectifying that or whether it implies there's a base rate case coming in one of those jurisdictions?

Charles E. Jones -- President and Chief Executive Officer

Well, it's interesting the question about under-earning because I get them many, many times about -- concerns about us over-earning and here's what I would say. Take Pennsylvania in particular, as of January this year the DISC has been turned back on for all four of our distribution operating companies and as you're familiar with how the DISC works, we're making investments under the DISC. Those investments will contribute about $0.02 a share to our 2019 growth. So one, that's the method we're using right now. At some point in time if we bump up against the maximum amount of investment we can make under the DISC, then we will be required to have another base rate case -- a round of base rate cases in Pennsylvania in order to roll that in and then be able to use the DISC going forward.

But we're a ways away from that point. I would not anticipate any rate case filings in Pennsylvania this year for sure even though our stayout is expiring this year. In Ohio, we're in a rate freeze through 2024. In Maryland, we're just wrapping up a rate case with new rates to go in effect on March 23rd. It's not been that long since we had a rate case in New Jersey. So, the investments that we're making this year and really for the next several years is just shy of $3 billion. Over 50% of that is being made in transmission formula rates and real-time riders in our distribution companies. And so the 6% to 8% growth that we're talking about does not depend on any rate cases in order for us to achieve that growth. It's merely executing the plan, investing in these formula-driven mechanisms, and then the growth will occur.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. I just want to follow up on that though and I'm thinking New Jersey specifically, I mean the 2.1% trailing 12-month ROE that you're showing on this, anything abnormal or highly unusual in that number only because that's just a really sizable spread relative to authorized and the IIP will help on future investment, but it may not help if you've got significant O&M lag that's already in place.

Charles E. Jones -- President and Chief Executive Officer

I'm going to let Eileen answer that one for you, Michael.

Eileen M. Mikkelsen -- Vice President, Rates and Regulatory Affairs

Thanks. In looking at the loaded ROE for JCP&L on that Slide 23, I would note that, that was a number that preceded our last base rate cases the note says. So, it's the last publicly available published ROE number from a prior to implementing rates from our last rate case.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you. Much appreciated.

Charles E. Jones -- President and Chief Executive Officer

Thanks, Mike.

Operator

Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.

Charles Fishman -- Morningstar, Inc. -- Analyst

Yes. DMR question was answered. So let me ask you this, Chuck. You made the statement either at third quarter call or at EEI that you didn't think the market was appreciating the transmission system of FirstEnergy. I suspect that you had influence on that graphic on Slide 5 showing it's 30% and anyone can see that that number is going to go up based on your CapEx plan. What else do you do to get -- what's going through your head as far as how you get people to appreciate the benefit of the FERC regulated transmission?

Charles E. Jones -- President and Chief Executive Officer

Well, I think number one, we do have to start talking about it more and we are a company that has a large transmission footprint; 24,000 miles of transmission lines, largest in PJM, one of the largest in the country, it is 30% of our regulated assets, it's growing at 11% per year over the next three years in that 6% to 8% growth rate. So, I think it's worthy of really calling it out to make sure investors see it. I think there are a couple other things holding our stock back from rerating. One is the continued overhang of FES and even though we have reached a settlement with all the creditors and that settlement has been approved by the court, there's still some confusion in the market as to our ongoing relationship with them that I don't think will go away until they actually emerge and change their name at some point hopefully later this year.

So, I think that's holding us back. But I think -- I can't undersell the value of what the transmission system means to FirstEnergy and its shareholders. We got forward-looking formula rates for all of it, but the former Allegheny system, and that's where we're making all these investments in ATSI and MAIT right now as I said. I mean when you think about the investments we're making over the next three years, more than 50% of them are in formulaic mechanisms that it's -- it's just execute the work plan and we'll execute the growth that we've committed to.

Charles Fishman -- Morningstar, Inc. -- Analyst

So in New Jersey where it's state regulated transmission mostly and I realize you're in the middle of the settlement negotiations, but I suspect that they have to give you some kind of formulaic treatment of your investments in New Jersey or else you'll focus more on your FERC regulated. Is that correct?

Charles E. Jones -- President and Chief Executive Officer

I think we'll be successful next year in moving JCP&L to a formulaic mechanism still regulated by the state likely, but that's the game plan. But the answer is yes. I mean as we think about where we're going to invest shareholder money, we want to put your money in good investments. Good investments are formulaic mechanisms at transmission, real-time riders in distribution that don't have regulatory lag, that lead to the improvements that we're making to also serve customers. And you've heard me say this before, good investments are the ones customers are willing to pay for and shareholders are willing to invest in. So, all of what we're doing is also driving improved service for customers. And just take the ATSI part of our Energizing the Future, we reduced transmission outages by almost 40% on the ATSI part of our system. And a single transmission outage can affect -- it affects tens of thousands of customers up to maybe 60,000 to 80,000 customers at times. So, those improvements are great for customers too.

Charles Fishman -- Morningstar, Inc. -- Analyst

Okay. Thanks a lot, Chuck. That's all I had.

Charles E. Jones -- President and Chief Executive Officer

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed with your question.

Stephen Byrd -- Morgan Stanley -- Analyst

Hi, good morning.

Charles E. Jones -- President and Chief Executive Officer

Good morning, Stephen.

Stephen Byrd -- Morgan Stanley -- Analyst

Most of my questions have been answered. I did want to just directly address that question, Chuck, you mentioned before in terms of just the accounting calculation of ROE versus the real regulatory calculation of earned ROEs. Would you mind just at a high level talking through in Ohio as an example just some of the adjustments that need to be made to get to the proper sort of regulatory calculation of earned ROE?

Charles E. Jones -- President and Chief Executive Officer

I think that's way too complicated to get into on an earnings call, Stephen. So, be happy to talk to you offline or have Irene go through it with you. But as I said, in Ohio our rates are frozen through 2024 and you can imagine all of the different moving parts with a DMR -- with a DCR rider that's been in place for now, I think we're in year seven of that and it goes on through to 2024. The ultimate grid modernization rider. There are unique treatments for some of the lost revenue from energy efficiency improvements we've made. It's just very complicated and we can't go through the numbers on the call. But those are examples of things that affect how it looks from a GAAP perspective, from how it turns out from a regulatory accounting perspective.

Stephen Byrd -- Morgan Stanley -- Analyst

Understood. And then just lastly, you mentioned the Emerging Technologies Group. It sounds like an exciting new area. Is it possible to give an example or two of the kinds of technologies that generically might offer some benefits to customers and system operations?

Charles E. Jones -- President and Chief Executive Officer

I would say -- I'll give you an example. Not saying it's going to end up the way we would want it to end up, but one particular example would be electric vehicle charging stations. We've had two of our governors, New Jersey and Pennsylvania, express their desire to have significantly more electric vehicle penetration in their state. One of the impediments to accomplishing those goals is going to be a robust charging network. Utilities like ours and not just ours are skilled at building infrastructure. They are skilled at planning infrastructure. They are skilled at -- an example of that case of building it out in a way that it's robust, but not duplicative. Doing it for a 9.5% to 10% return on equity, which is a very cheap way to finance it. And I think it's something that if we really want more EV penetration, our states ought to look at having there utilities help them accomplish. Right now none of our states want us to do that, but that's an area where I think we're going to have ongoing conversation with them about the value that we think we can bring to help them with their environmental strategies for their states.

Stephen Byrd -- Morgan Stanley -- Analyst

That's great. Thank you very much.

Operator

(Operator Instructions) Thank you. It appears we have no further questions at this time. Mr. Strah, I would now like to turn the floor back over to you for closing comments.

Charles E. Jones -- President and Chief Executive Officer

Well, thank you all for your persistence in staying with us over the long haul. We're really excited about where we're at as a company, really excited about the next three years, and then as we get more into this Emerging Technologies area, excited to tell you about it once we know more. So, thank you for your time this morning. Look forward to talking to you again soon.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Duration: 45 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 Dumolin-Smith -- Bank of America Merrill Lynch -- Analyst

Greg Gordon -- Evercore ISI -- Analyst

Jonathan Arnold -- Deutsche Bank -- Analyst

Praful Mehta -- Citi Research -- Analyst

Steven R. Staub -- Vice President and Treasurer

Michael Lapides -- Goldman Sachs -- Analyst

Eileen M. Mikkelsen -- Vice President, Rates and Regulatory Affairs

Charles Fishman -- Morningstar, Inc. -- Analyst

Stephen Byrd -- Morgan Stanley -- Analyst

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