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FirstEnergy Corp  (NYSE:FE)
Q1 2019 Earnings Call
April 24, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the FirstEnergy First Quarter 2019 Earnings Conference Call. (Operator Instructions) And 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. Thank you. Please go ahead.

Irene M. Prezelj -- Vice President Investor Relations

Thanks, Brenda. Welcome to our first 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 risks 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.

Before I turn the call over to Chuck, I'll note that we updated our investor materials with the goal of making it easier for you to find the information you need on our website. Our former consolidated report has been merged into our quarterly earnings package with additional materials provided in our fact book. As always, we welcome your feedback on these changes.

Now I'll turn the call over to Chuck.

Charles E. Jones -- President, Chief Executive Officer and Director

Thanks, Irene. Good morning, everyone, and thanks for joining us. We're off to a very good start in 2019. Last night we reported GAAP earnings of $0.59 per share along with operating earnings of $0.67 per share, which is above the midpoint of our guidance range. Steve will discuss later our results reflect the continued success of our regulated growth strategies.

Let's begin with an update on our progress so far this year. In our transmission business, we're on pace to implement a planned $1.2 billion investment in our Energizing the Future program in 2019, with most of that work in our ATSI and MAIT service territories in Ohio and Pennsylvania. Just a reminder, Energizing the Future is a multiyear program to improve the reliability, resiliency and security of FirstEnergy's portion of the bulk electric system that is shared by our entire nation. It's working. Just one example is that we have reduced transmission outages due to equipment failures on our ATSI system during the first 4 years of the program by 37%.

And while we are still finalizing year 5 results, it looks like that will increase to eliminate more than half of the equipment-related outages in ATSI. We expect similar results in MAIT as we move forward. We currently have about 1,000 projects under way in stages ranging from engineering and project development to project management and construction. Many of these are multiyear endeavors, and we expect to bring 600 to 700 projects in service in 2019, which is consistent with our pace during the last several years of this customer-focused initiative.

To support our Energizing the Future initiative, this month we opened our Center for Advanced Energy Technology or CAET in acronym. This 88,000 square foot facility is one of the most comprehensive grid technology testing and training center of its kind in the country. We designed it to be a centralized, hands-on environment where our engineers and technicians can develop and evaluate new technologies and grid solutions and simulate a variety of real-world conditions. It also includes classroom space where we can train our workforce to safely use new equipment and processes as we upgrade, maintain and ensure the security of our grid.

In addition to supporting our grid modernization program, CAET also creates opportunities for us to advance best practices across the industry. We hope to collaborate with peer utilities, research institutes and key stakeholders such as device manufacturers who could potentially utilize our state-of-the-art facility.

Turning to our distribution business, as we mentioned last quarter, our Ohio utilities filed a request with the Public Utilities Commission in early February for a 2-year extension to the Distribution Modernization Rider. Again, while we believe we have a strong case to continue this rider, I will remind you that it is not factored into our current earnings growth projections. Also in Ohio, our supplemental settlement regarding tax reform and grid modernization is pending with the PUCO. This proposed settlement addresses how customers will benefit from savings associated with federal tax reform and seeks approval for the initial phase of our grid monetization program with investments of $516 million over 3 years.

In New Jersey, we were very pleased to reach a settlement yesterday with a staff of the Board of Public Utilities, the division of Rate Counsel, and the New Jersey Large Energy Users Coalition for our infrastructure investment program. Our JCP&L Reliability Plus program builds on the service enhancements we have made and our New Jersey footprint in recent years with an additional $97 million investment. Through this program, we plan to implement more than 1,400 targeted projects to enhance the reliability and resiliency of overhead power lines, replace existing equipment with smart technology devices and expand the Vegetation Management Program to reduce tree-related outages. On final approval from the VPU, the work take place between June 1, 2019, and December 30, 2020. Once the projects are complete, customers will experience fewer sustained outages under normal conditions as well as a reduction in outage duration.

While there was a difference between our original IIP request and the settlement amount, we have plenty of opportunities to make those capital investments in other parts of our system, both in distribution and transmission. We will also contemplate filing a subsequent IIP in New Jersey to continue our investments there beyond 2020.

In Maryland, the Public Service Commission issued a final order in our Potomac Edison rate case on March 22. The order fully resolved tax reform in Maryland, calls for a final bill credit to customers to return prior period tax savings and allows Potomac Edison to increase base distribution rates by $6.2 million, net of tax reform, to invest in safety and reliability enhancements. In addition, the Public Service Commission approved a 4-year electric distribution and infrastructure surcharge rider.

That program what we use to recover incremental cost related to 3 reliability programs, which include installing more distribution automation equipment, accelerating an underground cable replacement program and utilizing new substation reclosers that can minimize the number of customers impacted by service interruptions. Potomac Edison is required to file another distribution rate case at the end of the surcharge period.

In January, the Public Service Commission also approved Potomac Edison's 5-year $12 million pilot program to install electrical vehicle charging stations in Maryland and offer rebates for charger installations. As part of the program, Potomac Edison plans to install 59 public charging stations at locations across our Maryland service territory, including 9 fast chargers. Residential customers will be eligible for rebates for the installation of EV charging stations at their home, and rebates will also be available for charging stations installed at multifamily properties.

We're proud to support Maryland's efforts to encourage the adoption of electric vehicles, which is an important step for a cleaner, healthier environment. We see projects like this as a natural fit for FirstEnergy as we fulfill our mission to become a forward-looking utility committed to making our customers lives brighter, the environment better and our communities stronger.

Our environmental, social and government strategy is built on the pillars of our mission statement. In 2019, we are continuing our efforts to offer greater transparency and engagement with our ESG goals. Late this year we will produce a new corporate responsibility report to examine our efforts on issues as wide-ranging as diversity and inclusion, our environmental footprint, corporate governance and community support. This will complement our first climate report, which we published earlier this month.

The climate report looks at how our strategies, as a fully regulated utility, are aligned with the emerging technology trends that support a lower carbon future and examines the business risk associated with a carbon-constrained economy. It also reviews our significant progress toward the carbon dioxide reduction goal we announced in 2015. We pledged to reduce CO2 emissions from our generating fleet by at least 90%, below 2005 levels by the year 2045.

At the end of 2018, we had already achieved a reduction of 62%, with about 3 quarters of that reduction related to plant retirements. We expect to reach a CO2 reduction of 80% later this year, well on our way to achieving our goal.

I want to express our experience with plant decommissioning activities. Over the past 12 years, we safely and responsibly retired and remediated 7 coal plants and successfully anticipated the economic and environmental concerns for each site. This is just one of the ways in which we have demonstrate our commitment to corporate responsibility. It is a core value that we stand by at all times and that includes during the FES bankruptcy. That is why a key component of a settlement agreement was our substantial support for FES to both emerge from bankruptcy and meet any legacy and future obligation.

This includes all environmental responsibilities that could occur when the plants are eventually retired. Following the judge's decision on the FES bankruptcy earlier this month, FES committed to engage with the Department of Justice and other concerned parties. In light of the commitment by FES, our previous assessment of the obligations and the surety and funding that are already in place, we see no increased risk to removing the broad third-party releases from the comprehensive settlement. While these releases would have served to bring finality to FirstEnergy's involvement with these legacy assets, removing the releases does not, in our assessment and experience, increase liabilities or obligations to our company.

We are pleased that FES has submitted a revised disclosure statement and believe they will continue to work constructively with all parties to ensure both timely approval of their plan and their bankruptcy exit. At the same time we will remain focused on delivering clean, safe, reliable and affordable electricity to our 6 million customers, with a commitment to environmental stewardship, corporate responsibility and implemented our regulated growth strategy.

We are affirming our 2019 full year operating earnings guidance of $2.45 to $2.75 per fully diluted share, including this year's DMR. In addition, we are introducing a second quarter operating earnings guidance range of $0.55 to $0.65 per share and affirming our long-term compound annual operating earnings growth projection of 6% to 8% from 2018 through 2021.

Thank you. Now I'll turn the call over to Steve for a review of the first quarter and other financial developments.

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

Good morning, everyone. It's my pleasure to join you today. As usual, I'll begin with a couple of reminders. First, reconciliations and other detailed information about the quarter are available on our website in the strategic and financial highlights document. Also, we continue to present operating results and projections on a fully diluted basis. This provides the best comparative view of our performance.

With that, let's take a look at our results. First quarter GAAP earnings were $0.59 per share. Operating earnings were $0.67 per share. As Chuck mentioned, this is above the midpoint of our guidance. In our distribution business, our results benefited from higher weather-adjusted residential load and lower interest expense related to debt refinancing. I'll spend more time on that topic in just a few minutes. These factors were offset by a higher depreciation expense related to our rate base.

Total distribution deliveries were essentially flat compared to the first quarter of 2018, with a slight increase on a weather-adjusted basis. Heating degree days were close to normal for the quarter and comparable to the first quarter of 2018. Residential sales were a bright spot for us this quarter. Sales increased about 1% on a national basis. When adjusted for weather, the increase was almost 3%, with growth in both customer count and average usage. The upturn in weather-adjusted residential sales over the past 12 months is an encouraging sign.

In the commercial customer class, sales decreased about 1.5% on national basis and about 1% when adjusted for weather. In our industrial class, load was flat, marking the end to a long 10 quarter run of growth in that segment. The results reflect lower demand from steel and automotive manufacturers, which offset growth -- continued growth in the shale and chemical industries.

Turning to our transmission business. Earnings increased as a result of higher rate base, which reflects our continued investment in the Energizing the Future initiative. This was partially offset by higher operating expenses at our stated rate transmission companies.

And finally, in our corporate segment, first quarter results reflected higher net financing costs in the absence of commodity margin from the Pleasants Power Station. As a reminder, we began to exclude Pleasants from our operating earnings in mid-2018 due to the court-approved settlement that transfers economic interest of the plant to FES. These factors were partially offset by a lower effective tax rate. Touching on underlying strengths of our distribution and transmission companies, we have recently seen positive credit ratings actions for several of our subsidiaries.

Near the end of March, Moody's issued one notch upgrades to ATSI, MAIT and JCP&L. And last week Fitch issued one notch upgrade to JCP&L, Mon Power, Potomac Edison and Allegheny Energy Generating Company. We believe these positive actions are a testament to our overall improved risk profile, and we expect to see continued positive momentum.

Before I close, I'll take a moment to review our financing activity this year. At our Utilities, we refinanced $300 million of maturing debt at both JCP&L and Met-Ed during the quarter. We issued new senior notes totaling $900 million to repay short-term borrowings and fund capital expenditures at these Utilities. We also issued $500 million of new debt at FirstEnergy Transmission and $100 million at ATSI, primarily to repay short-term borrowings and fund continued investments in our Energizing the Future program.

Lastly, from a liquidity perspective, as of Friday, April 19, we had approximately $3.7 billion of liquidity, of which $200 million was cash.

Thank you for your time. We had a very solid quarter, and we're off to a great start this year. Now let's take your questions.

Questions and Answers:

Operator

Operator: Thank you. (Operator Instructions) Our first question comes from the line of Greg Gordon with Evercore ISI.

Greg Gordon -- Evercore ISI -- Analyst

Hey, good morning, guys. Good quarter. Thank you.

Charles E. Jones -- President, Chief Executive Officer and Director

Hi, Greg.

Greg Gordon -- Evercore ISI -- Analyst

Can you talk a little bit about the settlement in New Jersey? And I think you guys had asked for approximately $400 million of electrical infrastructure investment over 4 years. I think you settled on a $100 million over 2 years. How did we get to the...

Charles E. Jones -- President, Chief Executive Officer and Director

Yeah.

Greg Gordon -- Evercore ISI -- Analyst

....deal? And do you think that's adequate to provide the safe and reliable power to those customers? And how does that proceed after that?

Charles E. Jones -- President, Chief Executive Officer and Director

So first off, from our perspective, Greg, we're very happy with this settlement. It's now the second time we've been able to reach a settlement in New Jersey with the main parties that influence our ability to do our business over there. Very happy with the settlement. To put it in perspective, it's $97 million over an 18-month period, which begins in June of this year and ends at the end of 2020. So just to give you a little perspective, we talk in Ohio about $516 million over 3 years, that's double the number of customers.

So if you have that, it's $258 million. And it's double the number of years, 3 versus 1.5. So you have it again, it's a $129 million. So we're spending $97 million in New Jersey versus a $129 million in Ohio on an apples-to-apples basis. It's a good start, and very happy with that. And I believe if we execute to perfection, and we deliver the results that we intend to deliver in New Jersey, we won't have any problem negotiating an addition to this that goes beyond 2020.

Greg Gordon -- Evercore ISI -- Analyst

Great. Thanks for the perspective. The second question, when I -- when we look at the agreement that you've made to move forward with the -- get the disclosure statement in the FES bankruptcy approved and get this thing done, what's the critical pass now for the FES bankruptcy to be fully and completely resolved, voted on and for them to exit? Is it the -- we're waiting for the nuclear license transfers? And -- or is it some other issue? And what's your best guess as to sort of the window of timing on when this is wrapped up?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, with the caveat that I am not the CEO of FES and FEG, I would suggest that I think the nuclear license transfer is probably on a critical path, now that we've kind of moved forward beyond the court ruling, I believe, with regard to these nonconsensual third-party releases. And let me just comment on that a little bit more. I would say that, that caught us by surprise with the focus of the court being solely on the releases and not on the actual settlement, because we believed in the actual settlement that we have provided substantial value to make sure that FES can emerge, operate these assets and deal with any retirement obligations, when those come down the road.

So we felt like the nonconsensual releases weren't a big deal because of the substantial settlement that was on the table. But since the focus was on those, we decided to remove those and move forward. So now the next step in the process is for the court to move or to approve the disclosure statements and allow the process to continue moving forward. We're hopeful that will happen on May 20. And then they will continue to make their case for emergence, and we expect that to happen sometime later this summer. And then the license transfers would be on the critical path, if it all flows that way.

Greg Gordon -- Evercore ISI -- Analyst

Okay. So later this summer would be great, August or September? Appreciate the color. Thank you.

Charles E. Jones -- President, Chief Executive Officer and Director

I think it's later in the year than that, Greg. It's probably November -- October, November.

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

With the transfer.

Greg Gordon -- Evercore ISI -- Analyst

Got you. October, November. Thank you for being clear. Have a great day.

Charles E. Jones -- President, Chief Executive Officer and Director

Okay.

Operator

Our next question comes from the line of Julien Dumoulin-Smith with Bank of America.

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

Hi. Good morning.

Charles E. Jones -- President, Chief Executive Officer and Director

Hi, Julien.

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

Hi. Thank you for taking the question. So maybe just to start where Greg just left off, might be a tad detailed, but just if you give us a little bit of sense. Obviously, you've posted a surety bond already, specifically against some of the assets here and one of the larger coal ash asset, can you talk about just where that number came from, just to firm it up in terms of -- I know you said in your prepared remarks this doesn't change the metrics as far as you see it. Where -- how did you come up with that a surety bond number or -- and how do you think about that relative to the obligation today? Because obviously that came from somewhere, so I just want to find a little bit more confidence out there.

Charles E. Jones -- President, Chief Executive Officer and Director

Well, that's -- first of all, the surety bonds have been in place for quite a while now, all the way, way back to the beginning of our negotiations with FES. And they arrived at, given we have already begun the process, for example, with Little Blue Run at the Mansfield plant of closing it in steps part by part every year. So we've got a good track record of what the cost to do that are. And the surety bond is -- was put in place to ensure that the surety for those costs should we at some point not decide to do it, but we're not going to do that. And I want to say very clearly what I said in my prepared remarks, we are going to stand behind any environmental commitment that we have. If we sell a power plant, we're still in that chain of ownership at some point if the new owners would default.

But the other thing I want to say very clearly is, we're not afraid of that, because we've shut down, retired, remediated, tore down and turned over sites in some cases for 7 coal-fired power plants already. The cost -- the benefit that you get out of the scrap, steel, iron, copper, aluminum, the property value, et cetera, this is not any big deal for FirstEnergy. And so we're going to move forward fine. But as I said before and I want to repeat, we provided substantial benefits to FES that they're going to have the ability to take care of this on their own.

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

Excellent. Thanks for the clarity there. If I can briefly here, on the credit overall, obviously, that's a little bit tied to this process. How do you think about continued added latitude to your metrics as it stands today, given the time line that you just talked to, to Greg about as well, if you don't mind?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, I think you've been watching, we've seen nothing but positive action out of the credit rating agencies. Positive action in particular down at some of our utility levels. But I don't expect that, that's going to change going forward. I think we were in constant communication with the rating agencies. They know where we're at in this process. When we had the little speed bump with the bankruptcy court, we communicated with them. And I don't see anything that's going to affect it on the downside. As we emerge and as we get this process completely behind us, I think we can make the case that we're much less risky company and that we ought to be able to move forward with all of them in a very positive direction.

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

You think it's more than a percent or so of the debt latitude, as it stands today?

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

Hi.

Charles E. Jones -- President, Chief Executive Officer and Director

Too early.

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

Yeah, Julien, this is Steve. At the end of the day, the rating agencies are viewing this year as a year of transition for us, OK? So upon emergence for FES, we'll be responsible for putting forward the $225 million payment and issuing the tax note of $628 million for 2022. So I think they understand it's transitional. Once again, we believe that beyond that we'll be at our 12% FFO-to-debt ratio forward, and that's the expectation we have going forward. We don't see those baseline expectations changing. As Chuck said, we're working very closely with all 3 agencies to ensure they're fully aware of where we're at. All the positive movement has been great so far. We want them to do their jobs and further consider. And I know they are cognizant that our risk profile is lowering at every point in this process as FES gets through their bankruptcy.

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

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

Charles E. Jones -- President, Chief Executive Officer and Director

Thanks, Julien

Operator

Our next question is from the line of Jonathan Arnold with Deutsche Bank.

Jonathan Arnold -- Deutsche Bank -- Analyst

Good morning. And I think a couple of my questions were just asked, but I'd like just on the FES and the release change, is there any accounting implication of that? Any AROs that you'd have to recognize that you wouldn't have had to recognize with the releases? Just wanted to just tie up any loose end there.

Charles E. Jones -- President, Chief Executive Officer and Director

I'm sitting here watching my chief accountant said -- say no.

Jonathan Arnold -- Deutsche Bank -- Analyst

That's good to hear, Chuck. Thank you. That was it.

Operator

Our next question comes from the line of Praful Mehta with Citigroup.

Praful Mehta -- Citi Groyp -- Analyst

Thank so much. Hi, guys.

Charles E. Jones -- President, Chief Executive Officer and Director

Good morning.

Praful Mehta -- Citi Groyp -- Analyst

Good morning. So unfortunately, I will also ask a little bit on this FES and the environmental side. If you could, could you dimension for us and given all the experience you've had and clearly the risk seems low here and you've clearly helped FES kind of stand on their own in terms of the remediation, but just to understand, what is the risk? Like, if there is a look-back period on the environmental side, how -- or what are the factors that could kind of increase the liability from an FES perspective that could slow up to FE? If you had to kind of look at worst-case scenarios, what are the scenarios that we should be thinking about in that case?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, I think, it's pretty simple, actually, Praful. It's -- FES would have to go bankrupt the second time without having dealt with these environmental legacy issues that would then, if they fall to FirstEnergy, we will deal with them. But as I said earlier, we've got already experience with what that means from an economic perspective and from an environmental perspective to take these plants down, return the land to a greenfield status and move forward.

And get it certified that way by the state EPAs that have jurisdiction over these sites. So there's just that much risk. The value of the scrap and the value of the property offset and there's a cottage industry that has developed as a result of the number of power plants closing around this country to take these plants off their hands, they actually offer to pay you in some cases for the opportunity to deal with this legacy issue on your behalf. So it's just not something we're concerned about.

Praful Mehta -- Citi Groyp -- Analyst

Got you. Again, very helpful color. But just to clarify, how good can that environmental cost be? Like, what -- is there a coal ash? If they were, like, what can that number be before you get to the remediation and then obviously the scrap benefits? But is there an ballpark number that we can think about as a potential liability if FES does go bankrupt the second time?

Charles E. Jones -- President, Chief Executive Officer and Director

With regard to any coal ash liabilities, the surety bonds that are in place already protect us on that front. So there aren't any beyond that that we're worried about. And as I said, the economics are such that there's nothing there that I'm worried about in terms of ongoing financial obligation to our company, net of what you could have as scrap in the property.

Praful Mehta -- Citi Groyp -- Analyst

Got you. Again, super helpful color. Maybe a final question just on the DMR. In terms of timing of a decision, is there any clarity on when a decision will come on the potential extension of the DMR?

Charles E. Jones -- President, Chief Executive Officer and Director

No timing. We've asked for them to get moving and potentially have hearings as early as August. Obviously, the existing DMR expires at the end of this year, so we would push hard for an answer sometime this year so we know what the impact is going to be next year.

Praful Mehta -- Citi Groyp -- Analyst

Understood. Again, thank you so much.

Charles E. Jones -- President, Chief Executive Officer and Director

Okay. Thank you.

Operator

Our next question comes from the line of Shar Pourreza with Guggenheim Partners.

James -- Guggenheim Securities -- Analyst

Hey, guys. Good morning. It's actually James (ph) on behalf of Shar.

Charles E. Jones -- President, Chief Executive Officer and Director

Okay. Hey, James. How are you?

James -- Guggenheim Securities -- Analyst

Good. How's it going? I just had a quick follow-on question to Greg's question regarding New Jersey. I know you've mentioned in the past that you've had conversations regarding EVM's restructure. And then we also just saw one of your neighbors propose a very large EE program. And I was just wondering if we could see anything on either these fronts in the near term? And then would that be in addition to a 2021 IIP or is the bandwidth kind of limited there?

Charles E. Jones -- President, Chief Executive Officer and Director

I don't think there's anything ongoing there right now, James. We were focused on getting the settlement on the IIP through 2020. And what we plan to spend that $97 million on does not include anything to do with EV or it's what I said in my remarks, it's improving the real-time reliability to customers. And beyond that, what we plan or what we would look at beyond 2020, we haven't even started to focus on that yet.

James -- Guggenheim Securities -- Analyst

Okay. So no conversations really on the EV at this point?

Charles E. Jones -- President, Chief Executive Officer and Director

Not really.

James -- Guggenheim Securities -- Analyst

Okay. Thanks.

Operator

Our next question comes from the line of Chris Turnure with JPMorgan.

Chris Turnure -- JPMorgan -- Analyst

Good morning. I had another follow-up on the New Jersey settlement. Could you give us a sense as to your regulatory strategy going forward there? You mentioned filing another IIP in a year or two. Why would you maybe choose that route versus going in for a full general rate case, given I think you are under earning in the state?

Charles E. Jones -- President, Chief Executive Officer and Director

Let me just summarize our regulatory strategy overall, because I think it's the same everywhere. When we believe it's time for another base rate case, we will have a base rate case. And that's whether it's New Jersey, Pennsylvania, Maryland, West Virginia, Ohio, our rates are frozen for, at least, five more years. So -- but we would have a base rate case whenever that makes more sense than using the IIP or using the DISC in Pennsylvania. We're going to look at that and evaluate it at all times. I don't see any need for base rate cases in 2019. And then we'll evaluate and will let you know what we see as the plan for 2020 when we get out to 2020.

Chris Turnure -- JPMorgan -- Analyst

Okay. But for now the kind of earned ROE trajectory there plus your earnings from this settlement in the investment that comes from that are sufficient in your view?

Charles E. Jones -- President, Chief Executive Officer and Director

Yes.

Chris Turnure -- JPMorgan -- Analyst

Okay. And then my second question is on holdco financing strategy. I think on the last call you said the holding company would be around 35% to 37% of consolidated debt this year. Can you just give us some flavor as to that amount? How much of it is kind of long-term debt, short-term debt, term loans? And how much of that separately might be variable rates?

Charles E. Jones -- President, Chief Executive Officer and Director

Yes. I'll let Steve Strah answer that in detail. But I would just say it's -- that -- that's the level we're going to be at for the foreseeable future. And I continue to believe that as we get more financial flexibility as a company, we're better off investing in and serving our customers better and indirectly creating growth for our shareholders as opposed to retiring this debt. It's better and makes more economic sense I think for everyone involved. But I'll let Steve take you through the details of what constitutes that corporate debt.

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

Sure. So in terms of the composition of our holding company debt at FE Corp., we have $1.750 billion in term loans, that's our most cost-effective debt on an after-tax basis. That's right around 2.5%. Then we have $5.35 billion in bonds, that debt on an after-tax basis is anywhere from 3% to 3.5%. And then we have the $628 million tax note yet to be issued. Once FES emerges, we will issue that note, and that will be outstanding until the end of 2022.

In terms of financing activity, I suspect that at some point in time over the next 12 months we will most likely go out into the bond markets and refinance the term loan position and potentially do some liability management on some of the bonds that mature in 2022 and 2023. So you could see a sizable bond deal at some point in time at FE Corp over the next, let's say, 12 months. And as Chuck said, our holding company debt is going to be around the mid-30s, 35% to 37% for the foreseeable future. And that's where we're going to be.

Chris Turnure -- JPMorgan -- Analyst

Okay, that's helpful. And fixed versus variable rate is kind of embedded within that answer with the term loans being the variable component?

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

That is correct. The term loans are the only variable debt that we have.

Chris Turnure -- JPMorgan -- Analyst

Okay. Thank you guys for the color.

Operator

Our next question comes from the line of Michael Lapides with Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking my question, and congrats on a good start to the year. I have two. They're both a little bit on the regulatory side, obviously at the distribution business. First of all, West Virginia, how are you thinking, Chuck, about a multiyear goal in terms of potential rate base growth reemerging or reigniting in West Virginia in the coming years? Meaning, how do you think about what the opportunity set for investment in that state is? That's my first question.

My second question is about Pennsylvania. If I look at the data on your Slide 31 in the fact book you guys put out last night, some of the subsidiaries are earning, I don't know, trailing 12 months, 2018, south of 8% or 7.5% earned ROEs, just curious, why -- I think 3 of them were below that. Why that wouldn't stimulate potential rate case filings in the coming months there?

Charles E. Jones -- President, Chief Executive Officer and Director

All right. Well, first of all, thank you for asking regulated questions. It's nice to be able to answer those instead of FES questions, but with West Virginia, here's what I'd say, we don't have any long-term strategy for West Virginia. We had in place a tree trimming strategy in particular because we had a number of storms dating back to the derecho back in 2013, I think that was that showed that we had some exposure there. But beyond that, West Virginia is kind of a state that we're in a business-as-usual mode. We're spending money every year.

We're seeing some growth in West Virginia as a result of being a fully regulated state, industrial growth in the shale and chemicals sector and as well as in the north eastern part of West Virginia in our Potomac Edison West Virginia territory. We're seeing some growth there that's offsetting our cost. When we get to the point there where we think we need to have a rate case, we'll have a rate case. But right now we just don't see any need to. And I don't have any long-term strategy because I think we're performing OK and there's nothing that needs immediate attention in West Virginia.

With regard to Pennsylvania, we've made a concerted effort to improve our disclosures. And I think that means you all are going to be talking about Irene quite a bit. But I don't think we want to get into details about rates or returns so forth on this call. So I'm just going to encourage you to talk with her off-line about it. But I will point out that in Pennsylvania, as of the 1st of this year, the DISC is turned on in all 4 of our operating companies in Pennsylvania. We cannot turn that DISC on unless we're underneath the threshold for allowed rate of return as the commission looks at it. So I think we're in good shape. We're using the DISC at all for companies. And I think we ought to take it off-line to talk about the details, because as we get more and more transparent, it's going to create a lot of questions that we just don't have time for on an earnings call.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, Chuck.

Charles E. Jones -- President, Chief Executive Officer and Director

Thank you.

Operator

Our next question is from the line of Andrew Weisel with Scotia Howard Weil.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Good morning everyone. Chuck and other two I just want to congratulate you guys in the IR team in particular for the new slide data that I look of it. Two questions for you guys, though, both regulated, so don't worry about that. First one is I know you haven't updated the CapEx outlook in a little while, but given the DPM and JCP&L Reliability Plus settlements, should we expect results to trend toward the higher end of the ranges, or is it more a function of improved visibility into recovery with less or no lag?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, I think in what we've said as far of our going forward 6% to 8% growth plan, we've said that the CapEx program in general is going to be in the $2.6 billion to $2.9 billion range combined T&D throughout that planning period. And I expect to continue keep it in that range. That range contemplated. The IIP in New Jersey are contemplating where we were at with the grid mod in Ohio. And we provided a range there to allow for some movement in all of what we do. You can't plan down to the dollar $2.9 billion of capital spend. But I think you can count on it being in that range throughout the planning period and probably, likely, beyond the planning period.

Andrew Weisel -- Scotia Howard Weil -- Analyst

So should I take that as a no comment on high end versus middle versus low end?

Charles E. Jones -- President, Chief Executive Officer and Director

If there's so much that moves around that it's going to be what it will be. We have capital costs related to storms that we expect to be able to cover within that range. If we have a heavy storm here, that will move us to the high end. If we have like storm here, it will -- there's just so much that moves around that -- I'm not trying to dodge your question, I just don't know the answer to your question. And that's why we provide a range.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Okay. Understood and fair enough. Next one I have is a little bit different direction than some of these other questions. 3 of your largest states are at least contemplating some sort of ZEC programs for nukes. I know you don't have any plans for rate cases in the near term, as you talked about, but do you worry about affordability impacts on rates in these programs? And how do you balance the trade-off of reliability versus cost, especially now that you're out of the generation business?

Charles E. Jones -- President, Chief Executive Officer and Director

I don't worry about it all because I think these states that are stepping up to protect their nuclear plants are ensuring long-term rate stability for their residents and their customers in those states. And it's providing a hedge against the most high-beta fuel that we've ever had in this industry, which is natural gas. It's providing a surety that they have ample supplies of electricity during the most strained times of year in frigid climates where natural gas cannot meet all of its obligations. So I think it's providing -- and just take for example the build that's pending here in Ohio, its $2.50 per month on a residential customer bill.

To provide that security, we all buy insurance for our homes, our cars and a lot of other things. It's a very cost-effective insurance policy that these states are taking out and it provides long-term economic benefit and clean air benefits, too. So, I think these states are smart. And I'm on record and I'll continue to say, as long as I have this role, it's -- these states are making up for failed market policies that are not working correctly. When you form a market on nothing but a lease cost, marginal cost, it's not going to ever take care of the fixed cost of these important assets. So I think the states are all doing the right things.

Andrew Weisel -- Scotia Howard Weil -- Analyst

That's very clear. Thank you very much.

Operator

Our next question is from the line of Angie Storozynski with Macquarie Group.

Angie Storozynski -- Macquarie Group -- Analyst

Great, I will go back to FES. So, just taking a step back, I understand whole of the explanation about the limited -- as any liabilities, but you did try to have this release of included in the FES settlement. So there must have been a reason why you wanted to have it there. So if you never thought that there is a risk, why did you have it in the settlement?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, Angie, I said in my prepared remarks, it was in there to try to create some finality, which is I think important in everybody's mind as FES exits that as much finality as we could create, we create it. And that's why it was in there, never expecting it to be the focus that it became during the bankruptcy process and the focus it became with the Justice Department. So we believed that it could be in there because the substantial settlement that we've worked with FES provides for taking care of these obligations over the long term and provides for their ability to exit, operate and then eventually deal with any plant closure cost that come their way. So we just didn't see it as a big deal one way or another, but it was in there to try to provide finality. And -- but once it came a speed bump, we have no issue with removing it.

Angie Storozynski -- Macquarie Group -- Analyst

Okay. And then, on Ohio DMR, so -- I mean, is there -- are you engaging in negotiations? Is there any range of possibilities that you would consider? I mean, what is the pitch at this point? In a sense, are you trying to say that your investment level in Ohio will increase commensurate to that basically humping $33 million in extended DMR? I mean what you can give us here on what the bid and ask spread is currently?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, as I've said, we have nothing built into our forecast going forward for DMR. We've asked for the current level to be extended for two years, which is what the original filing gave us the ability to do. The bid-ask is, I guess, anywhere from 0 to the current levels. Our approach is that it has driven what the commission was trying to do, which is stimulated investment in our Ohio utilities and grid modernization efforts that will hopefully then be built upon with approval of our grid modernization program once the commission gets back to a full business schedule. Unfortunately, we had a change in chairs and it's taken a while for them to get the train back on the track and move it forward there. But I expect we'll get approval of the grid mod program and build upon it. So the basic premise for why we are saying it should be extended is to continue to simulate the things that the commission was trying to do in the first place.

Angie Storozynski -- Macquarie Group -- Analyst

Okay. Thank you.

Charles E. Jones -- President, Chief Executive Officer and Director

Thank you.

Operator

(Operator Instructions) Our next question is from the line of Charles Fishman with Morningstar Research.

Charles Fishman -- Morningstar Research -- Analyst

Good morning. Transmission, memory serves me, that MAIT and ATSI, a few years back, you agreed to a lower ROE in exchange for going to go forward rate making framework because of the hundreds of small projects you had in it. Obviously, in hindsight, it appears to be the right decision based on the earnings growth there. But with all the -- with the discussion going on in FERC, the ROE review, because you're already at a lower ROE relative to some other systems around the country, is that something that really we shouldn't even be concerned about that it's just not going to impact you?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, first, we agreed to make that change with ATSI. ATSI was at a higher rate of return on a lagging formula rate, which as you said meant that a project that got done in January of 2019, we wouldn't start earning on until June of 2020 under that old -- so now when that project goes in a forward-looking formula rate, it returned cash and earnings to the business much quicker. So the lower rate of return made sense for ATSI. We founded MAIT. We founded MAIT from the beginning on a forward-looking formula rate with a 10.38% return.

And MAIT's is not that old. So I think it was set very recently. I don't think there's anything that we're worried about with regard to earned rate of returns in our transmission businesses. So I don't think there should be anything that you are worried about. And my read of the tea leaves, for what's it worth, at the FERC is while they're looking at rates of return, they're looking at them in ways to continue to incent investment in this grid across this entire country, not ways to disincent. So, I just don't think it's something that we should be concerned about.

Charles Fishman -- Morningstar Research -- Analyst

I realize your CapEx goes out to just 2021, but are you even thinking about an Energizing the Future Phase III?

Charles E. Jones -- President, Chief Executive Officer and Director

Well, I think I've said before, we have $20 billion of transmission projects that our team has already identified that they believe need to be done. And so given that need, I would expect that it's going to continue to be something we focus on for the foreseeable future. So while I'm not telling you what our CapEx plan is, I think my expectation is, it's going to be in that range for quite some time.

Charles Fishman -- Morningstar Research -- Analyst

Okay. So I like that. Thank you.

Charles E. Jones -- President, Chief Executive Officer and Director

Okay. Thank you.

Operator

Thank you.

Charles E. Jones -- President, Chief Executive Officer and Director

All right, well, I don't see any more questions in the queue here. So, I want to thank you all for your time today. And thank you for your continued support of FirstEnergy. And we'll talk to you next quarter.

Operator

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

Duration: 52 minutes

Call participants:

Irene M. Prezelj -- Vice President Investor Relations

Charles E. Jones -- President, Chief Executive Officer and Director

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

Greg Gordon -- Evercore ISI -- Analyst

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

Jonathan Arnold -- Deutsche Bank -- Analyst

Praful Mehta -- Citi Groyp -- Analyst

James -- Guggenheim Securities -- Analyst

Chris Turnure -- JPMorgan -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Andrew Weisel -- Scotia Howard Weil -- Analyst

Angie Storozynski -- Macquarie Group -- Analyst

Charles Fishman -- Morningstar Research -- Analyst

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