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FirstEnergy Corp (NYSE:FE)
Q2 2021 Earnings Call
Jul 23, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the FirstEnergy Corp Second Quarter 2021 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's now my pleasure to introduce your host, Irene Prezelj, Vice President, Investor Relations for FirstEnergy Corp. Thank you Ms. Prezelj. Please begin.

Irene M. Prezelj -- Vice President, Investor Relations, Acting Vice President, Communications, Corporate Affairs & Commu

Thank you and welcome to our second quarter earnings call. Today, we will make various forward-looking statements regarding revenues, earnings performance, strategies, prospects and other matters. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by these statements can be found on the Investors section of our website under the earnings information link and in our SEC filings.

We will also discuss certain non-GAAP financial measures, reconciliations between GAAP and non-GAAP financial measures. The presentation that supports todays discussion and other detailed information about the quarter can be found in the strategic and financial highlights document on the Investors section of our website.

Participants in today's call include our President and Chief Executive Officer, Steve Strah; Vice Chairperson and Executive Director, John Somerhalder and Senior Vice President and Chief Financial Officer, Jon Taylor. We also have several other executives available to join us for the Q&A session.

Now, I'll turn the call over to Steve.

Steven E. Strah -- President and Chief Executive Officer

Thank you, Irene and good morning, everyone. Yesterday afternoon, we reported second quarter 2021 GAAP earnings of $0.11 per share, which includes the impact of the deferred prosecution agreement that I'll discuss in a moment. Operating earnings were $0.59 per share, which is above the top end of our earnings guidance. These strong operational results reflect a customer-focused investment strategy in our regulated distribution and transmission businesses, solid financial discipline and the continued shift in higher weather-adjusted demand from our residential customers.

We're pleased with our performance as well as the substantial progress we've made to transform FirstEnergy and position our company for the future. We have taken critical steps to build a best-in-class compliance program while identifying and driving initiatives to deliver long-term value to all stakeholders. Our leadership team is committed to modeling the behaviors and the humility necessary to restore trust with our stakeholders. We look forward to continuing this work and achieving the milestones that will mark our progress.

I'll start our call today with an update on the DOJ and other investigations related to House Bill 6 and John Somerhalder will join us for a brief discussion on board activity and the progress of our compliance program. I'll come back to review recent business developments and then Jon Taylor will discuss our second quarter results and other financial matters before we open it up to your questions.

Yesterday, we announced that we've entered into an agreement with the U.S. Attorney's Office for the Southern District of Ohio to resolve the DOJ investigation into FirstEnergy. This deferred prosecution agreement was filed in federal court. Under the three-year deferred prosecution agreement, we agreed to pay $230 million, which will be funded with cash on hand. Half of these funds is designated for the U.S. Treasury and the other half is being directed to the benefit of utility customers by the Ohio Development Service Agency. No portion of the filing will be recovered from customers.

We also agreed to the government's single charge of honest services wire fraud, which will be eventually dismissed, provided we abide by all the terms of the agreement. In accordance with the agreement, we will provide regular reports to the government regarding our compliance program, as well as internal controls and policies and continued efforts to build on the comprehensive compliance initiatives we've rolled out this year.

In its decision to defer prosecution, the U.S. Attorney's Office acknowledged our substantial cooperation with the investigation, along with our significant remedial actions, which include establishing an executive director position at the Board level, as well as a compliance focused Board subcommittee, hiring a new Chief Legal Officer and a new Chief Ethics and Compliance Officer working to establish a culture of ethics, integrity and accountability at every level of the organization and reviewing and revising political activity and lobbying and consulting policies, which will include robust disclosures about our lobbying activities.

The conduct that took place at our company was wrong and unacceptable. Our Board, the management team and the entire FirstEnergy organization have done extensive work and are committed to make the necessary changes to move on from this. Our progress on these efforts, along with the DPA, demonstrate that we are making meaningful headway in navigating through this period and we are positioned to move forward as a stronger integrity bound organization. We will continue to cooperate fully with the ongoing investigations, audits and related matters as we work to resolve these issues and rebuild trust with our employees, customers, regulators and investors. We are intently focused on fostering a strong culture of compliance and ethics and assuring that we have robust processes in place designed to ensure that nothing like this happens again.

In May, we held our first compliance town hall with employees to discuss what compliance, ethics and integrity mean at FirstEnergy and the importance of building a culture of trust where everyone is comfortable with speaking up when something doesn't feel right. In the weeks following the town hall, our management team has responded to employee questions and concerns and we are committed to continuing this conversation and engagement. Next week, we plan to hold another town hall meeting with employees where we will introduce our updated mission statement, reinforcing the role of uncompromising integrity as the cornerstone of FirstEnergy's identity and business strategies. We will also refresh our core values to better reflect the importance of integrity together with safety, diversity, equity and inclusion, performance excellence and stewardship. These values will be embedded in our practices and processes and become ingrained in the way we work.

Additionally, we updated our code of business conduct, which John Somerhalder will speak to in a moment. We also continue to strengthen our leadership team with two more new hires, Michael Montaque joined us earlier this month as Vice President, Internal Audit and yesterday we announced that Soubhagya Parija has been named Vice President and Chief Risk Officer effective August 16. These two experienced professionals represent another important step as we strengthen our key internal functions and I'm confident that they will help us develop best-in-class audit and enterprise risk programs.

Now, John Somerhalder will join us to provide an update on board matters and other facets of our compliance program. Then I'll be back to discuss FE Forward and review some regulatory updates.

John W. Somerhalder -- Vice Chairperson and Executive Director

Thanks, Steve. Our progress with the DOJ builds on the substantial steps we have taken to enhance our Board, strengthened our leadership team, ensured we have a best-in-class compliance program and significantly modify our approach to political engagement as we work to regain the trust of our stakeholders. I'll start with a review of recent Board changes.

As you know, Jesse Lynn and Andrew Teno joined the Board from Icahn Capital in March, but they do not currently have voting rights pending regulatory approval. I'm pleased to note that FERC approved our request for voting rights last week. The process in Maryland continues as we have communicated FERC's recent action to the Commission. Melvin Williams was elected to the Board at our Annual Meeting in May and last month we added two more independent directors, Lisa Winston Hicks and Paul Kaleta. Jesse, Melvin, Lisa and Paul comprise our Special Litigation Committee. This committee has full and binding authority to determine the company's action with respect to the pending shareholder derivative litigation.

I'll also note that with the formation of the Special Litigation Committee, the Board has dissolved Independent Review Committee. As previously discussed, the company's internal investigation has now been transitioned from a proactive to a response mode and in light of the significant review, investigation and related actions accomplished by the independent review committee, the Board has also dissolved that committee. But many proactive actions taken by the Board and management over the past year have improved our governance and put us in a strong position to remediate the material weakness associated with our tone at the top by the time we file our four quarter results.

Over the last several quarters, we've talked a lot about the work we're doing to elevate our ethics and compliance program and reinforce our values and expectations with all employees. We continue to make timely progress in this area and our new, more centralized compliance organization is taking shape under Antonio Fernandez, who joined the company in April as our Chief Ethics and Compliance Officer.

Yesterday, we published our updated internal Code of Business Conduct, The Power of Integrity, which will be supported by ongoing education around behaviors and the importance of reporting ethical violations and we have continued to strengthen our policies, processes and internal controls including those around 501(c)(4)s, other corporate engagement and advocacy and business disbursements. While the transformation of our culture and our steps to restore trust with all stakeholders will be long-term endeavors, this team has started building a stronger company built around a foundation of ethics, honesty and accountability.

Now, I'll turn it back to Steve.

Steven E. Strah -- President and Chief Executive Officer

Thanks, John. The comprehensive assessment and recalibration of our ethics and compliance program has been running on a parallel path to FE Forward. Our transformational effort to enhance value for all stakeholders by investing in modern and distinctive experiences that will improve the way we do business, we have improved our programmatic efforts to mature our ethics and compliance program into the FE Forward work. In this way, we can leverage FE Forward's rigor to implement changes quickly and efficiently, embed ethics and compliance into our operational culture and ensure we sustain a comprehensive transformation well into the future.

FE forward has entered its third phase, which is a full-scale effort to execute our implementation plans. The program is expected to deliver value and resilience including cumulative free cash flow improvements of approximately $800 million from 2021 through 2023 and an annual run rate capex efficiencies of about $300 million in 2024 and beyond. At the same time, we expect the program to build on our strong operations and business fundamentals as we reinvest a portion of our efficiencies into strategic opportunities to better serve our customers and support a smarter and cleaner electric grid.

To ensure our organizational structure supports these improvement over the long term, we realigned our business units last month around five pillars: Finance and Strategy, Human Resources and Corporate Services, Legal, Operations and Customer Experience. This new structure reflects a best-in-class model and supports operational excellence, clarity in decision making and accountability and less complexity. As part of this new organizational structure, we've created a customer experience function that will truly understand our customers' evolving expectations, so we can develop solutions and drive benefits to customers.

We've also created a new position, Vice President transformation to shepherd the FE Forward initiatives across our company, while also developing customer focused emerging technology opportunities. The development of executable plans, a best-in-class compliance program and critical organizational changes will position the company to move forward in a positive sustainable direction.

I'll just take a moment now and review recent regulatory matters starting in Ohio. First, in July, the PUCO approved our filing to return approximately $27 million to our Ohio utility customers, representing all revenues that were previously collected through the decoupling mechanism plus interest. Our Ohio utilities have filed supplemental testimony in the quadrennial review of our ESP IV. We are committed to working with a broad range of parties in Ohio to resolve the range of issues that are still pending here.

We held our first full-scale collaborative meeting on March 31 and have since received further feedback from participants. We are preparing for another collaborative meeting in the next few weeks. We are also working through regulatory audits in Ohio, New Jersey, Pennsylvania and the FERC. Finally, in April, the New Jersey BPU approved JCP&L's three year $203 million energy efficiency and conservation plan, which includes a return on certain costs, as well as the ability to recover lost distribution revenues.

As per our financial results, we're pleased with our strong performance in the first half of the year. We are reaffirming our 2021 operating earnings guidance of $2.40 to $2.60 per share and we expect to be at the top half of that range. We are also introducing third quarter guidance of $0.70 to $0.80 per share. We remain focused on executing our plans, maintaining our costs and building on this positive momentum. We are making substantial progress to transform FirstEnergy live up to our values and deliver long-term value to all of our stakeholders.

Thank you for your time and now I'll turn the call over to Jon Taylor for review of second quarter results and the financial update.

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Thanks, Steve and good morning, everyone. Yesterday, we announced GAAP earnings of $0.11 per share for the second quarter of 2021 and operating earnings of $0.59 per share. As Steve mentioned, this exceeded the top end of our guidance range. Special items in the second quarter of 2021 include investigation and other related costs, which include the impact from the deferred prosecution agreement, as well as regulatory charges and state tax legislative changes.

In our distribution business, 2021 second quarter results as compared to 2020 reflect growth from our capital investment programs, rate increases and lower expenses, primarily related to the absence of pandemic related expenses we incurred in the second quarter of last year, partially offset by the absence of Ohio decoupling and lost distribution revenues in the second quarter of 2020, which we stopped collecting earlier this year.

Total distribution deliveries increased on both an actual and weather-adjusted basis compared to the second quarter of 2020 when many of the pandemic related restrictions were in full effect. However, the mix of customer usage resulted in a flat year-over-year earnings impact. Second quarter 2021 weather-adjusted residential sales were 6% lower than the same period last year when many of our customers were under strict stay at home orders. However, as we look at trends, weather-adjusted residential usage over the past few quarters has been on average about 4% higher than pre-pandemic levels and in fact, the second quarter of this year was close to 8% higher than weather-adjusted usage we saw in the second quarter of 2019.

We think more permanent work from home initiatives could impact our longer-term load forecast and we will be watching closely to see if the structural shift in our residential customer class continues. Weather-adjusted deliveries to commercial customers increased 8% and industrial load increased 11% as compared to the second quarter of 2020. Despite the increase in commercial activity this spring, weather-adjusted demand in this customer class continues to lag pre-pandemic levels by an average of about 6%.

Looking at the industrial class, we are encouraged by the steady recovery in demand over the past year. In fact, this quarter, industrial load was only slightly down compared to the second quarter of 2019. We continue to see higher load from the shale gas industry, but that was offset by lower load in other industrial sectors such as steel, auto and mining, which have not fully recovered to pre-pandemic levels.

In our Regulated Transmission segment, higher net financing costs in the second quarter of 2021, primarily related to our revolving credit facility borrowings were more than offset by the impact of higher transmission investment at MAIT and ATSI related to our Energizing the Future program. Our transmission investments drove year-over-year rate base growth of 7%. And in our Corporate segment results reflect the absence of discrete tax benefits recognized in the second quarter of 2020, as well as higher interest expense.

For the first half of 2021, operating earnings were $1.28 per share compared to $1.23 per share in the first half of 2020. This increase was the result of continued investments in our transmission and distribution systems, weather-related sales and lower expenses and consistent with our second quarter results, the positive drivers for the first half of this year more than offset the absence of $0.13 of decoupling and lost distribution revenues that were recognized in the first half of 2020 that are no longer in place this year.

Additionally, our continued focus on financial discipline together with strong financial results helped drive a $196 million increase in adjusted cash from operations versus our internal plan and a $264 million increase above the first six months of last year, building on the improvements we noted on our first quarter earnings call. As per capital markets activity, we continue making good progress on this year's debt financing plan with five of our six debt transactions complete, all with pricing similar to investment grade companies.

In May, we issued a $150 million in senior notes at Toledo Edison and MAIT with pricing at 2.65% and 2.55% respectively. And in June, we issued $500 million in senior notes at JCP&L that priced at 2.75%. In addition, we made progress on our commitment to reduce short-term debt during the second quarter by repaying $950 million under our revolving credit facilities bringing our borrowings down to $500 million as of June 30. And earlier this week, we repaid the remaining $500 million under these facilities.

While we did obtain a waiver for our credit facilities related to the DPA, this repayment was voluntary and not required by the bank group. We plan to operate on a normal course going forward and we utilize the revolving credit facilities on an as needed basis as we have done historically. As you know, we have two revolving credit facilities, one for FE Corp, which is shared with our utility companies and one for FET both expiring in December of 2022. Over the next few months, we plan to work with our bank group to evaluate and refinance these bank facilities with the goal of completing this initiative before the end of the year.

And finally, we continue to consider alternatives to our equity needs. We continue to think through options that include a minority sale of distribution and/or transmission assets, which would raise substantial proceeds and eliminate all of our expected non-SIP equity needs, ensure the execution of our balance sheet improvement plans and provide funding for strategic capex in customer-focused emerging technologies that support the transition to a cleaner electric grid.

Based on our current timeframe, we expect to provide you with an update in the fourth quarter. As always, thank you for your time and your interest in FirstEnergy. I'd be happy to take your questions.

Questions and Answers:

Operator

Thank you. At this time, we'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Shahriar Pourreza with Guggenheim Partners. Please proceed with your question.

Shahriar Pourreza -- Guggenheim Securities -- Analyst

Good morning, Stephen, Jon. How are doing?

Steven E. Strah -- President and Chief Executive Officer

Good, Shar.

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Doing well.

Shahriar Pourreza -- Guggenheim Securities -- Analyst

So just on the asset sale. Obviously, you kind of mentioned, you're still exploring options, even though sort of the DPA came in lighter than expected -- that many expected. Is the main consideration here, is it -- I'm just trying to figure out is it potential shareholder litigation, is it kind of to capture some of the multiple arbitrage opportunities with what sort of infrastructure and various strategic step [Indecipherable] assets recently. I mean, have your base, I guess, equity needs increased. And then just as a follow-up, media has reported Mon Power is the potential sale option. So can you maybe just confirm what stage you see as non-core to the overall enterprise. And how we should maybe think about potential sizing of a smaller utility like Mon Power versus a minority stake versus a potential larger optimization like just saying JCP&L as an example?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Shar, this is John. So, I'll take that and if Steve wants to add on, I'd happy to do that as well. But I think for us the priority is around ensuring that we achieve our balance sheet metrics. We have goals of 12% to 13%. We likely will face an additional headwinds with different types of litigation. We got some things cooking in Ohio that we need to deal with and so providing balance sheet support at an efficient cost is the number one priority. With respect to the different assets, I'm not going to get into specifics, but I would tell you that we've made a tremendous amount of progress since the first quarter. We are getting more and more comfortable with a minority interest sale in one of our assets and we're fairly confident that that's the right path forward. We think we can do this in a way that limits dilution to shareholders, but can raise a significant amount of capital that would eliminate all of our current equity needs, it would achieve our priorities around the balance sheet, provide funding for additional capex opportunities, all acknowledging the fact that we have additional headwinds that we're going to face.

Shahriar Pourreza -- Guggenheim Securities -- Analyst

Got it. So near term credit and earnings accretive transaction?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Correct. Yeah. Correct.

Shahriar Pourreza -- Guggenheim Securities -- Analyst

Correct. And then just lastly for me and I'll pass it off to someone else, I'm glad, clearly we're moving -- we're starting to move past all of this, which is a great, great, great signal here. How do we think about maybe the DPA statement of facts as it relates to the overall construct in Ohio? I mean, you have a rate agreement in place, but curious if this can even be revisited in light of the findings. I mean, have you had any conversations with the PUCO following the DPA more specifically?

Steven E. Strah -- President and Chief Executive Officer

Shar, this is Steve. Thanks for the question. I think I'm going to start just with a few comments on the DPA and then quickly move to Ohio. This is truly a humbling moment for our company in terms of the DPA, the accountability that we stepped up and took as a company. So, we're humbled by it, but we do view it as a very positive step for the company with many more steps down the path to restore confidence and trust.

Along the way, within the DPA, obviously, we paid a significant penalty for accountability and we take that on and acknowledge that. We're also going to continue to stay very focused as a team to remain fully compliant with all the requirements of the DPA and fulfilling those requirements will be very, very important for us, as well as continued cooperation with the DOJ. Globally, I believe this is really an inflection point, not only for me as the leader of the organization, but for our company in general. We have a great opportunity as we walk through this challenge, really to show that we can create a much better company at a much better path forward. So, we're really looking forward to do that and you will see that change and it will be added center, having ethics and integrity at every level within this organization. So, I just wanted to make those statements in the DPA.

As it pertains to Ohio, it's a good question. We have a collaborative underway right now. We've had one meeting. We're hoping to organize another meeting within the next several weeks. So, we want to respect that process and not speculate too much, but we're confident that we can make significant progress in terms of restoring trust and confidence in the regulatory process. So, it's our hope that we can put everything that's on the collective agenda for the collaborative. On the table, discuss it, deal with it and be able to come up with a reasonable solution.

Relative to our ESP IV, our base rate case question that we get from time to time, I believe those are one of the elements that are around the table that we're very willing to discuss. I would also point back just a little bit, Shar, to what we have accomplished in Ohio with regard to not pursuing lost distribution revenue, the refund of decoupling. We have the reestablishment of the 2024 base rate case requirement and I think the DPA, now that it's behind us, will open up more opportunities for a pathway forward in Ohio.

Shahriar Pourreza -- Guggenheim Securities -- Analyst

Terrific. Thank you so much and best of luck, Steve, in trying to get actually through the next phase. I appreciate it. Thank you.

Steven E. Strah -- President and Chief Executive Officer

Thank you, Shar.

Operator

Thank you. Our next question comes from the line of Jeremy Tonet with J. P. Morgan. Please proceed with your question.

Jeremy Tonet -- J. P. Morgan -- Analyst

Hi, good morning.

Steven E. Strah -- President and Chief Executive Officer

Good morning.

Jeremy Tonet -- J. P. Morgan -- Analyst

I just want to have follow-up that, I guess [Technical Issues] fourth quarter here, just want to clarify is that -- is the fourth quarter update, is that during the quarter or is that with fourth quarter earnings and it seems like it's a bit of a while off. So, just wondering, is this like a formal kind of book ending announcement that does -- accomplishes everything at that point? And last part here I guess if you think about potential minority interest modernizations and we've seen these great valuation markers out there. Just wondering if there is -- how much you'd pursue here whether it is just solving all equity needs including pension shortfalls, what have you?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

So, Jeremy. This is Jon. So fourth quarter, so sometime in the fourth quarter, not the fourth quarter call, we'll provide an update on our plan for equity financing and so with respect to quantum, we'll have to see, I would tell you this, right now, we have a $1 billion of non-SIP equity in '22 and '23. If you just assume, $40 a share, that's about $0.12 in dilution. If I sold $0.12 and regulated earnings at 32 multiple that would be about $2 billion in proceeds.

Jeremy Tonet -- J. P. Morgan -- Analyst

Got it. That very helpful there. And then kind of shifting gears a bit, I guess toward transmission, just wondering if you had some thoughts on federal infrastructure plan, possibly here and FERC some of the different things coming out there. Just wondering how a few things about that and what opportunity set you see on the transmission side at this point, possibly expanding depending on kind of what happens audit you see there?

Steven E. Strah -- President and Chief Executive Officer

Well, very good question. Thank you. This is Steve. I would say, it represents an opportunity for our company based on what I've been able to see from the current administration. We have over the course of the last six to seven years developed a true core competency in terms of being able to construct transmission projects and be able to extract the value that's needed to support a reliable grid and I think that core competency now can be unleashed with any infrastructure plan that is developed and approved through the administration and Congress. So, I see that as a very good opportunity for our company.

Jeremy Tonet -- J. P. Morgan -- Analyst

Got it. That's helpful. I'll stop there. Thank you.

Steven E. Strah -- President and Chief Executive Officer

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

Hi, good morning. Thanks for taking my questions.

Steven E. Strah -- President and Chief Executive Officer

Good morning.

Stephen Byrd -- Morgan Stanley -- Analyst

I wanted to just talk at a high level in terms of your business and the potential for the need for additional grid upgrades, improvements, transmission spend, just as you're thinking at a high level, I know there's been a lot of focus on, rightly so, on addressing this DOJ investigation, but just now that we're hopefully in a position to be able to look forward a bit, how do you see sort of the potential areas of growth or maybe particularly what areas of growth are you most excited about in terms of adding to the base plan? What might we see over time?

Steven E. Strah -- President and Chief Executive Officer

Well, Steve, I think we have a -- we have an excellent base business plan. Let's just start there. Our transmission spend, if you call it a $1 billion to a $1.2 billion per year, that's a very sustainable pipeline of needed work that will span the next two decade period. So, we're excited about the infrastructure program that might be coming forward. We're excited about leveraging our transmission system and embracing renewables as they approach the system as an opportunity on the distribution side of the house.

I'm particularly excited about some of the programs that we have going on right now with smart grid, smart meter programs. I also believe that our company as well as the utility industry can play a central and key role relative to the infrastructure build out for electric vehicles, battery storage and other emerging technologies. So, I think that all represent a great opportunity for us. I also try to keep the customer in the center of that equation. So, as these emerging technologies are lowering in costs, I think that's good for customers and once again, I think a company like ours could install these technologies in the best way possible on the T&D system to maximize their value at a low cost.

Stephen Byrd -- Morgan Stanley -- Analyst

That's helpful. As you're thinking about sort of your growth plans from here, is there a natural sort of process the FirstEnergy would go through and sort of just continuing to reassess those types of additional need? So, for example, is there sort of a planning process in the fall followed by some degree of an update we could expect next year in terms of just your thinking on where you go from here from a growth perspective?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Yes, Steven. So this is Jon. So, I think there's a couple of things that we need to work through before we move to providing long-term guidance. Obviously, we have some issues that we need to resolve in Ohio. We have probably five to six different proceedings, we got the collaborative that we're working through. So, we need to really have some clarity around our Ohio utilities. And then I think we also need to have a little bit more clarity and certainty around our equity plan. And then once we have those two things, I think we can get in to providing more of a long-term guidance range for you.

Stephen Byrd -- Morgan Stanley -- Analyst

Very fair point. Last question, just maybe going back to the deferred prosecution agreement. There's a lot of commitments here. I was just curious as you think about factoring these types of commitments into things like executive compensation changes to sort of goals that you lay out better backed by real impacts to executive comp, how might we expect these types of commitments to be factored into compensation of executive?

Steven E. Strah -- President and Chief Executive Officer

Well, Stephen, I don't think we've talked through. What we've already done, for example, this year, that we've integrated a compliance goal into our incentive compensation program for all employees. Right? So, we want to acknowledge positive behaviors in terms of raising issues and acknowledge that look folks are speaking up. We also want to get at other parts of our company in which we might be challenged from an ethics or integrity view. So, that work is already underway and as we've stated, it not only in our opening comments, but prior to that, we're going to make ethics, integrity and openness, every bit is important in this company as safety is to this company. And that for us puts it right at the very top of our focus each and every day, each and every moment. So, while we will talk through additional compensation matters, I'm sure in the future, like every company does, to challenge ourselves for goals that really truly make a difference in performance and propels you forward. We are really just very, very focused on implementing our new Code of Conduct that John mentioned and then also the build out of a best-in-class compliance and ethics program.

Stephen Byrd -- Morgan Stanley -- Analyst

Understood. Thanks so much.

Steven E. Strah -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Julien Dumolin-Smith with Bank of America. Please proceed with your question.

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

Hey, good morning. Thank you for the time and the opportunity. So, if I can try to rehash or restate some of this a little bit differently. When you think about where you'll be by year-end, I mean, could we be in a place to effective rebaseline and provide a clean forward outlook, if you will. I mean, effectively, if we're hearing you right, aspirationally you'll have addressed the equity needs in a single shot here with a minority sale or something of the like. Ohio should be resolved to the extent at which stakeholders are amenable, including conceivably the next ESP and ultimately you have an O&M program underway that should conceivably keep you within this of the 13% FFO to debt as you've already talked about in the past. Can you just kind of affirmed to the thought process and specifically when or if you would think about an updated EPS outlook in turn?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Hey, Julien. This is Jon. Yes, Julien, this is Jon. So, I think for sure, we will have clarity around our equity plan in the fourth quarter. I think we will do our absolute best to work with the parties down in Columbus to get some resolution there. I don't know how long that's going to take, but if we could get something by the end of the year that would be fantastic. And we would be in a position at that point in time to provide you a long-term outlook including earnings and cash flow.

Steven E. Strah -- President and Chief Executive Officer

Yes. And this is Steve. I would just underscore one of Jon's points here. I would be very pleased to resolve the Ohio issues by year end, for sure, but I am determined to do it in a way in which it truly is collaborative. So, we are not going to be in a rush to do something that's going to up end the process unnecessarily, but my true hope is that everybody will come to the table with progress and openness on their minds.

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

Yes, I very much appreciate it. And if I could clarify the FFO to debt commentary and just the overall balance sheet needs. Right? I mean, you obviously, previously articulated this equity need through the forecast period, but as you think about sizing this updated need today, I just want to make sure we understand the baseline should be that you are already poised to achieve the 12% to 13% such that if you want to triangulate here any incremental needs created from resolution in Ohio or regulatory decisions otherwise that's really what you're solving for from here, not rebaseline in the balance sheet incrementally. Right? I just want to make sure we're on the same period of this?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Yes. That makes sense. If you remember, our base plan probably had us growing FFO $150 million, $200 million a year, we had our financing plan, which was really going to hold our debt levels somewhat flat or adjusted debt levels given where the pension is performing and our go-forward financing plan that included a $1 billion of equity. So, to the extent that we face headwinds in Ohio, we'll be solving for that right.

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

Right. Yes, absolutely. It's the deferred prosecution, anything with Ohio or otherwise and then ultimately your base equity as previously described?

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Correct.

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

Excellent. All right. Just actually a quick clarification FE Forward, I mean, just next steps on delineating that and just what jurisdictions if you can speak to that at all, it may just be high level corporate, but I'm just curious?

Steven E. Strah -- President and Chief Executive Officer

No, it's across the entire business. I mean, it's from our utility companies, all the way to our corporate centers. So, they're in the process today of executing on all the different initiatives. We are uploading all of that into our financial plan and that will be part of our go-forward plan in the fourth quarter assuming that we get some of these things resolved.

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

Excellent. All right. I appreciate it. Best of luck.

Steven E. Strah -- President and Chief Executive Officer

Thank you, Julien.

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

Hi. Excuse me, good morning.

Steven E. Strah -- President and Chief Executive Officer

Good morning.

Steve Fleishman -- Wolfe Research -- Analyst

Jon, I just have to ask in that equation that you laid out about the issuing the equity in your plan relative to asset sales. I think you mentioned potentially selling assets as saying use like a 32 multiple, is that the kind of range that there might be interest in some of these assets?

Steven E. Strah -- President and Chief Executive Officer

Well, I think we have real experience in that I think Puget just got 32 times on their transaction, Duke got 28 times, CenterPoint got 38 times. So, I mean it's in the range of what we've seen in the industry.

Steve Fleishman -- Wolfe Research -- Analyst

Got it and then whatever you end up selling, can you just confirm kind of on taxes, given I think your tax situation, is it likely that there be shields against any gains on a potential sale?

Steven E. Strah -- President and Chief Executive Officer

I would tell you we're working through that. We would like to structure it in a tax efficient manner. But to the extent that we can't and we do have $7 billion of NOLs that we could utilize. So, still TBD on that, but something that we're working through.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. So, I guess I meant totally whether it's the transaction itself or the NOLs between the two, should there be limited taxes on potential sales whatever they are?

Steven E. Strah -- President and Chief Executive Officer

Yes, that's correct.

Steve Fleishman -- Wolfe Research -- Analyst

Okay.

Steven E. Strah -- President and Chief Executive Officer

That's correct.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. And I guess one more question just on the asset sale aspect. So, in the DPA, there is a provision on the DPA kind of, I guess, tracking with any assets that are sold or obviously any change in corporate structure. Does that impact your asset sale process at all?

Steven E. Strah -- President and Chief Executive Officer

Steve, no, it doesn't. But I'm going to ask Hyuan to maybe comment on that provision in the DPA.

Hyun Park -- Senior Vice President and Chief Legal Officer FirstEnergy Service Company

Yes, Steve, this is Hyun Park, the CLOs here at FirstEnergy. So, there is a provision on mergers and changing core performance -- transactions of that nature. We don't think that a minority interest in the sale of a subsidiary would trigger a provision like that. We would probably speak with the Assistant U.S. Attorneys just to make sure that we're on the same page. But that the transactions that are contemplated there, I don't think would be triggered by something like this.

Steve Fleishman -- Wolfe Research -- Analyst

Okay, I'll leave my questions there. Thanks so much.

Steven E. Strah -- President and Chief Executive Officer

Thanks, Steve.

Operator

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

Durgesh Chopra -- Evercore ISI -- Analyst

Hey, good morning team. Thank you for taking my questions. Maybe just on the asset sale process, it looks like you're in advanced stages, maybe could you just highlight for us what kind of interest are you seeing, who were you having these discussions with or these strategic buyers, i.e., peer utilities or sort of private entities, any color that you could share there, please? Thank you.

Steven E. Strah -- President and Chief Executive Officer

Yes. Durgesh, it's probably a little too early to get into that level of detail. I would just tell you that the transactions that we've seen in our space have had solid valuations, which tells me, there is a lot of interest in regulated assets and so my expectation is there is going to be a lot of interest in anything we do.

Durgesh Chopra -- Evercore ISI -- Analyst

Understood. Thank you. And then just to clarify your Ohio discussions. Right? There are a few issues there. The investigation and obviously, [Technical Issues] and among other things. So, I guess in these sort of the collaborative discussions you are [Technical Issues] all of those issues. Is that sort of a fair assessment on how should we -- how we should think about sort of things getting resolved here going forward?

Steven E. Strah -- President and Chief Executive Officer

I would like to think about all those issues being under one umbrella. Our first meeting that we had in March, we were very careful to go in and listen to concerns, listen and get input on different things that could be done in Ohio for the benefit of customers. So, yes, I would like to put all of this under one umbrella once we reengage the collaborative and now that the DPA is behind us, I think we really do have a very good opportunity to not only listen, but then start to proceed to some level of action, it would be my greatest hope.

Durgesh Chopra -- Evercore ISI -- Analyst

I appreciate that, Steve. And then maybe just from -- for us and for investors, are there sort of some milestones or timeline from this point on as these discussions evolve to watch for?

Steven E. Strah -- President and Chief Executive Officer

I want the process to unfold with the next meeting and I want to respect that process. So, my hope would be to make significant progress by the end of the year, but I do want to respect the process and that just simply mandates something.

Durgesh Chopra -- Evercore ISI -- Analyst

Understood, totally understand. Thank you Steve for taking my questions and John.

Steven E. Strah -- President and Chief Executive Officer

Sure. Thank you.

Operator

Thank you. Our next question comes from the line of Sophie Karp with KeyBanc Capital Markets. Please proceed with your question.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Hi, good morning. Thank you for taking my questions.

Steven E. Strah -- President and Chief Executive Officer

Good morning.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

I'm curious to hear your perspective from maybe little a bit more longer-term view. Once you put the initial equity needs behind you with potentially the sale of a stake in the business, like you described is 12% to 13% FFO to debt still a suitable long-term target or would you be inclined to maybe increase that and equitize your balance sheet little more, just maybe [Indecipherable].

Steven E. Strah -- President and Chief Executive Officer

Sophie, I think we've talked about 12% to 13% no later than 2024. I think we would want to improve from there over time knowing that in our current business plan, probably 65% of our capex is formula rate spend, which provides incremental FFO each and every year. So, I would like to get to a spot where we're 12% to 13% and improving over the long term.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Got it. Thank you. And then a follow-up if I may. So, you mentioned that once you have more definitive view on the potential transaction here, you would be in a position to provide a long-term outlook. And so just to make sure, we're talking about the fourth quarter of 2021, are you saying that you would be able to incorporate some of the views about your 2024 rate case in Ohio when you do that and assumptions about that proceeding sort of in your long-term outlook at that time?

Steven E. Strah -- President and Chief Executive Officer

So, I think the rate case in 2024 will probably be something that is dealt with as part of the collaborative discussion with all the parties down in Columbus. So, to the extent that we can have clarity around that then we'll obviously provide that in the fourth quarter that were the timeframe. So, I would tell you that we are open to those types of recommendations, if they -- if the parties thought that we needed to come in to file a case sooner than that, I think we would be open to that and so it's something that we'll be discussing I'm assuming over the course of the next few months.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed with your question.

Paul Patterson -- Glenrock Associates -- Analyst

Good morning. How are you?

Steven E. Strah -- President and Chief Executive Officer

Good morning, Paul.

Paul Patterson -- Glenrock Associates -- Analyst

So, I guess this is sort of a big picture question. I don't need to tell you guys that obviously politics and money go together. It's a very political business and I understand the reforms you guys are doing and everything. But I guess what are the thoughts or concerns that might come up and how do you sort of Steve -- how do you thread the needle here because on the one hand obviously makes sure -- it makes sense for you guys to obviously institute reforms and everything, on the other hand, it's important right for almost all utilities to be heavily involved in the political process in the jurisdictions you guys operate in. Do you follow me, I mean, are you guys -- how do -- there's always a potential of sort of an overreaction if you follow what I'm saying and I'm looking at the actions and they seem very aggressive and understandably so to a certain degree, but how do you sort of thread the needle, do you follow what I'm saying or are you guys at all concerned about that or how should we as investors think about that sort of as the years play out here about how much you guys might not be engaged as much as perhaps might be desirable? Do you follow what I am saying?

Steven E. Strah -- President and Chief Executive Officer

Yes. I appreciate your question. I think right now the best thing that we could do is what we have done and that is to hit the pause button, review and then appropriately revised our approach to everything from lobbying and the use of consultants and just take this one step at a time and thread the needle appropriately. As I've stated before that future vision is going to be much more limited than what it has been in our past because we are moving in a very clearly different direction with integrity and trust at the center of it.

The other thing that I think you can count on is robust disclosures that we've committed to as part of the DPA and in other arenas. But look, I do understand the need to be in the arena and we will be in it, but we're going to be in it and those issues that matter to our customers and to our company and we're going to do that in a much more limited basis. So, I appreciate everybody's patience around the pause button that we hit here, but we're going to continue to just flat out do the right thing and constructing the right policy internally before we step back into the arena is the right thing to do.

Paul Patterson -- Glenrock Associates -- Analyst

Okay and then just in terms of and I wasn't clear on this, I think it was Shar's question, with respect to the potential for a rate case proceeding in Ohio, was -- if I just clarify, were you guys basically saying that sort of up in the air until you guys get more clarity. It's just too early to say what might actually be sort of the fallout so to speak on the the PUCO disclosures and the DPA and everything else, how that might proceed or is there any more clarity, I guess, you have on that or I just want make sure I understand that?

Steven E. Strah -- President and Chief Executive Officer

Yes. Paul. So, it's too early to say, but my point was we would be open to it If that's what the parties suggested.

Paul Patterson -- Glenrock Associates -- Analyst

Okay.

Steven E. Strah -- President and Chief Executive Officer

So as part of our collaborative discussions with the other parties, if there was a sense that we needed to file a case before May of 24, we would be open to that.

Paul Patterson -- Glenrock Associates -- Analyst

Okay, thanks so much for your other questions that have been asked. Thanks so much. Have a great one.

Steven E. Strah -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, our final question today comes from the line of Andrew Weisel with Scotiabank. Please proceed with your question.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Thank you. Good morning, guys, and congrats on the DPA, certainly a big milestone. A lot covered in the call and we're up on the hour, so I'll keep it short, but two things I just wanted to clarify, first on the last call, you indicated that the internal investigation hadn't identified any new issues and it sounded like minimal cost for concern outside of Ohio. With the dissolution of the independent review committee, does that mean that it's basically -- is the review done at this point? Is it safe to say that there's no other causes for concern beyond what's been revealed so far?

Steven E. Strah -- President and Chief Executive Officer

Well, I think in John Somerhalder's comments, he had stated that, look, we have moved to dissolve that committee and really it -- we will maintain kind of behave reactive or responsive type capability and coordinate that with the SLC for any inbound additional issue. But by the dissolution of the committee itself. I think it really does represent that it's at its conclusion.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Okay, great. Then as far as O&M costs, I know FE Forward, they're very impressive numbers you put out on the cash flow and capex efficiencies, remind me the O&M's also fall under FE Forward and maybe more broadly can you give your latest thinking on the outlook for operating expenses, particularly with so much learned about operations during the pandemic and finding some of the more permanent improvements in processes?

Steven E. Strah -- President and Chief Executive Officer

Yes. So, Andrew, I think as part of the FE Forward process, the goal would be to absorb any inflationary increases for the foreseeable future. So, right now, we spend about $1.25 billion on what I'll call our base O&M program between corporate and our utility group and we would expect to hold that flat over the foreseeable future through different efficiencies and transformational efforts that we identified through FE Forward.

Andrew Weisel -- Scotia Howard Weil -- Analyst

Okay, great, thank you so much.

Operator

Thank you, ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Strah for any final comments.

Steven E. Strah -- President and Chief Executive Officer

Thank you very much and thanks for everyone being here with us today. As we described today, we continue to make solid progress to transform FirstEnergy to deliver the long-term value that our shareholders, our employees and all stakeholders seek. So, we will talk to you again very soon. And please be well and be safe. Thank you.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Irene M. Prezelj -- Vice President, Investor Relations, Acting Vice President, Communications, Corporate Affairs & Commu

Steven E. Strah -- President and Chief Executive Officer

John W. Somerhalder -- Vice Chairperson and Executive Director

K. Jon Taylor -- Senior Vice President and Chief Financial Officer, FirstEnergy Service Company

Hyun Park -- Senior Vice President and Chief Legal Officer FirstEnergy Service Company

Shahriar Pourreza -- Guggenheim Securities -- Analyst

Jeremy Tonet -- J. P. Morgan -- Analyst

Stephen Byrd -- Morgan Stanley -- Analyst

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

Steve Fleishman -- Wolfe Research -- Analyst

Durgesh Chopra -- Evercore ISI -- Analyst

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

Andrew Weisel -- Scotia Howard Weil -- Analyst

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