FirstEnergy Corp. (FE) Q4 2012 Earnings Report, Transcript and Summary

Greetings, and welcome to the FirstEnergy Corp. Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Meghan Beringer, Director of Investor Relations for FirstEnergy Corp. Thank you, Ms. Beringer. You may begin.

Thank you, and good afternoon. During this conference call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of FirstEnergy Corp. are based on current expectations that are subject to risks and uncertainties, and a number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the Safe Harbor statement contained in the consolidated report to the financial community, which was released earlier today and is also available on our website under the Earnings Release link. Reconciliations to GAAP for the non-GAAP earnings measures we will be referring to today are also contained in that report, as well as on the Investor Information section on our website at www.firstenergycorp.com/ir. Participating in today's call are Tony Alexander, President and Chief Executive Officer; Leila Vespoli, Executive Vice President and General Counsel; Jim Pearson, Senior Vice President and Chief Financial Officer; Donny Schneider, President of FirstEnergy Solutions; Harvey Wagner, Vice President, Controller and Chief Accounting Officer; Steve Staub, Vice President and Treasurer; and Irene Prezelj, Vice President, Investor Relations. I'll now turn the call over to Tony.

Thanks, Meghan, and good afternoon, everyone. Thank you for joining us. Today, I'll provide a general overview of last year's results and accomplishments before moving to some of our key areas of focus for 2013. Leila will join us for a brief regulatory overview. And finally, Jim will join the call for the first time in his new capacity as CFO. Jim will take a look back at the fourth quarter and full year 2012 and provide a preview of our 2013 financial objectives. I'm sure most of you already know Jim from his tenure as Treasurer, so expect this transition to be quite smooth. And of course, Mark Clark remains involved in key company projects in his new role as Executive Vice President of Finance and Strategy. I would also like to take a moment here to thank Harvey Wagner for his exceptional guidance and oversight as our Vice President, Controller and Chief Accounting Officer. And I wish him best in his upcoming retirement. Okay. Let's get started. Today, we announced full year non-GAAP earnings of $3.34 per share, in line with our guidance. Despite the absence of a meaningful rebound in the regional economy and energy markets, we accomplished much in 2012, and I'll start by walking through some of the highlights. First, we maintained our dividend, which is supported by the solid and stable returns from our regulated distribution and transmission business segments, and we maintained our credit ratings through very challenging economic conditions. Our competitive strategy at FirstEnergy Solutions continues to produce significant growth. FES now serves 2.6 million retail customers, which is an increase of 42% compared to the end of 2011. And FES grew direct retail sales by 18% during the year. Our nuclear fleet achieved strong safety and operational performance. This includes the industry's lowest worker dose exposure at our Beaver Valley units and our best-ever fleet forced loss rates. Forced loss rates were industry top decile at Beaver Valley Unit 1 and top quartile at Beaver Valley Unit 2 and Davis-Besse. At our fossil fleet, we deactivated units at 7 of our older coal-fired plants in response to MATS and other environmental regulations that made these plants even less likely to be dispatched. We also plan to deactivate several additional units in early 2015 at the conclusion of Reliability Must Run arrangements. At our remaining fossil units, we have taken an aggressive look at the capital investment required to comply with these environmental standards. After a rigorous analysis of the necessary environmental controls, we have reduced our projected spend to $200 -- to $975 million, down from an original estimate of $2 billion to $3 billion. We also took proactive measures to implement more efficient fuel and dispatch strategies, trim maintenance costs, enhance operational flexibility and reorganize certain areas of business to ensure more appropriate staffing levels and reduced costs in light of the economy. On the regulatory front, the Public Utilities Commission of Ohio approved our electric security plan. This new ESP, which takes us through May 31, 2016, is essentially an extension of our existing plan. Our ESP has been widely considered a success in terms of its ability to produce competitively priced electricity for customers who remain with the utility for generation service, as well as creating a level playing field among suppliers competing to serve customers who choose to shop. On the financial side, we made a $600 million contribution to the pension plan in early 2012 and pursued an early buyout of the Bruce Mansfield sale leasebacks taking future obligations off the table. And finally, today marks the 2 years since we closed our merger with Allegheny. We remain very pleased with this combination. It has produced cost savings and increased our operating flexibility while also expanding our pool of leadership talent. I'm very proud of these achievements. Our focus on our 3 core business segments, generation, distribution and transmission, offers greater flexibility and more growth opportunities and financial stability than any one business could provide on a stand-alone basis. And our strategy remains unchanged. We are prepared to meet the economic and regulatory challenges of 2013 while positioning our company for long-term growth. Our plan includes a focus on controlling costs, continuing to improve our operational performance and exploring opportunities to grow our regulated and competitive businesses. I'll discuss these opportunities in more detail starting with utilities where we are working to promote growth on several fronts. For example, we have joined an industry electrification effort that is offering electric power at truck stops as an alternative to running diesel engines overnight. This is a particularly attractive alternatives in areas that are not meeting Clean Air Act quality standards. We are also very active in economic development efforts related to the Utica and Marcellus Shale boom in and near our Pennsylvania, West Virginia, Ohio service territories. This includes initiatives like building a new Black River Substation that is about to go on online in Lorain, Ohio. Our facility will support a major steel manufacturer that is expanding in response to the growth of the natural gas industry. In our transmission business, we expect our investments within the FirstEnergy footprint to continue providing growth and stable returns. In 2012, we consolidated ATSI and TrAIL under a large stand-alone transmission subsidiary holding company and put in place $1 billion credit facility. We also formulated a long-term plan for the ATSI region that includes a significant number of projects designed to support reliability in the Northern Ohio area primarily in response to the plant deactivations brought on by MATS and other environmental regulations. On a related note, we continue moving forward with American Municipal Power on the potential project announced in November to develop peaking capacity at our Eastlake plant near Cleveland. This project, which is subject to, among other things, regulatory approval, could reduce our need for some of the previously announced transmission projects and extend the time frame for others. Finally, we're also building a new transmission control center in the Akron area that will include advanced technology to enhance service reliability across our entire footprint. Turning now to FirstEnergy Solutions, our focus remains on expanding our retail business and strengthening our brand among customers in both new and existing targeted markets. Governmental aggregation is an area where we've had tremendous success, and it will remain a priority in 2013. Last year, FirstEnergy Solutions signed contracts with 160 communities, including more than 100 in Illinois. Today, FES serves this sales channel with more than 17-million-megawatt hours, a 10% increase over 2011, and we continue to see potential for more growth in both Ohio -- in both in Southern Ohio and Illinois. We project annual FES sales growth of about 3% to 5% over the next few years. In 2013, we expect continued benefits from our strategy of first mover advantage and shifting megawatt hours between sales channels, as we remain focused on both volume and margin. As you've heard us say over the years, we operate in many ways like a traditional utility but without the geographic restrictions. By design, our customer portfolio continues to look a lot like that of a Midwestern utility. That's the type of load our plants were originally built to serve, and we continue to leverage our generation assets selling the power that we produce to our end-use retail customers. But our approach is much different from others in the electric retail market space. We have fully implemented a multi-channel sales approach, which means we go deep and wide in the territories we target. We strongly believe that this approach is far less risky and more profitable than simply focusing on one segment of the market, and it's allowing us to significantly grow our customer base in a cost-effective fashion, while also taking advantage of opportunities to increase our profitability. In addition, our balanced portfolio provides greater stability over the long term and diversifies our risk, and our integrated asset-backed strategy offers flexibility, as we work to reduce costs and maximize margins. Finally, as our competitive sales continue to grow over time and markets begin to improve, we plan to reinvest or revisit our fleet investment strategy that we call "mining our assets". This approach focuses on improving efficiencies, lowering forced loss rates and upgrading equipment at existing plants as markets justify instead of making investments in costly new generation. In the past, this successful strategy allowed us to add more than 600 megawatts of capacity with far less risk and at a fraction of the cost of building a new plant. The "mining our asset" approach provides an incremental platform for our generation capabilities to support sales growth. We will take a very competitive-minded approach to these investments, spending capital on improvements only after sales have been committed to support them. In doing so, we expect the timing of these investments to be linked closely to the growth of our retail business. These plans represent short- and long-term examples of how we are managing our business for the current market conditions while preparing for the eventual economic improvement. As more generating units are deactivated due to environmental regulations and natural gas and power prices rise, we would expect an improved supply-demand balance, and at that point, the groundwork we are laying today should help accelerate our growth. We have a strong track record of delivering on our plans, and that is how we are approaching 2013. We expect this to be a year of executing on our strategies and implementing the plans we have described. And we believe this approach will result in an even stronger company that is well positioned for the future. Now I'll turn it over to Leila for a look at our regulatory priorities for 2013. Leila?

Thanks, Tony. We have a full plate of regulatory and legislative issues before us this year with significant activity in 4 states. I'll go through the agenda state by state starting with Pennsylvania. In December, we filed a smart meter deployment plan with the Pennsylvania Public Utility Commission or PUC. Hearings have been scheduled for May, and I would anticipate final approval by September. The plan calls for deployment over the period 2013 through 2019 with an estimated cost of the completion of about $1.25 billion. Cost recovery is expected to occur through the existing smart meter technology surcharge. We also filed a change to our default service supply plan in Pennsylvania, which shifted procurement to 2 auctions per year from 4. The second 2013 auction was completed on February 12. FirstEnergy Solutions participated and won 24 out of 75 tranches. In response to the PUC's guidance in its retail market investigation, last year, we adopted elements of the PUC's earlier recommendations in our default service plan for the period June 2013 through May 2015. We will continue working with the PUC and other stakeholders to promote a fair and robust competitive market. A retail market investigation has also been launched by the Public Utilities Commission of Ohio. While we do not anticipate significant changes to the Ohio market rule, we share the commission's objective to expand retail competition throughout Ohio. Currently, 77% of our Ohio utility load has selected an alternative supplier, and Ohio competitive markets have developed well despite being hindered by some lingering subsidies. A 3-year auction for generation supply for our Ohio utility customers was conducted on January 22, resulting in a price of $59.17 per megawatt hour. FirstEnergy Solutions participated and won 5 of the 17 tranches available for bid, very much consistent with FES' business plan. The next auction is scheduled for October 2013. Also in Ohio, we have an active case with respect to an audit of the alternative energy rider, which recovers costs associated with procurement of renewable energy credit. As you recall, our Ohio utilities purchased these RECs at market prices in 2009 through 2010 to comply with the state's alternative energy law. Now certain parties have suggested that we should have rejected available RECs and instead either paid a penalty or otherwise petitioned the commission for relief. However, Ohio law does not give the commission the authority to relieve us from our statutory requirement when RECs are available. We will continue to participate in these proceedings, which include a public hearing that commenced on February 19 with a decision expected late second or early third quarter. As of July 31, 2013, we will have collected all but $4.9 million of the costs at issue. I'll take a moment here to discuss Hurricane Sandy, which affected practically our entire service area. The total costs associated with restoring service and rebuilding damaged part of our system in 5 states is approximately $860 million. A state-by-state breakdown of the capital, expense and cost deferral is available on the consolidated report to the financial community, which was posted to our website this morning. In New Jersey, where the damage from Hurricane Sandy was the most devastating, our costs were about $630 million. As you know, we filed a base rate case for JCP&L in November as required by the New Jersey Board of Public Utility. On February 22, we amended the case to include $603 million of the distribution costs relating to Hurricane Sandy, including approximately $345 million for capital expenditures incurred while restoring service, as well as $258 million in deferred expenses that we propose to recover over a 6-year period. Despite the massive damage and spending on restoring power to JCP&L customers after this historic storm, the impact on our customer rates is still in the single digit. And JCP&L's rates remained the lowest among New Jersey utilities regulated by the BPU. Let's look now at West Virginia. The proposed transaction to transfer full ownership of the Harrison plant to our Mon Power subsidiary is important both for the state and the company. We discussed last quarter this transfer is a part of a resource plan to address the capacity shortfall related to the deactivation of more than 600 megawatts of older regulated generating capacity due to environmental regulation. It is expected to help ensure reliable power for our Mon Power and Potomac Edison customers in West Virginia for many years to come. The Harrison facility is equipped with modern emission control, and it produces electricity with coal mined in the state. We believe that this transaction is very positive for the economy of West Virginia. Under the proposed terms, Mon Power would acquire the remaining 80% of the Harrison plant, giving the utility sole ownership of the 1,984-megawatt facility. In addition, Mon Power would sell its 8% minority interest or about 100 megawatts in the Pleasants Power Station to Allegheny Energy Supply. The proposed asset transfer requires approval of the West Virginia Public Service Commission and the Federal Energy Regulatory Commission. We are well along on the discovery process, and the West Virginia Coal Association and the IBEW have gone on record with the PUC in support of the transaction. Earlier this month, we received the procedural schedule to set hearings in the case from May 29 through May 31. Finally, we have announced that the temporary surcharge that will be used to recover transaction-related expenses once the transfer is approved will have a price tag of less than $1 per month for typical residential customers compared to the prices they were paying in 2012. Mon Power and Potomac Edison have also agreed to fund the base rate case no later than 6 months after the transaction closes to help define the end of that surcharge. We would expect that rate case proceeding to take about 12 months to complete. Thank you for your time. Now I will hand the call over to Jim for a review of the fourth quarter results and our 2013 financial objectives.

Thank you, Leila. I'm pleased to be here today. I have enjoyed getting to know many of you over the past several years, and I look forward to meeting many of you on my new role. Today, I will review the fourth quarter and full year 2012 results, then close with a discussion of our 2013 financial plan. Before I move on to our 2012 results, I want to reaffirm our non-GAAP earnings guidance for 2013 of $2.85 to $3.15 per share. Let's turn now to the consolidated report, as I walk through our results. Looking at the fourth quarter of 2012, non-GAAP earnings were $0.80 per share, while GAAP results were a loss of $0.35 per share. As I would discuss in a moment, our fourth quarter and full year GAAP results were significantly impacted by pension accounting. In the fourth quarter of 2011, non-GAAP earnings were $0.77 per share, while GAAP earnings were $0.23 per share. For the year, our non-GAAP earnings are $3.34 per share. And as Tony said, that is in line with our 2012 guidance. Full year 2012 GAAP earnings are $1.85 per share. These results compare to 2011 non-GAAP earnings of $3.64 per share and GAAP earnings of $2.22 per share. On Pages 4 and 20 of the consolidated report, you can find the list of special items that make up the difference between the GAAP and non-GAAP results. As I mentioned, the largest of these special items is the mark-to-market adjustment for pension and OPEB accounting, which was a negative $0.91 per share in the fourth quarter primarily related to a reduction in the discount rate. As you may recall, last year, we adopted a change in accounting where we will annually recognize any adjustments from deviations in actuarial assumptions in year incurred versus amortizing them over a number of years. In 2011, this adjustment was $0.74 per share, but it was more than offset by a onetime gain from the sale of non-core assets. Other special items for the fourth quarter 2012 include plant deactivation cost, which decreased GAAP earnings by $0.12 per share; a decrease of $0.04 per share from impacts of the sale or impairment of non-core assets; other mark-to-market gains of $0.03 per share; a decrease of $0.03 per share related to merger accounting for commodity contracts and $0.02 per share in merger-related cost; a decrease of $0.02 per share related to tax legislative changes, regulatory charges of $0.02 per share, trust securities impairment of a $0.01 per share and a charge of $0.01 per share for restructuring costs. Moving now to the drivers of our ongoing results. Clearly, Hurricane Sandy had a significant impact on our company during the quarter. Approximately 10,000 employees from across the company were dedicated to storm restoration efforts from late October through mid-November, redeploying them to capital work instead of O&M. Regulated distribution O&M expense, net of storm deferrals, decreased in the quarter as a result of this mass redeployment of the workforce. O&M also benefited from lower expenses related to our fossil and nuclear plants, as well as the coal units we deactivated in the third quarter. These items, in total, increased earnings by $0.08 per share. Let's turn now to distribution deliveries, which increased earnings by $0.04 per share. Overall deliveries increased 252,000 megawatt hours or about 1%. Commercial deliveries were essentially flat, while industrial deliveries were down 3% compared to the fourth quarter of 2011 largely due to reduced operations by many of our large steel, automotive and refinery customers. Residential deliveries increased by 5% quarter-over-quarter influenced by colder weather versus the same period in 2011. With regard to economic recovery in our service territory, we still have a ways to go. Full year 2012 sales adjusted for weather show that residential volumes are now on par with the levels we experienced in 2007. However, commercial sales remain down 5% and industrial sales are still 8% below prerecession levels. Further, while industrial sales have improved versus their 2009 low point, they have been basically stagnant for the past 3 years. Moving back to the fourth quarter drivers. 2012 earnings also benefited by a total of $0.04 per share primarily as a result of investment income as we rebalanced our nuclear decommissioning trust portfolio and general taxes. Commodity margin reduced earnings by $0.08 per share in the quarter. Looking at commodity margin from a high level, the execution of our retail strategy resulted in a sales gain of $0.11 per share, but this was offset by $0.19 per share decrease in capacity revenues due to lower capacity prices. It should be noted that capacity prices and PJM during the June 2012 through May 2013 and June 2013 through May 2014 planning years are at historic lows in the range of $16 to $28 per megawatt day primarily as a result of auctions in the 2009 and 2010 periods that were at the depths of our recession. Further, the June 2014 through May 2016 planning years, as a result of auctions conducted in 2011 and 2012, prices are substantially higher in the $100-plus per megawatt day range. On a more granular scale, overall contract sales increased 10% or $0.07 per share. And once again, the volume gains in contract sales offset the impact of lower market prices. Governmental aggregation sales increased 29% in the quarter driven primarily by new contracts in Illinois. Mass market sales rose 72% with much of that growth in Pennsylvania. And sales to large commercial and industrial customers increased 6%, as new customers in Southern Ohio offset lower use by some of our large commercial customers in our Ohio and Pennsylvania utility service territory. Finally, POLR sales continue to decrease, consistent with our retail strategy to realign our sales portfolio. I'll mention here that FirstEnergy Solution's hedge position for the balance of 2013 is currently at 96%. Commodity margin in the fourth quarter also benefited from lower capacity expense, lower fuel expense related to increased nuclear output in the generation mix and gains from net financial sales and purchases. These were offset by lower PJM capacity revenues as I mentioned earlier, a decrease in wholesale sales due to higher contract sales and lower generation output, higher purchased power costs mainly related to having Sammis temporarily offline and serving more customers, higher transmission expense and lower sales of renewable energy credits. While 2012 commodity margin was negatively impacted by lower capacity revenues at a lower average rate of 56 per megawatt hour, we are pleased with the progress that FirstEnergy Solutions is making. We ended the year with 100 million megawatt hours in competitive sales, a 10% increase compared to 2011. And we grew our retail customer base by 42% through the continued success of our multi-channel strategy. Respecting our 2012 financial plan, we funded the Bruce Mansfield sale leaseback repurchase and took out additional nuclear sale leasebacks. We also contributed $600 million to the pension fund, putting the pension plan in the position to be fully funded once the discount rate returns to more historic levels, for example, like those adopted by Congress for determining funding obligations. And while we remain generally on track to achieve our overall goals, the cash requirements from the ratio and Hurricane Sandy put some additional pressure on our balance sheet. Looking now at 2013. Our financial plan is structured to improve the balance sheet, enhance liquidity and maintain investment-grade credit metrics. The plan initially focuses on reducing debt at our competitive companies, primarily FES and Allegheny Supply, by at least $1.5 billion. The proceeds of the Harrison-Pleasants transaction in West Virginia combined with asset sales are expected to be sufficient to fund the debt reduction. The assets we intend to sell are primarily our competitive hydro fleet, which includes nearly 1,180 megawatts that were initially in our plans to be sold in 2015. We're expecting to retire a combination of both tax-exempts bonds and taxable debt to achieve these debt reductions. While we have not looked to target taxable debt in recent years, it is now on our list of potential actions, as we weigh the redemption costs against the benefits of future interest savings from the current low-interest environment. On the liquidity front, we are also working to refinance short-term borrowings with long-term debt as appropriate at our utilities and possibly at the corporate level. This refinancing activity would term out some of our revolver borrowings and again, take advantage of today's historically low interest rates to position ourselves for the future. We're also working with our banks to extend the maturity of existing credit facilities totaling $5.5 billion for an additional year to 2018. We believe this is a comprehensive plan that moves us where we would like to be in terms of our credit metrics and once completed, would significantly improve the balance sheet, especially at our competitive operations. As Tony outlined, we are focused on growth across each of our businesses, including investments in new transmission projects and growing our competitive business. As we address these opportunities, we believe a modest amount of equity, late this year of up to $300 million subject to market and other conditions, will help to further strengthen our balance sheet and investment-grade metrics and support our growth initiatives. We will explore auctions, which may include implementing a dribble program this -- late this year to effectively address these ongoing requirements. Importantly, this level of equity will not take us off course from the guidance we've reaffirmed for 2013. Finally, while it is always subject to board approval, I will reiterate that we expect to maintain our dividend. Our regulated operations, distribution and transmission provide a strong foundation of earnings and cash, which support the dividend, and our competitive businesses further support the payout. As we move forward, we will continue to assess our operations and look for additional opportunities to reduce our cost. Most importantly, we remain well positioned to take advantage of opportunities created by expanded competitive markets and improved economic conditions. Now I'll ask the operator to open up the call for questions.

[Operator Instructions] Our first question is coming from Dan Eggers from Credit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: Jim, just kind of following on maybe on where you left off on your comments just with the fund-raising options between the Harrison transfer of that nearly 1,200 megawatts of hydro sale and then $300 million of equity. Even using pretty conservative assumptions, it seems like you'll get well past the $1.5 billion debt paydown target you guys talked about. How do we put that level of fundraising in context with -- kind of with the strategy of getting down to the $1.5 billion? What happens with the excess money?

Well, Dan, as Tony alluded to, we're in the midst of a growth program also. We're investing in our transmission facilities. In conjunction with the Harrison asset transfer, we're going to have an equity infusion down into the Mon Power level. We're also growing our competitive business. And as we said, we believe the finance plan we have laid out with the asset transfer, as well as the asset sales will more than cover the $1.5 billion. But with our focus on growth, we thought it would be prudent to add a bit of equity to the mix. Dan Eggers - Crédit Suisse AG, Research Division: And I guess, if you look out to kind of '14 and beyond, do you see the need to continue raising equity at that kind of rate to support the growth program? Or is this just a rebalancing option in your mind?

At this point, Dan, I would consider a rebalancing, but as we go out into the future and continue to look at our growth opportunities, we'll always consider equity in the mix. Dan Eggers - Crédit Suisse AG, Research Division: Okay. And I guess, if you have Donny on the phone, Donny, can you talk a little bit about kind of with 96% hedged for 2013, how the volume targets have matched off against what you guys provided at EEI? and if there's any customer segments that are doing better or worse than what you thought you're going to be doing?

Yes, sure, Dan. So our target hasn't changed. I think at the EEI we said 104 terawatt hours. I would tell that you I have a boss who continually challenges me to exceed that, so we'll see how the year progresses. The 94% is against that original target though. Dan Eggers - Crédit Suisse AG, Research Division: And are you seeing kind of customer cost mix consistent with original expectations or there's been some movement?

No. It's still pretty much in line with -- we've really done well on our mass market sales. We've just recently launched our customer choice campaign, and we would see that bringing in additional mass market customers along with continuing to push on gov ag.

Our next question is coming from Julien Dumoulin-Smith from UBS.

So just following up on Dan's last question there, with respect to asset sales, et cetera, how does the $300 million kind of jive against expectations there if you could kind of just be a little bit more explicit?

I'll just give you my perspective on it. I think the transactions would otherwise have laid out for the asset sales in Harrison where we're more than adequate to carry out the game plan that we've laid out for debt reduction. The $300 million we talk in terms of equity is going to help support some of the growth initiatives that we have going on throughout the company, including the transmission expansion plans that we have, several plans to increase the capacity at some of our nuclear plants to renew turbines and things of that nature that are beginning to position the company for longer-term growth as this economy improves.

Great. And could you speak to the timing of asset sales? Just is it a this year event? Or is this kind of over the next couple of years or what have you?

Well, I think the key one that we're talking about at this point, next -- there's always an opportunity for asset sales as you guys well know from our -- what we've done over the last several years. But the key one being the hydro sale, we would like to complete this year, and that's our -- that's what we are targeting to accomplish.

Okay. And then perhaps going back broadly and tying retail back into this, as I heard your comments, you described growing retail broadly speaking. How does that jive with asset sales here? I mean, are we talking about potentially adding selective assets in markets where perhaps you might want to serve more from your generation, i.e., Eastern PJM or something?

Well, not at this point. I think at this point, what we're looking at is allowing sales to drive generation investment. And I have confidence in Donny and his team to drive retail sales to the levels beyond where we're at today such that beginning to reinvest in our power plants to reduce forced loss rates, make them more efficient so we can get more kilowatt hours out of the same machines will be where most of our investment is targeted. In the near term, much of that investment is being targeted towards the nuclear upgrades in the -- not only at Beaver Valley in 2012, but 2013, we have upgrades at both Perry and Beaver Valley 2 or Beaver Valley 1 for new turbines. But we have with some major investments in the nuclear fleet with respect to steam generator replacements, which will reduce our long-term O&M costs and give us -- in addition, give us shorter outages, which will create more kilowatt hours from those -- from that fleet to be used and deployed in the retail strategy. So there's a lot of activity going on, and there's a lot of opportunities yet inside the fleet to expand and become more effective with the machines we have before we look outside.

And just a real quick clarification. Given pension, mark to market, et cetera, pension funding plans as it stands today, there are no contributions projected for '13 or beyond.

That's correct, Julien. Probably the first time that we would make a contribution would be 2016 for the 2015 plan year, and that's just based on current rates. So we don't have any expectation on making a contribution over the next several years.

Our next question is coming from Stephen Byrd from Morgan Stanley.

I wanted to just get your general thoughts on low-growth outlook. I know there's a lot of unusual weather activity, and for the year, total low was up 70 basis points from last year. But as you mentioned in your sort of prepared remarks, there was certainly a lot of movement within the investment classes. Could you just talk a little bit further about the 3 customer classes and your general views on the outlook for low growth amongst those 3 classes?

Stephen, this is Jim. We're looking at load growth of about 0.5% to 0.6% next year. What we see the residential and commercial areas just growing ever so slightly, and the industrial sector has been sluggish over the last 3 years. It's remained fairly stagnant. Now we're seeing some positive signs such as Ford. They're opening up a new engine plant, and we expect ultimately that we'll start seeing industrial and commercial activity coming from the Marcellus and the Utica Shale that we have in our area. But I don't see that as active in 2013 as maybe it will be when we get out in '14 and beyond.

I think that's right, Steve. I'm being a little cautious in terms of how fast this economy will turn around. I think this area is poised to grow and grow at rates that are potentially far greater than what we've seen in the past because of the economic development potential in -- for the Marcellus and Utica Shale. We're all looking -- if you take a look across the area, Pennsylvania, West Virginia, Ohio, it basically sits on our -- sits under our service territory. There's a lot of expectations right now in terms of a manufacturing renaissance taking advantage of the locational advantage they would have for energy. And we'd hope to see this as a catalyst for a much more significant and much more sustained growth not only in the manufacturing and industrial segments but the fallout of that through the commercial and the residential markets. So, so much depends on what happens to the economy in general in terms of are we going to be growing or continuing to kind of stagnate and are we going to begin to use the resources we have as a country to really reposition the economic capability and potential, particularly of this region, to take advantage of it.

Now that's very helpful. And then just one follow-up on, Jim, on the equity side of things. As you think about funding growth, you had mentioned up to $300 million to fund some of your growth objectives. Would you envision the dribble as being the primary method to achieve that?

There is various methods there, Stephen. At this point, the dribble method is one that we like.

Our next question is coming from Jonathan Arnold from Deutsche Bank.

Just quickly on the asset sales, are you looking -- Tony, I just want to make sure I heard this correctly -- exclusively at the hydro Assets? Or are there other things you potentially on the table? Or should we just sort of be focused on that?

I think that's the primary one, Jonathan. I mean there's always assets moving around in this company because of -- just because of our location. For example, we have lots of resources and lots of land in -- that sits above Marcellus and Utica Shale. So I mean I suspect there'll be some transactions like that. They'll typically be one-offs. I think the real game here is going to be played on the hydro assets.

Okay. And did you -- have you disclosed kind of what book value is on those assets or anything other than just the megawatts?

I don't plan on telling anybody what the book value is.

Okay. And if I may, just sort of another front. There's obviously a lot of talk around EPA planning to regulate, have a move forward on regulating carbon. Can you just talk about how that's factoring into your thought process around investment in the coal fleet? What are you thinking comes out of that process? And what sort of time frame do you get enough clarity to sort of be certain that what you're doing on your existing plants will sort of survive future regulation on the CO2 front? Anything you can tell us there?

Well, I guess, Jonathan, if I had all those answers, I'd feel really good about it. All I can tell you is I think we're preparing ourselves to deal with these issues as best we can. If you take a look at our fleet and you compare, for example, going back in time to either 1990 or 2005, which are the kind of the dates that had been thrown around to measure, we will have reduced our carbon footprint in our fleet significantly beyond what any expectations were at either the Kyoto Protocol of 1990 or the 2005 baselines that were used before. So we've done a lot. A lot of the plants as they get shut down reposition. The investing in the nuclear fleet to produce more out of that side of the house has done -- has improved significantly the -- and reduced significantly the amount of CO2 that our fleet produces. So on balance, a lot of it depends on what the rules are and what the baseline is in terms of what the expectations are going forward. We all know that there's no technology today that's commercially available to address this issue in a major coal-fired facility. So there has to be a transition period. There has to be recognized -- somehow, we have to recognize the time frame associated with it. And quite frankly, I think our fleet's in pretty good position.

Our next question is coming from Neel Mitra from Tudor, Pickering. Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Just a quick question. Can you give us a rough sense of what your earned ROEs were in 2012 and just what opportunities or whether you'd be in the rate case arena besides in New Jersey in Mon Power for the asset swap in the coming years?

This is Leila. We do provide information regarding our ROEs in an ongoing basis with our state utility commission, the majority of which is publicly available. And what we're going to be doing, we're going to be pulling together our latest filings and hope to make them available in our investor presentation materials at our conference next week. But I think the long and the short of it is we believe that our utilities are earning a fair return as permitted by state law. Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. Second question on the generation side, how willing are you to rely on the purchase power market to fund, I guess, the retail sales? I know now that you're running generation less, you rely more on the purchase power market. And how far are you willing to go on that just in terms of how risky that is?

Well, obviously, when we think those issues through, the risk is associated with the -- more with the creditworthiness of the person that you're buying from. We will close positions against the sales that we make and then essentially reclose those positions using our own assets once we determine that the sale is sustainable and if we can increase the margin associated with that sale by essentially producing it ourselves.

Our final question is coming from the line of Paul Patterson from Glenrock Associates.

There'd been -- you mentioned the manufacturing that it's on and there'd been a bunch of new power plants that have been announced in Ohio and Pennsylvania. Some of them are merchant. I'm just wondering any thoughts about what that presents in terms of an opportunity to you. Or competitive threat? Or just what do you make of that?

Well, my own sense is that the market today has sufficient capacity in it, so investments in new generation of significant amounts is -- it could be a problem for the investors.

Okay. The hydro asset, it doesn't sound like you guys are talking about the book value or anything. Can you give us a sense of what the capacity factor is on those plants?

Well, we probably could. I don't think we have it with us. But you got to remember you can't look at capacity factor for some of these plants or pump storage because relatively meaningless because -- well, they really run during the day, and they're pumped up at night, then run a river kinds of facilities the rest of them are -- I mean, I don't -- I'm not sure capacity factor is particularly relevant.

Okay. But I mean, I guess, you know where I'm coming from. I'm trying to figure the margin if you can tell us that, sort of a sense as to what might be going away as you sell those.

We're not particularly concerned about it on our fleet, again, because of the other options we have.

Okay. Great. And then in terms of the Harrison plant, you guys mentioned the December letter, that if you didn't have 100% of the plant, you may not be able to offer it into the RPM auction at a price that would clear. Given now what the procedural schedule is, it looks like, I mean, the approval's going to happen after the auction. How should we think about that?

Paul, this is Donny. We'll bid the Harrison plant into the auction in May from FES' side of the equation.

But we should expect it to clear?

Well, we'll treat it like we would any other generator that we bid in, Paul.

Yes. The asset's going to bid and I guess, by 2 entities. One would be the utility. They'll choose what to bid. And the other will be FES on their other ownership, and they'll choose what the bid.

Okay. And then just finally on the POLR and the PUC in Pennsylvania. It seems like they've changed the rules, and I'm just wondering is that a lot more opportunity -- does that give you guys more opportunity on the retail side there?

Are you talking about where they are going with these shorter-term bids, Paul?

Yes. Sounds like they want to create more volatility almost like they want to sort of force people to shop or encourage them to shop, I guess, is a better way to put it.

Well, clearly, that Pennsylvania has an objective. They would love to see 100% of the customers shop. And I think that those auctions are designed to do that. We've participated in those processes, and we're very comfortable competing both in the POLR auctions as well as the retail front.

Okay. I'd like to thank everyone for joining us on the call today. Tony, Leila and I will be in New York next week for a conference, and we look forward to seeing many of you there. As always, we appreciate your support and your interest in FirstEnergy. Thank you.

Thank you, everyone.

Thank you.

Bye now.

Thank you. This does conclude today's teleconference. You may disconnect your lines, and you have a wonderful day. We thank you for your participation today.