Greetings, and welcome to the FirstEnergy Second Quarter 2019 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Irene Prezelj, Vice President, Investor Relations for FirstEnergy. Thank you. Please go ahead.

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

Thanks Irene. Good morning, everyone. I'm glad you could join us. Last night we reported solid second quarter GAAP earnings of $0.58 per share, along with operating earnings of $0.61 per share, which is above the midpoint of the guidance range, which we provided on our last call. While the mild spring weather across our service territory contributed to lower distribution sales this quarter, our results benefited from continued transmission rate base growth related to our Energizing the Future program, as well as lower expenses. We are executing on our plans to focus on customer service oriented growth, as we strengthen our distribution and transmission systems and prepare them for the grid of the future. As promised, these strategies are producing solid and consistent earnings growth that is in line with our guidance. The only downside I see, as you may start to find our calls a little boring, but seriously, I'm very excited about where we are at, at FirstEnergy, but more importantly, where we are going. Let's start with a review of some of the recent developments in our business over the last few months, then Steve will walk you through the results and as always, we will have ample time for your questions. In our transmission business, we remain on pace to implement $1.2 billion in Energizing the Future investments this year with 600 to 700 projects on track to come into service during 2019. Last week we participated in a transmission summit hosted by the Public Utilities Commission of Ohio. Our team brief the commission and staff on the key areas of investment addressed by our Energizing the Future program, the need for this work and the benefits to customers as well as our process for project selection. When we began our Energizing the Future initiative,…

Good morning, everyone. It's good to speak with you today. As always, I'll begin with a couple of housekeeping items. First, reconciliations and other detailed information about the quarter are available on our website in the strategic and financial highlights document. Also, we continue to present operating results and projections on a fully diluted basis, this provides the best comparative view of our performance. As of July 22nd, there are currently 181,520 preferred shares outstanding, with conversions expected to be completed by January of 2020 Now let's look at our results. Our second quarter GAAP earnings were $0.58 per share. Operating earnings were $0.61 per share, as Chuck mentioned, this was above the midpoint of our guidance. In our distribution business, our results were primarily impacted by very mild spring weather, which contrasted with a very hot spring in 2018. This drove lower load across all three of our customer classes. Results also reflect the absence of last year's benefit from a court ruling on cost incurred for renewable energy credits in Ohio. These factors were slightly offset by the impact of lower expenses and income taxes. Total distribution deliveries decreased compared to the second quarter of 2018 both in actual and weather-adjusted basis. Heating degree days were 20% below normal for the second quarter and 23% lower than the second quarter of 2018, while cooling degree days were about 4% below normal and 28% below the same period in 2018. Residential sales decreased 9.7% on an actual basis compared to the second quarter of 2018% and 2.4% on a weather-adjusted basis. Overall, our weather-adjusted residential sales have grown modestly over the last 12-month period. Second quarter sales in the commercial customer class decreased 5.6% on an actual basis and about 3.2%, when adjusted for weather. In our industrial class,…

[Operator Instructions] Our first question comes from the line of Julien Dumolin-Smith with Bank of America.

So want to go back over this and I acknowledge at the outset that this is still early days in implementing this, but can you elaborate a little bit on the mechanics of this decoupling element. I know there is a 90-day element to file for it, but how exactly, would it be implemented with respect to full year 2019. And then secondly, in addition of the mechanics of filing for it and applying it to the 2019 year, how should we think about establishing 2018 rates that might be the trickier piece here. But how do we understand 2018 versus 2019 and I appreciate the nuance that you have these other tracker mechanism in place that make it a little bit apples and oranges at least from our side to see it comparably. So if you don't mind, because I get at the end of the day this is a decoupling mechanism, but there is a few nuances here?

Well, let me try to tackle it at a high level first and I don't think we're going to be prepared to speak to the exact nuances and how it's going to affect either 2018 and 2019 till we get a chance to fully analyze it. But the bill was our clean energy bill at its heart the decoupling is included in the bill to support Ohio’s clean energy goals. It allows all of the utilities to continue to work with customers to drive further energy efficiencies without a concern for the impact on the revenues with the companies. In Ohio, we have a shared mechanism for lost distribution revenue that this now eliminates the need for us to worry about that. And it's ultimately going to - it will help reduce customer bills because that energy efficiency mandates on our bills, we're going to grow significantly over the next several years. AEP, Duke and DPL already had some type of decoupling mechanisms in place. And I’ll point out this applies to the base rates only and as you already said Julien, it's a 90-day period before it goes into effect and then 30 days. So we're looking at November 20th would be the earliest date that we could file for being included under this new decoupling mechanism. And the commission would ultimately has 60 days to make a decision. So that pushes it till January 19th. For me, as I look at it, I think if you combine the decoupling opportunity with the seat provisions that were combined - that were included in the budget bill with our ESP that's already in place through 2024. It puts us in a position for our Ohio companies where the base distribution revenues can be very predictable and very strong. And the growth in our Ohio utilities is going to come from continued investments in the DCR rider and the 516 million that was just approved for the grid modernization rider. So I think it's going to ultimately provide a very clear and transparent story for our three Ohio companies, but I just can't give you the specifics on the details of how it affects 2018 and 2019 just yet. We've got to get into it.

Maybe let me make this simpler, just to help frame this. Because I suppose, if you look at year-over-year comps, like you just did. I mean how much are you down year-over-year on weather as you think about it and if you were to think about it specifically for our Ohio if that might be an easier way to just frame it, just year-to-date. Can you tell me if that's appropriate to?

Yes, Steve is going to answer the weather issue.

Yes, maybe I can tackle the weather at a high level issue Julien as we try to compare two very different quarters when you look at 2019 versus 2018. 2018 was very hot weather, it makes the quarter-over-quarter comparison challenging weather adjustment for us is art part science. And this is just one quarter, so it's kind of dangerous to compare them year-over-year. When you look at our trailing 12-month average, I think I'm more comfortable, looking at that and really on an overall basis total loads are about 0.2% to the positive. So we view that as the broader indicator. And I think Ohio tracks along very well with that comparison. Hopefully that helps.

And just again to clarify the last question there. Since, you would file potentially on November 20th earliest that could still apply to 2019, even if you don't get a decision until June 2019. Just to clarify that last piece of the process?

Yes.

Excellent, well, thank you all very much.

And on this topic, I just want to take a moment to say how great it is in the State of Ohio to have leadership in Columbus, who actually looks at issues and is willing to lead. I want to complement our Governor, Lieutenant Governor, Senate President, Speaker of the House, numerous members of the legislature and Senate, and the Chairman of the Commission because they all work together on a very complex bill here. With a goal I think of providing stable and transparent rates for customers going forward and keeping their Ohio utilities strong at the same time. I think they came up with an approach that was very strong in terms of looking out for this industry and our customers in the State of Ohio.

Our next questions are from the line of Charles Fishman with Morningstar Research.

Chuck I either had a bad assumption or - a memory here. I always thought the plan on TMI was to wait until unit one retires and then do both of them together. I guess my first question is, am I wrong about that. And then related to that is, I realize you're just at a term sheet, but what we've seen with other nuclear owners that have retired plants. And I'm assuming this is what's going to happen with energy solutions they take over the trust fund in exchange for all the responsibilities of the decommissioning and decontamination. And then what you would do once you have a signed contract is or the two of you acting together since they can accelerate this decommissioning. You would go ahead and derisk the trust fund and certainly there is a good time to be doing that. So there'll be plenty of money in that is. Do I have this correct right?

Well, let me kind of take it from the beginning. First, I don't believe there was ever any plan to decommission both units together. One unit is owned by Exelon, one unit is owned by FirstEnergy through GPU nuclear and the utilities as I said. And I think both Exelon and us are going to make our own decisions about how to move forward with our assets. Our decision was up until now we've been relying on Exelon for some support with TMI-2. And there is ongoing monitoring and things you have to do that now that they have made the decision to close TMI-1 that caused us to start looking more seriously at what we needed to do with TMI-2. And I think that basically what I'm trying to say is the term sheet outlines an approach whereby all of the liability for decommissioning along with the decommissioning fund the license, the property, the assets, will all be transferred to Energy Solutions and it will get FirstEnergy out of the nuclear business entirely.

And there's plenty of money in the trust fund.

Well, I think that's the thesis from Energy Solutions perspective is, that they’re good at this. There is plenty of money in the trust fund and they believe they can execute and decommission it for less than what's in the trust fund with whatever is left over being their margin so to speak on the decommissioning.

Next question is from the line of Paul Fremont with Mizuho.

I guess first question would be, I noticed on the pension that the slide is unchanged from the fourth quarter but interest rates, I think are substantially lower than they were in the fourth quarter. Can you provide any type of an update on what the unfunded pension liability would be at the end of this year versus sort of the 1.6 billion that you were indicating, I think in that slide?

I'll turn it over to Steve, but I'll point out that it's July and while the returns on our pension have been doing really well. Last year December was a horrible month and caught everybody by surprise. So we can't really predict in July, what we think is going to happen, but we can give you. And Steve will give you a kind of a year-to-date outlook on where we're at.

Great.

Paul, it's Steve Starh. So Chuck -- it's only July, we've really won't have a clear picture until we get to the end of the year. Specifically on what the asset performances as well as the impact of the full yield, yield curve. But right now based on what we know our funded status is right around 82%.

So that actually that's consistent with where, what the slide would show it to be right?

Yes. So we ended 2018 right around 77% and keep in mind, we made a $500 million contribution earlier this year, so that benefited us and so the impacts that we have related to our return on assets are basically offset by the change in the full yield curve to date. So that washes and so the $500 million contribution really improved our funded status from 77% to 82%.

And I would just round it off by saying, we don't see a need for an additional contribution through our planning period through 2021.

And then any update on when you might provide an indication of growth beyond 2021.

Not before EEI this year at their earliest.

And then sort of last question on the CapEx guidance that you're providing particularly for Ohio and New Jersey, does that reflect the settlement because you're still providing sort of a fairly wide range is in both of those jurisdictions. And is there -- and if it doesn't, you sort of, provide an update as to where you would see yourself in the ranges for both for both Ohio and New Jersey?

It does reflect a settlements and we provide the ranges. Just to give us some flexibility as the years unfold to move some money around from state to state transmission to distribution et cetera for things that come up that are unforeseen and that's the only reason the ranges are there. I think you can expect us to be total capital and that $2.8 billion to $3 billion range each of the next several years.

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

Two questions. First of all on the distribution business, how are you thinking about the outlook for O&M and O&M growth over the next year or so?

I would say we're look -- thinking about it being flat.

So keeping O&M growth relatively flat versus what a 2018 ongoing O&M level at 2019 level or I'm just trying to think about what the baseline is?

I would say the baselines been where the baseline spend but we just, we just went through our FE Tomorrow program which reduced some of our obviously corporate O&M and exceeded our original targets by $50 million. So that's all been baked in to our current numbers going forward as we make these investments in transmission and distribution. What we're trying to do is make investments that have offsetting reductions in O&M that can allow us to kind of keep our O&M flat as things like wages and the cost of material and supplies go up incrementally each year.

One other and a little bit of an unrelated question, you've tracked pretty well in kind of weather normalized especially industrial demand in West Virginia. At what point does this create a need for new infrastructure for you guys to build out and how do you think about kind of the timing of when that's needed, and whether its generation or significant transmission or even substation build out and B, how do you go about getting recovery on that?

Well, of new businesses part of what we deal with every single year inside both our distribution and transmission budgets. In transmission there have been several fairly substantial projects in recent years, dealing with the shale gas development in West Virginia and Pennsylvania in particular, so we cover all of that within those existing capital budgets. We plan for a certain amount, it moves around each year, but new business as part of what we plan for every single year and there is no need to really I think contemplate anything exceptional there.

[Operator Instructions] Our next question is from the line of Andrew Weisel with Scotia Howard Weil.

I’ve got a question on the treatment of writers, particularly in Ohio and Pennsylvania. So obviously the DMR court decision was an unfavorable one. My question is the money that you were planning to spend for that program, will you continue to spend it and just seek recovery through a more traditional Avenue notwithstanding, in the rate freeze in Ohio, but should I think of that CapEx money as still going to be spent or is it going to be maybe downsize or postponed and I understand you work within very wide range of the guidance. That's very clear. I'm just wondering about the outlook for the actual spending?

I think you should think of it this way, I mean first of all, we're very disappointed, as I said in the court ruling. And we think we've made a rehearing application that has strong legal basis, but the cash that came from that rider it was factored into our capital plan, which I already said is going to be $2.8 billion to $3 billion each year for the next several years across the whole footprint. It's not going to affect what we spend on capital. It's not going to affect our growth rate over the period. In fact, nobody ever gave us credit for it anyway. And now, it's a big deal when it's not going to be there for two quarters, it's cash and we've worked hard to strengthen our balance sheet. Steve articulated, particularly the recent credit rating agency actions on our Ohio utilities with upgrades at all of them in a double upgrade at one of them. So the impact of the cash is we don't like it, but it's not going to take us off track from the story that we're telling you, which is 6% to 8% growth and solid movement in Ohio with the CR and the grid mod writers.

And then a similar parallel questions for Pennsylvania, you have the upcoming LTIIP filing for 2020 to 2024, should we, when you give the CapEx guidance for Pennsylvania you split it into stated in formula, should we think of maybe how can you give us a little sneak preview as to the size of what that filing might look like. Maybe I'll ask it that way.

I don't think we can and we're still formulating it and until we know exactly which projects and which -- what our goals are going to be, we can't. But, but the range of capital that we give you is a range. That's large enough that if we decide to expand LTIIP it would take us to the top end of that range if we decide to keep it where it's at we may hang at the bottom of that range, but I think you can expect, as I've said somewhere on the order of $2.8 billion to $3 billion of capital invested in our companies over the next several years every year.

So if the outcome of that process is lower end of the reign type of number, would that just mean that you'll have to recover the capital through traditional rate case maybe a little sooner than if the LTIIP were larger, its that the way to think about it?

No, I think what we file and LTIIP. We have the ability to recover through the desk and then ultimately, when we get to the point where it's 5% of revenues for our company, then we'll have to have a base rate case to continue, but I don't think you should expect us to tell you anything unless, unless that capital range that we've given you would change for some reason other than that we have that range to allow flexibility for us to manage the different things that come out throughout the year at all these companies.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for closing comments.

All right. Well, it will be I think our shortest earnings call. I hope you weren't too bored. But it feels good to be where we're at. And thank you for your support. Look forward to talking to you with the third quarter call

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