FirstEnergy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

FirstEnergy (FE)

Q1 2012 Earnings Call

May 01, 2012 1:00 pm ET

Executives

Meghan Beringer -

Anthony J. Alexander - Chief Executive Officer, President and Executive Director

Mark T. Clark - Chief Financial Officer and Executive Vice President

William D. Byrd - Chief Risk Officer and Vice President of Corporate Risk

Leila L. Vespoli - Executive Vice President and General Counsel

Harvey L. Wagner - Chief Accounting Officer, Vice President and Controller

Irene M. Prezelj -

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Stephen Byrd - Morgan Stanley, Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Gregg Orrill - Barclays Capital, Research Division

Greg Gordon - ISI Group Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Kit Konolige - Konolige Research, LLC

Presentation

Operator

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

Meghan Beringer

Thank you, Jackie, 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. 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; Mark Clark, Executive Vice President and Chief Financial Officer; Leila Vespoli, Executive Vice President and General Counsel; Jim Pearson, Vice President and Treasurer; Harvey Wagner, Vice President, Controller and Chief Accounting Officer; Bill Byrd, Vice President, Corporate Risk and Chief Risk Officer; and Irene Prezelj, Vice President of Investor Relations. I will now turn the call over to Tony Alexander.

Anthony J. Alexander

Thanks, Meghan, and good afternoon, everyone. Thank you for joining us today. We will be reporting first quarter results, and quite frankly, they were solid despite the very mild temperatures that Mark will discuss in more detail.

Based on these results and our continued confidence in our business strategy, we are reconfirming 2012 and 2013 non-GAAP earnings guidance of $3.30 to $3.60 per share and $3.10 to $3.40 per share, respectively.

Turning now to a review of recent events. I'll start with an update on our actions to address new environmental regulations, including the plant retirements we announced earlier this year and the current cost expectation for compliance with those regulations at our remaining fleet. Finally, I'll look at recent state regulatory issues. Then Mark will discuss first quarter results, including recent economic activity across our region and review our retail strategy.

Okay, let's get started. As you know, we announced plans earlier this year to retire units at 9 of our older coal-fired plants by September 1, 2012, as a result of the new EPA Mercury and Air Toxics Standards, otherwise known as MATS and other environmental regulations. This includes units at 6 competitive plants in Ohio and Pennsylvania and 3 regulated plants in West Virginia. As a part of this process, PJM Interconnections conducted a review to determine the impacts these retirements could have on system reliability.

In March, to address PJM's preliminary reliability concerns, we filed an application proposing approximately 800 megawatts of new combustion turbine peaking generation to be installed at our existing Eastlake plant. It is our intent to offer these units into PJM's capacity auction next week. If they clear the auction, we would begin construction efforts to meet a targeted in-service date of spring 2015. In addition, to bridge the ATSI region to early 2015, PJM's current planning assumption is for reliability must run arrangements, or RMRs, for Eastlake units 1 through 3, Lake Shore unit 18 and Ashtabula unit 5. This involves a total of 885 megawatts, which will help ensure reliable electric service for the Cleveland region. We anticipate that the RMR arrangements will be structured so that PJM will compensate us to keep the units available for operation through early 2015. At that time, we plan to go forward with retiring those units. In addition to the RMRs and the new combustion turbine generation at Eastlake, our transmission group, working with PJM, has identified a number of transmission projects that can be implemented over the next several years and are expected to also improve reliability in the ATSI zone. While we do not have final estimates for the cost of these transmission projects, we are currently projecting a capital spend of between $700 million and $900 million over the next 4 to 5 years. We expect to earn a return on these transmission investments from the time we begin construction. The remaining competitive units slated for retirement, Eastlake units 4 and 5, Bay Shore units 2 through 4, Armstrong and R. Paul Smith are expected to be retired as planned by September 1 of this year. The 3 West Virginia plants included in these announcements are regulated and we have provided the West Virginia Public Service Commission with information regarding the plant deactivations. We also anticipated deactivating these units by September 1.

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