第一能源 (FE) 2018 Q4 法說會逐字稿

Greetings, and welcome to the FirstEnergy Corp.'s Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Irene Prezelj, Vice President, Investor Relations for FirstEnergy Corp. Thank you. Ms. Prezelj, you may begin.

Thanks, Christine. Welcome to our fourth 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, and good morning, everyone. 2018 was perhaps the most pivotal year in FirstEnergy's history. Through a series of careful coordinated actions, we met our commitment to fully transform FirstEnergy into a premier high-performance pure-play regulated utility. I will spend just a few moments recapping the year, then move to our opportunities for 2019 and beyond.

We began 2018 by announcing a $2.5 billion equity investment from several prominent investors. Among other things, this new investment enabled us to reduce our holding company debt by $1.45 billion, eliminate the need to issue additional equity outside of our employee benefit and stock purchase plans through 2021, and contribute a total of $1.25 billion to our pension plan in 2018. That investment also helped us accelerate our regulated growth in infrastructure improvement plans. And for the first time ever, introduce a long-term growth rate projection for our regulated operating earnings.

In April, we reached an agreement in principle to address our obligations in the Chapter 11 bankruptcy proceedings of FirstEnergy Solutions and all of its subsidiaries and FirstEnergy Nuclear Operating Company. Our final definitive agreement was approved by the bankruptcy court in September. Reaching a fair settlement with the debtors, Unsecured Creditor Committee and key creditor groups within months of the bankruptcy filing helped us deliver on our commitment to quickly and thoughtfully exit competitive generation, allowing us to turn our attention to FirstEnergy's future as a fully regulated utility.

The settlement and our improved risk profile as a utility with stable, predictable earnings and cash flow cleared the way for an across-the-board upgraded S&P, including an upgraded issuer credit rating at FE Corp. and a positive credit outlook with Fitch.

In turn, we had lower liquidity requirements and took several steps in October to reduce our financing costs. We reduced the aggregate commitments under our revolving credit facilities to $3.5 billion from $5 billion and extended the maturity dates to December of 2022. At the same time, we refinanced our revolver borrowings through 2 new term loans totaling $1.75 billion. To effectively and efficiently support the growth of our regulated transmission and distribution businesses, we completed our FirstEnergy Tomorrow initiative to realign our shared service organization and cost structure.

Through a voluntary enhanced retirement package and the elimination of open positions, we reduced headcount in our corporate support functions by 40% and expenses by 43% without any involuntary employee layoffs, which is an accomplishment I'm very proud of.

At the same time, we created a flatter, leaner management team by reducing layers and increasing spans of control. We identified and eliminated $300 million in costs associated with our previous support of competitive operations. And we expect to realize an incremental $85 million in savings due to additional reductions in capital, interest and O&M expenses.

As a capstone to our transformation, our board approved a new dividend policy along with an initial 6% dividend increase in November that reflects confidence in our regulated long-term sustainable growth plans. With a targeted payout ratio of 55% to 65% of operating earnings, the new policy supports increased shareholder returns and continued investments in our strategic initiatives.

Our stock ended the year with a total shareholder return of 27.7%, making FirstEnergy the top performer in the EEI Index. I know many of you have been long-term investors in FirstEnergy, and we thank you for both your confidence and patience.

With all of this going on, I couldn't be prouder of the way our employees stayed focused and executed on our growth initiatives.

Last night, we reported full year 2018 GAAP earnings of $1.99 per share and operating earnings of $2.59 per share. Operating earnings exceeded our initial 2018 guidance and were at the top end of the range we provided in October. This makes 4 consecutive years of consistently meeting or exceeding our guidance to the financial community.

Our 2018 results benefited from weather, solid execution of our growth strategy in the transmission and distribution businesses, and modest load growth in all 3 of our distribution customer classes.

We remain encouraged with the overall trends in our distribution business. Industrial sales have increased steadily for 2.5 years, while most of that growth is driven by the shale gas industry, we're also seeing sustained improvement in the steel sector.

Our weather-adjusted sales to residential and commercial customers were modestly positive across the full year, and we were pleased to see continued gains in the number of new customers in these segments.

In our transmission business, we are entering our sixth year of Energizing the Future program. We continue to efficiently execute our long-term customer-focused strategy to modernize the transmission grid across our service area. Our transmission rate base at 30% of our total regulated assets ranks among the largest in the nation, and our transmission spend as a percentage of market capitalization is at the top of our industry.

We are excited about the future, and I believe we are poised for a strong year ahead.

Let's shift gears to recap some of our ongoing initiatives and expectations, starting with our regulatory activities.

First, our Ohio utilities have a supplemental settlement pending with the Public Utilities Commission in the matter of tax reform and grid modernization. The original settlement filed last November was signed by the PUCO staff, representatives of industrial and commercial customers, environmental advocates, hospitals, competitive generation suppliers and other parties. The supplemental settlement added the support of residential customer and low-income advocates. This settlement addresses how all of the tax savings associated with federal tax reform would be returned to customers and seeks approval for the initial phase of our grid modernization program with investments of $516 million.

Earlier this month, our Ohio utilities also made a filing with the PUCO to request approval for a 2-year extension to the Distribution Modernization Rider. Rider DMR was first authorized by the PUCO in 2016 to provide additional revenues to ensure our Ohio utilities have access to lower-cost capital that promotes a faster and more economical path to modernizing the distribution system for the benefit of our Ohio customers. While we believe we have a strong case to continue this rider, I will remind you that it is not factored into our earnings growth projections.

In Maryland, hearings took place in January, and we expect a final order by late March in our first Potomac Edison base rate case in nearly 25 years. As we have discussed, our request of $17.6 million will address recovery of investments to provide safe and reliable service to our Maryland customers, and it is net of $7.3 million in customer savings related to federal tax reform.

And in New Jersey, the procedural schedule for our 4-year $400 million JCP&L Reliability Plus infrastructure investment plan was suspended due to settlement discussions. JCP&L Reliability Plus will enhance the safety, reliability and resiliency of our New Jersey distribution system.

Throughout this year, we expect our newly formed Emerging Technologies group to continue identifying opportunity for future investments that will allow us to better serve our customers by analyzing and implementing advanced technologies and working with state and federal policies designed to improve grid performance and energy security.

We are affirming our 2019 full year guidance of $2.45 to $2.75 per fully diluted share as well as our long-term operating earnings growth projection of 6% to 8% through 2021.

Now let's turn to Steve for a review of our results for the fourth quarter and other financial developments.

Thanks, Chuck, and good morning, everyone. It's great to speak with you today. First, a reminder, reconciliations and other detailed information about the quarter and the year are posted on our website in our consolidated report to the financial community. Also, consistent with our practice over the past year, we present operating earnings and projections on a fully diluted basis. This allows us to show preferred shares as fully converted and eliminates the impact of conversion timing. About 87% of the preferred shares had been converted as of January 31. We expect the majority of the remaining preferred shares to be converted by the end of July in accordance with the terms of the equity issuance. With that said, let's get started at a look at the fourth quarter.

GAAP earnings were $0.25 per share. This includes a pension mark-to-market adjustment and other special items. Operating earnings were $0.50 per share, in line with the top end of our guidance. Our -- in our distribution business, our results benefited from higher deliveries, lower financing costs and stronger regulated commodity margin in West Virginia. These factors offset higher depreciation [than] O&M, and -- which was primarily related to additional vegetation management work in Pennsylvania.

Total distribution deliveries across all customer segments increased 1.2% compared to the fourth quarter of 2017. Residential sales increased 1/2 of 1%, while commercial deliveries were up 1.7%. Weather had a modest impact on sales with heating degree days about 7% higher than the fourth quarter of 2017. On a weather-adjusted basis, commercial deliveries increased 1.8% and residential deliveries were essentially flat.

In our industrial sector, the trends of steady growth now has stretched into 10 consecutive quarters. Fourth quarter deliveries increased 1.4% compared to the same period of 2017. This was led by gains in the shale gas, steel and electric equipment manufacturing industries.

In our transmission business, fourth quarter operating earnings at are formula rate companies were $0.02 favorable due to higher rate base at MAIT and ATSI. This was offset by higher O&M in our stated rate transmission companies.

And in our corporate segment, we had slightly lower operating earnings offset by higher income taxes and the nondeductible portion of interest compared to the same period in 2017.

Now I'd like to take a moment on this month's $500 million pension contribution. First, a quick history. Beginning in 2011, we adopted the mark-to-mark (sic) [mark-to-market] method for our pension and our other post-employment benefit accounting. Each year, typically in the fourth quarter, we remeasure our pension assets and liabilities to recognize changes in discount rates, actual return on planned assets and other differences to the actuarial assumptions.

The loss or gain is recognized in our GAAP results. This is a preferred method of accounting under GAAP because it recognizes the actuarial gain or loss in the year it occurs instead of amortizing it over a longer period. We exclude this adjustment from our non-GAAP operating earnings to provide greater transparency to our ongoing operational performance.

In 2018, our mark-to-market adjustment was a noncash charge of $0.19 per share, lower-than-expected returns were partially offset by a higher discount rate, which was on the high side of the estimate we provided in our third quarter materials. So we ended 2018 with approximately $3.9 billion of liquidity, of which $367 million was cash. We expected this favorable cash position to remain through 2020 so we decided to put the cash to work for us now by making the $500 million voluntary cash contribution to our pension plan on February 1 of this year. This contribution improves our pension plans funded status to 82% and it eliminates any projected minimum funding requirements through 2021.

As Chuck noted earlier, we're making great progress with the rating agencies. We're now investment grade across the board by S&P, Moody's and Fitch, and we expect further ratings improvements over time as we execute the regulated growth plan that we've outlined.

As many of you know, S&P tracks an FFO to total debt metric with a minimum threshold of 9%. Moody's tracks a CFO working capital to total debt metric, which has a current minimum threshold of 12%. And Fitch tracks an FFO adjusted leverage metric with a maximum threshold multiple of 6.5. We expect to be compliant with all 3 rating agencies and their respective thresholds through our 2021 planning period.

Our actions during 2018 redefined FirstEnergy. We're excited about our future as a premier fully regulated utility. Today, more than ever, we're focused on 3 things: Implementing our strategies; delivering on our commitments; and building a brighter future for our shareholders, customers and employees.

And now, before we turn it over for your questions, Chuck would like to share a few additional comments.

Thanks, Steve. Today marks the final earnings call for 2 long-time members of our executive team, who many of you know well, Leila Vespoli and Jim Pearson. Leila and Jim are both retiring in the next couple of months, following long and distinguished careers with our company. They both played key roles in our mergers, various acquisitions and our transformation into a fully regulated utility, and both have been key trusted advisers to me during my tenure as CEO.

I want to thank -- take this opportunity to recognize their strong and thoughtful leadership and to wish them a happy and healthy retirement.

Now I'd like to open the call for your questions.

(Operator Instructions) Our first question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Congrats to Leila and Jim here. It's been a pleasure. I wanted to follow up quickly, starting first with the commentary on New Jersey, the Reliability Plus program, just the commentary on suspended timeline here on settlement discussions. How do you think this could advance just procedurally here through the course of the year and against the CapEx that you've already outlined? And then separately, I noticed you kind of mentioned this in conjunction with the newly formed Emerging Technologies group. How do you think about the total potential size of spend here, especially as you go through the settlement process?

Okay. So first, in New Jersey. What I mentioned is that the procedural schedule has been suspended to allow the settlement discussions to continue. Obviously, we don't have a settlement to announce or I would have announced it today. So -- but we're hopeful that we can get to a settlement. But your second question, I think, is an important one and that is we are planning to spend just shy of $3 billion of CapEx per year for the next several years in our footprint. So when I think about the New Jersey spend, obviously, we filed that plan because that's where we would like to spend $400 million over the next 4 years. But in the event we don't get to a settlement and then we get back on to the procedural schedule and that doesn't work out either, we have plenty of opportunity around FirstEnergy in 4 other states and transmission to make these investments in order to support the 6% to 8% growth that we're committing to. As far as the Emerging Technologies piece, I think that's one of the most exciting things about where we're at as a company that we actually now have the time and the resources to start thinking about what do we want FirstEnergy to be in the future. We've committed to kind of what we're going to do over the next 3 years as far as capital deployment, but we're really looking state by state, utility by utility, and transmission at what are those new emerging technologies that makes sense for us to invest in on behalf of our customers, what are the regulatory and legislative impediments to being able to do that, and then we've got 3 years to start working on how do we deal with those impediments. And as I said, it's just, I think, an exciting time because I've just finished -- or just started my 41st year, I guess, I would say with this company. The first 40 years, we've been working in one form or another to always put some of the past behind us. And today, for the first time, we're really in a position to start looking to the future.

Excellent. And then quick second question here. I suppose the conversations are kicking up in Ohio, again, about any potential legislation. Is there anything that you all will be looking towards on the utility side, specifically here, if anything at all?

Not in any specific form, Julien. Obviously, if our new leaders of the states -- we have a new governor, a new speaker of the house, we're going to have a new Chairman of the Public Utilities Commission. If they determine that they think the time is right to really put energy policy for the state back on the table in some fashion, legislatively, then we would expect to engage and provide our input. But it's too early in the process for me to talk about what that might mean.

Our next question comes from the line of Greg Gordon with Evercore.

Just a quick question on the -- you guys said that -- in your prepared remarks that you expect to be compliant with all 3 rating agencies' minimum thresholds over the course of the financing period -- over the course of the forecast period. Given your 2019, I guess, when I think about the Moody's metric, in particular, right, the FFO forecast is lower now because of the pension contribution, but that should basically be [trading math] since it reduces your assumed pension deficit. This, all things equal, would be sort of neutral to the calculation. Is that the right way to think about it?

So yes, we expect to be in the right place with all 3 rating agencies throughout the planning period. 2019 has some unique attributes because of the remaining liabilities for the exit of competitive generation that are -- that will be gone in 2019, and I think, in our conversations with Moody's, they're looking beyond that period at more where we're going to be in the 2020, 2021 timeframe. So we're confident that we're going to stay above the threshold for all 3 rating agencies, and hopeful that we can even get to a position where we see further positive movement from them.

Okay. That, I guess, without being -- I was trying to be less blunt, but I just didn't see you guys at above 12% in '19 based on the cash flow profile you laid out in this guidance, but your explanation for that is that the CFO is negatively impacted by the remaining exit costs from FES and it should look better in '20 and '21?

That's right. There's a little dip below 12% this year, but it rights itself next year.

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

Just on the pension. You mentioned expecting that kind of cash position to continue to be strong into 2020. Is -- and you don't expect to have to make any minimum contributions. But is there a scenario where we might see further voluntary contributions along the way here and just kind of how you're thinking about that as you've been moving the funding up?

I'm not thinking about any further voluntary contributions right now. This one, the timing was such that we did have cash available to do it. And as you all know, our pension plan was hurt by the performance of the fund in 2018 as was everyone else's. And taking this step early helped offset some of those losses that we incurred last year. But right now, we don't have any plans to do anything. The next mandatory contribution is in 2022.

Okay. And can you share what would the size of that be, Chuck? Just kind of as you look at it today. I think you -- before you had a $330 million for 2021 was the number you gave us at EEI. Is the '22 number in the same ballpark or something smaller?

Jonathan, this is Steve Strah. It is in the same ballpark. Right now, we have that estimated at just about $380 million. Once again, that's in 2022. And we'll -- that will be subject to how the market performs over the next several year period, and we're comfortable.

Okay, great. And then just one other thing on the -- we didn't have time to review the filing on the DMR in as much detail as we'd like, but Chuck, could you just give us the sort of high level on how you're justifying the request to extend, and whether it's similar or revolved a little from the original request?

So first, obviously, we're very thankful that the Public Utilities Commission of Ohio did this for us several years ago. It helps insurers, as I said in my prepared remarks, low-cost capital to begin the process of modernizing the grid in Ohio. Our filing pretty much is along those same lines. And I think we have a strong case to argue for 2 years of additional DMR funding. But I also have said repeatedly, we don't have that in any of our growth plans, the 6% to 8% growth rates are not depending on it. And even if we get it for 2 more years, both those of you who evaluate our stock and the rating agencies, you're going to factor it out because it's only for 2 more years. But having said that, the cash and the availability of that cash to make meaningful investments in the grid in Ohio is important to us going forward.

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

So I just wanted to just touch on pension, again, just to clarify. Is the proportion of equity versus debt products that are invested from the pension plan changing as a result of the performance in '18? Or is that consistently a higher proportion of equity? Just so I understand going forward how should we think about the volatility of that fund.

This is Steve Strah, again. We are not going to change our approach in terms of the composition of the investment portfolio. Roughly 70% of that portfolio is return-seeking. And I don't see any meaningful change coming.

Understood. And the change in discount rate that offset a lot of that earnings impact. Is that also onetime? Or how do you see that discount rate changing?

We ended up moving to the full yield curve last year. So that turned out to be beneficial for us, and I think, we'll just see how the market and interest rates move over the course of the year. Once again, we see no change in our approach.

Got you. On the credit side, it was very helpful to have the full context of all rating agencies. I wanted to understand is there any threshold from a holding company debt perspective that you are also looking to achieve within the targets from a rating agency perspective?

Praful, this is Steve. So from a holding company debt perspective, we're targeting right around 35% to 37% holding company debt as a percentage of total debt. And Moody's specifically is aware of that and they have no issues with it.

Understood. That's super helpful. Then finally, just from a strategic perspective, clearly, the transition has gone really well, your metrics are in line apart from the small pension stuff, everything seems to be working well. Is there at some point, apart from pure execution, thought around strategic intent both on the buy or sell side in terms of how you're thinking about that? Or is it purely just execution mode at this point?

So obviously, I've been getting this question a lot lately, and those are the types of things that, number one, even if there was something we were thinking about, we wouldn't talk about it. But, number two, growth through M&A in this industry is becoming increasingly difficult, increasingly costly to get the regulatory approvals necessary. I think many of our regulatory commissions are -- it seems to be concluding that bigger companies aren't necessarily better. But having said that, any opportunity that presents itself, we would take a hard look at. And if it makes sense both short term and long term for shareholders, I think we've demonstrated we're willing to tackle tough decisions to make this company more valuable for our shareholders so we would do that. And as you know how that part of what we do works, Gary Benz, who is my Chief Strategy Officer, is listening to proposals from investment bankers all the time about things that they think can make our company stronger. We evaluate every single one of them. And if everyone presents itself that really does make our company stronger, we're going to make it happen.

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

Just looking at Slide 23, and it has the distribution ROEs versus authorized. And a lot of these are pretty well below what the target, and obviously, Ohio is a different animal given how rate making's done there. But just curious how you're looking at some of the other subsidiaries, whether West Penn, 1 or 2 others, maybe even New Jersey, where it looks like or these things kind of imply pretty sizable underearning. How you're thinking about rectifying that or whether it implies there's a base rate case coming in one of those jurisdictions?

Well, it's interesting to get a question about underearning, because I get them many, many times about concerns about us overearning. And here's what I would say. Take Pennsylvania, in particular. As of January this year, the DISC has been turned back on for all 4 of our distribution operating companies. And as you're familiar with how the DISC works, we're making investments under the DISC. Those investments will contribute about $0.02 a share to our 2019 growth. So, one, that's the method we're using right now. At some point in time, if we bump up against the maximum amount of investment we can make under the DISC, then we'll be required to have another base rate case around the base rate cases in Pennsylvania in order to roll that in and then be able to use the DISC going forward. But we're a ways away from that point. I would not anticipate any rate case filings in Pennsylvania this year for sure, even though our stayout is expiring this year. In Ohio, we're in a rate freeze through 2024. In Maryland, we're just wrapping up a rate case with new rates to go in effect on March 23. It's not been that long since we had a rate case in New Jersey. So the investments that we're making this year and really for the next several years, it's just shy of $3 billion, over 50% of that is being made in transmission formula rates and realtime riders in our distribution companies. And so the 6% to 8% growth that we're talking about does not depend on any rate cases in order for us to achieve that growth. It's merely executing the plan, investing in these formula-driven mechanisms and then the growth will occur.

Got it. I just want to follow up on that, though. And I'm thinking New Jersey specifically, I mean, the 2.1% trailing 12 ROE that you're showing on this. Anything abnormal or highly unusual in that number only because that's just a re-resizable spread relative to authorized. And the IIP will help on future investment, but it may not help if you've got significant O&M lag that's already in place.

I'm going to let Ilene (sic) [Irene] answer that one for you, Michael.

Thanks. In looking at the loaded ROE for JCP&L on that Slide 23, I would note that that was a number that preceded our last base rate case as the note says. So it's the last publicly available published ROE number from prior to implementing rates from our last rate case.

Our next question comes from the line of Charles Fishman with Morningstar.

DMR question was answered. So let me ask you this, Chuck. You made the statement either at third quarter call or at EEI that you didn't think the market was appreciating the transmission system of FirstEnergy. I suspect that you had influence on that graphic on Slide 5 showing it's 30%. I mean, one can see that that number is going to go up based on your CapEx plan. What else do you do to get -- what's going through your head as far as how you get people to appreciate the benefit of the FERC-regulated transmission?

Well, I think number one, we do have to start talking about it more. And we're a company that has a large transmission footprint, 24,000 miles of transmission lines, largest in PJM, one of the largest in the country. It is 30% of our regulated assets. It's growing at 11% per year over the next 3 years in that 6% to 8% growth rate. So I think, it's worthy of really calling it out to make sure investors see it. I think, there are a couple of other things holding our stock back from rerating. One is the continued overhang of FES and even though we have reached a settlement with all the creditors and that settlement's been approved by the court, there is still some confusion in the market as to our ongoing relationship with them that I don't think will go away until they actually emerge and change their name at some point, hopefully, later this year. So I think that's holding us back. But I think -- I can't undersell the value of what the transmission system means to FirstEnergy and its shareholders. We've got forward-looking formula rates for all of it, but former Allegheny system, and that's where we're making all these investments in ATSI and MAIT right now, as I said. I mean, when you think about the investments we're making over the next 3 years, more than 50% of them are in formulaic mechanisms that it's just execute the work plan, and we'll execute the growth that we've committed to.

So in New Jersey, where it's state-regulated transmission, mostly, and I realize you're in the middle of a settlement negotiations, but I suspect that they have to give you some kind of formulaic treatment of your investments in New Jersey or else you'll focus more on your FERC-regulated. Is that correct?

I think we'll be successful next year in moving JCP&L to a formulaic mechanism, still regulated by the state likely, but that's the game plan. But the answer is yes. I mean, as we think about where we're going to invest shareholder money, we want to put your money in good investments. Good investments are formulaic mechanisms at transmission, realtime riders and distribution that don't have regulatory lag, that lead to the improvements that we're making to also serve customers, and you've heard me say this before good investments are the ones customers are willing to pay for and shareholders are willing to invest in. So all of what we're doing is also driving improved service for customers. And just take the ATSI part of our Energizing the Future, we reduced transmission outages by almost 40% on the ATSI part of our system and a single transmission outage can affect -- it affects tens of thousands of customers up to maybe 60,000 to 80,000 customers at times. So those improvements are great for customers too.

(Operator Instructions) Our next question comes from the line of Stephen Byrd with Morgan Stanley.

Most of my questions have been answered. I did want to just directly address that question, Chuck, you mentioned before in terms of just the accounting calculation of ROE versus the real regulatory calculation of earned ROEs. Would you mind just at a high-level talking through and Ohio as an example, just some of the adjustments that need to be made to get to the proper sort of regulatory calculation of earned ROE?

I think it's way too complicated to get into on an earnings call, Stephen. So I'd be happy to talk to you off-line or have Irene go through it with you. But as I said, in Ohio, our rates are frozen through 2024, and you can imagine all of the different moving parts with a DMR, with a DCR rider that's been in place for now, I think we're in year 7 of that, and it goes on through 2024, the ultimate grid modernization rider. There are unique treatments for some of the lost revenue from energy efficiency improvements we made. It's just very complicated, and we can't go through the numbers on the call, but those are examples of things that affect how it looks from a GAAP perspective from how it turns out from a regulatory accounting perspective.

Understood. And then just lastly, you mentioned the Emerging Technologies group. It sounds like an exciting new area. Is it possible to give an example or 2 of the kinds of technologies that generically you might offer some benefits to customers and systems operations?

I would say -- I'll give you an example, not saying it's going to end up the way we would want it to end up. But one particular example would be electric vehicle charging stations. We've had 2 of our governors, New Jersey and Pennsylvania, express their desire to have significantly more electric vehicle penetration in their state. One of the impediments to accomplishing those goals is going to be a robust charging network. Utilities, like ours, and not just ours, are skilled at building infrastructure. They're skilled at planning infrastructure. They're skilled -- an example of that case of building it out in a way that it's robust, but not duplicative, doing it for a 9.5% to 10% return on equity which is a very cheap way to finance it, and I think it's something that if we really want more EV penetration, our states ought to look at having their utilities help them accomplish. Right now, none of our states want us to do that. But that's an area where I think we're going to have ongoing conversation with them about the value that we think we can bring to help them with their environmental strategies for their states.

(Operator Instructions) It appears we have no further questions at this time. Mr. Strah, I would now like to turn the floor back over to you for closing comments.

Well, thank you all for your persistence in staying with us over the long haul. We're really excited about where we're at as a company. Really excited about the next 3 years and then as we get more into this Emerging Technologies area, excited to tell you about it once we know more. So thank you for your time this morning. Look forward to talking to you again soon.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.