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.

Irene M. Prezelj - Vice President, Investor Relations

Thanks, Melissa. Welcome to our first 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 our Investor 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, and Steve Strah, Senior Vice President and Chief Financial Officer. I'll note that we are all virtually participating in this call, and we have several other executives on the phone as well that are available to join us for the Q&A session.

Now I'll turn the call over to Chuck.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Thank you, Irene, and good morning everyone. Thanks for joining us.

These are unprecedented times. We hope all of you are listening this morning our safe and healthy. We realize you have numerous questions on how this public health emergency effects FirstEnergy. Our goal today is obviously to review our first quarter earnings, which once again are solid, but also to talk about the journey we've been on during the COVID-19 pandemic and the path that we see ahead. I'll cover the broader story of our business and why we believe our strategy is built for resiliency during this crisis. I'll also review the actions we are currently taking to navigate in today's environment. Overall, I'm confident we are well positioned to manage through these events.

First the diversity and scale of our transmission and distribution operations across 65,000 square miles in five states is a fundamental strength for FirstEnergy. We operate critical infrastructure and that means everything our employees do is considered essential work. But as we continue this important work to maintain our large electric system and provide the energy our customers and communities need, my number one priority is to help keep our employees, their families and our customers safe. To minimize the risks, we have taken significant steps to quickly adapt to the new circumstances and protect the health of our employees and customers.

We successfully transitioned more than 7,000 employees to work remotely. That's more than half of our workforce and it includes moving our call center employees to a work at home environment as well. For our workforce unable to work remotely, we've implemented preventative measures to help keep them safe on the job. We've secured protective equipment like surgical masks and other supplies like their thermometers that are being used by our operating companies, regulated generation plants and other work groups. We have also increased cleaning and disinfecting measures, relocated job briefs and reporting locations to sites conducive to social distancing and adjusted work schedules. We have positioned crews so they are working with the same small group of people each day in what we call pods. They're consistently using the same vehicle and the same equipment to limit exposure. And we are managing our work to minimize potential exposure with the public.

We continue adjusting our work plans and remain flexible to meet the ongoing needs of our workers, minimize spread of this virus and adopt the current guidance from state and federal health agencies. It takes consistent communication on everyone's part, focusing on the health and safety of our employees and customers throughout the process. This pandemic has become a defining moment for our country and our company. What encourages me is knowing that we'll emerge from this stronger because we've come together to learn how to work smarter, more creatively and more efficiently. In fact, we are all very well positioned to manage the impact of the economic slowdown. And we believe our distribution and transmission investments will continue to provide stable and predictable earnings.

As the situation continues to develop, the diversity and scale of our operations, gives us the flexibility to shift our investments if needed and continue deploying capital throughout the system. While we are keeping a close eye on our supply chain, we do not anticipate significant disruptions. Since the middle of March, we have been looking at the early impact the pandemic is having on usage trends. Both from a system-wide load perspective and from a sampling of Pennsylvania smart meter data. We have seen system-wide weather-adjusted load dropped by almost 6% from mid-March until mid-April compared to the same time frame last year.

We've also seen increases of more than 6% for Pennsylvania residential customers, driven by the stay-at-home order. We would expect similar increases in residential usage across the rest of our service territory as all of our states are operating under stay-at-home orders. While our commercial and industrial customer load is down almost 13% compared to our four-year average from 2016 to 2019, I would remind you that prior to the pandemic, we were already seeing reduced industrial sales due to the manufacturing recession. However, our rate structures, provide a measure of stability, even in tumultuous times. About two-thirds of our base distribution revenues come from residential sales, while 28% are from commercial customers and about 7% come from the industrial sector. And about 20% of our total load is on the decoupled rate structure in Ohio.

In addition, a significant portion of our base distribution revenue isn't directly tied to energy consumption but is derived from other billing determinants. In fact, about 80% of commercial rates and 90% of industrial are made up of customer and demand charges. We are pleased that in Maryland the Public Service Commission proactively issued an order this month authorizing deferral for future recovery of all prudent incremenal COVID-19 related costs. The strong regulatory policy demonstrates firm support for our customers and our business. I would like to personally thank Chairman Stanek and the rest of the commissioners in Maryland for their leadership on this important regulatory issue.

We can also recover incremental uncollectible expenses through existing riders in Ohio and New Jersey. Our current regulatory calendar is light through our 2023 planning period. Active items include the distribution base rate case we filed in New Jersey in February, seeking to recover increasing costs associated with providing safe and reliable electric service for our customers, along with recovery of storm cost incurred over the last few years. We expect an ALJ will be assigned to our case soon, followed by the issuance of a procedural schedule. In the meantime, the discovery phase of the case has begun for parties to review the date details of our request we anticipate the litigation schedule will provide the opportunity to discuss favorable settlement with the parties in the case. We also reached an agreement to transfer JCP&L's portion of the Yards Creek Plant to LS Power and we expect that transaction to close in the first half of 2021 pending approvals.

In West Virginia, we have a requirement to make an informational filing by December 30, 2020, for our Integrated Resource Plan. The IRP updates our plan to provide our West Virginia customers with adequate and reliable generation resources that reasonably balance costs and risk. And finally, we have a commitment to file a rate case for our smallest utility Potomac Edison in Maryland by early 2023.

Moving now to our first quarter results, which marked another quarter of solid execution as a fully regulated company. Yesterday after market close, we reported GAAP earnings of $0.14 per share, along with operating earnings of $0.66 per share, which is $0.01 above the midpoint of our guidance range. Our results were driven by higher transmission margin and lower expenses, which helped to offset the impact of mild weather on our distribution revenues. As always, Steve will discuss the drivers in more detail later in the call. We are affirming we are affirming our 2020 earnings guidance of $2.40 per share to $2.60 per share. We are also affirming our expected CAGR of 6% to 8% through 2021 and 5% to 7%, extending through 2023, as well as our plan to issue up to a total of $600 million in equity in 2022 and 2023.

In addition, we are introducing earnings guidance of $0.48 to $0.58 per share for the second quarter of 2020. While the financial markets have been extremely volatile and sometimes illiquid past couple of months, FirstEnergy continues to be a low risk, stable, predictable utility. We have adequate liquidity of $3.5 billion, strong and proven access to the capital markets and a pension plan that's outperformed in these volatile market conditions due to its low risk conservative asset allocation. Steve will also cover these three propositions [Phonetic] in greater detail.

Finally, let me take a moment to discuss our succession planning. I've been getting a lot of questions on this. Just because I look old, it doesn't mean I feel old. While I don't plan on going anywhere yet, I know many of you have been wondering about our plans for a transition. I can tell you that our Board has been just as thorough and thoughtful on this topic as they are with any other key governance issue. We started planning for my replacement literally right after I became CEO. What started as our typical emergency planning has evolved into robust succession planning discussion. In 2018, we made several moves that were designed to broaden the experience of some of our key executives. This included placing Steve into the CFO role, bringing Sam Belcher over from FENOC to become President of Utilities, and moving Jon Taylor out of the finance organization into a leadership role in distribution operations.

The Board and I are continuing discussions and I would expect you may see additional organizational moves within our leadership team in the coming months. They're part of what I said will be a thoughtful transition in leadership at FirstEnergy. But having said that, I have made no decision about my own retirement, and as long as the good Lord and my Board are willing, it won't be anytime this year.

Thank you for your time. Stay well, and we look forward to seeing many of you once again when things return to normal. Now, Steve will review the first quarter.

Steven E. Strah - Senior Vice President and Chief Financial Officer

Good morning. It's great to speak with you today.

As always, you'll find all reconciliations along with other detailed information about the quarter in our strategic and financial highlights document that posted on our website. Now let's review our results, we reported first quarter GAAP earnings of $0.14 per share. Our GAAP results included $318 million non-cash after-tax pension and OPEB mark-to-market adjustment that we were required to recognize when FirstEnergy Solutions emerged from bankruptcy at the end of February as an unaffiliated independent company now called Energy Harbor. This adjustment was consistent with the range we provided on our fourth quarter earnings call. I will revisit the status of our pension funding and liquidity position later in my comments.

Adjusting for this charge as well as other special items, first quarter operating earnings were $0.66 per share, which is above the midpoint of the guidance we provided on our last earnings call. In the distribution business, earnings decreased compared to the first quarter of 2019. Lower revenues were driven by the impact of mild weather on customer usage. This was mostly offset by Ohio decoupling revenues as well as incremental rider revenue in both Ohio and Pennsylvania. First quarter 2020 distribution earnings also decreased due to the absence of Ohio DMR revenue, higher depreciation expense and net financing costs, which offset lower expenses.

Customer usage decrease compared to the first quarter of 2019 on an actual and weather-adjusted basis. Heating degree days were approximately 18% below normal in the first quarter of 2019. This drove a decrease in the actual residential sales of 12.6% compared to the first quarter of 2019. On a weather adjusted basis residential sales decreased 1.3% compared to the same period last year. We continue to see modest growth in customer count. The residential - I'm sorry. In the commercial customer class, first quarter sales decreased 7.5% on an actual basis and 1.6% when adjusted for weather compared to the first quarter of 2019. And finally, in our industrial class, first quarter load decreased 3% compared to the same period last year. Consistent with our fourth quarter, we only saw growth in the shale gas sector with declines in other major sectors in our footprint.

Looking at first quarter results in the transmission business. Our earnings increased primarily due to higher rate base at our formula rate companies related to our continuing investments in the Energizing the Future program. And in our customer segment, first quarter results primarily reflect lower operating expenses. Last quarter, we discussed our pension performance for 2019 and its impact on future funding requirements. I'd like to update that today in light of market volatility in our pension remark from February 26 of this year. As we told you on the fourth quarter, the funded status of our plan was 79% at year-end. The strong performance of our planned investments in 2019 resulted in a significant reduction in our plan funding requirements in 2022 and 2023 of about $300 million.

At our February remeasurement, our funded status was 77% and our funding requirements decreased again slightly, from $159 million, down to $140 million for 2022 and from $375, down to $360 million for 2023. Our conservative asset allocation has served us well so far in 2020. Back in mid-2019, we made the decision to move nearly $1 billion of plan assets out of public equities into cash. At the end of 2019, we held only about 25% of total assets in equities. We also have a good story when we're looking at pension as of the end of the first quarter. While the S&P was down 20%, our assets declined only 4.4% as of March 31. After our fourth quarter call, but prior to market volatility related to the virus, we successfully completed refinancing of $1.75 billion in FE Corp debt at a blended rate of 2.9%. That transaction was executed at the best rates ever seen in the utility space.

In March, we completed $250 million debt financing at MAIT, and in April we completed $250 million debt financing at Penelec. Finally, in February, we used the proceeds from our senior note issuance together with cash on hand to fund the final settlement payment of $853 million to Energy Harbor upon their emergence. The remaining proceeds from the $1.75 billion Corp debt issuance were used to refinance $1 billion in bank term loans. Our maturities are manageable and our liquidity position is strong. We have remaining debt maturities of only $800 million this year, including $50 million at Toledo Edison and a $500 million term loan at FE Corp, which we plan to refinance this summer.

We project liquidity of approximately $3.5 billion over the next 12 months, and our liquidity facilities are committed until year-end 2022. We do not issue commercial paper so we've avoided liquidity issues experienced by many others in the industry over the past two months.

Before I turn the call over to your questions, I'd like to reiterate FirstEnergy's overall value proposition, which is very simple, but also very unique, especially in periods of extreme volatility and uncertainty like we're facing today. FirstEnergy is a low-risk, fully-regulated stable and predictable wires utility that spans five states, including providing scale and diversity. Our 6 million utility customers provide revenue stability. Two-thirds of our distribution revenues stem from our residential customers, which are higher margin, while only one-third is generated from our C&I customers, which are lower margin. When combined with Ohio Decoupling, this mix partially insulates FirstEnergy from recessions. We have very good regulatory relationships in our jurisdictions and our current regulatory calendar is light through our 2023 planning period, resulting in low regulatory risk across our footprint.

We invest $3 billion annually across our service area and we have a long pipeline of regulated capital expenditures. More than 60% of our investments are under formula rates and riders that minimize regulatory lag and provide timely return on and returns off those investments. One-third of our earnings come from FirstEnergy Transmission, which is not influenced by near-term changes in customer load and is primarily supported by capital programs mandated by a PJM or required by FirstEnergy to maintain safe, reliable transmission service across our very large footprint.

We are an investment-grade company, targeting BBB credit ratings from all three rating agencies. Our liquidity is adequate at $3.5 billion. Our access to the capital markets is seasoned, prudent and remains very strong. In combination, all of these attributes support an attractive CAGR as well as a sustainable dividend that management aspires to grow, both of which are strongly desired by true utility investors. And finally, our management team has a proven track record of meeting or exceeding its commitments.

Thank you. And now, let's take your questions.

Question & Answers

Operator

[Operator Instructions]

Our first question comes from the line of Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

Julien Dumoulin-Smith - Bank of America - Analyst

Hi, good morning, team. Thank you all and hope you all are well.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

You too, Julien.

Julien Dumoulin-Smith - Bank of America - Analyst

I wanted to follow-up, just to come back to where you started the conversation actually. Can you talk about more on the operational side, how employees are handling the situation? And how you think about the return to work, especially across the very different states that you operate in? And then perhaps in tandem with that, if I can throw in there, how do you think about executing against your capital spend plans just given having your employees dispersed, etc., as it stands today? And under what scenarios you might reevaluate your capex too? But first, on the operational and second on the capex.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

All right. So first, Julien, operationally, I think it's important to point out, and FirstEnergy is not unique here. Our industry has prepared for business continuity, every company, and part of that has been for the last couple of decades, at least, a pandemic emergency response plan. We dusted it off a few times over the years with MERS and SARS and H1N1 and Ebola. This time, obviously, we put it into full implementation. The time to prepare for something like this isn't when it's happening, but it's in advance when life is normal, and we put a lot of thought into how we were going to go about this.

And I'd just tell you, I'm very proud of our entire leadership team and literally down to every single employee. They've all stepped up. They've showed creativity, ingenuity. And I think our operations are continuing almost as if normal. Even with 7,000 people working remotely, our field forces have maintained a positive attitude. We very quickly negotiated memorandums of understandings with all of our unions across the five states on how we were going to operate. They have the PPE. They have the ability to work in pods, as I said in my call, and that's three or four employees reporting to one location as opposed to having several dozen coming into a service center and delivering materials remotely.

I think the proof is that it's working is we've had nine cases at FirstEnergy for a 13,000 employee workforce. One of those cases in New Jersey unfortunately resulted in a death. But we've had zero cases where the disease has been transferred at work. And I think that shows that the things that we're doing are working. I think we can stay in this mode for a while, and I think that gives us the flexibility to be very thoughtful and deliberate on how and when we want to return to normal operations. I honestly don't think the world is going to get back to normal until there's widespread distribution of a vaccine for this virus.

So we're evaluating what the new normal is going to mean in the interim. But to your specific question on capex, a big piece of our guidance in our CAGR is driven by those investments. And as I said, we don't see any supply chain interruptions that we're worried about right now, and that includes the workforce supply chain. Because most of the significant capital investment that we're making is being done with a contracted workforce, that we lined up many, many years ago. We lined up really before we started energizing the future seven years ago. So right now, I mean, I don't see anything that I'm worried about taking this off track. And that's why we're comfortable with being able to not only reaffirm our guidance for this year but reaffirm our CAGR.

Julien Dumoulin-Smith - Bank of America - Analyst

Excellent. Well, thank you, guys. Stay safe. Talk to you soon.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

All right. You too, Julien.

Operator

Our next question comes from the line of Shar Pourreza with Guggenheim Partners. Please proceed with your question.

Shahriar Pourreza - Guggenheim Securities - Analyst

Hey, good morning, guys.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Hi Shar.

Shahriar Pourreza - Guggenheim Securities - Analyst

So just in New Jersey, there's a lot going on with the BPU workload, and I know we're still kind of waiting for the procedural schedule. But any sort of sense on whether we could see a settlement struck this year from a timing perspective as we think about COVID-related challenges? And any sense on the timing of the next IIP?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, first, on the rate case. It got delayed, I think, a little bit as everybody was responding and reacting to this pandemic. But I think they'll get the schedule back on track here soon, assign it to an ALJ, get a procedural schedule. We weren't anticipating really anything to happen with a final outcome on that case this year anyway. I think there will be opportunities along the way to have settlement discussions. If that would happen, it will be late this year at the earliest, I would think. So I don't - I just don't expect much impact of that rate case in 2020, and there's none of that in our guidance anyway.

As far as the IIP, the current IIP runs through the end of this year. And I think right now, I'm not - I'm not sure that we're even going to file for an additional IIP. We're still evaluating it. But right now, we don't have any plans to do that. We've got the investments that we're making in capital going on in transmission and other states in our operating area. And I think we're going to be fine with the service to our customers in New Jersey after this first round.

Shahriar Pourreza - Guggenheim Securities - Analyst

Got it. And then in Pennsylvania, it's been quiet. Does your sort of experience in Ohio and kind of the latest macro uncertainty maybe strengthen the case for seeking decoupling, which has been available? Some of these usage trends may structurally change over the long term as you kind of obviously highlighted it as a new normal? Or is kind of this DSIC adequate for you until you kind of file the next GRC?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

We don't have any plans for a broad rate case activity in Pennsylvania for the next several years. And I think that the LTIP and the DSIC mechanism are working fine. And they're generating the type of investment that's needed for customers, and they're generating reliable returns for shareholders without lag. So I think the way things work in Pennsylvania are working fine, and I don't see any reason to change it.

Shahriar Pourreza - Guggenheim Securities - Analyst

Perfect. Thanks a lot, guys. That was it this morning. And Chuck, by the way, for the record, you do look very young, not old. Thanks, guys.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Thanks, Shar.

Operator

Thank you. Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed with your question.

Stephen Byrd - Morgan Stanley - Analyst

Hi, good morning.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Hey Stephen.

Stephen Byrd - Morgan Stanley - Analyst

I think most of the key questions have been addressed. I did have one broader question. Just as we think about going into 2021, if we do have a an extended economic downturn, so recovery is slow. How do you think about just your capex plans ability for customers to handle the impact of the capex? Is that viewed as just this is critical work that needs to be done? Or is there any just consideration of customer ability to pay if we do have a very extended, pretty severe economic downturn? How do you just think about that longer term?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, we haven't exactly seen a lot of load growth across our footprint over the last half a dozen years or so, really since the last big recession. And so the impact on customers is always something that we're very thoughtful about as we make these investments. But I do believe these investments are investments that are needed. The transmission and distribution infrastructure we have at FirstEnergy is old. It's, in some cases, in need of repair and modernization. I think that the automation that we're adding in some areas, we're making these changes to serve customers better. And I think we're doing it in a way by moving it around from state to state and so forth that we are constantly watching out for the impact on customers and keeping our bills very moderate and keeping our rates amongst the lowest in pretty much every jurisdiction that we work in.

So I think we keep an eye on that all the time, and I don't see anything happening here that's going to cause us to have to significantly adjust our plans.

Stephen Byrd - Morgan Stanley - Analyst

Well, that's a thoughtful answer. That makes sense. Maybe just one last one. I think you gave a very thorough response on just COVID-19 impacts. If we zeroed in on the supply chain, if we do have an extended sort of shelter-in-place dynamic, are there certain elements of the supply chain that you focus on more as being sort of more at risk if conditions deteriorate? Or overall, do you feel fairly good about the supply chain dynamic?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

As of right now, as I said in my prepared remarks, we're not seeing anything that concerns us. We made a decision at FirstEnergy a number of years ago, four, 4.5 years ago to implement a buy America strategy. So we don't rely a whole lot on foreign supplies. We're 80% plus buying American-made - buying American-made products from American companies. And I do think that while in the short term - I think in the short term, the risk was bigger there. I think you're going to see these states have to reopen. And I do think, from our experience, there are ways to bring people back to work, and give them the PPE and take their temperatures and introduce at some point antibody testing and take steps to get people to work, and still maintain a healthy workforce and not have this virus spread.

So I think you can accomplish both. And right now, I'm not concerned. I think that our supply chain is going to be fine.

Stephen Byrd - Morgan Stanley - Analyst

That's really helpful. Thank you very much.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Steve Fleishman with Wolfe Research. Please proceed with your question.

Steve Fleishman - Wolfe Research - Analyst

Hey, good morning. Thank you. So just a question on the - maybe just a little bit of baselining on what you're assuming for sales and in terms of like the length of the downturn here? Is there - I know your sensitivity is relatively low compared to a lot of other utilities, but just be good to have a rough idea what kind of economic or base assumption you're using for the downturn from the virus and the like in your planning? And how much have you sensitized that?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

So let me start with an answer here, and then maybe I'll ask Eileen to step in and provide some additional color. But my view, Steve, is it's a jigsaw puzzle that we're still trying to piece all the parts together on. We talked about the impact of the stay-at-home orders, driving residential usage up 6.0% to 6.5%. And and the fact that 65% of our distribution revenues come from this segment. The reduction in load on the commercial and industrial is about 13%. And as I said, 80% to 90% of that is collected through customer charges and demand charges. And then you layer on top of that, the decoupling in Ohio, which represents about 20% of our load.

When you put that all together, I'm confident that there's not going to be any material swing in weather-adjusted revenues that are going to take us off track from delivering on our guidance because - or I wouldn't have reaffirmed guidance. So in the end, we don't have a final number that I can give you yet. But I can tell you this. We just added one quarter on top of five years now of meeting or exceeding every midpoint that we've given you. And I don't plan to break that record. So I do think there will be continued lingering effect with the C&I, even after the stay-at-home orders begin to be reduced.

But also, as I said, with our company, I don't expect 7,000 people to come back to work all at once. So I think some of the positive impacts in the residential segment are going to continue for a while, too, maybe not at 6.0% to 6.5%, but at some level above normal. So Eileen, do you have anything you want to add?

Eileen Mikkelsen - Vice President, Rates and Regulatory Affairs

Thanks, Chuck. I think you really nailed that we continue to look at this very carefully. The only thing I would add is that in addition to our own models, we're looking very carefully at economic indicators from Moody's and others to inform our view of the forecast going forward. And other than that, Chuck is spot on what you had to say.

Steve Fleishman - Wolfe Research - Analyst

Okay. So my read of that is that the way your revenues work and the part that's locked up, but not volume sensitive, plus the way you've got things locked up with C&I more on a demand charge kind of not that you're fully protected, but it gives you just a decent amount of protection to deal with this even if it extends longer than people generally think?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, yeah, and I'll add, as Steve - yes. And I'll add, as Steve said, that a third of it comes from transmission, which isn't load dependent.

Steve Fleishman - Wolfe Research - Analyst

Okay. Thank you.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

All right. Thanks, Steve.

Operator

Thank you. Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.

Charles Fishman - Morningstar, Inc. - Analyst

Good morning. I'd like to follow-up on that last question. On Slide 4, where you show like 80% to 90% of C&I is fixed rates. How does - and a good portion of that fixed rate is a demand charge. How typically does that reset realizing our - you've got numerous jurisdictions. But does that demand charge reset on an annual basis typically? So even though it doesn't impact you this year, if a commercial or industrial customer cuts back on load, would that impact you next year on that fixed component?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

The fixed component is basically something that resets every month. And their monthly bill is based on what the peak demand they hit in that month is. And so it's not directly tied to the throughput that we're talking about when we say usage is off by 13%. It's - the first to fixed customer charge and then the demand charge. So if you've got a factory that was working three shifts, and it's now down to work in one shift, the demand charge from that one shift is essentially going to set the bill. And we don't know - we don't reset rates every year.

So our rates are in place until we have a rate case, then the demand charges are what the demand charges are, and they're based on what demand the customer hits every month. So Eileen, anything you want to add there?

Eileen Mikkelsen - Vice President, Rates and Regulatory Affairs

No, Chuck. Thank you.

Charles Fishman - Morningstar, Inc. - Analyst

Chuck, let me maybe try to put it in a more simpler fashion for me. Let's say, you have a factory that's got three lines of production. And because of the continued downturn, they said, we're only going to use two lines of production. Well, obviously, that cuts down on the demand. Then, what you're saying is that that fixed component does go lower after a while, correct?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

It can go lower. In that scenario, it would likely go lower for that customer.

Charles Fishman - Morningstar, Inc. - Analyst

And then at that point, you'd have to wait for a rate case or to reset rates and recover that, correct?

Eileen Mikkelsen - Vice President, Rates and Regulatory Affairs

Chuck, if I could jump in here.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Yeah. Go ahead, Eileen.

Eileen Mikkelsen - Vice President, Rates and Regulatory Affairs

Pardon me, when I think about those demand rates and the scenario you just indicated, we have billing demands that are set on a monthly basis, what's the peak demand you hit on a monthly basis. So if a customer is running three separate shifts and they go to one shift, their peak demand isn't necessarily, as Chuck said earlier, going to change as a result of that elimination of those two extra shifts. Because it's not an aggregate demand over the course of the day, rather it's the peak demand during that day. So we would expect that to be - the billing demands to remain in place based on that one shift example you just used.

Charles Fishman - Morningstar, Inc. - Analyst

Well, I guess what I'm saying is what if a customer makes a conscientious decision to lower its demand by reducing the size of its production, so irrespective of number of shifts?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

In that case, there will be a reduction in that customer's bill. But when you think about it across the entire segment, they're - not all customers are going to have the ability to do that. And all we're trying to tell you is our experience is during past recessions that even though throughput might be off by 13%, revenue isn't off by that same amount because of these fixed charges and demand charges that occur in their bills.

Charles Fishman - Morningstar, Inc. - Analyst

Okay. Thanks for your time explaining that. That's it.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Okay, Charles. Thank you.

Operator

Thank you. Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed with your question.

Michael Lapides - Goldman Sachs - Analyst

Thank you for taking my question. And I appreciate you taking all the time on today's earnings call. Actually I have a question about customer counts, not necessarily demand, but just the number of customers you serve. Can you talk about trends you have seen both on the residential side and on the industrial side? Just in terms of the number of customers served over the last couple of years? And can you talk about what happened coming out of 2008, 2009 to your customer counts across the residential and industrial level?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, the 2008, 2009 numbers are not in my brain anymore. Maybe they're Eileen's or someone else's. But obviously, we lost a lot of customers. I know the numbers that stick in my brain are we lost 25% of our industrial load in one year from part of '09 to - or part of '08 to the end of '09. And I think - I remember in Ohio, I think it was 50,000 meters that we lost in Ohio alone. So we are seeing growth in meters every year. Maybe Eileen can fill in some of those numbers. But the growth in meters is pretty much also being offset by the fact that energy efficiency is working against that growth, which is what results in pretty much flat to no load growth across our footprint. Eileen, do you have anything on the numbers?

Eileen Mikkelsen - Vice President, Rates and Regulatory Affairs

Yeah. Thanks, Chuck. I would just say our residential customer counts have grown quarter-over-quarter, quarter one in 2020 versus quarter one in 2019, just about 0.5% in customer growth count. So we've seen that quarter, that trend continuing each and every quarter for a number of prior quarters.

Michael Lapides - Goldman Sachs - Analyst

Got it. And just real quick, this is an easy one. Can you remind us what is the load growth assumption in your 6% to 8% and your 5% to 7% long-term EPS growth rates?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Steve, do you want to take that one?

Steven E. Strah - Senior Vice President and Chief Financial Officer

Yes. Michael, we're assuming basically load to be flat over our planning horizon. So when you look at the trailing 12 months, we see that we're slightly below that right now, but that's what we have baked into both the 6% to 8% and the 5% to 7%.

Michael Lapides - Goldman Sachs - Analyst

Got it. And you're still assuming in the 6% to 8%, that it will still be flat?

Steven E. Strah - Senior Vice President and Chief Financial Officer

Yes.

Michael Lapides - Goldman Sachs - Analyst

Okay. Thank you. Much appreciated.

Steven E. Strah - Senior Vice President and Chief Financial Officer

Thank you.

Operator

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

Paul Patterson - Glenrock Associates - Analyst

Hey, good morning. How are you doing?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Good. Good morning.

Paul Patterson - Glenrock Associates - Analyst

Just sort of, I guess - just to sort of tie things up here with all these questions on the economy. If we have a deep recession, are you guys saying that you guys are relatively economically - or excuse me, you guys are relatively insulated or immune, I guess, to a big slowdown? Because the one thing that comes to mind here is that we're potentially at least in this region, looking at businesses maybe never reopening. It's not out of the question here. Retail establishments just in general. I'm just trying to make sure that I get completely clear. Are you guys saying that basically, if we have a big, deep, long-term recession, you don't see any regulatory changes or anything that could impact you guys?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

I think what we're trying to say right now is that the diversity of our footprint, the diversity of our revenue streams with a third being transmission that's not load dependent. And 65% of the distribution revenue being residential and that piece, at least, as long as these stay-at-home orders or in effect is growing that we see nothing that significantly give you a range of earnings of $0.20 that's going to take us outside of that range. So we're comfortable reaffirming our guidance. And as I said, we're a big company. We have over $2 billion of O&M-related expenses in our company. And if we need to get a little more diligent at O&M discipline to offset some of what might be happening on the meter side of things, we'll do that.

We've got a lot of moving parts as being a regulated utility that we can work to deliver on our commitments. So I think the way to take that is, yeah, I'm certain that they are going to be, in particular, small businesses that don't reopen after this pandemic. They just don't have the working capital and the liquidity to survive something like this with no revenues coming in. But I do think in time, somebody will replace them. Because the services they were providing were needed by society. So I think it's going to be deeper than what maybe a lot of people think and maybe more U-shaped than what some people think. But I think we're built to be able to handle it is the way I would say it at FirstEnergy.

Paul Patterson - Glenrock Associates - Analyst

Okay. That's - thanks for the clarity, and hang in there.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

All right. Paul. Thank you.

Operator

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

Sophie Karp - KeyBanc Capital Markets - Analyst

Hi, good morning, guys.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Good morning, Sophie.

Sophie Karp - KeyBanc Capital Markets - Analyst

Thank you for taking my question. I wanted just to follow-up on the recovery mechanisms that you have. So outside of Maryland, which has established a COVID-specific, I guess, rider, which riders or trackers are you utilizing in other jurisdictions to track the COVID-related costs? And how easy that, I guess, to separate what's COVID and what's not COVID this point? Thank you.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, so the biggest piece that I think a lot of people have been worried about is ultimate uncollectible expense. And in our case, we have recovery mechanisms in place in Ohio and New Jersey already as part of our normal operations to recover those. I think we're having conversations with other regulators. And I think with NARUC's guidance, I think you're going to see regulators across the country realize that there's going to - these are unique times, and there's going to be a unique approach. And as I said, for the Maryland Public Service Commission to be the first ones to step out and take the lead on that, they should be very proud of their leadership. But the cost so far aren't anything that have concerned me.

And right now, I'd say we're just treating it as another operating challenge that we need to overcome and still deliver on our commitments. And over time, if they grow, we're going to be working with our regulators, and we're going to be watching what others do. We're not normalizing any of these costs. Because, like I said, I'm treating it as a normal operating challenge today. But in the end, if our whole industry starts to normalize COVID costs out, then I'm not going to put FirstEnergy at a disadvantage by not doing that. But but right now, these costs are not - they're not anything I'm overly concerned about. We didn't have anything in the first quarter that we felt any need to have any special treatment for.

And we're having discussions with our regulators in West Virginia and Pennsylvania to kind of fill the gaps, similar to what Maryland has done.

Sophie Karp - KeyBanc Capital Markets - Analyst

Got it. Thank you. And then real quick on capex. Are there any particular types of projects or any particular type of work maybe that cannot be done efficiently with social distancing that you may be looking to defer and maybe bring forward something else? Have you looked at that yet?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

No. No, I don't think there's anything that we see that's problematic. If you think about our capex plan, and I've shared these numbers in the past, we spend $3 billion in average, $1.0 million to $1.5 million increments. So they're smaller projects for the most part. But our crews have been very creative in figuring out how to work safely. And they're doing a fantastic job. We had two pretty significant storms come through with over 0.5 million customer outages. And they restored service as fast as - if not faster, as we would do under normal operations. They are rising to the occasion and saying, look, we're essential workers, and we're going to prove that we're essential. And they know the challenge of keeping the lights on to 6 million families and businesses is very important right now.

So I don't see anything there that that we're worried about either.

Sophie Karp - KeyBanc Capital Markets - Analyst

All right. Great. Thank you so much.

Operator

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

Jeremy Tonet - JP Morgan - Analyst

Hi, good morning. Just wanted to pick up on the kind of bad debt expense question. And I was wondering if you could provide some detail with regards to what that looked like in '08, '09? How that - we're very early innings here, but how that now compares to then? And when you have - you talked about recovery mechanisms in Ohio and New Jersey, is that everything? Or just any more color there would be very helpful?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, the first thing that I would say, and I've been in this business for 40 years, is - I don't think it's fair to assume that every customer who can't pay their bill today is going to end up being a bad debt. My experience is customers want to pay their bills. They don't want a black mark on their credit history. And as long as we're flexible and work with them the right way, we can generally get to where we don't end up writing off a lot of what's going to get backed up here today. And we are getting - we're thinking through how to be even more creative and more flexible. And particularly working with our C&I customers, where in the past, we did not have payment arrangements for C&I customers. And we're looking at how we do that going forward, again, to help them ease back in the business and get back up to a more of a normal operations without having this bill be something they have to settle up day one.

So in Ohio and New Jersey, as I said, it only becomes an uncollectible expense when we write it off. And we have the ability then to recover that from other customers through our existing rates, a little bit of a lag in New Jersey. We now have that ability under what Maryland did. And I think the - all of the companies in Pennsylvania will get together and have discussions with the Pennsylvania Public Utilities Commission. It's still early on in this process. So while Maryland acted quick, the other regulators are looking at all of these COVID-related costs too.

Jeremy Tonet - JP Morgan - Analyst

That's helpful. That's it for me. Thanks.

Operator

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

Durgesh Chopra - Evercore ISI - Analyst

Hi, good morning, guys. Thanks for all the color this morning. And sorry if I missed this, but I just wanted to ask you about your credit metrics. And given the - sort of you talked about the decoupling, the transmission rate base, what do you think - how are you positioned versus your target credit metrics this year and maybe 2021? And then second part, maybe any color that you can sort of provide us with in terms of your conversations with credit rating agencies? Thank you.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Yeah. So I would just start by saying, again, I don't think there's anything significant to report. We still plan on no new equity until 2022 and then up to $600 million a year in 2022 and 2023. And the metrics this year are turning out - this is the transition year with the delay in the energy harbor emergence from 2019 to this year. So the rating agencies are all looking beyond this year anyway. But excluding Energy Harbor, we're in good shapes with all the current thresholds. We're at BBB with Fitch today. S&P revised our upgrade threshold from - to 12 from 13. And I think will eventually support a positive outlook for us. We're having discussions with Moody's about the upgrade threshold.

And I think that's the important thing, is our current conversations with the rating agencies are focused on the top end and what is needed for upgrades rather than where we've been in the past, which is worrying about the bottom end. And I think one of the key drivers for the discussions that we're having is our low-risk profile that the agencies are now starting to see. The impact of the pandemic is a perfect example of our change in risk profile. We're dealing with it. We have no material change in our earnings, no material change in our pension funding status, no material change in our credit metrics. And we're able to do that because of the diversity of our footprint, the stable and constructive regulatory environments, 65% of our revenue coming from residential customers. And I would just tell you, there's - we have a very, very small generation footprint.

Other large T&D companies like ours with 6 million or multi-million customers have large generation businesses, even if regulated to support that. We only have a couple of power plants left. And so we don't have the risk of the generation side of this business either. And there are only one or two other companies in our space, I think, with the low-risk profile that we enjoy at FirstEnergy. And I think that's what's forming the foundation of our discussions. We're focused on ultimately getting to BBB with all three rating agencies and then a plan to stay there long term.

Durgesh Chopra - Evercore ISI - Analyst

Got it. Thank you very much.

Operator

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

Andrew Weisel - Scotia Howard Weil - Analyst

Hi, thanks for squeezing me in here. I appreciate all the details on mechanisms and downside protections. One thing I just wanted to ask about was, what's the latest thinking on smart meters in New Jersey following the end of the moratorium?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

Well, I think that we'll engage in the conversations with with the administration and the BPU in New Jersey. And we've got a lot of experience now with almost 2 million of them in Pennsylvania, that we've already installed. We're beginning the process with grid mod in Ohio, where we'll install around 700,000 in Ohio. I think that puts us in a position to really share in New Jersey what some of the benefits and some of the risks are. And we'll engage in the discussion. And if ultimately, that's where the policymakers in New Jersey want to go, then we'll install 1 million smart meters in New Jersey, just like we have in other states.

Andrew Weisel - Scotia Howard Weil - Analyst

Okay. Have you noticed any change in interest or appetite from regulators or politicians during this stay-at-home period?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

I think under - the governor introduced his new energy master plan just shortly before this pandemic hit. And I think that right now, everybody in the state government, including the BPU, are focused on how to best get through this pandemic right now. So I think it's - those discussions have been put off and they'll get picked back up once New Jersey gets back into a kind of a safe and healthy, more normal operations.

Andrew Weisel - Scotia Howard Weil - Analyst

Got it. Okay. Then one last one, if I may. I might be looking for something where there's nothing. But the new slide deck described the dividend as sustainable, and you mentioned that management aspires to grow it. Is that sort of a potential softening of the dividend policy? Or can you share your latest views on the dividend growth outlook and if that's changed at all over the past few months?

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

I think you're reading into something that's not there. Our dividend policy is what it is. And we're kind of at the high end of that range right now. So I think that's more what it's signaling is that we are in the high end of the range that we committed to. And so I don't know that you can expect one every single year. But that's not my decision, that's our Board's, and we expect to honor the dividend policy that we've communicated.

Andrew Weisel - Scotia Howard Weil - Analyst

Sure. Okay, good. I just wanted to be sure there was no change in thinking. Thank you so much, and stay safe and healthy.

Charles E. Jones - President and Chief Executive Officer, Member, Board of Directors

All right. Well, thanks to all of you. The good call - it's good to have a call where we're talking about regulated operations. I can't say running a regulated utility is boring right now with this pandemic, but I am proud of our team, as I've said repeatedly, and we're going to get through this just fine. We're going to deliver on our commitments. We're going to keep our employees safe and healthy. We hope all of you can stay safe and healthy, too, and look forward to seeing you in-person when that makes sense again.

Thank you. Take care.

Operator

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FIRSTENERGY CORP

Q1 2020

Earnings Transcript

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