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Operator: Hello, and welcome to FirstEnergy Corp.’s First Quarter 2026 Earnings Call. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Karen Sagot. Vice President of Investor Relations. Please go ahead, Karen.

Karen Sagot: Thank you. Good morning, everyone, and welcome to FirstEnergy’s First Quarter 2026 Earnings Review. Our earnings release, presentation and related financial information are available on our website at firstenergycorp.com/ir. Today’s discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Factors discussed in our earnings news release during today’s conference call, and in our SEC filings, could cause our actual results to differ materially from these forward-looking statements. The appendix of today’s presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statement and discussion of non-GAAP financial measures on Slides 2 and 3 of the presentation.

Our Chairman, President and Chief Executive Officer, Brian Tierney, will lead our call today, and he will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. Now it’s my pleasure to turn the call over to Brian.

Brian Tierney: Thank you, Karen. Good morning, everyone. Thank you for joining us today. We are off to a solid start this year with first quarter core earnings 7.5% above last year, reflecting our customer-focused investment plan and strong financial discipline. We are on track for a successful year with expected results in line with our 2026 earnings guidance range of $2.62 to $2.82 per share and our long-term outlook remains strong. The team executed extremely well in the first quarter despite numerous storms that rolled through our service territory. Our employees demonstrated a strong commitment to our customers by their performance safely restoring power. What I observed during the first 3 months of this year further strengthens my commitment to our strategic direction.

We are investing in our electric system to improve reliability, resiliency and the customer experience, listening and responding to our communities and investing in our people to be safe, well trained and productive. By doing these things, we improve the well-being of our customers, our communities and our teammates and provide a strong value proposition to investors. Over the last 3 years, we have fundamentally transformed FirstEnergy. We sharpened our strategic focus and strengthened our alignment around our core values. I am pleased to share with you that we have recently completed a couple of key hires, further strengthening our leadership team. I am pleased to announce Chris Beam as our new President of West Virginia and Maryland. Chris replaces Jim Myers, who retired after 40 years of remarkable service.

I’m also pleased to announce that Dan Puskas has agreed to serve as our Chief Information Officer after serving on an interim basis for the last 6 months. Both Chris and Dan bring deep technical industry and leadership experience to the executive team. At the core of our strategy is improving the service we provide to customers. Each of our business units are working with customers, elected officials and regulators to prioritize investments for local needs. Collaboration with our key stakeholders drives alignment and better outcomes for customers and better results for our company. You see this in action across our footprint, and is a key reason why we are positioned for long-term success. Our investment plans focus on fundamentals, addressing aging infrastructure, reducing operational risk and building more capacity to serve growing customer demand.

For instance, in Pennsylvania, we are accelerating investments under the long-term infrastructure improvement plan that we expect will significantly improve reliability particularly across the rural portions of our service territory. In West Virginia, we see a compelling opportunity to support economic development with new generation, which is strongly aligned with the state’s energy goals. And our transmission investment plan remains a key focus, given the location and critical nature of our system in PJM. Across the company, our business units are executing against tailored investment plans and regulatory strategies that are focused on improving the customer experience. Affordability remains central to how we lead the company. On average, our rates are 20% below our in-state peers with the T&D component of our bill being 35% below those peer companies.

We are proactively having constructive conversations with elected officials and regulators in each of our states to look for ways to address questions around affordability for our customers. The main driver behind the affordability conversation today is a demand and supply imbalance from a capacity market construct that is not attracting any significant incremental generation. Our conversations with key stakeholders are about how we get more dispatchable generation at a fair price while still protecting our existing customers. We believe that PJM’s proposed reliability backstop procurement auction could be a step in the right direction, although there is a significant amount of detail needed to ensure the right amount of dispatchable generation is procured at affordable rates.

Additionally, we still have the capacity auction cap in place for the next 2 auctions through 2030. These were initially negotiated by Governor Shapiro on behalf of all PJM customers. We are also discussing what we can control through operational efficiencies, alternative distribution rate designs and innovative solutions on other costs on the customer’s bill. Since 2022, we have reduced our base O&M by more than $200 million or 15%, and we are continuing to look for ways to work smarter and more efficiently. We are also exploring other ways to protect our customers. For instance, in Pennsylvania, we recently filed an innovative proposal to reform our default service program protecting customers from higher supply rates on variable price contracts.

Had this mechanism been in place in 2025, customers would have saved $80 million. We want to protect them from paying higher prices in the future. Customer affordability continues to be a significant part of our regulatory strategy, and we are proactively working with stakeholders to balance affordability and the critical investments required to ensure a safe and reliable electric system. Looking ahead, the rapidly evolving energy landscape will continue to require new transmission and generation investments that are above our current plan. Substantial investments in our transmission system are needed to ensure we proactively address aging equipment before it fails. We believe that new transmission capacity is a critical component to energy dominance and economic development.

We continue to see ongoing opportunities with regional transmission planning investments through the PJM open window process. Our scale, planning expertise and strategic location position us well for these types of opportunities. Over the last 4 years, we have been awarded more than $5 billion in competitive projects, and we expect more opportunity in future solicitations. Turning to generation. In West Virginia, in addition to the recently filed CPCN for our 1.2-gigawatt natural gas facility, our data center demand in the state continues to grow with approximately 1.8 gigawatts of highly credible projects, an increase of 50% since February. Beyond that, we are having constructive dialogue with prospective customers representing over 6 gigawatts of load in West Virginia.

This data center growth would support incremental generation and economic development which is strongly aligned with Governor Morrisey’s 50 gigawatts by 2050 initiative and a significant priority for FirstEnergy. We are prepared to move forward with incremental generation projects as additional large loads enter our pipeline and become contracted, subject to regulatory approval. Our data center interest continues to grow beyond just West Virginia. Approximately 4 gigawatts of our total pipeline is in final contract negotiations and are expected to become contracted with the construction agreement within this quarter, nearly doubling our contracted demand. This is an exciting time for our industry and our company. We are confident in our customer-focused strategy and our operating model that aligns with key stakeholders and local needs.

Our focus is to drive great outcomes for our customers, communities and teammates which will result in a strong value proposition for investors. Now I’ll turn the call over to Jon to discuss our financial results and regulatory updates.

K. Taylor: Thanks, Brian, and good morning, everyone. Yesterday, we reported first quarter GAAP earnings of $0.70 a share against $0.62 a share in the first quarter of 2025. Core earnings were $0.72 a share, increasing 7.5% from $0.67 a share in Q1 of last year, with each of our regulated businesses reporting increases year-over-year. You can find more details on our results, including reconciliations for core earnings and the strategic and financial highlights document we posted to our IR website yesterday afternoon. . Earnings growth largely reflects execution against our regulated investment strategy, with 75% of our capital program under a formula rate. In the quarter, transmission rate base increased to 13% and including a 19% increase at our integrated businesses and an 11% increase from our stand-alone transmission segment.

Additionally, continuous improvement and innovation continue to be a focus of the management team, with our base O&M down close to 5% in the quarter. Automation increasing the speed of enhanced data transparency for better and more timely decision-making and technology enhancements are pillars to our cost management program. These innovative solutions are making us more efficient and provide better insight into information so we can make the best cost-effective decision for our customers. In fact, in each of our base rate filings planned for this year, our comparable base O&M is lower than what was approved in the last rate case, demonstrating our commitment to continuous improvement and innovation, allowing us to minimize rate impacts to customers.

Our overall financial performance resulted in a consolidated return on equity of 9.8% on a trailing 12-month basis and continues to be in line with our targeted returns. Our investment program continues to be on track with $1.4 billion of customer-focused investments in the quarter, representing a 33% increase compared to the first quarter of 2025, with nearly all of the increase in formula rate investment programs that are focused on improving the reliability and resiliency of the electric grid. Overall, we are very pleased with our performance and confident in the path ahead. In late March, Moody’s raised its outlook on FirstEnergy’s senior unsecured rating to positive resulting from our improved credit profile as well as our low risk rate regulated T&D operations.

Also in March, we successfully completed an $850 million debt offering for FirstEnergy, Pennsylvania with an average coupon of 4.4%. We were pleased with the strong interest in this deal as it was more than 5x oversubscribed. We also successfully completed planned debt offerings for 2 of our transmission companies, MAIT and ATSI with issuances of $250 million and $175 million, respectively. For the rest of the year, our financing plan includes $1.7 billion in subsidiary debt offerings and a modest amount of common equity. As we discussed previously, our current 5-year plan includes up to $2 billion of equity or equity-like securities, including $100 million annually from our long-term employee benefit programs, with expected annual common equity issuances at approximately 1% of current market capitalization.

Turning to regulatory updates. In West Virginia, hearings for our proposed 1.2 gigawatt combined cycle gas generating facility are scheduled for mid-July. We’re pleased with the time line for this proceeding and anticipate approval for the project in the second half of the year. We are simultaneously working through contracts for major equipment, EPC and gas supply with all of us work on track. Upon regulatory approval, we expect to be in a position to execute these agreements and we’ll update our financial plan, reflecting this investment. Also in West Virginia, we plan to file our base rate case in May, reflecting a $1 billion increase in rate base since our last case in 2023. Based on our filing schedule, we expect new rates effective in the first quarter of 2027.

In Ohio, on April 22, we made the prefiling notices for our 3-year rate plan, which will be formally filed next month. Since our last rate case filing in 2024, we have invested more than $1.3 billion in Ohio’s distribution system. As part of our filing, we are proposing to increase our investments by nearly 15% to approximately $800 million annually to focus on improving reliability for our customers. Proposed customer bill impacts are less than 3% each year, and we expect new rates to go into effect mid-2027. In Pennsylvania, as of April, our approved infrastructure investment program is now being recovered through the distribution system improvement charge, which supports recovery of nearly 50% of FirstEnergy, Pennsylvania’s capital investment program.

This capital program and related surcharge are important tools to ensure we meet our customer commitments from our last base rate case in 2024. And finally, PJM recently opened the planning window for 2026. We anticipate the open window will address needs in a few areas, including portions of our system. The PJM Board is expected to approve projects in the first quarter of next year. We are off to a strong start this year. Our capital investments supported by our constructive regulatory frameworks and strong financial discipline are improving the customer experience and will continue to provide solid regulated returns to our investors. We are reaffirming this year’s capital investment plan of $6 billion and our core earnings guidance range of $2.62 a share to $2.82 a share, with most of the remaining earnings growth compared to 2025, materializing in the second half of the year.

We are also reaffirming our long-term core earnings CAGR and of 6% to 8% through 2030 and targeting near the top end of that range, with growth based off our 2026 guidance midpoint of $2.72 a share. We’re confident in our outlook for this year and beyond, and we’re looking forward to the incremental opportunities ahead. Now I’ll open the call to your Q&A.

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Operator: [Operator Instructions] Our first question comes from the line of Shar Pourreza with Wells Fargo.

Shahriar Pourreza: Obviously, lots of upside there on data centers around your systems. The messaging is getting more and more constructive there. But maybe just focusing on comments centered on West Virginia, you highlight 6 gigawatts of load there, incremental generation that’s needed. Could we just get a sense on the timing of the spend, your turbine queue status for the incremental generation? And maybe just how that should affect or impact the profile of the CAGR since you’re already growing near the higher end.

Brian Tierney: Yes. So let me start with the queue of our turbines. We’re on track to receive delivery of equipment to be able to be online in 2031, with the power plant. Everything is proceeding according to plan there. West Virginia is a state that is open for business not just for data centers, but for everything else. And being led by Governor Morrisey, who’s saying we want 50 gigawatts by 2050. And so it’s a place where we’re looking to invest to meet that demand and to attract that demand. So disproportionately, data centers are moving to West Virginia because of its open for business stance, and we’re happy to be investing into that. I’ll ask Jon to comment on what things — timing of spend and what that might mean to our growth.

K. Taylor: Yes, Shar. So we anticipate we’ll get approval of the existing application in the second half of the year. If I had to guess, it’s probably going to be early in the fourth quarter. What we’ve told people is, upon approval, rate base growth would increase from just over 10% to just over 11%. And obviously, we’ll be very focused on translating rate base growth into earnings growth. So — more to come on that. We’ll update the plan as soon as practical after approval, but we’re really excited about this opportunity as well as the opportunities that are in West Virginia associated with the additional data center demand. .

Shahriar Pourreza: Got it. Perfect. And then just lastly, Brian, I mean just the affordability rhetoric in Pennsylvania, I mean, the governor’s tone and one of your peers obviously recently pulled its rate case. Can we just get a sense on how you’re thinking about the political backdrop, the rate case timing? I mean can you just invest in Pennsylvania through the LTIP program and the rider, can you stay out further until the affordability concerns are kind of more muted?

Brian Tierney: Yes. So on these affordability issues, I think it’s really important that we stay close to our executives, our regulators and our customers on the issue and talking about what’s impacting the affordability. So I was just down in Philadelphia last month and met with Governor Shapiro and talked about these issues. He’s extremely knowledgeable on energy issues and plugged into what’s driving the cost. I also mentioned in our last rate case and our rates just went in effective there a year ago, first quarter of 2025. The main issues there were reliability and investment in the state. And John Hawkins is addressing those issues every day, making sure that we’re making the required investment in Pennsylvania and driving improvement in reliability.

So since 2024 in Pennsylvania, our customer average interruption duration is down 27 minutes. So the things that were important in the most recent rate case, we’re addressing and we’re doing and making happen. And in terms of affordability, we’re staying in touch with people and talking to people like Governor Shapiro, Governor Sherrill in New Jersey and making sure there will be no surprises in any of our states when we come in for a rate case.

Operator: Our next question comes from the line of Nick Campanella with Barclays. .

Nicholas Campanella: I wanted to follow up on the discussion you were having on West Virginia. And I’m just kind of going back to some of the comments in your prepared about exploring ways to kind of protect customers and drive economic growth at the same time. It seems like there’s a lot of interest in Virginia with the 6-gigawatt backlog you highlighted. And I know we’ll figure out what happens with the CPCN and the first gigawatt, which is really more IRP driven. But just what are kind of the frameworks that we should be thinking about to facilitate the next phase of load growth in the state? Do you need to file a separate tariff? And just since you’re vertically integrated, are there other models kind of across the sector that you think are working well that you would be interested in replicating in West Virginia?

Brian Tierney: Yes. So thanks for that, Nick. I think the most important thing is that when you look at data center developers, hyperscalers, there’s been somewhat of a political pushback to data center development and the impact in affordability and cost. And I think in response to that, the hyperscalers, data center developers are taking a stance of, we want to make darn sure we’re paying our fair share, our full fair share for everything that we are consuming in the energy landscape. And so when we’re talking to these folks and negotiating with them, they are coming from a stance of we’re paying for what we’re taking, whether it’s transmission, generation, land. And in some states like Michigan, I saw Jeff Blau on CNBC earlier this week, talking about something they’re doing in Michigan, even lowering electricity rates for existing customers by some development that they’re doing in places like Michigan.

I think the models are out there and the smart things for us to do are replicate the places where these things have worked well rather than just stopping development. And I think if we work with stakeholders in West Virginia and other states, if we’re transparent about who’s bearing what costs and if there’s a net positive to customers in the state. Those are models that we should adopt and develop and continue to impact energy dominance and economic development.

Nicholas Campanella: And then I mean just one follow-up I had is just as we layer in some of the additional capital to the plan, just how you’re thinking about the funding and financing mix. And yes, maybe I’ll leave that there.

K. Taylor: Yes, Nick, this is Jon. So as we talked about before, specifically on the West Virginia generation investment, if we get the AFUDC cash recovery, that will help fund a portion of the investment. So we expect up to about 35% of that investment to be funded with new equity. And as we layer new investments into the plan, I don’t anticipate it to exceed that amount.

Operator: Our next question comes from the line of Steve Fleishman with Wolfe Research. .

Steven Fleishman: Sorry, probably going to hit the same topics that have already been hit to some degree. So just in Pennsylvania, first, the — so we had Shapiro’s comments early in the year, then we see unanimous — pretty much unanimous settlement with PPL still to be approved. And we have this reaction to filing a case and pulling it, although I think they did file it kind of earlier than normal. So just maybe you could just take these different pieces and what’s the takeaway? Is it just — I think you’re in a stay out. So I assume you’re not going to file early out of the stay out. Was that really a lot of the issue here or be curious your thoughts.

Brian Tierney: Like I don’t think we should read something into Pennsylvania from what’s recently happened. Like we view it as a place that wants our development, wants increased investment, wants to improve the customer experience but is also cognizant of the affordability issue, like Governor Shapiro is really thoughtful on these energy issues, and he saved customers and PJM billions of dollars from the caps he negotiated. So he’s not some person who wants to shut down investment or stop economic development in the state of Pennsylvania. And so we’re proceeding with our investment plans. We’re happy with our ability to invest there and our returns. And we’re being cognizant of the affordability issue as the governor would expect us to be, and our customers would expect us to be.

And that’s true in the state of Pennsylvania, and it’s true in all of our states. And I think the key issue is engagement with the executives in our states, with the regulators, with the legislators. And like I said, I met with Governor Shapiro last month in Philadelphia, and will continue to meet with them and talk about these issues that are important to our customers in Pennsylvania and all of our states. It’s about engagement and transparency, and we’re going to keep doing that in Pennsylvania, in all of our states. It’s part of our job. It’s important that we do that on behalf of our customers.

Steven Fleishman: Okay. That makes a lot of sense. So — and then just back to West Virginia, I know you’re finalizing a lot of these contracts for the power plant and I think the initial number was kind of — I don’t know, it goes back, I think, about a year. So just any sense of kind of where the final costing kind of ends up on it? .

Brian Tierney: Yes, we’re still confident in our estimates of about $2.5 billion for the plant. That’s what we filed. We had some contingencies in there, of course, let there be no doubt. It’s a seller’s market when you’re talking about turbines and the like. And I think the sellers need to be thoughtful about how much they’re going to squeeze that pricing because that goes to the affordability issue and there are political implications related to that. And I think people like governors and legislators and others are going to be looking at the equipment suppliers and saying, “Hey, you’re impacting the affordability to our customers and your profitability and your squeeze on people looking to have energy dominance in the United States need to be measured rather than running free.” And so we’re confident in the numbers that we have and confident that our partners will be thoughtful about any price increases they try to pass through in a seller’s market.

Steven Fleishman: I guess they might have a lot more business to come afterwards to be thinking about in West Virginia. So okay.

Brian Tierney: Yes, we — that’s a good point, Steve. We’d love to be a repeat customer — and Steve, we’ll do that with people that are long-term partners to us, and we’ll be reevaluating that as we go forward. So thank you.

Operator: Our next question comes from the line of Jeremy Tonet with JPMorgan.

Jeremy Tonet: I’ll try not to ask on Pennsylvania here. Just maybe if you could turn towards transmission in the PJM open window here. Just wondering any incremental thoughts you might be able to share on what the scope of the opportunity set is for you? Or just any other color in how you feel about that process at this point?

Brian Tierney: So Jeremy, I think looking at past performance as an indicator for the future. $5 billion that we’ve been able to secure over the last 4 years. We’ve changed how we’ve done things from doing everything by ourselves to partnering with some others where we think some of our neighbors and us might come up with a better solution than each of us doing it on our own. And we’ve changed things to be more competitive as we’ve gone forward. So our business model continues to evolve in this competitive landscape. We think that benefits our customers in terms of affordability. We think it offers better reliability and resiliency solutions. And so we’ll continue to develop our business plan under Mark Mroczynski, who’s leading that effort for us, but we’ve been pleased with the incremental investment we’ve been able to secure in the competitive process and are confident that we’ll be able to have similar success in the future.

K. Taylor: Yes, Jeremy, this is John. The only thing I would add to that is if you think about our transmission CapEx plan, 80% to 85% of it is not the competitive projects. It’s just the existing work and the investments that are needed on our existing system. And that will be a continuing theme for us just given where our system is situated, the age of the system. So as we move into the future, I anticipate additional transmission investments on the core system in addition to the regional transmission projects that you asked about.

Jeremy Tonet: Understood. That’s helpful. And then just want to turn, I guess, to affordability. And I appreciate the disclosures and how epi appears to be among the lowest bills in all the states that you operate in. And just wondering how that resonates with local stakeholders there and particularly thinking about New Jersey, given the new administration there.

Brian Tierney: Yes. So let me start with New Jersey. We finished a rate case where rates went into effect the early part of ’24. And the main issue there in that rate case was investment in New Jersey and improving reliability there. And so we started down the path of the clean energy corridor and enabling that we’ve shifted away from that to other type growth. I was in Lakewood, New Jersey earlier this month, the amount of growth is phenomenal. Since 2,000 that city in New Jersey has more than doubled in population. And so a big part of the last rate case, investment in New Jersey, enabling growth and enabling reliability. And Doug McCoy and his team, the President of JCP&L there are making that happen. And so we need to be cognizant of affordability.

As we go in for rate cases, Jon, I think for each of the rate cases that we’re going into today, the O&M burden is less than it was in the last rate case. So we’re talking the talk, walk in the walk on affordability but also making the investments that are demanded from us by our customers and regulators and trying to strike that right balance.

K. Taylor: Yes. And I would say, obviously, making improvements in reliability are important. We talked about Pennsylvania having a 20% improvement in outage duration. If you look at New Jersey, 24 to 25, it’s a 16% improvement, which is about 47 — or excuse me, 49 minutes of outage duration per customer. So pretty significant. So it’s important that we continue with this plan, with this investment strategy because we’re not where we need to be, but we’re on the path to get there.

Jeremy Tonet: Got it. And just a quick follow-up there. Just wondering, in these conversations, do you see distinguishment as far as your bills being lower, lower wallet share than others in state? Is that being appreciated and differentiated in your thinking in conversations with others in the state?

Brian Tierney: I do, Jeremy. I think those are important facts to point out the idea of what the share of wallet is if our rates are increasing at a rate that’s lower than inflation. Those are all important things for us to point out. But at the same time, we recognize that customers are being squeezed not just by our bills, but by things like gas bills, food bills, pharmaceuticals and other things. And so we do need to be cautious, aware, empathetic to those issues but also point out what the facts are. And if our bills are lower, if we’re increasing less than inflation, that means that the value we’re delivering to our customers is increasing over the periods that we’re talking about. So yes, those facts are really important.

Operator: Our next question comes from the line of Andrew Weisel with Scotiabank.

Andrew Weisel: Just one for me. You noted the impressive cost-cutting measures as a tool to help with affordability? If I heard you, Brian, I think you said O&M expenses were down 5% year-over-year and came in below the levels approved in the latest rate case. Can you elaborate on that? Was that across all jurisdictions. Are those savings structural or ongoing? Or were they more onetime in nature, whether related to the weather and maybe lower run plant run times or something like that? Were these related to AI and automation? Or how do those cost savings, were they helpful or potentially harmful in terms of reliability? Any additional details would be helpful.

K. Taylor: Yes. I mean, Andrew, so there’s obviously a little bit of timing in each quarter that you go through in terms of when you incur maintenance work and maintenance activities. But we’ve been at this continuous improvement, cost management program for quite some time, and you’re seeing sustainable benefits from the work that we’ve done historically really starting in 2022 to now. And so this is a lot of sustainable cost savings that are going to help us move into the future, and it’s around moving from a more reactive historical performance decision-making process to a much more integrated analytical risk-based decision-making process using data and analytics to help us inform the decisions that we make to be much more efficient with our resources and where we deploy our resources, whether it be capital or O&M.

And so it’s much more predictive, much more proactive decision-making that’s really driving a lot of our cost management program. So I kind of view it as a much more sustainable part of the company moving forward.

Brian Tierney: And also add to that, have we changed our business model to focus on our 5 business units, we are shrinking our service core and increasing our business unit presence. So we’re moving more of our customers’ management and focus closer to the customer in each of those business units, and that’s having the related operational success that we’ve talked about earlier in the call.

Andrew Weisel: Okay. Safe to say you see opportunity for more? .

Brian Tierney: Always. Always.

Operator: Our next question comes from the line of Ross Fowler with Bank of America.

Ross Fowler: Maybe we’ll turn this to FERC for just a second. Obviously, you’ve got the NOPR out there, the colocated load order and the backstop procurement, so not a shortage of things going on. You obviously took this up to the D.C. circuit with a petition for review. So maybe can you sort of scope out the decision time line there? What you frame is the range of outcomes? Is this sort of an all or nothing, in your favor or not?

Brian Tierney: Yes. On a lot of this stuff, Ross, it’s more to come, whether it’s the NOPR or the other issue that you mentioned. And I think our biggest thing there is we think the large loads should pay their fair share, but we think it should be to the utility company, to the transmission provider who’s providing the service and have the opportunity to earn a return on that. So it’s not just you pay it, it’s out of rate base and the utility operates something that they’re not earning on. We think it should be a model even similar to what you have in natural gas pipelines, where you have an open season and people sign up to contract with the pipeline company. But they are paying the pipeline company and the pipeline companies earning a return on their investment.

So we don’t think CIAC should be outside of that model for network improvements. We think that the large load should pay for their network improvements, but they should be paying the utility and the utility should be earning on their invested capital for that incremental investment to serve them.

Ross Fowler: Understood, Brian. And then on the backstop procurement, you kind of said you’re evaluating the proposal there from PJM and there might be some things to do there. It’s still too early to talk about that? Or are you still flushing that out?

Brian Tierney: Still fleshing it out. But Ross, I think a large part of this is who pays and for what. And I’m not sure of PJM’s value standing in between the people who are making the investment and the people who are paying for it. I just — I don’t see why PJM is a clearinghouse for any of that adds any value. I think that the people making the investment, the power plant developers and builders should contract directly with the end-use customers rather than having some middleman in between and then another middleman being the electric distribution companies. The long and the short of deregulation was that customers bear the risk of capacity and energy markets. And customers have gotten the benefit of that for the last 20 years.

And now it looks like prices are going to be higher. What I think we need to be careful about, whether it’s the backstop or anything else in capacity and energy markets is customers for paying for something they’re not getting. And that’s exactly what’s happening in today’s capacity markets. People are paying for new capacity, and they’re not getting new capacity. Existing capacity owners should get something that’s reasonable but not as high as new capacity. And so today, customers, residential customers are wasting their money in the PJM capacity markets, and that should stop.

Ross Fowler: I mean, certainly, Brian, we’ve contracted before we can contract again. I don’t know what difference it makes that PJM gets in the middle. It’s bilateral contracts or bilateral contracts, right? I mean that’s…

Brian Tierney: Yes, the wrong people are going to end up paying with PJM in the middle. Like the whole idea of deregulation was that the utility companies are just wires companies and they don’t take generation capacity and energy commodity risk. And I’ll tell you, going forward, if we get the Phase 2, and I’ll tell this to PJM and anyone else who listen, we are not going to sign contracts where our companies take commodity risk on generation and energy. It’s not going to happen. So Phase 2 has got some real hurdles to overcome. And if Phase 2 is going to work, they need to contract with us. And the way it’s structured today, we’re not signing contracts.

Ross Fowler: Yes. I mean, that’s not your business model, right? Your business model is regulated wires, right?

Brian Tierney: And it’s not what the legislators in 4 of our 5 states asked for. They said, “You don’t do that. You’re out of that business.” And believe me, we listen to our legislators. We listen to our regulators and we respond accordingly.

Operator: Our next question comes from the line of Anthony Crowdell with Mizzou Securities. .

Anthony Crowdell: Just a quick one on Ross’s question. Brian, you just talked about your view of the backstop auction, all the stress that it creates. Does the state regulators that you — the states you operating, does the regulators share that same view? Or any insight you can provide to the governors or the regulators share a similar view to how you’re viewing what’s going on right now in the capacity markets?

Brian Tierney: I think they absolutely do, Anthony. Look at the law that was just passed last summer here in Ohio, where the legislature took a very firm view of utilities cannot own generation and the market and the legislature took the view that the market will solve the problem and not the utilities. And so — we heard that. We listened to that, and we’re not going to own generation in Ohio, and we’re going to let people contract with each other in whatever market they choose to contract in. But yes, Ohio just completely doubled down on that a year ago. So they’re firmly an agreement with us. And if you look across our deregulated states, everyone but West Virginia, the markets are — the legislation is clear that we don’t own generation. And that is handled through markets and the utility provides T&D services and is not involved in the commodity. So yes, they’re firmly in agreement with us.

Operator: Our final question this morning comes from the line of Carly Davenport with Goldman Sachs.

Carly Davenport: Maybe just to follow up on some of your comments on New Jersey earlier. I know you guys have been considering kind of the right timing to potentially file another rate case there. Any updated thoughts on what that could look like?

Brian Tierney: Look, I think given the governor’s executive orders and where we are in our rate case cycle, we’d be very, very thoughtful about when we move forward, and there would be no surprise to the governor, the BPU or anyone else in the state of New Jersey when we do come in. But — no, we just — no surprises is our biggest mantra. And that won’t happen as a surprise, we’ll come in at the right time. But the important thing in the last rate case, and I hope it’s the important thing in the next rate case is, are we investing in New Jersey for economic development, for growth, and for reliability and balancing that with affordability. And that’s our job, and we’ll do that openly and transparently whenever we do come in for a rate case in New Jersey. You’re not a customer of ours there. Are you, Carly? .

Carly Davenport: I’m not at the moment, but I might be at some point, but that’s really helpful. I appreciate that. And then maybe just one question on Maryland. I know you guys have the plans to file there soon as well. Just any impacts that you’re looking out for from the Omnibus bill that was recently passed in Maryland just in terms of any risk around changes to the regulatory process on the back of the legislation.

K. Taylor: Karl, this is Jon. It’s kind of too early to tell right now. I mean we’ve historically used a historical test year in Maryland, but other components of the legislation, we’re working our way through. and we’ll update our plan accordingly.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for joining. You may now disconnect your lines.

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