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Text: We will also discuss certain non-GAAP financial measures.
Participants in today's call include our President and acting Chief Executive Officer, Steve Strah; Senior Vice President and Chief Financial Officer, Jon Taylor; and our Executive Director and independent Board member, Chris Pappas.
We also have several other executives available to join us for the Q&A session.
Before I get into our results, I wanted to kick off the call with a few words on a critical area of focus for FirstEnergy.
Taking appropriate actions to address our recent challenges and fostering a strong culture of compliance, ethics and integrity, we are deeply committed to creating a culture in which compliance is endemic in second nature and where our leaders prioritize and encourage open and transparent communications with all of our stakeholders.
This focus is absolutely essential for our success as an organization.
Our commitment starts at the top and extends throughout the organization.
We are working to ensure that every leader is actively engaged in setting the proper tone and creating an environment where not only our words, but our actions align with our core values and behaviors.
We're building a world-class compliance function to underpin this effort, including bringing on Hyun Park as our new Senior Vice President and Chief Legal Officer in January.
Hyun is the right person to step into this role at this time, and he will be instrumental in driving this cultural shift.
We will also be appointing a Chief Ethics and Compliance Officer, who will manage a dedicated team of compliance professionals and enhance our efforts to improve our compliance function by shifting from a decentralized to a more centralized model.
In addition, we'll be designating compliance ambassadors throughout the company to act as boots on the ground, ensuring the entire organization understands the critical importance of compliance and what it means for each individual.
We are also making significant changes in our approach to political and legislative engagement and advocacy.
Our activity in this space will be much more limited than it has been in the past, with closer alignment to our strategic goals and with additional oversight and significantly more robust disclosure.
With this additional transparency, my goal is to make it crystal clear exactly what efforts we support.
These efforts, together with enhanced policies and procedures, will help to bring additional clarity around appropriate behaviors at FirstEnergy.
And through enhanced communications, training, and most importantly, our actions, we are dedicated to reemphasizing that every employee at every level has the responsibility to consistently act in accordance with our core values and behaviors and to speak up if they see inappropriate behavior anywhere in the organization.
At the same time, we're taking decisive actions to rebuild our reputation and brand and focus on the future.
This includes the decisions recently made with respect to Ohio that I'll talk about shortly.
And while we don't control the time line related to the DOJ and SEC, we will continue to cooperate fully with these government investigations and remain focused on the matters that we can control.
But be assured that both management and the Board will be relentless and take the steps needed to position our company for long-term success.
Now turning to earnings.
Today, we reported 2020 GAAP earnings of $1.99 per share and operating earnings of $2.39 per share.
On Tuesday, we announced several proactive steps we're taking to resolve a range of regulatory proceedings affecting our Ohio utilities.
These include our previously announced agreement with the Ohio Attorney General, along with the decision not to seek recovery of lost distribution revenues.
This resulted in a charge of $0.15 per share in the fourth quarter.
Absent this charge, our 2020 operating earnings would have been $2.54 per share.
Well above the midpoint of our most recent guidance range and reflective of our strong performance last year.
While this was a difficult decision, we are confident it was the right decision.
We believe resolving these matters in a comprehensive manner is a critical step to demonstrate our commitment to transparency and integrity in every aspect of our business, while taking steps toward removing uncertainty relating to our current Ohio regulatory matters.
And in the interest of providing additional transparency, today's investor materials will include more information about regulatory ROEs in each of the states we serve.
We remain excited about the significant investment opportunities that will continue to drive solid earnings and growth in the years ahead.
When we have further clarity in Ohio, and with the ongoing government investigations, we intend to resume providing a long-term growth rate that should be consistent with traditional utility growth rates and similar to what we have provided in the past.
For now, we are focusing on this year and we have introduced 2021 operating earnings guidance of $2.40 to $2.60 per share.
Because we have a lot of ground to cover today, including: our solid operational performance last year, even in the face of the pandemic; our strategy for 2021 and beyond, including our commitment to building shareholder value; and the work we're doing to position the company for the future.
Our fundamental performance continues to be excellent.
We continued making demonstrable progress on our strategic goals, and we had an exceptional year from a safety perspective.
Even with about half of our employees working from home and the others adopting new health and safety protocols, the FirstEnergy team has remained laser focused on providing safe and reliable service to our six million customers.
I am deeply proud of the team's resilience and commitment, especially in light of the turbulence that marked the year.
Our results in 2020 reflect our commitment to strong operations as well as the stability provided by our diverse footprint and our wires-focused platform.
Last year, we also successfully executed our plan to invest $3 billion in our distribution and transmission systems as we continued our reliability in grid mod program to benefit customers.
We believe our robust long-term organic growth opportunities are well aligned with the focus on electrification and the critical role the grid plays in supporting the transition to a carbon-neutral economy.
These opportunities and our goals that support them are included in our strategic plan, published last month and available on our website.
I hope you have taken some time to review it.
This updated plan addresses our unwavering commitment to transparency and accountability and identifies old goals for key areas of our business.
These goals are aligned with our core values and behaviors, our regulatory strategy and our commitments to our customers, communities and investors as well as environmental stewardship.
Among these objectives outlined in the plan is our pledge to achieve carbon neutrality by 2050.
This ambitious goal reflects our transformation to a regulated electric utility and our responsibility to help create a sustainable energy future.
The strategic plan also addresses our continued commitment to build a more diverse and inclusive workplace.
We've had a D&I-focused KPI for three years now and we are taking even more aggressive steps to make progress in this area.
We're excited to pursue a 30% increase in our number of racially and ethnically underrepresented employees by 2025, both overall and at the supervisor and above level.
We believe this will help accelerate our transformation into an innovative, diverse and sustainable company and drive an important shift in our corporate culture.
We recently completed our fourth companywide survey of all employees.
Overall, I'm proud to say we scored relatively well on many fronts, but we certainly have more work to do.
One area identified for improvement is listening and valuing the opinions of our employees.
We want employees to feel empowered to voice their opinion on important issues and my team, with guidance and support from the Board of Directors, is addressing this head-on.
We view this work as central to strengthening our compliance program and a culture of ethics, integrity and accountability.
I'd like to explain my approach to driving this change, and perhaps we could use the company's safety culture as an analogy.
Several years ago, we had concerns that our safety culture was trending in the wrong direction.
Management led a significant effort with our employees to put in place new programs and training.
And to consistently demonstrate that safety is and will always be an unwavering core value.
These efforts ultimately instituted a cultural shift in how we all understood the critical importance of safety.
We want that very same cultural shift to occur as it relates to compliance and ethics.
As we look ahead, I feel confident in our path forward.
We have a strong foundation.
Our fundamentals are solid, and our strategies are proven.
And we are building on that with a relentless focus on making FirstEnergy a better company as we work to rebuild trust, work to achieve financial results and deliver for our customers and investors.
We recognize that changes won't happen overnight.
They happen over time, just like the evolution in our safety culture I spoke about earlier.
I'm confident we will emerge a stronger, better FirstEnergy.
First, I'd like to reiterate the Board's strong support of Steve and recognize the hard work he and the rest of the team are doing.
We commend their willingness to learn from the past and their absolute commitment to take this company forward on a new path, all while executing the company's strategy and keeping operations and financial results on solid footing.
The Board and management team are focused on a critical objective: to move forward from the past actions of certain former executives; and to take the steps necessary to improve the tone at the top, culture of ethics and integrity and the way we do business.
Steve talked about a lot of the important work that is being driven by the new management team.
Likewise, the Board is committed to strengthening every part of FirstEnergy's culture and taking the necessary steps to reestablish credibility.
Together, we have made much progress on the issues that confronted the company several months ago.
And at the same time, we recognize there is more work to do.
I'd like to recap some of the steps that the Board has been actively engaged in to drive improvements in our culture of compliance.
First, the Board promptly put in place an independent committee with external counsel to oversee the internal investigation and to monitor the status of the various regulatory and legal matters facing the company.
The independent committee, which currently is made up of the entire board, meets frequently and regularly.
The Board acted as swiftly in the removal of five executives, named Steve Strah as acting CEO, established an Executive Director role and expanded the role of the Board's share, all to assist management and the Board with the dynamics we faced in the first months of the investigation.
The Board unequivocally endorsed the principle of full cooperation with both the DOJ and the SEC on the matters related to the investigation.
And through our own internal investigation, led by independent counsel, has supported intensive analysis.
The Board established a compliance oversight subcommittee of the Audit Committee with independent counsel and leading compliance advisors to analyze and improve the compliance policy and culture at FirstEnergy.
Steve mentioned some initial output from this work earlier.
In addition, the Board established a number of working groups to oversee and support various work streams, including communications, recruiting and financial flexibility.
And to that point, management has initiated a project called FirstEnergy Forward, a transformational effort to change the way the company does business.
The objective of this project is to transform the company for the future, but it will also provide near-term financial flexibility.
Jon will discuss this later on the call.
We know there is particular interest in the status of the internal investigation.
Hopefully, my earlier comments give you a sense of the intensity and the magnitude of the work that has occurred within the company and with the benefit of extensive external independent support.
Our internal investigation continues to be thorough and robust.
And includes assistance from external law firms who are supported by several other consultants.
The ongoing investigation has not resulted in any new material items not previously disclosed.
In the course of the internal investigation, we did identify certain transactions, which, in some instances, extended back 10 years or more, including vendor services that were either improperly classified, misallocated to certain of utility or transmission companies or lacked proper supporting documentation.
These transactions result in amounts collected from customers that were immaterial to FirstEnergy, and our utility and transmission companies will be working with the appropriate regulatory agencies to address these amounts.
Our internal investigation will also continue to address any due developments in connection with the ongoing DOJ and SEC investigations.
More importantly, we are increasing our focus on another critical aspect of our work, moving FirstEnergy forward.
The fresh perspective of Hyun Park and a new Chief Ethics and Compliance Officer will be invaluable to creating an environment where the entire team is committed to embracing the right behaviors and embedding a strong culture of compliance.
He will also join the executive team on a transitional basis as Executive Director and act in advisory capacity to support efforts to achieve the company's priorities: restore its reputation and strengthen its overall governance and compliance functions.
John is a 40-year industry executive with extensive energy experience in navigating complex challenges and driving strong corporate governance.
Bringing John into this full-time role means that I will step back from the Executive Director position I've held since October and return to my regular duties as an independent Board member by April 1.
And importantly, we will continue to fully support the management team as it transitions FirstEnergy to the future as a more resilient company.
Despite the challenges the company has faced, FirstEnergy's operating fundamentals are strong, and we have a great platform of assets.
Together, we have put in place a robust plan to move forward and to position FirstEnergy as an industry leader.
One, we know it can be and one that will deliver excellent value to its customers and shareholders.
We look forward to working together alongside with management in this effort.
Today, I will review our financial results and expectations and provide an update on several other financial matters.
Our operating results include the charge at our Ohio utilities that Steve mentioned earlier.
Absent this charge, our results reflect continued rate base growth related to our transmission and distribution investment programs, a favorable mix of customer usage reflecting the impact of our residential customers staying at home and higher expenses mostly associated with the pandemic.
Additional fourth quarter data is available in the supporting materials on our website.
As Steve mentioned, we reported 2020 GAAP earnings of $1.99 per share and operating earnings of $2.39 per share, which compared to 2019 GAAP results of $1.70 per share and operating earnings of $2.55 per share.
In our distribution business, in addition to the $0.15 charge at our Ohio utilities, results for 2020 as compared to 2019 reflect the absence of Rider DMR in Ohio, which was in place for the first half of 2019 and higher operating costs.
These were partially offset by higher revenues from increased residential usage as well as earnings from our distribution enhancement programs.
Although total weather-adjusted sales decreased 2% in 2020, normal usage from our residential customers increased 5% for the year, which from an earnings perspective more than offset the 6% decrease in commercial and industrial loan.
While this shift has moderated as the pandemic wears on, we have seen higher weather-adjusted residential usage relative to our latest forecast in the 2% to 4% range with flat to slightly higher C&I usage.
In our transmission business, approximately $550 million in rate base growth drove stronger results, which were partially offset by higher financing costs, the impact of transmission rate true-ups and the absence of tax benefits recognized in 2019.
And finally, at our corporate segment, full year 2020 results primarily reflect higher corporate expenses, higher interest costs and a lower consolidated tax rate.
Today, we are providing 2021 operating earnings guidance of $2.40 to $2.60 per share and first quarter operating earnings guidance in the range of $0.62 to $0.72 per share.
Our expectations for the year include capital investments of up to $3 billion, with 100% of the $1.2 billion in transmission investment and approximately 40% of the $1.7 billion in distribution investment being recovered in a formula rate.
Our transmission plan includes continued expansion of our Energizing the Future program.
In December, FERC accepted our proposed tariff revisions for the transmission assets of West Penn Power, Mon Power, and Potomac Edison as well as the new Keystone Appalachian Transmission Company known as KATCo, pending the outcome of the settlement and hearing process.
Other key drivers for 2021 include the impact from the base distribution case at JCP&L, continued investment in our distribution enhancement programs and lower operating costs.
We expect these drivers to be partially offset by higher interest expense, which includes close to $0.04 per share associated with the step-up on $4 billion of holding company bonds, and $0.05 per share associated with our revolver borrowings that I'll address in a moment.
Additionally, our load forecast has a more typical usage profile for our residential customers and a slower recovery to pre pandemic levels for our C&I customers.
Equity remains a part of our overall financing plan, and we are affirming our plan to issue up to $600 million in equity annually in 2022 and 2023, and we will flex these plans as needed.
We remain committed to maintaining adequate liquidity for our distribution and transmission subsidiaries.
At year-end, our liquidity was approximately $3 billion, with $1.7 billion of cash on hand and $1.3 billion of undrawn capacity under our credit facilities.
We currently have $2.2 billion of short-term borrowings, of which approximately $2.1 billion was incurred in November as a proactive measure to increase our cash position to preserve financial flexibility.
And we have committed to our bank group that as we work through our financing plan, we expect to reduce short-term borrowings with the timing and amount dependent on a number of factors.
Our current maturities of long-term debt remain manageable with only $74 million maturing in 2021.
We remain in close contact with the rating agencies who are intensely focused on governance and the actions we are taking to strengthen our compliance environment and controls.
Improving our credit metrics at FirstEnergy, while committed -- committing to return to investment grade as quickly as possible and maintaining the strong credit ratings at our utilities are key priorities.
We are targeting future FFO to debt metrics in the 12% to 13% range at the consolidated level as we work to address some of the uncertainties that Chris and Steve mentioned.
We know how important the dividend continues to be for our investors in accordance with our target payout ratio of 55% to 65%.
The Board declared a quarterly dividend of $0.39 in December, payable March 1.
And as we mentioned on our third quarter call, our intent is to hold the 2021 dividend flat to the 2020 level of $1.56 per share, subject to ongoing Board review and approval.
The Board will obviously need to consider the entire landscape of the investigation process before each quarterly dividend is declared.
Finally, Chris mentioned that we've kicked off a project, FE Forward, that I see transforming FirstEnergy into a more efficient and effective industry leader, delivering superior customer value and shareholder returns.
In partnership with McKenzie, employees across FirstEnergy are challenging organizational traditions, conventional wisdom and cultural norms.
At the same time, we are focused on modernizing our management practices, processes and digital and technology platforms to deliver a superior customer experience and a much more nimble organization for the future.
While we view this as a transformational effort, we expect to naturally deliver efficiencies that will help us address whatever comes our way in the future, while meeting all of our regulatory commitments.
Beyond these benefits, we expect that this transformation will provide us the ability to reinvest in our business, our customers and our employees to become a better technology-enabled leader in the industry, committed to innovation, investments in emerging technologies and to support a smarter and cleaner electric grid.
While this project is not the only step in our journey, it's a critical one.
The eight-week information gathering phase of the project included intense and robust employee engagement to better understand how we work and how we can do it better through the use of more modern technology, digital and mobility tools and the use of data and analytics.
As we enter into the next phase of this effort, we will again engage employees throughout the company to review and assess each opportunity and build out the plans to transform FirstEnergy.
Over the next few months, we will build out specific actions for the future, which we look forward to sharing.
We received a letter dated February 16, 2021, from Icahn Capital, informing the company that Carl Icahn is making a filing under the Hart-Scott-Rodino Act and has an intention to acquire voting securities of FirstEnergy an amount exceeding $184 million, but less than $920 million, depending on various factors, including market conditions.
We do not know whether Carl Icahn and his affiliates have acquired shares of FirstEnergy common stock and/or derivatives, and we do not know his intentions with respect to our company.
The letter represents our only contact with Icahn Capital and we don't have any additional information to share.

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affirmed its plan to issue up to $600 million in equity annually in 2022 and 2023.
sees fy 2021 non-gaap operating earnings per share $2.40 to $2.60.
sees q1 non-gaap operating earnings per share $0.62 to $0.72.

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