Greetings! And welcome to the FirstEnergy Corp, Second Quarter 2020 Earning Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Irene Prezelj, Vice President, Investor Relations. Thank you. You may begin.

Thanks Dana. Welcome to our second 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 risk and uncertainties. Factors that could cause actual results to differ materially from those indicated by such statements can be found on the Investors section of our website under the earnings information link and in our SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures can be found on the FirstEnergy Investor Relations website, along with the presentation which supports today's discussion. Participants in today’s call include our Chief Executive Officer, Chuck Jones; President, Steve Strah; and Senior Vice President and Chief Financial Officer, John Taylor. We also have several other executives available to join us for the Q&A session. Now, I’ll note turn the call over to Chuck.

Thank you, Irene, and good morning everyone. Thanks for joining us. As Irene indicated, we have a new lineup of speakers today, reflecting the management changes that were put in place in May. Steve Strah, in his new role as President of FirstEnergy will discuss the operational and regulatory updates on today's call, and John Taylor returning to the financial realm in his new role as CFO will review our results. As we've discussed, these changes are the result of extensive succession planning with our board and a thoughtful and proactive plan to ensure we are prepared for a smooth transition in the leadership of our company. Let's begin by addressing the issue that's been in the news recently. As you know, the Ohio speaker of the house and four others were arrested on Tuesday on federal criminal charges. The case involves political activity related to Ohio House Bill 6, which recognizes the value of the nuclear power plants operated by our former subsidiary FirstEnergy Solutions now known as Energy Harbor. Also on Tuesday, FirstEnergy Corp., our FirstEnergy Services Company, subsidiary, and our political action committee were served subpoenas related to this matter. We are having discussions with the Department of Justice lawyers and will fully comply with the subpoenas. I believe that FirstEnergy acted properly in this matter and we intend to cooperate fully with the investigation to among other things, ensure our company and our role and supporting House Bill 6 is understood as accurately as possible. In the meantime, we wanted to share our preliminary perspective on this issue, and reinforce the values with which we operate our company. This is a serious and disturbing situation. Ethical behavior and upholding the highest standards of conduct are foundational values for the entire FirstEnergy family and me personally. These…

Thanks Chuck. It's good to talk with all of you again today in my new capacity. I’ll walk-through a brief update on some regulatory matters, as well as our operations. To begin, we are pleased that since our last call the Utility Commission's of West Virginia and New Jersey have both authorized deferral mechanisms for incremental COVID-19 related costs. And the Pennsylvania PUC authorized a deferral mechanism for uncollectible expenses. As we told you in April, Maryland was the first state in our service territory to put such a mechanism in place, and we already had existing riders in Ohio and New Jersey for uncollectible expenses. As you know, our regulatory calendar is very light through 2023. And we only have a few open matters at this time. I'll touch on some recent developments. In New Jersey, an ALJ was assigned for the distribution base rate case we filed in February. As you'll recall, we are seeking to recover increasing costs associated with providing safe and reliable electric service for our JCP&L customers, along with recovery of storm costs incurred over the past few years. We anticipate a procedural scheduled to be issued soon, and we remain optimistic that we can reach a favorable settlement with the parties in the case. Also in New Jersey, we are in settlement discussions with our formula rate filing for JCP&Ls transmission assets. In December, FERC accepted our application to move these assets into a former – forward- looking formula rate effective January 1, 2020, subject to refund. This supports our plan for approximately $175 million in customer focused capital spending on the JCP&L transmission system this year. Moving to the operations front, as Chuck indicated earlier, we continue to execute our plans for 2020. Even with the significant precautions to keep our employees and customers safe, we remain on track to make more than $3 billion in customer focused investments to strengthen and modernize our transmission and distribution systems this year, with the goal of enhancing reliability, resiliency and security, while improving operational efficiency. Thank you for your time. And now I'll turn it over to John Taylor for the financial review.

Good morning. It's great to speak with you today. Consistent with our normal practices, you will find all reconciliations along with other detailed information about the quarter in the strategic and financial highlights document that's posted to our website. Now let's review our results. As Chuck said, we reported second quarter GAAP and operating earnings of $0.57 a share, which is near the top end of earnings guidance. In our distribution business, revenue has increased compared to the second quarter of 2019 as a result of higher residential usage, incremental rider revenue in both Ohio and Pennsylvania, and higher weather related usage. This benefit was offset by the absence of the Ohio DMR revenue, which ended in July 2019 and higher expenses, including non-deferred COVID expenses, I'll describe in a moment. Total distribution deliveries decreased slightly compared to the second quarter of 2019 on both an actual and weather adjusted basis. Heating degree days were approximately 27% above normal and 58% higher than the second quarter of 2019, while cooling degree days were 2% above normal and 6% higher than the same period last year. The stay at home orders in our service territories drove an increase in total residential sales of 17.1% or 14.8% on a weather adjusted basis, compared to the same period last year. In the commercial customer class, we saw a sales decrease of 14.4% on an actual basis in 14.5% when adjusted for weather compared to the second quarter of 2019. And in our industrial class, second quarter load decreased 11.7% compared to the same period last year. As Chuck indicated earlier, the increased residential volumes more than offset the decrease in C&I load from a revenue perspective, for a benefit of $0.04 per share in the quarter. Let me spend a moment on our…

Thanks, John. There was an erroneous media report that FirstEnergy had held an investor meeting yesterday. No such meeting happened. So, if anyone was feeling left out, I wanted to make that correction. In my earlier comments, I tried to candidly address the investigation by speaking from the heart and giving you a sense of where we are and what we currently know. As we move to the Q&A, I would really like to let my prepared marks stand. Please recognize that I won't be able to speak to any great detail on many of your questions. I appreciate your understanding on that. And I really hope we can focus the Q&A on the great quarter we just reported on. Now we'll take the first question.

Thank you. [Operator Instructions] Our first question today is coming from Steve Fleishman of Wolfe Research. Please go ahead.

Yeah. Hi, good morning.

Good morning, Steve.

Hi, Chuck. Can’t help but asking so, as best you can answer, could you maybe give more color on, in terms of the payments that are talked about to this [501C4]. How much was added from FE versus FES and why – did you have any control over FES payments as well?

Well, first, let me take the second half first, and as of November 16, when we essentially made the competitive generation business non-core, FES separated fiduciary, financially, and operationally from being a part of FirstEnergy. They put in place an independent board, and from November 16, I've had no input into any of the decisions they've made. Obviously, we've had a lot of discussions between the two companies as it relates to transition shared services and so forth, but in terms of decision making authority mine ended in November of 2016. On your specific question, as I've said, I'm not going to get into the details of the case, but I will say this, that of the funds that are referenced in the Department of Justice affidavit, FirstEnergy’s share of that is about 25%. And in the context of 5.5 years of meeting or exceeding every earnings commitment that we've given you every quarter, we do make prudent decisions to spend corporate funds on issues that we believe are important to our customers and shareholders. Beyond that, we intend to provide the details on what we spent, how we spent it to the Department of Justice in the coming weeks.

Okay. I'm not sure you can comment on this, but can you talk about the reference like phone calls between you and other leadership and these – some of these folks? Could you talk to that at all? Is…

No, I'm not going to talk to that. I talk to a lot of people, I text with a lot of people. I’d probably text more than I talk these days, so we have to see what they're talking about. I can tell you this, in every meeting, every phone call, every text message that I participate in, I talked about our obligations to conduct our business transparently, ethically, professionally. I have no worries that I did anything that wasn't that way and we let the merits of our arguments carry the day when we are operating in a political environment.

Okay. Just for color because everyone seems to focus on this $60 million of spending, just how much did the other side spend? And do they have similar 501C4s on this HB6?

Steve, our share was 25%. I'm not going to speak for the other side. You're going to have to go talk to them.

I meant people that oppose the law, I'm sorry.

Well, the interesting thing about that is it's all – you know it's all – we don't know who spent it because it was spent through similar organizations, legal 501C4 organizations, where donors aren't and I don't know the amount that was spent on the other side. But clearly, this was a provocative, difficult issue in the state of Ohio. A lot of money was spent on both sides of this issue, particularly after House Bill 6 was passed and it got into the referendum process, the process of gathering signatures, the media ads, there was a lot of money spent on both sides and 501C4s were used on both sides.

One last quick question, Chuck, just are you going to do – is the Board going to do some kind of like independent review of all this as part of the response? Could you give more color on that?

Right now, we're planning to do an internal review of everything involved in the affidavit, which obviously is going to be necessary for us to respond to the questions in the subpoena. I think the Department of Justice review is the most important review that needs to get going and get completed.

Right. Thank you very much. Appreciate it.

Thank you. Our next question is coming from Shar Pourreza of Guggenheim. Please go ahead.

Hey, good morning, guys.

Hi, Shar.

Just on the similar topic, can you just maybe give us a little bit more granularity on the separation process in 2018? I know – we understand some of the IT and things like payment processing continue to go through a company, a service company, so FE Corp. for some time, but it isn't like clear how everything else was actually bifurcated, i.e., sort of at the management level. You know how much interaction did FE, you know, corporate senior management have with FES after the filing? When were the non-back ended functions actually split?

Well, in November of 2016, we were providing on the order of $300 million worth of corporate shared services to the generation business. The process of winding all that down went all the way to the date where they emerged from bankruptcy and even beyond that. I can't tell you the specifics of when each individual functions ceased to be performed by the transition shared services agreement and when FES or Energy Harbor started to do that on their own. I can't answer the question of whether our executives were involved in the running of FES or Energy Harbor at any point after November of 2016. And the answer is no, we were not involved. We created corporate separation for a reason. We had to get about negotiating, you know, a plan of separation with FES, its bondholders, its creditors. There's no way we could have done that by operating on both sides. So, we severed those ties. We were not involved in any way in the decisions made by FES.

Got it. And then several of sort of the individuals charged are long time lobbyists who interacted to some degree with company A and company A1 over the time period in question, can you tell us with any kind of specific what – you know what their affiliation was with both A and A1? For example, on, you know, individual peers to have a contact with sort of, you know, both the enterprises in question, you know, let's maybe just elaborate a little bit on the affiliations of those that were charged?

Well, let me say this, we do employ lobbyists. When we do, we expect them to act in the same ethical manner that we hold ourselves accountable for. The lobbyists named in the affidavit and subsequently arrested did not work for FirstEnergy on House Bill 6. And to my knowledge, they have never worked for FirstEnergy. Who they worked for? I'm not sure, but I know they did not work for us.

Got it. And then, Chuck, just one last question, and just to follow-up on Steve's on the 501C4, what was like the underlining, you know, vetting process at the time for making those payments? I mean, would Regulatory Affairs just request them and receive approval freely? I guess, how do you assess whether those funds were directed towards that 501C would be used for like “societal benefits versus political aspirations”?

With all due respect Shar, I'm going to stay away from that question.

Okay. Well, thanks, you know, Chuck, for addressing some of this. I know it's a tough subject and the visibility is really important. So thank you very much.

Thank you. Our next question is coming from Julien Dumolin-Smith of Bank of America. Please go ahead.

Hey, good morning, team. Thanks for the time. At risk of delving into the obvious again, if I can follow on Shar’s line of questioning, on the services arrangement, I just want to understand the historical setup here. You know, obviously, this historical arrangement on the services side lasted for some time, as you just articulated, but with respect to the External Affairs piece of this, how do you think about the decision making under that services arrangement, right? Because if you can clarify a little bit, I understand that you all were doing a lot of different things, you know, including running material affairs for them, which would presumably include some of these related activities. How do you think about what that would include and in running a services arrangement, what does that mean in terms of their decision making versus your own, if you can articulate that a little bit more?

External Affairs was one of the areas that they separated very quickly and put in place their own Vice President of External Affairs, began working with their own law firms, began working with and hiring their own lobbyists. We were virtually out of the External Affairs business for FES very shortly after November of 2016. So, it's a bad assumption to assume that we were doing that for them, we were not.

Right. So to the extent that you are running a services arrangement for them in other facets for a longer duration, including seemingly through some for 2020, it's specifically in the context of External Affairs, which would presumably include lobbing that seems to terminated very quickly, if [indiscernible]?

Yes, I think you should think about it more in terms of Administrative Affairs that we were providing them, payroll, HR services, some, you know, financial services, IT services, those types of things we were providing. You know, it took a while to figure out how to get that all separated, but the things that are involved with leading and running a company, all separated very early.

And then if I can ask, when you think about the funding of the 501C4, I mean, to the extent to which that you've done this in the past, you've done – you contributed to the 501 before even prior to the separation of the companies here. I mean, that is not necessarily in question here, just to be very clear with you all, when you think about the investigation, you know, I just want to separate perceptions from proximate realities for the case, if you can speak to that and activities in 501C4s?

I bracketed the amount of money that we spent on House Bill 6, I'm not going to get into the details of how we spent it on this call.

Understood. Last question for you super quick. I know you've articulated your own plans about that transition of the management team, and that was obviously [indiscernible] how do you think about your [Technical Difficulty].

We're losing you Julien, I can't hear your question.

Sorry. Do you think you'll stay on to the pendency of the investigation just to help [indiscernible]?

Well, to my knowledge, I've never articulated anything that what we've publicly said. And I think I've said that I have made no definitive retirement plans and it certainly won't be this year, and I absolutely am not going to – you know, not going to – not do my part to help restore the reputation of this company to what it truly deserves.

Absolutely. Alright. All the best. Good luck.

Thank you, Julien.

Thank you. Our next question is coming from Stephen Byrd of Morgan Stanley. Please go ahead.

Hi, Good morning.

Hi, Stephen.

Just wanted to talk about FES and governance there, was there any FirstEnergy executives on the board of FES post-2016?

Excuse me, say that again, Stephen.

Post-2016 at FES, were there any FirstEnergy executives or other FirstEnergy folks on the Board of FES?

No FirstEnergy executives were on the board of FES.

Okay, thank you. And then just another question …

The FES selected independent directors and I think Donnie Schneider, who was the President of FirstEnergy Solutions was on the Board, but no FE executives served on that Board.

Understood. Thank you. And then just another question on the statement that the company made about this that you don't believe anything was done wrong. There's a fairly short tone between the subpoenas being issued to a number of FirstEnergy entities in that statement and I guess I'm just wondering [and no delicate] way to ask you exactly that, it’s a pretty short time to kind of make an assessment to make sure that everyone felt confident that no one at FirstEnergy was doing anything wrong. What gives you the confidence that no one was doing anything wrong given the short amount of time between the subpoenas and the statement issued?

I would just say that – so first of all, our statement was that we believe that FirstEnergy acted properly in our dealings on House Bill 6. We can't speak to what happened by anybody other than FirstEnergy. The financial support we provided to House Bill 6 isn't complicated. We know what we did. We know why we did it. We're looking forward to sharing that with the Department of Justice. That's what gives me the confidence to be able to say that we acted properly.

Okay, understood. And just last question, in terms of – we've seen some rating agencies’ sort of action statements recently, do you see any need to support your credit position in the near-to-medium term given those statements? Or do your equity plan sort of span and you don't see that need given what we've seen already from the rating agencies on this investigation?

Well, first of all, we've got plenty of liquidity right now. And as you might imagine, I spoke to both S&P and Moody's since Tuesday, we've seen what S&P did. You know they put us on a 90-day negative watch. You know, when I spoke to them both, I'll tell you what I told them. I told them that they should not put the ratings integrity of their ratings on the line for FirstEnergy. That it’s my job and our company's executive teams job to take care of our reputation, and we will do that, but I also told them that we're the same underlying company that existed before Tuesday. We've got an improving balance sheet, FFO-to-debt that's moving into the 12% to 13% range, strong earnings CAGR and that's the company that we are and that hasn't changed. And as we work through the process with the Justice Department, it's going to be the same company when we come out of it from a financial profile definitely. Steve, anything you want to add to the specifics on the liquidity question?

No, Chuck. I mean our liquidity is strong at $3.5 billion. We have access to it. We can make all the reps and warranties under the facilities and expect to be able to do that moving forward.

Understood. Just last question for me, have you had dialogue with PUCO since this investigation was announced and anything just to report on that side of things?

I have had no dialogue with the PUCO.

Understood. Thank you very much.

Thank you. Our next question is coming from Paul Patterson of Glenrock Associates. Please go ahead.

Hey, good morning.

Hi, Paul.

So, as you know, there's discussion about repealing HB 6. I'm just thinking other than the decoupling provision, is there any other significant or potential significant impact that would happen if it was repealed and not replaced? And also sort of likewise in the same area, since FES has emerged from bankruptcy, are there any contingencies or anything that we should think about that – or obligations to FirstEnergy, I mean to whatever Energy Harbor since you guys – since it's removed – since it's now out of bankruptcy, if you follow me?

Alright, so the first question is if House Bill 6 is repealed, what else happens? I mentioned in my prepared remarks that House Bill 6, when it went into law, actually resulted in a rate reduction for our customers despite the surcharges related to the nuclear plants and that was as a result of some of the, you know, previous payments that were being made for customers for renewable energy charges. It would depend how it’s repealed, how it's replaced, if at all. On what happens with those renewable energy surcharges on the decoupling piece, you know, decoupling provisions in the House Bill 6 can have many benefits. You know it provides rate certainty for both customers and shareholders until our next base rate case. You know, in the case of shareholders, it could provide a benefit depending on whether during a normal economic downturn, but right now, as I've said, with loads up due to workers being at home as a result of the pandemic combined with hot weather last month and this month, decoupling is actually providing a benefit to the customers. So, you know, if decoupling goes away, those are the types of benefits that are going to go away.

Okay, but any financial impact to you guys other than outside of decoupling? I mean, I'm just thinking like is there anything – the decoupling thing is there, other than that going away, is there any financial impact that we should think about potentially, again, absent decoupling that we should think about with?

No, not anything that's significant nor that we could accommodate within our plan.

Okay.

It's a few pennies of share, probably maximum, that it would benefit us. And as I said, if it's not there, the real risk is also shared by customers because they'd be paying a whole lot higher electric bills this summer than they're paying.

Okay, great. And then just with FES post-bankruptcy, your – is there any contingency or obligations that you have to them?

No, there's no change in our settlement agreement with FES and its bondholders, creditors and all of the other parties. The plan of reorganization was not contingent on House Bill 6 or any other support for the nuclear plants. There's no true-ups, any other financial obligations from FE to FES other than what was in our agreement that was approved by the court.

Okay. But that agreed, so that was – okay, I guess what I'm saying is that, should we – if something happens to FES, should we be concerned about it having any potential impact on you guys, since it's now emerged from bankruptcy et cetera, do you follow what I'm saying?

Well, the last I know, they were sitting on $900 plus million of cash. I don't – you know I can't speak for what's going on out there. That was a public announcement they made back in March. I don't – I'm not sitting here at all worried about that part of what used to be part of our company.

Okay. Appreciate that. And then, just in general, I mean, [82] pages of lots of information is put out there and obviously some of it is associated with the individuals that are arrested, I can see some sort of issue with. It's not clear to me what the actual, if any allegations that are actually being made about FirstEnergy in a legal manner have been being done illegally if you follow me. I have, of course, nothing to subpoena or what have you, but how should we think about that? I guess, when we look at the …

I'm going to let my prepared remarks stand on that question.

Okay. Again, thanks so much hang in there.

All right. Take care.

Thank you. Our next question is coming from Paul Fremont of Mizuho. Please go ahead.

Thank you. Basically, I just want – I want to start by following up on Steve Byrd's question. If you were faced with the prospect of a potential rating, downgrade by Standard & Poor's would you alter your equity financing plans to descend the rating or would you allow for the rating to go down?

I think in the short-term, we wouldn't do anything drastic. We wouldn't change our plan. And we would work to get them to the point where they're comfortable restoring our rating.

Okay.

As I said, the underlying financials of this company haven't changed. Our balance sheet is getting stronger. We're moving into the 12% to 13% range. You know, S&P has a 12% threshold there. We're not going to go below that. If they were to downgrade us as a result of this news, as I've said, it's our job to get this news behind us and when that happens, I would expect them to restore the rating that's appropriate.

Got it. Were you aware of the investigation prior to the FBI’s announcement and press conference this week or without the first time that you became aware of the investigation?

I'm not going to comment on that one.

Okay.

It'd be really nice. We got about 15 minutes left, if we could actually talk about the great quarter that we had at some point here.

I just have one more question. And I guess part of the affidavit alleges that there was a payment by you to one of the lobbyists, is that in correct that you made a payment to that lobbyist?

I would just say this, I think that the CEO reference in some of that affidavit wasn't me. I don't know who it was, but it was not me and I've never made a payment directly to a lobbyist in my life nor asked any lobbyists to make a payment to anyone else on behalf of our company in my life.

Great. That's it for me. Thank you.

Thank you. Our next question is coming from Michael Lapides of Goldman Sachs. Please go ahead.

Hey, guys, thank you for taking my question. I actually want to dive in. Thank you, Chuck. I want to dive into something that is a bit regulatory related and is Ohio related, but it's something you deal with every year. You have your 2019 significantly excessive earnings test application out there. And the 2018 one, I don't think ever got ruled on. Your own data in the 2019 one shows a little over $300 million of net income next year, Ohio distribution utilities or about not quite 4 billion of rate base. Just curious how you're thinking about a, the process for resolving the last two seat tests; and b, the potential risk of a rate reduction in Ohio as a result of the seat test, and is that a rate reduction, if any happened? Would that be a one-time kind of refund to customers or would that be an ongoing lowering of rates?

Hey, Michael, this is John. You know, as you look at the seat test, you know, we filed that back in May a 10.9% return on equity. The two biggest drivers in that, there were some lower costs in 2019 versus 2018, lower interest cost and then we had some one-off expenses in 2018 that we incurred, but the bigger impact was that the Ohio utilities paid a dividend up to FE Corp. probably a little bit more than they have typically done in the past just because they hadn't paid a dividend in quite some time. So that was the key driver in the increase in the return on equity. I don't foresee any issues at the 10.9%. We’re well below the thresholds. And I think that will be – will resolve itself over some period of time. I can't remember the regulatory timeframe, maybe Eileen, if you want to talk through the regulatory timeframe on when that gets approved or how the process works for the seat.

Yeah, thanks. Good morning. It's Eileen Mikkelsen, Vice President of Rates and Regulatory Affairs. Thanks, John. The processes as you said, each year we make a filing in May reporting on our prior year's earnings, consistent with the statutory language with respect to the significantly excessive earnings test. At that time, we really wait for the Public Utilities Commission of Ohio to establish a procedural schedule for folks to provide comments on that seat filing, and then make a determination of whether or not we need to move to hearings or not move to hearings before they make a judgment about whether or not we have significantly excessive earnings. But John, as you said, with the filing at 10.9% we are not concerned that we have significantly excessive earnings in our Ohio utilities.

Okay. So, does that mean, are there any issues with the 2018 seat test, because I may be wrong, but I didn't think the commission had actually issued an order one way or the other on that. It just seems a little unusual for the 2018 one to be outstanding still when the 2019 one got bought.

There is no procedural schedule established as yet for resolving the 2018 seat proceeding. So, we await the establishment of a procedural schedule and then we will act accordingly, but again, that 2018 filing was 8.8% and so on a consolidated basis. So, again, no concerns that we have significantly excessive earnings in Ohio in 2018.

Got it. Thank you, guys. Much appreciate it.

Take care of Michael.

Thank you. Our next question is coming from Sophie Karp of KeyBanc Capital Markets. Please go ahead.

Hi, good morning and thank you for taking my questions. Just maybe if you guys could provide a little bit more color on your conversations with the rating agencies and just try to understand a little better what exactly their concerns are, as they were communicated to you because like you pointed out, fundamentally the business, underlying business is on the right trajectory and remain strong, just curious what is it that they afraid of? Thank you.

I don't have any more color to provide. I pretty much shared everything that I discussed with them and I think he didn't mean to read what they wrote and call them if you have more questions.

All right. And then secondly, if I may quickly follow up, you went through a regulatory president to establish the decoupling mechanism. So presumably, if that was reversed, you would have to go to that similar proceeding again. And my question is, would that in any way trigger a full rate review in your opinion? Thank you.

There wasn't a full rate review to implement the coupling, I would hardly think that there would be one to decoupling.

Alright. Thank you.

Okay. Thank you, Sophie.

Thank you. Our next question is coming from Durgesh Chopra of Evercore ISI. Please go ahead.

Hey, guys, good morning. Thank you for taking my question. Just really, quickly, first on Q3 guidance, any comment on what you're assuming in terms of COVID impacts clearly things in Q2 tend to be trending better than where you are at least the Q1 call?

Hi Durgesh. This is John. I think, you know, if you look at this second quarter load on a weather adjusted basis, you were down 4%, residential was up 15, commercials down 15, industrials down 12, I think you could probably assume the total, you know, 4% load reduction off a prior year will be consistent, but my sense is the mix will be different. We're starting to see residential come down slightly. We're starting to see commercial improve slightly and industrial improved slightly. So, I think the mix will be, you know, different, but the load in terms of just total load versus last year will be fairly consistent with what we saw in the second quarter. With respect to COVID related costs, you know, we have the deferral mechanisms on uncollectible expenses, and all that's been recorded up to what we have in base rates. So, I don't anticipate any issues there. And the other COVID costs that we're incurring in the main, they're not that significant. So, I don't anticipate any impact from COVID in the third quarter.

Understood, thanks. And then just Chuck, quickly, going back to FES liabilities, I just wanted to make sure I understood that clearly. So, as I recall through the bankruptcy proceeding, you have some obligations on specifically nuclear decommissioning and coal ash, if FES were to get in any kind of financial trouble, are you saying that you're okay with where those stress balances are that you're comfortable in that whole situation? I'm just trying to understand that will those obligations be FirstEnergy obligations if FirstEnergy situation does get into any kind of financial trouble or no?

Durgesh, you have – you do not understand correctly. We have no obligations for nuclear decommissioning. We have no direct obligations for any coal ash. We put in place a surety bond, as part of our agreement that we negotiated with FES to ensure the coal ash mitigation happened properly, but that bond is in place and it was part of our Separation Agreement that was approved by the bankruptcy court, and we have no other ongoing financial obligations.

Understood. Thank you. Thank you for that clarification. Appreciate it.

Thank you. Our next question is coming from Andrew Weisel of Scotia Bank. Please go ahead.

Thanks for taking my question and I will say congratulation on a good quarter.

Thanks.

If I can just elaborate on the seat and more specifically, you’ve disclosed the earned ROE of 10.9% in Ohio for 2019, but when I look at the net income of the subsidiaries subtract out the DMR and just do the simple algebra, it points to something significantly higher like north of 20%, can you just help me reconcile those numbers and why it seems like a pretty big disparity between the [10.9] and what the net income from those subsidiaries look like?

Yeah. So, this is John. So, I think what you see in our Ohio utilities, financial statements and what's included and see, obviously we start with what's in the financials, but there are exclusions per the regulations and adjustments that you need to make in order to calculate the seat. And so, you know, I don't have the list of adjustments on the top of my head here and probably wouldn't be a good use of time to go through every single adjustment on the call, but there are certain adjustments that we make, not only in the income that's reported by the utilities, but also in the equity that's reported by the utilities. It is a rolling 13-month average equity balance that's used to calculate the 10.9% or the 8.8% in the previous year. So, there are some adjustments that we would just need to walk through, and we could do that offline, if that makes sense.

Could you maybe just give one or two of the biggest still? I mean, you're talking about like a doubling of net income versus what the dumb guide math would imply?

It's Eileen. Thinking of the adjustments like John, we can take this offline, but coming to mind for example, Ohio Edison has Penn Power as a subsidiary, so we have to adjust Penn Power out because that is not relevant to the Ohio ratemaking formula. So, there's things like that that are included that are necessary adjustments in order to meet the statutory test.

Okay, thank you.

Thank you. Our last question this morning is coming from Charles Fishman of Morningstar. Please go ahead.

Yeah. Chuck, I was skeptical. Your revenues would be as resilient as they were. So, you know, with respect to COVID-19 after the last quarter, but they certainly were this quarter. So, I'll give you that [add able on] the quarter. And then…

Thank you. Hey Charles, and also I saw you quoted in some of the media earlier this week. Thank you for the vote of confidence.

Okay, well, you're welcome. Okay, so since I did that, I forget just one quick question on Ohio. Okay, the DCR. Connect the opened up, as far as the ROE are we pretty much on autopilot until the ESP expires in 2024?

Eileen will take that.

Thanks Chuck. With respect to DCR in Ohio, I would agree we are on autopilot through the end of our ESP, which is currently in effect through May of 2024.

Okay. Thanks a lot. That’s all I have.

Thank you, Charles. Alright. Thank you all for your support. Thanks for at least getting a few questions on the quarter. We'll talk to you again when it's appropriate. Take care.

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