FE.NYSEFirstenergy CORP
10-Q: FirstEnergy Corp. Reports Third Quarter 2024 Results, Details Strategic Investments and Regulatory Updates
Sentiment:
Quarterly Report
FirstEnergy Corp. released its third quarter 2024 results, highlighting strategic investments, regulatory updates, and a focus on operational excellence.
Worse than expectedEarnings per share decreased in the third quarter of 2024 compared to the same period in 2023.Earnings per share decreased in the first nine months of 2024 compared to the same period in 2023.The company faced higher operating expenses and lower investment earnings, contributing to the worse results.
Summary
- FirstEnergy Corp. reported earnings attributable to FE from continuing operations of $419 million, or $0.73 per share, for the third quarter of 2024.
- This compares to $421 million, or $0.74 per basic share ($0.73 diluted), for the same period in 2023.
- The decrease in earnings was primarily due to an impairment charge related to the Akron general office, lower revenues from changes to the Ohio DCR, the dilutive effect of the FET Equity Interest Sale, higher storm restoration and vegetation management costs, and lower investment earnings.
- These factors were partially offset by higher customer demand due to weather, lower labor expenses, the implementation of base rate cases, increased earnings from regulated investments, and higher interest income from the FET Equity Interest Sale promissory notes.
- For the first nine months of 2024, earnings attributable to FE from continuing operations were $717 million, or $1.25 per basic share ($1.24 diluted), compared to $948 million, or $1.66 per basic share ($1.65 diluted), for the same period in 2023.
- The decrease in earnings for the first nine months was primarily due to charges related to ARO liabilities, a civil penalty from the SEC investigation, the impairment charge related to the Akron general office, lower revenues from changes to the Ohio DCR, higher storm restoration and vegetation management costs, lower investment earnings, the absence of a pension mark-to-market adjustment, the dilutive effect of the FET Equity Interest Sale, higher debt redemption costs, and a higher effective tax rate.
- These factors were partially offset by net proceeds from the shareholder derivative lawsuit settlement, the implementation of base rate cases, higher weather-related customer usage, increased earnings from regulated investments, higher interest income from the FET Equity Interest Sale promissory notes, and lower labor and benefits expenses.
- FirstEnergy continues to implement its Energize365 program, with expected capital investments of approximately $26 billion from 2024 through 2028.
Sentiment
Score: 5
Explanation: The document presents a mixed picture. While the company is making strategic investments and has secured some positive regulatory outcomes, it also faces significant challenges, including lower earnings, higher expenses, and ongoing legal and regulatory issues. The sentiment is neutral to slightly negative due to the combination of positive and negative factors.
Positives
- Higher customer demand and usage due to weather positively impacted revenues.
- Lower labor and benefits expenses contributed to reduced operating costs.
- Implementation of base rate cases in Maryland, New Jersey, and West Virginia increased earnings.
- Regulated investment programs led to increased rate base and earnings.
- Higher interest income was generated from the FET Equity Interest Sale promissory notes.
Negatives
- An impairment charge related to the Akron general office negatively impacted earnings.
- Lower revenues resulted from changes to the Ohio DCR.
- The FET Equity Interest Sale had a dilutive effect on earnings per share.
- Higher non-deferred storm restoration expenses and planned vegetation management costs increased operating expenses.
- Lower investment earnings related to FEVs equity method investment in Global Holding reduced overall income.
- A higher effective tax rate due to the absence of discrete tax benefits in 2024 negatively impacted earnings.
Risks
- The company faces potential liabilities, increased costs, and unanticipated developments from government investigations and agreements.
- There are risks and uncertainties associated with government investigations and audits regarding HB 6 and related matters.
- The company is subject to risks and uncertainties associated with litigation, arbitration, mediation, and similar proceedings.
- Changes in national and regional economic conditions, including recession, volatile interest rates, and supply chain disruptions, could affect the company.
- Variations in weather and other natural disasters could affect future operating results.
- Legislative and regulatory developments, including matters related to rates, energy regulatory policies, and climate change, pose risks.
- Physical attacks, cyber-attacks, and data security breaches could compromise operations.
- The company faces challenges in meeting its goals relating to EESG opportunities and efficiencies.
- Changing market conditions affecting the measurement of certain liabilities and the value of assets held in pension trusts could negatively impact growth.
- Changes to environmental laws and regulations, including rules finalized by the EPA and the SEC related to climate change, could pose risks.
- Changes in customer demand for power, including the impact of climate change and emerging technology, could affect the company.
- The company's ability to access public securities and other capital and credit markets could be affected by market conditions.
- Future actions taken by credit rating agencies could negatively affect the company's access to financing.
- The company faces the potential of non-compliance with debt covenants in its credit facilities.
- Human capital management challenges, including attracting and retaining qualified employees, could pose risks.
- Changes to significant accounting policies and tax laws or regulations could affect the company.
- The outcome of ongoing government investigations, PUCO proceedings, and related litigation is uncertain and could have a material adverse effect on the company.
Future Outlook
FirstEnergy expects to continue investing in its regulated operations through its Energize365 program, with approximately $26 billion in system-wide capital investments planned from 2024 through 2028. The company also anticipates continued regulatory activity to support its growth strategy and address critical investments. FirstEnergy is committed to achieving carbon neutrality by 2050 with respect to GHGs within its direct operational control.
Management Comments
- FirstEnergy is dedicated to integrity, safety, reliability and operational excellence.
- The FE Board and FirstEnergys executive management team are aligned behind a business model grounded in investing, operating, recovering costs and financing our regulated electric company operations.
- FirstEnergy is accelerating its transformation into a premier electric company.
- FirstEnergy is focused on maintaining balance sheet strength and flexibility.
Industry Context
The announcement reflects the ongoing trends in the utility industry, including the focus on grid modernization, renewable energy integration, and regulatory compliance. The company's strategic investments and regulatory filings align with the broader industry shift towards a more sustainable and resilient energy infrastructure. The company is also navigating the complexities of regulatory scrutiny and legal challenges, which are common in the utility sector.
Comparison to Industry Standards
- FirstEnergy's focus on regulated investments and rate base growth is consistent with strategies employed by other large investor-owned utilities such as NextEra Energy and Duke Energy.
- The company's commitment to carbon neutrality by 2050 aligns with the long-term goals of many utilities, including Xcel Energy and Dominion Energy.
- The company's capital investment plan of $26 billion over five years is comparable to the infrastructure spending plans of other major utilities.
- The company's ongoing regulatory filings and base rate cases are typical for regulated utilities seeking to recover costs and earn a reasonable return on investment.
- The company's challenges related to HB 6 and related investigations are unique to FirstEnergy and do not have a direct comparison to other utilities.
Legal Proceedings
- FirstEnergy is involved in ongoing legal proceedings related to HB 6, including a DPA with the U.S. Attorneys Office, an SEC investigation, and a settlement with the OOCIC.
- The company is also facing shareholder derivative lawsuits and other litigation related to HB 6.
- FirstEnergy is subject to ongoing audits by the PUCO related to corporate separation, the DCR rider, and political and charitable spending.
Stakeholder Impact
- Shareholders may be concerned about the decrease in earnings and the ongoing legal and regulatory challenges.
- Customers may benefit from the company's investments in grid modernization and reliability.
- Employees may be affected by the company's restructuring and cost-cutting measures.
- Suppliers may be impacted by changes in the company's procurement practices.
- Creditors may be concerned about the company's debt levels and financial performance.
Next Steps
- FirstEnergy will continue to implement its Energize365 program.
- The company will continue to pursue regulatory approvals for its rate cases and other filings.
- FirstEnergy will continue to evaluate its options for the closure of the McElroys Run CCR impoundment facility.
- The company will continue to assess the impact of the final climate disclosure rules on its business.
- FirstEnergy will continue to cooperate with the OOCIC in its investigation.
- The Ohio Companies expect to file an application with the PUCO for ESP VI by early next year.
Key Dates
| Date | Description |
|---|---|
| 2013-06-03 | Phase-in recovery bonds issued by Ohio Funding Companies. |
| 2016-06-01 | Delivery Capital Recovery Rider implemented in Ohio. |
| 2020-01-16 | New Long-Term Infrastructure Improvement Plans approved in Pennsylvania. |
| 2021-04-01 | Energy Efficiency and Peak Demand Reduction program approved in New Jersey. |
| 2021-07-21 | Deferred Prosecution Agreement entered into between FE and the U.S. Attorneys Office for the S.D. Ohio. |
| 2022-02-09 | Shareholder derivative lawsuit filed. |
| 2022-05-01 | Monogahela Power Company and The Potomac Edison Company Solar Generation Project approved in West Virginia. |
| 2022-05-31 | Brookfield acquired 19.9% of the issued and outstanding membership interests of FET. |
| 2022-07-15 | Phase Two of Grid Modernization Plan approved in Ohio. |
| 2022-10-26 | JCP&L proposal accepted by NJBPU for transmission infrastructure connecting offshore wind-generated electricity to the New Jersey power grid. |
| 2023-02-02 | FE entered into the FET P&SA II with Brookfield. |
| 2023-04-05 | CEIOE and TEMember filed an application with the PUCO for approval of ESP V. |
| 2023-04-17 | JCP&L applied for the FERC abandonment transmission rates incentive. |
| 2023-04-24 | Monogahela Power Company and The Potomac Edison Company sought approval for surcharge cost recovery from the WVPSC for three of the five solar sites. |
| 2023-05-12 | FirstEnergy made a $750 million voluntary cash contribution to the qualified pension plan. |
| 2023-05-31 | MP and PE filed a base rate case with the WVPSC. |
| 2023-08-01 | PE filed its proposed plan for the 2024-2026 cycle as required by the MDPSC. |
| 2023-08-22 | A unanimous settlement of the case was filed recommending a $33 million per year increase in depreciation expense in West Virginia. |
| 2023-08-31 | MP and PE filed their annual ENEC case with the WVPSC. |
| 2023-10-19 | PE operates under MDPSC approved base rates. |
| 2023-10-31 | Orsted announced plans to cease development of two offshore wind projects in New Jersey. |
| 2023-11-09 | JCP&L filed a petition for approval of its EnergizeNJ with the NJBPU. |
| 2023-11-30 | A hearing was held on the annual ENEC case in West Virginia. |
| 2023-12-01 | JCP&L filed a petition with the NJBPU requesting approval of its EE&C Plan II. |
| 2023-12-08 | Transmission Related Vegetation Management Programs approved by Federal Energy Regulatory Comission. |
| 2023-12-29 | The MDPSC issued an order approving the $311 million scenario for most programs, with some modifications. |
| 2024-01-01 | FirstEnergy consolidated the Pennsylvania Companies into FE PA. |
| 2024-01-13 | MP and PE filed a request with the WVPSC seeking approval of new depreciation rates for existing and future capital assets. |
| 2024-01-23 | MP, PE and various parties filed a joint settlement agreement with the WVPSC. |
| 2024-02-01 | Energy Efficiency and Peak Demand Reduction Stipulation Settlement approved in New Jersey. |
| 2024-02-12 | An indictment by a grand jury of Summit County, Ohio was unsealed against the now-deceased, former chairman of the PUCO, and two former FirstEnergy senior officers. |
| 2024-02-14 | The NJBPU approved the stipulated settlement between JCP&L and various parties, resolving JCP&Ls request for a distribution base rate increase. |
| 2024-02-15 | JCP&L operates under NJBPU approved rates. |
| 2024-02-27 | JCP&L amended its pending EnergizeNJ petition following receipt of NJBPU approval of the base rate case settlement. |
| 2024-03-14 | The PPUC approved the settlement for the FET Equity Interest Sale. |
| 2024-03-21 | stpr:MDfe:PerYear2022Through2024Memberfe:PeMember2024-03-212024-03-21stpr:MDfe:PerYear2025And2026Memberfe:PeMember2024-03-212024-03-21stpr:MDfe:PerYear2027Memberfe:PeMember2024-03-212024-03-21 |
| 2024-03-25 | The FET Equity Interest Sale closed. |
| 2024-03-26 | An order from the WVPSC was issued approving the settlement without modification and new depreciation rates became effective. |
| 2024-03-27 | New ENEC rates went into effect in West Virginia. |
| 2024-04-01 | UnitedStatesV.HouseholderEtAl.RelatedSECInvestigationMember2024-04-012024-06-3fe:UnitedStatesV.HouseholderEtAl.RelatedOOCICInvestigationMember2024-04-012024-06-3 |
| 2024-04-02 | FE PA filed a base rate case with the PPUC. |
| 2024-04-12 | The Ohio Companies and certain of the parties filed a stipulation that modified the Ohio Companies application for phase two of its grid modernization plan. |
| 2024-04-25 | The EPA issued the final Good Neighbor Plan. |
| 2024-05-15 | The PUCO issued an order approving ESP V with modifications. |
| 2024-05-22 | The NJBPU approved JCP&Ls request for a six-month extension of the EE&C Plan I. |
| 2024-05-31 | AE Supply ceased accepting waste at the McElroys Run CCR impoundment facility from Pleasants Power Station. |
| 2024-05-31 | The Ohio Companies filed their application for an increase in base distribution rates. |
| 2024-06-14 | The Ohio Companies filed an Application for Rehearing seeking greater certainty regarding the key terms of ESP V. |
| 2024-06-27 | The U.S. Supreme Court granted a stay of the Good Neighbor Plan. |
| 2024-07-01 | New legislation signed into law in Maryland, is expected to reduce the return on the EmPOWER unamortized balances for PE. |
| 2024-07-09 | AE Supply withdrew its closure deadline extension request to the EPA. |
| 2024-07-17 | Brookfield paid FE approximately $1.2 billion in full satisfaction of the promissory notes. |
| 2024-07-22 | FE PA filed its application with the PPUC seeking approval for the next phase of its LTIIP program. |
| 2024-07-31 | The MDPSC issued an order implementing revised EmPOWER surcharge rates for PE. |
| 2024-08-12 | FirstEnergy entered into a settlement with the OOCIC, the Ohio Attorney Generals Office, and the Summit County Prosecutors Office. |
| 2024-08-15 | PE filed a revised plan for the remainder of the 2024-2026 cycle to comply with refined GHG reduction targets with a total budget of $314 million. |
| 2024-09-03 | KATCo priced $200 million of senior notes due 2035 at 5.17%. |
| 2024-09-05 | FET issued $800 million of unsecured senior notes due in 2030 and 2035 in a private offering. |
| 2024-09-12 | The SEC issued a settlement order that concluded and resolved the investigation in its entirety. |
| 2024-09-13 | FE PA and the active parties to the proceeding filed a joint settlement agreement requesting that the administrative law judges to approve FE PAs requested distribution base rate case increase. |
| 2024-09-20 | Intervenors filed testimony recommending fines for alleged violations of the Ohio corporate separation requirements. |
| 2024-09-26 | The FERC Office of Energy Market Regulation issued data requests to FirstEnergy. |
| 2024-09-30 | The third-party auditors report was filed in the Ohio Companies political and charitable spending proceeding. |
| 2024-10-15 | The administrative law judges issued a decision recommending that the PPUC approve, without modification, the September 13, 2024 settlement agreement. |
| 2024-10-18 | The parties entered into and filed with the NJBPU a stipulation of settlement, wherein the parties agreed to a budget of approximately $817 million for EE&C Plan II. |
| 2024-10-22 | Parties filed comments on the audit report in the Ohio Companies political and charitable spending proceeding. |
| 2024-10-29 | The Ohio Companies filed notice of their intent to withdraw ESP V. |
Keywords
FirstEnergy, Energize365, transmission, distribution, regulated, electricity, rate base, FERC, PUCO, PPUC, NJBPU, WVPSC, climate change, renewable energy, grid modernization, HB 6, pension, OPEB
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