FIRSTENERGY CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: GAAP earnings from continuing operations were $0.73 per share in Q3 2024 compared to $0.74 per share in Q3 2023. Operating earnings were $0.85 per share in Q3 2024 compared to $0.88 per share in Q3 2023, impacted by storm-related expenses and absence of state tax benefits. Narrowed 2024 operating earnings range to $2.61 to $2.71 per share from prior range of $2.61 to $2.81 per share.
• Regulatory Updates: In Pennsylvania, a $225 million rate case settlement was reached, with new rates expected to take effect January 1, 2025. In Ohio, filed to withdraw ESP V, planning to file ESP VI early next year. In New Jersey, expect BPU approval for JCP&L's Energy Efficiency and Conservation Plan. PJM capacity auction produced record high prices impacting residential bills.
• Operational Highlights: New business unit structure driving performance, strong storm response efforts in Ohio and New Jersey, capital investments totaling $3.1 billion in Q3 (increased to $4.6 billion for 2024), and joint transmission projects with Dominion Energy Virginia and American Electric Power.

Segment Performance

• Distribution business: Earnings were $0.39 per share in the third quarter of 2024, compared to $0.37 per share in the third quarter of 2023. This reflects higher customer demand (largely from mild temperatures in 2023), rate base growth in formula rate investment programs, but was partially offset by storm restoration expenses.
• Integrated segment: Earnings increased $0.09 per share, a 32% increase over the third quarter of 2023. This was due to the implementation of new base rates in Maryland, West Virginia, and New Jersey, rate base growth in distribution and transmission formula rate investment programs, and lower financing costs, though offset by higher storm restoration expenses.
• Stand-alone transmission segment: Operating earnings were $0.13 per share in the third quarter of 2024, compared to $0.17 per share in the third quarter of 2023. Rate base increased over 10% year-over-year due to transmission investment programs, but was offset by dilution from the 30% sale of FirstEnergy Transmission.
• Corporate segment: Reported a third quarter loss of $0.04 per share, versus earnings of $0.06 per share in the third quarter of 2023. The largest drivers were the absence of a state tax benefit recognized in 2023 and lower planned Signal Peak earnings, partially offset by lower interest expense.

Guidance

• Narrowed 2024 operating earnings range to $2.61 to $2.71 per share from $2.61 to $2.81 per share.
• Reaffirmed 5-year CapEx plan of $26 billion through 2028 and 6% to 8% long-term annual operating earnings growth rate driven by average annual rate base growth of 9%.
• Plan to provide a more comprehensive 2025 to 2029 financial plan early next year.

Risks

• Significant storm-related expenses that did not meet regulatory requirements for deferral, impacting guidance.
• Uncertainty in Ohio ESP V withdrawal and subsequent ESP VI filing, potentially creating regulatory risk.
• PJM capacity auction results leading to higher residential bills without clear net new capacity addition, affecting customer affordability.

Q: Shahriar Pourreza asked about large load requests and the financial impacts of withdrawing Ohio ESP V.

A: Brian Tierney responded that large load requests are real, with over 60 requests for 500 MW+ load studies, and the withdrawal of ESP V is more about risk reduction than significant financial impact, aligning ESP VI with the general rate case.

Q: Nick Campanella inquired about transmission capacity for large loads and rate impacts from PJM capacity auctions.

A: Brian Tierney stated there is significant transmission capacity available, and concerns about PJM capacity auctions not necessarily adding net new capacity, urging prudent spending for customer service.

Q: David Arcaro asked about solutions to add generation and timing of load forecast updates.

A: Brian Tierney mentioned state agency-led auctions as a potential solution, and Jon Taylor noted a comprehensive financial plan update will be provided early next year on the fourth quarter call.

Q: Steve Fleishman asked about 2025 earnings growth and generation solutions.

A: Jon Taylor confirmed 2025 is expected to be within the 6%-8% growth range, and Brian Tierney discussed state agency solutions requiring legislative action for generation additions.

Q: Anthony Crowdell asked about storm cost recovery and impact of capacity charges on customer bills.

A: Brian Tierney emphasized prudent storm response and recovery, and concerns about capacity charges leading to higher bills before net new capacity is added, advocating state-led solutions.