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    FE
    Earnings call· Dec 2024(Q4 FY24)

    FIRSTENERGY CORP FE

    Feb 27, 2025 Source

    Executive summary

    FirstEnergy Q4 FY24 — Strong Core Earnings Growth and Expanded Capital Plan

    FirstEnergy concluded FY24 with operating earnings within guidance, driven by regulatory derisking and a robust capital plan. The company introduced a new 'core earnings' metric to better reflect regulated operations, guiding to 5.5% growth in 2025 and a 6%-8% CAGR through 2029, supported by an expanded $28 billion capital program. While facing headwinds from weather-impacted sales and higher financing costs, management emphasized O&M discipline and a commitment to investment-grade credit ratings, with no incremental equity needs beyond employee benefit programs for the base plan.

    Highlights

    5

    • Achieved 2024 operating earnings of $2.63 per share, within the forecasted guidance range.

    • Completed rate reviews in 4 of 5 states since Q4 2023, derisking 83% of rate base and securing $450 million in net annual revenue increases.

    • Returned to investment-grade status with 40 ratings upgrades across the company in 2024, with all subsidiaries now investment grade.

    • Expanded Energize365 capital investment program to $28 billion through 2029, an 8% increase from the prior plan, supporting 9% compounded annual rate base growth.

    • Introduced 2025 core EPS guidance of $2.40-$2.60 per share, representing 5.5% growth at the midpoint, and a 6%-8% core EPS CAGR through 2029.

    Concerns

    5

    • 2024 results impacted by lower sales volumes due to mild weather and unusual storm activity not meeting regulatory deferral requirements.

    • Ohio revenues were below plan in H2 2024 due to the ESP V order, with DCR revenue caps frozen at May 2024 levels.

    • Higher-than-anticipated financing costs, including significantly higher interest rates, negatively impacted the 2025 core earnings forecast.

    • Removal of a 50 basis point incentive from ATSI transmission rates following a January court decision.

    • Pension and Signal Peak earnings contribution decreased 30% from $0.36/share in 2023 to $0.26/share in 2024, showing significant volatility.

    Guidance & targets

    7
    CategoryTargetConfidence
    Core Earnings Per Share
    $2.40-$2.60 per share
    high materiality
    High
    Core Earnings Per Share Compounded Annual Growth Rate
    6% to 8%
    high materiality
    High
    Annual Dividend Declarations
    $1.78 per share
    medium materiality
    High
    Dividend Payout Ratio
    60% to 70%
    medium materiality
    High
    Capital Investments
    $5 billion
    high materiality
    High
    Capital Investments
    $6.4 billion
    high materiality
    High
    Rate Base Growth
    9% compounded annual rate base growth
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Distribution
    Earnings increased primarily from higher weather-related distribution sales, lower Ohio rate credits, and higher revenues from the Pennsylvania DISC program. This was partially offset by the negative impact of the Ohio ESP V order and higher non-deferred storm costs.
    Earnings increase: $0.04 year-over-yearOhio ESP V impact: -$0.04 per share
    		————
    Integrated
    Earnings increased primarily due to new base rates in New Jersey, West Virginia, and Maryland, and higher weather-related distribution sales. This was partially offset by a higher effective income tax rate. The three base rate cases significantly improved returns in these jurisdictions.
    Earnings increase: $0.29 per shareROEs at end of 2024: 8.3% to 9.3%
    		————
    Stand-alone Transmission
    Earnings declined, as investment programs increasing earnings by $0.07 per share were more than offset by dilution from the 30% interest sale of FET, which closed in March 2024. FE owned rate base grew 10% year-over-year.
    Earnings decline: $0.12 per shareEarnings increase from investment programs: $0.07 per shareFE owned rate base: $5.3 billion at end of 2024Rate base growth: 10% year-over-year
    		————
    Corporate
    Losses increased largely due to the absence of a state tax benefit recognized in 2023, partially offset by lower interest expense reflecting $460 million in debt redemptions at FE Holdco.
    Losses increase: $0.04 per share
    		————

    Operational metrics

    22
    Operating Earnings Per Share
    $2.63vs $2.56 in 2023
    FY24

    Within forecasted guidance range.

    Core Earnings Per Share
    $2.37
    FY24

    New metric introduced to reflect regulated operations, excluding pension and Signal Peak.

    Core Earnings Growth
    33%
    2022-2024

    Growth in high-quality core earnings.

    Noncore Earnings (Pension & Signal Peak)
    $0.26decreased 30% from $0.36 in 2023
    FY24

    Volatile earnings contribution from pension and Signal Peak mine.

    Consolidated Return on Equity
    9.4%vs 8.8% in 2023
    FY24

    Targeting actual returns consistent with allowed returns on a consolidated basis.

    Pension Funded Status
    84%flat to slightly down from last year
    year-end 2024

    Asset performance was lower than expected, offsetting lower liability from higher interest rates.

    Gross Pension Obligations Removed
    $1.4 billion
    Dec 2023 & Jan 2025

    Removed through lift-outs, related to former generation subsidiaries.

    Debt Redemptions (FE Holdco)
    $460 million
    FY24

    Part of planned use of proceeds from FET transaction.

    Debt Issuance (JCP&L)
    $700 million
    Q4 2024

    Bond issuance with registration rights.

    Total 2024 Financing Plan
    $2.1 billion
    FY24

    Included five transactions.

    2025 Debt Financing Plan
    $3.6 billion
    FY25

    Consists of 8 transactions.

    O&M Expenses
    flatto 2023 and 2024 levels
    FY25

    Excluding increased scope in Pennsylvania, which is fully recovered through revenue increases.

    Regulated Assets with Formula Rate Recovery
    75%
    FY25

    Of planned investments, providing real-time returns.

    FERC-regulated assets
    nearly half
    FY25

    Of total investments.

    ATSI Transmission Rates Incentive
    50reduction
    FY25

    Removed consistent with U.S. Sixth Circuit Court of Appeals decision.

    Ohio DCR Revenue Caps
    frozenat May 2024 levels
    FY25

    Consistent with commission's December order and return to ESP IV.

    Dividend Declarations
    $1.70increase of just over 6% vs 2023
    FY24

    Total declarations for the year.

    Ohio Annual Investment
    $1 billion
    annually

    Investment in the state of Ohio.

    Ohio Equity Capital Structure (Auditor Report)
    51%vs 55% current
    current

    Recommended by auditor's report for capital structure.

    Ohio ROE (Auditor Report)
    9.63%vs 10.8% proposed
    current

    Proposed by auditor's report, consistent with other companies in Ohio.

    Customer Bill Affordability
    less than 5%
    current

    Share of wallet across jurisdictions.

    Pennsylvania Energy Efficiency Program Investment
    $100 million
    current

    Deployed towards the residential sector to be more efficient with energy usage.

    Industry KPIs

    6
    MetricValueDetails
    Ffo to debt12.5%%
    Retail sales growthflat overall%
    Regulatory rate base growth9%%
    Rto market structure reviewPJM competitive transmission awardsUSD
    New gas generation builds upgrades3,000 to 4,000MW
    Contracted large load capacity esas loas2.6GW

    Orderbook & backlog

    3
    Data Center Demand (Active or Contracted)2.6 GWthrough 2029

    Active or contracted demand in the plan.

    Data Center Demand (Pipeline)5.5 GWthrough 2029

    Pipeline beyond contracted, could add $350 million to base capital program.

    Data Center Demand (Beyond 2029 Pipeline)over 6 GWbeyond 2029

    Even greater potential with steady influx of load studies.

    Deals & partnerships

    2
    UndisclosedSale of equity interest in FirstEnergy Transmission (FET)

    Sale of incremental 30% equity interest in FET, completed March 2024. Final phase of $7 billion multiyear effort to improve balance sheet.

    Dominion and AEPPartnership for PJM competitive transmission projects

    Collaboration on projects selected by PJM. The JV will require an equity contribution from FirstEnergy.

    Capital programs

    6
    Energize365 Investment Programunderway$28 billion
    Period spend: $5 billion in 2025, increasing to $6.4 billion in 2028
    Funding: internally generated cash flow and debt issued at operating companies

    Benefit: 9% compounded annual rate base growth

    Expanded program, an 8% increase from previous 5-year plan. No incremental equity needs beyond ongoing employee benefit programs for the base plan.

    Pennsylvania Long-Term Infrastructure Investment Plan (LTIP 3)approved$1.6 billion
    Period spend: $300 million in 2025

    Benefit: grid modernization and reliability (improve circuits, deploy reclosers, replace overhead equipment)

    Approved by the Pennsylvania Commission in December. Targeted at reducing customer outage times.

    Ohio Grid Mod IIapprovedjust over $400 million

    Benefit: smart meter technology to all Ohio customers

    Settlement approved by the Ohio Commission in December.

    New Jersey Energy Efficiency and Conservation Planapproved$817 million
    Start: January 2025

    Benefit: help customers save on electric bills

    Approved by the BPU in November, with an authorized return of 9.6% on program investments.

    West Virginia New Dispatchable Generationplanned$4 billion to $6 billion
    Start: years 4 or 5 of current plan

    Benefit: 3,000 to 4,000 megawatts of combined cycle generation

    Exploration of building new dispatchable generation to replace 3,000 MW of coal-fired generation retiring between 2035 and 2040. Would be incremental to current investment plan.

    PJM Competitive Transmission Awards (FE Share)awarded~$675 million

    FirstEnergy's share of projects selected by PJM, with $625 million in FET and the remainder in owned operating companies. JV component will be off-balance sheet.

    Risks & headwinds

    8
    Lower Sales Volumes2024

    impacted 2024 results

    Mitigation: Focus on making the company more resilient to drive consistent results.

    Ohio ESP V Order ImpactH2 2024 and 2025

    Ohio revenues below plan in H2 2024; DCR revenue caps frozen at May 2024 levels

    Mitigation: Filed ESP VI proposal focusing on reliability, affordability, and stewardship; updating base rate case to address provisions in ESP VI.

    Higher Financing Costs2025

    10-year treasury increasing about 100 basis points since October

    Mitigation: Financial discipline from targeted program led by new management team.

    ATSI Transmission Rates Reduction2025

    50 basis point incentive removed

    Mitigation: Not explicitly stated, but part of overall regulatory outcomes impacting 2025 forecast.

    O&M Pressure2025

    incremental spend on reliability-related maintenance activities in Pennsylvania

    Mitigation: Fully recovered in new rates; O&M in other segments flat to 2023/2024 through financial discipline program.

    Pension and Signal Peak Volatility2024 and ongoing

    earnings contribution decreased 30% from $0.36/share in 2023 to $0.26/share in 2024

    Mitigation: Seeking exit from Signal Peak ownership; introduced 'core earnings' to exclude this volatility.

    Ohio Legislative Risk (ESPs)future

    potential changes to ESPs

    Mitigation: Advocating for tracking mechanisms/formula-based rates to incentivize investment and ensure timely recovery.

    Industrial Load ImpactQ4 2024

    some steel customers were off-line

    Mitigation: Expected to rebound given data center activity.

    What to watch in Q1 FY25

    5

    Ohio Base Rate Case Outcome

    next quarter / by year-end
    CurrentAuditor's report released; FE to respond in 30 days
    TargetOrder by year-end 2025

    Why it matters

    The final order will determine allowed ROE, rate base, and revenue requirements for Ohio, significantly impacting future earnings.

    I think we're on track to get an order by the end of the year with that report getting filed when it did last week.

    Q&A highlights

    8

    How much of the 2025 guide reset is timing related, what are interest rate assumptions, and how much O&M pressure is PA related? Where does management expect to land within the 6%-8% CAGR?

    Management expects to be in the 6%-8% CAGR range for 2025-2029, aiming for the upper end. All O&M changes are due to the Pennsylvania base rate case settlement, where committed spending is being honored, while O&M at other units is held flat through discipline programs.

    “As a management team, we will be disappointed if we don't end in the upper end of that range. As Jon and I talked about during the call, much of the O&M change, all of the O&M change can be described as the increase that we received in the Pennsylvania base rate case settlement.”

    asked by Shahriar Pourreza · answered by Brian Tierney

    3 min read8 chapters

    Detailed Narrative

    01

    Regulatory Achievements and Derisking

    FirstEnergy has significantly derisked its business by completing rate reviews in 4 of its 5 states since Q4 2023, covering 83% of its rate base. These regulatory outcomes have resulted in a net annual revenue increase of approximately $450 million. Key approvals include a $225 million base rate case settlement in Pennsylvania effective January 1, 2025, the LTIP 3 program tracking $1.6 billion for grid modernization in Pennsylvania over 5 years, and the Grid Mod II settlement in Ohio for over $400 million in smart meter technology.

    02

    Balance Sheet Transformation and Credit Ratings

    The sale of an incremental 30% equity interest in FirstEnergy Transmission (FET) in March 2024 was a transformative milestone, marking the final phase of a $7 billion effort to improve the balance sheet. This transaction was the catalyst for FirstEnergy's return to investment-grade status across all three credit rating agencies, achieving 40 ratings upgrades in 2024. All FirstEnergy subsidiaries are now investment grade, with most at their highest ratings in over 20 years, and the company is committed to maintaining these metrics.

    03

    Introduction of Core Earnings

    To provide investors with a clearer view of its core regulated business performance, FirstEnergy introduced 'core earnings,' which excludes the volatile contributions from pension and the Signal Peak mine. From 2022 to 2024, high-quality core earnings grew by 33%, while noncore earnings decreased by 59%. The company will provide guidance for core earnings and growth rates going forward⏳, with 2025 core EPS guidance set at $2.40-$2.60 per share, representing 5.5% growth at the midpoint over 2024's $2.37 per share.

    04

    Expanded Capital Investment Program (Energize365)

    FirstEnergy is extending its Energize365 capital investment program through 2029, with a total planned investment of $28 billion. This represents an 8% increase from the previous 5-year plan and is expected to drive a 9% compounded annual rate base growth during the period. Annual capital investments are projected to increase from $5 billion in 2025 to $6.4 billion in 2028. The company does not anticipate incremental equity needs beyond ongoing employee benefit programs for this base investment plan.

    05

    Data Center Demand and Load Growth

    The company's service territory is experiencing significant data center demand, with 2.6 gigawatts of active or contracted demand through 2029. The pipeline includes an additional 5.5 gigawatts through the same period, which could result in an incremental $350 million to the base capital program. Beyond 2029, the pipeline exceeds 6 gigawatts. This growth is reflected in a forecast of 5% compounded annual sales growth for the industrial class from 2025-2029, and 8.5% from 2025-2027.

    06

    O&M Discipline and Organizational Changes

    FirstEnergy is implementing a targeted program led by its new management team to enhance financial discipline, including organizational design changes, procurement optimization, and contractor staffing adjustments. This initiative aims to keep O&M expenses in 2025 flat compared to 2023 and 2024 levels, excluding increases related to the Pennsylvania base rate case. The company has also placed 24 individuals in critical leadership roles to drive performance excellence and a high-performance culture.

    07

    Ohio Regulatory Landscape

    In Ohio, the commission's auditor's report on the base rate case was released, which management views as constructive on several issues. The company plans to file its response within 30 days. The ESP V was withdrawn, and the Ohio companies reverted to ESP IV, with DCR revenue caps frozen at May 2024 levels. A new ESP VI proposal has been filed, focusing on reliability, affordability, and stewardship, and will define distribution riders for its full term.

    08

    PJM Competitive Transmission Awards

    FirstEnergy's share of recently selected PJM competitive transmission projects, in partnership with Dominion and AEP, is approximately $675 million. Of this, $625 million will be in FirstEnergy Transmission (FET), with the remainder in owned operating companies. The joint venture component will be financed off-balance sheet, requiring an equity contribution from FirstEnergy, but the CapEx for the awarded projects is included in the company's financial plan.

    AI-generated summary of the company’s earnings call. Not investment advice.