FirstEnergy Corp. (FE) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Financial Performance: FirstEnergy reported a 19% increase in operating earnings per share for the second quarter of 2024, driven by rate adjustments, investments, and a rise in customer demand.
• Capital Investment Growth: The company has initiated a $26 billion capital investment program, Energize365, representing a 44% increase over the previous plan, aimed at enabling the energy transition and improving reliability and customer experience.
• Regulatory Progress: Constructive regulatory engagements concluded in Maryland, New Jersey, and West Virginia, covering 35% of FirstEnergy's rate base. Settlement discussions are ongoing in New Jersey for the Energize New Jersey plan.
• Balance Sheet Improvement: FirstEnergy has significantly strengthened its balance sheet, completing a series of transactions that transformed the company's future prospects.
• Data Center Opportunities: The company is experiencing a significant increase in load study requests from data center developers, indicating potential growth opportunities.

Pessimistic Highlights

• GAAP Earnings Decline: GAAP earnings per share decreased to $0.08 in Q2 2024 from $0.41 in the previous year, affected by several special items.
• Higher Operations and Maintenance Expenses: These expenses partially offset the positive impacts on second-quarter operating earnings.
• Unresolved Regulatory Issues: In Ohio, the ESP V case left several unresolved issues, leading FirstEnergy to seek more clarity and potentially impacting future regulatory outcomes.

Company Outlook

• Reaffirmed Guidance: FirstEnergy reaffirmed its 2024 operating earnings guidance range of $2.61 to $2.81 per share and its 6% to 8% long-term annual operating earnings growth rate.
• Continued Investment: The company is committed to its $4.3 billion CapEx plan for 2024, up from $3.7 billion in 2023, to support its Energize365 capital plan.
• Regulatory Engagements: Ongoing regulatory proceedings in Ohio and Pennsylvania are expected to continue into 2025, with outcomes that could significantly impact the company's operations and financial performance.

Q & A Highlights

• Q: Can you update on growth numbers and potential upside from data centers and large energy-intensive consumers? (Shar Pourreza, Guggenheim Partners)

  A: We're evaluating future load growth, seeing positive impacts from data centers and EV adoption, but overall expecting modest, steady growth. Data centers mainly impact earnings through transmission investments. (Brian Tierney)

• Q: What's your stance on co-located nuclear data center deals in PJM? (Shar Pourreza, Guggenheim Partners)

  A: Interested in FERC's decision on this matter. It's not immediately business impactful for us, but we're monitoring the situation. (Brian Tierney)

• Q: Could you discuss the likelihood of reaching a settlement in Pennsylvania? (Steve Fleishman, Wolfe Research)

  A: Early discussions are ongoing, and we're optimistic about reaching a settlement before the hearings in August. (Brian Tierney)

• Q: On the ESP V in Ohio, is the goal to get better definition over the life of the ESP? (Steve Fleishman, Wolfe Research)

  A: Yes, seeking greater certainty on key terms and proposed modifications to preserve economic value for customers. (Brian Tierney)

• Q: Could you provide more details on cost savings from facility optimization moves? (Jeremy Tonet, JPMorgan Chase)

  A: Savings from moving headquarters are minimal. Major savings are from workforce productivity and continuous improvement, targeting $70 million in cost savings this year. (Jon Taylor)

• Q: How do you view the impact of rising capacity and energy prices on customer bills and potential efforts to curb higher prices? (Jeremy Tonet, JPMorgan Chase)

  A: Engaging in discussions with states and other parties to ensure adequate capacity. Open to constructs that allow investment in dispatchable generation on a regulated basis. (Brian Tierney)

• Q: Given the balance sheet capacity, how do you plan to finance the CapEx increase? (Nick Campanella, Barclays)

  A: Targeting a BBB flat credit rating, with some balance sheet capacity for CapEx, but less than 5% of the program. (Jon Taylor)

• Q: What's driving the strong commercial and residential customer demand this quarter? (Carly Davenport, Goldman Sachs)

  A: Higher average usage per customer, especially in Maryland and New Jersey, and rebound in small- and medium-sized businesses post-COVID. (Jon Taylor)

• Q: On the potential for a NYSERDA type agency and Grid Mod II timing? (Gregg Orrill, UBS)

  A: Anticipate an order in Q4 for Grid Mod II. A NYSERDA type agency would require legislation changes and is not a short-term process. (Brian Tierney)