10-KPeriod: FY2017

FIRSTENERGY CORP Annual Report, Year Ended Dec 31, 2017

Filed February 20, 2018For Securities:FE

Summary

FirstEnergy Corp. (FE) reported a net loss of $1.724 billion for the year ended December 31, 2017, a significant improvement from the $6.177 billion net loss in 2016, primarily due to a substantial reduction in asset impairment charges. The company is executing a strategic shift to focus on its regulated utility operations, namely Regulated Distribution and Regulated Transmission, which are expected to provide stable and predictable earnings. This transition involves significant capital investments in transmission infrastructure through the 'Energizing the Future' plan, aiming for substantial rate base growth. However, the company's Competitive Energy Services (CES) segment, primarily FES and AE Supply, continues to face challenges due to weak wholesale energy and capacity markets. FES, in particular, has been significantly impacted, leading to substantial impairments and raising concerns about its ability to continue as a going concern. The company is actively pursuing strategic alternatives for its CES portfolio, including asset sales, though options are limited for FES due to its credit quality. A significant equity issuance of $2.5 billion in January 2018 aimed to strengthen the balance sheet and support the transition to a regulated utility model.

Financial Highlights

47 data points
Beta

Revenue

$10.93B

Net Income

-$1.72B

-15.8% Net Margin

EPS (Diluted)

$-3.88

Total Assets

$42.26B

Cash & Equivalents

$588.00M

Free Cash Flow

$3.81B

Financial Statements
Beta
Revenue$10.93B
Operating Expenses$8.50B
Operating Income$2.43B
Interest Expense$1.00B
Net Income-$1.72B
EPS (Basic)$-3.88
EPS (Diluted)$-3.88
Shares Outstanding (Basic)444.00M
Shares Outstanding (Diluted)444.00M

Key Highlights

  • 1FirstEnergy is undergoing a strategic shift to focus on its regulated distribution and transmission businesses, divesting from its competitive energy services (CES) segment.
  • 2The company reported a net loss of $1.724 billion for 2017, an improvement from the $6.177 billion net loss in 2016, largely due to a reduction in asset impairment charges.
  • 3Significant capital investments are planned for the Regulated Transmission segment through the 'Energizing the Future' plan, with $4.0-$4.8 billion targeted from 2018-2021.
  • 4The CES segment, particularly FirstEnergy Solutions (FES), faces ongoing challenges due to weak wholesale energy and capacity markets, leading to substantial impairments and raising going concern doubts for FES.
  • 5A $2.5 billion equity issuance in January 2018 was completed to strengthen the balance sheet and support the transition to a fully regulated utility model.
  • 6The company is in the process of selling certain generation assets within the CES segment, with the sale of Bath County hydroelectric power station and Buchanan Generating facility expected to close in the first half of 2018.

Frequently Asked Questions

FirstEnergy's primary strategic focus is to transition into a fully regulated utility company. This involves concentrating on its Regulated Distribution and Regulated Transmission segments, which are expected to provide stable and predictable earnings and cash flows, while divesting from its commodity-exposed Competitive Energy Services (CES) segment.

FES is facing significant financial challenges due to weak wholesale energy and capacity markets, leading to substantial asset impairments and raising doubts about its ability to continue as a going concern. FES has high debt levels, upcoming debt maturities that are unlikely to be refinanced, and limited strategic options, including potential restructuring or bankruptcy protection.

The Tax Act of 2017, which reduced the corporate federal income tax rate from 35% to 21%, resulted in FirstEnergy recognizing a non-cash charge to income tax expense of $1.2 billion ($1.1 billion at FES). For its regulated businesses, this change led to excess deferred taxes of $2.3 billion, with the revenue impact recorded as a regulatory liability, which will be refunded to customers through future rates.

FirstEnergy announced a strategic review to exit its commodity-exposed generation assets in the CES segment. While the sale of four natural gas generating plants for $388 million was completed in December 2017, the sale of interests in the Bath County hydroelectric power station and Buchanan Generating facility is expected to close in the first half of 2018. FES is also exploring options for its nuclear power plants, including potential deactivation or sale, and recorded a $2.0 billion impairment charge for these assets in the fourth quarter of 2017.