10-QPeriod: Q2 FY2008

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 7, 2008For Securities:FE

Summary

FirstEnergy Corp. reported net income of $263 million, or $0.86 per diluted share, for the second quarter of 2008, a decrease from $338 million, or $1.10 per diluted share, in the same quarter of the prior year. For the first six months of 2008, net income was $539 million, or $1.75 per diluted share, down from $628 million, or $2.01 per diluted share, in the first half of 2007. This decline was primarily driven by increased fuel and purchased power costs across most segments, notably in Competitive Energy Services, which saw a significant drop in net income. The company is navigating regulatory changes in Ohio with the filing of an Electric Security Plan (ESP) and a Market Rate Offer (MRO) under new legislation. In Pennsylvania, regulatory bodies have approved updated Transmission Service Charge (TSC) riders, although investigations are ongoing for Met-Ed's TSC. FirstEnergy also made strategic investments, including acquiring a partially complete natural gas plant in Fremont, Ohio, and entering a joint venture for coal supply, indicating a focus on securing fuel resources. The company's capital expenditures for property additions increased significantly in the first half of 2008, driven by plant acquisitions and equity interests in generation facilities.

Financial Highlights

20 data points
Beta

Revenue

$3.25B

Net Income

$263.00M

8.1% Net Margin

Cash & Equivalents

$70.00M

Free Cash Flow

-$40.00M

Financial Statements
Beta
Revenue$3.25B
Operating Expenses$2.66B
Operating Income$582.00M
Net Income$263.00M
Shares Outstanding (Basic)304.00M
Shares Outstanding (Diluted)307.00M

Key Highlights

  • 1Net income decreased by 22% year-over-year for the second quarter and 14% for the first six months of 2008.
  • 2The Competitive Energy Services segment experienced a significant decline in net income, down 54% for the quarter and 36% year-to-date.
  • 3FirstEnergy filed an Electric Security Plan (ESP) and Market Rate Offer (MRO) in Ohio in response to new legislation, with decisions expected within 90-150 days.
  • 4Capital expenditures for property additions increased substantially in the first half of 2008, driven by acquisitions and investments in generation facilities.
  • 5The company invested $253.6 million in a partially complete natural gas plant in Fremont, Ohio, with an additional $208 million estimated for completion.
  • 6FirstEnergy entered a joint venture to secure coal supply, investing $125 million for a majority stake in mining operations.
  • 7Regulatory developments in Pennsylvania regarding Transmission Service Charges (TSC) are ongoing, with investigations into Met-Ed's TSC.
  • 8Cash flow from operating activities increased significantly in the first half of 2008, primarily due to the absence of a large pension trust contribution made in the prior year.

Frequently Asked Questions

The decrease in net income was primarily due to increased fuel and purchased power costs across most segments, coupled with lower net income from the Competitive Energy Services segment. Factors contributing to higher costs include increased unit costs for power, higher coal transportation costs, and increased PJM market prices.

In Ohio, FirstEnergy has filed an Electric Security Plan (ESP) and a Market Rate Offer (MRO) under new legislation that became effective July 31, 2008. The ESP proposes new generation rates for up to three years, effective January 1, 2009, and addresses the recovery of deferred fuel costs and distribution rate requests. A regulatory decision on the ESP is expected within 150 days, and on the MRO within 90 days.

FirstEnergy acquired a partially complete 707-MW natural gas-fired generating plant in Fremont, Ohio, for $253.6 million, with an estimated $208 million in additional capital expenditure required for completion. Additionally, the company entered into a joint venture for coal supply, investing $125 million for a 45% economic interest in mining and transportation operations to secure high-quality fuel supplies.

Cash flow from operating activities increased by $146 million in the first six months of 2008 compared to the same period in 2007. This increase was primarily due to the absence of a $300 million pension trust contribution made in 2007 and an increase in non-cash charges, partially offset by a decrease in net income and changes in working capital.