10-QPeriod: Q2 FY2012

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 7, 2012For Securities:FE

Summary

FirstEnergy Corp. reported earnings available to common shareholders of $187 million, or $0.45 per share, for the second quarter of 2012. This represents a decrease from the $203 million, or $0.48 per share, reported in the same quarter of 2011. For the first six months of 2012, earnings were $493 million, or $1.18 per share, a significant increase from $255 million, or $0.67 per share, in the first half of 2011. The decline in quarterly earnings was primarily driven by lower performance in the Regulated Distribution segment, which was impacted by reduced revenues, particularly from generation sales due to increased customer shopping, and higher operating expenses. However, the Competitive Energy Services segment showed improvement, with net income increasing by $4 million year-over-year, driven by higher retail revenues. Operationally, FirstEnergy announced significant transmission projects aimed at enhancing system reliability, with an estimated investment of $700 million to $900 million through 2016. The company also saw its nuclear plants, Beaver Valley Unit 1 and Davis-Besse, return to service after scheduled refueling outages. A notable event was the severe "derecho" wind storm in late June 2012, which is expected to incur restoration costs exceeding $130 million in the third quarter. Regulatory developments include the approval of an updated Electric Security Plan (ESP 3) in Ohio, extending favorable terms for customers and enabling longer-term generation supply planning. In New Jersey, JCP&L was ordered to file a base rate case. The company also executed $1.6 billion in forward starting swap agreements to secure interest rates on planned debt issuances.

Financial Highlights

46 data points
Beta

Revenue

$3.75B

Net Income

$187.00M

5.0% Net Margin

EPS (Diluted)

$0.45

Total Assets

$48.05B

Cash & Equivalents

$94.00M

Free Cash Flow

$475.00M

Financial Statements
Beta
Revenue$3.75B
Operating Expenses$3.20B
Operating Income$549.00M
Interest Expense$274.00M
Net Income$187.00M
EPS (Basic)$0.45
EPS (Diluted)$0.45
Shares Outstanding (Basic)417.00M
Shares Outstanding (Diluted)419.00M

Key Highlights

  • 1Second quarter 2012 earnings available to common shareholders were $187 million ($0.45/share), down from $203 million ($0.48/share) in Q2 2011.
  • 2First six months 2012 earnings were $493 million ($1.18/share), a substantial increase from $255 million ($0.67/share) in H1 2011.
  • 3Regulated Distribution segment's net income decreased $10 million year-over-year in Q2 2012, primarily due to lower revenues from generation sales amid increased customer shopping.
  • 4Competitive Energy Services segment's net income increased by $4 million in Q2 2012, driven by higher retail revenues and customer growth.
  • 5FirstEnergy plans to invest $700-$900 million through 2016 in transmission system reliability projects across multiple states.
  • 6The company expects storm restoration costs from a June 2012 "derecho" wind event to exceed $130 million in Q3 2012.
  • 7Ohio Electric Security Plan (ESP 3) approved, extending current terms for two years and allowing for longer-term generation supply auctions.

Frequently Asked Questions

The primary driver for the decrease in earnings was a decline in the Regulated Distribution segment. This was largely due to reduced revenues, particularly from generation sales, which were impacted by increased customer shopping. Additionally, higher operating expenses contributed to the reduced profitability in this segment.

FirstEnergy announced plans to construct transmission projects to enhance service reliability across its service area. These projects are estimated to involve an investment of $700 million to $900 million through 2016 and will include work in Ohio, Pennsylvania, West Virginia, New Jersey, and Maryland.

The "derecho" wind storm in late June 2012 is expected to result in significant restoration costs. FirstEnergy estimates these costs to exceed $130 million, with approximately 70% anticipated to be capital-related, to be incurred in the third quarter of 2012. Some of these costs may be deferred for future recovery, though regulatory approval is pending in certain jurisdictions.

The integration of Allegheny into FirstEnergy's IT and financial systems was completed in the second quarter of 2012. This integration enabled FirstEnergy to align its segment reporting with how management views and makes investment decisions, specifically by renaming the 'Regulated Independent Transmission Segment' to 'Regulated Transmission Segment' and including related assets and operations. This ensures internal and external reporting consistency.