01—Abstract
Summary
Summary of the 8-K filed July 30, 2024. Cited figures are marked; the original filing is the authoritative source.
FirstEnergy (FE) reported second quarter 2024 results on July 30, 2024, with GAAP earnings of $45 milliona, or $0.08 per share, on revenue of $3.3 billion, compared with $0.41 per share in 2Q23.
Operating (non-GAAP) EPS was $0.56b, $0.01 above the midpoint of guidance and up 19% from $0.47 a year earlier. The GAAP-to-operating gap of $0.48 per share was driven mainly by a $0.28 asset retirement obligation (ARO) regulatory change tied to environmental remediation at retired generation sites, $0.12 of debt redemption costs, and $0.04 of investigation-related costs. Operating growth came from rate base growth in formula rate programs, base rate adjustments and higher distribution demand, partly offset by higher planned operating expenses and financing costs.
Management affirmed full-year 2024 operating EPS guidance of $2.61 to $2.81c and a 6% to 8% long-term annual operating EPS growth target. It guided third quarter operating EPS to $0.85 to $0.95. The company also highlighted a refreshed $26 billion five-year Energize365 capital plan (2024-2028) that it says drives roughly 9% average annual rate base growth and requires no incremental equity beyond employee benefit funding.
Final proceeds of $1.2 billiond from the $3.5 billion FET LLC (Brookfield) 30% interest sale were received in July, and the company's ratings are investment grade at all three agencies, with positive outlooks at S&P and Fitch. The filing also notes progress on legacy issues. FirstEnergy reached an agreement in principle with SEC staff, subject to SEC approval, and recorded a $100 million reserve in 2Q24.
It also recorded a $19.5 million reserve tied to the Ohio AG and OOCIC matters, which are expected to resolve via a non-prosecution agreement and dismissal of the Ohio AG civil suit. The U.S. Attorney's Office reported that the company completed its three-year Deferred Prosecution Agreement obligations. Pending Ohio and New Jersey rate cases, including a $502 million Pennsylvania request and the New Jersey filing, remain key near-term catalysts.
02—Key points
Key Highlights
- 2Q24 GAAP EPS of $0.08 versus $0.41 in 2Q23; operating EPS of $0.56 versus $0.47, a 19% increase and $0.01 above guidance midpoint
- Full-year 2024 operating EPS guidance of $2.61-$2.81 affirmed; 3Q24 operating EPS guidance set at $0.85-$0.95
- Long-term 6%-8% operating EPS growth target reaffirmed, supported by a $26B 2024-2028 Energize365 capital plan and ~9% average annual rate base growth
- Large GAAP-to-operating gap of $0.48/share in 2Q24, mainly a $0.28 ARO regulatory change, $0.12 debt redemption costs, and $0.04 investigation costs
- Balance sheet strengthened: final $1.2B of the $3.5B FET 30% interest sale received in July; all FE entities investment grade at all three agencies, with S&P upgrades in 2024
- Legacy issues advancing: agreement in principle with SEC staff (subject to Commission approval), $100M reserve recorded, and DPA obligations completed; Ohio AG matter nearing resolution
- Pending regulatory catalysts include the $502M Pennsylvania base rate request (11.3% ROE), the ~$94M Ohio base rate request (10.8% ROE), and New Jersey LTIIP III ($1.6B)
03—Questions
Frequently Asked Questions
Why are GAAP earnings so much lower than operating earnings this quarter?
GAAP EPS of $0.08 was $0.48 below operating EPS of $0.56 because of special items. The largest was a $0.28 per-share ARO regulatory change tied to environmental closure and remediation at retired generation sites, including McElroy's Run and legacy coal combustion residual sites. Debt redemption costs ($0.12) and investigation-related costs ($0.04) were also significant. Management says special items are not necessarily non-recurring, so investors should monitor whether similar charges recur.
Is FirstEnergy on track to meet its 2024 earnings guidance?
Yes, according to management. First-half operating EPS was $1.11, and the company affirmed full-year 2024 operating guidance of $2.61-$2.81. The guided 3Q24 range of $0.85-$0.95 implies continued quarterly growth. Note that the company's guidance is non-GAAP and it did not provide a GAAP reconciliation for forward-looking results because special items are difficult to forecast.
Does FirstEnergy need to issue new equity to fund its capital plan?
Management states that it expects no incremental equity needs through the 2024-2028 planning period, beyond employee benefit program funding of up to about $100 million per year. The $26 billion Energize365 plan is intended to be funded by operating cash flow, the FET 30% interest sale proceeds and debt. Management targets 14%-15% FFO/debt over the plan horizon.
What is the status of the legal and regulatory issues tied to the HB 6 scandal?
The company reached an agreement in principle with SEC staff, which requires SEC approval, and recorded a $100M reserve. It also recorded a $19.5M reserve for the Ohio AG and OOCIC matters, which are expected to resolve through a non-prosecution agreement and dismissal of the Ohio AG civil lawsuit. The U.S. Attorney's Office confirmed FE completed its three-year DPA obligations. Investors should note that the filing says these matters, along with derivative lawsuits, remain subject to uncertainty.
What regulatory decisions could affect FirstEnergy's earnings growth next?
Key pending items include the Pennsylvania base rate case ($502M requested, 11.3% ROE, 2025 test year), the Ohio base rate case (~$94M requested, 10.8% ROE, with hearings concluded July 2 and an update filing due July 31), the Ohio Grid Mod II order (expected 4Q24), and the New Jersey EnergizeNJ and LTIIP III programs ($1.6B over five years). Settlement negotiations for New Jersey were expected to begin in early August 2024. Outcomes will affect rate base growth and the path to the 6%-8% EPS target.
04—Continue