The transcript introduces the FirstEnergy Corp. Third Quarter 2024 Earnings Conference Call, led by Gina Caskey, Director of Investor Relations and Corporate Responsibility. The call features Brian Tierney, President and CEO, and Jon Taylor, CFO. The discussion includes non-GAAP financial measures and forward-looking statements, with relevant details available on FirstEnergy's website. Brian Tierney then shares that the GAAP earnings for the third quarter were $0.73 per share, slightly down from $0.74 in the same quarter of 2023, while operating earnings were $0.85 per share, down from $0.88 in 2023, due to non-recurring state tax benefits. Tierney will also cover strategic and regulatory updates.

The earnings for the quarter were boosted by increased distribution sales due to normal weather, new base rates, and formula rate investments, though offset by higher storm-related costs, a sale dilution, and the absence of previous state tax benefits. Despite these challenges, the team maintained efficient operations and financial discipline, achieving earnings within the guidance range. The company is adjusting its operating earnings guidance due to unexpected storm costs not eligible for deferral, yet reaffirms its long-term financial goals, including a $26 billion investment plan through 2028 and a 6% to 8% annual growth rate. A comprehensive financial update covering 2025 to 2029 will be provided next year, with foundational work in place to meet these objectives.

The company is executing plans to become a leading electric company by making significant investments, totaling $3.1 billion through the third quarter, with plans to increase 2024 investments from $4.3 billion to $4.6 billion, focused on reliability in distribution and transmission businesses. They're part of PJM's 2024 regional transmission expansion plan, collaborating with Dominion Energy Virginia and American Electric Power on new transmission projects across multiple states. These projects, including various high-voltage lines, aim to address constraints and develop cost-effective solutions. In September, they submitted multiple project portfolios totaling $3.8 billion and nearly $1 billion in individual projects to PJM.

By the end of the year, PJM staff will choose recommended projects with final approval expected at the PJM Board meeting in late February. FirstEnergy recently appointed Karen McClendon as Senior Vice President and Chief Human Resources Officer, effective November 11th. She brings over 30 years of HR experience and will focus on aligning human capital strategy with the company's vision. The company's new business unit structure is yielding strong results, with new executives assigned to its New Jersey, Ohio, Pennsylvania, and standalone transmission businesses. John Hawkins successfully led a regulatory settlement in Pennsylvania, while Torrence Hinton and Doug Mokoid managed storm responses in Ohio and New Jersey, where extensive efforts were required to restore power to customers after major storms.

The paragraph discusses a significant storm in the Cleveland area, resulting in extensive electrical system damage, with a restoration effort costing over $120 million and involving 7,500 workers from 12 states. Positive media coverage in Ohio highlighted their effective response, and they dispatched workers to aid hurricane recovery elsewhere. The paragraph also touches on regulatory matters in Pennsylvania, where a $225 million settlement was reached with stakeholders to enhance service reliability, support grid upgrades, and assist low-income customers. An administrative law judge has recommended approval of the settlement.

The paragraph discusses regulatory and financial updates regarding electric security plans and infrastructure investments. The company plans to withdraw its fifth electric security plan (ESP V) in Ohio due to unclear conditions and revert to ESP IV until a new ESP VI is filed early next year. This move aligns with their Ohio base rate case to reduce risk and provide certainty. They also expect a decision on their Ohio Grid Mod II case by year-end, which involves deploying automated meters. In New Jersey, they anticipate approval for JCP&L’s Energy Efficiency and Conservation Plan this week, with investments of $817 million planned from 2025 to 2027. Additionally, they are negotiating JCP&L's EnergizeNewJersey infrastructure investment plan, aimed at improving system resiliency and modernization over five years.

The paragraph discusses the future challenges facing the U.S. electric system, particularly the projected increase in electricity consumption due to data centers and AI, expected to triple by 2030. The company notes a significant rise in load study requests for large facilities, indicating growing demand. Although there is sufficient transmission capacity for data centers, the company is approaching the situation cautiously to safeguard existing customers and manage risks. The recent PJM capacity auction saw record high prices, raising residential bills by 11% to 19% without any new dispatchable generation, which concerns the company regarding service reliability and affordability for its 6 million customers. The company is focused on advocating for and ensuring reliable, affordable electric service by investing in resiliency, reliability, grid modernization, and customer communications, while promoting a cleaner grid and operational flexibility to meet increased load demands. This approach not only improves customer experience but also provides value to shareholders.

The paragraph discusses FirstEnergy's updated 2024 capital investment plan, which has increased by 24% compared to 2023 and is 7% above the original budget. The company emphasizes its focus on infrastructure investments and regulatory achievements, like the Pennsylvania rate case settlement, which contribute to earnings growth and shareholder returns. It highlights improved earnings driven by its core regulated business and mentions ongoing financial strength and strategic team-building efforts. Additionally, Jon Taylor provides a financial performance update, noting third-quarter earnings of $0.85 per share at the low end of guidance, mainly due to storm restoration expenses, which accounted for $30 million of non-deferred storm O&M costs. Without these storm impacts, earnings would have been closer to midpoint guidance.

Year-to-date storm restoration costs have totaled $550 million, impacting earnings across various segments. In the Distribution business, earnings increased by $0.02 per share over last year due to higher customer demand and rate base growth, despite increased storm restoration expenses. The Integrated segment saw a 32% earnings increase due to new base rates and lower financing costs. However, the stand-alone transmission segment experienced a decline in operating earnings due to a 30% interest sale, despite a 10% rate base growth. The Corporate segment reported a loss, contrasting with earnings in the same quarter last year.

The paragraph discusses the financial performance and challenges faced by a company in 2023. Key factors affecting results include the absence of a state tax benefit, reduced earnings from Signal Peak, and lower interest expenses due to decreased debt. The company resolved investigations related to House Bill 6 and reported increased year-to-date operating earnings from new rates, investment programs, and higher customer demand, despite weather-related sales being below normal. Challenges included higher operational and storm restoration costs, impacts from the FET transaction, and reduced residential demand, partly due to mild winter weather. Additionally, the Ohio ESP V reduced revenue by $50 million annually. These factors led the company to narrow its annual guidance range to a midpoint of $2.66 per share.

The paragraph discusses the settlement of a base rate case in Pennsylvania, which involves a $225 million increase in net revenues aimed at bolstering the grid and enhancing service reliability. The settlement also includes provisions for customer assistance and vegetation management programs and is based on a 2025 projected rate base of $7 billion. This settlement aligns with the company's strategy and includes a 4.7% rate increase for residential customers, with rates still remaining 2% below the average of state peers. A stay-out provision is included to prevent new rate changes until January 2027. Additionally, four successful outcomes in base rate cases over 14 months are highlighted, resulting in nearly $450 million in annual revenue adjustments to support utility investments. In Ohio, there is a decision to withdraw the ESP V to clear up uncertainties and address rider programs appropriately.

The paragraph discusses various financial and operational updates for FirstEnergy. The Ohio political charitable spending audit revealed no new findings related to House Bill 6, and a refund with interest is due for $15,000 incorrectly charged to pole attachment customers. Recent corporate separation audit hearings were also held. In New Jersey, a final order for an energy efficiency and conservation program is expected soon, involving $817 million in investments over 10 years, with a 9.6% return on equity. Economic trends and customer demand in the region are positive, with industrial demand up by 3%, notably in the chemical and automotive sectors. The company has improved its liquidity by expanding JCP&L's credit facility and now has $6 billion in total liquidity to support growth. In 2024, FirstEnergy completed $1.4 billion in long-term debt transactions at a 5.1% average coupon rate.

In early September, FET launched an $800 million debt transaction in a private offering with SEC registration rights, pricing senior unsecured notes in two tranches with a weighted average coupon of 4.78%. The oversubscribed transaction will redeem $600 million of FET notes, enhancing transparency and attracting more investors. JCP&L is considering a similar transaction. Fitch upgraded FE Corp.'s credit ratings to BBB from BBB-, acknowledging improved financials and regulatory outcomes, with a positive outlook from S&P. The year 2024 has been marked by significant milestones for FE Corp., positioning them to become a leading electric company providing value to stakeholders. Following this, the Q&A session begins with Shahriar Pourreza from Guggenheim Partners asking about load increases and significant customer demand in PJM and APS zones.

The paragraph discusses an increase in large load requests for conceptual and detailed load studies exceeding 500 megawatts, indicating real interest in specific locations and investment plans. Brian Tierney highlights the availability of transmission capacity and land in areas where previous power plants and industrial centers like aluminum smelters have shut down. He mentions specific interest in regions like the panhandle of Maryland and West Virginia, as well as the Ohio River Valley, pointing to projects like a large data load center in Maryland. When asked if any customers with load requests over a gigawatt are data centers, Tierney confirms that they are.

The paragraph discusses the withdrawal of ESP V and its financial implications. Brian Tierney explains that the withdrawal is primarily a risk management decision rather than a financial one, as certain riders covered in ESP V were uncertain in the general rate case (GRC). By reverting to ESP IV and aligning ESP VI with the GRC's timeline, the process is simplified as it places the riders appropriately in ESP VI. The decision was influenced by an Ohio Supreme Court order that limited the opportunity to address these issues on rehearing. Shahriar Pourreza acknowledges the explanation and expresses gratitude, and the conversation transitions to another question from Nick Campanella from Barclays.

The paragraph discusses the current state and future outlook of transmission capacity. Brian Tierney notes that there are several thousand megawatts of unused transmission capacity available, primarily due to the closure of power plants or relocation of large industrial customers. This surplus capacity can benefit new large loads like data centers, as it allows existing capacity to be distributed over more units, potentially reducing rates for current customers. However, Tierney expresses concern about the cost of capacity auctions, questioning if customers will see tangible benefits, such as increased capacity and reliability, for the expenses incurred in 2025 and 2026. He is skeptical about whether current price signals will lead to new capacity in the short or long term.

The paragraph discusses ongoing efforts to engage with legislators, regulators, and customers to find solutions for adding new energy capacity at reasonable costs. There is confidence that current costs won't hinder regulatory recovery for investments. Emphasis is placed on being prudent with customer spending for electric services. Nick Campanella acknowledges this and mentions a Pennsylvania settlement with an order expected in December. They discuss a 2.5% return on equity (ROE) in Pennsylvania, noting that the settlement will bring it to a more normalized level. The conversation ends with David Arcaro from Morgan Stanley asking for more details about options for new generation in PJM, with Brian Tierney responding.

The paragraph discusses potential solutions for ensuring the addition of new capacity outside of the PJM capacity auction framework. It suggests that state-run auctions, like those conducted by NIPA and NYSERDA, could effectively bring in new capacity in states such as Ohio, Pennsylvania, and Maryland. These auctions would allow various entities to bid on providing specific types of generation capacity, with contractual agreements ensuring the delivery of this capacity. The approach is viewed as more reliable than relying solely on price signals. Additionally, Jon Taylor mentions that an update on the company's long-term load forecast and growth plan is expected to be provided early next year, specifically in the fourth quarter call, with guidance for 2025 and a plan covering 2025 to 2029.

In this exchange, Steve Fleishman from Wolfe Research asks about the reaffirmed 6% to 8% growth based on the previous year's midpoint of $254 million, which Jon Taylor and Brian Tierney confirm is now based off $271 million. Fleishman inquires about projections for 2025, considering factors like the prior ESP and Pennsylvania rate relief, to which Taylor affirms confidence in meeting growth targets. Fleishman also questions Brian Tierney about Generation Solutions and whether initiatives involving state agencies in key states would require legislation, to which Tierney responds that they would need legislative action.

The paragraph discusses the need for legislative changes in certain states for utility builds, with Pennsylvania and New Jersey requiring such changes, whereas West Virginia, Maryland, and Ohio do not. The speaker expresses that they are not interested in competitive generation but may consider long-term regulated generation if states desire it, despite potential opposition from independent power producers (IPPs). They suggest state auctions as a solution to minimize opposition from IPPs. The dialogue then shifts to financing plans, where it's noted that there is no equity involved beyond the employee benefit program. The company, considering potential investments, is comfortable with their current financial strategy and anticipates some projects might occur in the future outside their current planning window.

In the paragraph, the discussion focuses on the impact of storm costs and regulatory issues on the company's financial metrics, specifically the FFO to debt ratio, which is expected to be just under 13% rather than the targeted 14% to 15% for the year. Jon Taylor mentions that certain costs resulting from an SEC and OOCIC payment, as well as an unusual storm event in Cleveland, affected their financial outcomes. Anthony Crowdell asks whether the inability to meet regulatory recovery thresholds affects the utility's storm response approach. Brian Tierney responds by emphasizing that despite these challenges, their priority remains restoring service to customers swiftly and safely, and they will work with regulators to ensure timely cost recovery, maintaining a balance between response efficiency and financial considerations.

The paragraph discusses the utility company's approach to spending prudently on storm recovery efforts and highlights mutual assistance among neighboring utilities. The company emphasizes the importance of thoughtful spending and expects to recover costs spent on restoring services. The speaker, Anthony Crowdell, asks about the impact of a 7% increase in the capital expenditure plan on the company's projected EPS growth rate of 6% to 8%. Brian Tierney clarifies that the 7% increase in CapEx applies to the 2024 budget compared to the original budget.

The paragraph discusses a $26 billion five-year capital expenditure plan that is expected to result in an average rate base growth of 9%, driving a 6% to 8% overall growth. Approximately 70% of these investments are protected by trackers and riders. Anthony Crowdell asks about the timeline for addressing capacity charges impacting customer bills, considering the lag between adding load and constructing new power plants. Brian Tierney expresses concern about customers facing higher capacity charges for up to six years and suggests states take proactive measures, similar to traditional integrated resource plan (IRP) states like West Virginia, to ensure capacity rather than relying on market price signals. Angie Storozynski from Seaport Global is then invited to ask her question.

The paragraph features a discussion between Brian Tierney and Angie Storozynski regarding the construction and regulation of power plants. Brian explains that building a new power plant typically takes about six years, whether through direct contracts with monitoring or via the competitive market approach, like PJM's capacity auctions. However, direct contracts allow for oversight of the process, unlike relying on market responses. Angie queries the difference between regulated and competitive markets, and Brian clarifies that both involve a market-based approach where entities bid to undertake the project, with a winner selected from an auction.

The paragraph discusses a conversation about power transmission and regulatory issues in Ohio. Brian Tierney addresses concerns about Ohio's reliance on importing power from Pennsylvania and emphasizes the need for increased transmission capacity to ensure resource adequacy. He supports the addition of new dispatchable capacity to meet regional demands. The discussion then shifts to the withdrawal of ESP V in Ohio and the regulatory risks it posed. Tierney argues that reverting to the previous ESP IV model provides more certainty and transparency regarding earnings power and aligns better with upcoming regulatory filings.

In this paragraph, Paul Patterson from Glenrock Associates is questioning Brian Tierney about the potential for regulated utilities to build generating capacity in West Virginia, Maryland, and Ohio, given the current laws that permit recovery for such projects. Patterson suggests that even modest capacity additions by the utilities could significantly influence the capacity market, potentially lowering costs for customers due to the impact on the wholesale market. He also questions whether it would be more straightforward to proceed with building capacity rather than navigating the complex stakeholder and regulatory processes of the PJM capacity market.

In this discussion, Brian Tierney mentions that the company has shifted from the generation business to a deregulated, wires-only business model. They aim to be cautious about reinvesting in generation, particularly in states they have exited, and are prioritizing solutions that minimize risk. Tierney asserts that they're not interested in re-entering the competitive generation market. Paul Patterson asks about the approval process for withdrawing ESP V, expressing that it doesn't seem controversial. Tierney agrees, stating that similar approvals have been obtained by other companies in about a month, indicating confidence in a smooth, brief regulatory process. The conversation ends with acknowledgment from Paul and Sophie Karp from KeyBanc Capital Markets preparing to ask her question.

The paragraph features a discussion about potential changes to the market construct involving power flows between several states like New Jersey, Pennsylvania, and Ohio. Sophie Karp inquires if states need to act simultaneously under a new market design to avoid cross-subsidization. Brian Tierney responds, explaining that under the Federal Power Act, each state is responsible for ensuring sufficient power generation to meet its needs, either through traditional methods like an Integrated Resource Plan (IRP) or via a capacity construct like that of PJM. States can choose approaches that work best for them without needing to coordinate with others. Additionally, states like West Virginia, Ohio, and Maryland do allow utility-owned generation under current laws.

The paragraph is a discussion between Andrew Weisel and Jon Taylor about the increase in capital expenditures (CapEx) for 2024. Jon Taylor explains that some of the increase is due to storm-related expenses in Ohio and long-term infrastructure projects in Pennsylvania, as well as incremental transmission opportunities. He assures that the overall CapEx plan remains intact. Andrew then asks about the timing for PJM transmission opportunities, and Jon responds that by early next year, they will have a clearer picture due to upcoming advisory meetings and expected PJM Board approval in February. Finally, Paul Fremont from Ladenburg Thalmann asks about the process to withdraw ESP V at the PUCO, seeking details on the procedural requirements.

In this discussion, Jon Taylor mentions a precedent from a 2019 case involving an application withdrawal where comments were filed by intervening parties, but no hearings were conducted. The commission issued an order within a month based on the comments. Paul Fremont inquires if the withdrawal was contested by interveners, to which Taylor responds that opinions were mixed. Brian Tierney highlights that withdrawal is legally possible under Ohio legislation and has been tested and approved in the past. The specific case referenced is Dayton Power & Light's Electric Security Plan (ESP), and Paul is advised to check the Utility Commission's website for more details. The session concludes with the operator closing the teleconference.

This summary was generated with AI and may contain some inaccuracies.