The paragraph is from the FirstEnergy Corp. Fourth Quarter 2024 Earnings Conference Call, introduced by the operator and then handed over to Karen Sagot, Vice President of Investor Relations. Karen welcomes participants and introduces the key speakers, Brian Tierney (Chair, President, and CEO) and Jon Taylor (Senior VP and CFO). She mentions the availability of earnings-related materials on their website and notes the inclusion of non-GAAP financial measures and forward-looking statements with associated risks. Brian Tierney expresses gratitude to participants, introduces Karen Sagot as a new and valued team member, and reflects on 2024 as a year of significant structural change for the company.

The paragraph discusses the company's efforts to reduce risk from financial and regulatory standpoints by building a leadership team focused on high performance for stakeholders and implementing a robust business model. These efforts aim to improve customer service, employee engagement, and sustainable growth. The company reported 2024 GAAP earnings of $1.70 per share and operating earnings of $2.63 per share, benefiting from new rates and disciplined operations. However, challenges such as lower sales due to mild weather, storm activity, and lower Ohio revenues due to a specific order impacted results. The new leadership team is focusing on making the company more resilient and driving performance excellence.

The paragraph discusses the company's achievements and plans as a premier electric company, highlighting financial and regulatory milestones from 2023 and 2024 that have strengthened its foundation. It details the completion of rate reviews in four out of five states, resulting in $450 million in new annual revenue, and investments to enhance grid reliability. Key regulatory approvals include a $225 million base rate case settlement in Pennsylvania and the third long-term infrastructure investment plan (LTIP 3) for $1.6 billion aimed at grid modernization over five years. In Ohio, the Grid Mod II settlement, approved in December, will invest over $400 million in smart meter technology.

In November, the BPU approved JCP&L's Energy Efficiency and Conservation Plan in New Jersey, costing $817 million from January 2025 through June 2027, with a 9.6% return on investments designed to reduce customer electric bills. FirstEnergy completed a significant milestone by selling a 30% equity interest in FirstEnergy Transmission, part of a $7 billion effort to strengthen its balance sheet, leading to an upgrade to investment grade status with 40 rating upgrades in 2024. The company invested $4.5 billion in the Energize365 program in 2024, a 20% increase from 2023, to enhance grid reliability. They revamped organizational operations, promoted internal talent, and hired new leaders, including appointing 24 individuals to key positions to better align with customer needs.

The new leadership team is focusing on building a high-performance culture and resolving legacy proceedings in Ohio, allowing for future growth. In 2024, they increased dividends by over 6% to $1.70 per share. A regulatory update shows progress with the Ohio commission, as they handle legacy and current rate issues separately. A recent auditor's report on their rate request was constructive. The electric security plan (ESP) is under revision, with ESP-4 currently in place until ESP-6 is enacted. ESP-6 aims to enhance reliability and affordability, with proposed increases in distribution capital recovery tied to performance and capital investments.

The paragraph discusses several updates and plans for the company's operations in different states. In Ohio, provisions from a base rate case will be moved to an ESP-6 filing. In New Jersey, efforts are ongoing to reach a settlement for the EnergizeNewJersey infrastructure investment program. West Virginia will see the filing of a 10-year integrated resource plan, potentially including new dispatchable generation. The company is introducing "core earnings," focusing on regulated operations and excluding volatile non-core earnings from pensions and Signal Peak mine. From 2022 to 2024, core earnings grew by 33%, while non-core earnings fell by 59%. The company plans to exit its Signal Peak investment and will provide core earnings guidance from 2025 onwards, with an initial forecast range of $2.40 to $2.60 per share.

The paragraph outlines the company's core earnings growth and 2025 financial guidance. It highlights a projected increase in core earnings per share by 5.5% to 7% in 2025, accounting for various financial challenges such as higher financing costs and regulatory changes. The guidance includes adjustments for unanticipated factors like interest rate hikes and regulatory decisions affecting transmission rates and revenue caps. Plans initially aimed to keep operating and maintenance (O&M) costs flat across 2023-2024, despite necessary increases in Pennsylvania. However, the company acknowledges this strategy is unsustainable long-term. Instead, a new management-led initiative focuses on organizational restructuring and efficiency improvements to maintain financial discipline without sacrificing operational goals.

The paragraph outlines the company's investment and financial plans. They plan to invest $5 billion in regulated properties in the next year, marking an 11% increase over 2024, supported by recent rate activities. They aim for annual dividend declarations of $1.78 per share in 2025, with a payout ratio of 60% to 70% of core earnings. Over 2025-2029, they forecast a compound annual growth rate of 6% to 8% in core earnings. The Energize365 program will see $28 billion invested through 2029, an 8% increase from the previous plan, resulting in 9% annual rate-based growth. They do not foresee needing extra equity beyond employee programs and are committed to maintaining credit ratings. FirstEnergy is positioned as a low-risk investment with a potential total return of 10% to 12%. The speaker then hands over the discussion to Jon Taylor for further details on the 2024 performance, regulatory matters, and future outlook.

The company will now report results using core earnings, excluding Signal Peak and pension plan impacts due to their volatility. In 2024, these two factors contributed $0.26 per share, but expectations for 2025 were below $0.20 per share. Initially expecting interest rates to remain low and stable commodity prices, these factors instead saw significant negative changes by Q4, decreasing their profitability. This volatility is unsustainable, prompting the reporting change to core earnings. For 2024, operating earnings were $2.63 per share, slightly up from $2.56 in 2023, but at the lower end of revised guidance due to unexpected lower demand and milder Q4 temperatures. Contributions from Signal Peak and pension decreased 30%, forming about 10% of 2024's operating earnings.

The full-year results for the company improved significantly due to new base rates and growth from investment programs in the transmission and distribution sectors. In the distribution segment, earning increased by $0.04 per share due to higher sales and revenue, but were partially offset by the negative impact of the Ohio ESP-5 order and higher storm costs. The integrated segment saw a $0.29 per share rise in earnings due to new base rates and higher sales, despite a higher tax rate. Earnings in the standalone transmission business fell by $0.12 per share due to dilution from a partial sale of interest in FET, although investment programs contributed positively. The corporate segment experienced increased losses by $0.04 per share due to the absence of a prior state tax benefit, offset by reduced interest expenses from debt redemption. The FE-owned rate base grew by 10% to $5.3 billion, and $700 million in debt securities were issued as part of the 2024 financing plan.

The company experienced an oversubscription in its bond issuance, evidencing strong demand, and completed several financial transactions as part of its 2024 financing plan. They successfully reduced pension obligations by $1.4 billion, improving their balance sheet, although unique payments affected their financial metrics. Looking forward, they plan a significant capital investment program, Energize365, allocating $28 billion from 2025 to 2029, with a focus on infrastructure growth. For 2025, the company expects to finance its $3.6 billion debt plan through internal cash flow and new debt issuances, targeting a 6%-8% annual growth rate through 2029.

The paragraph discusses the company's investment plans and financial performance. Approximately 75% of their investments are in mechanisms that offer real-time returns, with nearly half in FERC-regulated assets, leading to significant growth in their transmission segment. In 2024, they achieved a 9.4% return on equity on a $25.9 billion rate base, up from 8.8% in 2023. Their strategy focuses on capital deployment, financial discipline, and ensuring regulatory support for fair returns. Recent improvements in aligning regulatory returns with core earnings are highlighted. The company’s footprint is attractive to data center developers, with plans including significant data center demand through 2029 and beyond, potentially adding $350 million to their capital program.

The paragraph outlines FirstEnergy's financial forecast and plan for 2025, highlighting an expected annual sales growth of 5% for their industrial class from 2025 to 2029, and 8.5% from 2025 to 2027. While the forecast is likely to improve with additional projects, current earnings expectations for 2025 have been revised down due to higher financing costs, regulatory outcomes, and other factors. FirstEnergy provides a 2025 core earnings guidance range of $2.40 to $2.60 per share, with a midpoint of $2.50, reflecting a 5.5% increase from 2024. The forecast is driven by several factors, including a $225 million revenue increase from a Pennsylvania rate case, new rates in West Virginia and New Jersey, and growth in investment programs. The company is also making strategic changes to ensure long-term success.

The company is investing in modernizing operations and improving customer experience while meeting regulatory commitments efficiently. It has plans to enhance reliability through a vegetation management program in Pennsylvania, affecting O&M expenses in 2025, which are covered by revenue increases. Excluding these, the planned O&M for 2025 is consistent with 2024 and 2023 levels. The company is focusing on financial discipline, optimizing supply chain, reducing contractor reliance, and improving organizational efficiency. It has made significant progress in executing its business model, reducing risks, and improving reliability. The company has restructured its organization and leadership to fulfill stakeholder commitments and is optimistic about maintaining its momentum as a leading electric company. The call then opens for a Q&A session, starting with a question from Shar Pourreza of Guggenheim Partners.

In the discussion, Brian Tierney addresses a question from Shar Pourreza regarding tail risks, interest rates, and operational and maintenance (O&M) pressures. He reassures that they anticipate staying within a 6% to 8% growth range from 2025 to 2026 and up to 2029, aiming for the upper end of this range. Tierney explains that the O&M changes are primarily due to the Pennsylvania base rate case settlement, emphasizing the importance of meeting spending commitments there while keeping O&M flat in other units. The focus on O&M discipline includes efforts in staff reduction, procurement, and organizational design. Tierney highlights the commitment to fiscal discipline and the strategic use of resources agreed upon in Pennsylvania.

The paragraph features a discussion about an audit report concerning a company's financial metrics related to its revenue requirement rate base and return on equity (ROE). Brian Tierney addresses questions from Shar about how the findings could affect future filings, specifically referring to changes in capital structure and ROE, which were notably lower than proposed. The audit suggested a capital equity structure of 51% compared to the company's current 55%, and an ROE of 9.63% instead of the proposed 10.8%, aligning with other Ohio companies. Tierney emphasizes the company's intention to address these issues in their response within 30 days. The conversation shifts to Carly Davenport from Goldman Sachs, who questions Jon Taylor about the balance sheet, focusing on the actual '24 FFO to debt ratio of 12.5% and the path to reach the target of 14% during the planning period, questioning the sustainability and potential variability of these figures.

In the paragraph, the discussion revolves around financial planning and the impact of certain events on the company's future plans. It begins by mentioning adjustments for 2025, excluding unique items from 2024 like a $120 million payment to the SEC and a significant storm in Cleveland, aiming for a 14% target. Additionally, it highlights the positive impact of a Pennsylvania rate case effective January 1. Carly Davenport inquires about transmission projects with PJM and the associated financial assumptions. Brian Tierney and Jon Taylor explain that the company's share in these projects, a significant JV opportunity, involves about $675 million, with both off-balance-sheet financing and on-plan CapEx. Jon Taylor clarifies that the JV's financing is off-balance-sheet and requires an equity contribution, whereas everything else awarded is in their financial plan.

In this exchange, Nick Campanella asks about the possibility of settling regulatory issues related to the Ohio rate case and the Blue Ridge report. Brian Tierney responds by saying they are open to settling cases but anticipates this particular case will be fully adjudicated due to its complexity. He mentions that while the Blue Ridge report was factual and seemed unbiased, a response will be made in the next 30 days, and he expects the case to proceed smoothly, similar to the Grid Mod II case. Nick then inquires about the company's projected growth rate, asking why it isn't higher in the range of 7% to 8% if indicated to be at the higher end of the 6% to 8% range, prompting Brian for further clarification.

The paragraph discusses the factors affecting utilities' earnings, highlighting traditional elements like regulatory outcomes and load recovery. The focus is on core earnings and potential growth from competitive transmission awards and data center impacts. Although $2.5 billion in transmission awards have been secured recently, future opportunities are not included in current plans until they are contracted. This suggests potential growth if these opportunities materialize. In response to questions, Jon Taylor mentions that they expect a consolidated earned Return on Equity (ROE) of 9.5% to 10%, excluding holding company activities. For Ohio, they aim to earn close to the allowed ROE from the upcoming rate case, estimated to be 9.5% to 10.5%.

The paragraph presents a discussion between Michael Lonegan and Brian Tierney regarding investment opportunities and funding in West Virginia. Tierney mentioned the planned retirement of about 3,000 megawatts of coal-fired generation between 2035 and 2040 and the potential investment of $3 billion to $6 billion over 12 to 15 years to build combined cycle generation. This investment would facilitate growth and economic development opportunities. Tierney also noted that the incremental capital could be funded using cash flow from operations, debt, equity, and equity-like instruments. The discussion concludes as Jeremy Tonet from JPMorgan is introduced for the next question.

The paragraph presents a discussion between Jeremy Tonet, Jon Taylor, and Brian Tierney about the company's financial strategies concerning equity issuance and capital expenditure. Jon Taylor mentions they're targeting a 100 basis point cushion in metrics, supported by the current forecast. They discuss potential financing options for incremental capital, particularly for $350 million in data center demand CapEx, which could involve equity. The financing plan would depend on the nature of CapEx, whether related to transmission or formula rates. Jeremy also inquires about bill headroom post PJM and New Jersey auctions. Brian Tierney responds that their bills are competitive, being lower than or equal to in-state peers, and they are mindful of maintaining customer affordability.

The paragraph discusses a financial update from a company. Jeremy Tonet acknowledged the company's mindful spending on operations and maintenance (O&M), particularly in places like Pennsylvania, focusing on affordability. Steve Fleishman from Wolfe Research asked about the pension fund's status, to which Jon Taylor responded that it ended the year 84% funded, slightly down due to lower-than-expected asset performance despite higher interest rates. Fleishman also inquired about the Ohio rate case procedures, and Brian Tierney said there's no procedural schedule yet. However, the company must respond to the Ohio consultant report within 30 days, with expectations for a final order by the end of the year.

The paragraph involves a conversation between Steve Fleishman and Brian Tierney about pending bills in Ohio that could affect Electric Security Plans (ESPs). Tierney explains that regardless of whether ESPs are maintained, having tracking mechanisms or formula-based rates is crucial for incentivizing investment in Ohio's utilities. He notes that such mechanisms allow for more timely recovery of investments compared to base rate cases. Tierney emphasizes the importance of this for maintaining Ohio's competitive advantage in economic development. The conversation then shifts to Andrew Weisel from Scotiabank, who asks about demand trends as sales were lower than expected, particularly in residential and commercial segments, even on a weather-adjusted basis.

In the conversation, Jon Taylor and Andrew Weisel discuss the impact of energy efficiency programs in Pennsylvania on residential energy usage, expecting these effects to become more evident in the coming quarters. Taylor also mentions disruptions in the industrial sector, particularly with steel customers, but anticipates a positive rebound in data center activity in Ohio and Maryland. Meanwhile, Brian Tierney addresses the company's dividend strategy, indicating that despite a slightly higher payout ratio, the company plans to keep the dividend growth aligned with core earnings, staying within the targeted payout range of 60% to 70%.

In this dialogue, Anthony Crowdell from Mizuho Securities asks Brian Tierney about the impact of potential Ohio legislation on the company's rate filings. Crowdell is particularly interested in how proposed legislation might affect the distribution of cost recovery between the general rate case and the Electric Security Plan (ESP) filings. Brian Tierney responds by stating that if there were any legislative changes, the company would aim to ensure timely recovery of costs and avoid any unrecovered items. He mentions that changes at the federal level, such as taxes, would also be quickly adjusted through federal formula-based rate mechanisms. Lastly, Anthony inquires whether the company has quantified the revenue collected through the ESP, to which Jon Taylor responds affirmatively, indicating a willingness to discuss further details offline.

The paragraph discusses the transition of revenue collection from rider programs to base rates in the context of a base rate case proceeding. In 2025, the DCR revenue remains steady at $390 million, and there is currently less than $50 million collected from the grid modernization AMI rider. Brian Tierney explains that the transition to base rates will naturally occur through the proceeding, resetting riders to zero and transferring the revenue collection to base rates. This transition is expected to reduce risk associated with revenue collected through riders. Anthony Crowdell confirms that future revenue, initially collected in the ESP, will be reset to zero in 2026 with the increase in base rates, and then collections will resume based on capital deployed since the last test year. The session ends with the operator closing the teleconference.

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