FE Q2 2025: $2.3-4B Transmission CapEx Upside Boosts Outlook
- Transmission CapEx Upside: The Q&A highlighted that FirstEnergy’s transmission capital expenditure plan has a potential incremental upside of $2.300 billion to nearly $4.000 billion driven by both open window awards and additional opportunities from rising data center load, which supports a growing rate base.
- Robust Data Center Demand: Management pointed out increasingly strong customer interest with an active load of about 400 megawatts and a significant step-up in pipeline growth—bolstered by large load studies in multiple states—underscoring the company’s ability to capture new, high-value opportunities.
- Effective Cost Discipline and Earnings Upside: The discussion emphasized that operating expenses are running approximately 4% below plan, which is positively impacting core earnings, positioning the company to potentially outperform its full-year guidance range.
- Execution and supply chain risk on transmission CapEx: The company is aggressively targeting a 20% increase in transmission spending with an identified upside of roughly $2.3B to $4B. However, this rapid acceleration in CapEx, reliant on open windows and new contracts, raises concerns about effective execution, rising costs, and potential supply chain or equipment capacity constraints.
- Regulatory uncertainty and timing risks: The outlook in key markets such as Ohio and West Virginia remains contingent on unresolved rate cases and regulatory outcomes. The company noted that final decisions on the base rate case and related issues could come as late as the fourth quarter, which creates uncertainty about investment recovery and future earnings performance.
- Dependence on data center load growth with execution challenges: Although the data center pipeline is increasing, much of the current demand is based on potential future contracts. Uncertainty remains around the pace of converting these studies into actual capacity additions. Additionally, the reliance on customer demand to drive these negotiations poses execution risks if market conditions or demand growth do not materialize as expected.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Core Earnings Guidance | FY 2025 | $2.40 to $2.60 per share | $2.40 to $2.60 per share, reaffirmed with expectations to deliver in the upper half | no change |
Capital Investment Plan | FY 2025 | $5 billion in FY 2025 deployment and a long-term $28 billion program | $5 billion in FY 2025 deployment and a five-year $28 billion base program | no change |
Targeted CAGR | FY 2025 | 6% to 8% CAGR | 6% to 8% CAGR through 2029 | no change |
Targeted Shareholder Return Opportunity | FY 2025 | 10% to 12% shareholder return | 10% to 12% shareholder return opportunity | no change |
FFO to Debt Ratio | FY 2025 | no prior guidance | 14%+ | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Regulatory Developments and Uncertainty | Discussed extensively in Q1 2025 and Q4 2024 with details on Ohio base rate cases, NJ settlements, West Virginia IRP preparations, Pennsylvania settlements, and PJM resource adequacy challenges | Q2 2025 emphasized a constructive Pennsylvania regulatory environment, ongoing Ohio base rate case efforts, and concerns over the PJM capacity auction mechanism—with additional focus on state-led solutions | Recurring emphasis with increased specificity: While the focus remains on multiple jurisdictions, Q2 now highlights detailed PJM auction concerns alongside a constructive regulatory backdrop, suggesting evolving clarity and a slightly more optimistic tone. |
Transmission CapEx Upside and Execution/Supply Chain Risks | In Q1 2025, transmission CapEx was discussed with inclusion of incremental investments (e.g., the $300 million component and potential West Virginia opportunities) and supply chain risk was managed through tariff exposure minimization. In Q4 2024, competitive transmission awards, joint ventures, and data center–driven opportunities were highlighted alongside supply chain optimization measures | Q2 2025 projects up to a 20% increase in transmission CapEx driven by PJM open windows and data center load growth, with clear statements of confidence in execution and a well-diversified supply chain | Optimistic and expanding: The underlying opportunity for increased transmission investment is maintained and even accentuated, with solid execution and supply chain assurances reinforcing a steady, positive outlook. |
Data Center Demand, Pipeline Growth, and Conversion Challenges | Q1 2025 noted robust data center demand with 15 large load study requests totaling around 9 gigawatts (and a reaffirmation of incremental CapEx) while Q4 2024 described an active contracted base of 2.6 GW with substantial pipeline (over 5.5 GW) and cautions on converting pipeline to contracts | Q2 2025 highlighted active data center demand (400 MW), a dramatic increase in the long-term pipeline from 6.1 GW to 11.1 GW, and ongoing conversion challenges driven by customer negotiation pace | Strong growth with ongoing challenges: Data center demand continues to be a driver, with pipeline growth accelerating across periods, though the pace of converting studies into contracts remains a mild concern. |
Operational Efficiency and Cost Discipline | In Q1 2025, organizational changes, reduced O&M expenses (3.5% lower), and a strong focus on cost reductions and continuous improvement were highlighted, while Q4 2024 reiterated financial discipline through supply chain optimization and flat O&M outside Pennsylvania | Q2 2025 reported nearly 4% lower O&M expenses than planned, a significant boost in cash flow (a 60% increase YoY), and on-track capital investments—reinforcing the continued focus on operational efficiency | Deepening commitment: The emphasis on efficiency is consistent, with Q2 revealing improved cash flow and further expense reductions, reflecting enhanced operational discipline and a bullish financial sentiment. |
High Capital Expenditure Strategies and Funding/Dilution Risks | Q1 2025 detailed a robust capital plan ($28 billion through 2029) funded by cash flow and debt, alongside discussions of dilution from previous transactions. Q4 2024 similarly emphasized increased investments (with a $5 billion 2025 target) and financing via a mix of cash flow and debt, while noting traditional approaches to avoid incremental equity | Q2 2025 reaffirmed the aggressive $28 billion plan, highlighted a 20% potential upside in transmission investments, and detailed funding through convertible debt offerings and subsidiary debt transactions—with no anticipated need for new equity issuance | Increased clarity and confidence: The high CapEx strategy remains central and is now supported by secure funding mechanisms (including convertible debt), reducing dilution fears and reinforcing a positive strategic outlook. |
Emerging Weakening Industrial Demand | Q1 2025 discussed a 3% decline in industrial sales driven by a slowdown in the steel sector, while Q4 2024 mentioned some steel customers offline but with anticipated rebounds bolstered by data center activity | Not mentioned in Q2 2025 | Lower emphasis: Although earlier periods flagged concerns over industrial demand (particularly in the steel sector), Q2 2025 does not mention this topic, suggesting it has receded from primary focus. |
Underfunded Pension Plan and Asset Performance Concerns | Q4 2024 noted the pension plan finished at approximately 84% funded due to underperforming assets, while Q1 2025 had no such discussion | Not mentioned in Q2 2025 | Dropped focus: Concerns over the pension plan and asset performance, discussed in Q4 2024, are not present in Q2, indicating a shift away from issues that may have been temporarily prominent. |
West Virginia Generation Investment and Transition from Coal | Q1 2025 outlined the IRP process and potential for new 1,000 MW dispatchable gas generation to replace aging coal units, and Q4 2024 detailed planned investments to replace 3,000 MW coal-fired capacity with new combined cycle projects beginning as early as 2028–2029 | Q2 2025 emphasized submission of the ten-year IRP by October 1, with plans to add approximately 1,000 MW of dispatchable gas generation over the next decade as part of the coal transition | Consistent with evolving clarity: The focus on West Virginia remains steady, with ongoing IRP preparations and a clearly defined timeline for transitioning from coal to gas, reinforcing strategic long-term planning. |
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Transmission CapEx
Q: Gross transmission CapEx upside: basis and magnitude?
A: Management explained that the 20% upside applies on a gross basis to the consolidated $28 billion plan, with additional upside estimated between $2.3 billion and $4.0 billion driven by open windows and new contracts, reflecting disciplined capital allocation. -
Ohio Regulation
Q: Ohio rate case impact on allowed ROE?
A: They stated that the current Ohio rate case will settle key issues such as allowed ROE, cap structure, and recovery of investments, with a decision expected later this year that will guide future rate filings under the new regime, supporting a stable outlook. -
West Virginia Generation
Q: New generation plans in West Virginia?
A: Management indicated plans to add about 1,000 MW of dispatchable gas over ten years to offset coal retirements—where roughly 3,000 MW of coal is projected to retire between 2035 and 2040—and they remain open to regulated or partnered projects as conditions evolve. -
Data Center Pipeline
Q: Pace and scale of data center demand?
A: They noted that current active data center load is around 400 MW with a robust, growing pipeline driven mainly by markets in Ohio, Maryland, and West Virginia and emerging interest in Pennsylvania, underscoring strong future demand. -
Equipment Supply
Q: Can equipment supply meet increased CapEx demand?
A: Management expressed confidence that established vendor relationships and proactive planning ensure the necessary equipment will be available to support the substantial transmission spending, reducing execution risk despite aggressive industry-wide CapEx increases. -
Guidance Upside
Q: Is strong O&M discipline driving guidance upside?
A: They credited operating expense discipline—currently 4% below plan—and timely capital deployment for the favorable results so far, suggesting that future guidance may be adjusted upward as these trends continue.
Research analysts covering FIRSTENERGY.