Q3 2024 Earnings Summary
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +7% from $3,487 million to $3,729 million | The increase reflects higher retail generation sales and the ongoing benefits of regulated investment programs, partially driven by stable customer usage and rider rate adjustments. |
Distribution Revenue | -40% from $3,034 million to $1,817 million | The decline is largely due to reclassifications of distribution-related charges, milder weather reducing demand, and lower volumetric usage in core service territories. |
Stand-Alone Transmission | -7% from $509 million to $475 million | The drop is primarily driven by dilution from additional minority equity interest sales in FET, partially offset by increased rate base from regulated transmission investments. |
Operating Income | +9% from $666 million to $727 million | The growth arises from effective cost controls, favorable rate adjustments, and reduced legal expenses, despite higher operating expenses in some areas. |
Net Income | Over +1000% from $42 million to $466 million | The significant increase results from one-time gains, stronger overall operating performance, and the absence of prior-year charges, reflecting improved profitability. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Operating Earnings | FY 2024 | $2.61 to $2.81 | $2.61 to $2.71 | lowered |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Operating Earnings (EPS) | Q3 2024 | $0.85 to $0.95 per share | $0.73 per share | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Reaffirmed 6%-8% long-term annual operating earnings growth rate | Consistently reasserted in Q2 2024 , Q1 2024 , and Q4 2023. | Reaffirmed the 6%-8% EPS growth rate, supported by a 9% average annual rate base growth and ~70% of investments covered by trackers and riders. | Consistent growth guidance |
$26 billion 5-year capital expenditure plan (Energize365) | Ongoing discussion in Q2 2024 , Q1 2024 , and Q4 2023. | Emphasized the 9% rate base growth, ~70% of investments on trackers/riders, and possible 5% CapEx expansion beyond the $26B plan. | Continuing investment cornerstone |
Increased 2024 capital investment to $4.6 billion reflecting incremental opportunities | No mention in Q2 2024 , Q1 2024 , or Q4 2023. | Raised 2024 CapEx from $4.3B to $4.6B due to transmission and storm-related investments; still within the broader $26B plan. | New in Q3 |
70% of investments covered by trackers and riders for timely recovery | Briefly alluded to broad rider coverage in Q2 2024 ; no specific mention in Q1 2024 or Q4 2023. | Noted that ~70% of total expansion falls under cost-tracking mechanisms. | Reiterated in Q3 |
Weakened FFO-to-debt metrics due to one-time costs and settlements | Similar concern in Q2 2024, citing one-time accruals that delayed reaching 14% FFO-to-debt. Not discussed in Q1 or Q4 2023 calls. | Projected FFO-to-debt ratio just under 13%, impacted by SEC/OOCIC payment and unusual storm event. | Ongoing short-term headwind |
Regulatory uncertainty in Ohio following withdrawal of ESP V | Concerns covered in Q2 2024 calls. Not addressed in Q1 or Q4 2023. | Withdrawal of ESP V to revert to ESP IV and propose ESP VI, aiming to reduce risk and align with the Ohio base rate case. | Escalated focus on Ohio regulatory strategy |
Unplanned storm-related expenditures impacting capital plans | Not mentioned in prior calls. | Major unplanned storm costs in Cleveland increased CapEx and O&M expenses, leading to guidance revisions. | New pressure on spending |
Balance sheet improvements including $2 billion debt reduction | Highlighted in Q2 2024 as ~$2B reduction , Q1 2024 , Q4 2023. | No specific mention of a $2B reduction in Q3; noted some lower total debt outstanding but not a full $2B reference. | No mention of $2B in Q3 |
Strong load growth in residential and commercial segments, especially data centers | Q2 2024 showed residential/commercial recovery and rising data center interest ; Q1 2024 and Q4 2023 similarly noted data center expansion. | Residential/commercial loads largely flat; data center demand strong, with triple the load study requests vs. 2023. | Shifting toward data center-driven growth |
Delayed achievement of the 14%-15% FFO-to-debt target | Also delayed in Q2 2024 calls, hoping to reach 14% in early or mid-2025. Limited or no mention in Q1 or Q4 2023. | FFO-to-debt likely below 13% this year, chiefly due to one-time settlements and storms. | Ongoing delay |
Frequent rate cases in Ohio and Pennsylvania introducing regulatory risks | Mentioned as normal utility practice in Q2 2024. Not a key point in Q1 or Q4 2023. | Concern raised about simultaneous proceedings in Ohio; management sees aligning ESP with the base rate case as reducing risk. | Continuing but management downplays risk |
Potential PJM generation capacity constraints affecting future load growth | Covered in Q2 2024 , Q1 2024 , and Q4 2023. | Discussed the need for new dispatchable capacity, plus large load requests that stress PJM’s capacity auctions. | Ongoing concern for reliability & growth |
Ongoing legal and regulatory challenges (DPA, SEC/OOCIC settlements, audits) | Wider discussion in Q2 2024 , Q1 2024 , Q4 2023. | Settlements with SEC and OOCIC completed; Ohio commission audit concluded with minimal new findings. | Continuing resolution efforts |
Rising interest rates increasing financing costs | Q1 2024 indicated planned coupons around 5.75%. Not otherwise featured in Q2 or Q4 2023. | No direct mention of higher financing costs in Q3 2024, though new debt issuances were noted. | No recent updates |
Pension volatility and challenges securing pension tracking mechanisms | Discussed in Q2 2024 , Q1 2024 , and Q4 2023 , focusing on deferral mechanisms and pension lift-outs. | No discussion in Q3 2024. | Not mentioned in Q3 |
Signal Peak’s diminishing earnings contribution | Referenced in Q2 2024 , Q1 2024 , Q4 2023 as an ongoing decline in contribution. | Q3 2024 showed reduced earnings in the Corporate segment partly due to lower Signal Peak contribution. | Continuing decrease |
Resumed dividend increases after a multi-year hiatus | Previously noted in Q1 2024 and Q4 2023 with a ~6.25% increase. | Not mentioned in Q3 2024. | No mention in current period |
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Large Load Increases
Q: Are the large load requests real and impactful?
A: Yes, FirstEnergy is experiencing significant increases in large load requests. In 2024, they received over 60 requests for load studies of 500 megawatts or more, primarily from data centers exceeding one gigawatt. They believe these projects are real and will positively impact their business. -
Withdrawal of ESP V
Q: What are the impacts of withdrawing ESP V?
A: Withdrawing ESP V has minimal financial impact but reduces risk. It aligns ESP VI with the general rate case, simplifying the process and providing more certainty and transparency in earnings. -
Earnings Growth Reaffirmed
Q: Is the 6%-8% earnings growth target reaffirmed?
A: Yes, they reaffirmed the 6%-8% growth target based on a $271 million starting point, confident in meeting this despite recent challenges. -
Pennsylvania ROE Normalization
Q: Will returns in Pennsylvania improve in 2025?
A: Yes, with the settlement, they expect a normalized return. The previously low 2.5% ROE was based on initial filings, but they anticipate better results in 2025. -
Generation Capacity Solutions
Q: How will they get more generation built in PJM?
A: They're considering options outside PJM's capacity auctions, like state-run auctions to contract new capacity. This approach could ensure timely addition of net new capacity at reasonable costs. -
Transmission Capacity Available
Q: Can they handle the large load requests?
A: Yes, they have several thousand megawatts of transmission capacity available, mainly from retired plants. Serving large new customers spreads costs and benefits existing customers. -
CapEx Increase and Growth
Q: Does increased CapEx affect earnings growth?
A: No, the increased 7% CapEx in 2024 doesn't change their 6%-8% EPS growth target. Their $26 billion five-year plan drives about 9% rate base growth, supporting earnings growth. -
Storm Costs Impact
Q: How have storm costs affected financials?
A: Storms and payments impacted the FFO to debt ratio, expected to be just under 13% this year. Excluding unusual events, it would be closer to 14%. They remain committed to prompt storm response. -
Financing Without New Equity
Q: How will additional investments be funded without new equity?
A: They have metrics cushion for about 5% additional CapEx and are comfortable with their plan, especially with opportunities involving their 50%-owned FirstEnergy Transmission business. -
Updating Forecasts and Guidance
Q: When will they update load forecasts?
A: They plan to provide updated load forecasts and 2025 guidance early next year, likely during the fourth quarter call, including a 2025-2029 CapEx and growth plan. -
Approval for ESP V Withdrawal
Q: Is the ESP V withdrawal process straightforward?
A: Yes, it's expected to be non-controversial with approval taking about a month, based on precedent with other utilities. -
Utility-Owned Generation
Q: Can they own generation in deregulated states?
A: Yes, in West Virginia, Ohio, and Maryland, laws allow regulated utilities to own generation and recover costs, though they're cautious about re-entering generation ownership. -
Timing of Capacity Solutions
Q: How soon can capacity cost issues be mitigated?
A: There's concern that relying on market signals may take 6 years for new capacity to materialize. They believe states can act sooner to address capacity charges impacting customers.