FirstEnergy Corp. · NYSE:FE
FirstEnergy — Q2 2017 Earnings Presentation
34 slides from FirstEnergy's earnings presentation, 2017
Slide 1: 2Q 2017 Earnings Call
2Q 2017 Earnings Call Charles E. Jones, President and CEO James F. Pearson, EVP and CFO
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management's intents, beliefs and current expectati
Slide 3: Non-GAAP Financial Matters
Non-GAAP Financial Matters This presentation contains references to non-GAAP financial measures including, among others, Operating earnings (losses) and CES Adjusted EBITDA. In addition, Basic Earnings (Loss) Per Share - Operating, calculated on a segment basis, is also a non-GAAP financial measure.
Slide 4: 2Q 2017 Summary
2Q 2017 Summary 2Q17 in Review ■ Reported solid second quarter results, despite the impact of mild temperatures ■ Strong operational and financial performance across the company ■ Met or exceeded midpoint of quarterly operating earnings guidance range for 8 consecutive quarters Transmission Updates
Slide 5: 2Q 2017 Summary (Continued)
2Q 2017 Summary (Continued) Distribution Updates ■ In January, new rates went into effect in Ohio, New Jersey, and Pennsylvania ■ Continued industrial load growth; fourth consecutive quarterly increase – Primarily driven by shale gas, steel, coal mining, and chemical industries ■ Load growth in the
Slide 6: Strategic Updates
Strategic Updates Competitive Updates ■ Successfully completed nuclear refueling outages at Perry and Beaver Valley Unit 2 AE Supply: ■ Based on the ongoing status of negotiations, CES recorded a $0.19 per share non-cash impairment charge associated with the pending AE Supply gas/hydro asset sale –
Slide 7: Strategic Updates (Continued)
Strategic Updates (Continued) Competitive Updates FES: ■ Remain engaged in settlement efforts with BNSF and Norfolk Southern on a second coal transportation dispute ■ Scheduled to have discussions with FES creditors next week ■ In April, bills introduced in the Ohio House and Senate for a proposed Z
Slide 8: Financial Updates
Financial Updates Competitive Updates ■ FES continues to have access to the unregulated money pool – As of June 30, 2017, FES, its subsidiaries, and FENOC had net borrowings of $174M, primarily to satisfy: – June 1, 2017 bond maturity – Lease and interest payments – Initial payment on the coal trans
Slide 9: 2Q 2017 Results Summary
2Q 2017 Results Summary 2Q17 in Review ■ Reported solid second quarter results; slightly better than the midpoint of our operating earnings guidance ■ Strong operational performance and financial discipline across the company 2Q17 Earnings Summary ■ Reported 2Q17 GAAP earnings of $0.39 per basic sha
Slide 10: 2Q 2017 Earnings Drivers
2Q17 vs. 2Q16 EPS Variance Basic EPS Operating* 2Q 2017 Earnings Drivers Regulated Distribution Regulated Transmission +$0.13 +$0.02 +$0.13 +$0.02 Quarter-over-Quarter (Basic EPS / Operating*) Corporate / Other ($0.03) ($0.03) Competitive Energy Services +$2.83 ($0.07) FE Consolidated +$2.95 +$0.05
Slide 11: Financial Updates
Financial Updates CES Guidance Updates ■ 2017 CES Adjusted EBITDA* guidance affirmed at $405M - $475M ■ 2018 CES Adjusted EBITDA* guidance increased to $140M - $260M, reflecting additional committed contract sales FE Corp. Debt Offering ■ Successful $3B debt offering completed in June – Redeemed FE
Slide 12: Appendix
Appendix Quarterly Highlights – FE 2Q 2017 Earnings Call July 28, 2017 12
Slide 13: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – 2Q 2017 and 2Q 2016 Reconciliation of GAAP to Operating (Non-GAAP) Earnings (In millions, except per share amounts) Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the
Slide 14: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – YTD 2017 and YTD 2016 Reconciliation of GAAP to Operating (Non-GAAP) Earnings (In millions, except per share amounts) Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by th
Slide 15: Consolidated GAAP and Special Items
FE Corp. Income Statements – 2Q 2017 and 2Q 2016 Consolidated GAAP and Special Items (In millions, except per share amounts) Quarterly Highlights – FE 2Q 2017 Earnings Call July 28, 2017 15
Slide 16: Consolidated GAAP and Special Items
FE Corp. Income Statements – YTD 2017 and YTD 2016 Consolidated GAAP and Special Items (In millions, except per share amounts) Quarterly Highlights – FE 2Q 2017 Earnings Call July 28, 2017 16
Slide 17: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – Forecast for 2017 Reconciliation of GAAP to Operating (Non-GAAP) Earnings (In millions, except per share amounts) *Per share amounts for the special items and earnings drivers above are based on the after-tax effect of each item divided by the weighted average basic share
Slide 18: West Virginia – Regulatory Update
West Virginia – Regulatory Update ■ MP issued an RFP in December 2016 to address its capacity shortfall – Sought to satisfy its capacity shortfall through a combination of approximately 1,300 MW (UCAP) of generation capacity and up to 100 MW of demand resources – CRA International retained to manage
Slide 19: MAIT and JCP&L Transmission – Regulatory Update
MAIT and JCP&L Transmission – Regulatory Update ■ MAIT and JCP&L filed to update their respective transmission rates – On October 28, 2016, MAIT and JCP&L filed under Federal Power Act section 205 a “forward-looking” formula rate for recovery of MAIT’s and JCP&L’s transmission costs; requested that
Slide 20: Progress Toward Becoming a Regulated Business
Progress Toward Becoming a Regulated Business Providing Financial Flexibility to Preparing to Exit CES Exiting Commodity Exposed Generation Preserve Options Announced a strategic review of Refinanced all credit facilities to Recorded ~$10.7B of pre-tax asset impairments and plant exit Competitive Ge
Slide 21: Nuclear Facts
Nuclear Facts Perry Davis-Besse Beaver Valley 1 Beaver Valley 2 License Expiration 2026 2037 2036 2047 License extension expected to be requested to allow for operation until 2046 NDT Funding (As of June 30, 2017: ~$530M ~$575M ~$295M ~$390M using SAFSTOR Method) • NDT for all units is expected to b
Slide 22: 2017F Adjusted EBITDA
2017F Adjusted EBITDA Competitive Energy Services 2017F ($M) Average $/MWH $51 Contract Rate Closed Q1-Q2 less ($19) Supply Cost Contract Sales: 21M MWH less ($10) Delivery Cost $460 $22 avg. net margin $50 Contract Rate Committed Q3-Q4 less ($18) Supply Cost Contract Sales: 20M MWH less ($14 - $15)
Slide 23: Notes on 2017F Adjusted EBITDA
Notes on 2017F Adjusted EBITDA Competitive Energy Services Closed Q1-Q2 Includes actual physical volume of contract sales through 06/30/2017 Contract Sales: Contract Rate represents average realized rate based on actual committed contract prices and customer usage Supply Cost rate represents t
Slide 24: 2018F Adjusted EBITDA
2018F Adjusted EBITDA Competitive Energy Services Average $/MWH 2018F ($M) $50 Contract Rate Committed less ($17) Supply Cost Contract Sales: 25M MWH less ($15 - $16) Delivery Cost $425 - $445 $17 - $18 avg. net margin 2018 Open: 40M MWH $28 - $31 Wholesale Price 2018 Financially-Hedged: 1M MWH plus
Slide 25: Notes on 2018F Adjusted EBITDA
Notes on 2018F Adjusted EBITDA Competitive Energy Services Committed Includes expected physical volume of contract sales Contract Sales: Volume is subject to fluctuations due to weather and customer behavior Contract Rate represents average expected rate based on committed contract prices and
Slide 26: Net Income (Loss) to Adjusted EBITDA Reconciliation
Net Income (Loss) to Adjusted EBITDA(1) Reconciliation Competitive Energy Services ($ Millions) 2017F 2018F Net Income (Loss) – GAAP ($225) – ($170) ($95) - $5 Special Items (after tax)(1) 315 – Operating Earnings (Loss) $90 - $145 ($95) - $5 Income Taxes(2) 45 - 75 (40) - (5) Interest Expense, Net
Slide 27: Financial – Liquidity
Financial – Liquidity Available Liquidity ($M) FE FES(1) FET FEU FE Corp. Consolidated Revolving Credit Facility $ 500 $ 1,000 $ 4,000 $ 5,000 Short-Term borrowings – (75) – (150) (225) Letters of Credit (LOC) – – – (10) (10) Total Utilization – $ (75) $ (160) $ (235) Available Credit Capacity $ 500
Slide 28: Financial – Parental Guarantees
Financial – Parental Guarantees FirstEnergy Corp. Parent Competitive Regulated Corp/Other $M Expiration $M Expiration $M Expiration Energy-Related & Retail Contracts $5 2017 – – – – Deferred Compensation Arrangements $143 – $182 – $243 – Fuel Related (Rail Settlement) $72 2019 – – – – Other $1 2017
Slide 29: Financial – FE Parental Guarantees / Other Assurances
Financial – FE Parental Guarantees / Other Assurances On behalf of Competitive Energy Services ($M) Unfunded EDCP Energy Contracts Surety Bonds Rail Settlements Secured Credit Total Including Pension OPEB & Other Facility Undrawn Other employee Guarantees / Undrawn revolving Remaining two Amounts As
Slide 30: Financial – Potential Collateral Requirements
Financial – Potential Collateral Requirements ($M) Contractual Obligations for Additional Credit FES AES Regulated FE Corp Total As of June 30, 2017 At Current Credit Rating $6 $2 – – $8 Upon Further Downgrade – – $43 – $43 Surety Bonds(1) $65 $25 $92 $187 $369 Maximum Potential $71 $27 $135 $187 $4
Slide 31: Financial – Consolidated Long-Term Debt Maturities
Financial – Consolidated Long-Term Debt Maturities FE Corp. FEU FET FES AE Supply FEGEN / FENUGEN ($M) 2,400 2,000 1,600 1,200 800 400 0 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 Weighted Avg. Rate of 6.65 4.53 6.15 4.26 3.76 4.13 4.05 4.70 4
Slide 32: Financial – Outstanding Debt by Legal Entity
Financial – Outstanding Debt by Legal Entity ($M) Hold Co. FE At 6/30/2017 Hold Co. Short-term Debt 150 Long-term Debt 7,450 Debt Subtotal 7,600 Discounts (14) Unamortized Issuance Costs (36) Total Balance Sheet Debt 7,550 Utilities Ohio Cleveland Toledo Penn Metropolitan Pennsylvania Jersey Mon Pot
Slide 33: Financial – Credit Ratings
Financial – Credit Ratings (1) Ratings shown for FES and AES reflect Moody’s “Corporate Family Rating” (CFR) which are employed for speculative grade issuers Moody’s Investor Services S&P Global Ratings On May 9, 2017: On May 2, 2017: • Assigned a Baa1 issuer rating to MAIT • Assigned BBB- issuer ra
Slide 34: Financial – Credit Providers
Financial – Credit Providers 26 financial institutions provide ~$6.6B aggregate credit commitment Bank of America JP Morgan Chase ($M) Bank of New York Mellon Keybank Bank of Nova Scotia Lord Abbett Revolving Credit Facilities $5,000 Barclays Bank Mizuho CIBC Morgan Stanley Term Loans 1,450 Citibank