FirstEnergy Corp. · NYSE:FE
FirstEnergy — Q2 2018 Earnings Presentation
34 slides from FirstEnergy's earnings presentation, August 2018
Slide 1: 2Q 2018 Earnings Call
2Q 2018 Earnings Call Charles E. Jones, President and CEO Steven E. Strah, SVP and CFO
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 based on information currently available to management. Such statements are subject to certain risks and uncertainties and readers are cautioned
Slide 3: Non-GAAP Financial Matters
Non-GAAP Financial Matters This presentation contains references to non-GAAP financial measures including, among others, Operating earnings (loss), Operating earnings (loss) per share and Operating earnings (loss) per share by segment. Generally, a non-GAAP financial measure is a numerical measure o
Slide 4: Financial Highlights
Financial Highlights Guidance Updates ■ Hot weather and strong operational performance led to great second quarter results, which exceeded quarterly guidance provided to the investment community ■ Raised our 2018 GAAP earnings forecast to $3.74 - $4.04 per basic share and currently tracking near the
Slide 5: Business Updates
Business Updates FES Updates ■ On July 31, 2018, FE announced an amendment to the original agreement-in-principle, which now includes the Unsecured Creditor Committee, FES and its subsidiaries, and FENOC – This final, comprehensive settlement defines and quantifies all of FirstEnergy’s obligations w
Slide 6: Business Updates (continued) - Distribution
Business Updates (continued) Distribution Updates ■ Experienced growth in both residential customer count and weather-adjusted usage – 2% increase in Industrial load, marking the eighth consecutive quarter of growth ■ In New Jersey, developed a “JCP&L Reliability Plus” infrastructure investment plan
Slide 7: Business Updates (continued) - Transmission
Business Updates (continued) Transmission Updates ■ In May 2018, FERC approved our settlement agreement for MAIT, with an implementation date of July 1, 2018 ■ Our customer-driven Energizing the Future program is driving significant improvements in performance of our Transmission infrastructure – Si
Slide 8: 2Q 2018 Earnings Results
2Q 2018 vs. 2Q 2017 EPS Variance Basic EPS Operating EPS* 2Q 2018 Earnings Results Regulated Distribution Regulated Transmission +$0.33 +$0.01 +$0.16 +$0.02 Quarter-over-Quarter (Basic EPS / Operating EPS*) Corporate / Other ($0.45) – FE Consolidated ($0.11) +$0.18 ■ Continue to present all operatin
Slide 9: Tax Reform Updates
Tax Reform Updates ■ On January 1, 2018, began deferring the full reduction in taxes resulting from the Tax Cut and Jobs Act (TCJA) in each jurisdiction as a net regulatory liability as we worked through the regulatory process – Began delivering customer savings in New Jersey and Pennsylvania on Apr
Slide 10: Appendix
Appendix Quarterly Highlights – FE 2Q 2018 Earnings Call August 1, 2018 10
Slide 11: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – 2Q 2018 and 2Q 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 and throughout this report are based on the after-tax effect of each item divided by the
Slide 12: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – YTD 2018 and YTD 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 and throughout this report are based on the after-tax effect of each item divided by th
Slide 13: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – 2Q / YTD 2017 vs. Previously Reported 2Q / YTD 2017 Reconciliation of GAAP to Operating (Non-GAAP) Earnings (In millions, except per share amounts) Quarterly Highlights – FE 2Q 2018 Earnings Call August 1, 2018 13
Slide 14: Consolidated GAAP and Special Items
FE Corp. Income Statements – 2Q 2018 and 2Q 2017 Consolidated GAAP and Special Items (In millions, except per share amounts) Quarterly Highlights – FE 2Q 2018 Earnings Call August 1, 2018 14
Slide 15: Consolidated GAAP and Special Items
FE Corp. Income Statements – YTD 2018 and YTD 2017 Consolidated GAAP and Special Items (In millions, except per share amounts) Quarterly Highlights – FE 2Q 2018 Earnings Call August 1, 2018 15
Slide 16: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – 2018 Earnings Guidance Reconciliation of GAAP to Operating (Non-GAAP) Earnings (In millions, except per share amounts) Quarterly Highlights – FE 2Q 2018 Earnings Call August 1, 2018 16
Slide 17: Federal – Tax Reform
Federal – Tax Reform Past Activities Future Activities • Effective January 1, 2018: Ohio Companies established a regulatory liability for the estimated reduction in federal income tax resulting from the TCJA • August 13, 2018: • January 10, 2018: PUCO opened a case to consider the impacts of the TCJ
Slide 18: Federal – Tax Reform
Federal – Tax Reform Past Activities Future Activities • Effective January 1, 2018: MP and PE established a regulatory liability for the estimated reduction in federal income tax resulting from the TCJA • August 2018: • January 3, 2018: WVPSC initiated a proceeding to investigate the effects of the
Slide 19: Pennsylvania – Regulatory Update
Pennsylvania – Regulatory Update ■ Distribution System Improvement Charge Rider (DSIC Rider) – Rider was set to zero when new rates were implemented on January 27, 2017 – Expected to restart when costs exceed the amount recovered in base rates and if reported Return on Equity (ROE) does not exceed t
Slide 20: New Jersey – Regulatory Update
New Jersey – Regulatory Update ■ Infrastructure Investment Program (IIP) – On July 13, 2018, JCP&L filed “JCP&L Reliability Plus” with the NJBPU; approval requested by December 2018 – Spend would begin January 1, 2019, with initial rate effective November 1, 2019 – Rate updates to be filed every 6 m
Slide 21: MAIT – Regulatory Update
MAIT – Regulatory Update ■ On May 21, 2018, FERC approved without condition the settlement agreement that MAIT and certain parties filed on October 13, 2017 – Provides for certain changes to MAIT's formula rate template and protocols – Sets ROE to 10.3% through period ending December 31, 2021, and t
Slide 22: Distribution ROEs
Distribution ROEs 15% 11.9% Stipulated Revenue Requirement 12% 10.5% 10.5% 10.5% 9.6% 9% 6% 11.8% 11.4% 9.9% 9.1% 9.1% 9.1% 8.1% 3% 6.4% 5.6% 4.0% 2.1% 0% OE CEI TE JCP&L PP ME PN WPP MP PE-WV PE-MD Earned ROE Allowed ROE Most Recent Public Filings: OH: Significantly Excessive Earnings Test filed wi
Slide 23: Ohio
Ohio SEET Filing Summary Riders that Recover Incremental Capital Average Company Net Income ROE Spend Between Rate Cases Include Equity OE $126M $1,073M 11.8% Delivery Capital Recovery (DCR) CEI $58M $1,436M 4.0% Recovers return on and of incremental investment since last rate case and associate
Slide 24: Pennsylvania
Pennsylvania Last Approved Rate Case Statistics(1) Quarterly Earnings Reports Summary YE 2017 Filed Company Allowed ROE Rate Base Debt / Equity Company Rate Base Debt / Equity ROE PN $1,614M 47.4% / 52.6% PN $1,643M 46.9% / 53.1% 9.93% ME $1,386M 48.8% / 51.2% Settled ME $1,483M 47.8% / 52.2% 11.83%
Slide 25: New Jersey
New Jersey Last Approved Rate Case Statistics Allowed Company Rate Base Allowed ROE Debt / Equity JCP&L $2,217M 55% / 45% 9.6% Riders that Recover Incremental Capital Spend Between Regulatory Earnings Reports Rate Cases Include Current requirement: None Non-Utility Generation (Rider NGC) IIP R
Slide 26: West Virginia
West Virginia Last Approved Rate Case Statistics(1) Quarterly Earnings Report Summary Allowed Company Rate Base Allowed ROE Company Rate Base Debt / Equity ROE Debt / Equity MP MP $2,326M 51.9% / 48.1% 9.1% $2,476M 53.5% / 46.5% Settled PE-WV PE-WV $359M 48.2% / 51.8% 9.1% (1) Reflects assumed rate
Slide 27: Maryland
Maryland Last Approved Rate Case Statistics Quarterly Earnings Report Summary Rate Base Allowed Rate Base Company Allowed ROE Company Debt / Equity ROE G+T+D Debt / Equity D Only PE-MD $581M 48% / 52% 11.9% PE-MD $451M 48% / 52% 5.6% Source: Quarterly Report for twelve months ended December 31, 2017
Slide 28: Financial – Liquidity
Financial – Liquidity Available Liquidity ($M) FE FET FEU FE Corp. Consolidated Revolving Credit Facility $ 1,000 $ 4,000 $ 5,000 Short-Term Borrowings – (74) (1,590) (1,664) Letters of Credit (LOC) – – (10) (10) Total Utilization – $ (1,674) $ (1,674) Available Credit Capacity $ 1,000 $ 2,326 $ 3,3
Slide 29: Settlement Agreement
Settlement Agreement ■ On April 23, 2018, FE announced an agreement-in-principle with ad hoc groups of key FES creditors representing (1) a majority of all outstanding secured and unsecured funded debt at FES and its subsidiaries and (2) a majority of Bruce Mansfield certificate holders ■ On July 31
Slide 30: Financial – Potential Collateral Requirements
Financial – Potential Collateral Requirements ($M) Contractual Obligations for Additional Credit AES Regulated FE Corp Total As of June 30, 2018 At Current Credit Rating $1 – – $1 Upon Further Downgrade – $56 – $56 Surety Bonds(1) $1 $59 $235 $295 Maximum Potential $2 $115 $235 $352 (1) Surety Bonds
Slide 31: Financial – Consolidated Long-Term Debt Maturities
Financial – Consolidated Long-Term Debt Maturities FE Corp. FEU FET ($M) 2,000 1,600 1,200 800 400 0 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 Weighted 8.83 7.37 5.54 4.06 4.05 4.70 4.08 4.23 3.85 3.68 7.38 3.66 6.44 6.15 7.25 5.40 5.07 4.62
Slide 32: Financial – Outstanding Debt by Legal Entity
Financial – Outstanding Debt by Legal Entity ($M) Hold Co. FE At 6/30/2018 Hold Co. Short-term Debt $ 1,590 Long-term Debt 5,350 Debt Subtotal 6,940 Discounts (16) Unamortized Issuance Costs (29) Total Balance Sheet Debt $ 6,894 Utilities Ohio Cleveland Toledo Penn Metropolitan Pennsylvania Jersey M
Slide 33: Financial – Credit Ratings
Financial – Credit Ratings Corporate Credit Rating (S&P) / Issuer Rating (Moody's) / Issuer Senior Secured Senior Unsecured Outlook As of 07/31/2018 Default (Fitch) S&P Moody's Fitch S&P Moody's Fitch S&P Moody's Fitch S&P Moody's Fitch FirstEnergy Corp. BBB- Baa3 BBB- - - - BB+ Baa3 BBB- positive s
Slide 34: Financial – Credit Providers
Financial – Credit Providers 24 financial institutions provide ~$5.2B aggregate credit commitment Bank of America Ind & Comm Bank of China ($M) Bank of New York Mellon JP Morgan Chase Bank of Nova Scotia KeyBank Revolving Credit Facilities $5,000 Barclays Bank Mizuho CIBC Morgan Stanley Vehicle Leas