FirstEnergy Corp. · NYSE:FE
FirstEnergy — Q4 2017 Earnings Presentation
31 slides from FirstEnergy's earnings presentation, February 2018
Slide 1: 4Q 2017 Earnings Call
4Q 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 and readers are cautioned not to place undue reliance on these forward- looking statements. These st
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). In addition, Basic Earnings (Loss) Per Share – Operating, calculated on a segment basis, and Regulated operating (non-GAAP) earnings per share are als
Slide 4: Financial Highlights
Financial Highlights 2017 Financial Results ■ Reported 2017 GAAP loss of $3.88 per share and Operating (non-GAAP) earnings* of $3.07 per share – Operating results surpassed original guidance and are near the upper end of revised range – Achieved three straight years of meeting or exceeding the midpo
Slide 5: Financial Highlights (Continued)
Financial Highlights (Continued) Guidance & Strategy Updates ■ $2.5B equity investment positions FE to pursue accelerated growth and infrastructure improvement plans at regulated businesses ■ 2018 regulated operating (non-GAAP) earnings guidance of $2.25 – $2.55 per diluted share* for regulated segm
Slide 6: Regulated Updates
Regulated Updates Transmission Updates ■ Completed initial phase of Energizing the Future program; $4B+ invested over 4 years ■ During second phase, increasing annual investments to $1,000M - $1,200M through 2021 – Continue expansion into eastern part of service territory ■ In December, JCP&L filed
Slide 7: Business Updates (Continued)
Business Updates (Continued) Pleasants Power Station ■ Mon Power and Potomac Edison are evaluating alternatives to address projected capacity shortfall, given outcome of the application to transfer ownership of AE Supply’s Pleasants plant to Mon Power – WV Public Service Commission conditions would
Slide 8: Business Updates (Continued)
Business Updates (Continued) FES ■ Disappointed that efforts at both state and federal levels haven’t resulted in any meaningful legislative or regulatory support ■ Fully impaired FES nuclear assets – Increased likelihood that nuclear plants will not be able to operate until end of their useful live
Slide 9: Financial Summary
Financial Summary Asset Impairment/Plant Exit Costs ■ 4Q 2017 GAAP results include a non-cash asset impairment and plant exit costs of $2.4B, or $3.38 per share, related to the competitive generation fleet – Reduced the carrying value of Pleasants, fully impaired the value of nuclear generating asse
Slide 10: 4Q 2017 Earnings Results
4Q 2017 vs. 4Q 2016 EPS Variance Basic EPS Operating EPS* 4Q 2017 Earnings Results Regulated Distribution Regulated Transmission +$0.17 ($0.04) +$0.23 +$0.01 Quarter-over-Quarter (Basic EPS / Operating EPS*) Competitive Energy Services +$7.85 +$0.04 Corporate / Other ($0.16) +$0.05 ■ Reported 4Q 201
Slide 11: Appendix
Appendix Quarterly Highlights – FE 4Q 2017 Earnings Call February 21, 2018 11
Slide 12: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – 4Q 2017 and 4Q 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 presentation are based on the after-tax effect of each item divided b
Slide 13: 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 presentation are based on the after-tax effect of each item divided
Slide 14: Consolidated GAAP and Special Items
FE Corp. Income Statements – 4Q 2017 and 4Q 2016 Consolidated GAAP and Special Items (In millions, except per share amounts) Quarterly Highlights – FE 4Q 2017 Earnings Call February 21, 2018 14
Slide 15: 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 4Q 2017 Earnings Call February 21, 2018 15
Slide 16: Federal – Tax Reform
Federal – Tax Reform ■ $2.5B equity issuance in January 2018 anticipated impact of tax reform and potential for increased capital investment plans – Strengthens balance sheet and positions FE for sustained investment-grade credit metrics ■ Working with state regulatory commissions to determine appro
Slide 17: Ohio – Ohio Clean Energy Jobs Legislation
Ohio – Ohio Clean Energy Jobs Legislation ■ House Bill 381 (HB 381) introduced on October 11, 2017 Davis-Besse Perry – Bill enhances the prior HB 178 (Zero-Emissions Nuclear Resource (ZEN) Program) introduced on April 10, 2017 – Substitute Senate Bill mirrors the language in HB 381 ■ HB 381 as revis
Slide 18: New Jersey – Regulatory Update
New Jersey – Regulatory Update ■ Consolidated Tax Adjustment (CTA) – In 2014, the New Jersey Board of Public Utilities (BPU) issued an order (Docket No. EO12121072), revising its policy for calculating the CTA: – The time period for the calculation of the savings would look back five years from the
Slide 19: New Jersey – Regulatory Update
New Jersey – Regulatory Update ■ Infrastructure Investment Programs – Status: BPU rule adopted December 19, 2017; Rule takes effect upon subsequent publication in NJ Register – Voluntary Participation: Filed at utility’s discretion, program not to exceed 5 years – Recovery Mechanism: Semi-annual rat
Slide 20: West Virginia – Regulatory Update
West Virginia – Regulatory Update ■ MP issued an RFP in December 2016 to address its capacity shortfall – Sought to satisfy 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 the RFP; fiv
Slide 21: West Virginia – Regulatory Update
West Virginia – Regulatory Update ■ Vegetation Management Surcharge (VMS): – Filed September 1, 2017 – Continued recovery for systematic and regular treatment and control of vegetation along T&D lines to help ensure continued safe and reliable operation of the electrical system – Decrease in VMS rat
Slide 22: MAIT and JCP&L Transmission – Regulatory Update
MAIT and JCP&L Transmission – Regulatory Update ■ On October 13, 2017, MAIT and certain parties filed a settlement agreement with FERC; agreement is pending approval at FERC – Provides for certain changes to MAIT's formula rate template and protocols – Sets ROE to 10.3% through period ending Decembe
Slide 23: Nuclear Facts
Nuclear Facts Perry Davis-Besse Beaver Valley 1 Beaver Valley 2 Owner FES (NG) FES (NG) FES (NG) FES (NG) Licensee FENOC FENOC FENOC FENOC License Expiration 2026 2037 2036 2047 License extension could be requested to allow for operation until 2046 NDT Funding (As of December 31, 2017) ~$550M ~$595M
Slide 24: Financial – Liquidity
Financial – Liquidity Available Liquidity ($M) FE FES(1) FET FEU FE Corp. Consolidated Revolving Credit Facility $ 500 $ 1,000 $ 4,000 $ 5,000 Short-Term borrowings – – – (250) (250) Letters of Credit (LOC) – – – (10) (10) Total Utilization – – $ (260) $ (260) Available Credit Capacity $ 500 $ 1,000
Slide 25: Financial – Parental Guarantees
Financial – Parental Guarantees FirstEnergy Corp. Parent Competitive Regulated Corp/Other $M Expiration $M Expiration $M Expiration Energy-Related & Retail Contracts $7 2022 – – – – Deferred Compensation Arrangements $149 – $189 – $254 – Fuel Related (Rail Settlement) $72 2019 – – – – AE Supply Asse
Slide 26: FE Parental Guarantees / Other Assurances
FE Parental Guarantees / Other Assurances On behalf of FES / FENOC ($M) Near-term liquidity impact expected if FES / FENOC seek bankruptcy protection Unfunded EDCP Surety Bond Energy Contracts Rail Settlements Secured Credit Pension OPEB Support & Other Facility Other employee Remaining two benefits
Slide 27: Financial – Potential Collateral Requirements
Financial – Potential Collateral Requirements ($M) Contractual Obligations for Additional Credit FES AES Regulated FE Corp Total As of December 31, 2017 At Current Credit Rating $4 $1 – – $5 Upon Further Downgrade – – $41 – $41 Surety Bonds(1) $16 $1 $107 $237 $361 Maximum Potential $20 $2 $148 $237
Slide 28: Financial – Consolidated Long-Term Debt Maturities
Financial – Consolidated Long-Term Debt Maturities FE Corp. FEU FET FES AE Supply FEGEN / FENUGEN ($M) 2,400 2,000 1,600 1,200 800 400 0 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 Weighted Avg. Rate of 5.70 6.15 4.26 3.76 4.13 4.05 4.70 4.08 4
Slide 29: Financial – Outstanding Debt by Legal Entity
Financial – Outstanding Debt by Legal Entity ($M) Hold Co. FE At 12/31/2017 Hold Co. Short-term Debt 300 Long-term Debt* 6,800 Debt Subtotal 7,100 Discounts (16) Unamortized Issuance Costs (34) Total Balance Sheet Debt 7,050 Utilities Ohio Cleveland Toledo Penn Metropolitan Pennsylvania Jersey Mon P
Slide 30: Financial – Credit Ratings
Financial – Credit Ratings Corporate Credit Rating (S&P) / Issuer Rating (Moody's) (1) / Senior Secured Senior Unsecured Outlook As of 01/31/2018 Issuer 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- stable
Slide 31: 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