FirstEnergy Corp. · NYSE:FE
FirstEnergy — Q4 2018 Earnings Presentation
36 slides from FirstEnergy's earnings presentation, February 2019
Slide 1: 4Q 2018 Earnings Call
4Q 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. Unless the context requires otherwise, as used herein, references to “we,” “us,” “our,” and “FirstEner
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, Operating earnings (loss) per share by segment, funds from operations and free cash flow. Generally, a non-GAAP fin
Slide 4: 2018 Achievements
2018 Achievements 2018 Recap ■ In January, announced $2.5B equity investment – Reduced holding company debt by $1.45B and contributed $1.25B to pension plan – Eliminates need to issue additional equity outside of employee benefit and stock purchase plans through 2021 ■ In April, reached an agreement
Slide 5: Financial and Business Updates
Financial and Business Updates 2018 Results ■ Reported 2018 GAAP earnings of $1.99 per share ■ Reported 2018 operating (non-GAAP) earnings of $2.59 per share* – Operating results exceeded initial 2018 guidance and were near the top end of revised range – Four consecutive years of meeting or exceedin
Slide 6: Financial and Business Updates (continued)
Financial and Business Updates (continued) DistributionUpdates Distribution Updates ■ In January, the Ohio utilities filed a supplemental settlement addressing the return of tax savings to customers and seeking approval for initial phase of our 3 year, $516M grid modernization program – Broadened su
Slide 7: 4Q 2018 Earnings Results
(GAAP) (Non-GAAP) 4Q 2018 vs. 4Q 2017 EPS Variance Basic EPS Operating EPS* 4Q 2018 Earnings Results Regulated Distribution Regulated Transmission ($0.11) +$0.03 --- --- Quarter-over-Quarter (Basic EPS / Operating EPS*) Corporate / Other +$5.95 ($0.08) FE Consolidated +$5.87 ($0.08) ■ Continue to pr
Slide 8: Financial Updates
Financial Updates Pension/OPEB Overview ■ Beginning in 2011, adopted mark-to-market method for pension and OPEB accounting ■ Net gain or loss is recognized in fourth quarter GAAP results; excluded from operating (non- GAAP) results – Preferred method of accounting under GAAP ■ 2018 mark-to-market ad
Slide 9: FE's Value Proposition
FE’s Value Proposition Ticker: FE A premier customer-focused, pure-play regulated utility Driving sustainable, long-term regulated Improving balance sheet with investment-grade earnings growth and a competitive dividend credit ratings 10 distribution utilities, Proven track record of 6M customers, 6
Slide 10: Appendix
Appendix Quarterly Highlights – FE 4Q 2018 Earnings Call February 20, 2019 10
Slide 11: Reconciliation of GAAP to Operating (Non-GAAP) Earnings
Earnings (Loss) Per Share – 4Q 2018 and 4Q 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 Per Share – 4Q / YTD 2017 vs. Previously Reported 4Q / YTD 2017 Reconciliation of GAAP to Operating (Non-GAAP) Earnings (In millions, except per share amounts) Quarterly Highlights – FE 4Q 2018 Earnings Call February 20, 2019 13
Slide 14: Consolidated GAAP and Special Items
FE Corp. Income Statements – 4Q 2018 and 4Q 2017 Consolidated GAAP and Special Items (In millions, except per share amounts) Quarterly Highlights – FE 4Q 2018 Earnings Call February 20, 2019 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 4Q 2018 Earnings Call February 20, 2019 15
Slide 16: Regulatory Calendar
Regulatory Calendar Jurisdiction Key Dates OHIO • PUCO decision on Grid Mod (DPM) /Tax Reform Settlement (expected)………………….……………………… 1Q/2Q 2019 • Base Rate Case freeze ends……………………………………………………………………….………....................... May 2024 NEW JERSEY • NJ BPU “JCP&L Reliability Plus” infrastructure inve
Slide 17: Federal – Tax Reform
Federal – Tax Reform Jurisdiction Change in Tax Rate Excess Deferred Income Taxes Ohio Hearing complete with broad support Pennsylvania Order to pass on savings to customers Interim rates in effect; Settlement Deferring impact while settlement New Jersey discussions in progress discussions in pr
Slide 18: Maryland – Regulatory Update
Maryland – Regulatory Update ■ On August 24, 2018, PE filed request with the MD PSC for a Distribution base rate increase – PE’s first base rate filing in MD since 1994 (and first as a distribution-only company) – Transmission not included in the base rate filing ■ On October 22, 2018, PE supplement
Slide 19: Pennsylvania – Regulatory Update
Pennsylvania – Regulatory Update ■ Distribution System Improvement Charge Rider (DSIC Rider) – Rider set to zero when new rates implemented on January 27, 2017 – Expected to restart when gross plant balances exceed the amount recovered in base rates and if reported ROE does not exceed the PA PUC pub
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 NJ BPU – Investment would begin after NJ BPU approval, with initial rate effective approximately nine months later – Rate updates to be filed every six months, s
Slide 21: Ohio – Regulatory Update
Ohio – Regulatory Update ■ Tax Reform / Grid Modernization Settlement – Filed on November 9, 2018; Supplemental Stipulation filed January 25, 2019 – Resolves issues related to federal income tax reform and previously filed grid modernization cases – Signatory Parties include PUCO Staff, Industrial C
Slide 22: Ohio – Regulatory Update, cont.
Ohio – Regulatory Update, cont. ■ Distribution Modernization Rider (Rider DMR) Extension – Rider DMR was approved for a three-year period ending December 31, 2019, with a potential two-year extension – Funds to be used, directly or indirectly, in support of grid modernization – A two-year extension
Slide 23: Distribution ROEs
Distribution ROEs 15% 11.9% Stipulated Revenue Requirement 12% 10.5% 10.5% 10.5% 9.6% 9% 6% 11.8% 10.6% 9.6% 9.7% 8.4% 3% 6.4% 6.7% 5.8% 5.3% 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 24: Ohio
Ohio SEET Filing Summary Riders that Recover Incremental Capital Average Spend Between Rate Cases Include Company Net Income ROE 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 25: Pennsylvania
Pennsylvania Last Approved Rate Case Statistics(1) Quarterly Earnings Reports Summary YE 2017 Filed Company Allowed ROE Company Rate Base Debt / Equity ROE Rate Base Debt / Equity PN $1,614M 47.4% / 52.6% PN $1,871M 46.0% / 54.0% 8.44% ME $1,386M 48.8% / 51.2% Settled ME $1,706M 45.8% / 54.2% 9.62%
Slide 26: 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 27: 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 $2,419M 49.5% / 50.5% 9.7% $2,476M 54% / 46% Settled PE-WV PE-WV $368M 47.2% / 52.8% 10.6% (1) Reflects assumed rate bas
Slide 28: 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 $432M 47% / 53% 5.3% Source: Quarterly Report for twelve months ended June 30, 2018 Rid
Slide 29: Financial – Pension/OPEB Overview
Financial – Pension/OPEB Overview ■ FE announced the move to the MTM method of accounting for Pension and OPEB beginning with year- end 2011 reporting – Preferable method under GAAP ■ MTM method allows for Operating (non-GAAP) results to clearly reflect ongoing operational performance and eliminates
Slide 30: Financial – Liquidity
Financial – Liquidity Available Liquidity ($M) FE FET FEU FE Corp. Consolidated Revolving Credit Facility $ 1,000 $ 2,500 $ 3,500 Short-Term Borrowings – – – – Letters of Credit (LOC) – – (10) (10) Total Utilization – $ (10) $ (10) Available Credit Capacity $ 1,000 $ 2,490 $ 3,490 Cash & Cash Equiva
Slide 31: Financial – Potential Collateral Requirements
Financial – Potential Collateral Requirements ($M) Contractual Obligations for Additional Credit AES Regulated FE Corp Total As of December 31, 2018 At Current Credit Rating $1 – – $1 Upon Further Downgrade – $62 – $62 Surety Bonds(1) $1 $59 $246 $306 Maximum Potential $2 $121 $246 $369 (1) Surety B
Slide 32: Financial – Consolidated Long-Term Debt Maturities
Financial – Consolidated Long-Term Debt Maturities FE Corp. FEU FET ($M) 2,000 1,600 1,200 800 400 0 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 Weighted 7.37 4.12 3.00 4.06 4.05 4.70 4.08 4.23 3.85 3.68 4.49 7.38 3.66 6.44 6.15 7.25 5.40 5.07 4.62
Slide 33: Financial – Outstanding Debt by Legal Entity
Financial – Outstanding Debt by Legal Entity ($M) Hold Co. FE At 12/31/2018 Hold Co. Short-term Debt $ 1,250 Long-term Debt 5,850 Debt Subtotal 7,100 Discounts (16) Unamortized Issuance Costs (28) Total Balance Sheet Debt $ 7,056 Utilities Ohio Cleveland Toledo Penn Metropolitan Pennsylvania Jersey
Slide 34: Financial – Credit Ratings
Financial – Credit Ratings Corporate Credit Rating (S&P) / Issuer Rating (Moody's) / Issuer Senior Secured Senior Unsecured Outlook As of 2/19/2019 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- - - - BBB- Baa3 BBB- stable stab
Slide 35: Financial – Credit Providers
Financial – Credit Providers 24 financial institutions provide ~$5.4B aggregate credit commitment Bank of America JP Morgan Chase ($M) Bank of New York Mellon KeyBank Bank of Nova Scotia Mizuho Revolving Credit Facilities $3,500 Barclays Bank Morgan Stanley Term Loans $1,750 CIBC PNC Citibank Royal
Slide 36: Commonly Used Terms & Acronyms
Commonly Used Terms & Acronyms ABO Accumulated Benefit Obligation OVEC Ohio Valley Electric Corporation ADIT Accumulated Deferred Income Taxes PA PUC Pennsylvania Public Utility Commission AFUDC Allowance for Funds Used During Construction PBO Projected Benefit Obligation AMI Advanced Metering Infra