FirstEnergy Corp. (FE) Earnings Call Transcript

Hello, and welcome to FirstEnergy Corp.'s Third Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Karen Sagot, Vice President of Investor Relations. Please go ahead, Karen.

Thank you. Good morning, everyone, and welcome to FirstEnergy's Third Quarter 2026 Earnings Review. Our earnings release, presentation and related financial information are available on our website at firstenergycorp.com/ir. Today's discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Actual results could differ materially from forward-looking statements discussed in our news release during today's conference call and in our SEC filings. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statement and discussion of non-GAAP financial measures on Slides 2 and 3 of the presentation. Our Chairman, President and Chief Executive Officer, Brian Tierney, will lead our call today, and he will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. Now it's my pleasure to turn the call over to Brian.

Thank you, Karen, and good morning, everyone. We delivered another strong quarter and remain on track to meet our objectives for the year. Our performance reflects strong capital deployment, financial discipline and an improving customer experience. The team has done a great job executing against our plan to drive continuous improvement while focusing on affordability for our customers. We've also made great progress advancing key regulatory strategies and business opportunities that will fundamentally change the trajectory for FirstEnergy. We continue to see strong interest from data center companies with contracted and pipeline demand up nearly 60% since year-end, including a 90% increase in contracted demand. West Virginia is a big part of that growth, with pipeline demand of approximately 6x to nearly 6 gigawatts. Our proposed Maidsville energy generating facility will be a key investment to support this demand. We expect an order from the West Virginia Public Service Commission in the fourth quarter. Given our confidence level and to protect the schedule, we have reserved the turbines with Siemens for delivery in 2030. All other major contracts are on track to be signed shortly after we receive a commission order. Maidsville is an important project on its own, but we see it as the first of a broader set of opportunities in West Virginia. Last November, I was at our Harrison power station with Governor Morrissey to announce our plans for new generation. He challenged First Energy to do more. My response to the governor was simple, challenge accepted. West Virginia's constructive legislative and regulatory environment are driving economic development, jobs and businesses that will have a long-term positive impact in the state. We are in active negotiations with large load customers about locations within our West Virginia service territory. Those conversations are open and constructive around delivery schedules, pricing, risk mitigation and frameworks for benefits to communities and existing customers. To support these large load customers we've issued a request for proposal for an initial 3 gigawatts of additional combined cycle turbines and we expect to provide an update in early 2027. We are also exploring innovative bridge power options and temporary behind the meter solutions as we build out the grid to support these customers with permanent transmission and generation service. This is a significant opportunity for FirstEnergy. These investments will support the state's goals and create meaningful value for our shareholders. In addition to the opportunities in West Virginia, transmission and distribution remain the foundation of our business and investment strategy. Our transmission system sits at the heart of PJM, a region serving more than 65 million people. Our network connects critical parts of the grid and helps deliver power where it's needed most. The need for transmission investment has never been more important. We need a more flexible and resilient grid to support increasing demand and the economic development taking place in and around our service territory. Across our footprint, we now have 7.9 gigawatts of contracted data center demand. We are in active negotiations with approximately 4 gigawatts of additional load. This demand and the critical infrastructure needed to support a more resilient and reliable regional grid will continue to require increasing transmission investments for the foreseeable future. We expect this to drive at least a 25% increase in our current $19 billion transmission investment plan when we release our updated 5-year plan. We are also seeing measurable progress in our distribution business, particularly in Pennsylvania and New Jersey, where we are investing to improve reliability. Since 2024, our reliability has improved by 11% in Pennsylvania and 40% in New Jersey. This is solid proof that our investment plan is working. I am pleased with our progress and believe that our customers, regulators and policymakers are seeing value from the investments we are making. In the rate cases we have filed, we made the case for investments to meet or exceed our customers' expectations. When we consistently demonstrate the value of our investments for customers, we expect a fair and constructive regulatory outcome. There's more to do, but we are making the right investments, improving performance and delivering tangible value to our customers. We are reaffirming our 2026 core EPS guidance range of $2.62 to $2.82 per share and expect to be at or slightly above the midpoint. We remain on track to deliver core earnings growth near the top end of our 6% to 8% range through 2030 and have meaningful opportunities to increase earnings growth over time. Our experienced leadership team has the expert to execute major projects while making the operational improvements our customers expect. We have the people, capability and commitments to deliver for our customers and shareholders. I'll now turn the call over to Jon to cover our financial performance and the progress we've made on key regulatory priorities. Jon?

Thank you, Brian, and good morning, everyone. Our financial results are on track for the year, and we made solid progress on regulatory and strategic priorities. Let me start with our third quarter results. For the quarter, we reported GAAP earnings of $0.96 per share compared with $0.76 in the third quarter of 2025. Core earnings were $0.98 per share compared with $0.83 a year ago, largely reflecting growth from our rates and investment programs, increasing customer demand, strong financial discipline and a slightly lower effective tax rate. Through the first 9 months of the year, core earnings increased 9% at $2.20 per share compared with $2.02 for the same period last year. Through September, we've deployed $4.9 billion of investments to strengthen our electric system a 23% increase from the same period of 2025. On a trailing 12-month basis, our financial performance resulted in a consolidated 9.5% return on equity, in line with our targeted returns. Strong capital deployment continues to drive rate base growth in line with plan of 9.9% at the first energy level, supported by total transmission rate base growth of 14%, including 21% in our integrated transmission business. We also continue to see encouraging demand trends in our service territory. Total weather-adjusted load increased 1.2% in the third quarter and has been positive in each of the last 4 quarters. This growth is led by the industrial class, which increased 3.3% in the third quarter and 2.1% over the last 12 months. We are seeing broad strength in manufacturing activity, including metals, oil and gas and chemical sectors, along with increasing data center demand. These promising trends give us confidence in the strength and durability of the growth we're seeing across our footprint. As for our financing plan, we completed our subsidiary debt financings for the year, issuing $2.6 billion at an average coupon of 4.7%. Our expected common equity needs in 2026 remain modest, and we continue to consider equity-like instruments to support our long-term financing plan. Going forward, approximately 50% of our total long-term debt financing needs are supported by formula rate mechanisms that recover interest cost, providing meaningful protection from changes in interest rates. Transitioning to regulatory updates where we continue to make good progress. Earlier this month, we submitted several low voltage transmission solutions through PJM's open window process to address near-term reliability needs. We expect projects to be awarded in the first quarter of next year. We've had a solid track record of success in open windows since 2022, with over $5 billion in awarded competitive transmission investments, including joint ventures with other major utilities to develop large complex projects that cross state boundaries. Our track record positions us well to compete for additional investments as growing electricity demand and new generation drive the need for a stronger regional grid. In New Jersey, we fought our base rate case in August, requesting a rate increase of $253 million, which reflects approximately $1 billion in rate base growth since our last increase was approved in February 2024. Those investments are delivering results for our customers. Reliability improved 16% in 2025, followed by another 22% year-over-year improvement through September of this year. We developed a proposal that delays the impact of any rate increase until 2028 and engaged with the Sheryl administration, the Board of Public Utilities and Rate Counsel throughout that process. Our proposal balances the investments necessary to improve reliability with affordability for our customers. Even with the proposed increase associated with these important investments, we expect our rates to remain approximately 18% below the state average for investor-owned utilities. In Maryland, we filed our base rate case in September requesting a revenue increase of $53 million since our last rate increase was approved in October 2023. Hearings are scheduled for January, and we expect an outcome in April of next year. And in West Virginia, we received a regulatory decision on our base rate case with the commission approving our $76 million inflation and investment adjustment filing as submitted. The first rate increase took effect August 1, with a second schedule for June 1, 2027. The order also provides for a stay out through April 2028. We expect the regulatory order on the Maidsville CPCN in the fourth quarter. And as Brian discussed, that project represents another important opportunity for First Energy, and we'll update our 2026 through 2030 financial plan to reflect this investment following an order. As we pursue this opportunity, we remain focused on ensuring that this investment benefits all of our stakeholders. An important part of our approach is to appropriately allocate project and commercial risk to large load offtakers while providing a framework that benefits and protects existing customers. We believe this will create meaningful value for shareholders and will provide the blueprint for future opportunities in West Virginia. Turning to our long-term financial outlook. As we talked about before, our current 5-year $36 billion investment plan will be financed with up to $2 billion of equity or equity-like securities through 2030. We will look to fund the additional investments that Brian talked about, including West Virginia generation and transmission with up to 35% equity or equity-like securities. We're pleased with our results and progress on regulatory matters. Our investment plan provides a solid foundation for continued growth with additional potential beyond it. We'll provide a more comprehensive update with our full 2027 through 2031 capital investment and financial outlook on the fourth quarter earnings call in February, reflecting the incremental transmission investments that Brian highlighted. As we roll forward our plan with incremental investment opportunities, we will continue to maintain the financial discipline and balance sheet strength needed to pursue those investments while delivering value for customers and shareholders. With that, I'll turn the call back over to Brian.

Thanks, Jon. Let me close with 3 points. First, we're executing on our commitments. Our financial performance remains on track, and the investments we're making are producing measurable improvements in reliability and customer service. Second, growing electricity demand is expanding the opportunity across our business. Transmission and distribution remain the foundation of our strategy and an expanding runway for investment needs. In West Virginia, Maidsville and the additional generation opportunities developing behind it, offer another meaningful source of long-term growth. Third, we are pursuing growth with discipline. We will invest where we have a constructive regulatory environment, where existing customers benefit and are protected and where the expected returns create value for shareholders. We have a clear strategy, a compelling opportunity set and the capabilities to execute. Thank you for your continued interest in FirstEnergy. We look forward to seeing many of you at the EEI Conference in a couple of weeks. Now we'll turn the call over for questions.

[Operator Instructions] Our first question is from Nicholas Campanella with Barclays.

Thanks for all the updates on West Virginia. My question is, if you were to kind of go beyond Maidsville here with the 3 gigawatts of additional discussions happening right now, any thoughts on continuing to kind of do that in a rate-based solution or doing that through a Genco structure? How do those kind of returns compare? And would that change the 35% incremental equity needs that you laid out at all?

Yes. Thanks, Nick. So I think the most important thing is for us to get a clean order out of the commission on Maidsville. And that is certainly going to SP541324311 Inform how we think about moving forward in West Virginia. The Genco is absolutely still on the table, and we look at that as an opportunity to protect existing customers yet still serve the new large load customers. So we're still exploring both opportunities there. And if we were to get the additional 3 gigawatts that we're talking about here, that would certainly include additional financing required to finance that.

Yes. Nick, I would say that the discussions that we're having today with off-takers specifically related to Maidsville, there is an openness to fund some of the investment through a surcharge type of mechanism. And we would absolutely expect that to continue with generation investments beyond Maidsville.

And then just a follow-up on the 3 gigs. What type of bridge solutions are you looking for, for behind the meter? Is it like fuel cells or smeller-rice units, if you could talk to that at all? And can you just remind us of the timing of the 3 gigawatts of incremental? Is this kind of layered in to be 32, or is it going to be a little bit further beyond that?

So thanks, Nick. It's going to be beyond that. And so what we're seeing from customers is if they want like a gigawatt type campus they're looking at seeing if they can start with a building that might be about 100 megawatts in the near term. So we're looking at solutions from everything from rice to fuel cells, to batteries, to anything that can get us quicker to power than a long-term natural gas combined cycle solutions. So something that gets the campus up and started and then transitions ultimately to a long-term grid integrated solution.

Our next question is from Jeremy Tonet with JPMorgan.

Just want to dive into the large loan pipeline as you laid out there, and it seems like the opportunity set in West Virginia moved up a bunch quarter-over-quarter. And I was wondering if you could talk about that a bit more. And it looks like at the same time, Maryland and New Jersey contracted a little. So just wondering how you see trends developing by state here? .

Yes. So I think you kind of got it. Maryland, Ohio, Pennsylvania, West Virginia, we're seeing sort of broad interest across the system. And it's real, like we're talking to these customers and people are saying, does it end at 2030, 2031? The answer is it doesn't. We're seeing it continue beyond that. And the 2030-2031 is what I'd say, the first wave, but the people who are serious, the large customers that you might think of the hyperscalers, the legitimate developers are looking well beyond that, and they're doing so across our service territory. So I was out visiting the what used to be called Quantum Loophole. I think they now call it the Catella site outside of Frederic, Maryland. We had our Board strategy meeting in Frederic this year. I was out there 3 years ago, and it was dirt, and now there's multiple buildings up and running and construction continues as they continue to build out that facility. So the idea that this stops at 2030, 2031, just is incredible to us. And the people who are serious about this development are talking well beyond that.

Got it. That's very helpful. And as we think about the transmission additions that could come into the plan here, could you remind me, I guess, how much of the capital plan gross versus net with partners out there. And just wondering if you could talk a bit more, I guess, on competitive processes out there and what potential upside that could bring.

Okay. Jeremy, I'll take the first part of that. If you look at our total transmission business, which would include the stand-alone transmission business plus the transmission in our integrated segment, our partners, our external partners interest in -- that business is about 30% of that total transmission business, which I would expect to generally stay the same as we roll forward the new plan. So the 25% increase that we're talking about would have the exact impact, the same impact on our owned rate base as we move the plan board. So it's a significant driver. And if you actually did the math and rolled the plan forward, you would see a pretty significant increase in our own rate base in 2031 versus what we have in 2030. So it's a material adjustment for the company.

And then, Jeremy, you talked about the competitive process. As Jon mentioned that, in the last few years, we've got about $5 billion worth of awarded projects through the PJM competitive process. I think this year, it might be smaller than what we've seen in the prior years because they were looking for short-term solutions out to 5 years. So I think they're going to be lower voltage, more localized type projects. But that means when they come back out next year for the longer-term solutions, we're going to have big opportunities once again. So I think this thing is just going to continue. And the idea that you have an open window and it goes away, isn't real. I think these open windows are going to continue for the foreseeable future as we're seeing load growth driven by large load customers across the PJM footprint, I see this as far as I can look out continuing.

Our next question is from Michael Sullivan with Wolfe Research.

I wanted to ask a little more on the -- Brian, I wanted to just ask, Jon, a little more on the financing plan and maybe how you think about the split between equity and equity-like and just as you get ready to roll the plan forward and those needs potentially go up how you're thinking about getting going on equity issuance?

Yes. I mean I think we are open to equity-like instruments. You've seen us execute those types of transactions in the past. But I think for the time being, we've talked about common equity being 1% of market cap on an annual basis. I think that's kind of where we'll be for the foreseeable future. But we'll talk more about that as we roll forward the plan in February of next year. But that's generally how we think about it. We would explore those options. We've done that before, so we're used to that. But we'll provide those details in February. .