Summary

Brief Company Summary

FirstEnergy Corp (NYSE:FE) is an American holding company that operates in electric utility industry and is involved in the transmission, distribution, and generation of electricity. The company serves over six million customers in the Midwest and Mid-Atlantic regions. FirstEnergy is a holding company with its primary assets being its subsidiaries. Substantially all the businesses are conducted by the subsidiaries as well. FirstEnergy’s 10 regulated distribution companies form one of the nation’s largest investor-owned electric systems. The infrastructure of the company includes 269,000 miles of distribution lines; transmission operations include over 24,000 miles of transmission lines and two regional transmission operation centers. The 10 subsidiaries of the company are Ohio Edison (OE), The Cleveland Electric Illuminating Company (CEI), Toledo Edison (TE), Met-Ed (ME), Penelec, Penn Power (PE), West Penn Power (WP), Jersey Central Power & Light (JCP&L), Mon Power (MP), and Potomac Edison (PE). However, apart from these subsidiaries, the company has more subsidiaries (in some cases under the ownership of other subsidiaries).

The subsidiaries of the company can be broadly classified into two categories - regulated utility operating subsidiaries and regulated transmission operating subsidiaries. The revenue of the company is generated from service provided by the Utilities and Transmission Companies. However, the company has two operating segments - regulated distribution and regulated transmission.

FirstEnergy is listed in the New York Stock Exchange (NYSE) under the symbol FE. As of May, 2023, 52-week price range of the company was $42.29 to $33.76. Trailing P/E of the company is 58.30 times, price to sales ratio is 1.90 times, profit margin is 3.28%, return on assets (ttm) is 2.60%, return on equity is 4.73%. Trailing annual dividend yield of the company as of May, 2023 is 4.43%, payout ratio is 219.72%. Diluted earnings per share for the first quarter of 2023 is $0.51, which was $0.50 for the same quarter a year earlier, total number of shares outstanding on March 31, 2023 is 572,836,882.

Consolidation of Pennsylvania Companies

FirstEnergy is proceeding with the consolidation of the Pennsylvania Companies into FE PA, a new, single operating entity. The PA Consolidation will require, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC, PPUC and FERC, which filings were submitted on March 6, 2023. Subject to receipt of such regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.

Recent Developments

• On March 27, 2023, FirstEnergy announced that the FE Board had appointed Brian X. Tierney to the position of President and Chief Executive Officer, effective as of June 1, 2023. John W. Somerhalder II will cease serving as Interim President and Chief Executive Officer at the conclusion of May 31, 2023, and will continue to serve as the Chair of the FE Board.

Recent Financial Activities

• For the three months ended March 31, 2023 and 2022, capitalized financing costs on FirstEnergy’s Consolidated Statements of Income include $8 million and $13 million, respectively, of allowance for equity funds used during construction and $13 million and $6 million, respectively, of capitalized interest.
• On February 2, 2023, FE along with FET (FirstEnergy Transmission, LLC, the parent company of ATSI, MAIT and TrAIL) entered in FET P&SA II with Brookfield and Brookfield Guarantors where the latter agreed to purchase an additional 30% equity of FET for a purchase price of $3.5 billion, of which $1.75 billion will be in the form of promissory note issuance and the rest is cash.
• On December 13, 2021, FE privately issued to BIP Securities II-B L.P., an affiliate of Blackstone Infrastructure Partners L.P., 25,588,535 shares of FE’s common stock, par value $0.10 per share, at a price of $39.08 per share, representing an investment of $1.0 billion.

Business Overview

FE and its subsidiaries are principally involved in the transmission, distribution, and generation of electricity. The subsidiaries of the company can be divided as regulated utility operating subsidiaries and regulated transmission operating subsidiaries.

Regulated utility operating subsidiaries

The Utilities’ combined service areas encompass approximately 65,000 square miles in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey, and New York. The areas they serve have a combined population of approximately 14 million.

Regulated Transmission Operating Subsidiaries

FE has a subsidiary namely FET (FirstEnergy Transmission, LLC), of which it owns 80.1% and soon will be selling another 30% equity to Brookfield - the other co-owner, through which the company operates all its transmissions. FET is the parent company of ATSI, MAIT, PATH, and TrAIL.

Apart from the utilities company and the transmission companies, FE also has a service company namely FESC. It provides legal, financial, and other corporate support services at cost, in accordance with its cost allocation manual, to affiliated FirstEnergy companies.

Operating Segments

FirstEnergy has two operating segments - regulated distribution segment and regulated transmission segment.

Regulated Distribution

The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York, and purchases power for its POLR, SOS, SSO and default service requirements in Ohio, Pennsylvania, New Jersey, and Maryland. This segment also controls 3,580 MWs of regulated electric generation capacity located primarily in West Virginia and Virginia. The segment's results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.

Regulated Transmission

The Regulated Transmission segment provides transmission infrastructure owned and operated by the Transmission Companies and certain of FirstEnergy's utilities (JCP&L, MP, PE and WP) to transmit electricity from generation sources to distribution facilities. The segment's revenues are primarily derived from forward-looking formula rates. Under forward-looking formula rates, the revenue requirement is updated annually based on a projected rate base and projected costs, which is subject to an annual true-up based on actual rate base and costs. The segment's results also reflect the net transmission expenses related to the delivery of electricity on FirstEnergy's transmission facilities.

Company History