FirstEnergy Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. FirstEnergy is a regulated electric utility holding company serving approximately six million customers across the Midwest and Mid-Atlantic, with distribution and transmission businesses.
Financial results and condition
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $2.989 billion | $2.726 billion |
| Operating income | $559 million | $559 million |
| Net income | $288 million | $335 million |
| Diluted EPS | $0.50 | $0.62 |
| Cash from operations | $355 million | $533 million |
| Property additions | $520 million | $604 million |
- Revenue increased 10%, while operating income was unchanged and net income declined 14%. Higher retail generation and transmission revenues were offset by higher purchased-power and other operating costs, increased interest expense, and the absence of prior-year items.
- Operating cash flow fell $178 million, primarily due to Ohio customer refunds and rate credits, higher operating costs, and the absence of prior-year receivables-related working-capital benefits.
- At March 31, cash and cash equivalents were $283 million, restricted cash was $27 million, and current liabilities were $4.360 billion. Cash and restricted cash together declined from $1.511 billion at year-end, reflecting debt repayment and operating and investing outflows.
- Long-term debt and other long-term obligations were $21.754 billion; current debt payable was $1.055 billion and short-term borrowings were $350 million. The company repaid $1.046 billion of long-term debt and paid a $38 million make-whole premium during the quarter.
- Stockholders’ equity was $8.755 billion. The company declared a quarterly dividend of $0.39 per share.
- At April 18, 2022, reported available liquidity was $4.529 billion, including $4.146 billion of undrawn revolving credit and $383 million of cash. Borrowers were in compliance with credit-facility covenants at quarter-end.
Material changes versus the prior-year quarter
- Distribution and retail generation revenue rose, including a $159 million increase in retail generation sales; transmission revenue increased $50 million. Higher weather-related usage contributed to demand growth.
- Purchased-power expense increased $157 million and other operating expenses increased $68 million. FirstEnergy cited higher market prices, volumes, transmission costs, and lower capitalization of certain costs.
- Q1 2021 included a $109 million Yards Creek sale gain offset by a reduction in deferred storm costs, with no earnings impact. Its absence in 2022 did not itself reduce earnings.
- Regulated Distribution net income fell $48 million, while Regulated Transmission net income rose $16 million, mainly from higher rate base and capitalized financing costs. Corporate/Other net loss widened $15 million.
Outlook, risks, contingencies, and notable items
- Investment and efficiency plans: FirstEnergy described a 2021–2025 investment plan, including approximately $9 billion for distribution and $8 billion for transmission. FE Forward targets approximately $380 million in annualized capital-expenditure efficiencies by 2024 and $250 million of working-capital improvements by 2023; estimated costs to achieve are $150 million through 2023. These are management targets, not guaranteed results.
- Transmission interest sale: Brookfield agreed to buy a 19.9% interest in FirstEnergy Transmission for $2.375 billion. FERC and CFIUS approvals were received after quarter-end; closing was expected at the end of May 2022.
- Ohio customer credits: An approved stipulation includes $96 million of refunds for 2017–2019 and $210 million of future rate reductions, including $80 million in 2022. Refunds began in January 2022 and contributed to lower operating cash flow.
- HB 6 matters: FirstEnergy remains subject to a three-year deferred prosecution agreement, compliance obligations, and continuing government investigations, regulatory audits, and litigation. The $230 million DPA penalty was recognized and paid in 2021. The company says it is probable it will incur losses in the SEC investigation, securities litigation, and FERC investigation, but cannot reasonably estimate amounts.
- A proposed shareholder derivative settlement includes governance changes and a $180 million payment to FirstEnergy from insurance, subject to court approval and less any court-ordered attorneys’ fees. Customer class-action settlements were agreed to in April 2022; a $37.5 million aggregate reserve for those and a related customer case was recorded in Q4 2021.
- Regulatory and environmental exposure: West Virginia utilities sought a $94 million rate increase to address power-cost under-recoveries; approval and timing were uncertain. Proposed environmental projects at two West Virginia plants include $142 million of capital investment and $3 million annual operating costs, subject to approval. Environmental liabilities accrued were approximately $110 million.
- Management cited supply-chain delays, labor and materials constraints, and inflationary cost pressure, but did not then expect service disruptions or a material effect on the capital plan. Other risks include customer arrears, interest rates and access to capital, regulatory outcomes, climate rules, and potential credit-rating changes.
- The filing provides no specific consolidated earnings guidance for 2022. It states that results for the quarter are not necessarily indicative of future results.
Important facts for investors to verify
- Whether the Brookfield transmission-interest sale closed on expected terms and how proceeds were used.
- Developments and potential financial exposure from HB 6-related investigations, litigation, audits, and settlement approvals.
- Regulatory decisions on the West Virginia rate request, Ohio customer reductions, and environmental investment recovery.
- Progress against FE Forward savings and investment targets, alongside actual capital spending and operating cash flow.
- Liquidity, refinancing needs, credit ratings, and covenant compliance given low quarter-end cash and debt repayments.