FirstEnergy Corp. 2023 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023, and was filed February 13, 2024. FirstEnergy is a regulated electric utility holding company serving approximately 6.2 million customers across six states, with distribution, transmission and limited regulated generation operations. Its rate base was approximately $27.3 billion.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $12.870 billion | $12.459 billion | +3.3% |
| Operating income | $2.266 billion | $1.910 billion | +$356 million |
| Net income | $1.176 billion | $439 million | +$737 million |
| Earnings attributable to FirstEnergy from continuing operations | $1.123 billion | $406 million | +$717 million |
| Diluted EPS, continuing operations | $1.96 | $0.71 | +$1.25 |
| Operating cash flow | $1.387 billion | $2.683 billion | −$1.296 billion |
| Capital investments (cash-flow statement) | $3.356 billion | $2.848 billion | +$508 million |
- Calculated operating margin was approximately 17.6%, up from 15.3%; calculated net margin attributable to FirstEnergy was approximately 8.6%, versus 3.3%.
- Operating cash flow less capital investments was approximately negative $1.97 billion. Cash flow from operations fell primarily because of a $750 million pension contribution, higher generation energy-purchase payments, return of supplier collateral, timing of transmission collections and milder weather.
- At December 31, cash and cash equivalents were $137 million, restricted cash was $42 million, and short-term borrowings were $775 million. Long-term debt carrying value was approximately $24.254 billion, including current maturities. The filing reports approximately $4.634 billion of available liquidity as of February 5, 2024, including $118 million of cash and available revolving-credit capacity.
- FirstEnergy declared $1.60 per share in dividends in 2023; the quarterly dividend was raised to $0.41 per share. Dividend declarations remain at the board’s discretion.
Material changes versus 2022
- Attributable continuing earnings rose substantially, but the comparison reflects a $752 million deferred-tax charge recorded in 2022 related to the earlier FET minority-interest sale. The 2023 result also included tax benefits and other items; the improvement was not solely from underlying operating growth.
- Regulated Distribution earnings declined $217 million to $740 million, primarily from weather-related lower customer usage, lower pension and OPEB credits, higher interest expense and PEER retirement-program costs.
- Regulated Transmission earnings increased $153 million to $514 million, supported by higher rate base and the absence of certain 2022 audit-related charges and customer-refund reserves.
- Corporate/Other losses narrowed by $781 million to $131 million, principally due to the absence of the prior-year FET-sale deferred-tax charge and lower debt redemption costs, partly offset by investigation-related and other expenses.
- Residential and commercial deliveries fell with mild weather; total actual distribution deliveries decreased 3.3%, while weather-adjusted deliveries increased 0.9%.
- Debt and financing costs increased: short-term borrowings were $775 million versus $100 million at year-end 2022, and 2023 included $3.15 billion of new long-term debt issuance.
Outlook, risks and unusual items
- Investment plan: Energize365 calls for approximately $26 billion of system investment over 2024–2028. Annual capital forecasts are $4.3 billion in 2024, rising to $6.2 billion in 2028. Execution, cost recovery, inflation, labor and supply-chain availability are key risks. Management said it did not then expect supply-chain issues to disrupt service or materially affect the capital plan.
- FET transaction: FirstEnergy agreed to sell Brookfield an additional 30% interest in FET for $3.5 billion, leaving FirstEnergy with 50.1% and Brookfield with 49.9%. At filing, closing was expected by the end of Q1 2024 and remained subject to approvals, including PPUC approval. FirstEnergy expected to retain control and continue consolidating FET. The combined sale of 49.9% was expected to generate an approximately $7.5 billion tax gain, with federal NOLs expected to offset most of it.
- HB 6 matters: The three-year deferred prosecution agreement requires continuing cooperation and compliance obligations; the $230 million penalty was paid in 2021. The company expected the criminal information to be dismissed after full compliance, anticipated in July 2024. The SEC investigation and securities class action were described as probable losses, but no loss estimate or range could be reasonably made. A February 2024 indictment of two former senior officers and a former PUCO chair was disclosed; FirstEnergy recorded no contingency for that matter because management said a loss was not probable or estimable.
- Regulatory exposure: State and federal rate decisions may delay or limit recovery of operating and capital costs. FERC audit issues include possible recovery of reclassified transmission costs and state-level treatment of corporate support costs. Ohio HB 6-related regulatory matters remained stayed at filing, with outcomes uncertain.
- Climate and generation: FirstEnergy removed its 2030 interim emissions-reduction target but retained its Scope 1 carbon-neutrality-by-2050 goal. It identified 2035 and 2040 as the expected end-of-useful-life dates for Fort Martin and Harrison coal plants, respectively; recovery of remaining plant costs and future environmental requirements could affect results.
- Other notable items: FirstEnergy contributed $750 million voluntarily to its pension plan and reported a $137 million fourth-quarter pension and OPEB mark-to-market loss, partly offset by a $36 million pension lift-out gain. Management does not currently expect a required pension contribution until 2028. The company also expects possible significant future charges from facility consolidation and optimization.
Most important facts for investors to verify
- Whether the $3.5 billion FET interest sale closed, the final proceeds mix and use of funds, and the resulting tax and ownership treatment.
- Developments, potential financial exposure and required disclosures in the SEC investigation, securities litigation, OOCIC investigation and remaining HB 6-related regulatory proceedings.
- Cash generation, debt maturities, borrowing costs and available liquidity as the $26 billion investment program scales up.
- Regulatory approval and timing of key rate settlements and filings, including New Jersey and West Virginia rate matters and Ohio ESP V.
- Whether pension assumptions, environmental rules and coal-plant cost recovery materially alter future expenses, cash needs or earnings.