FirstEnergy Corp. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 13, 2023. This is an annual filing, not a standalone fourth-quarter report. FirstEnergy is a regulated electric utility holding company serving approximately 6.2 million customers across six states, with Regulated Distribution and Regulated Transmission as its reportable segments.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $12.459 billion | $11.132 billion | +11.9% |
| Operating income | $1.910 billion | $1.726 billion | +10.7% |
| Net income attributable to FirstEnergy | $406 million | $1.283 billion | −68.4% |
| Diluted EPS attributable to FirstEnergy | $0.71 | $2.35 | −69.8% |
| Net cash from operating activities | $2.683 billion | $2.811 billion | −$128 million |
| Property additions | $2.756 billion | $2.445 billion | +$311 million |
Revenue growth reflected higher generation prices and volumes and increased transmission revenues. The gap between higher operating income and sharply lower net income largely reflects the increase in income tax expense to $1.000 billion from $320 million. The 2022 effective tax rate was 69.5%, including a $752 million deferred tax charge associated with the 2022 sale of a 19.9% FET interest to Brookfield. Debt redemption costs were also $171 million, versus $2 million in 2021.
Operating margin was approximately 15.3% in 2022 versus 15.5% in 2021; net margin attributable to FirstEnergy was approximately 3.3% versus 11.5%. These percentages are calculated from reported revenue and income.
- Regulated Distribution: Net income was $957 million, down $331 million. Drivers included Ohio customer rate credits, higher operating expenses and pension/OPEB effects; higher weather-related usage and investment-rider revenue partly offset the decline.
- Regulated Transmission: Net income was $394 million, down $14 million, reflecting FERC audit-related items and expected customer refunds, partly offset by higher rate base.
- Corporate/Other: Net loss was $912 million, primarily reflecting the $752 million deferred-tax charge associated with the FET transaction and debt redemption expenses.
Cash, debt and liquidity
- Cash and cash equivalents were $160 million at year-end, down from $1.462 billion; restricted cash was $46 million.
- Long-term debt carrying value was $21.6 billion, with $100 million of short-term borrowings. Total reported debt was approximately $21.7 billion, excluding other obligations.
- FirstEnergy reported $4.5 billion of revolving credit commitments and $4.32 billion of total available liquidity, including $224 million cash, as of February 10, 2023. The company said available sources were expected to cover anticipated obligations; borrowers were in compliance with credit-facility covenants at year-end.
- Cash provided by operations was $2.683 billion; property additions were $2.756 billion. Operating cash flow less property additions was approximately negative $73 million, before other investing cash flows.
- Annual common dividends were $1.56 per share, unchanged from 2021; 2022 dividend payments totaled $891 million. Future dividends remain subject to board approval.
Material changes, outlook and risks
- Brookfield/FET: The 19.9% FET interest sale closed May 31, 2022, producing $2.348 billion net cash proceeds. In February 2023, FirstEnergy agreed to sell an additional 30% interest for $3.5 billion—half cash and half an expected promissory note. Brookfield’s ownership would rise to 49.9%; FirstEnergy would retain 50.1% and continue consolidating FET. Closing is expected by early 2024, subject to regulatory and other approvals.
- Investment plan: Forecast capital and capital-like investments are $3.410 billion for 2023, $3.875 billion for 2024 and $4.095 billion for 2025. The company described approximately $18 billion of planned investment for 2021–2025. Regulatory recovery, project execution, inflation and supply-chain constraints are important dependencies.
- Rates and regulation: FirstEnergy expects distribution base-rate cases in Maryland, New Jersey and West Virginia in 2023 and Ohio in 2024. A Pennsylvania utility consolidation is targeted for early 2024, subject to approvals. Ohio rate reductions under an approved stipulation include $60 million in 2023 and $45 million in 2024.
- Legal and governance matters: The three-year federal deferred prosecution agreement (DPA) requires continued cooperation and compliance; the $230 million penalty was paid in 2021. FERC resolved its related investigation with a $3.86 million penalty, paid in January 2023, and two annual compliance reports. The SEC investigation and securities litigation remain unresolved; FirstEnergy said losses were probable but could not reasonably estimate a loss or range. Further adverse outcomes could materially affect finances, liquidity, reputation and regulatory relationships.
- Other unusual items: FERC audit work led to $45 million of expected transmission-customer refunds and $90 million of transmission costs not expected to be recoverable. A further $25 million pre-tax charge was recorded in 2022 related to a proposed transmission-rate settlement.
- Operating and financial risks: Management cited inflation, rising interest rates, longer supply-chain lead times, weather, pension asset volatility, cyber threats, environmental rules and the risk that regulators delay or deny cost recovery. Pension and OPEB plan assets experienced substantial investment losses in 2022; the company does not expect a required pension contribution until 2025, estimated at approximately $250 million under stated assumptions.
- Energy transition: FirstEnergy targets carbon neutrality by 2050 and a 30% reduction in direct operational GHG emissions by 2030 from 2019 levels. It has proposed end-of-life dates of 2035 for Fort Martin and 2040 for Harrison, subject to regulatory processes and cost recovery.
The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2022.
Investor facts to verify
- Progress and final consideration for the proposed additional 30% FET sale, including required approvals, cash proceeds, promissory-note terms and the expected closing timeline.
- Developments in the SEC investigation, securities litigation and Ohio regulatory proceedings, including any estimable exposure, settlements or rate impacts.
- Whether the elevated 2022 tax expense is principally transaction-related and how the expected FET sale and federal NOL utilization affect future cash taxes.
- Delivery of planned capital spending and timely recovery of investment through rates, particularly amid supply-chain and inflation pressures.
- Cash generation, refinancing needs, credit ratings and compliance with debt covenants as interest costs and scheduled maturities evolve.
- Dividend sustainability and the outcome of planned rate cases and Pennsylvania consolidation approvals.