FirstEnergy Corp. (FE) Earnings Call Transcript & Summary

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

Thank you. Good morning, everyone, and welcome to FirstEnergy's Second 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. Factors discussed in our earnings news release during today's conference call and in our SEC filings, could cause our actual results to differ materially from these forward-looking statements. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statements 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 have made significant progress in key strategic and regulatory priorities and are executing well against our 2026 plan. I'm excited to share with you today the strides we have made and the opportunities we are pursuing. We delivered another quarter of solid financial and operational performance. We are reaffirming our 2026 $6 billion capital investment plan and our core earnings guidance range of $2.62 per share to $2.82. Jon will take you through the second quarter details later in the call. We are also reaffirming our $36 billion 5-year capital investment land and our core earnings growth near the top end of 6% to 8% through 2030 with meaningful upside opportunities that I'll describe later. Our performance reflects strong execution and financial discipline, a fundamental change in how we operate, how we adapt, how we invest and how we serve our customers. We're executing across every part of our business. We're advancing constructive regulatory outcomes within our footprint, deploying customer-focused capital at a record pace and delivering the financial performance we expected through the first half of the year. This performance is important, not only because it demonstrates disciplined execution, but also positions us to capture future growth opportunities that can meaningfully expand FirstEnergy's long-term earnings growth. And that's where the story becomes even more compelling. We're now focused on both executing today's plan and creating pathways that have the potential to strengthen it. Perhaps the clearest example is the demand we're seeing from data centers. Across our system, total forecasted data center demand has increased 30% since the first quarter to approximately 25 gigawatts and during the second quarter alone, we contracted an additional 2.1 gigawatts, bringing our total contracted demand to 6.4 gigawatts. We expect an additional 1.5 gigawatts to enter into contracts in the next couple of weeks. For perspective, our contracted and pipeline demand now represents approximately 70% of our July system peak load of 34.8 gigawatts. That illustrates both the scale of the opportunity ahead and the confidence customers have in FirstEnergy as a long-term partner. And we are seeing even more compelling opportunity emerge in West Virginia. We are making significant progress toward approval of the 1.2 gigawatt Maidsville Energy Center. But what excites me most isn't [indiscernible] 1 project, it's what that project represents. Today, we have 4.3 gigawatts of contracted and pipeline data center demand in West Virginia, and we expect that to increase by the end of the year. As the demand continues to develop, we believe FirstEnergy is uniquely positioned to provide the generation needed to support that growth, creating significant opportunities for additional investment while supporting economic development across the state. We're evaluating the right structure to support that future growth, including the potential for structures that would allow Mon Power or Potomac Edison West Virginia to enter into a wholesale power agreement with an affiliated generation company. Whether in a regulated vehicle or Genco, our principles remain unchanged. We want to bring new generation online faster, protect and create value for existing customers, support economic growth and deliver appropriate market-based returns for those investing in our company. We are in the process of developing an RFP for the major equipment needed to support the next generation plant, and we've started the site selection process. We plan to give you more insight into the timing of the next generation plant later this year. We are making progress in other jurisdictions as well. Ohio's new regulatory framework is constructive as demonstrated by a recent 3-year rate plan settlement and [indiscernible] utility. The framework enhances transparency for customers, regulators and other stakeholders. It also gives us greater visibility into future financial performance through a 3-year forward-looking test year with annual true-ups enabling more effective planning and investment to address evolving system needs. Our 3-year rate plan filing is on track with the staff report due by November 30 and hearing scheduled to begin March 1. The with an order anticipated on time in the second quarter of 2027. In New Jersey, we are working collaboratively with the governor's office, regulators and local stakeholders and are encouraged by the ongoing engagement. We plan on making a base rate case filing this quarter and have held prefiling meetings with administration and BPU staff. We remain focused on making investments to enhance reliability and deliver long-term value for our customers and communities as they have demanded and we have committed. In West Virginia, the state understands the meaningful opportunity for the economic development in front of them, and they appreciate the importance of reliable energy to drive growth. We are committed to supporting the needs of the state and our customers and are excited about the incremental investments. Our Transmission business represents a significant growth driver with a 16% compound annual growth rate through 2030 in the current plan. As a long-standing investment priority, it continues to offer meaningful expansion potential beyond the current plan through organic investment needs, competitive development projects and data center demand. When you look across our portfolio, we have created a breadth of growth opportunities. We are building optionality into the business, creating avenues for growth that strengthen our current plan and position FirstEnergy to capitalize on the changing energy landscape. I'll now hand it over to Jon, who will walk us through our financial results and provide details on key regulatory updates.

Thank you, Brian, and good morning, everyone. We continue to make strong progress across key areas of the business, laying a solid foundation for long-term growth and value creation. We are pleased with our performance, which is in line with our plan for the second quarter and year-to-date periods. For the second quarter, we reported GAAP earnings of $0.50 per share compared with $0.46 in the second quarter of 2025. Core earnings for Q2 were $0.50 per share compared with $0.52 a year ago. Again, in line with our plan and our communication on the Q1 call in terms of the timing of earnings growth for the year. For the first 6 months of the year, we reported core earnings of $1.22 per share compared to $1.19 and for the same period a year ago. Our financial performance reflects execution of our regulated strategies with returns on our customer-focused formula rate investment programs, partially offset by the timing of operating expenses which were planned to be slightly higher as compared to the same period of last year. Our capital investment program remains a significant driver of our financial performance and long-term growth. Of the $6 billion planned for 2026, the company deployed $2.9 billion through the first half of the year, representing a 19% increase versus 2025. On a trailing 12-month basis, our financial performance resulted in a consolidated return on equity of 9.5%, in line with our targeted returns. Turning quickly to demand. Total customer load increased approximately 2% in the quarter on a weather-adjusted basis with industrial load increasing over 4% with growth across most sectors, but especially in metals, oil and gas and chemicals, reflecting strengthening order activity and tailwinds from the AI and data center infrastructure build-out. The activity across our industrial customer base, combined with growing demand from data center customers provides another encouraging indicator of the growth we're seeing throughout our service territory. We're also advancing key regulatory strategies. In West Virginia, we expect an order for new rates [indiscernible] month in, which would result in a cumulative revenue increase of $76 million, with the first $38 million increase on August 1 and a second similar increase on June 1 of next year. Also in West Virginia, hearings on our CPCN application for the 1.2 gigawatt Maidsville Energy Center took place earlier this month. Our team presented a strong case, and we look forward to a resolution which we expect this fall. We anticipate a large portion, if not all, the output of this facility to support data center load and are working on a fully bundled service agreement for a data center customer that would be filed with the West Virginia Public Service Commission. The agreement is expected to include significant protections and long-term benefit sharing for existing West Virginia customers. We're also making good progress on the contracts for the EPC, OEM equipment and fuel lateral associated with the investment and expect to be in a position to sign those contracts as soon as we receive an order. Once the CPCN is approved, we will update our long-term plans and share that with the investment community. Importantly, we view Maidsville as the beginning of a broader generation investment opportunity in West Virginia. The depth and continued growth of our data center pipeline and the types of discussions we're having with these customers give us increasing visibility into future investments to provide generation service to these customers. In Ohio, our application for a 3-year rate plan was accepted. Recall that our plan included capital investments of $2.5 billion to strengthen reliability and resiliency. As Brian said, the staff report is due November 30 with hearings scheduled to begin March 1 of next year. In Maryland and New Jersey, we expect to file base rate cases in the third quarter. We've maintained an open and constructive dialogue with Governor Sherrill's Administration and the New Jersey Board of Public Utilities regarding our planned filing. Our proposal will be consistent with the objectives of the governor's executive order 1 including an approach designed to mitigate the initial impact on customer bills. We believe this will be a beneficial outcome for our customers and for JCP&L. Taken together, these filings represent an important part of executing our regulated investment strategy and supporting the continued recovery of capital deployed across our diverse territories. We feel good about these upcoming proceedings, the preparation, the outreach and our ability to execute. Turning to transmission. We continue to see incremental investment opportunities from data center demand, and we plan to participate in the 2026 PJM open window process, which opened last week. The PJM Board is scheduled to award projects in the first quarter of 2027. As we've demonstrated through our success in [ prior ] competitive solicitations, our sales planning expertise and strategic location within PJM position us well to compete for these opportunities which we believe will expand in future open windows. In closing, we're very pleased with the progress this year in terms of execution on our financial and regulatory plans, and we continue to see opportunities to increase the investment and earnings trajectory of the company. And as we've always believed, our diversity is a significant strength, giving us flexibility to adjust our capital deployment plans as regulatory environments and investment opportunities evolve. We remain focused on delivering sustainable value for our customers and shareholders. With that, I'll turn the call back over to Brian.

Thanks, Jon. Let me close by putting today's discussion into perspective. Several years ago, we made a series of deliberate choices about the company FirstEnergy needed to become. We put greater accountability into the business. We changed how we invest and operate and we moved closer to our customers and the communities we serve. Today, we are seeing the results and building a stronger company. That is changing what's possible for FirstEnergy. Our existing plan already provides a compelling value proposition with above-industry average organic earnings growth, minimal equity requirements and significant investment opportunities across our regulated businesses. We have avenues for growth today that simply didn't exist at this scale years ago, and we're approaching them from a position of strength with the capabilities to meet growing customer demand, while planning for the investments needed to serve that growth. We are executing on our plan, advancing key regulatory strategies, and we are capitalizing on investment opportunities to increase earnings growth. We're building a company that not only delivers the reliability our customers depend on, but also execute on the once-in-a-generation growth opportunities that are reshaping our region. I couldn't be more excited about the future we're creating. Thank you for your continued interest in FirstEnergy. I will now open the call to Q&A.

[Operator Instructions] And our first question comes from the line of Shahriar Pourreza with Wells Fargo.

So Brian, just on the West Virginia data center pipeline you highlighted. Obviously, there's 3.5 gigs expected to be contracted between 2031 and 2035, which will likely grow over time. Can you just maybe talk about sort of the open capacity on the transmission system in West Virginia? And what could be the incremental investment opportunity there. So do you have to build roughly one-for-one on the generation side for every megawatt of new demand you bring on? And then maybe just some quickly on timing and cadence of the builds.

In the near term, we have some capacity. So if someone wants to add, say, a gigawatt of capacity we have the opportunity for people early in the queue to add maybe 100 or 200 megawatts in the near term and then the opportunity to build into remaining 900 or 800 [ megawatts ] that we have. So there is existing capacity for people who are in that queue and we've contracted with. And then in the later years, we have the opportunity to build out to meet that need. As we talked about before, we think there's, on average, about $250 million of investment for each gigawatt of capacity that we add, and that's in play here as well.

Got it. Okay. That's perfect. And then, Brian, just in terms of the New Jersey rate case filing, I mean do you anticipate the BPU will implement any of the executive order 1 business review recommendations like capital spending scrutiny, especially if the state considers changes to the cost of capital in the near term with like PBRs and multiyear rates, kind of more of a longer-dated opportunity. I mean, I guess, New Jersey seems to be getting worse, not better. So just how are you thinking about that? And then why file now?

Yes. So. We don't anticipate trouble in New Jersey in this filing. I think we found the commission there and the administration to be much more collaborative than prior rhetoric might have led people to believe. And the first part of the study that came out in New Jersey was kind of a menu of things that are available to the commission and they're asking for comments on that in Phase II. And I just think that whether they do some form of market -- performance-based rate making or something like that. We don't view it's going to be not constructive in New Jersey. I think some of the important things to think about, particularly in New Jersey, in the last rate case that we had there, the big issue for us was reliability. And there was the demand by interveners in that case that we invest in reliability in the state and we've been actively doing that, focused on the 18th worst-performing circuits. And what we've done there since is working. So from '24 to '25, we increased reliability by 16%. And then year-to-date, '25 over '26, we've increased reliability by 38%. So the constructs that New Jersey has are working to deliver affordability and reliability, and we anticipate that, that will continue in this rate case. And the reason we're going back in is we've just invested so much in that reliability, again, which is working that we need to go and to get recovery for that.

And our next question comes from the line of Nicholas Campanella with Barclays.

Good morning. Thanks for the updates. Maybe just -- it sounds like you're looking at different structures to -- you're exploring different structures to facilitate the West Virginia demand? And can you talk about what the regulatory process would be and how that could differ from the current CPCN process you're progressing to the first gigawatt, let's say, if you are kind of serving a Genco type structure for the next? How could that be different at the regulator.

Yes. Thanks for that, Nick. I think we could probably go around a large portion of the CPCN type filing. So if we created a Genco, that would obviously require, I think, FERC approval to sell at wholesale. But then the contract between the Genco and Mon Power, for instance, would need to be approved by the West Virginia Public Service Commission. But I think that process would be considerably faster than the traditional CPCN process, and that would be a benefit to getting speed to power quicker.

Okay. And then just on the RFP for the next part of the generation, kind of a similar question, but just -- how long do you expect that process to take? And based on how that outcome looks like, how can your [ economics to ] serve this change, whether it's kind of behind the meter or otherwise?

Yes. So thanks for that, Nick. Obviously, we're beginning that process before we've concluded the current process for the existing generation to try and get ahead of that. And we think that's prudent given the contracting load that we have in West Virginia and the fact that we're the certificated utility to serve that load. So I think given what we've learned in the last process, we'll be able to move as quick or quicker on this RFP process, and that will benefit again speed the power and getting this done as quickly as we possibly can to get this load fired up as quickly as we can with new generation and to the degree we needed new transmission. But we're working like crazy to get in front of this and to, again, have speed to power as quickly as possible for the data center load that we have and for the economic development that we're experiencing in West Virginia.

[Audio Gap] The state here. And I guess, to the extent you're able to comment on the depth of your conversations, I mean, just looking through the report for the BPU, there's a lot on the menu as you said, but there's items that is looking at what happened in Connecticut, taking down the ROE there talking about that. I'm just wondering, how these all factors together as far as thinking about filing in the state right now?

So Jeremy, I think of Phase 1 of the report is kind of a menu. There were a lot of things laid out there, some of which are constructive and we agree with, others of which we think would not be conducive to a good regulatory outcome. And we're going to have the opportunity to comment on those. But really, it's a menu of sort of all of the above what's been looked at in other states, what's worked, what hasn't. And I think the important thing is we have the opportunity to comment on that. We've also seen what have happened in other states and want to make darn sure we're not surprising and administration or a commission when we come out with a filing. So the level of engagement and collaboration there has been high, I would say. Nobody is going to be surprised. They're going to be expecting when we come in the door. We've had our prefiling meetings and those things have been constructive and well received. So I think at the end of the day, the big part is, the last rate case, it was you need to invest more in New Jersey to improve reliability, and we've done that, and it's working.

Got it. And then maybe pivoting over to Slide 5 there, talking about the data center overview. And I was just curious if you could talk a bit more, I guess, on the contracted portfolio stepping up a lot quarter-over-quarter. If you could talk a bit more, I guess, on the drivers as far as why now the conversions and how you see, I guess, that pace of that trajectory going forward?

Yes. So Jeremy, I think there's a sense of urgency on both the data centers, developers and the hyperscalers as well as the utilities to get contracted as quickly as possible so that, that load comes into the PJM planning process from a transmission standpoint and if necessary, can be included in the PJM RTEP process as needed. And that's kind of viewed as being a bottleneck for getting this load online as quickly as possible. So there's a sense of urgency by everyone to get contracted as quickly as possible to get into that process as quickly as possible. And that's why you're seeing the number of conversions you are from pipeline to contracted.

And our next question comes from the line of Carly Davenport from Goldman Sachs.

Maybe just to start on West Virginia. Maybe could you talk a bit just about the CPCN process for the Maidsville Energy Center. Just kind of how you thought the hearings went particularly on sort of the debate between gas and coal? And just how do you sort of characterize your confidence there on getting those approvals across the finish side in the second half of the year.

Yes. I think the hearings went very well. I think our witnesses laid out very well the need for the plant Remember, the expedited schedule that we requested was granted. So I think there's some urgency on the state of the -- on the part of the commission to get this properly vetted, properly looked at and properly ordered on. I think some of the opposition that we saw from the coal is not unexpected in the state of West Virginia. But this plant isn't going to replace coal plants that we have in the state, it's going to be added to them. And I think that's more apparent than ever that we don't need to be retiring plants. We need to be adding plants. And I think that's understood in West Virginia. We have a very supportive executive in the state of West Virginia. I think a commission that understands that new generation needs to be brought online to enable the economic development in the state. And I think we'll get a positive order on the CPCN in the near term.

That's great. Very clear. And then on the PJM open window opportunity that you've highlighted, any visibility or sort of guardrails you could put around the magnitude of proposals that you might put forth by that September deadline?

No. I think we're in the process of working through that right now. But remember, we've been very successful in the prior open windows, securing about $5 billion of the opportunities that have been presented there. And given where we are, both geographically and what our experience and expertise and transmission is, I think we are well positioned to get some success in this open window. And I just see these open windows continuing for the foreseeable future given the pipeline that we have and the contracted load that we have. I just think this process is going to be a significant opportunity for us going forward as it has in the past.

And our next question comes from the line of Andrew Weisel with Scotiabank.