FirstEnergy Corp - Third Quarter 2026 Earnings Call - FIRSTENERGY CORP

Hello, and welcome to First Energy Corp's Third Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Karen Saget, Vice President of Investor Relations. Please go ahead, Karen. Thank you. Good morning, everyone, and well done. Welcome to First Energies' Third Quarter2026 Earnings Review. Our earnings release, presentation, and related financial information are available on our website at firstenergycorp.com slash IR. Today's discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Actual results could differ materially from forward- looking statements discussed in our news release, during today's conference call, and in our SEC filings. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-'GAAP financial measures please read our cautionary statement and discussion of non-gap financial measures on slides two and three of the presentation our chairman president and chief executive officer brian tierney will lead our call today and he will be joined by john 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 delivered another strong quarter and remain on track to meet our objectives for the year. Our performance reflects strong capital deployment, financial discipline, and an improving customer experience. The team has done a great job executing against our plan to drive continuous improvement while focusing on affordability for our customers. We've also made great progress advancing key regulatory strategies and business opportunities that will fundamentally change the trajectory for First Energy. We We continue to see strong interest from data center companies, with contracted and pipeline demand up nearly 60% since year end, including a 90% increase in contracted demand. West Virginia is a big part of that growth, with pipeline demand up approximately six times to nearly six gigawatts. Our proposed Maidsville energy generating facility will be a key investment to support this demand. We expect an order from the West Virginia Public Service Commission in the fourth quarter. Given our confidence level and to protect the schedule, we have reserved the turbines with Siemens for delivery in 2030. All other major contracts are on track to be signed shortly after we receive a commission order. Maidsville is an important project on its own, but we see it as the first of a broader set of opportunities in West Virginia. Last November, I was at our Harrison power station with Governor Morrissey to announce our plans for new generation. He challenged First Energy to do more. My response to the governor was simple, challenge accepted. West Virginia's constructive legislative and regulatory environment are driving economic development, jobs, and businesses that will have a long-term positive impact in the state. We are in active negotiations with large load customers about locations within our West Virginia service territory. Those conversations are open and constructive around delivery schedules, pricing, risk mitigation, and frameworks for benefits to communities and existing customers. To support these large load customer, we've issued a request for proposal for an initial three gigawatts of additional combined cycle turbines, and we expect to provide an update in early 2027. We are also exploring innovative bridge power options and temporary behind-the-meter solutions as we build out the grid to support these customers with permanent transmission and generation service. This is a significant opportunity for First Energy. investments will support the state's goals and create meaningful value for our shareholders. In addition to the opportunities in West Virginia, transmission and distribution remain the foundation of our business and investment strategy. Our transmission system sits at the heart of PJM, a region serving more than 65 million people. Our network connects critical parts of the grid and helps deliver power where it's needed most the need for transmission investment has never been more important we need a more flexible and resilient grid to support increasing demand and the economic development taking place in and around our service territory across our footprint we now have 7.9 gigawatts of contracted data center demand we are in active negotiations with approximately four gigawatts of additional load this demand and the critical infrastructure needed to support a more resilient and reliable regional grid will continue to require increasing transmission investments for the foreseeable future we expect this to drive at least a 25 percent increase in our current 19 billion dollar transmission investment plan when we release our updated five-year plan. We are also seeing measurable progress in our distribution business, particularly in Pennsylvania and New Jersey, where we are investing to improve reliability. Since 2024, our reliability has improved by 11% in Pennsylvania and 40% in New Jersey. This is solid proof that our investment plan is working. I am pleased with our progress and believe that our customers, regulators, and policymakers are seeing value from the investments we are making. In the rate cases we have filed, we made the case for investments to meet or exceed our customers' expectations. When we consistently demonstrate the value of our investments for customers, we expect a fair and constructive regulatory outcome. There's more to do, but we are making the right investments, improving performance, and delivering tangible value to our customers. We are reaffirming our 2026 core EPS guidance range of $2.62 to $2 and 82 cents per share and expect to be at or slightly above the midpoint. We remain on track to deliver core earnings growth near the top end of our six to 8% range through 2030 and have meaningful opportunities to increase earnings growth over time. Our experienced leadership team has the expert to execute major projects while making the operational improvement our customers expect. We have the people, capability, and commitments to deliver for our customers and shareholders. I'll now turn the call over to John to cover our financial performance and the progress we've made on key regulatory priorities. Thank you, Brian, and good morning, everyone. Our financial results are on track for the year, and we've made solid progress on regulatory and strategic priorities. Let me start with our third quarter results. For the quarter, we reported gap earnings of 96 cents per share, compared with 76 cents in the third quarter of 2025. Core earnings were 98 cents per share compared with 83 cents a year ago, largely reflecting growth from our rates and investment programs, increasing customer demand, strong financial discipline, and a slightly lower effective tax rate. Through the first nine months of the year, core earnings increased 9% at $2.20 per share compared with $2 and 2 cents for the same period last year. Through September, we've deployed $4.9 billion of investments to strengthen our electric system, a 23% increase from the same period of 2025. On a trailing 12-month basis, our financial performance resulted in a consolidated 9.5% return on equity in line with our targeted returns. Strong capital deployment continues to drive rate-based growth in line with plan of 9.9% at the first energy level, supported by total transmission rate-base growth of 14%, including 21% in our integrated transmission business. We also continue to see encouraging demand trends in our service territory. Total weather-adjusted load increased 1.2% in the third quarter and has been positive in each of the last four quarters. This growth is led by the industrial class, which increased 3.3 percent in the third quarter and 2.1 percent over the last 12 months. We are seeing broad strength in manufacturing activity, including metals, oil and gas, and chemical sectors, along with increasing data center demand. These promising trends give us confidence in the strength and durability of the growth we're seeing across our footprint. As for our financing plan, we've completed our subsidiary debt financings for the year issuing 2.6 billion dollars at an average coupon of 4.7 our expected common equity needs in 2026 remain modest and we continue to consider equity-like instruments to support our long-term financing plan going forward approximately 50 of our total long- term debt financing needs are supported by formula rate mechanisms that recover interest costs providing meaningful protection from changes in interest rates transitioning to regulatory updates where we continue to make good progress earlier this month we submitted several low voltage transmission solutions through pgm's open window process to address near-term reliability needs we expect projects to be awarded in the first quarter of next year we've had a solid track record of success in open windows since 2022 with over five billion dollars in awarded competitive transmission investments including joint ventures with other major utilities to develop large complex projects that cross state boundaries our track record positions us well to compete for additional investments as growing electricity demand and new generations drive the need for a stronger regional grid. In New Jersey, we filed our base rate case in August, requesting a rate increase of $253 million, which reflects approximately $1 billion in rate-based growth since our last increase was approved in February 2024. Those investments are delivering results for our customers. Reliability improved 16% in 2025, followed by another 22% year-over-year improvement through September of this year. We developed a proposal that delays the impact of any rate increase until 2028 and engaged with the Sherrill administration, the Board of Public Utilities, and Rate Council throughout that process. Our proposal balances the investments necessary to improve reliability with affordability for our customers. Even with the proposed increase associated with these important investments, we expect our rates to remain approximately 18 percent below the state average for investor-owned utilities in maryland we filed our base rate case in september requesting a revenue increase of 53 million dollars since our last rate increase was approved in october 2023 hearings are scheduled for january and we expect an outcome in april next year and in west virginia we received a regulatory decision on our base rate case with the commission approving our 76 million dollar inflation and investment adjustment filing as submitted the first rate increase took effect august 1st with a second schedule for june 1st 2027 the order also provides for a stay out through april 2028 we expect a regulatory order on the maysville cpcn in the fourth quarter and as brian discussed that project represents another important opportunity for first energy and we'll update our 2026 through 2030 financial plan to reflect this investment following an order as we pursue this opportunity we remain focused on ensuring that this investment benefits all of our stakeholders an important part of our approach is to appropriately allocate project and commercial risk to large load off takers while providing a framework that benefits and protects existing customers we believe this will create meaningful value for shareholders and will provide the a blueprint for future opportunities in West Virginia. Turning to our long-term financial outlook, as we talked about before, our current five-year $36 billion investment plan will be financed with up to $2 billion of equity or equity-like securities through 2030. We will look to fund the additional investments that Brian talked about, including West Virginia generation and transmission with up to 35% equity or equity-like securities. We're pleased with our results and progress on regulatory matters. Our investment plan provides a solid foundation for continued growth with additional potential beyond it. We'll provide a more comprehensive update with our full 2027 through 2031 capital investment and financial outlook on the fourth quarter earnings call in February, reflecting the incremental transmission investments that Brian highlighted. As we roll forward our plan with incremental investment opportunities, we will continue to maintain the financial discipline and balance sheet strength needed to pursue those investments while delivering value for customers and shareholders. With that, I'll turn the call back over to Brian. Thanks, John. Let me close with three points. First, we're executing on our commitments. Our financial performance remains on track, and the investments we're making are producing measurable improvements in reliability and customer service. Second, growing electricity demand is expanding the opportunity across our business. Transmission and distribution remain the foundation of our strategy and an expanding runway for investment needs. In West Virginia, Maidsville and the additional generation opportunities developing behind it offer another meaningful source of long-term growth. Third, we are pursuing growth with discipline. We will invest where we have a constructive regulatory environment, where existing customers benefit and are protected, and where the expected returns create value for shareholders. We have a clear strategy, a compelling opportunity set, and the capabilities to execute. Thank you for your continued interest in First Energy. We look forward to seeing many of you at the EEI conference in a couple of weeks. Now we'll turn the call over for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. Our first question is from Nicholas Campanella with Barclays. proceed hey good morning thanks for the time um good morning nick morning so just uh you know thanks for all the updates on west virginia um my question is if you were to kind of go beyond maidsville here with the the three gigawatts of additional discussions happening right now um any thoughts on continuing to kind do that in a rate-based solution or doing that through with Genco's structure? How do those kind of returns compare? And would that change the 35% incremental equity need that you laid out at all? Thanks. Yeah, thanks, Nick. So I think the most important thing is for us to get a clean order out of the commission on Maidsville. And that is certainly going to inform how we think about moving forward in West Virginia. The Genco is absolutely still on the table. And we look at that as an opportunity to protect existing customers, yet still serve the new large load customers. So we're still exploring both opportunities there. And, you know, if we were to get the additional three gigawatts that we're talking about here, that would certainly include additional financing required to finance that. Yeah, Nick, I would say that the discussions that we're having today with off-takers, specifically related to Maysville, there is an openness to, you know, fund some of the investment through a surcharge type of mechanism. And we would absolutely expect that to continue with generation investments beyond Maysvale. Thanks for that. And then just to follow up on the three gigs, you know, what type of bridge solutions are you looking for for behind the meter? Is it like fuel cells or smaller rice units, if you could talk to that at all? And can you just remind us of the timing of the three gigawatts of incremental? Is this kind of layered in to be 31, 32, or is it going to be a little bit further beyond that? Thanks. So, thanks. It's going to do that. It's got to be beyond that. And so what we're seeing from customers is if they want like a gigawatt type campus, they're looking at seeing if they can start with a building that might be about 100 megawatts in the near term. So we're looking at solutions from everything from rice to fuel cells to batteries to anything that can get us quicker to power than a long-term natural gas combined cycle solution. So something that gets the campus up and started and then transitions ultimately to a long term grid integrated solution. Many thanks. Thanks, Nick. Our next question is from Jeremy Toney with J.P. Morgan. Please proceed. Hi, good morning. Morning, Jeremy. Just want to dive into the large load pipeline as you wait out there. And it seems like the opportunity set in West Virginia moved up a bunch quarter over quarter. And I was wondering if you could talk about that a bit more. And It looks like at the same time, Maryland and New jersey contracted a little so just wondering how you see trends developing by state here yeah so i think i think you kind of got it um maryland ohio pennsylvania west virginia we're seeing sort of broad interest across the system and you know it's real like we're talking to these customers and people are saying you know does it end at 2030 2031 the answer is it doesn't We're seeing it continue beyond that. And the 2030, 2031 is what I'd say the first wave. But the people who are serious, the large customers that you might think of, the hyperscalers, the legitimate developers are looking well beyond that, and they're doing so across our service territory. So I was out, you know, visiting what used to be called Quantum Loophole. I think they now call it the Cotella site outside of Frederick, Maryland. We had our board strategy meeting in Frederick this year. I was out there three years ago, and it was dirt. And now there's multiple buildings up and running, and construction continues as they continue to build out that facility. So the idea that this stops at 2030, 2031 just is incredible to us and the people who are serious about this development. are talking well beyond that. Got it. That's very helpful. Thank you for that. And as we think about the transmission additions that could come into the plan here, I just want to remind me, I guess, how much of the capital plan grows versus net with partners out there. And just wondering if you could talk a bit more, I think, about the capital plans. I guess on competitive processes out there and what potential upside that could bring. Okay. Jeremy, I'll take the first part of that. If you look at our total, you know, transmission business, which would include the standalone transmission business plus the transmission in our integrated segment, you know, our partners, our external partners interest in that business is about 30% of that total transmission business which I would expect to generally stay the same as we roll forward the new plan. So the 25% increase that we're talking about would have the exact impact, the same impact on our owned rate base as we move the plan forward. So it's a significant driver. And if you actually did the math and rolled the plan for it, you would see a pretty significant increase in our own rate base in 2031 versus what we have in 2030. So it is a material adjustment for the company. And then, Jeremy, you talk about the competitive processes. John mentioned that in the last few years, we've got about $5 billion worth of awarded projects through the PJM competitive process. I think this year, it might be smaller than what we've seen in the prior years because they were looking for short-term solutions out to five years. So I think they're going to be lower voltage, more localized type projects. But that means when they come back out next year for the longer-term solutions, we're going to have big opportunities once again. So I think this thing is just going to continue. And the idea that you have an open window and it goes away isn't real. I think these open windows are going to continu for the foreseeable future as we're seeing load growth driven by large load customers across the PJM footprint. I see this as far as I can look out continuing. Okay. Got it. That's helpful. I'll leave it there. Thank you. Thank you, Jeremy. Our next question is from Michael Sullivan with Wolf Research. Please proceed. Hey. Good morning. Wanted to ask a little more on the – hey, Brian – wanted to just ask John a little more on financing plan and maybe how you think about the split between equity and equity-like And just, you know, as you get ready to roll the plan forward and those needs potentially go up, how are you thinking about getting going on equity issuance? I mean, I think we are open to equity like instruments. You know, you've seen us execute those types of transactions in the past. but I think for the time being you know we've talked about you know common equity being you know one percent of market cap on an annual basis you know I think that's kind of where we'll be for the foreseeable future but we'll talk more about that as we roll forward the plan in February of next year but that's generally how we think about it we would explore those options We've done that before, so we're used to that, but we'll provide those details in February. Okay, great, very helpful. And then in terms of just New Jersey and the broader review going on there, can you just give us some insight into the latest and where and when we see that concluding? Yeah. So I think the big thing there is that we're talking about improving affordability without creating additional costs, regulatory lag, or unintended consequences. So there's sort of a menu that's out there right now. And I think as clearer heads prevail, those things will form around things like multi-year rate plans and performance-based rates. So, you know, there's a menu out there a lot of the things on the menu make sense a lot of them don't and I think we'll end up at the right place a lot of what Jersey Central power and lights comments were were incorporated in the New Jersey Utility Association's remarks comments back to the plan but I think we'll up at right place there if it looked anything like Ohio I think it'll be reasonable it'll protect customers and allow utilities to continue to invest to improve reliability okay great just any sense of of when and that was all for me thanks well we filed our comments may 29th and again september 25th um we provided additional comments to the working group so i think later this year early next year we'll have some resolution to what's selected off the menu great thank you thank you michael As a reminder, to star 1 on your telephone keypad if you would like to ask a question. Our next question is from Carly Davenport with Goldman Sachs. Please proceed. Hey, good morning. Thanks so much for taking the questions. Morning, Carly. Morning. I just wanted to follow up on Jeremy's question earlier on transmission. Anything that you can share on how much of that increase would be tied to the large load that is now in your plan versus RTO processes versus kind of regular way maintenance investment and just anything on how we should think about how front-end or back-end loaded that could be in the new plan? Yeah, Carly, I would say that if you think about what we've talked about before in terms of every gigawatt of contracted demand being about $250 million of transmission network upgrades. We really, you know, that's kind of how we think about it. So that would be, you know, the math that you would put into the plan associated with contracted demand. You know, we don't put any uncontracted demand in our plan, so it has to be fairly solid for us to put something in our plant. Most of the increase you'll see is from, you the work that we need to do on our existing system to stabilize provide better reliability provide better resiliency to the system just given what we're seeing you know across our footprint in terms of the need to shore up transmission capacity given the demand across the region that we're saying so um you know i would say very little would be associated with contracted demand And the large piece of it would be just reliability on our existing system, those types of investments. Got it. Okay. That's really helpful. Thank you. And then you highlighted in the slides negotiations with the data center customer at Maidsville are advancing. Anything that you can provide there on outside of the CPCN approval, the key gating factors to finalizing that? And is there any sense on if customers you're in negotiations with could be interested in offtake from more than one facility as you think about the go-forward opportunity in west virginia yeah so carly i think the big thing as you mentioned is getting the cpcn out of west virginia in addition to that other gating things are finalizing the gas supply and our epc arrangement and so that's on the we're buying side on the worst selling side uh to customers there's There's an enormous amount of interest from a number of, I'd say, credit-worthy known customers out there, and they're interested in both this first tranche, that I call it, of generation that we're putting together, and people are interested in the remaining three gigawatts as well. So these things just take time. I'll say it's kind of refreshing the negotiations that we're having. People are very candid about what they want, when they want it, what the schedule they can have is, what we're willing to talk about in terms of bridge solutions, protections to our existing customers, even benefits to our consisting customers. So they're very candid, but I'd say fast-moving discussions, and as we get the next gigawatt and the next one lined up, we're going to be, you know, in active discussions with those customers who are lined up to take that service from us in West Virginia. Great. Thank you so much for the color. Thanks, Carlin. Our final question is from Andrew Wiesel with Scotiabank. please proceed hey thanks good morning everyone first uh hi on the rfp for the three gigawatts what's the targeted in service date um so it'll likely be in the 31 32 uh time frame just give them where we are in time today and where and where um and where backlogs are in between now and then andrew we're going to be pursuing those bridge alternatives that we talk about whether it's batteries fuel cells reciprocating engines whatever it is people want some speed to power to get their campuses up and running but for those longer term solutions it'll be in the 31 32 and beyond uh time frame makes sense and then on the bridge stuff so you you mentioned things like rice units and batteries, et cetera. Would the idea be that those assets are actually permanently on site? I mean, you call that bridge, but what would happen to them physically and economically after the first few years? Would they be permanently there? Yeah, so that's a great question. I think as we're thinking about it today, it would be bridge for one solution today. And then as you get the long-term solution in place, that bridge could be used for future developments that aren't necessarily on site. So we don't view those bridge solutions as being disposable. We view them as being reusable for multiple locations as we move forward in time. And you would own them or the customer or is that TBD? Any combination of that. And we're in conversations where we'd own them, where third parties would own them, where the customer would own them. But we view them as being multiply reusable, whether we move them or not. And I don't think you need to move them. Interesting. Certainly adds flexibility. Okay, great. And one last one. John, forgive me, maybe I misheard you, but did you say up to 35% on the equity? The slides just say 35, but I thought I heard you say up to. Is there potential for that to come down yeah i i think um on on the maidsville assuming we get the surcharge it's about a 35 percent um you know equity requirement but if you roll forward the plan it's up to uh 35 percent so there's some flexibility there but um you know it's probably going to be in that neighborhood okay very good thank you so much for clarifying Thank you, Andrew. That will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.