Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - FIRSTENERGY CORP | ex991fe-06302016.htm |
| 8-K - 8-K - FIRSTENERGY CORP | a8-kdated07282016.htm |
Exhibit 99.2
Consolidated Report to the Financial Community
Second Quarter 2016
(Released July 28, 2016) (Unaudited)
HIGHLIGHTS
GAAP losses for the second quarter of 2016 were $(2.56) per basic share, compared with second quarter 2015 earnings of $0.44 per basic share. GAAP losses for the second quarter of 2016 include the impact of special items listed below, primarily resulting from asset impairment/plant exit costs within the Competitive Energy Services (CES) segment. Operating (non-GAAP) earnings*, excluding special items, were $0.56 per basic share for the second quarter of 2016, compared with second quarter 2015 Operating (non-GAAP) earnings of $0.53 per basic share.
Competitive | FirstEnergy | ||||||||||||
EPS Variance Analysis | Regulated | Regulated | Energy | Corporate / | Corp. | ||||||||
(in millions, except per share amounts) | Distribution | Transmission | Services** | Other** | Consolidated | ||||||||
2Q 2015 Net Income (Loss) - GAAP | $156 | $89 | $(8) | $(50) | $187 | ||||||||
2Q 2015 Basic EPS* (avg. shares outstanding 422M) | $0.37 | $0.21 | $(0.02) | $(0.12) | $0.44 | ||||||||
Special Items - 2015*** | |||||||||||||
Regulatory charges | 0.02 | — | — | — | 0.02 | ||||||||
Trust securities impairment | — | — | 0.02 | — | 0.02 | ||||||||
Merger accounting - commodity contracts | — | — | 0.02 | — | 0.02 | ||||||||
Plant exit costs | — | — | 0.01 | — | 0.01 | ||||||||
Impact of non-core asset sales/impairments | — | — | 0.02 | — | 0.02 | ||||||||
Retail repositioning charges | — | — | 0.01 | — | 0.01 | ||||||||
Mark-to-market adjustments | — | — | (0.01) | — | (0.01) | ||||||||
2Q 2015 Basic EPS - Operating (Non-GAAP) Earnings* | $0.39 | $0.21 | $0.05 | $(0.12) | $0.53 | ||||||||
Distribution Deliveries - normal load | (0.03) | — | — | — | (0.03) | ||||||||
PA Rate Case | 0.03 | — | — | — | 0.03 | ||||||||
Transmission Revenues | — | (0.01) | — | — | (0.01) | ||||||||
Commodity Margin | (0.01) | — | 0.07 | — | 0.06 | ||||||||
O&M Expenses | — | — | 0.03 | — | 0.03 | ||||||||
Depreciation | — | (0.01) | (0.01) | — | (0.02) | ||||||||
Pension/OPEB | (0.02) | — | (0.01) | — | (0.03) | ||||||||
General Taxes | — | (0.01) | 0.01 | — | — | ||||||||
Investment Income | — | — | 0.01 | — | 0.01 | ||||||||
Net Financing Costs | — | (0.01) | — | — | (0.01) | ||||||||
2Q 2016 Basic EPS - Operating (Non-GAAP) Earnings* | $0.36 | $0.17 | $0.15 | $(0.12) | $0.56 | ||||||||
Special Items - 2016*** | |||||||||||||
Regulatory charges | (0.01) | — | — | — | (0.01) | ||||||||
Merger accounting - commodity contracts | — | — | (0.01) | — | (0.01) | ||||||||
Asset impairment/Plant exit costs | — | — | (2.99) | — | (2.99) | ||||||||
Mark-to-market adjustments | — | — | (0.11) | — | (0.11) | ||||||||
2Q 2016 Basic EPS* (avg. shares outstanding 425M) | $0.35 | $0.17 | $(2.96) | $(0.12) | $(2.56) | ||||||||
2Q 2016 Net Income (Loss) - GAAP | $146 | $71 | $(1,259) | $(47) | $(1,089) | ||||||||
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the weighted average basic shares outstanding for the period. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%. | |||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 1
Asset Impairment/Plant Exit Costs | Pre-tax Charge ($M) | After-tax Charge ($M) | GAAP EPS Impact | ||||
Bay Shore Unit 1 - Impairment (non-cash) | $150 | $95 | $0.22 | ||||
W. H. Sammis Units 1-4 - Impairment (non-cash) | 497 | 310 | 0.73 | ||||
Coal contract termination and settlement costs | 58 | 36 | 0.09 | ||||
Impairment of Goodwill (non-cash) | 800 | 669 | 1.57 | ||||
State and local NOL valuation allowances (non-cash) | — | 159 | 0.38 | ||||
Total | $1,505 | $1,269 | $2.99 | ||||
The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of the impairment of goodwill of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes. With the exception of the impairment of goodwill and valuation allowances against state and local NOL carryforwards included in Asset impairment/Plant exit costs, the income tax rates range from 37% to 38%. | |||||||
*Operating earnings excludes special items as described below, and is a non-GAAP financial measure. Management uses Operating earnings by segment to evaluate the company’s performance and manage its operations and frequently references this non-GAAP financial measure in its decision making, using it to facilitate historical and ongoing performance comparisons. Additionally, management uses Basic EPS and Basic EPS-Operating, each on a segment basis, to further evaluate FE's performance by segment and references these non-GAAP financial measures in its decision making. Basic EPS for each segment is calculated by dividing segment net income (loss) on a GAAP basis by the basic weighted average shares outstanding for the period. Basic EPS-Operating for each segment is calculated by dividing segment Operating earnings (losses), which exclude specials items as discussed below, by the basic weighted average shares outstanding for the period. Management believes that the non-GAAP financial measures of “Operating earnings”, "Basic EPS" and "Basic EPS-Operating" by segment provide a consistent and comparable measure of performance of its businesses to help shareholders understand performance trends. Generally, a non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). These non-GAAP financial measures are intended to complement, and are not considered as an alternative to, the most directly comparable GAAP financial measure. Also, the non-GAAP financial measures may not be comparable to similarly titled measures used by other entities. The 2016 and 2015 GAAP to non-GAAP earnings reconciliations can be found on pages 33 & 34 of this report and all GAAP to non-GAAP earnings reconciliations are available on FE’s Investor Information website at www.firstenergycorp.com/ir.
**Disclosures for FE's reportable operating segments for 2015 have been adjusted to include the activity of FirstEnergy Ventures Corp.'s (FEV) investment in Global Mining Holding Company (Global Holding) from Competitive Energy Services to Corporate/Other, to conform to the current presentation.
***See pages 23-36 for additional details regarding special items.
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 2
2016 Earnings Guidance
GAAP losses for 2016 are forecasted at $(0.75) - $(0.55) per basic share with 2016 Operating (non-GAAP) earnings guidance ranging from $2.40 - $2.60 per basic share, and assumes up to $500 million of additional equity in the second half of the year. GAAP earnings forecasted for the third quarter of 2016 are $0.63 - $0.73 per basic share with Operating (non-GAAP) earnings guidance ranging from $0.65 - $0.75 per basic share.
Estimate for Year 2016* | Estimate for Q3 of 2016* | |||||||||||||
(In millions, except per share amounts) | Regulated Distribution | Regulated Transmission | Competitive Energy Services | Corporate / Other | FirstEnergy Corp. Consolidated | FirstEnergy Corp. Consolidated | ||||||||
2016F Net Income (Loss) - GAAP | $695 - $730 | $305 - $315 | $(1,100) - $(1,060) | $(225) | $(325) - $(240) | $275 - $320 | ||||||||
2016F Basic EPS | $1.61 - $1.69 | $0.71 - $0.73 | $(2.55) - $(2.45) | $(0.52) | $(0.75) - $(0.55) | $0.63 - $0.73 | ||||||||
Excluding Special Items: | ||||||||||||||
Regulatory charges | 0.13 | — | — | — | 0.13 | 0.01 | ||||||||
Trust securities impairment | — | — | 0.01 | — | 0.01 | — | ||||||||
Merger accounting-commodity contracts | — | — | 0.05 | — | 0.05 | 0.01 | ||||||||
Asset impairment/Plant exit costs | — | — | 2.95 | — | 2.95 | — | ||||||||
Mark-to-market adjustments | — | — | 0.01 | — | 0.01 | — | ||||||||
Total Special Items** | $0.13 | $— | $3.02 | $— | $3.15 | $0.02 | ||||||||
2016F Basic EPS - Operating (Non-GAAP) | $1.74 - $1.82 | $0.71 - $0.73 | $0.47 - $0.57 | $(0.52) | $2.40 - $2.60 | $0.65 - $0.75 | ||||||||
*Per share amounts for the special items above are based on the after-tax effect of each item, divided by the weighted average basic shares outstanding and includes the estimated dilutive impact of additional common stock in the second half of the year. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%. | ||||||||||||||
**See pages 35-36 for additional details regarding special items. | ||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 3
.2Q 2016 Results vs 2Q 2015 - By Segment
Regulated Distribution
Regulated Distribution - GAAP earnings for the second quarter of 2016 were $146 million, or $0.35 per basic share, compared with second quarter 2015 GAAP earnings of $156 million, or $0.37 per basic share. Operating (non-GAAP) earnings, excluding special items, were $0.36 per basic share for the second quarter of 2016 compared with $0.39 per basic share for the second quarter of 2015. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
2Q 2015 Net Income - GAAP | $156 | ||||||
2Q 2015 Basic EPS (avg. shares outstanding 422M) | $0.37 | ||||||
Special Items - 2015* | 0.02 | ||||||
2Q 2015 Basic EPS - Operating (Non-GAAP) Earnings | $0.39 | ||||||
Distribution Deliveries - normal load | (0.03) | ||||||
PA Rate Case | 0.03 | ||||||
Regulated Commodity Margin | (0.01) | ||||||
Pension/OPEB | (0.02) | ||||||
2Q 2016 Basic EPS - Operating (Non-GAAP) Earnings | $0.36 | ||||||
Special Items - 2016* | (0.01) | ||||||
2Q 2016 Basic EPS (avg. shares outstanding 425M) | $0.35 | ||||||
2Q 2016 Net Income - GAAP | $146 | ||||||
*See pages 23-36 for additional details on special items. | |||||||
2Q 2016 vs 2Q 2015 Earnings Drivers
• | Distribution Deliveries - Total electric distribution deliveries decreased 587,000 megawatt-hours (MWH), or 1.7%, and decreased earnings $0.03 per share. Residential sales decreased 183,000 MWH or 1.5%, and sales to commercial customers decreased 62,000 MWH, or 0.6%, primarily due to declining average customer usage associated with more energy efficient products and services. Weather-related usage was flat as decreased usage resulting from cooling degree days that were 13% below 2015, and 11% above normal, was offset by heating-degree-days that were 32% above 2015, and 8% above normal. Deliveries to industrial customers decreased 342,000 MWH, or 2.7%, primarily due to lower usage in the steel and coal sectors, partially offset by increased usage from the shale gas sector. |
• | Pennsylvania Rate Case - Earnings increased $0.03 per share due to approved distribution rate increases, net of incremental operating expenses, effective May 3, 2015. |
• | Regulated Commodity Margin - Lower regulated commodity margin at Monongahela Power decreased earnings $0.01 per share resulting from lower sales, primarily due to lower usage in the industrial sector as described above. |
• | Pension/OPEB - Higher pension/OPEB expense reduced earnings $0.02 per share. |
• | Special Items - In 2016 and 2015, Regulated Distribution special items included regulatory charges of $0.01 per share and $0.02 per share, respectively, reflecting the impact of regulatory orders requiring certain commitments and/or disallowing the recoverability of costs. Additional details regarding special items can be found on page 36. |
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Consolidated Report to the Financial Community - 2nd Quarter 2016 4
Regulated Transmission
Regulated Transmission - Both GAAP earnings and Operating (non-GAAP) earnings for the second quarter of 2016 were $71 million, or $0.17 per basic share, compared with second quarter 2015 GAAP earnings and Operating (non-GAAP) earnings of $89 million, or $0.21 per basic share. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
2Q 2015 Net Income - GAAP | $89 | ||||||
2Q 2015 Basic EPS (avg. shares outstanding 422M) | $0.21 | ||||||
Special Items - 2015* | — | ||||||
2Q 2015 Basic EPS - Operating (Non-GAAP) Earnings | $0.21 | ||||||
Transmission Revenues | (0.01) | ||||||
Depreciation | (0.01) | ||||||
General Taxes | (0.01) | ||||||
Net Financing Costs | (0.01) | ||||||
2Q 2016 Basic EPS - Operating (Non-GAAP) Earnings | $0.17 | ||||||
Special Items - 2016* | — | ||||||
2Q 2016 Basic EPS (avg. shares outstanding 425M) | $0.17 | ||||||
2Q 2016 Net Income - GAAP | $71 | ||||||
*See pages 23-36 for additional details on special items. | |||||||
• | Transmission Revenues - Lower transmission revenues decreased earnings $0.01 per share, primarily due to a lower ROE at American Transmission Systems, Incorporated (ATSI), effective January 1, 2016, under a comprehensive settlement approved by the Federal Energy Regulatory Commission (FERC) in October 2015, and the impact of ATSI's and Trans-Allegheny Interstate Line Company's (TrAIL) annual update to their formula rates for actual costs incurred in 2015(1), partially offset by higher recovery of incremental operating expenses and a higher rate base at ATSI and TrAIL. |
• | Depreciation and General Taxes - Higher depreciation and general tax expense decreased earnings $0.02 per share, due primarily to a higher asset base at ATSI. These expenses are recovered through ATSI's formula rate. |
• | Net Financing Costs - Higher net financing costs decreased earnings $0.01 per share, due to lower capitalized financing costs from lower construction work in progress balances and higher interest expense due to a long-term debt issuance at ATSI of $150 million in October 2015. |
(1) Under ATSI's and TrAIL's formula rate, revenues collected are based on estimated costs and are updated for actual costs the following year.
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 5
Competitive Energy Services
CES - GAAP losses for the second quarter of 2016 were $(1,259) million, or $(2.96) per basic share, compared with second quarter 2015 GAAP losses of $(8) million, or $(0.02) per basic share. GAAP losses for the second quarter of 2016 include the impact of special items primarily resulting from asset impairment/plant exit costs, as previously described. Operating (non-GAAP) earnings, excluding special items, for the second quarter of 2016 were $0.15 per basic share, compared with second quarter 2015 Operating (non-GAAP) earnings of $0.05 per basic share. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
2Q 2015 Net Loss - GAAP | $(8) | ||||||
2Q 2015 Basic EPS (avg. shares outstanding 422M) | $(0.02) | ||||||
Special Items - 2015* | 0.07 | ||||||
2Q 2015 Basic EPS - Operating (Non-GAAP) Earnings | $0.05 | ||||||
Commodity Margin | 0.07 | ||||||
O&M Expenses | 0.03 | ||||||
Depreciation | (0.01) | ||||||
Pension/OPEB | (0.01) | ||||||
General Taxes | 0.01 | ||||||
Investment Income | 0.01 | ||||||
2Q 2016 Basic EPS - Operating (Non-GAAP) Earnings | $0.15 | ||||||
Special Items - 2016* | (3.11) | ||||||
2Q 2016 Basic EPS (avg. shares outstanding 425M) | $(2.96) | ||||||
2Q 2016 Net Loss - GAAP | $(1,259) | ||||||
*See pages 23-36 for additional details on special items. | |||||||
2Q 2016 vs 2Q 2015 Earnings Drivers
• | Commodity Margin - CES commodity margin increased earnings $0.07 per share due to a combination of higher capacity revenues, increased wholesale sales and lower purchased power and fuel expense, partially offset by lower contract sales of 4.0 million MWH as CES continues to implement its retail strategy to more effectively hedge its generation. |
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Consolidated Report to the Financial Community - 2nd Quarter 2016 6
A summary by key component of commodity margin is as follows:
Commodity Margin EPS - 2Q16 vs 2Q15 | Rate | Volume | Total | |||||||||||
(a) Contract Sales | ||||||||||||||
- Direct Sales (LCI & MCI) | $ | — | $ | (0.19 | ) | $ | (0.19 | ) | ||||||
- Governmental Aggregation Sales | — | (0.04 | ) | (0.04 | ) | |||||||||
- Mass Market Sales | — | (0.04 | ) | (0.04 | ) | |||||||||
- POLR Sales | 0.01 | (0.07 | ) | (0.06 | ) | |||||||||
- Structured Sales | (0.02 | ) | — | (0.02 | ) | |||||||||
Subtotal - Contract Sales | $ | (0.01 | ) | $ | (0.34 | ) | $ | (0.35 | ) | |||||
(b) Wholesale Sales | (0.04 | ) | 0.13 | 0.09 | ||||||||||
(c) PJM Capacity, BRA and CP Revenues | 0.08 | 0.01 | 0.09 | |||||||||||
(d) Fuel Expense(1) | 0.03 | — | 0.03 | |||||||||||
(e) Purchased Power (net of financials) | 0.02 | 0.13 | 0.15 | |||||||||||
(f) Capacity Expense | (0.06 | ) | 0.08 | 0.02 | ||||||||||
(g) Net MISO - PJM Transmission Cost | — | 0.04 | 0.04 | |||||||||||
Net Change | $ | 0.02 | $ | 0.05 | $ | 0.07 | ||||||||
(1)Excludes coal contract settlement and termination costs of ($0.08) per share, included within asset impairment/plant exit costs. See pages 23-36 for additional details on special items. | ||||||||||||||
(a) | Contract Sales - CES' contract sales decreased 4.0 million MWH, or 25%, and reduced earnings $0.35 per share. Lower contract sales reflect CES' efforts to reposition its sales portfolio to more effectively hedge its generation. Direct sales to large and medium commercial / industrial customers decreased 2.4 million MWH, or 39%. Governmental aggregation sales decreased 461,000 MWH, or 13%. Mass market sales decreased 369,000 MWH, or 41% and POLR sales decreased 839,000 MWH, or 29%. Structured sales, which includes bilateral and muni/co-op sales, increased 34,000 MWH, or 1%. As of June 30, 2016, the total number of retail customers was 1.5 million, a decrease of approximately 350,000 customers since June 30, 2015. |
CES Contract Sales - 2Q16 vs 2Q15 | ||||||||||||||
(thousand MWH) | Retail | Non-Retail | ||||||||||||
Direct | Aggr. | Mass Market | POLR | Structured | Total | |||||||||
Contract Sales Increase / (Decrease) | (2,387) | (461) | (369) | (839) | 34 | (4,022) | ||||||||
(b) Wholesale Sales - Wholesale sales increased by 2.8 million MWH and increased earnings $0.09 per share.
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Consolidated Report to the Financial Community - 2nd Quarter 2016 7
(c) PJM Capacity Revenues (Base Residual (BRA) and Capacity Performance (CP) Auctions) - Higher capacity revenues increased earnings $0.09 per share, resulting from higher capacity prices on average in the RTO and ATSI zones. Capacity prices by zone for the applicable planning periods are summarized below.
Planning Period | RTO | ATSI | MAAC | RTO/ATSI/MAAC | ||||||
Price Per Megawatt-Day | BRA | BRA | BRA | CP | ||||||
June 2014 - May 2015 | $125.99 | $125.99 | $136.50 | NA | ||||||
June 2015 - May 2016 | $136.00 | $357.00 | $167.46 | NA | ||||||
June 2016 - May 2017 | $59.37 | $114.23 | $119.13 | $134.00 | ||||||
(d) | Fuel Expense - Lower fuel expenses increased earnings $0.03 per share due to decreased unit rates on fuel contracts. Lower fossil generation, associated with outages and economic dispatch from low wholesale spot market energy prices was offset by higher nuclear generation. |
(e) Purchased Power (net of financials) - Lower contract sales volumes resulted in decreased purchased power costs, increasing earnings $0.15 per share.
(f) Capacity Expense - Lower capacity expense associated with contract sales increased earnings $0.02 per share primarily due to lower sales volumes, partially offset by higher average capacity prices in the ATSI and RTO zones.
(g) Net MISO-PJM Transmission Cost - Lower transmission expenses and PJM ancillary charges increased earnings $0.04 per share primarily due to lower contract sales.
• | O&M Expenses - Lower O&M expenses increased earnings $0.03 per share, primarily due to decreased planned nuclear outage and retail-related costs, partially offset by increased fossil outage costs. |
• | Depreciation Expense - Depreciation expense decreased earnings $0.01 per share due to a higher asset base. |
• | Pension/OPEB - Higher pension/OPEB expense reduced earnings $0.01 per share. |
• | General Taxes - Lower general taxes increased earnings $0.01 per share as a result of lower retail sales volumes. |
• | Investment Income - Higher investment income increased earnings $0.01 per share, primarily due to higher investment income on nuclear decommissioning trust securities. |
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Consolidated Report to the Financial Community - 2nd Quarter 2016 8
• | Special Items - In 2016, CES special items included impacts from asset impairment/plant exit costs of $2.99 per share, merger accounting - commodity contracts of $0.01 per share and mark-to-market adjustments of $0.11 per share. In 2015, CES special items included trust securities impairment of $0.02 per share, merger accounting-commodity contracts of $0.02 per share, plant exit costs of $0.01 per share, non-core asset sales/impairments of $0.02 per share, retail repositioning charges of $0.01 per share and mark-to-market adjustments of $(0.01) per share. Additional details regarding special items can be found on page 36. |
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Consolidated Report to the Financial Community - 2nd Quarter 2016 9
Corporate / Other
Corporate / Other GAAP losses for the second quarter of 2016 were $(47) million, or $(0.12) per basic share, compared with GAAP losses for the second quarter 2015 of $(50) million, or $(0.12) per basic share. Operating (non-GAAP) losses, excluding special items, were $(0.12) per basic share in the second quarter of 2016 and 2015. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
2Q 2015 Net Loss - GAAP | $(50) | ||||||
2Q 2015 Basic EPS (avg. shares outstanding 422M) | $(0.12) | ||||||
Special Items - 2015* | — | ||||||
2Q 2015 Basic EPS - Operating (Non-GAAP) Losses | $(0.12) | ||||||
Other | — | ||||||
2Q 2016 Basic EPS - Operating (Non-GAAP) Losses | $(0.12) | ||||||
Special Items - 2016* | — | ||||||
2Q 2016 Basic EPS (avg. shares outstanding 425M) | $(0.12) | ||||||
2Q 2016 Net Loss - GAAP | $(47) | ||||||
*See pages 23-36 for additional details on special items. | |||||||
For additional information, please contact:
Irene M. Prezelj | Meghan G. Beringer | Gina E. Caskey | ||
Vice President, Investor Relations | Director, Investor Relations | Manager, Investor Relations | ||
(330) 384-3859 | (330) 384-5832 | (330) 384-3841 | ||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 10
FirstEnergy Corp.
Consolidated Statements of Income (Loss) (GAAP)
(In millions)
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||
(1 | ) | Regulated distribution | $ | 2,200 | $ | 2,239 | $ | (39 | ) | $ | 4,721 | $ | 4,801 | $ | (80 | ) | |||||||||||||
(2 | ) | Regulated transmission | 264 | 269 | (5 | ) | 539 | 507 | 32 | ||||||||||||||||||||
(3 | ) | Competitive energy services | 1,116 | 1,196 | (80 | ) | 2,420 | 2,631 | (211 | ) | |||||||||||||||||||
(4 | ) | Corporate / Other | (179 | ) | (239 | ) | 60 | (410 | ) | (577 | ) | 167 | |||||||||||||||||
(5 | ) | Total Revenues | 3,401 | 3,465 | (64 | ) | 7,270 | 7,362 | (92 | ) | |||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||||
(6 | ) | Fuel | 438 | 383 | 55 | 819 | 896 | (77 | ) | ||||||||||||||||||||
(7 | ) | Purchased power | 889 | 989 | (100 | ) | 2,013 | 2,102 | (89 | ) | |||||||||||||||||||
(8 | ) | Other operating expenses | 964 | 900 | 64 | 1,882 | 1,957 | (75 | ) | ||||||||||||||||||||
(9 | ) | Provision for depreciation | 334 | 322 | 12 | 663 | 641 | 22 | |||||||||||||||||||||
(10 | ) | Amortization of regulatory assets, net | 63 | 59 | 4 | 124 | 91 | 33 | |||||||||||||||||||||
(11 | ) | General taxes | 241 | 242 | (1 | ) | 521 | 511 | 10 | ||||||||||||||||||||
(12 | ) | Impairment of assets | 1,447 | 16 | 1,431 | 1,447 | 16 | 1,431 | |||||||||||||||||||||
(13 | ) | Total Operating Expenses | 4,376 | 2,911 | 1,465 | 7,469 | 6,214 | 1,255 | |||||||||||||||||||||
(14 | ) | Operating Income (Loss) | (975 | ) | 554 | (1,529 | ) | (199 | ) | 1,148 | (1,347 | ) | |||||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||||||||
(15 | ) | Investment income (loss) | 19 | (3 | ) | 22 | 47 | 14 | 33 | ||||||||||||||||||||
(16 | ) | Interest expense | (289 | ) | (282 | ) | (7 | ) | (577 | ) | (561 | ) | (16 | ) | |||||||||||||||
(17 | ) | Capitalized financing costs | 26 | 33 | (7 | ) | 51 | 67 | (16 | ) | |||||||||||||||||||
(18 | ) | Total Other Expense | (244 | ) | (252 | ) | 8 | (479 | ) | (480 | ) | 1 | |||||||||||||||||
(19 | ) | Income (Loss) Before Income Taxes (Benefits) | (1,219 | ) | 302 | (1,521 | ) | (678 | ) | 668 | (1,346 | ) | |||||||||||||||||
(20 | ) | Income taxes (benefits) | (130 | ) | 115 | (245 | ) | 83 | 259 | (176 | ) | ||||||||||||||||||
(21 | ) | Net Income (Loss) | $ | (1,089 | ) | $ | 187 | $ | (1,276 | ) | $ | (761 | ) | $ | 409 | $ | (1,170 | ) | |||||||||||
Earnings (Losses) Per Share of Common Stock | |||||||||||||||||||||||||||||
(22 | ) | Basic | $ | (2.56 | ) | $ | 0.44 | $ | (3.00 | ) | $ | (1.79 | ) | $ | 0.97 | $ | (2.76 | ) | |||||||||||
(23 | ) | Diluted | $ | (2.56 | ) | $ | 0.44 | $ | (3.00 | ) | $ | (1.79 | ) | $ | 0.97 | $ | (2.76 | ) | |||||||||||
Weighted Average Number of Common | |||||||||||||||||||||||||||||
Shares Outstanding | |||||||||||||||||||||||||||||
(24 | ) | Basic | 425 | 422 | 3 | 424 | 422 | 2 | |||||||||||||||||||||
(25 | ) | Diluted | 425 | 423 | 2 | 424 | 423 | 1 | |||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 11
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Three Months Ended June 30, 2016 | |||||||||||||||||||||||
Competitive | |||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | |||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | |||||||||||||||||||
Revenues | |||||||||||||||||||||||
(1 | ) | Electric sales | $ | 2,147 | $ | 264 | $ | 963 | $ | (43 | ) | $ | 3,331 | ||||||||||
(2 | ) | Other | 53 | — | 45 | (28 | ) | 70 | |||||||||||||||
(3 | ) | Internal | — | — | 108 | (108 | ) | — | |||||||||||||||
(4 | ) | Total Revenues | 2,200 | 264 | 1,116 | (179 | ) | 3,401 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
(5 | ) | Fuel | 141 | — | 297 | — | 438 | ||||||||||||||||
(6 | ) | Purchased power | 721 | — | 276 | (108 | ) | 889 | |||||||||||||||
(7 | ) | Other operating expenses | 580 | 36 | 432 | (84 | ) | 964 | |||||||||||||||
(8 | ) | Provision for depreciation | 170 | 44 | 103 | 17 | 334 | ||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 61 | 2 | — | — | 63 | ||||||||||||||||
(10 | ) | General taxes | 170 | 36 | 29 | 6 | 241 | ||||||||||||||||
(11 | ) | Impairment of assets | — | — | 1,447 | — | 1,447 | ||||||||||||||||
(12 | ) | Total Operating Expenses | 1,843 | 118 | 2,584 | (169 | ) | 4,376 | |||||||||||||||
(13 | ) | Operating Income (Loss) | 357 | 146 | (1,468 | ) | (10 | ) | (975 | ) | |||||||||||||
Other Income (Expense) | |||||||||||||||||||||||
(14 | ) | Investment income | 13 | — | 18 | (12 | ) | 19 | |||||||||||||||
(15 | ) | Interest expense | (145 | ) | (42 | ) | (48 | ) | (54 | ) | (289 | ) | |||||||||||
(16 | ) | Capitalized financing costs | 5 | 9 | 9 | 3 | 26 | ||||||||||||||||
(17 | ) | Total Other Expense | (127 | ) | (33 | ) | (21 | ) | (63 | ) | (244 | ) | |||||||||||
(18 | ) | Income (Loss) Before Income Taxes (Benefits) | 230 | 113 | (1,489 | ) | (73 | ) | (1,219 | ) | |||||||||||||
(19 | ) | Income taxes (benefits) | 84 | 42 | (230 | ) | (26 | ) | (130 | ) | |||||||||||||
(20 | ) | Net Income (Loss) | $ | 146 | $ | 71 | $ | (1,259 | ) | $ | (47 | ) | $ | (1,089 | ) | ||||||||
(a) | Revenues are primarily derived from the delivery of electricity within FirstEnergy Corp.'s (FirstEnergy) service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs. | ||||||||||||||||||||||
(b) | Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads. | ||||||||||||||||||||||
(c) | Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland. | ||||||||||||||||||||||
(d) | Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 12
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Three Months Ended June 30, 2015 | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | 2,189 | $ | 269 | $ | 980 | $ | (43 | ) | $ | 3,395 | |||||||||||
(2 | ) | Other | 50 | — | 54 | (34 | ) | 70 | ||||||||||||||||
(3 | ) | Internal | — | — | 162 | (162 | ) | — | ||||||||||||||||
(4 | ) | Total Revenues | 2,239 | 269 | 1,196 | (239 | ) | 3,465 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 120 | — | 263 | — | 383 | |||||||||||||||||
(6 | ) | Purchased power | 806 | — | 345 | (162 | ) | 989 | ||||||||||||||||
(7 | ) | Other operating expenses | 538 | 35 | 411 | (84 | ) | 900 | ||||||||||||||||
(8 | ) | Provision for depreciation | 170 | 38 | 99 | 15 | 322 | |||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 57 | 2 | — | — | 59 | |||||||||||||||||
(10 | ) | General taxes | 174 | 26 | 36 | 6 | 242 | |||||||||||||||||
(11 | ) | Impairment of assets | — | — | 16 | — | 16 | |||||||||||||||||
(12 | ) | Total Operating Expenses | 1,865 | 101 | 1,170 | (225 | ) | 2,911 | ||||||||||||||||
(13 | ) | Operating Income | 374 | 168 | 26 | (14 | ) | 554 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income (loss) | 12 | — | — | (15 | ) | (3 | ) | |||||||||||||||
(15 | ) | Interest expense | (146 | ) | (40 | ) | (48 | ) | (48 | ) | (282 | ) | ||||||||||||
(16 | ) | Capitalized financing costs | 7 | 13 | 10 | 3 | 33 | |||||||||||||||||
(17 | ) | Total Other Expense | (127 | ) | (27 | ) | (38 | ) | (60 | ) | (252 | ) | ||||||||||||
(18 | ) | Income (Loss) Before Income Taxes (Benefits) | 247 | 141 | (12 | ) | (74 | ) | 302 | |||||||||||||||
(19 | ) | Income taxes (benefits) | 91 | 52 | (4 | ) | (24 | ) | 115 | |||||||||||||||
(20 | ) | Net Income (Loss) | $ | 156 | $ | 89 | $ | (8 | ) | $ | (50 | ) | $ | 187 | ||||||||||
(a) | Revenues are primarily derived from the delivery of electricity within FirstEnergy's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs. | |||||||||||||||||||||||
(b) | Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads. | |||||||||||||||||||||||
(c) | Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland. | |||||||||||||||||||||||
(d) | Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. | |||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 13
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Changes Between the Three Months Ended June 30, 2016 and the Three Months Ended June 30, 2015 Increase (Decrease) | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | (42 | ) | $ | (5 | ) | $ | (17 | ) | $ | — | $ | (64 | ) | ||||||||
(2 | ) | Other | 3 | — | (9 | ) | 6 | — | ||||||||||||||||
(3 | ) | Internal revenues | — | — | (54 | ) | 54 | — | ||||||||||||||||
(4 | ) | Total Revenues | (39 | ) | (5 | ) | (80 | ) | 60 | (64 | ) | |||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 21 | — | 34 | — | 55 | |||||||||||||||||
(6 | ) | Purchased power | (85 | ) | — | (69 | ) | 54 | (100 | ) | ||||||||||||||
(7 | ) | Other operating expenses | 42 | 1 | 21 | — | 64 | |||||||||||||||||
(8 | ) | Provision for depreciation | — | 6 | 4 | 2 | 12 | |||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 4 | — | — | — | 4 | |||||||||||||||||
(10 | ) | General taxes | (4 | ) | 10 | (7 | ) | — | (1 | ) | ||||||||||||||
(11 | ) | Impairment of assets | — | — | 1,431 | — | 1,431 | |||||||||||||||||
(12 | ) | Total Total Expenses | (22 | ) | 17 | 1,414 | 56 | 1,465 | ||||||||||||||||
(13 | ) | Operating Income (Loss) | (17 | ) | (22 | ) | (1,494 | ) | 4 | (1,529 | ) | |||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income | 1 | — | 18 | 3 | 22 | |||||||||||||||||
(15 | ) | Interest expense | 1 | (2 | ) | — | (6 | ) | (7 | ) | ||||||||||||||
(16 | ) | Capitalized financing costs | (2 | ) | (4 | ) | (1 | ) | — | (7 | ) | |||||||||||||
(17 | ) | Total Other Expense | — | (6 | ) | 17 | (3 | ) | 8 | |||||||||||||||
(18 | ) | Income (Loss) Before Income Taxes (Benefits) | (17 | ) | (28 | ) | (1,477 | ) | 1 | (1,521 | ) | |||||||||||||
(19 | ) | Income taxes (benefits) | (7 | ) | (10 | ) | (226 | ) | (2 | ) | (245 | ) | ||||||||||||
(20 | ) | Net Income (Loss) | $ | (10 | ) | $ | (18 | ) | $ | (1,251 | ) | $ | 3 | $ | (1,276 | ) | ||||||||
(a) | Revenues are primarily derived from the delivery of electricity within FirstEnergy's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs. | |||||||||||||||||||||||
(b) | Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads. | |||||||||||||||||||||||
(c) | Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland. | |||||||||||||||||||||||
(d) | Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. | |||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 14
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Six Months Ended June 30, 2016 | |||||||||||||||||||||||
Competitive | |||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | |||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | |||||||||||||||||||
Revenues | |||||||||||||||||||||||
(1 | ) | Electric sales | $ | 4,589 | $ | 539 | $ | 2,064 | $ | (89 | ) | $ | 7,103 | ||||||||||
(2 | ) | Other | 132 | — | 96 | (61 | ) | 167 | |||||||||||||||
(3 | ) | Internal | — | — | 260 | (260 | ) | — | |||||||||||||||
(4 | ) | Total Revenues | 4,721 | 539 | 2,420 | (410 | ) | 7,270 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
(5 | ) | Fuel | 280 | — | 539 | — | 819 | ||||||||||||||||
(6 | ) | Purchased power | 1,647 | — | 626 | (260 | ) | 2,013 | |||||||||||||||
(7 | ) | Other operating expenses | 1,228 | 72 | 753 | (171 | ) | 1,882 | |||||||||||||||
(8 | ) | Provision for depreciation | 339 | 87 | 205 | 32 | 663 | ||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 120 | 4 | — | — | 124 | ||||||||||||||||
(10 | ) | General taxes | 355 | 77 | 68 | 21 | 521 | ||||||||||||||||
(11 | ) | Impairment of assets | — | — | 1,447 | — | 1,447 | ||||||||||||||||
(12 | ) | Total Operating Expenses | 3,969 | 240 | 3,638 | (378 | ) | 7,469 | |||||||||||||||
(13 | ) | Operating Income (Loss) | 752 | 299 | (1,218 | ) | (32 | ) | (199 | ) | |||||||||||||
Other Income (Expense) | |||||||||||||||||||||||
(14 | ) | Investment income | 24 | — | 33 | (10 | ) | 47 | |||||||||||||||
(15 | ) | Interest expense | (292 | ) | (85 | ) | (95 | ) | (105 | ) | (577 | ) | |||||||||||
(16 | ) | Capitalized financing costs | 9 | 16 | 20 | 6 | 51 | ||||||||||||||||
(17 | ) | Total Other Expense | (259 | ) | (69 | ) | (42 | ) | (109 | ) | (479 | ) | |||||||||||
(18 | ) | Income (Loss) Before Income Taxes (Benefits) | 493 | 230 | (1,260 | ) | (141 | ) | (678 | ) | |||||||||||||
(19 | ) | Income taxes (benefits) | 182 | 85 | (145 | ) | (39 | ) | 83 | ||||||||||||||
(20 | ) | Net Income (Loss) | $ | 311 | $ | 145 | $ | (1,115 | ) | $ | (102 | ) | $ | (761 | ) | ||||||||
(a) | Revenues are primarily derived from the delivery of electricity within FirstEnergy's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs. | ||||||||||||||||||||||
(b) | Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads. | ||||||||||||||||||||||
(c) | Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland. | ||||||||||||||||||||||
(d) | Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 15
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Six Months Ended June 30, 2015 | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | 4,706 | $ | 507 | $ | 2,105 | $ | (88 | ) | $ | 7,230 | |||||||||||
(2 | ) | Other | 95 | — | 104 | (67 | ) | 132 | ||||||||||||||||
(3 | ) | Internal | — | — | 422 | (422 | ) | — | ||||||||||||||||
(4 | ) | Total Revenues | 4,801 | 507 | 2,631 | (577 | ) | 7,362 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 266 | — | 630 | — | 896 | |||||||||||||||||
(6 | ) | Purchased power | 1,781 | — | 743 | (422 | ) | 2,102 | ||||||||||||||||
(7 | ) | Other operating expenses | 1,135 | 70 | 930 | (178 | ) | 1,957 | ||||||||||||||||
(8 | ) | Provision for depreciation | 342 | 75 | 195 | 29 | 641 | |||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 86 | 5 | — | — | 91 | |||||||||||||||||
(10 | ) | General taxes | 364 | 50 | 77 | 20 | 511 | |||||||||||||||||
(11 | ) | Impairment of assets | — | — | 16 | — | 16 | |||||||||||||||||
(12 | ) | Total Operating Expenses | 3,974 | 200 | 2,591 | (551 | ) | 6,214 | ||||||||||||||||
(13 | ) | Operating Income | 827 | 307 | 40 | (26 | ) | 1,148 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income | 25 | — | 12 | (23 | ) | 14 | ||||||||||||||||
(15 | ) | Interest expense | (290 | ) | (79 | ) | (96 | ) | (96 | ) | (561 | ) | ||||||||||||
(16 | ) | Capitalized financing costs | 15 | 27 | 20 | 5 | 67 | |||||||||||||||||
(17 | ) | Total Other Expense | (250 | ) | (52 | ) | (64 | ) | (114 | ) | (480 | ) | ||||||||||||
(18 | ) | Income (Loss) Before Income Taxes (Benefits) | 577 | 255 | (24 | ) | (140 | ) | 668 | |||||||||||||||
(19 | ) | Income taxes (benefits) | 213 | 94 | (8 | ) | (40 | ) | 259 | |||||||||||||||
(20 | ) | Net Income (Loss) | $ | 364 | $ | 161 | $ | (16 | ) | $ | (100 | ) | $ | 409 | ||||||||||
(a) | Revenues are primarily derived from the delivery of electricity within FirstEnergy's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs. | |||||||||||||||||||||||
(b) | Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads. | |||||||||||||||||||||||
(c) | Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland. | |||||||||||||||||||||||
(d) | Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. | |||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 16
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Changes Between the First Six Months of 2016 and the First Six Months of 2015 Increase (Decrease) | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | (117 | ) | $ | 32 | $ | (41 | ) | $ | (1 | ) | $ | (127 | ) | ||||||||
(2 | ) | Other | 37 | — | (8 | ) | 6 | 35 | ||||||||||||||||
(3 | ) | Internal revenues | — | — | (162 | ) | 162 | — | ||||||||||||||||
(4 | ) | Total Revenues | (80 | ) | 32 | (211 | ) | 167 | (92 | ) | ||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 14 | — | (91 | ) | — | (77 | ) | |||||||||||||||
(6 | ) | Purchased power | (134 | ) | — | (117 | ) | 162 | (89 | ) | ||||||||||||||
(7 | ) | Other operating expenses | 93 | 2 | (177 | ) | 7 | (75 | ) | |||||||||||||||
(8 | ) | Provision for depreciation | (3 | ) | 12 | 10 | 3 | 22 | ||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 34 | (1 | ) | — | — | 33 | ||||||||||||||||
(10 | ) | General taxes | (9 | ) | 27 | (9 | ) | 1 | 10 | |||||||||||||||
(11 | ) | Impairment of assets | — | — | 1,431 | — | 1,431 | |||||||||||||||||
(12 | ) | Total Operating Expenses | (5 | ) | 40 | 1,047 | 173 | 1,255 | ||||||||||||||||
(13 | ) | Operating Income (Loss) | (75 | ) | (8 | ) | (1,258 | ) | (6 | ) | (1,347 | ) | ||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income | (1 | ) | — | 21 | 13 | 33 | ||||||||||||||||
(15 | ) | Interest expense | (2 | ) | (6 | ) | 1 | (9 | ) | (16 | ) | |||||||||||||
(16 | ) | Capitalized financing costs | (6 | ) | (11 | ) | — | 1 | (16 | ) | ||||||||||||||
(17 | ) | Total Other Expense | (9 | ) | (17 | ) | 22 | 5 | 1 | |||||||||||||||
(18 | ) | Income (Loss) From Before Income Taxes (Benefits) | (84 | ) | (25 | ) | (1,236 | ) | (1 | ) | (1,346 | ) | ||||||||||||
(19 | ) | Income taxes (benefits) | (31 | ) | (9 | ) | (137 | ) | 1 | (176 | ) | |||||||||||||
(20 | ) | Net Income (Loss) | $ | (53 | ) | $ | (16 | ) | $ | (1,099 | ) | $ | (2 | ) | $ | (1,170 | ) | |||||||
(a) | Revenues are primarily derived from the delivery of electricity within FirstEnergy's service areas, cost recovery of regulatory assets and the sale of electric generation service to retail customers who have not selected an alternative supplier (POLR or default service). Its results reflect the commodity costs of securing electric generation from affiliated and non-affiliated power suppliers and the deferral and amortization of certain fuel costs. | |||||||||||||||||||||||
(b) | Revenues are derived from rates charged to load serving entities and other transmission users that recover costs and provide a return on transmission capital investment owned and operated by certain of FirstEnergy's utilities and transmission companies. Its results reflect the net transmission expenses related to the delivery of the respective generation loads. | |||||||||||||||||||||||
(c) | Revenues are primarily derived from supplying electric power to end-use customers through retail and wholesale arrangements, including competitive retail sales to customers primarily in Ohio, Pennsylvania, Illinois, Maryland, Michigan and New Jersey, and the provision of partial POLR and default service for affiliated and non-affiliated utilities in Ohio, Pennsylvania and Maryland. | |||||||||||||||||||||||
(d) | Contains corporate support and other businesses that are below the quantifiable threshold for separate disclosure as a reportable segment and interest expense on stand-alone holding company debt and corporate income taxes. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. | |||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 17
FirstEnergy Corp.
Financial Information
(In millions)
Condensed Consolidated Balance Sheets (GAAP) | |||||||||||
As of | As of | ||||||||||
Assets | Jun. 30, 2016 | Dec. 31, 2015 | |||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 199 | $ | 131 | |||||||
Receivables | 1,494 | 1,595 | |||||||||
Other | 1,383 | 1,314 | |||||||||
Total Current Assets | 3,076 | 3,040 | |||||||||
Property, Plant and Equipment | 37,461 | 37,214 | |||||||||
Investments | 2,983 | 2,788 | |||||||||
Deferred Charges and Other Assets | 7,881 | 9,052 | |||||||||
Total Assets | $ | 51,401 | $ | 52,094 | |||||||
Liabilities and Capitalization | |||||||||||
Current Liabilities: | |||||||||||
Currently payable long-term debt | $ | 1,327 | $ | 1,166 | |||||||
Short-term borrowings | 2,925 | 1,708 | |||||||||
Accounts payable | 938 | 1,075 | |||||||||
Other | 1,569 | 1,653 | |||||||||
Total Current Liabilities | 6,759 | 5,602 | |||||||||
Capitalization: | |||||||||||
Total equity | 11,407 | 12,422 | |||||||||
Long-term debt and other long-term obligations | 18,348 | 19,099 | |||||||||
Total Capitalization | 29,755 | 31,521 | |||||||||
Noncurrent Liabilities | 14,887 | 14,971 | |||||||||
Total Liabilities and Capitalization | $ | 51,401 | $ | 52,094 | |||||||
General Information | ||||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||
Debt redemptions | $ | (550 | ) | $ | (244 | ) | $ | (581 | ) | $ | (292 | ) | ||||||
New long-term debt issues | $ | — | $ | 200 | $ | — | $ | 200 | ||||||||||
Short-term borrowings increase | $ | 800 | $ | 349 | $ | 1,225 | $ | 1,109 | ||||||||||
Property additions | $ | 794 | $ | 818 | $ | 1,492 | $ | 1,486 | ||||||||||
Debt to Total Capitalization Ratio as Defined Under the FE Credit Facilities | ||||||||||||||||
As of June 30 | As of December 31 | |||||||||||||||
2016 | % Total | 2015 | % Total | |||||||||||||
Total Equity (GAAP) | $ | 11,407 | 32 | % | $ | 12,422 | 35 | % | ||||||||
Non-cash Charges / Non-cash Write Downs* | 2,764 | 8 | % | 2,077 | 6 | % | ||||||||||
Accumulated Other Comprehensive Income | (191 | ) | (1 | )% | (171 | ) | (1 | )% | ||||||||
Adjusted Equity (Non-GAAP)** | 13,980 | 39 | % | 14,328 | 40 | % | ||||||||||
Long-term Debt and Other Long-term Obligations (GAAP) | 18,348 | 51 | % | 19,099 | 54 | % | ||||||||||
Currently Payable Long-term Debt (GAAP) | 1,327 | 4 | % | 1,166 | 3 | % | ||||||||||
Short-term Borrowings (GAAP) | 2,925 | 8 | % | 1,708 | 5 | % | ||||||||||
Reimbursement Obligations | 7 | — | % | 54 | — | % | ||||||||||
Guarantees of Indebtedness | 325 | 1 | % | 328 | 1 | % | ||||||||||
Less Securitization Debt | (871 | ) | (3 | )% | (913 | ) | (3 | )% | ||||||||
Adjusted Debt (Non-GAAP)** | 22,061 | 61 | % | 21,442 | 60 | % | ||||||||||
Adjusted Capitalization (Non-GAAP)** | $ | 36,041 | 100 | % | $ | 35,770 | 100 | % | ||||||||
*Includes after-tax non-cash charges and non-cash write downs, primarily associated with pensions and OPEB mark-to-market adjustments, impairment of assets, and regulatory asset charges through June 30, 2016, as required by the FE Credit Facilities, as amended. | ||||||||||||||||
**Management uses Adjusted Equity, Adjusted Debt, and Adjusted Capitalization, each of which is a non-GAAP financial measure, to calculate and monitor its compliance with the debt to total capitalization financial covenant under the FE Credit Facilities. These financial measures, as calculated in accordance with the FE Credit Facilities, help shareholders understand FirstEnergy's compliance with, and provide a basis for understanding FirstEnergy's incremental debt capacity under the debt to total capitalization financial covenant. The financial covenant under the FE Credit Facilities require FirstEnergy to maintain a consolidated debt to total capitalization ratio of no more than 65%, measured at the end of each fiscal quarter. | ||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 18
FirstEnergy Corp.
Statements of Cash Flows and Liquidity
(In millions)
Condensed Consolidated Statements of Cash Flows (GAAP) | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30 | June 30 | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||
Cash flows from operating activities | ||||||||||||||||||
Net income (loss) | $ | (1,089 | ) | $ | 187 | $ | (761 | ) | $ | 409 | ||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||||||||||||||
Depreciation and amortization (1) | 467 | 444 | 922 | 869 | ||||||||||||||
Deferred purchased power and other costs | (23 | ) | (14 | ) | (33 | ) | (45 | ) | ||||||||||
Deferred income taxes and investment tax credits, net | (134 | ) | 92 | 72 | 219 | |||||||||||||
Impairment of assets | 1,447 | 16 | 1,447 | 16 | ||||||||||||||
Investment impairments | 10 | 24 | 10 | 24 | ||||||||||||||
Deferred costs on sale leaseback transaction, net | 12 | 12 | 24 | 24 | ||||||||||||||
Retirement benefits | 15 | (12 | ) | 31 | (16 | ) | ||||||||||||
Pension trust contributions | — | — | (160 | ) | (143 | ) | ||||||||||||
Commodity derivative transactions, net | 69 | (9 | ) | 5 | (7 | ) | ||||||||||||
Lease payments on sale and leaseback transaction | (94 | ) | (102 | ) | (94 | ) | (102 | ) | ||||||||||
Changes in working capital and other | 142 | 159 | (3 | ) | (258 | ) | ||||||||||||
Cash flows provided from operating activities | 822 | 797 | 1,460 | 990 | ||||||||||||||
Cash flows provided from financing activities | 133 | 152 | 375 | 712 | ||||||||||||||
Cash flows used for investing activities | (902 | ) | (945 | ) | (1,767 | ) | (1,693 | ) | ||||||||||
Net change in cash and cash equivalents | $ | 53 | $ | 4 | $ | 68 | $ | 9 | ||||||||||
(1) Includes Amortization of Regulatory Assets, net, nuclear fuel, customer intangible assets, debt related costs, deferred advertising costs and other assets. | ||||||||||||||||||
Liquidity position as of June 30, 2016 | ||||||||||
Company | Type | Maturity | Amount | Available | ||||||
FirstEnergy(1) | Revolving | March 2019 | $3,500 | $719 | ||||||
FirstEnergy Solutions Corp. (FES) / Allegheny Energy Supply Company, LLC (AE Supply) | Revolving | March 2019 | 1,500 | 1,499 | ||||||
FirstEnergy Transmission, LLC(2) | Revolving | March 2019 | 1,000 | 850 | ||||||
(1) FirstEnergy Corp. and FEU subsidiary borrowers | Subtotal: | $6,000 | $3,068 | |||||||
(2) Includes FET, ATSI, and TrAILCo | Cash: | — | 199 | |||||||
Total: | $6,000 | $3,267 | ||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 19
FirstEnergy Corp.
Statistical Summary
Electric Distribution Deliveries | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||
(MWH in thousand) | 2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||
Ohio | - Residential | 3,814 | 3,741 | 2.0 | % | 8,271 | 8,836 | -6.4 | % | ||||||||||||
- Commercial | 3,707 | 3,700 | 0.2 | % | 7,417 | 7,605 | -2.5 | % | |||||||||||||
- Industrial | 4,975 | 5,183 | -4.0 | % | 9,986 | 10,368 | -3.7 | % | |||||||||||||
- Other | 83 | 82 | 1.2 | % | 168 | 168 | 0.0 | % | |||||||||||||
Total Ohio | 12,579 | 12,706 | -1.0 | % | 25,842 | 26,977 | -4.2 | % | |||||||||||||
Pennsylvania | - Residential | 3,984 | 4,075 | -2.2 | % | 9,071 | 10,062 | -9.8 | % | ||||||||||||
- Commercial | 3,104 | 3,063 | 1.3 | % | 6,346 | 6,498 | -2.3 | % | |||||||||||||
- Industrial | 5,011 | 5,063 | -1.0 | % | 10,021 | 10,198 | -1.7 | % | |||||||||||||
- Other | 30 | 30 | 0.0 | % | 59 | 59 | 0.0 | % | |||||||||||||
Total Pennsylvania | 12,129 | 12,231 | -0.8 | % | 25,497 | 26,817 | -4.9 | % | |||||||||||||
New Jersey | - Residential | 2,107 | 2,182 | -3.4 | % | 4,261 | 4,632 | -8.0 | % | ||||||||||||
- Commercial | 2,160 | 2,228 | -3.1 | % | 4,322 | 4,506 | -4.1 | % | |||||||||||||
- Industrial | 537 | 560 | -4.1 | % | 1,084 | 1,113 | -2.6 | % | |||||||||||||
- Other | 22 | 22 | 0.0 | % | 44 | 43 | 2.3 | % | |||||||||||||
Total New Jersey | 4,826 | 4,992 | -3.3 | % | 9,711 | 10,294 | -5.7 | % | |||||||||||||
Maryland | - Residential | 645 | 693 | -6.9 | % | 1,615 | 1,832 | -11.8 | % | ||||||||||||
- Commercial | 498 | 515 | -3.3 | % | 1,017 | 1,070 | -5.0 | % | |||||||||||||
- Industrial | 394 | 435 | -9.4 | % | 780 | 800 | -2.5 | % | |||||||||||||
- Other | 4 | 4 | 0.0 | % | 8 | 8 | 0.0 | % | |||||||||||||
Total Maryland | 1,541 | 1,647 | -6.4 | % | 3,420 | 3,710 | -7.8 | % | |||||||||||||
West Virginia | - Residential | 1,106 | 1,148 | -3.7 | % | 2,774 | 3,039 | -8.7 | % | ||||||||||||
- Commercial | 880 | 905 | -2.8 | % | 1,806 | 1,864 | -3.1 | % | |||||||||||||
- Industrial | 1,429 | 1,447 | -1.2 | % | 2,853 | 2,949 | -3.3 | % | |||||||||||||
- Other | 6 | 7 | -14.3 | % | 13 | 14 | -7.1 | % | |||||||||||||
Total West Virginia | 3,421 | 3,507 | -2.5 | % | 7,446 | 7,866 | -5.3 | % | |||||||||||||
Total Residential | 11,656 | 11,839 | -1.5 | % | 25,992 | 28,401 | -8.5 | % | |||||||||||||
Total Commercial | 10,349 | 10,411 | -0.6 | % | 20,908 | 21,543 | -2.9 | % | |||||||||||||
Total Industrial | 12,346 | 12,688 | -2.7 | % | 24,724 | 25,428 | -2.8 | % | |||||||||||||
Total Other | 145 | 145 | 0.0 | % | 292 | 292 | 0.0 | % | |||||||||||||
Total Distribution Deliveries | 34,496 | 35,083 | -1.7 | % | 71,916 | 75,664 | -5.0 | % | |||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 20
FirstEnergy Corp.
Statistical Summary
Weather | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
2016 | 2015 | Normal | 2016 | 2015 | Normal | ||||||||||
Composite Heating-Degree-Days | 644 | 488 | 595 | 3,180 | 3,850 | 3,436 | |||||||||
Composite Cooling-Degree-Days | 294 | 338 | 265 | 296 | 338 | 267 | |||||||||
Shopping Statistics (Based on MWH) | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||
2016 | 2015 | 2016 | 2015 | |||||||
OE | 80% | 80% | 79% | 78% | ||||||
Penn | 65% | 62% | 62% | 59% | ||||||
CEI | 85% | 83% | 84% | 83% | ||||||
TE | 80% | 76% | 78% | 75% | ||||||
JCP&L | 54% | 52% | 52% | 51% | ||||||
Met-Ed | 70% | 69% | 68% | 66% | ||||||
Penelec | 72% | 72% | 70% | 70% | ||||||
PE(1) | 53% | 52% | 48% | 46% | ||||||
WP | 68% | 64% | 65% | 61% | ||||||
(1) Represents Maryland only. | ||||||||||
Competitive Operating Statistics | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Generation Capacity Factors: | |||||||||||
Nuclear | 88% | 79% | 88% | 85% | |||||||
Fossil - Baseload | 48% | 54% | 46% | 58% | |||||||
Fossil - Load Following | 39% | 38% | 40% | 43% | |||||||
Generation Fuel Rate: | |||||||||||
Nuclear | $7 | $7 | $7 | $7 | |||||||
Fossil | $24 | $26 | $24 | $27 | |||||||
Total Fleet | $15 | $17 | $15 | $18 | |||||||
Generation Output Mix: | |||||||||||
Nuclear | 51% | 48% | 51% | 47% | |||||||
Fossil - Baseload | 35% | 40% | 33% | 40% | |||||||
Fossil - Load Following | 6% | 7% | 7% | 7% | |||||||
Peaking/CT/Hydro | 8% | 5% | 9% | 6% | |||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 21
FirstEnergy Corp.
Competitive Energy Services - Sources & Uses
Statistical Summary
Competitive Energy Services - Sources and Uses (MWH in thousands) | ||||||||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||
Contract Sales | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||
Total POLR | 2,081 | 2,920 | (839 | ) | 4,633 | 7,742 | (3,109 | ) | ||||||||||||||
Total Structured Sales | 2,842 | 2,808 | 34 | 6,738 | 5,897 | 841 | ||||||||||||||||
Total Direct - LCI | 3,399 | 5,587 | (2,188 | ) | 6,893 | 12,205 | (5,312 | ) | ||||||||||||||
Total Direct - MCI | 284 | 483 | (199 | ) | 585 | 1,114 | (529 | ) | ||||||||||||||
Total Aggregation | 2,992 | 3,453 | (461 | ) | 6,560 | 8,052 | (1,492 | ) | ||||||||||||||
Total Mass Market | 536 | 905 | (369 | ) | 1,239 | 2,340 | (1,101 | ) | ||||||||||||||
Total Contract Sales | 12,134 | 16,156 | (4,022 | ) | 26,648 | 37,350 | (10,702 | ) | ||||||||||||||
Wholesale Spot Sales | 3,577 | 804 | 2,773 | 5,490 | 867 | 4,623 | ||||||||||||||||
Purchased Power | ||||||||||||||||||||||
- Bilaterals | 444 | 482 | (38 | ) | 1,079 | 1,089 | (10 | ) | ||||||||||||||
- Spot | 690 | 2,647 | (1,957 | ) | 2,041 | 6,308 | (4,267 | ) | ||||||||||||||
Total Purchased Power | 1,134 | 3,129 | (1,995 | ) | 3,120 | 7,397 | (4,277 | ) | ||||||||||||||
Generation Output | ||||||||||||||||||||||
- Fossil | 7,411 | 7,594 | (183 | ) | 14,704 | 16,740 | (2,036 | ) | ||||||||||||||
- Nuclear | 7,796 | 7,020 | 776 | 15,547 | 14,971 | 576 | ||||||||||||||||
- RMR / Deactivated Units (1) | — | 86 | (86 | ) | — | 758 | (758 | ) | ||||||||||||||
Total Generation Output | 15,207 | 14,700 | 507 | 30,251 | 32,469 | (2,218 | ) | |||||||||||||||
(1) Includes Reliability Must Run (RMR) and units deactivated in April 2015 | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 22
FirstEnergy Corp.
Consolidated GAAP and Special Items (In millions)
Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 3,401 | $ | — | $ | 3,465 | $ | (3 | ) | (e) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 438 | (66 | ) | (b,d) | 383 | (14 | ) | (b,d) | ||||||||||||
(3 | ) | Purchased power | 889 | — | 989 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 964 | (80 | ) | (a,c) | 900 | (12 | ) | (a,c,d,g) | ||||||||||||
(5 | ) | Provision for depreciation | 334 | — | 322 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 63 | — | 59 | (1 | ) | (a) | ||||||||||||||
(7 | ) | General taxes | 241 | — | 242 | (1 | ) | (d) | ||||||||||||||
(8 | ) | Impairment of assets | 1,447 | (1,447 | ) | (d) | 16 | (16 | ) | (e) | ||||||||||||
(9 | ) | Total Operating Expenses | 4,376 | (1,593 | ) | 2,911 | (44 | ) | ||||||||||||||
(10 | ) | Operating Income (Loss) | (975 | ) | 1,593 | 554 | 41 | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income (loss) | 19 | 2 | (f) | (3 | ) | 19 | (e,f) | |||||||||||||
(12 | ) | Interest expense | (289 | ) | 2 | (h) | (282 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 26 | — | 33 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (244 | ) | 4 | (252 | ) | 19 | ||||||||||||||
(15 | ) | Income (Loss) Before Income Taxes (Benefits) | (1,219 | ) | 1,597 | 302 | 60 | |||||||||||||||
(16 | ) | Income taxes (benefits) | (130 | ) | 271 | (d) | 115 | 22 | ||||||||||||||
(17 | ) | Net Income (Loss) | $ | (1,089 | ) | $ | 1,326 | $ | 187 | $ | 38 | |||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 33 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||||
(a) | Regulatory charges: 2016 ($0.01 per share), ($10) million included in "Other operating expenses". 2015 ($0.02 per share), ($11) million included in "Other operating expenses"; and ($1) million included in "Amortization of regulatory assets, net". | |||||||||||||||||||||
(b) | Merger accounting - commodity contracts: 2016 ($0.01 per share), ($8) million included in "Fuel". 2015 ($0.02 per share), ($13) million included in "Fuel". | |||||||||||||||||||||
(c) | Mark-to-market adjustments: 2016 ($0.11 per share), ($70) million included in "Other operating expenses". 2015 (($0.01) per share), $9 million included in "Other operating expenses". | |||||||||||||||||||||
(d) | Asset impairment/Plant exit costs: 2016 ($2.99 per share), ($58) million included in "Fuel"; ($1,447) million included in "Impairment of assets" and $159 million included in "Income taxes (benefits)". 2015 ($0.01 per share), ($1) included in "Fuel"; ($6) million included in "Other operating expenses"; and ($1) million included in "General taxes". | |||||||||||||||||||||
(e) | Impact of non-core asset sales/impairments: 2015 ($0.02 per share), ($3) million included in "Revenues"; ($16) million included in "Impairment of assets"; and $2 million included in "Investment income (loss)". | |||||||||||||||||||||
(f) | Trust securities impairment: 2016, $2 million included in "Investment income (loss)". 2015 ($0.02 per share), $17 million included in "Investment income (loss)". | |||||||||||||||||||||
(g) | Retail repositioning charges: 2015 ($0.01 per share), ($4) million included in "Other operating expenses". | |||||||||||||||||||||
(h) | Loss on debt redemptions: 2016, $2 million included in "Interest expense". | |||||||||||||||||||||
See page 36 for additional descriptions related to special items. | ||||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 425 million shares in the second quarter of 2016 and 422 million shares in the second quarter of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 23
FirstEnergy Corp.
Consolidated GAAP and Special Items (In millions)
Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 7,270 | $ | — | $ | 7,362 | $ | (2 | ) | (a,e) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 819 | (74 | ) | (b,d) | 896 | (36 | ) | (b,d) | ||||||||||||
(3 | ) | Purchased power | 2,013 | — | 2,102 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 1,882 | (77 | ) | (a,c) | 1,957 | (36 | ) | (a,c,d,g) | ||||||||||||
(5 | ) | Provision for depreciation | 663 | — | 641 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 124 | — | 91 | (2 | ) | (a) | ||||||||||||||
(7 | ) | General taxes | 521 | — | 511 | (1 | ) | (d) | ||||||||||||||
(8 | ) | Impairment of assets | 1,447 | (1,447 | ) | (d) | 16 | (16 | ) | (e) | ||||||||||||
(9 | ) | Total Operating Expenses | 7,469 | (1,598 | ) | 6,214 | (91 | ) | ||||||||||||||
(10 | ) | Operating Income (Loss) | (199 | ) | 1,598 | 1,148 | 89 | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 47 | 9 | (e,f) | 14 | 30 | (e,f) | ||||||||||||||
(12 | ) | Interest expense | (577 | ) | 2 | (h) | (561 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 51 | — | 67 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (479 | ) | 11 | (480 | ) | 30 | ||||||||||||||
(15 | ) | Income (Loss) Before Income Taxes | (678 | ) | 1,609 | 668 | 119 | |||||||||||||||
(16 | ) | Income taxes | 83 | 274 | (d) | 259 | 43 | |||||||||||||||
(17 | ) | Net Income (Loss) | $ | (761 | ) | $ | 1,335 | $ | 409 | $ | 76 | |||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 34 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||||
(a) | Regulatory charges: 2016 ($0.11 per share), ($71) million included in "Other operating expenses". 2015 ($0.04 per share), $1 million included in "Revenues"; ($25) million included in "Other operating expenses"; and ($2) million included in "Amortization of regulatory assets, net". | |||||||||||||||||||||
(b) | Merger accounting - commodity contracts: 2016 ($0.02 per share), ($16) million included in "Fuel". 2015 ($0.04 per share), ($24) million included in "Fuel". | |||||||||||||||||||||
(c) | Mark-to-market adjustments: 2016 ($0.01 per share), ($6) million included in "Other operating expenses". 2015 (($0.01) per share), $7 million included in "Other operating expenses". | |||||||||||||||||||||
(d) | Asset impairment/Plant exit costs: 2016 ($2.99 per share), ($58) million included in "Fuels"; ($1,447) million included in "Impairment of assets"; and $159 million in "Income taxes". 2015 ($0.03 per share), ($12) million included in "Fuel"; ($6) million included in "Other operating expenses"; and ($1) million included in "General taxes". | |||||||||||||||||||||
(e) | Impact of non-core asset sales/impairments: 2016, ($2) million included in "Investment income". 2015 ($0.03 per share), ($3) million in "Revenues"; ($16) million included in "Impairment of assets"; and $6 million included in "Investment income". | |||||||||||||||||||||
(f) | Trust securities impairment: 2016 ($0.01 per share), $11 million included in "Investment income". 2015 ($0.03 per share), $24 million included in "Investment income". | |||||||||||||||||||||
(g) | Retail repositioning charges: 2015 ($0.02 per share), ($12) million included in "Other operating expenses". | |||||||||||||||||||||
(h) | Loss on debt redemptions: 2016, $2 million included in "Interest expense". | |||||||||||||||||||||
See page 36 for additional descriptions related to special items. | ||||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 424 million shares in the first six months of 2016 and 422 million shares in the first six months of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 24
FirstEnergy Corp.
Regulated Distribution
GAAP and Special Items (In millions)
Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 2,200 | $ | — | $ | 2,239 | $ | — | ||||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 141 | — | 120 | — | ||||||||||||||||
(3 | ) | Purchased power | 721 | — | 806 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 580 | (10 | ) | (a) | 538 | (11 | ) | (a) | ||||||||||||
(5 | ) | Provision for depreciation | 170 | — | 170 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 61 | — | 57 | (1 | ) | (a) | ||||||||||||||
(7 | ) | General taxes | 170 | — | 174 | — | ||||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||||
(9 | ) | Total Operating Expenses | 1,843 | (10 | ) | 1,865 | (12 | ) | ||||||||||||||
(10 | ) | Operating Income | 357 | 10 | 374 | 12 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 13 | — | 12 | 1 | (b) | |||||||||||||||
(12 | ) | Interest expense | (145 | ) | — | (146 | ) | — | ||||||||||||||
(13 | ) | Capitalized financing costs | 5 | — | 7 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (127 | ) | — | (127 | ) | 1 | ||||||||||||||
(15 | ) | Income Before Income Taxes | 230 | 10 | 247 | 13 | ||||||||||||||||
(16 | ) | Income taxes | 84 | 4 | 91 | 5 | ||||||||||||||||
(17 | ) | Net Income | $ | 146 | $ | 6 | $ | 156 | $ | 8 | ||||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 33 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||||
(a) | Regulatory charges: 2016 ($0.01 per share), ($10) million included in "Other operating expenses". 2015 ($0.02 per share), ($11) million included in "Other operating expenses"; and ($1) million in "Amortization of regulatory assets, net". | |||||||||||||||||||||
(b) | Trust securities impairment: 2015, $1 million included in "Investment income". | |||||||||||||||||||||
See page 36 for additional descriptions related to special items. | ||||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 425 million shares in the second quarter of 2016 and 422 million shares in the second quarter of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 25
FirstEnergy Corp.
Regulated Distribution
GAAP and Special Items (In millions)
Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 4,721 | $ | — | $ | 4,801 | $ | 1 | (a) | |||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 280 | — | 266 | — | ||||||||||||||||
(3 | ) | Purchased power | 1,647 | — | 1,781 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 1,228 | (71 | ) | (a) | 1,135 | (24 | ) | (a) | ||||||||||||
(5 | ) | Provision for depreciation | 339 | — | 342 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 120 | — | 86 | (2 | ) | (a) | ||||||||||||||
(7 | ) | General taxes | 355 | — | 364 | — | ||||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||||
(9 | ) | Total Operating Expenses | 3,969 | (71 | ) | 3,974 | (26 | ) | ||||||||||||||
(10 | ) | Operating Income | 752 | 71 | 827 | 27 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 24 | 1 | (b) | 25 | 2 | (b) | ||||||||||||||
(12 | ) | Interest expense | (292 | ) | — | (290 | ) | — | ||||||||||||||
(13 | ) | Capitalized financing costs | 9 | — | 15 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (259 | ) | 1 | (250 | ) | 2 | ||||||||||||||
(15 | ) | Income Before Income Taxes | 493 | 72 | 577 | 29 | ||||||||||||||||
(16 | ) | Income taxes | 182 | 26 | 213 | 11 | ||||||||||||||||
(17 | ) | Net Income | $ | 311 | $ | 46 | $ | 364 | $ | 18 | ||||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 34 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||||
(a) | Regulatory charges: 2016 ($0.11 per share), ($71) million included in "Other operating expenses". 2015 ($0.04 per share), $1 million included in "Revenues"; ($24) million included in "Other operating expenses"; and ($2) million included in "Amortization of regulatory assets, net". | |||||||||||||||||||||
(b) | Trust securities impairment: 2016, $1 million included in "Investment income". 2015, $2 million included in "Investment income". | |||||||||||||||||||||
See page 36 for additional descriptions related to special items. | ||||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 424 million shares in the first six months of 2016 and 422 million shares in the first six months of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 26
FirstEnergy Corp.
Regulated Transmission
GAAP and Special Items (In millions)
Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | |||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||
(1 | ) | Revenues | $ | 264 | $ | — | $ | 269 | $ | — | ||||||||||
Operating Expenses | ||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | ||||||||||||||
(3 | ) | Purchased power | — | — | — | — | ||||||||||||||
(4 | ) | Other operating expenses | 36 | — | 35 | — | ||||||||||||||
(5 | ) | Provision for depreciation | 44 | — | 38 | — | ||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 2 | — | 2 | — | ||||||||||||||
(7 | ) | General taxes | 36 | — | 26 | — | ||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||
(9 | ) | Total Operating Expenses | 118 | — | 101 | — | ||||||||||||||
(10 | ) | Operating Income | 146 | — | 168 | — | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||
(11 | ) | Investment income | — | — | — | — | ||||||||||||||
(12 | ) | Interest expense | (42 | ) | — | (40 | ) | — | ||||||||||||
(13 | ) | Capitalized financing costs | 9 | — | 13 | — | ||||||||||||||
(14 | ) | Total Other Expense | (33 | ) | — | (27 | ) | — | ||||||||||||
(15 | ) | Income Before Income Taxes | 113 | — | 141 | — | ||||||||||||||
(16 | ) | Income taxes | 42 | — | 52 | — | ||||||||||||||
(17 | ) | Net Income | $ | 71 | $ | — | $ | 89 | $ | — | ||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 33 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 27
FirstEnergy Corp.
Regulated Transmission
GAAP and Special Items (In millions)
Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | |||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||
(1 | ) | Revenues | $ | 539 | $ | — | $ | 507 | $ | — | ||||||||||
Operating Expenses | ||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | ||||||||||||||
(3 | ) | Purchased power | — | — | — | — | ||||||||||||||
(4 | ) | Other operating expenses | 72 | — | 70 | — | ||||||||||||||
(5 | ) | Provision for depreciation | 87 | — | 75 | — | ||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 4 | — | 5 | — | ||||||||||||||
(7 | ) | General taxes | 77 | — | 50 | — | ||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||
(9 | ) | Total Operating Expenses | 240 | — | 200 | — | ||||||||||||||
(10 | ) | Operating Income | 299 | — | 307 | — | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||
(11 | ) | Investment income | — | — | — | — | ||||||||||||||
(12 | ) | Interest expense | (85 | ) | — | (79 | ) | — | ||||||||||||
(13 | ) | Capitalized financing costs | 16 | — | 27 | — | ||||||||||||||
(14 | ) | Total Other Expense | (69 | ) | — | (52 | ) | — | ||||||||||||
(15 | ) | Income Before Income Taxes | 230 | — | 255 | — | ||||||||||||||
(16 | ) | Income taxes | 85 | — | 94 | — | ||||||||||||||
(17 | ) | Net Income | $ | 145 | $ | — | $ | 161 | $ | — | ||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 34 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 28
FirstEnergy Corp.
Competitive Energy Services
GAAP and Special Items (In millions)
Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 1,116 | $ | — | $ | 1,196 | $ | (3 | ) | (d) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 297 | (66 | ) | (a,c) | 263 | (14 | ) | (a,c) | ||||||||||||
(3 | ) | Purchased power | 276 | — | 345 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 432 | (70 | ) | (b) | 411 | (1 | ) | (b,c,f) | ||||||||||||
(5 | ) | Provision for depreciation | 103 | — | 99 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | ||||||||||||||||
(7 | ) | General taxes | 29 | — | 36 | (1 | ) | (c) | ||||||||||||||
(8 | ) | Impairment of assets | 1,447 | (1,447 | ) | (c) | 16 | (16 | ) | (d) | ||||||||||||
(9 | ) | Total Operating Expenses | 2,584 | (1,583 | ) | 1,170 | (32 | ) | ||||||||||||||
(10 | ) | Operating Income (Loss) | (1,468 | ) | 1,583 | 26 | 29 | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 18 | 2 | (e) | — | 16 | (e) | ||||||||||||||
(12 | ) | Interest expense | (48 | ) | 2 | (g) | (48 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 9 | — | 10 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (21 | ) | 4 | (38 | ) | 16 | ||||||||||||||
(15 | ) | Income (Loss) Before Income Taxes (Benefits) | (1,489 | ) | 1,587 | (12 | ) | 45 | ||||||||||||||
(16 | ) | Income taxes (benefits) | (230 | ) | 267 | (c) | (4 | ) | 16 | |||||||||||||
(17 | ) | Net Income (Loss) | $ | (1,259 | ) | $ | 1,320 | $ | (8 | ) | $ | 29 | ||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 33 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||||
(a) | Merger accounting - commodity contracts: 2016 ($0.01 per share), ($8) million included in "Fuel". 2015 ($0.02 per share), ($13) million included in "Fuel". | |||||||||||||||||||||
(b) | Mark-to-market adjustments: 2016 ($0.11 per share), ($70) million included in "Other operating expenses". 2015 (($0.01) per share), $9 million included in "Other operating expenses". | |||||||||||||||||||||
(c) | Asset impairment/Plant exit costs: 2016 ($2.99 per share), ($58) million included in "Fuel"; ($1,447) million included in "Impairment of assets" and $159 million included in "Income taxes (benefits)". 2015, ($0.01 per share), ($1) million included in "Fuel"; ($6) million included in "Other operating expenses"; and ($1) million included in "General taxes". | |||||||||||||||||||||
(d) | Impact of non-core asset sales/impairments: 2015 ($0.02 per share), ($3) million included in "Revenues"; ($16) million included in "Impairment of assets". | |||||||||||||||||||||
(e) | Trust securities impairment: 2016, $2 million included in "Investment income". 2015 ($0.02 per share), $16 million included in "Investment income". | |||||||||||||||||||||
(f) | Retail repositioning charges: 2015 ($0.01 per share), ($4) million included in "Other operating expenses". | |||||||||||||||||||||
(g) | Loss on debt redemptions: 2016, $2 million included in "Interest expense". | |||||||||||||||||||||
See page 36 for additional descriptions related to special items. | ||||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 425 million shares in the second quarter of 2016 and 422 million shares in the second quarter of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 29
FirstEnergy Corp.
Competitive Energy Services
GAAP and Special Items (In millions)
Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 2,420 | $ | — | $ | 2,631 | $ | (3 | ) | (e) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 539 | (74 | ) | (b,d) | 630 | (36 | ) | (b,d) | ||||||||||||
(3 | ) | Purchased power | 626 | — | 743 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 753 | (6 | ) | (c) | 930 | (12 | ) | (a,c,d,g) | ||||||||||||
(5 | ) | Provision for depreciation | 205 | — | 195 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | ||||||||||||||||
(7 | ) | General taxes | 68 | — | 77 | (1 | ) | (d) | ||||||||||||||
(8 | ) | Impairment of assets | 1,447 | (1,447 | ) | (d) | 16 | (16 | ) | (e) | ||||||||||||
(9 | ) | Total Operating Expenses | 3,638 | (1,527 | ) | 2,591 | (65 | ) | ||||||||||||||
(10 | ) | Operating Income (Loss) | (1,218 | ) | 1,527 | 40 | 62 | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 33 | 8 | (e,f) | 12 | 22 | (f) | ||||||||||||||
(12 | ) | Interest expense | (95 | ) | 2 | (h) | (96 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 20 | — | 20 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (42 | ) | 10 | (64 | ) | 22 | ||||||||||||||
(15 | ) | Income (Loss) Before Income Taxes (Benefits) | (1,260 | ) | 1,537 | (24 | ) | 84 | ||||||||||||||
(16 | ) | Income taxes (benefits) | (145 | ) | 248 | (d) | (8 | ) | 30 | |||||||||||||
(17 | ) | Net Income (Loss) | $ | (1,115 | ) | $ | 1,289 | $ | (16 | ) | $ | 54 | ||||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 34 for GAAP to Operating (non-GAAP) EPS Reconciliation. | ||||||||||||||||||||||
(a) | Regulatory charges: 2015, ($1) million included in "Other operating expenses". | |||||||||||||||||||||
(b) | Merger accounting - commodity contracts: 2016 ($0.02 per share), ($16) million included in "Fuel". 2015 ($0.04 per share), ($24) million included in "Fuel". | |||||||||||||||||||||
(c) | Mark-to-market adjustments: 2016 ($0.01 per share), ($6) million included in "Other operating expenses". 2015 (($0.01) per share), $7 million included in "Other operating expenses". | |||||||||||||||||||||
(d) | Asset impairment/Plant exit costs: 2016 ($2.99 per share), ($58) million included in "Fuel"; ($1,447) million included in "Impairment of assets"; and $159 million included in "Income taxes (benefits)". 2015 ($0.03 per share), ($12) million included in "Fuel"; ($6) million included in "Other operating expenses"; and ($1) million included in "General taxes". | |||||||||||||||||||||
(e) | Impact of non-core asset sales/impairments: 2016, ($2) million included in "Investment income". 2015 ($0.02 per share), ($3) million included in "Revenues"; and ($16) million included in "Impairment of assets". | |||||||||||||||||||||
(f) | Trust securities impairment: 2016 ($0.01 per share), $10 million included in "Investment income". 2015 ($0.03 per share), $22 million included in "Investment income". | |||||||||||||||||||||
(g) | Retail repositioning charges: 2015 ($0.02 per share), ($12) million included in "Other operating expenses". | |||||||||||||||||||||
(h) | Loss on debt redemptions: 2016, $2 million included in "Interest expense". | |||||||||||||||||||||
See page 36 for additional descriptions related to special items. | ||||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 424 million shares in the first six months of 2016 and 422 million shares in the first six months of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 30
FirstEnergy Corp.
Corporate / Other
GAAP and Special Items (In millions)
Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | ||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | ||||||||||||||||||
(1 | ) | Revenues | $ | (179 | ) | $ | — | $ | (239 | ) | $ | — | |||||||||
Operating Expenses | |||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | |||||||||||||||
(3 | ) | Purchased power | (108 | ) | — | (162 | ) | — | |||||||||||||
(4 | ) | Other operating expenses | (84 | ) | — | (84 | ) | — | |||||||||||||
(5 | ) | Provision for depreciation | 17 | — | 15 | — | |||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | |||||||||||||||
(7 | ) | General taxes | 6 | — | 6 | — | |||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | |||||||||||||||
(9 | ) | Total Operating Expenses | (169 | ) | — | (225 | ) | — | |||||||||||||
(10 | ) | Operating Loss | (10 | ) | — | (14 | ) | — | |||||||||||||
Other Income (Expense) | |||||||||||||||||||||
(11 | ) | Investment income (loss) | (12 | ) | — | (15 | ) | 2 | (a) | ||||||||||||
(12 | ) | Interest expense | (54 | ) | — | (48 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 3 | — | 3 | — | |||||||||||||||
(14 | ) | Total Other Expense | (63 | ) | — | (60 | ) | 2 | |||||||||||||
(15 | ) | Loss Before Income Tax Benefits | (73 | ) | — | (74 | ) | 2 | |||||||||||||
(16 | ) | Income tax benefits | (26 | ) | — | (24 | ) | 1 | |||||||||||||
(17 | ) | Net Loss | $ | (47 | ) | $ | — | $ | (50 | ) | $ | 1 | |||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 33 for GAAP to Operating (non-GAAP) EPS Reconciliation. | |||||||||||||||||||||
(a) | Impact of non-core asset sales/impairments: 2015, $2 million included in "Investment income (loss)". | ||||||||||||||||||||
See page 36 for additional descriptions related to special items. | |||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 425 million shares in the second quarter of 2016 and 422 million shares in the second quarter of 2015. | |||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 2nd Quarter 2016 31
FirstEnergy Corp.
Corporate / Other
GAAP and Special Items (In millions)
Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | ||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | ||||||||||||||||||
(1 | ) | Revenues | $ | (410 | ) | $ | — | $ | (577 | ) | $ | — | |||||||||
Operating Expenses | |||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | |||||||||||||||
(3 | ) | Purchased power | (260 | ) | — | (422 | ) | — | |||||||||||||
(4 | ) | Other operating expenses | (171 | ) | — | (178 | ) | — | |||||||||||||
(5 | ) | Provision for depreciation | 32 | — | 29 | — | |||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | |||||||||||||||
(7 | ) | General taxes | 21 | — | 20 | — | |||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | |||||||||||||||
(9 | ) | Total Operating Expenses | (378 | ) | — | (551 | ) | — | |||||||||||||
(10 | ) | Operating Loss | (32 | ) | — | (26 | ) | — | |||||||||||||
Other Income (Expense) | |||||||||||||||||||||
(11 | ) | Investment loss | (10 | ) | — | (23 | ) | 6 | (a) | ||||||||||||
(12 | ) | Interest expense | (105 | ) | — | (96 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 6 | — | 5 | — | |||||||||||||||
(14 | ) | Total Other Expense | (109 | ) | — | (114 | ) | 6 | |||||||||||||
(15 | ) | Loss Before Income Tax Benefits | (141 | ) | — | (140 | ) | 6 | |||||||||||||
(16 | ) | Income tax benefits | (39 | ) | — | (40 | ) | 2 | |||||||||||||
(17 | ) | Net Loss | $ | (102 | ) | $ | — | $ | (100 | ) | $ | 4 | |||||||||
The above special items, if any, provides additional transparency to our disclosures by providing specific line items to which the special items are recorded. Management consistently utilizes these reconciliations to assist in its analysis of historical and ongoing performance. Additionally, the table above summarizes the pre-tax impact of each special item and the cumulative impact to income taxes (benefits) based on the current and deferred income tax expense associated with each special item. See page 34 for GAAP to Operating (non-GAAP) EPS Reconciliation. | |||||||||||||||||||||
(a) | Impact of non-core asset sales/impairments: 2015 ($0.01 per share), $6 million included in "Investment loss". | ||||||||||||||||||||
See page 36 for additional descriptions related to special items. | |||||||||||||||||||||
Per share amounts included above are based on the after-tax effect of the above special items as discussed on page 1 divided by the weighted average shares outstanding of 424 million shares in the first six months of 2016 and 422 million shares in the first six months of 2015. | |||||||||||||||||||||
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Consolidated Report to the Financial Community - 2nd Quarter 2016 32
FirstEnergy Corp.
EPS Reconciliations
Earnings Per Share (EPS) | |||||||||||||||||||||||
(Reconciliation of GAAP to Operating (Non-GAAP) Earnings) | |||||||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||
Three Months Ended June 30, 2016 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
2Q 2016 Net Income (Loss) - GAAP | $ | 146 | $ | 71 | $ | (1,259 | ) | $ | (47 | ) | $ | (1,089 | ) | ||||||||||
2Q 2016 Basic Earnings (Losses) per share (avg. shares outstanding 425M) | $ | 0.35 | $ | 0.17 | $ | (2.96 | ) | $ | (0.12 | ) | $ | (2.56 | ) | ||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.01 | — | — | — | 0.01 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Asset impairment/Plant exit costs | — | — | 2.99 | — | 2.99 | ||||||||||||||||||
Mark-to-market adjustments | — | — | 0.11 | — | 0.11 | ||||||||||||||||||
Total Special Items | $ | 0.01 | $ | — | $ | 3.11 | $ | — | $ | 3.12 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 0.36 | $ | 0.17 | $ | 0.15 | $ | (0.12 | ) | $ | 0.56 | ||||||||||||
Three Months Ended June 30, 2015 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
2Q 2015 Net Income (Loss) - GAAP | $ | 156 | $ | 89 | $ | (8 | ) | $ | (50 | ) | $ | 187 | |||||||||||
2Q 2015 Basic Earnings (Losses) per share (avg. shares outstanding 422M) | $ | 0.37 | $ | 0.21 | $ | (0.02 | ) | $ | (0.12 | ) | $ | 0.44 | |||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.02 | — | — | — | 0.02 | ||||||||||||||||||
Trust securities impairment | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Plant exit costs | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Impact of non-core asset sales/impairments | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Retail repositioning charges | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Mark-to-market adjustments | — | — | (0.01 | ) | — | (0.01 | ) | ||||||||||||||||
Total Special Items | $ | 0.02 | $ | — | $ | 0.07 | $ | — | $ | 0.09 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 0.39 | $ | 0.21 | $ | 0.05 | $ | (0.12 | ) | $ | 0.53 | ||||||||||||
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the weighted average basic shares outstanding for the period. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%. | |||||||||||||||||||||||
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Consolidated Report to the Financial Community - 2nd Quarter 2016 33
FirstEnergy Corp.
EPS Reconciliations
Earnings Per Share (EPS) | |||||||||||||||||||||||
(Reconciliation of GAAP to Operating (Non-GAAP) Earnings) | |||||||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||
Six Months Ended June 30, 2016 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
2016 Net Income (Loss) - GAAP | $ | 311 | $ | 145 | $ | (1,115 | ) | $ | (102 | ) | $ | (761 | ) | ||||||||||
2016 Basic Earnings (Losses) per share (avg. shares outstanding 424M) | $ | 0.73 | $ | 0.34 | $ | (2.62 | ) | $ | (0.24 | ) | $ | (1.79 | ) | ||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.11 | — | — | — | 0.11 | ||||||||||||||||||
Trust securities impairment | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Asset impairment/Plant exit costs | — | — | 2.99 | — | 2.99 | ||||||||||||||||||
Mark-to-market adjustments | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Total Special Items | $ | 0.11 | $ | — | $ | 3.03 | $ | — | $ | 3.14 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 0.84 | $ | 0.34 | $ | 0.41 | $ | (0.24 | ) | $ | 1.35 | ||||||||||||
Six Months Ended June 30, 2015 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
2015 Net Income (Loss) - GAAP | $ | 364 | $ | 161 | $ | (16 | ) | $ | (100 | ) | $ | 409 | |||||||||||
2015 Basic Earnings (Losses) per share (avg. shares outstanding 422M) | $ | 0.86 | $ | 0.38 | $ | (0.04 | ) | $ | (0.23 | ) | $ | 0.97 | |||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.04 | — | — | — | 0.04 | ||||||||||||||||||
Trust securities impairment | — | — | 0.03 | — | 0.03 | ||||||||||||||||||
Plant exit costs | — | — | 0.03 | — | 0.03 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.04 | — | 0.04 | ||||||||||||||||||
Impact of non-core asset sales/impairments | — | — | 0.02 | 0.01 | 0.03 | ||||||||||||||||||
Retail repositioning charges | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Mark-to-market adjustments | — | — | (0.01 | ) | — | (0.01 | ) | ||||||||||||||||
Total Special Items | $ | 0.04 | $ | — | $ | 0.13 | $ | 0.01 | $ | 0.18 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 0.90 | $ | 0.38 | $ | 0.09 | $ | (0.22 | ) | $ | 1.15 | ||||||||||||
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the weighted average basic shares outstanding for the period. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%. | |||||||||||||||||||||||
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Consolidated Report to the Financial Community - 2nd Quarter 2016 34
FirstEnergy Corp.
Special Items
(In millions, except per share amount) | |||||||||||||||
Estimate for Year 2016 | Pre-tax | After-tax | EPS | ||||||||||||
Special Items: | |||||||||||||||
Regulatory charges | $ | 89 | $ | 57 | $ | 0.13 | |||||||||
Trust securities impairment | 10 | 6 | 0.01 | ||||||||||||
Merger accounting - commodity contracts | 32 | 21 | 0.05 | ||||||||||||
Asset impairment/Plant exit costs | 1,505 | 1,269 | 2.95 | ||||||||||||
Impact of non-core asset sales/impairment | (2 | ) | (1 | ) | — | ||||||||||
Mark-to-market adjustments | 6 | 4 | 0.01 | ||||||||||||
Loss on debt redemptions | 2 | 1 | — | ||||||||||||
Total Special Items | $ | 1,642 | $ | 1,357 | $ | 3.15 | |||||||||
Estimate for Q3 2016 | Pre-tax | After-tax | EPS | ||||||||||||
Special Items: | |||||||||||||||
Regulatory charges | $ | 9 | $ | 6 | $ | 0.01 | |||||||||
Merger accounting - commodity contracts | 8 | 5 | 0.01 | ||||||||||||
Total Special Items | $ | 17 | $ | 11 | $ | 0.02 | |||||||||
Per share amounts for the special items and earnings drivers above and throughout this report are based on the after-tax effect of each item divided by the weighted average basic shares outstanding and assumes up to $600 million of additional equity in 2016, of which $95 million is related to employee benefit plans. The current and deferred income tax effect was calculated by applying the subsidiaries’ statutory tax rate to the pre-tax amount with the exception of Asset impairment/Plant exit costs that included an impairment of goodwill, of which $433 million of the $800 million pre-tax impairment was non-deductible for tax purposes, and valuation allowances against state and local NOL carryforwards of $159 million. With the exception of these items included in Asset impairment/Plant exit costs, the income tax rates range from 35% to 42%. | |||||||||||||||
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Consolidated Report to the Financial Community - 2nd Quarter 2016 35
2015/2016 Special Item Descriptions
• | Regulatory charges - Primarily reflects the impact of regulatory orders requiring certain commitments and/or disallowing the recoverability of costs. |
• | Trust securities impairment - Primarily reflects non-cash other than temporary impairment charges on nuclear decommissioning trust assets. |
• | Merger accounting - commodity contracts - Primarily reflects the non-cash amortization of acquired commodity contracts from the Allegheny Merger. |
• | Asset impairment/Plant exit costs - Primarily reflects the impairments of CES' goodwill, the Bay Shore Unit 1 generating station and Units 1-4 of the W. H. Sammis generating station, valuation allowances on net operating loss carryforwards and other costs associated with the deactivation of certain power plants (as described on page 2). |
• | Impact of non-core asset sales/impairment - Primarily reflects the non-cash amortization/impairment of certain non-core investments and the impact of non-core asset sales. |
• | Retail repositioning charges - Primarily reflects termination and restructuring costs associated with CES' revised sales strategy. |
• | Mark-to-market adjustments - Primarily reflects non-cash mark-to-market gains and losses on commodity contract positions. |
• | Loss on debt redemptions - Primarily reflects costs associated with the early retirement of debt. |
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Consolidated Report to the Financial Community - 2nd Quarter 2016 36
Recent Developments
Financial Matters
Dividend
On July 19, 2016, the Board of Directors of FE declared an unchanged quarterly dividend of $0.36 cents per share of outstanding common stock. The dividend is payable September 1, 2016, to shareholders of record as of August 5, 2016.
Financing Activities
On May 1, 2016, Jersey Central Power & Light Company (JCP&L) repaid $300 million of 5.625% senior notes at maturity.
On June 1 and July 1, 2016, FirstEnergy Nuclear Generation, LLC purchased $224.6 million and $60 million, respectively, of pollution control revenue bonds on their mandatory put date. These bonds are being held internally for future remarketing, in 2016, subject to market and other conditions.
On July 11, 2016, Pennsylvania Power Company (PP) issued $50 million of 4.24% first mortgage bonds due 2056. Proceeds were used to fund capital expenditures, repay short-term borrowings under the FirstEnergy regulated money pool and for working capital needs and other general corporate purposes.
Operational Matters
Davis-Besse Refueling Outage
On May 9, 2016, the 908-MW Davis-Besse Nuclear Power station returned to service following a scheduled shutdown on March 26, 2016, for refueling and maintenance. During the outage, approximately one third of the plant's 177 fuel assemblies were exchanged. In addition, numerous inspections and preventative maintenance and improvement projects were completed to ensure continued safe and reliable operations.
Sale or Deactivation of Bay Shore Unit 1 and Deactivation of W.H. Sammis Units 1-4
On July 22, 2016, FE announced that it is committed to the sale or deactivation of Bay Shore Unit 1 located in Oregon, Ohio by October 1, 2020 and the deactivation of W. H. Sammis Units 1-4 generating station located in Stratton, Ohio by May 31, 2020 as a result of current market conditions. The total capacity of these plants is 856 MW, and represented approximately four percent of the electricity produced by the company's generating plants in 2015. The deactivation is subject to review by PJM Interconnection, LLC.
FirstEnergy Executive Promotions
On May 17, 2016, FE’s Board of Directors elected Leila Vespoli to executive vice president, Corporate Strategy, Regulatory Affairs, and chief legal officer, a move that reflects the company's focus on more customer-centered, regulated growth. Vespoli, who had been executive vice president, Markets, and chief legal officer, will continue reporting to FirstEnergy president and chief executive officer Charles E. Jones. Vespoli's key responsibilities of corporate strategy, regulatory affairs and legal matters are closely aligned with the company's regulated priorities. She also will maintain responsibility for Federal, State and Local Governmental Affairs and Economic
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Consolidated Report to the Financial Community - 2nd Quarter 2016 37
Development, Rates, Corporate Affairs & Community Involvement, Business Development, and the Corporate Department.
In a related matter, the company's competitive retail operations, including FirstEnergy Solutions Corp. (FES), which was previously part of Vespoli's organization, is now under Jones. Donald R. Schneider remains president of FES.
On June 7, 2016, FE’s Board of Directors elected Ketan K. Patel vice president, Corporate Secretary and Chief Ethics Officer. Previously, Patel was director, Real Estate and Facilities, since 2012. In his new role he will serve as a primary liaison to the Board of Directors and oversee the Corporate, Real Estate and Records & Information Compliance departments. Patel will report to Vespoli.
Regulatory Matters
ESP IV Update
On March 31, 2016, the Public Utilities Commission of Ohio (PUCO) approved, with modifications, the Ohio Companies (Ohio Edison Company, The Cleveland Electric Illuminating Company, and The Toledo Edison Company) ESP IV. The ESP IV represents a comprehensive plan to stabilize retail prices for customers, address future volatility and retail price increases, and promote economic development and job retention efforts in the state. The ESP IV, as originally proposed, included an Economic Stability Program that relied upon a Purchase Power Agreement (PPA) between the Ohio Utilities and affiliate FES, which was the subject of a complaint before the Federal Energy Regulatory Commission (FERC).
On April 27, 2016, FERC issued an Order rescinding the existing affiliate waiver between the Ohio Companies and FES as it applies to the PPA, precluding implementation of the PPA without prior authorization by FERC. The PPA was entered into on April 1, 2016, but the Ohio Companies and FES subsequently suspended the PPA.
On May 2, 2016, the Ohio Companies filed an Application for Rehearing with the PUCO which proposed a change to the Economic Stability Program by modifying Rider RRS. The modified structure of Rider RRS is designed to be solely within the PUCO's jurisdiction, relies on retail ratemaking mechanisms that do not utilize a PPA, and also preserves the PUCO’s finding of $256 million in projected customer savings over the 8-year term of the ESP IV as originally approved. The modified ESP IV would also continue to provide customers the benefits of market-based pricing, economic development, and prudent use of natural resources through increased energy efficiency, use of renewable power and reduced emissions from power plants. This proposal is pending before the PUCO.
On June 29, 2016, the PUCO Staff filed testimony recommending denial of the proposed modifications to the modified Rider RRS and instead recommended an alternative proposal, a Distribution Modernization Rider, that would allow for annual recovery of $131 million over an initial three-year period with a possible extension for an additional two years. The hearings began on July 11, 2016 on the modified Rider RRS.
On July 25, 2016, the Ohio Companies filed rebuttal testimony that:
• | Continues to recommend that the PUCO approve the proposed modified Rider RRS |
• | A properly designed Distribution Modernization Rider would be valued at $558 million for 8 years |
• | The value of the economic impact analysis of FirstEnergy maintaining its headquarters in Ohio is $568 million, and |
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Consolidated Report to the Financial Community - 2nd Quarter 2016 38
• | The revenues and expenses of the proposed modified Rider RRS and the Distribution Modernization Rider should be excluded from the significantly excessive earnings test analysis. |
New Jersey Rate Case Filing
On April 28, 2016, JCP&L filed tariffs with the New Jersey Board of Public Utilities (NJBPU) proposing a general rate increase associated with its distribution operations. The filing requested approval to increase annual operating revenues by approximately $142.1 million based upon a hybrid test year for the twelve months ending June 30, 2016. JCP&L requested that the new rates take effect in January 2017. On July 13, 2016, this matter was sent to the Office Of Administrative Law for hearing and the issuance of an initial decision. A procedural schedule has not yet been issued.
Pennsylvania Rate Case Filings
On April 28, 2016, each of the Pennsylvania Utilities (Metropolitan Edison Company (ME), Pennsylvania Electric Company (PN), PP, and West Penn Power Company (WP)) filed tariffs with the Pennsylvania Public Utilities Commission (PPUC) proposing general rate increases associated with their distribution operations. The filings requested approval to increase annual operating revenues by approximately $140.2 million at ME, $158.8 million at PN, $42.0 million at PP, and $98.2 million at WP, based upon fully projected future test years for the twelve months ending December 31, 2017.
A procedural schedule has been set with hearings commencing on September 6, 2016. The proposed new rates are expected to take effect in January 2017, pending PPUC approval.
Mid-Atlantic Interstate Transmission (MAIT) Update
On February 18, 2016, FERC issued an order approving the MAIT transaction.
On February 24, 2016, the NJBPU issued an order concluding that MAIT does not satisfy the "electricity distribution" element necessary for "public utility" status. On April 22, 2016, JCP&L and MAIT filed a supplemental petition and testimony seeking to include certain JCP&L distribution assets in the transfer to satisfy this "electricity distribution" element necessary for a “public utility” in accordance with the NJBPU’s prior order. A procedural schedule was issued on July 18, 2016, with evidentiary hearings in late October and early November of 2016.
On March 4, 2016, a Joint Petition for Full Settlement related to PN and ME requesting authorization to contribute their transmission assets to MAIT was submitted to the PPUC for consideration and approval. On April 18, 2016, the Administrative Law Judges issued an Initial Decision approving the Joint Petition for Full Settlement without modifications. On July 21, 2016, the PPUC adopted a Motion approving the Joint Petition for Full Settlement with minor modifications. A final opinion and order consistent with the Motion is expected in the near future.
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Consolidated Report to the Financial Community - 2nd Quarter 2016 39
Forward-Looking Statements: This Consolidated Report to the Financial Community includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management's intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” "forecast," "target," "will," "intend," “believe,” "project," “estimate," "plan" and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following: the speed and nature of increased competition in the electric utility industry, in general, and the retail sales market in particular; the ability to experience growth in the Regulated Distribution and Regulated Transmission segments; the accomplishment of our regulatory and operational goals in connection with our transmission investment plan, including, but not limited to, the proposed transmission asset transfer to Mid-Atlantic Interstate Transmission, LLC, and the effectiveness of our strategy to reflect a more regulated business profile; changes in assumptions regarding economic conditions within our territories, assessment of the reliability of our transmission system, or the availability of capital or other resources supporting identified transmission investment opportunities; the impact of the regulatory process and resulting outcomes on the matters at the federal level and in the various states in which we do business including, but not limited to, matters related to rates and the Electric Security Plan IV; the impact of the federal regulatory process on Federal Energy Regulatory Commission (FERC)-regulated entities and transactions, in particular FERC regulation of wholesale energy and capacity markets, including PJM Interconnection, L.L.C. (PJM) markets and FERC-jurisdictional wholesale transactions; FERC regulation of cost-of-service rates, including FERC Opinion No. 531's revised Return on Equity methodology for FERC-jurisdictional wholesale generation and transmission utility service; and FERC’s compliance and enforcement activity, including compliance and enforcement activity related to North American Electric Reliability Corporation’s mandatory reliability standards; the uncertainties of various cost recovery and cost allocation issues resulting from American Transmission Systems, Incorporated's realignment into PJM; economic or weather conditions affecting future sales and margins such as a polar vortex or other significant weather events, and all associated regulatory events or actions; changing energy, capacity and commodity market prices including, but not limited to, coal, natural gas and oil prices, and their availability and impact on margins and asset valuations, including without limitation impairments thereon; the risks and uncertainties at the CES segment, including FES, related to continued depressed wholesale energy and capacity markets, including the potential need to deactivate or sell additional generating units; the continued ability of our regulated utilities to recover their costs; costs being higher than anticipated and the success of our policies to control costs and to mitigate low energy, capacity and market prices; other legislative and regulatory changes, and revised environmental requirements, including, but not limited to, the effects of the United States Environmental Protection Agency’s Clean Power Plan, Coal Combustion Residuals regulations, Cross-State Air Pollution Rule and Mercury and Air Toxics Standards programs, including our estimated costs of compliance, Clean Water Act (CWA) waste water effluent limitations for power plants, and CWA 316(b) water intake regulation; the uncertainty of the timing and amounts of the capital expenditures that may arise in connection with any litigation, including New Source Review litigation, or potential regulatory initiatives or rulemakings (including that such initiatives or rulemakings could result in our decision to deactivate or idle certain generating units); the uncertainties associated with the deactivation of certain older regulated and competitive fossil units, including the impact on vendor commitments, such as long-term fuel and transportation agreements, and as it relates to the reliability of the transmission grid, the timing thereof; the impact of other future changes to the operational status or availability of our generating units and any capacity performance charges associated with unit unavailability; adverse regulatory or legal decisions and outcomes with respect to our nuclear operations (including, but not limited to, the revocation or non-renewal of necessary licenses, approvals or operating permits by the Nuclear Regulatory Commission or as a result of the incident at Japan's Fukushima Daiichi Nuclear Plant); issues arising from the indications of cracking in the shield building at Davis-Besse; the risks and uncertainties associated with litigation, arbitration, mediation and like proceedings, including, but not limited to, any such proceedings related to vendor commitments, such as long-term fuel and transportation agreements; the impact of labor disruptions by our unionized workforce; replacement power costs being higher than anticipated or not fully hedged; the ability to comply with applicable state and federal reliability standards and energy efficiency and peak demand reduction mandates; changes in customers' demand for power, including, but not limited to, changes resulting from the implementation of state and federal energy efficiency and peak demand reduction mandates; the ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, the ability to continue to reduce costs and to successfully execute our financial plans designed to improve our credit metrics and strengthen our balance sheet through, among other actions, our cash flow improvement plan and other proposed capital raising initiatives; our ability to improve electric commodity margins and the impact of, among other factors, the increased cost of fuel and fuel transportation on such margins; changing market conditions that could affect the measurement of certain liabilities and the value of assets held in our Nuclear Decommissioning Trusts, pension trusts and other trust funds, and cause us and/or our subsidiaries to make additional contributions sooner, or in amounts that are larger than currently anticipated; the impact of changes to material accounting policies; the ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us and our subsidiaries; actions that may be taken by credit rating agencies that could negatively affect us and/or our subsidiaries' access to financing, increase the costs thereof, and increase requirements to post additional collateral to support outstanding commodity positions, letters of credit and other financial guarantees; changes in national and regional economic conditions affecting us, our subsidiaries and/or our major industrial and commercial customers, and other counterparties with which we do business, including fuel suppliers; the impact of any changes in tax laws or regulations or adverse tax audit results or rulings; issues concerning the stability of domestic and foreign financial institutions and counterparties with which we do business; the risks associated with cyber-attacks and other disruptions to our information technology system that may compromise our generation, transmission and/or distribution services and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information regarding our business, employees, shareholders, customers, suppliers, business partners and other individuals in our data centers and on our networks; and the risks and other factors discussed from time to time in our United States Securities and Exchange Commission (SEC) filings, and other similar factors. Dividends declared from time to time on FirstEnergy Corp.'s common stock during any period may in the aggregate vary from prior periods due to circumstances considered by FirstEnergy Corp.'s Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our filings with the SEC, including but not limited to the most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. FirstEnergy expressly disclaims any current intention to update, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.
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Consolidated Report to the Financial Community - 2nd Quarter 2016 40