Attached files
| file | filename |
|---|---|
| EX-99.3 - EXHIBIT 99.3 - FIRSTENERGY CORP | fe3q16quarterlyhighlight.htm |
| EX-99.1 - EXHIBIT 99.1 - FIRSTENERGY CORP | ex991fe-09302016.htm |
| 8-K - 8-K - FIRSTENERGY CORP | a8-kdated11042016.htm |
Exhibit 99.2
Consolidated Report to the Financial Community
Third Quarter 2016
(Released November 4, 2016) (Unaudited)
HIGHLIGHTS
GAAP earnings for the third quarter of 2016 were $0.89 per basic share, compared with third quarter 2015 earnings of $0.94 per basic share. Operating (non-GAAP) earnings*, excluding special items, were $0.90 per basic share for the third quarter of 2016, compared with third quarter 2015 Operating (non-GAAP) earnings of $0.98 per basic share.
Competitive | FirstEnergy | ||||||||||||
EPS Variance Analysis | Regulated | Regulated | Energy | Corporate / | Corp. | ||||||||
(in millions, except per share amounts) | Distribution | Transmission | Services** | Other** | Consolidated | ||||||||
3Q 2015 Net Income - GAAP | $234 | $70 | $145 | $(54) | $395 | ||||||||
3Q 2015 Basic EPS* (avg. shares outstanding 423M) | $0.56 | $0.17 | $0.34 | $(0.13) | $0.94 | ||||||||
Special Items - 2015*** | |||||||||||||
Regulatory charges | 0.01 | — | — | — | 0.01 | ||||||||
Trust securities impairment | 0.01 | — | 0.06 | — | 0.07 | ||||||||
Merger accounting - commodity contracts | — | — | 0.02 | — | 0.02 | ||||||||
Impact of non-core asset sales/impairments | 0.01 | — | — | 0.01 | 0.02 | ||||||||
Retail repositioning charges | — | — | 0.01 | — | 0.01 | ||||||||
Mark-to-market adjustments | — | — | (0.09) | — | (0.09) | ||||||||
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings* | $0.59 | $0.17 | $0.34 | $(0.12) | $0.98 | ||||||||
Distribution Deliveries - Weather | 0.11 | — | — | — | 0.11 | ||||||||
Distribution Revenues - DCR | 0.01 | — | — | — | 0.01 | ||||||||
Transmission Revenues | — | 0.05 | — | — | 0.05 | ||||||||
Commodity Margin | — | — | (0.17) | — | (0.17) | ||||||||
O&M Expenses | — | — | (0.02) | 0.02 | — | ||||||||
Depreciation | — | (0.01) | 0.03 | — | 0.02 | ||||||||
Pension/OPEB | (0.02) | — | (0.01) | — | (0.03) | ||||||||
General Taxes | (0.02) | (0.02) | 0.01 | — | (0.03) | ||||||||
Investment Income | — | — | 0.01 | — | 0.01 | ||||||||
Interest Expense | 0.01 | — | — | (0.01) | — | ||||||||
Effective Income Tax Rate | — | — | — | (0.05) | (0.05) | ||||||||
Other | — | (0.01) | — | 0.01 | — | ||||||||
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings* | $0.68 | $0.18 | $0.19 | $(0.15) | $0.90 | ||||||||
Special Items - 2016*** | |||||||||||||
Regulatory charges | (0.02) | — | — | — | (0.02) | ||||||||
Merger accounting - commodity contracts | — | — | (0.01) | — | (0.01) | ||||||||
Mark-to-market adjustments | — | — | 0.02 | — | 0.02 | ||||||||
3Q 2016 Basic EPS* (avg. shares outstanding 425M) | $0.66 | $0.18 | $0.20 | $(0.15) | $0.89 | ||||||||
3Q 2016 Net Income - GAAP | $283 | $78 | $86 | $(67) | $380 | ||||||||
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. The income tax rates range from 35% to 42%. | |||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 1
*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 - 3rd Quarter 2016 2
2016 Earnings Guidance
GAAP losses for 2016 are forecasted at $(1.30) - $(0.90) per basic share with 2016 Operating (non-GAAP) earnings guidance ranging from $2.60 - $2.70 per basic share, and assumes up to $500 million of additional equity by year end.
Estimate for Year 2016* | ||||
(In millions, except per share amounts) | FirstEnergy Corp. Consolidated | |||
2016F Net Loss - GAAP | $(555) - $(385) | |||
2016F Basic Loss Per Share | $(1.30) - $(0.90) | |||
Excluding Special Items: | ||||
Regulatory charges | 0.13 | |||
Trust securities impairment | 0.02 | |||
Merger accounting-commodity contracts | 0.05 | |||
Asset impairment/Plant exit costs | 2.97 | |||
Mark-to-market adjustments | ||||
Pension/OPEB actuarial assumptions(1) | 0.45 - 0.75 | |||
Other | (0.02) | |||
Total Special Items** | $3.60 - $3.90 | |||
2016F Basic Earnings Per Share - Operating (Non-GAAP) | $2.60 - $2.70 | |||
(1) Based on current discount rates ranging from 4.00% to 3.75% for the pension plans and 3.75% to 3.50% for the OPEB plans and actual gains on plan assets through September 30, 2016 of 11%. | ||||
*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 fourth quarter of 2016. 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 - 3rd Quarter 2016 3
3Q 2016 Results vs 3Q 2015 - By Segment
Regulated Distribution
Regulated Distribution - GAAP earnings for the third quarter of 2016 were $283 million, or $0.66 per basic share, compared with third quarter 2015 GAAP earnings of $234 million, or $0.56 per basic share. Operating (non-GAAP) earnings, excluding special items, were $0.68 per basic share for the third quarter of 2016 compared with $0.59 per basic share for the third quarter of 2015. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
3Q 2015 Net Income - GAAP | $234 | ||||||
3Q 2015 Basic EPS (avg. shares outstanding 423M) | $0.56 | ||||||
Special Items - 2015* | 0.03 | ||||||
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings | $0.59 | ||||||
Distribution Deliveries - Weather | 0.11 | ||||||
Distribution Revenues - DCR | 0.01 | ||||||
Pension/OPEB | (0.02) | ||||||
General Taxes | (0.02) | ||||||
Interest Expense | 0.01 | ||||||
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings | $0.68 | ||||||
Special Items - 2016* | (0.02) | ||||||
3Q 2016 Basic EPS (avg. shares outstanding 425M) | $0.66 | ||||||
3Q 2016 Net Income - GAAP | $283 | ||||||
*See pages 23-36 for additional details on special items. | |||||||
3Q 2016 vs 3Q 2015 Earnings Drivers
• | Distribution Revenues - Total distribution revenues increased earnings $0.12 per share primarily as a result of increased deliveries of 2,675,000 megawatt-hours (MWH), or 6.9% resulting from higher weather-related usage and higher revenues from the Ohio Delivery Capital Recovery rider. Residential sales increased 1,833,000 MWH or 12.8%, and sales to commercial customers increased 542,000 MWH, or 4.7%. Cooling-degree-days were 28% above the same period last year and 46% above normal. Deliveries to industrial customers increased 302,000 MWH, or 2.4%, primarily due to higher usage in the shale gas, coal and steel sectors. |
• | Pension/OPEB - Higher pension/OPEB expense reduced earnings $0.02 per share. |
• | General Taxes - Higher general taxes decreased earnings $0.02 per share as a result of higher property taxes and higher revenue-related taxes. |
• | Interest Expense - Lower interest expense increased earnings $0.01 per share, primarily as a result of lower long-term debt at Jersey Central Power & Light Company (JCP&L) and Monongahela Power Company (MP). |
• | Special Items - In the third quarter of 2016 and 2015, Regulated Distribution special items included regulatory charges of $0.02 and $0.01 per share, respectively, reflecting the impact of regulatory orders requiring certain commitments and/or disallowing the recoverability of costs. In addition, 2015 special items included trust securities impairment of $0.01 per share and the impact of non-core asset sales/impairments of $0.01 per share. Additional details regarding special items can be found on page 36. |
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 4
Regulated Transmission
Regulated Transmission - GAAP and Operating (non-GAAP) earnings for the third quarter of 2016 were $78 million, or $0.18 per basic share, compared with third quarter 2015 GAAP and Operating (non-GAAP) earnings of $70 million, or $0.17 per basic share. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
3Q 2015 Net Income - GAAP | $70 | ||||||
3Q 2015 Basic EPS (avg. shares outstanding 423M) | $0.17 | ||||||
Special Items - 2015* | — | ||||||
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings | $0.17 | ||||||
Transmission Revenues | 0.05 | ||||||
Depreciation | (0.01) | ||||||
General Taxes | (0.02) | ||||||
Other | (0.01) | ||||||
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings | $0.18 | ||||||
Special Items - 2016* | — | ||||||
3Q 2016 Basic EPS (avg. shares outstanding 425M) | $0.18 | ||||||
3Q 2016 Net Income - GAAP | $78 | ||||||
*See pages 23-36 for additional details on special items. | |||||||
• | Transmission Revenues - Higher transmission revenues increased earnings $0.05 per share, primarily due to recovery of incremental operating expenses and a higher rate base at American Transmission Systems, Incorporated (ATSI) and Trans-Allegheny Interstate Line Company (TrAIL), partially offset by a lower ROE at ATSI, effective January 1, 2016, under a comprehensive settlement approved by the Federal Energy Regulatory Commission (FERC) in October 2015. |
• | Depreciation and General Taxes - Higher depreciation and general tax expense decreased earnings $0.03 per share, due primarily to a higher asset base at ATSI. These expenses are recovered through ATSI's formula rate. |
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 5
Competitive Energy Services
CES - GAAP earnings for the third quarter of 2016 were $86 million, or $0.20 per basic share, compared with third quarter 2015 GAAP earnings of $145 million, or $0.34 per basic share. Operating (non-GAAP) earnings, excluding special items, for the third quarter of 2016 were $0.19 per basic share, compared with third quarter 2015 Operating (non-GAAP) earnings of $0.34 per basic share. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
3Q 2015 Net Income - GAAP | $145 | ||||||
3Q 2015 Basic EPS (avg. shares outstanding 423M) | $0.34 | ||||||
Special Items - 2015* | — | ||||||
3Q 2015 Basic EPS - Operating (Non-GAAP) Earnings | $0.34 | ||||||
Commodity Margin | (0.17) | ||||||
O&M Expenses | (0.02) | ||||||
Depreciation | 0.03 | ||||||
Pension/OPEB | (0.01) | ||||||
General Taxes | 0.01 | ||||||
Investment Income | 0.01 | ||||||
3Q 2016 Basic EPS - Operating (Non-GAAP) Earnings | $0.19 | ||||||
Special Items - 2016* | 0.01 | ||||||
3Q 2016 Basic EPS (avg. shares outstanding 425M) | $0.20 | ||||||
3Q 2016 Net Income - GAAP | $86 | ||||||
*See pages 23-36 for additional details on special items. | |||||||
3Q 2016 vs 3Q 2015 Earnings Drivers
• | Commodity Margin - CES commodity margin decreased earnings $0.17 per share primarily due to lower capacity revenue, partially offset by increased wholesale sales. Lower contract sales of 2.6 million MWH, as CES continues to implement its retail strategy to more effectively hedge its generation, was offset by lower purchased power, fuel and capacity expense. |
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 6
A summary by key component of commodity margin is as follows:
Commodity Margin EPS - 3Q16 vs 3Q15 | Rate | Volume | Total | |||||||||||
(a) Contract Sales | ||||||||||||||
- Direct Sales (LCI & MCI) | $ | — | $ | (0.13 | ) | $ | (0.13 | ) | ||||||
- Governmental Aggregation Sales | (0.09 | ) | — | (0.09 | ) | |||||||||
- Mass Market Sales | — | (0.02 | ) | (0.02 | ) | |||||||||
- POLR Sales | (0.04 | ) | 0.07 | 0.03 | ||||||||||
- Structured Sales | (0.02 | ) | (0.09 | ) | (0.11 | ) | ||||||||
Subtotal - Contract Sales | $ | (0.15 | ) | $ | (0.17 | ) | $ | (0.32 | ) | |||||
(b) Wholesale Sales | — | 0.06 | 0.06 | |||||||||||
(c) PJM Capacity, BRA and CP Revenues | (0.25 | ) | 0.03 | (0.22 | ) | |||||||||
(d) Fuel Expense | 0.04 | 0.02 | 0.06 | |||||||||||
(e) Purchased Power (net of financials) | 0.02 | 0.02 | 0.04 | |||||||||||
(f) Capacity Expense | 0.13 | 0.07 | 0.20 | |||||||||||
(g) Net MISO - PJM Transmission Cost | (0.01 | ) | 0.02 | 0.01 | ||||||||||
Net Change | $ | (0.22 | ) | $ | 0.05 | $ | (0.17 | ) | ||||||
(a) | Contract Sales - CES' contract sales decreased 2.6 million MWH, or 15%, and reduced earnings $0.32 per share. Direct sales to large and medium commercial / industrial customers decreased 1.6 million MWH, or 29%. Governmental aggregation sales were essentially flat. Mass market sales decreased 233,000 MWH, or 26%, while POLR sales increased 725,000 MWH, or 33%. Structured sales, which includes bilateral and muni/co-op sales, decreased 1.5 million MWH, or 37%. As of September 30, 2016, the total number of retail customers was 1.4 million, a decrease of approximately 230,000 customers since September 30, 2015. |
CES Contract Sales - 3Q16 vs 3Q15 | ||||||||||||||
(thousand MWH) | Retail | Non-Retail | ||||||||||||
Direct | Aggr. | Mass Market | POLR | Structured | Total | |||||||||
Contract Sales Increase / (Decrease) | (1,628) | 12 | (233) | 725 | (1,456) | (2,580) | ||||||||
(b) Wholesale Sales - Wholesale sales increased 1.3 million MWH and increased earnings $0.06 per share.
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 7
(c) PJM Capacity Revenues (Base Residual (BRA) and Capacity Performance (CP) Auctions) - Lower capacity revenues decreased earnings $0.22 per share, primarily resulting from lower 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 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 $0.06 per share primarily due to lower rates on fuel contracts and lower generation associated with outages and economic dispatch of fossil units resulting from low wholesale spot market energy prices. |
(e) Purchased Power (net of financials) - Lower contract sales volumes resulted in decreased purchased power volumes at lower prices and increased earnings $0.04 per share.
(f) Capacity Expense - Lower capacity expense associated with contract sales increased earnings $0.20 per share primarily due to lower sales volumes and lower average capacity prices in the ATSI and RTO zones.
(g) Net MISO-PJM Transmission Cost - Lower transmission expenses and PJM ancillary charges increased earnings $0.01 per share primarily due to lower contract sales.
• | O&M Expenses - Higher O&M expenses decreased earnings $0.02 per share, primarily due to a termination charge on a FES customer contract, partially offset by lower retail-related costs. |
• | Depreciation Expense - Depreciation expense increased earnings $0.03 per share primarily due to an adjustment to reduce depreciation of a hydroelectric generating station. |
• | 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 from nuclear decommissioning trust securities increased earnings $0.01 per share. |
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 8
• | Special Items - In the third quarter of 2016, CES special items included impacts from merger accounting - commodity contracts of $0.01 per share and mark-to-market adjustments of $(0.02) per share. In the third quarter of 2015, CES special items included trust securities impairment of $0.06 per share, merger accounting-commodity contracts of $0.02 per share, retail repositioning charges of $0.01 per share, and mark-to-market adjustments of $(0.09) per share. Additional details regarding special items can be found on page 36. |
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 9
Corporate / Other
Corporate / Other GAAP losses for the third quarter of 2016 were $(67) million, or $(0.15) per basic share, compared with GAAP losses for the third quarter 2015 of $(54) million, or $(0.13) per basic share. Operating (non-GAAP) losses, excluding special items, were $(0.15) per basic share in the third quarter of 2016 and $(0.12) per basic share in the third quarter of 2015. | |||||||
EPS Variance Analysis | |||||||
(In millions, except per share amounts) | |||||||
3Q 2015 Net Loss - GAAP | $(54) | ||||||
3Q 2015 Basic EPS (avg. shares outstanding 423M) | $(0.13) | ||||||
Special Items - 2015* | 0.01 | ||||||
3Q 2015 Basic EPS - Operating (Non-GAAP) Losses | $(0.12) | ||||||
O&M Expenses | 0.02 | ||||||
Interest Expense | (0.01) | ||||||
Effective Income Tax Rate | (0.05) | ||||||
Other | 0.01 | ||||||
3Q 2016 Basic EPS - Operating (Non-GAAP) Losses | $(0.15) | ||||||
Special Items - 2016* | — | ||||||
3Q 2016 Basic EPS (avg. shares outstanding 425M) | $(0.15) | ||||||
3Q 2016 Net Loss - GAAP | $(67) | ||||||
*See pages 23-36 for additional details on special items. | |||||||
3Q 2016 vs 3Q 2015 Earnings Drivers
• | O&M Expense - Lower O&M expense increased earnings $0.02 per share, due to lower environmental remediation costs at legacy plants. |
• | Interest Expense - Higher interest expense decreased earnings $0.01 per share, primarily due to increased short-term borrowings. |
• | Effective Income Tax Rate - A higher consolidated effective income tax rate decreased earnings $0.05 per share. The consolidated effective tax rate for the third quarter of 2016 was 39.6% compared to 36.3% for the same period of 2015. |
• | Special Items - In the third quarter of 2015, Corporate/Other special items included a charge of $0.01 per share reflecting the impact of non-core asset sales/impairments. Additional details regarding special items can be found on page 36. |
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 - 3rd Quarter 2016 10
FirstEnergy Corp.
Consolidated Statements of Income (Loss) (GAAP)
(In millions)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||
(1 | ) | Regulated distribution | $ | 2,702 | $ | 2,624 | $ | 78 | $ | 7,423 | $ | 7,425 | $ | (2 | ) | ||||||||||||||
(2 | ) | Regulated transmission | 285 | 248 | 37 | 824 | 755 | 69 | |||||||||||||||||||||
(3 | ) | Competitive energy services | 1,115 | 1,468 | (353 | ) | 3,535 | 4,099 | (564 | ) | |||||||||||||||||||
(4 | ) | Corporate / Other | (185 | ) | (217 | ) | 32 | (595 | ) | (794 | ) | 199 | |||||||||||||||||
(5 | ) | Total Revenues | 3,917 | 4,123 | (206 | ) | 11,187 | 11,485 | (298 | ) | |||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||||
(6 | ) | Fuel | 450 | 482 | (32 | ) | 1,269 | 1,378 | (109 | ) | |||||||||||||||||||
(7 | ) | Purchased power | 979 | 1,209 | (230 | ) | 2,992 | 3,311 | (319 | ) | |||||||||||||||||||
(8 | ) | Other operating expenses | 953 | 842 | 111 | 2,835 | 2,799 | 36 | |||||||||||||||||||||
(9 | ) | Provision for depreciation | 311 | 328 | (17 | ) | 974 | 969 | 5 | ||||||||||||||||||||
(10 | ) | Amortization of regulatory assets, net | 98 | 110 | (12 | ) | 222 | 201 | 21 | ||||||||||||||||||||
(11 | ) | General taxes | 265 | 236 | 29 | 786 | 747 | 39 | |||||||||||||||||||||
(12 | ) | Impairment of assets | — | 8 | (8 | ) | 1,447 | 24 | 1,423 | ||||||||||||||||||||
(13 | ) | Total Operating Expenses | 3,056 | 3,215 | (159 | ) | 10,525 | 9,429 | 1,096 | ||||||||||||||||||||
(14 | ) | Operating Income | 861 | 908 | (47 | ) | 662 | 2,056 | (1,394 | ) | |||||||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||||||||
(15 | ) | Investment income (loss) | 28 | (28 | ) | 56 | 75 | (14 | ) | 89 | |||||||||||||||||||
(16 | ) | Interest expense | (286 | ) | (285 | ) | (1 | ) | (863 | ) | (846 | ) | (17 | ) | |||||||||||||||
(17 | ) | Capitalized financing costs | 28 | 26 | 2 | 79 | 93 | (14 | ) | ||||||||||||||||||||
(18 | ) | Total Other Expense | (230 | ) | (287 | ) | 57 | (709 | ) | (767 | ) | 58 | |||||||||||||||||
(19 | ) | Income (Loss) Before Income Taxes | 631 | 621 | 10 | (47 | ) | 1,289 | (1,336 | ) | |||||||||||||||||||
(20 | ) | Income taxes | 251 | 226 | 25 | 334 | 485 | (151 | ) | ||||||||||||||||||||
(21 | ) | Net Income (Loss) | $ | 380 | $ | 395 | $ | (15 | ) | $ | (381 | ) | $ | 804 | $ | (1,185 | ) | ||||||||||||
Earnings (Losses) Per Share of Common Stock | |||||||||||||||||||||||||||||
(22 | ) | Basic | $ | 0.89 | $ | 0.94 | $ | (0.05 | ) | $ | (0.90 | ) | $ | 1.91 | $ | (2.81 | ) | ||||||||||||
(23 | ) | Diluted | $ | 0.89 | $ | 0.93 | $ | (0.04 | ) | $ | (0.90 | ) | $ | 1.90 | $ | (2.80 | ) | ||||||||||||
Weighted Average Number of Common | |||||||||||||||||||||||||||||
Shares Outstanding | |||||||||||||||||||||||||||||
(24 | ) | Basic | 425 | 423 | 2 | 425 | 422 | 3 | |||||||||||||||||||||
(25 | ) | Diluted | 427 | 424 | 3 | 425 | 423 | 2 | |||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 11
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Three Months Ended September 30, 2016 | |||||||||||||||||||||||
Competitive | |||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | |||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | |||||||||||||||||||
Revenues | |||||||||||||||||||||||
(1 | ) | Electric sales | $ | 2,649 | $ | 285 | $ | 959 | $ | (46 | ) | $ | 3,847 | ||||||||||
(2 | ) | Other | 53 | — | 39 | (22 | ) | 70 | |||||||||||||||
(3 | ) | Internal | — | — | 117 | (117 | ) | — | |||||||||||||||
(4 | ) | Total Revenues | 2,702 | 285 | 1,115 | (185 | ) | 3,917 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
(5 | ) | Fuel | 156 | — | 294 | — | 450 | ||||||||||||||||
(6 | ) | Purchased power | 902 | — | 194 | (117 | ) | 979 | |||||||||||||||
(7 | ) | Other operating expenses | 615 | 46 | 367 | (75 | ) | 953 | |||||||||||||||
(8 | ) | Provision for depreciation | 171 | 45 | 79 | 16 | 311 | ||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 98 | — | — | — | 98 | ||||||||||||||||
(10 | ) | General taxes | 190 | 37 | 30 | 8 | 265 | ||||||||||||||||
(11 | ) | Impairment of assets | — | — | — | — | — | ||||||||||||||||
(12 | ) | Total Operating Expenses | 2,132 | 128 | 964 | (168 | ) | 3,056 | |||||||||||||||
(13 | ) | Operating Income | 570 | 157 | 151 | (17 | ) | 861 | |||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||
(14 | ) | Investment income | 13 | — | 23 | (8 | ) | 28 | |||||||||||||||
(15 | ) | Interest expense | (139 | ) | (43 | ) | (48 | ) | (56 | ) | (286 | ) | |||||||||||
(16 | ) | Capitalized financing costs | 6 | 9 | 9 | 4 | 28 | ||||||||||||||||
(17 | ) | Total Other Expense | (120 | ) | (34 | ) | (16 | ) | (60 | ) | (230 | ) | |||||||||||
(18 | ) | Income Before Income Taxes | 450 | 123 | 135 | (77 | ) | 631 | |||||||||||||||
(19 | ) | Income taxes | 167 | 45 | 49 | (10 | ) | 251 | |||||||||||||||
(20 | ) | Net Income | $ | 283 | $ | 78 | $ | 86 | $ | (67 | ) | $ | 380 | ||||||||||
(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 - 3rd Quarter 2016 12
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Three Months Ended September 30, 2015 | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | 2,571 | $ | 248 | $ | 1,276 | $ | (41 | ) | $ | 4,054 | |||||||||||
(2 | ) | Other | 53 | — | 51 | (35 | ) | 69 | ||||||||||||||||
(3 | ) | Internal | — | — | 141 | (141 | ) | — | ||||||||||||||||
(4 | ) | Total Revenues | 2,624 | 248 | 1,468 | (217 | ) | 4,123 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 140 | — | 342 | — | 482 | |||||||||||||||||
(6 | ) | Purchased power | 980 | — | 370 | (141 | ) | 1,209 | ||||||||||||||||
(7 | ) | Other operating expenses | 534 | 42 | 336 | (70 | ) | 842 | ||||||||||||||||
(8 | ) | Provision for depreciation | 174 | 41 | 98 | 15 | 328 | |||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 110 | — | — | — | 110 | |||||||||||||||||
(10 | ) | General taxes | 172 | 23 | 35 | 6 | 236 | |||||||||||||||||
(11 | ) | Impairment of assets | 8 | — | — | — | 8 | |||||||||||||||||
(12 | ) | Total Operating Expenses | 2,118 | 106 | 1,181 | (190 | ) | 3,215 | ||||||||||||||||
(13 | ) | Operating Income | 506 | 142 | 287 | (27 | ) | 908 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income (loss) | 8 | — | (19 | ) | (17 | ) | (28 | ) | ||||||||||||||
(15 | ) | Interest expense | (149 | ) | (40 | ) | (48 | ) | (48 | ) | (285 | ) | ||||||||||||
(16 | ) | Capitalized financing costs | 6 | 9 | 9 | 2 | 26 | |||||||||||||||||
(17 | ) | Total Other Expense | (135 | ) | (31 | ) | (58 | ) | (63 | ) | (287 | ) | ||||||||||||
(18 | ) | Income Before Income Taxes | 371 | 111 | 229 | (90 | ) | 621 | ||||||||||||||||
(19 | ) | Income taxes | 137 | 41 | 84 | (36 | ) | 226 | ||||||||||||||||
(20 | ) | Net Income | $ | 234 | $ | 70 | $ | 145 | $ | (54 | ) | $ | 395 | |||||||||||
(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 - 3rd Quarter 2016 13
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Changes Between the Three Months Ended September 30, 2016 and the Three Months Ended September 30, 2015 Increase (Decrease) | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | 78 | $ | 37 | $ | (317 | ) | $ | (5 | ) | $ | (207 | ) | |||||||||
(2 | ) | Other | — | — | (12 | ) | 13 | 1 | ||||||||||||||||
(3 | ) | Internal revenues | — | — | (24 | ) | 24 | — | ||||||||||||||||
(4 | ) | Total Revenues | 78 | 37 | (353 | ) | 32 | (206 | ) | |||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 16 | — | (48 | ) | — | (32 | ) | |||||||||||||||
(6 | ) | Purchased power | (78 | ) | — | (176 | ) | 24 | (230 | ) | ||||||||||||||
(7 | ) | Other operating expenses | 81 | 4 | 31 | (5 | ) | 111 | ||||||||||||||||
(8 | ) | Provision for depreciation | (3 | ) | 4 | (19 | ) | 1 | (17 | ) | ||||||||||||||
(9 | ) | Amortization of regulatory assets, net | (12 | ) | — | — | — | (12 | ) | |||||||||||||||
(10 | ) | General taxes | 18 | 14 | (5 | ) | 2 | 29 | ||||||||||||||||
(11 | ) | Impairment of assets | (8 | ) | — | — | — | (8 | ) | |||||||||||||||
(12 | ) | Total Total Expenses | 14 | 22 | (217 | ) | 22 | (159 | ) | |||||||||||||||
(13 | ) | Operating Income | 64 | 15 | (136 | ) | 10 | (47 | ) | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income | 5 | — | 42 | 9 | 56 | |||||||||||||||||
(15 | ) | Interest expense | 10 | (3 | ) | — | (8 | ) | (1 | ) | ||||||||||||||
(16 | ) | Capitalized financing costs | — | — | — | 2 | 2 | |||||||||||||||||
(17 | ) | Total Other Expense | 15 | (3 | ) | 42 | 3 | 57 | ||||||||||||||||
(18 | ) | Income Before Income Taxes | 79 | 12 | (94 | ) | 13 | 10 | ||||||||||||||||
(19 | ) | Income taxes | 30 | 4 | (35 | ) | 26 | 25 | ||||||||||||||||
(20 | ) | Net Income | $ | 49 | $ | 8 | $ | (59 | ) | $ | (13 | ) | $ | (15 | ) | |||||||||
(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 - 3rd Quarter 2016 14
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Competitive | |||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | |||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | |||||||||||||||||||
Revenues | |||||||||||||||||||||||
(1 | ) | Electric sales | $ | 7,238 | $ | 824 | $ | 3,023 | $ | (135 | ) | $ | 10,950 | ||||||||||
(2 | ) | Other | 185 | — | 135 | (83 | ) | 237 | |||||||||||||||
(3 | ) | Internal | — | — | 377 | (377 | ) | — | |||||||||||||||
(4 | ) | Total Revenues | 7,423 | 824 | 3,535 | (595 | ) | 11,187 | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
(5 | ) | Fuel | 436 | — | 833 | — | 1,269 | ||||||||||||||||
(6 | ) | Purchased power | 2,549 | — | 820 | (377 | ) | 2,992 | |||||||||||||||
(7 | ) | Other operating expenses | 1,843 | 118 | 1,120 | (246 | ) | 2,835 | |||||||||||||||
(8 | ) | Provision for depreciation | 510 | 132 | 284 | 48 | 974 | ||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 218 | 4 | — | — | 222 | ||||||||||||||||
(10 | ) | General taxes | 545 | 114 | 98 | 29 | 786 | ||||||||||||||||
(11 | ) | Impairment of assets | — | — | 1,447 | — | 1,447 | ||||||||||||||||
(12 | ) | Total Operating Expenses | 6,101 | 368 | 4,602 | (546 | ) | 10,525 | |||||||||||||||
(13 | ) | Operating Income (Loss) | 1,322 | 456 | (1,067 | ) | (49 | ) | 662 | ||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||
(14 | ) | Investment income | 37 | — | 56 | (18 | ) | 75 | |||||||||||||||
(15 | ) | Interest expense | (431 | ) | (128 | ) | (143 | ) | (161 | ) | (863 | ) | |||||||||||
(16 | ) | Capitalized financing costs | 15 | 25 | 29 | 10 | 79 | ||||||||||||||||
(17 | ) | Total Other Expense | (379 | ) | (103 | ) | (58 | ) | (169 | ) | (709 | ) | |||||||||||
(18 | ) | Income (Loss) Before Income Taxes (Benefits) | 943 | 353 | (1,125 | ) | (218 | ) | (47 | ) | |||||||||||||
(19 | ) | Income taxes (benefits) | 349 | 130 | (96 | ) | (49 | ) | 334 | ||||||||||||||
(20 | ) | Net Income (Loss) | $ | 594 | $ | 223 | $ | (1,029 | ) | $ | (169 | ) | $ | (381 | ) | ||||||||
(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 - 3rd Quarter 2016 15
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Nine Months Ended September 30, 2015 | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | 7,277 | $ | 755 | $ | 3,381 | $ | (129 | ) | $ | 11,284 | |||||||||||
(2 | ) | Other | 148 | — | 155 | (102 | ) | 201 | ||||||||||||||||
(3 | ) | Internal | — | — | 563 | (563 | ) | — | ||||||||||||||||
(4 | ) | Total Revenues | 7,425 | 755 | 4,099 | (794 | ) | 11,485 | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 406 | — | 972 | — | 1,378 | |||||||||||||||||
(6 | ) | Purchased power | 2,761 | — | 1,113 | (563 | ) | 3,311 | ||||||||||||||||
(7 | ) | Other operating expenses | 1,669 | 112 | 1,266 | (248 | ) | 2,799 | ||||||||||||||||
(8 | ) | Provision for depreciation | 516 | 116 | 293 | 44 | 969 | |||||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 196 | 5 | — | — | 201 | |||||||||||||||||
(10 | ) | General taxes | 536 | 73 | 112 | 26 | 747 | |||||||||||||||||
(11 | ) | Impairment of assets | 8 | — | 16 | — | 24 | |||||||||||||||||
(12 | ) | Total Operating Expenses | 6,092 | 306 | 3,772 | (741 | ) | 9,429 | ||||||||||||||||
(13 | ) | Operating Income | 1,333 | 449 | 327 | (53 | ) | 2,056 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income (loss) | 33 | — | (7 | ) | (40 | ) | (14 | ) | ||||||||||||||
(15 | ) | Interest expense | (439 | ) | (119 | ) | (144 | ) | (144 | ) | (846 | ) | ||||||||||||
(16 | ) | Capitalized financing costs | 21 | 36 | 29 | 7 | 93 | |||||||||||||||||
(17 | ) | Total Other Expense | (385 | ) | (83 | ) | (122 | ) | (177 | ) | (767 | ) | ||||||||||||
(18 | ) | Income Before Income Taxes | 948 | 366 | 205 | (230 | ) | 1,289 | ||||||||||||||||
(19 | ) | Income taxes | 350 | 135 | 76 | (76 | ) | 485 | ||||||||||||||||
(20 | ) | Net Income | $ | 598 | $ | 231 | $ | 129 | $ | (154 | ) | $ | 804 | |||||||||||
(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 - 3rd Quarter 2016 16
FirstEnergy Corp.
Statements of Income (Loss) - By Segment (GAAP)
(In millions)
Changes Between the First Nine Months of 2016 and the First Nine Months of 2015 Increase (Decrease) | ||||||||||||||||||||||||
Competitive | ||||||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | FirstEnergy | ||||||||||||||||||||
Distribution (a) | Transmission (b) | Services (c) | Other (d) | Consolidated | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
(1 | ) | Electric sales | $ | (39 | ) | $ | 69 | $ | (358 | ) | $ | (6 | ) | $ | (334 | ) | ||||||||
(2 | ) | Other | 37 | — | (20 | ) | 19 | 36 | ||||||||||||||||
(3 | ) | Internal revenues | — | — | (186 | ) | 186 | — | ||||||||||||||||
(4 | ) | Total Revenues | (2 | ) | 69 | (564 | ) | 199 | (298 | ) | ||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
(5 | ) | Fuel | 30 | — | (139 | ) | — | (109 | ) | |||||||||||||||
(6 | ) | Purchased power | (212 | ) | — | (293 | ) | 186 | (319 | ) | ||||||||||||||
(7 | ) | Other operating expenses | 174 | 6 | (146 | ) | 2 | 36 | ||||||||||||||||
(8 | ) | Provision for depreciation | (6 | ) | 16 | (9 | ) | 4 | 5 | |||||||||||||||
(9 | ) | Amortization of regulatory assets, net | 22 | (1 | ) | — | — | 21 | ||||||||||||||||
(10 | ) | General taxes | 9 | 41 | (14 | ) | 3 | 39 | ||||||||||||||||
(11 | ) | Impairment of assets | (8 | ) | — | 1,431 | — | 1,423 | ||||||||||||||||
(12 | ) | Total Operating Expenses | 9 | 62 | 830 | 195 | 1,096 | |||||||||||||||||
(13 | ) | Operating Income (Loss) | (11 | ) | 7 | (1,394 | ) | 4 | (1,394 | ) | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||||
(14 | ) | Investment income | 4 | — | 63 | 22 | 89 | |||||||||||||||||
(15 | ) | Interest expense | 8 | (9 | ) | 1 | (17 | ) | (17 | ) | ||||||||||||||
(16 | ) | Capitalized financing costs | (6 | ) | (11 | ) | — | 3 | (14 | ) | ||||||||||||||
(17 | ) | Total Other Expense | 6 | (20 | ) | 64 | 8 | 58 | ||||||||||||||||
(18 | ) | Income (Loss) From Before Income Taxes (Benefits) | (5 | ) | (13 | ) | (1,330 | ) | 12 | (1,336 | ) | |||||||||||||
(19 | ) | Income taxes (benefits) | (1 | ) | (5 | ) | (172 | ) | 27 | (151 | ) | |||||||||||||
(20 | ) | Net Income (Loss) | $ | (4 | ) | $ | (8 | ) | $ | (1,158 | ) | $ | (15 | ) | $ | (1,185 | ) | |||||||
(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 - 3rd Quarter 2016 17
FirstEnergy Corp.
Financial Information
(In millions)
Condensed Consolidated Balance Sheets (GAAP) | |||||||||||
As of | As of | ||||||||||
Assets | Sep. 30, 2016 | Dec. 31, 2015 | |||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 551 | $ | 131 | |||||||
Receivables | 1,629 | 1,595 | |||||||||
Other | 1,300 | 1,314 | |||||||||
Total Current Assets | 3,480 | 3,040 | |||||||||
Property, Plant and Equipment | 37,833 | 37,214 | |||||||||
Investments | 3,035 | 2,788 | |||||||||
Deferred Charges and Other Assets | 7,613 | 9,052 | |||||||||
Total Assets | $ | 51,961 | $ | 52,094 | |||||||
Liabilities and Capitalization | |||||||||||
Current Liabilities: | |||||||||||
Currently payable long-term debt | $ | 1,216 | $ | 1,166 | |||||||
Short-term borrowings | 2,975 | 1,708 | |||||||||
Accounts payable | 944 | 1,075 | |||||||||
Other | 1,908 | 1,653 | |||||||||
Total Current Liabilities | 7,043 | 5,602 | |||||||||
Capitalization: | |||||||||||
Total equity | 11,503 | 12,422 | |||||||||
Long-term debt and other long-term obligations | 18,532 | 19,099 | |||||||||
Total Capitalization | 30,035 | 31,521 | |||||||||
Noncurrent Liabilities | 14,883 | 14,971 | |||||||||
Total Liabilities and Capitalization | $ | 51,961 | $ | 52,094 | |||||||
General Information | ||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||
Debt redemptions | $ | (436 | ) | $ | (489 | ) | $ | (1,017 | ) | $ | (781 | ) | ||||||
New long-term debt issues | $ | 521 | $ | 884 | $ | 521 | $ | 1,084 | ||||||||||
Short-term borrowings increase (decrease) | $ | 50 | $ | (975 | ) | $ | 1,275 | $ | 134 | |||||||||
Property additions | $ | 664 | $ | 539 | $ | 2,156 | $ | 2,025 | ||||||||||
Debt to Total Capitalization Ratio as Defined Under the FE Credit Facilities | ||||||||||||||||
As of September 30 | As of December 31 | |||||||||||||||
2016 | % Total | 2015 | % Total | |||||||||||||
Total Equity (GAAP) | $ | 11,503 | 32 | % | $ | 12,422 | 35 | % | ||||||||
Non-cash Charges / Non-cash Write Downs* | 2,764 | 8 | % | 2,077 | 6 | % | ||||||||||
Accumulated Other Comprehensive Income | (184 | ) | (1 | )% | (171 | ) | (1 | )% | ||||||||
Adjusted Equity (Non-GAAP)** | 14,083 | 39 | % | 14,328 | 40 | % | ||||||||||
Long-term Debt and Other Long-term Obligations (GAAP) | 18,532 | 51 | % | 19,099 | 54 | % | ||||||||||
Currently Payable Long-term Debt (GAAP) | 1,216 | 3 | % | 1,166 | 3 | % | ||||||||||
Short-term Borrowings (GAAP) | 2,975 | 8 | % | 1,708 | 5 | % | ||||||||||
Reimbursement Obligations | 9 | — | % | 54 | — | % | ||||||||||
Guarantees of Indebtedness | 325 | 1 | % | 328 | 1 | % | ||||||||||
Less Securitization Debt | (837 | ) | (2 | )% | (913 | ) | (3 | )% | ||||||||
Adjusted Debt (Non-GAAP)** | 22,220 | 61 | % | 21,442 | 60 | % | ||||||||||
Adjusted Capitalization (Non-GAAP)** | $ | 36,303 | 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 September 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 - 3rd Quarter 2016 18
FirstEnergy Corp.
Statements of Cash Flows and Liquidity
(In millions)
Condensed Consolidated Statements of Cash Flows (GAAP) | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30 | September 30 | |||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||
Cash flows from operating activities | ||||||||||||||||||
Net income (loss) | $ | 380 | $ | 395 | $ | (381 | ) | $ | 804 | |||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||||||||||||||
Depreciation and amortization (1) | 518 | 514 | 1,440 | 1,383 | ||||||||||||||
Deferred purchased power and other costs | (1 | ) | (28 | ) | (34 | ) | (73 | ) | ||||||||||
Deferred income taxes and investment tax credits, net | 246 | 209 | 318 | 428 | ||||||||||||||
Impairment of assets | — | 8 | 1,447 | 24 | ||||||||||||||
Investment impairments | 3 | 46 | 13 | 70 | ||||||||||||||
Deferred costs on sale leaseback transaction, net | 12 | 13 | 36 | 37 | ||||||||||||||
Retirement benefits, net of payments | 14 | (2 | ) | 45 | (18 | ) | ||||||||||||
Pension trust contributions | (137 | ) | — | (297 | ) | (143 | ) | |||||||||||
Commodity derivative transactions, net | (15 | ) | (57 | ) | (10 | ) | (64 | ) | ||||||||||
Lease payments on sale and leaseback transaction | — | — | (94 | ) | (102 | ) | ||||||||||||
Changes in working capital and other | 100 | 229 | 97 | (29 | ) | |||||||||||||
Cash flows provided from operating activities | 1,120 | 1,327 | 2,580 | 2,317 | ||||||||||||||
Cash flows provided from/(used for) financing activities | (59 | ) | (741 | ) | 316 | (29 | ) | |||||||||||
Cash flows used for investing activities | (709 | ) | (594 | ) | (2,476 | ) | (2,287 | ) | ||||||||||
Net change in cash and cash equivalents | $ | 352 | $ | (8 | ) | $ | 420 | $ | 1 | |||||||||
(1) Includes Non-cash expenses/Amortization of Regulatory Assets, nuclear fuel, customer intangible assets, debt related costs, deferred advertising costs and other assets. | ||||||||||||||||||
Liquidity position as of November 1, 2016 | ||||||||||
Company | Type | Maturity | Amount | Available | ||||||
FirstEnergy(1) | Revolving | March 2019 | $3,500 | $1,241 | ||||||
FirstEnergy Solutions Corp. (FES) / Allegheny Energy Supply Company, LLC (AE Supply) | Revolving | March 2019 | 1,500 | 1,500 | ||||||
FirstEnergy Transmission, LLC(2) | Revolving | March 2019 | 1,000 | 750 | ||||||
(1) FirstEnergy Corp. and FEU subsidiary borrowers | Subtotal: | $6,000 | $3,491 | |||||||
(2) Includes FET, ATSI, and TrAILCo | Cash: | — | 211 | |||||||
Total: | $6,000 | $3,702 | ||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 19
FirstEnergy Corp.
Statistical Summary
Electric Distribution Deliveries | Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
(MWH in thousand) | 2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||
Ohio | - Residential | 5,321 | 4,567 | 16.5 | % | 13,592 | 13,404 | 1.4 | % | ||||||||||||
- Commercial | 4,304 | 4,021 | 7.0 | % | 11,721 | 11,626 | 0.8 | % | |||||||||||||
- Industrial | 5,360 | 5,246 | 2.2 | % | 15,346 | 15,614 | -1.7 | % | |||||||||||||
- Other | 82 | 83 | -1.2 | % | 250 | 251 | -0.4 | % | |||||||||||||
Total Ohio | 15,067 | 13,917 | 8.3 | % | 40,909 | 40,895 | 0.0 | % | |||||||||||||
Pennsylvania | - Residential | 5,183 | 4,600 | 12.7 | % | 14,253 | 14,662 | -2.8 | % | ||||||||||||
- Commercial | 3,534 | 3,397 | 4.0 | % | 9,880 | 9,895 | -0.2 | % | |||||||||||||
- Industrial | 5,181 | 5,024 | 3.1 | % | 15,202 | 15,222 | -0.1 | % | |||||||||||||
- Other | 29 | 30 | -3.3 | % | 89 | 90 | -1.1 | % | |||||||||||||
Total Pennsylvania | 13,927 | 13,051 | 6.7 | % | 39,424 | 39,869 | -1.1 | % | |||||||||||||
New Jersey | - Residential | 3,332 | 3,111 | 7.1 | % | 7,593 | 7,743 | -1.9 | % | ||||||||||||
- Commercial | 2,566 | 2,530 | 1.4 | % | 6,888 | 7,036 | -2.1 | % | |||||||||||||
- Industrial | 548 | 570 | -3.9 | % | 1,631 | 1,683 | -3.1 | % | |||||||||||||
- Other | 22 | 22 | 0.0 | % | 65 | 64 | 1.6 | % | |||||||||||||
Total New Jersey | 6,468 | 6,233 | 3.8 | % | 16,177 | 16,526 | -2.1 | % | |||||||||||||
Maryland | - Residential | 868 | 766 | 13.3 | % | 2,483 | 2,597 | -4.4 | % | ||||||||||||
- Commercial | 582 | 545 | 6.8 | % | 1,599 | 1,615 | -1.0 | % | |||||||||||||
- Industrial | 421 | 421 | 0.0 | % | 1,201 | 1,220 | -1.6 | % | |||||||||||||
- Other | 4 | 4 | 0.0 | % | 12 | 12 | 0.0 | % | |||||||||||||
Total Maryland | 1,875 | 1,736 | 8.0 | % | 5,295 | 5,444 | -2.7 | % | |||||||||||||
West Virginia | - Residential | 1,434 | 1,261 | 13.7 | % | 4,209 | 4,300 | -2.1 | % | ||||||||||||
- Commercial | 1,019 | 970 | 5.1 | % | 2,825 | 2,834 | -0.3 | % | |||||||||||||
- Industrial | 1,513 | 1,460 | 3.6 | % | 4,366 | 4,410 | -1.0 | % | |||||||||||||
- Other | 7 | 7 | 0.0 | % | 21 | 21 | 0.0 | % | |||||||||||||
Total West Virginia | 3,973 | 3,698 | 7.4 | % | 11,421 | 11,565 | -1.2 | % | |||||||||||||
Total Residential | 16,138 | 14,305 | 12.8 | % | 42,130 | 42,706 | -1.3 | % | |||||||||||||
Total Commercial | 12,005 | 11,463 | 4.7 | % | 32,913 | 33,006 | -0.3 | % | |||||||||||||
Total Industrial | 13,023 | 12,721 | 2.4 | % | 37,746 | 38,149 | -1.1 | % | |||||||||||||
Total Other | 144 | 146 | -1.4 | % | 437 | 438 | -0.2 | % | |||||||||||||
Total Distribution Deliveries | 41,310 | 38,635 | 6.9 | % | 113,226 | 114,299 | -0.9 | % | |||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 20
FirstEnergy Corp.
Statistical Summary
Weather | Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||
2016 | 2015 | Normal | 2016 | 2015 | Normal | ||||||||||
Composite Heating-Degree-Days | 22 | 28 | 74 | 3,202 | 3,878 | 3,510 | |||||||||
Composite Cooling-Degree-Days | 955 | 745 | 656 | 1,251 | 1,083 | 923 | |||||||||
Shopping Statistics (Based on MWH) | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||
2016 | 2015 | 2016 | 2015 | |||||||
OE | 82% | 80% | 80% | 79% | ||||||
Penn | 63% | 62% | 63% | 60% | ||||||
CEI | 87% | 84% | 85% | 83% | ||||||
TE | 88% | 76% | 82% | 75% | ||||||
JCP&L | 48% | 47% | 51% | 49% | ||||||
Met-Ed | 67% | 67% | 67% | 66% | ||||||
Penelec | 69% | 71% | 70% | 70% | ||||||
PE(1) | 49% | 50% | 49% | 48% | ||||||
WP | 64% | 62% | 65% | 61% | ||||||
(1) Represents Maryland only. | ||||||||||
Competitive Operating Statistics | Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Generation Capacity Factors: | |||||||||||
Nuclear | 91% | 97% | 89% | 89% | |||||||
Fossil - Baseload | 69% | 72% | 54% | 63% | |||||||
Fossil - Load Following | 37% | 51% | 39% | 46% | |||||||
Generation Fuel Rate: | |||||||||||
Nuclear | $7 | $7 | $7 | $7 | |||||||
Fossil | $23 | $25 | $24 | $26 | |||||||
Total Fleet | $16 | $17 | $15 | $17 | |||||||
Generation Output Mix: | |||||||||||
Nuclear | 45% | 45% | 49% | 46% | |||||||
Fossil - Baseload | 42% | 41% | 36% | 40% | |||||||
Fossil - Load Following | 5% | 6% | 6% | 7% | |||||||
Peaking/CT/Hydro | 8% | 8% | 9% | 7% | |||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 21
FirstEnergy Corp.
Competitive Energy Services - Sources & Uses
Statistical Summary
Competitive Energy Services - Sources and Uses (MWH in thousands) | ||||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||
Contract Sales | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||
POLR | 2,893 | 2,168 | 725 | 7,526 | 9,910 | (2,384 | ) | |||||||||||||||
Structured Sales | 2,437 | 3,893 | (1,456 | ) | 9,175 | 9,790 | (615 | ) | ||||||||||||||
Direct | 3,913 | 5,541 | (1,628 | ) | 11,391 | 18,860 | (7,469 | ) | ||||||||||||||
Aggregation | 4,238 | 4,226 | 12 | 10,798 | 12,278 | (1,480 | ) | |||||||||||||||
Mass Market | 673 | 906 | (233 | ) | 1,912 | 3,246 | (1,334 | ) | ||||||||||||||
Total Contract Sales | 14,154 | 16,734 | (2,580 | ) | 40,802 | 54,084 | (13,282 | ) | ||||||||||||||
Wholesale Spot Sales | 4,447 | 3,156 | 1,291 | 9,938 | 4,023 | 5,915 | ||||||||||||||||
Purchased Power | ||||||||||||||||||||||
- Bilaterals | 532 | 362 | 170 | 1,612 | 1,452 | 160 | ||||||||||||||||
- Spot | 728 | 1,153 | (425 | ) | 2,769 | 7,474 | (4,705 | ) | ||||||||||||||
Total Purchased Power | 1,260 | 1,515 | (255 | ) | 4,381 | 8,926 | (4,545 | ) | ||||||||||||||
Generation Output | ||||||||||||||||||||||
- Fossil | 10,139 | 10,697 | (558 | ) | 24,844 | 27,437 | (2,593 | ) | ||||||||||||||
- Nuclear | 8,137 | 8,661 | (524 | ) | 23,683 | 23,632 | 51 | |||||||||||||||
- RMR / Deactivated Units (1) | — | — | — | — | 758 | (758 | ) | |||||||||||||||
Total Generation Output | 18,276 | 19,358 | (1,082 | ) | 48,527 | 51,827 | (3,300 | ) | ||||||||||||||
(1) Includes Reliability Must Run (RMR) and units deactivated in April 2015 | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 22
FirstEnergy Corp.
Consolidated GAAP and Special Items (In millions)
Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 3,917 | $ | — | $ | 4,123 | $ | (1 | ) | (a,d) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 450 | (8 | ) | (b) | 482 | (11 | ) | (b) | ||||||||||||
(3 | ) | Purchased power | 979 | — | 1,209 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 953 | 8 | (a,c) | 842 | 39 | (a,c,d,g) | ||||||||||||||
(5 | ) | Provision for depreciation | 311 | — | 328 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 98 | — | 110 | — | ||||||||||||||||
(7 | ) | General taxes | 265 | — | 236 | — | ||||||||||||||||
(8 | ) | Impairment of assets | — | — | 8 | (8 | ) | (e) | ||||||||||||||
(9 | ) | Total Operating Expenses | 3,056 | — | 3,215 | 20 | ||||||||||||||||
(10 | ) | Operating Income | 861 | — | 908 | (21 | ) | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income (loss) | 28 | 2 | (f) | (28 | ) | 52 | (e,f) | |||||||||||||
(12 | ) | Interest expense | (286 | ) | 2 | (h) | (285 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 28 | — | 26 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (230 | ) | 4 | (287 | ) | 52 | ||||||||||||||
(15 | ) | Income Before Income Taxes | 631 | 4 | 621 | 31 | ||||||||||||||||
(16 | ) | Income taxes | 251 | 1 | 226 | 11 | ||||||||||||||||
(17 | ) | Net Income | $ | 380 | $ | 3 | $ | 395 | $ | 20 | ||||||||||||
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 ($0.02 per share), ($8) million included in "Other operating expenses". 2015 ($0.01 per share), $1 million included in "Revenues"; and ($10) million included in "Other operating expenses". | |||||||||||||||||||||
(b) | Merger accounting - commodity contracts: 2016 ($0.01 per share), ($8) million included in "Fuel". 2015 ($0.02 per share), ($11) million included in "Fuel". | |||||||||||||||||||||
(c) | Mark-to-market adjustments: 2016 (($0.02) per share), $16 million included in "Other operating expenses". 2015 (($0.09) per share), $57 million included in "Other operating expenses". | |||||||||||||||||||||
(d) | Asset impairment/Plant exit costs: 2015, ($2) included in "Revenues"; and ($4) million included in "Other operating expenses". | |||||||||||||||||||||
(e) | Impact of non-core asset sales/impairments: 2015 ($0.02 per share), ($8) million included in "Impairment of assets"; and $5 million included in "Investment income (loss)". | |||||||||||||||||||||
(f) | Trust securities impairment: 2016, $2 million included in "Investment income (loss)". 2015 ($0.07 per share), $47 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 third quarter of 2016 and 423 million shares in the third quarter of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 23
FirstEnergy Corp.
Consolidated GAAP and Special Items (In millions)
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 11,187 | $ | — | $ | 11,485 | $ | (3 | ) | (a,d,e) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 1,269 | (82 | ) | (b,d) | 1,378 | (47 | ) | (b,d) | ||||||||||||
(3 | ) | Purchased power | 2,992 | — | 3,311 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 2,835 | (69 | ) | (a,c) | 2,799 | 3 | (a,c,d,g) | |||||||||||||
(5 | ) | Provision for depreciation | 974 | — | 969 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 222 | — | 201 | (2 | ) | (a) | ||||||||||||||
(7 | ) | General taxes | 786 | — | 747 | (1 | ) | (d) | ||||||||||||||
(8 | ) | Impairment of assets | 1,447 | (1,447 | ) | (d) | 24 | (24 | ) | (e) | ||||||||||||
(9 | ) | Total Operating Expenses | 10,525 | (1,598 | ) | 9,429 | (71 | ) | ||||||||||||||
(10 | ) | Operating Income | 662 | 1,598 | 2,056 | 68 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income (loss) | 75 | 11 | (e,f) | (14 | ) | 82 | (e,f) | |||||||||||||
(12 | ) | Interest expense | (863 | ) | 4 | (h) | (846 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 79 | — | 93 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (709 | ) | 15 | (767 | ) | 82 | ||||||||||||||
(15 | ) | Income (Loss) Before Income Taxes | (47 | ) | 1,613 | 1,289 | 150 | |||||||||||||||
(16 | ) | Income taxes | 334 | 275 | (d) | 485 | 54 | |||||||||||||||
(17 | ) | Net Income | $ | (381 | ) | $ | 1,338 | $ | 804 | $ | 96 | |||||||||||
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 ($0.12 per share), ($79) million included in "Other operating expenses". 2015 ($0.05 per share), $2 million included in "Revenues"; ($35) million included in "Other operating expenses"; and ($2) million included in "Amortization of regulatory assets, net". | |||||||||||||||||||||
(b) | Merger accounting - commodity contracts: 2016 ($0.04 per share), ($24) million included in "Fuel". 2015 ($0.05 per share), ($35) million included in "Fuel". | |||||||||||||||||||||
(c) | Mark-to-market adjustments: 2016 (($0.02) per share), $10 million included in "Other operating expenses". 2015 (($0.10) per share), $64 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 in "Income taxes". 2015 ($0.04 per share), ($2) million included in "Revenues"; ($12) million included in "Fuel"; ($10) 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 (loss)". 2015 ($0.05 per share), ($3) million in "Revenues"; ($24) million included in "Impairment of assets"; and $11 million included in "Investment income (loss)". | |||||||||||||||||||||
(f) | Trust securities impairment: 2016 ($0.02 per share), $13 million included in "Investment income (loss)". 2015 ($0.11 per share), $71 million included in "Investment income (loss)". | |||||||||||||||||||||
(g) | Retail repositioning charges: 2015 ($0.02 per share), ($16) million included in "Other operating expenses". | |||||||||||||||||||||
(h) | Loss on debt redemptions: 2016, $4 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 first nine months of 2016 and 422 million shares in the first nine months of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 24
FirstEnergy Corp.
Regulated Distribution
GAAP and Special Items (In millions)
Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 2,702 | $ | — | $ | 2,624 | $ | 1 | (a) | |||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 156 | — | 140 | — | ||||||||||||||||
(3 | ) | Purchased power | 902 | — | 980 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 615 | (8 | ) | (a) | 534 | (10 | ) | (a) | ||||||||||||
(5 | ) | Provision for depreciation | 171 | — | 174 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 98 | — | 110 | — | ||||||||||||||||
(7 | ) | General taxes | 190 | — | 172 | — | ||||||||||||||||
(8 | ) | Impairment of assets | — | — | 8 | (8 | ) | (c) | ||||||||||||||
(9 | ) | Total Operating Expenses | 2,132 | (8 | ) | 2,118 | (18 | ) | ||||||||||||||
(10 | ) | Operating Income | 570 | 8 | 506 | 19 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 13 | — | 8 | 6 | (b) | |||||||||||||||
(12 | ) | Interest expense | (139 | ) | — | (149 | ) | — | ||||||||||||||
(13 | ) | Capitalized financing costs | 6 | — | 6 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (120 | ) | — | (135 | ) | 6 | ||||||||||||||
(15 | ) | Income Before Income Taxes | 450 | 8 | 371 | 25 | ||||||||||||||||
(16 | ) | Income taxes | 167 | 3 | 137 | 9 | ||||||||||||||||
(17 | ) | Net Income | $ | 283 | $ | 5 | $ | 234 | $ | 16 | ||||||||||||
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 ($0.02 per share), ($8) million included in "Other operating expenses". 2015 ($0.01 per share), $1 million included in "Revenues"; and ($10) million included in "Other operating expenses". | |||||||||||||||||||||
(b) | Trust securities impairment: 2015 ($0.01 per share), $6 million included in "Investment income". | |||||||||||||||||||||
(c) | Impact of non-core asset sales/impairments: 2015 ($0.01 per share), ($8) million included in "Impairment of assets". | |||||||||||||||||||||
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 third quarter of 2016 and 423 million shares in the third quarter of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 25
FirstEnergy Corp.
Regulated Distribution
GAAP and Special Items (In millions)
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 7,423 | $ | — | $ | 7,425 | $ | 2 | (a) | |||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 436 | — | 406 | — | ||||||||||||||||
(3 | ) | Purchased power | 2,549 | — | 2,761 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 1,843 | (79 | ) | (a) | 1,669 | (34 | ) | (a) | ||||||||||||
(5 | ) | Provision for depreciation | 510 | — | 516 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 218 | — | 196 | (2 | ) | (a) | ||||||||||||||
(7 | ) | General taxes | 545 | — | 536 | — | ||||||||||||||||
(8 | ) | Impairment of assets | — | — | 8 | (8 | ) | (c) | ||||||||||||||
(9 | ) | Total Operating Expenses | 6,101 | (79 | ) | 6,092 | (44 | ) | ||||||||||||||
(10 | ) | Operating Income | 1,322 | 79 | 1,333 | 46 | ||||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income | 37 | 1 | (b) | 33 | 8 | (b) | ||||||||||||||
(12 | ) | Interest expense | (431 | ) | — | (439 | ) | — | ||||||||||||||
(13 | ) | Capitalized financing costs | 15 | — | 21 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (379 | ) | 1 | (385 | ) | 8 | ||||||||||||||
(15 | ) | Income Before Income Taxes | 943 | 80 | 948 | 54 | ||||||||||||||||
(16 | ) | Income taxes | 349 | 29 | 350 | 20 | ||||||||||||||||
(17 | ) | Net Income | $ | 594 | $ | 51 | $ | 598 | $ | 34 | ||||||||||||
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 ($0.12 per share), ($79) million included in "Other operating expenses". 2015 ($0.05 per share), $2 million included in "Revenues"; ($34) 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 ($0.01 per share), $8 million included in "Investment income". | |||||||||||||||||||||
(c) | Impact of non-core asset sales/impairments: 2015 ($0.01 per share), ($8) million included in "Impairment of assets". | |||||||||||||||||||||
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 first nine months of 2016 and 422 million shares in the first nine months of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 26
FirstEnergy Corp.
Regulated Transmission
GAAP and Special Items (In millions)
Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | |||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||
(1 | ) | Revenues | $ | 285 | $ | — | $ | 248 | $ | — | ||||||||||
Operating Expenses | ||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | ||||||||||||||
(3 | ) | Purchased power | — | — | — | — | ||||||||||||||
(4 | ) | Other operating expenses | 46 | — | 42 | — | ||||||||||||||
(5 | ) | Provision for depreciation | 45 | — | 41 | — | ||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | ||||||||||||||
(7 | ) | General taxes | 37 | — | 23 | — | ||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||
(9 | ) | Total Operating Expenses | 128 | — | 106 | — | ||||||||||||||
(10 | ) | Operating Income | 157 | — | 142 | — | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||
(11 | ) | Investment income | — | — | — | — | ||||||||||||||
(12 | ) | Interest expense | (43 | ) | — | (40 | ) | — | ||||||||||||
(13 | ) | Capitalized financing costs | 9 | — | 9 | — | ||||||||||||||
(14 | ) | Total Other Expense | (34 | ) | — | (31 | ) | — | ||||||||||||
(15 | ) | Income Before Income Taxes | 123 | — | 111 | — | ||||||||||||||
(16 | ) | Income taxes | 45 | — | 41 | — | ||||||||||||||
(17 | ) | Net Income | $ | 78 | $ | — | $ | 70 | $ | — | ||||||||||
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 - 3rd Quarter 2016 27
FirstEnergy Corp.
Regulated Transmission
GAAP and Special Items (In millions)
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||
(1 | ) | Revenues | $ | 824 | $ | — | $ | 755 | $ | — | ||||||||||
Operating Expenses | ||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | ||||||||||||||
(3 | ) | Purchased power | — | — | — | — | ||||||||||||||
(4 | ) | Other operating expenses | 118 | — | 112 | — | ||||||||||||||
(5 | ) | Provision for depreciation | 132 | — | 116 | — | ||||||||||||||
(6 | ) | Amortization of regulatory assets, net | 4 | — | 5 | — | ||||||||||||||
(7 | ) | General taxes | 114 | — | 73 | — | ||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||
(9 | ) | Total Operating Expenses | 368 | — | 306 | — | ||||||||||||||
(10 | ) | Operating Income | 456 | — | 449 | — | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||
(11 | ) | Investment income | — | — | — | — | ||||||||||||||
(12 | ) | Interest expense | (128 | ) | — | (119 | ) | — | ||||||||||||
(13 | ) | Capitalized financing costs | 25 | — | 36 | — | ||||||||||||||
(14 | ) | Total Other Expense | (103 | ) | — | (83 | ) | — | ||||||||||||
(15 | ) | Income Before Income Taxes | 353 | — | 366 | — | ||||||||||||||
(16 | ) | Income taxes | 130 | — | 135 | — | ||||||||||||||
(17 | ) | Net Income | $ | 223 | $ | — | $ | 231 | $ | — | ||||||||||
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 - 3rd Quarter 2016 28
FirstEnergy Corp.
Competitive Energy Services
GAAP and Special Items (In millions)
Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 1,115 | $ | — | $ | 1,468 | $ | (2 | ) | (c) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 294 | (8 | ) | (a) | 342 | (11 | ) | (a) | ||||||||||||
(3 | ) | Purchased power | 194 | — | 370 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 367 | 16 | (b) | 336 | 49 | (b,c,e) | ||||||||||||||
(5 | ) | Provision for depreciation | 79 | — | 98 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | ||||||||||||||||
(7 | ) | General taxes | 30 | — | 35 | — | ||||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | ||||||||||||||||
(9 | ) | Total Operating Expenses | 964 | 8 | 1,181 | 38 | ||||||||||||||||
(10 | ) | Operating Income | 151 | (8 | ) | 287 | (40 | ) | ||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income (loss) | 23 | 2 | (d) | (19 | ) | 41 | (d) | |||||||||||||
(12 | ) | Interest expense | (48 | ) | 2 | (f) | (48 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 9 | — | 9 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (16 | ) | 4 | (58 | ) | 41 | ||||||||||||||
(15 | ) | Income Before Income Taxes | 135 | (4 | ) | 229 | 1 | |||||||||||||||
(16 | ) | Income taxes | 49 | (2 | ) | 84 | — | |||||||||||||||
(17 | ) | Net Income | $ | 86 | $ | (2 | ) | $ | 145 | $ | 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) | Merger accounting - commodity contracts: 2016 ($0.01 per share), ($8) million included in "Fuel". 2015 ($0.02 per share), ($11) million included in "Fuel". | |||||||||||||||||||||
(b) | Mark-to-market adjustments: 2016 (($0.02) per share), $16 million included in "Other operating expenses". 2015 (($0.09) per share), $57 million included in "Other operating expenses". | |||||||||||||||||||||
(c) | Asset impairment/Plant exit costs: 2015, ($2) million included in "Revenues"; and ($4) million included in "Other operating expenses". | |||||||||||||||||||||
(d) | Trust securities impairment: 2016, $2 million included in "Investment income (loss)". 2015 ($0.06 per share), $41 million included in "Investment income (loss)". | |||||||||||||||||||||
(e) | Retail repositioning charges: 2015 ($0.01 per share), ($4) million included in "Other operating expenses". | |||||||||||||||||||||
(f) | 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 third quarter of 2016 and 423 million shares in the third quarter of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 29
FirstEnergy Corp.
Competitive Energy Services
GAAP and Special Items (In millions)
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | |||||||||||||||||||
(1 | ) | Revenues | $ | 3,535 | $ | — | $ | 4,099 | $ | (5 | ) | (d,e) | ||||||||||
Operating Expenses | ||||||||||||||||||||||
(2 | ) | Fuel | 833 | (82 | ) | (b,d) | 972 | (47 | ) | (b,d) | ||||||||||||
(3 | ) | Purchased power | 820 | — | 1,113 | — | ||||||||||||||||
(4 | ) | Other operating expenses | 1,120 | 10 | (c) | 1,266 | 37 | (a,c,d,g) | ||||||||||||||
(5 | ) | Provision for depreciation | 284 | — | 293 | — | ||||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | ||||||||||||||||
(7 | ) | General taxes | 98 | — | 112 | (1 | ) | (d) | ||||||||||||||
(8 | ) | Impairment of assets | 1,447 | (1,447 | ) | (d) | 16 | (16 | ) | (e) | ||||||||||||
(9 | ) | Total Operating Expenses | 4,602 | (1,519 | ) | 3,772 | (27 | ) | ||||||||||||||
(10 | ) | Operating Income (Loss) | (1,067 | ) | 1,519 | 327 | 22 | |||||||||||||||
Other Income (Expense) | ||||||||||||||||||||||
(11 | ) | Investment income (loss) | 56 | 10 | (e,f) | (7 | ) | 63 | (f) | |||||||||||||
(12 | ) | Interest expense | (143 | ) | 4 | (h) | (144 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 29 | — | 29 | — | ||||||||||||||||
(14 | ) | Total Other Expense | (58 | ) | 14 | (122 | ) | 63 | ||||||||||||||
(15 | ) | Income (Loss) Before Income Taxes (Benefits) | (1,125 | ) | 1,533 | 205 | 85 | |||||||||||||||
(16 | ) | Income taxes (benefits) | (96 | ) | 246 | (d) | 76 | 30 | ||||||||||||||
(17 | ) | Net Income (Loss) | $ | (1,029 | ) | $ | 1,287 | $ | 129 | $ | 55 | |||||||||||
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 ($0.04 per share), ($24) million included in "Fuel". 2015 ($0.05 per share), ($35) million included in "Fuel". | |||||||||||||||||||||
(c) | Mark-to-market adjustments: 2016 (($0.02) per share), $10 million included in "Other operating expenses". 2015 (($0.10) per share), $64 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 ($0.04 per share), ($2) million included in "Revenues"; ($12) million included in "Fuel"; ($10) 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 (loss)". 2015 ($0.02 per share), ($3) million included in "Revenues"; and ($16) million included in "Impairment of assets". | |||||||||||||||||||||
(f) | Trust securities impairment: 2016 ($0.02 per share), $12 million included in "Investment income (loss)". 2015 ($0.10 per share), $63 million included in "Investment income (loss)". | |||||||||||||||||||||
(g) | Retail repositioning charges: 2015 ($0.02 per share), ($16) million included in "Other operating expenses". | |||||||||||||||||||||
(h) | Loss on debt redemptions: 2016, $4 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 first nine months of 2016 and 422 million shares in the first nine months of 2015. | ||||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 30
FirstEnergy Corp.
Corporate / Other
GAAP and Special Items (In millions)
Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | ||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | ||||||||||||||||||
(1 | ) | Revenues | $ | (185 | ) | $ | — | $ | (217 | ) | $ | — | |||||||||
Operating Expenses | |||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | |||||||||||||||
(3 | ) | Purchased power | (117 | ) | — | (141 | ) | — | |||||||||||||
(4 | ) | Other operating expenses | (75 | ) | — | (70 | ) | — | |||||||||||||
(5 | ) | Provision for depreciation | 16 | — | 15 | — | |||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | |||||||||||||||
(7 | ) | General taxes | 8 | — | 6 | — | |||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | |||||||||||||||
(9 | ) | Total Operating Expenses | (168 | ) | — | (190 | ) | — | |||||||||||||
(10 | ) | Operating Loss | (17 | ) | — | (27 | ) | — | |||||||||||||
Other Income (Expense) | |||||||||||||||||||||
(11 | ) | Investment loss | (8 | ) | — | (17 | ) | 5 | (a) | ||||||||||||
(12 | ) | Interest expense | (56 | ) | — | (48 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 4 | — | 2 | — | |||||||||||||||
(14 | ) | Total Other Expense | (60 | ) | — | (63 | ) | 5 | |||||||||||||
(15 | ) | Loss Before Income Tax Benefits | (77 | ) | — | (90 | ) | 5 | |||||||||||||
(16 | ) | Income tax benefits | (10 | ) | — | (36 | ) | 2 | |||||||||||||
(17 | ) | Net Loss | $ | (67 | ) | $ | — | $ | (54 | ) | $ | 3 | |||||||||
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, $5 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 425 million shares in the third quarter of 2016 and 423 million shares in the third quarter of 2015. | |||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd Quarter 2016 31
FirstEnergy Corp.
Corporate / Other
GAAP and Special Items (In millions)
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | ||||||||||||||||||||
GAAP | Special Items | GAAP | Special Items | ||||||||||||||||||
(1 | ) | Revenues | $ | (595 | ) | $ | — | $ | (794 | ) | $ | — | |||||||||
Operating Expenses | |||||||||||||||||||||
(2 | ) | Fuel | — | — | — | — | |||||||||||||||
(3 | ) | Purchased power | (377 | ) | — | (563 | ) | — | |||||||||||||
(4 | ) | Other operating expenses | (246 | ) | — | (248 | ) | — | |||||||||||||
(5 | ) | Provision for depreciation | 48 | — | 44 | — | |||||||||||||||
(6 | ) | Amortization of regulatory assets, net | — | — | — | — | |||||||||||||||
(7 | ) | General taxes | 29 | — | 26 | — | |||||||||||||||
(8 | ) | Impairment of assets | — | — | — | — | |||||||||||||||
(9 | ) | Total Operating Expenses | (546 | ) | — | (741 | ) | — | |||||||||||||
(10 | ) | Operating Loss | (49 | ) | — | (53 | ) | — | |||||||||||||
Other Income (Expense) | |||||||||||||||||||||
(11 | ) | Investment loss | (18 | ) | — | (40 | ) | 11 | (a) | ||||||||||||
(12 | ) | Interest expense | (161 | ) | — | (144 | ) | — | |||||||||||||
(13 | ) | Capitalized financing costs | 10 | — | 7 | — | |||||||||||||||
(14 | ) | Total Other Expense | (169 | ) | — | (177 | ) | 11 | |||||||||||||
(15 | ) | Loss Before Income Tax Benefits | (218 | ) | — | (230 | ) | 11 | |||||||||||||
(16 | ) | Income tax benefits | (49 | ) | — | (76 | ) | 4 | |||||||||||||
(17 | ) | Net Loss | $ | (169 | ) | $ | — | $ | (154 | ) | $ | 7 | |||||||||
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 ($0.02 per share), $11 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 425 million shares in the first nine months of 2016 and 422 million shares in the first nine months of 2015. | |||||||||||||||||||||
_____________________________________________________________________________________________________
Consolidated Report to the Financial Community - 3rd 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 September 30, 2016 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
3Q 2016 Net Income - GAAP | $ | 283 | $ | 78 | $ | 86 | $ | (67 | ) | $ | 380 | ||||||||||||
3Q 2016 Basic Earnings per share (avg. shares outstanding 425M) | $ | 0.66 | $ | 0.18 | $ | 0.20 | $ | (0.15 | ) | $ | 0.89 | ||||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.02 | — | — | — | 0.02 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Mark-to-market adjustments | — | — | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||
Total Special Items | $ | 0.02 | $ | — | $ | (0.01 | ) | $ | — | $ | 0.01 | ||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 0.68 | $ | 0.18 | $ | 0.19 | $ | (0.15 | ) | $ | 0.90 | ||||||||||||
Three Months Ended September 30, 2015 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
3Q 2015 Net Income - GAAP | $ | 234 | $ | 70 | $ | 145 | $ | (54 | ) | $ | 395 | ||||||||||||
3Q 2015 Basic Earnings per share (avg. shares outstanding 423M) | $ | 0.56 | $ | 0.17 | $ | 0.34 | $ | (0.13 | ) | $ | 0.94 | ||||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.01 | — | — | — | 0.01 | ||||||||||||||||||
Trust securities impairment | 0.01 | — | 0.06 | — | 0.07 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Impact of non-core asset sales/impairments | 0.01 | — | — | 0.01 | 0.02 | ||||||||||||||||||
Retail repositioning charges | — | — | 0.01 | — | 0.01 | ||||||||||||||||||
Mark-to-market adjustments | — | — | (0.09 | ) | — | (0.09 | ) | ||||||||||||||||
Total Special Items | $ | 0.03 | $ | — | $ | — | $ | 0.01 | $ | 0.04 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 0.59 | $ | 0.17 | $ | 0.34 | $ | (0.12 | ) | $ | 0.98 | ||||||||||||
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. The income tax rates range from 35% to 42%. | |||||||||||||||||||||||
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Consolidated Report to the Financial Community - 3rd 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) | |||||||||||||||||||||||
Nine Months Ended September 30, 2016 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
2016 Net Income (Loss) - GAAP | $ | 594 | $ | 223 | $ | (1,029 | ) | $ | (169 | ) | $ | (381 | ) | ||||||||||
2016 Basic Earnings (Losses) per share (avg. shares outstanding 425M) | $ | 1.40 | $ | 0.52 | $ | (2.43 | ) | $ | (0.39 | ) | $ | (0.90 | ) | ||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.12 | — | — | — | 0.12 | ||||||||||||||||||
Trust securities impairment | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.04 | — | 0.04 | ||||||||||||||||||
Asset impairment/Plant exit costs | — | — | 2.99 | — | 2.99 | ||||||||||||||||||
Mark-to-market adjustments | — | — | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||
Total Special Items | $ | 0.12 | $ | — | $ | 3.03 | $ | — | $ | 3.15 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 1.52 | $ | 0.52 | $ | 0.60 | $ | (0.39 | ) | $ | 2.25 | ||||||||||||
Nine Months Ended September 30, 2015 | Competitive | FirstEnergy | |||||||||||||||||||||
Regulated | Regulated | Energy | Corporate / | Corp. | |||||||||||||||||||
Distribution | Transmission | Services | Other | Consolidated | |||||||||||||||||||
2015 Net Income - GAAP | $ | 598 | $ | 231 | $ | 129 | $ | (154 | ) | $ | 804 | ||||||||||||
2015 Basic Earnings per share (avg. shares outstanding 422M) | $ | 1.42 | $ | 0.55 | $ | 0.31 | $ | (0.37 | ) | $ | 1.91 | ||||||||||||
Excluding Special Items: | |||||||||||||||||||||||
Regulatory charges | 0.05 | — | — | — | 0.05 | ||||||||||||||||||
Trust securities impairment | 0.01 | — | 0.10 | — | 0.11 | ||||||||||||||||||
Merger accounting - commodity contracts | — | — | 0.05 | — | 0.05 | ||||||||||||||||||
Asset impairment/Plant exit costs | — | — | 0.04 | — | 0.04 | ||||||||||||||||||
Impact of non-core asset sales/impairments | 0.01 | — | 0.02 | 0.02 | 0.05 | ||||||||||||||||||
Retail repositioning charges | — | — | 0.02 | — | 0.02 | ||||||||||||||||||
Mark-to-market adjustments | — | — | (0.10 | ) | — | (0.10 | ) | ||||||||||||||||
Total Special Items | $ | 0.07 | $ | — | $ | 0.13 | $ | 0.02 | $ | 0.22 | |||||||||||||
Basic EPS - Operating (Non-GAAP) | $ | 1.49 | $ | 0.55 | $ | 0.44 | $ | (0.35 | ) | $ | 2.13 | ||||||||||||
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 ranges from 35% to 42%. | |||||||||||||||||||||||
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Consolidated Report to the Financial Community - 3rd 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 | $ | 56 | $ | 0.13 | ||||||||
Trust securities impairment | 13 | 8 | 0.02 | |||||||||||
Merger accounting - commodity contracts | 32 | 21 | 0.05 | |||||||||||
Asset impairment/Plant exit costs | 1,505 | 1,269 | 2.97 | |||||||||||
Impact of non-core asset sales/impairment | (2 | ) | (1 | ) | — | |||||||||
Mark-to-market adjustments | ||||||||||||||
Pension and OPEB actuarial assumptions (1) | 300 - 525 | 186 - 316 | 0.45 - 0.75 | |||||||||||
Other | (10 | ) | (6 | ) | (0.02 | ) | ||||||||
Loss on debt redemptions | 4 | 2 | — | |||||||||||
Total Special Items | $1,931 - $2,156 | $1,535 - $1,665 | $3.60 - $3.90 | |||||||||||
*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 fourth quarter of 2016. 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%. | ||||||||||||||
(1) Based on current discount rates ranging from 4.00% to 3.75% for the pension plans and 3.75% to 3.50% for the OPEB plans and actual gains on plan assets through September 30, 2016 of 11%. | ||||||||||||||
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Consolidated Report to the Financial Community - 3rd 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 Energy 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. |
• | 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 and the change in fair value of plan assets and net actuarial gains and losses associated with the company's pension and other post employment benefits. |
• | Loss on debt redemptions - Primarily reflects costs associated with the redemption and early retirement of debt. |
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Consolidated Report to the Financial Community - 3rd Quarter 2016 36
Recent Developments
Financial Matters
Dividend
On September 20, 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 December 1, 2016, to shareholders of record at the close of business on November 7, 2016.
Financing Activities
On August 15, 2016, West Penn Power Company (WP) retired $145 million of 5.875% first mortgage bonds (FMBs) at maturity. On September 23, 2016, WP priced $100 million of 3.84% FMBs due 2046, $100 million of 4.09% FMBs due 2047 and $275 million of 4.14% FMBs due 2047 which are expected to fund and close in December 2016, September 2017 and December 2017, respectively. Proceeds will be used to repay short-term borrowings, fund capital expenditures and for other general corporate purposes.
On August 15, 2016 and September 15, 2016, FirstEnergy Generation, LLC (FG) and FirstEnergy Nuclear Generation, LLC (NG) remarketed in total $470.9 million (FG: $186.3 million; NG: $284.6 million) of pollution control revenue bonds (PCRBs) which were secured by FMBs issued by FG and NG respectively, at a weighted average interest rate of 4.35% in a mandatory put mode with put dates between 2021 to 2022.
On September 15, 2016, FG optionally retired $6.45 million of PCRBs on their mandatory put date. On September 30, 2016, FG optionally retired an additional $5.79 million of PCRBs that had been in a variable-rate letter of credit enhanced mode.
On October 17, 2016, The Potomac Edison Company issued $155 million of 3.89% FMBs due 2046. Proceeds were used to repay $100 million of maturing 5.8% FMBs, to repay short-term borrowings and for other general corporate purposes.
Moody's Investors Service Actions
On July 29, 2016, Moody’s downgraded the senior unsecured rating for FES to Ba2 from Baa3 and for AE Supply to Ba1 from Baa3 and affirmed the senior unsecured rating for Allegheny Generating Company (AGC) at Baa3. Moody’s also affirmed the senior secured rating for FES at Baa2. The rating outlooks for FES and AE Supply remain negative while AGC’s was changed to stable from positive.
FirstEnergy Corp.'s Baa3 issuer rating and negative rating outlook remain unchanged.
S&P Global Rating Actions
On August 1, 2016, S&P Global Ratings lowered the corporate credit ratings of FES, AE Supply, and AGC to BB- from BBB- with a stable outlook. S&P also lowered the senior secured debt ratings on FG, NG, and AE Supply to BB+ from BBB- and lowered the senior unsecured debt at all affiliates to BB-.
S&P affirmed the issuer credit rating of FirstEnergy Corp. and its regulated utility subsidiaries at BBB- with a negative outlook.
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Consolidated Report to the Financial Community - 3rd Quarter 2016 37
Operational Matters
Beaver Valley Unit 1 Refueling Outage
On October 25, 2016, the 939-MW Beaver Valley Unit 1 returned to service following a scheduled month-long refueling and maintenance outage. During the outage, one-third of its 157 fuel assemblies were replaced. Numerous inspections and preventative maintenance and improvement projects were completed to ensure continued safe and reliable operations.
Regulatory Matters
Pennsylvania Rate Case Settlements Update
On October 14, 2016, the Pennsylvania Utilities (Metropolitan Edison Company (ME), Pennsylvania Electric Company (PN), Penn Power Company (PP), and WP made settlement filings with the Pennsylvania Public Utility Commission (PPUC) for their distribution rate cases. The settlement agreements, which have broad support, include an annual rate increase totaling approximately $291 million across the four companies and reflect the inclusion of charges for smart meters as well as the Distribution System Improvement Charge which would otherwise be recovered under previously approved riders. The following table summarizes the resulting estimated annual pre-tax earnings impact:
($ Millions) | ME | PN | PP | WP |
Estimate Pre-Tax Earnings Impact | $67 | $74 | $22 | $40 |
The settlements include a provision whereby the Pennsylvania Utilities agree not to file to further increase base distribution rates prior to January 27, 2019. In addition, the settlements are “black box settlements” with no specified return on equity identified for each utility.
The settlements are subject to a Recommended Decision by the Administrative Law Judge and approval by the PPUC, with rates expected to be effective January 27, 2017.
Ohio ESP IV Update
On October 12, 2016, the Public Utilities Commission of Ohio (PUCO) issued an order in the ESP IV filed by Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company (TE) approving a Distribution Modernization Rider (DMR) providing for the collection of approximately $133 million annually for three years, with the possibility for a two-year extension. The DMR will be grossed up for income taxes, resulting in an approved amount of approximately $204 million annually.
Revenues from the DMR will be excluded from the significantly excessive earnings test for the initial three-year term. Recovery under the DMR is subject to three conditions: (1) retention of the corporate headquarters and nexus of operations in Akron, Ohio; (2) no change in control of the Ohio companies; and (3) a demonstration of sufficient progress in the implementation of grid modernization programs approved by the PUCO.
New Jersey Rate Case Update
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.
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Consolidated Report to the Financial Community - 3rd Quarter 2016 38
On July 13, 2016, this matter was sent to the Office of Administrative Law for hearing and the issuance of an initial decision.
On September 30, 2016, JCP&L filed an update to its filing, which includes actual data for the twelve months ending June 30, 2016, requesting an increase to annual operating revenues by approximately $146.6 million.
On November 2, 2016, achieved settlement-in-principle, which provides for an annual $80 million distribution revenue increase effective on January 1, 2017, subject to finalization, execution and NJBPU approval of a Stipulation of Settlement.
Mid-Atlantic Interstate Transmission (MAIT) Update
On February 18, 2016, FERC issued an order approving the MAIT transaction. The PPUC approved the transaction, with minor modifications on July 21, 2016, and entered a final order on August 24, 2016.
On September 8, 2016, JCP&L and MAIT submitted a letter of withdrawal of the transfer petition to the NJBPU in order to allow MAIT, which will operate exclusively in Pennsylvania, to file its formula transmission rate with an effective date of January 1, 2017. The NJBPU administratively closed the matter on September 30, 2016.
On October 14 and 28, 2016, MAIT submitted applications to FERC requesting authorization to issue equity, short-term debt and long-term debt.
On October 28, 2016, MAIT submitted an application to FERC requesting authorization to implement a formula transmission rate to recover transmission costs effective January 1, 2017, and on October 28, 2016, MAIT and PJM submitted a joint application to FERC requesting authorization for ME and PN to withdraw from the PJM Consolidated Transmission Owners Agreement as Transmission Owners (TOs) and for MAIT to become a participating PJM TO. MAIT and PJM also requested FERC accept various transmission service agreements that permit MAIT to operate its transmission assets in concert with PJM and other TOs.
JCP&L Formula Transmission Rate Filing Update
Given that JCP&L will not be transferring its transmission assets to MAIT, there is a need for JCP&L to update its transmission rate. On October 28, 2016, JCP&L submitted an application to FERC requesting authorization to implement a formula transmission rate to recover and earn a return on transmission costs effective January 1, 2017.
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Consolidated Report to the Financial Community - 3rd 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 Competitive Energy Services (CES) segment, including FirstEnergy Solutions Corp. and its subsidiaries and FirstEnergy Nuclear Operating Company, related to continued depressed wholesale energy and capacity markets, and the viability and/or success of strategic business alternatives, such as potential CES generating unit asset sales, the potential conversion of the remaining generation fleet from competitive operations to a regulated or regulated-like construct or the potential need to deactivate 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 older regulated and competitive 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 significant 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; further 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, increase requirements to post additional collateral to support, or accelerate payments under outstanding commodity positions, letters of credit and other financial guarantees, and the impact of these events on the financial condition and liquidity of FirstEnergy and/or its subsidiaries, specifically the subsidiaries within the CES segment; the risks and uncertainties surrounding FirstEnergy's need to obtain waivers from its bank group under FirstEnergy's credit facilities caused by a debt to total capitalization ratio in excess of 65% resulting from impairment charges or other events at CES; 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 - 3rd Quarter 2016 40