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FirstEnergy sees regulated investments, future equity driving earnings growth

FirstEnergy Corp.'s management defended and reinforced the company's plans to tap up to $600 million in equity in 2022 and 2023 to support its extended earnings growth rate.

"The range of $0 to $600 million, including the [dividend reinvestment plan], is a range we expect to stay in," FirstEnergy President and CEO Charles Jones Jr. said Feb. 7 on the company's fourth-quarter 2019 earnings call. "I don't think it should be extracted that it will be $600 million every year, but it will be within that range, depending on where we're at when we get to that point."

FirstEnergy affirmed its full-year operating earnings guidance of $2.40 per share to $2.60 per share while maintaining a compound annual growth rate projection of 6% to 8% from 2018 to 2021. In November 2019, the company extended the CAGR at 5% to 7% through 2023, inclusive of the company's plans to issue up to $600 million of equity annually beginning in 2022 to finance growth initiatives.

"One thing that could help bring it down is if we eventually see some reasonable load growth throughout our footprint," Jones said in response to an analyst's question about potential changes to equity needs. "Just a little bit of load growth can have a huge impact. We give a range for a reason ... I can't sit here today and tell you how much equity we're going to recommend we issue in 2022, [2023], [2024]. It's not going to be more than $600 million. I can confidently say that."

In addition to the potential equity issuance, FirstEnergy sees about $3 billion in annual transmission and distribution investment underpinning future earnings growth.

In New Jersey, subsidiary Jersey Central Power & Light Co. plans to file a distribution rate case before the end of February.

Jones noted that he also recently met with New Jersey Gov. Phil Murphy and discussed the "2019 New Jersey Energy Master Plan," which calls for achieving carbon-neutral electricity generation by 2050.

"I think there are opportunities for us to help, particularly in the electric vehicle area, if the state decides to embrace utilities investing in building out a robust charging network throughout the state," Jones said. FirstEnergy also has a lot of experience in advanced metering infrastructure, the CEO noted.

"I was very honest with [the governor] that I have no intention to get into investing in offshore wind," Jones said. "That's not something I see us taking on at this point in time."

While pointing out that 90% of FirstEnergy's transmission capital investment is in "states other than New Jersey," the CEO said he talked to the governor about how the company's transmission can be "complementary" and "enabling" to the state's energy master plan.

"There was nothing in that energy master plan that scares me in any way," Jones said. "But there are pieces and parts that I think we can help more on, and there's pieces and parts that we don't want to be part of."

FirstEnergy also sees opportunities for further regulated generation investments in West Virginia as the company awaits its official separation from bankrupt power provider FirstEnergy Solutions Corp. FES is now expected to emerge from bankruptcy sometime in February.

"[O]ne of the things that I think differentiates us from many others in our sector is, we are a transmission and distribution company by and large," Jones said. "That creates a risk profile that is very low risk. We don't have the risks that go along with owning massive fleets of generating plants, particularly coal and coal waste disposal sites and so forth."

FirstEnergy operates the 1,098-MW Fort Martin and the 1,984-MW Harrison coal plants in West Virginia, both regulated assets.

The company's West Virginia utilities will file an integrated resource plan later this year, and Jones said, "there are opportunities to embrace" the boom in the region's shale development.

In addition, FirstEnergy sees the potential for regulated renewables development.

"I don't want to speak for the state of West Virginia but up until now at least, haven't been real welcoming to renewables there," Jones said. "But from a FirstEnergy perspective, as we get separation from this whole FES issue and put that behind us, I think investment in renewable generation in a regulated context is something that we need to be thinking about adding to our portfolio."

The West Virginia Legislature is debating legislation, House Bill 4562, that would ease the permitting process for new solar generation.