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FirstEnergy aims for 6% to 8% regulated growth rate after $2.5B equity infusion

Fresh off a $2.5 billion equity infusion from a group of prominent and active investors, FirstEnergy Corp. unveiled a 6% to 8% regulated operating earnings growth rate through 2021.

The growth rate reflects $10 billion to $12 billion in planned incremental distribution and transmission investments, FirstEnergy management said Feb. 21 on the company's fourth-quarter 2017 earnings call. This growth rate excludes the impact of the distribution modernization rider in Ohio, which provides $204 million annually through at least 2019 for potential grid investments.

The company also plans to increase investments in its transmission business as part of the second phase of the Energizing the Future initiative.

"During the first four years of the program, we invested more than $4 billion to support system reliability and enhance service to our customers," FirstEnergy President and CEO Charles Jones Jr. said on the call. "For the second phase of the program, we're increasing the low end of our targeted annual investments by $200 million. This will bring our planned investments to $1 billion to $1.2 billion annually through 2021."

FirstEnergy's focus on regulated growth comes as the company maintains its commitment to exit the competitive business.

In the fourth quarter, FirstEnergy recorded pretax asset impairment and plant exit costs of $2.4 billion, or $3.38 per share, primarily to fully impair the carrying value of its nuclear generating assets, increase the nuclear asset retirement obligations and reduce the carrying value of the Pleasants power plant.

FirstEnergy affiliate Allegheny Energy Supply Co. on Feb. 16 announced that it will deactivate and look to sell the 1,300-MW Pleasants coal plant in West Virginia. The move comes after the Federal Energy Regulatory Commission rejected the planned transfer of the plant from AE Supply to regulated utility Monongahela Power Co.

The Public Service Commission of West Virginia approved the plant transfer subject to "certain significant conditions," including protections for ratepayers of Mon Power and sister utility Potomac Edison Co. Jones said these conditions "would have resulted in significant exposure to commodity risks at our utility." Absent a sale, the plant will be deactivated on Jan. 1, 2019.

In response to an analyst's question, Jones said it is "too early" to determine how Mon Power will address its projected capacity shortfall of more than 1,000 MW by 2020. "I think in the short term, they would meet any supply needs from the [PJM Interconnection] market. And we are reevaluating what we need to do there," Jones said. "But we are not planning to take another attempt at Pleasants, if that's what you're asking."

FirstEnergy, on the advice of its new investors, also has formed a restructuring working group to advise the company during its transition to a fully regulated business. This transition will likely involve the restructuring or potential bankruptcy of competitive subsidiary FirstEnergy Solutions Corp., or FES.

An independent board of directors at FES, which has a $100 million bond maturity due in April, is determining whether the competitive subsidiary will file for Chapter 11 bankruptcy protection.

"I expect that [FES] will be removed from [FirstEnergy's] unregulated money pool between now and the end of March and that will be the last tie that we have with that business," Jones said. "While I can't speak for FES, I will be shocked if they go beyond the end of March without some type of a filing."

The CEO also expressed his disappointment following failed efforts to gain regulatory support for FES' merchant coal and nuclear plants.

"It is common knowledge that we were very actively involved in a multitude of efforts at both the state and federal levels to support our generation assets in a way that would have benefited our communities, employees and FES creditors," Jones said. "I'm personally disappointed that the endeavors haven't resulted in any meaningful legislative or regulatory support given the importance of these plants to grid resiliency, reliable and affordable power, and the region's economy. FES will continue to look at all options regarding these units and we will continue to support policy solutions."

FirstEnergy has warned its 908-MW Davis-Besse and 1,268-MW Perry nuclear plants in Ohio as well as its 1,872-MW Beaver Valley nuclear plant in Pennsylvania could be forced to retire prematurely.

Jones added that the company fully impaired its nuclear assets "because the inability to receive any form of legislative or regulatory support has increased the likelihood that the plants will not be able to operate until the end of their useful lives."