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Section 1: 10-Q (10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________
Commission
 
Registrant; State of Incorporation;
 
I.R.S. Employer
File Number
 
Address; and Telephone Number
 
Identification No.
 
 
 
 
 
 
 
 
333-21011
 
FIRSTENERGY CORP
 
34-1843785
 
 
(An
Ohio
Corporation)
 
 
 
 
  76 South Main Street
 
 
 
 
Akron
OH
44308
 
 
 
 
Telephone
(800)
736-3402
 
 
 
 
 
 
 
 
 
 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, $0.10 par value
 
FE
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
 
 No
 
 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
 
 No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
 
Accelerated Filer
 
 
Non-accelerated Filer
 
 
Smaller Reporting Company
 
 
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
 No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
 
OUTSTANDING
CLASS
 
AS OF MARCH 31, 2020
Common Stock, $0.10 par value
 
541,753,695

FirstEnergy Website and Other Social Media Sites and Applications

FirstEnergy’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and all other documents filed with or furnished to the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 are made available free of charge on or through the “Investors” page of FirstEnergy’s website at www.firstenergycorp.com. These documents are also available to the public from commercial document retrieval services and the website maintained by the SEC at www.sec.gov.

These SEC filings are posted on the website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Additionally, FirstEnergy routinely posts additional important information, including press releases, investor presentations, investor factbook, and notices of upcoming events under the “Investors” section of FirstEnergy’s website and recognizes FirstEnergy’s website as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD. Investors may be notified of postings to the website by signing up for email alerts and Rich Site Summary feeds on the “Investors” page of FirstEnergy’s website. FirstEnergy also uses Twitter® and Facebook® as additional channels of distribution to reach public investors and as a supplemental means of disclosing material non-public information for complying with its disclosure obligations under Regulation FD. Information contained on FirstEnergy’s website, Twitter® handle or Facebook® page, and any corresponding applications of those sites, shall not be deemed incorporated into, or to be part of, this report.

 





Forward-Looking Statements: This Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 based on information currently available to management. Such statements are subject to certain risks and uncertainties and readers are cautioned not to place undue reliance on these forward-looking statements. 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 (see Glossary of Terms for definitions of capitalized terms):

The extent and duration of the novel coronavirus (known as COVID-19) and the impacts to our business, operations and financial condition resulting from the outbreak of COVID-19 including, but not limited to, disruption of businesses in our territories, volatile capital and credit markets, legislative and regulatory actions, the effectiveness of our pandemic and business continuity plans, the precautionary measures we are taking on behalf of our customers and employees, our customers’ ability to make their utility payment and the potential for supply-chain disruptions.
Mitigating exposure for remedial activities associated with retired and formerly owned electric generation assets, including, but not limited to, risks associated with the decommissioning of TMI-2.
The ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, executing our transmission and distribution investment plans, controlling costs, improving our credit metrics, strengthening our balance sheet and growing earnings.
Legislative and regulatory developments, including, but not limited to, matters related to rates, compliance and enforcement activity.
Economic and weather conditions affecting future operating results, such as significant weather events and other natural disasters, and associated regulatory events or actions.
Changes in assumptions regarding economic conditions within our territories, the reliability of our transmission and distribution system, or the availability of capital or other resources supporting identified transmission and distribution investment opportunities.
Changes in customers’ demand for power, including, but not limited to, the impact of climate change or energy efficiency and peak demand reduction mandates.
Changes in national and regional economic conditions affecting us and/or our major industrial and commercial customers or others with which we do business.
The risks associated with cyber-attacks and other disruptions to our information technology system, which may compromise our operations, and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information.
The ability to comply with applicable reliability standards and energy efficiency and peak demand reduction mandates.
Changes to environmental laws and regulations, including, but not limited to, those related to climate change.
Changing market conditions affecting the measurement of certain liabilities and the value of assets held in our pension trusts and other trust funds, or causing us to make contributions sooner, or in amounts that are larger, than currently anticipated.
The risks and uncertainties associated with litigation, arbitration, mediation and like proceedings.
Labor disruptions by our unionized workforce.
Changes to significant accounting policies.
Any changes in tax laws or regulations, or adverse tax audit results or rulings.
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, including the increasing number of financial institutions evaluating the impact of climate change on their investment decisions.
Actions that may be taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity.
The risks and other factors discussed from time to time in our SEC filings.

Dividends declared from time to time on our common stock during any period may in the aggregate vary from prior periods due to circumstances considered by our 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.

These forward-looking statements are also qualified by, and should be read together with, the risk factors included in FirstEnergy’s 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 and Current Reports on Form 8-K. The foregoing review of factors also should not be construed as exhaustive. 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 FirstEnergy’s 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 obligation to update or revise, except as required by law, any forward-looking statements contained herein or in the information incorporated by reference as a result of new information, future events or otherwise.




TABLE OF CONTENTS
 
Page
 
 
Part I. Financial Information
 
 
 
 
 
 
 
 
 
Consolidated Statements of Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i



GLOSSARY OF TERMS
The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and its current and former subsidiaries:
AE Supply
Allegheny Energy Supply Company, LLC, an unregulated generation subsidiary
AGC
Allegheny Generating Company, a generation subsidiary of MP
ATSI
American Transmission Systems, Incorporated, a subsidiary of FET, which owns and operates transmission facilities
BSPC
Bay Shore Power Company
CEI
The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary
FE
FirstEnergy Corp., a public utility holding company
FENOC
Energy Harbor Nuclear Corp. (formerly known as FirstEnergy Nuclear Operating Company), a subsidiary of EH, which operates NG’s nuclear generating facilities

FES
Energy Harbor LLC. (formerly known as FirstEnergy Solutions Corp.), a subsidiary of EH, which provides energy-related products and services
FES Debtors
FES, FENOC, FG, NG, FE Aircraft Leasing Corp., Norton Energy Storage LLC, and FGMUC

FESC
FirstEnergy Service Company, which provides legal, financial and other corporate support services
FET
FirstEnergy Transmission, LLC, the parent company of ATSI, MAIT and TrAIL, and has a joint venture in PATH
FEV
FirstEnergy Ventures Corp., which invests in certain unregulated enterprises and business ventures
FG
Energy Harbor Generation LLC (formerly known as FirstEnergy Generation, LLC), a subsidiary of EH, which owns and operates fossil generating facilities

FGMUC
FirstEnergy Generation Mansfield Unit 1 Corp., a subsidiary of FG

FirstEnergy
FirstEnergy Corp., together with its consolidated subsidiaries
Global Holding
Global Mining Holding Company, LLC, a joint venture between FEV, WMB Marketing Ventures, LLC and Pinesdale LLC
Global Rail
Global Rail Group, LLC, a subsidiary of Global Holding that owns coal transportation operations near Roundup, Montana
GPUN
GPU Nuclear, Inc., a subsidiary of FE, which operates TMI-2
JCP&L
Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary
MAIT
Mid-Atlantic Interstate Transmission, LLC, a subsidiary of FET, which owns and operates transmission facilities
ME
Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary
MP
Monongahela Power Company, a West Virginia electric utility operating subsidiary
NG
Energy Harbor Nuclear Generation LLC (formerly known as FirstEnergy Nuclear Generation, LLC), a subsidiary of EH, which owns nuclear generating facilities

OE
Ohio Edison Company, an Ohio electric utility operating subsidiary
Ohio Companies
CEI, OE and TE
PATH
Potomac-Appalachian Transmission Highline, LLC, a joint venture between FE and a subsidiary of AEP
PATH-Allegheny
PATH Allegheny Transmission Company, LLC
PATH-WV
PATH West Virginia Transmission Company, LLC
PE
The Potomac Edison Company, a Maryland and West Virginia electric utility operating subsidiary
Penn
Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE
Pennsylvania Companies
ME, PN, Penn and WP
PN
Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary
Signal Peak
Signal Peak Energy, LLC, an indirect subsidiary of Global Holding that owns mining operations near Roundup, Montana
TE
The Toledo Edison Company, an Ohio electric utility operating subsidiary
TrAIL
Trans-Allegheny Interstate Line Company, a subsidiary of FET, which owns and operates transmission facilities
Transmission Companies
ATSI, MAIT and TrAIL
Utilities
OE, CEI, TE, Penn, JCP&L, ME, PN, MP, PE and WP
WP
West Penn Power Company, a Pennsylvania electric utility operating subsidiary
 
 








ii



The following abbreviations and acronyms are used to identify frequently used terms in this report:
 
 
 
 
 
ACE
Affordable Clean Energy
 
Facebook®
Facebook is a registered trademark of Facebook, Inc.
ADIT
Accumulated Deferred Income Taxes
 
FASB
Financial Accounting Standards Board
AEP
American Electric Power Company, Inc.
 
FERC
Federal Energy Regulatory Commission
AFS
Available-for-sale
 
FES Bankruptcy
FES Debtors’ voluntary petitions for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code with the Bankruptcy Court
AFUDC
Allowance for Funds Used During Construction
 
Fitch
Fitch Ratings
ALJ
Administrative Law Judge
 
FPA
Federal Power Act
AMT
Alternative Minimum Tax
 
FTR
Financial Transmission Right
AOCI
Accumulated Other Comprehensive Income
 
GAAP
Accounting Principles Generally Accepted in the United States of America
ARO
Asset Retirement Obligation
 
GHG
Greenhouse Gases
ARP
Alternative Revenue Program
 
IIP
Infrastructure Investment Program
ASC
Accounting Standard Codification
 
kW
Kilowatt
ASU
Accounting Standards Update
 
LIBOR
London Inter-Bank Offered Rate
Bankruptcy Court
U.S. Bankruptcy Court in the Northern District of Ohio in Akron
 
LOC
Letter of Credit
Bath County
Bath County Pumped Storage Hydro-Power Station
 
LTIIPs
Long-Term Infrastructure Improvement Plans
BGS
Basic Generation Service
 
MDPSC
Maryland Public Service Commission
CAA
Clean Air Act
 
MGP
Manufactured Gas Plants
CARES Act
Coronavirus Aid, Relief and Economic Security Act of 2020

 
MISO
Midcontinent Independent System Operator, Inc.
CCR
Coal Combustion Residuals
 
mmBTU
One Million British Thermal Units
CERCLA
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
 
Moody’s
Moody’s Investors Service, Inc.
CFR
Code of Federal Regulations
 
MW
Megawatt
CO2
Carbon Dioxide
 
MWH
Megawatt-hour
COVID-19
Novel coronavirus
 
NAAQS
National Ambient Air Quality Standards
CPP
EPA’s Clean Power Plan
 
NDT
Nuclear Decommissioning Trust
CSAPR
Cross-State Air Pollution Rule
 
NERC
North American Electric Reliability Corporation
CTA
Consolidated Tax Adjustment
 
NJBPU
New Jersey Board of Public Utilities
CWA
Clean Water Act
 
NMB
Non-Market Based
D.C. Circuit
United States Court of Appeals for the District of Columbia Circuit
 
NOI
Notice of Inquiry
DCR
Delivery Capital Recovery
 
NOL
Net Operating Loss
DMR
Distribution Modernization Rider
 
NOx
Nitrogen Oxide
DPM
Distribution Platform Modernization
 
NRC
Nuclear Regulatory Commission
DSIC
Distribution System Improvement Charge
 
NUG
Non-Utility Generation
DSP
Default Service Plan
 
NYPSC
New York State Public Service Commission
EDC
Electric Distribution Company
 
OCA
Office of Consumer Advocate
EDCP
Executive Deferred Compensation Plan
 
OCC
Ohio Consumers’ Counsel
EDIS
Electric Distribution Investment Surcharge
 
OPEB
Other Post-Employment Benefits
EE&C
Energy Efficiency and Conservation
 
OPIC
Other Paid-in Capital
EGS
Electric Generation Supplier
 
OVEC
Ohio Valley Electric Corporation
EGU
Electric Generation Units
 
PA DEP
Pennsylvania Department of Environmental Protection
EH
Energy Harbor Corp.
 
PJM
PJM Interconnection, LLC
EmPOWER Maryland
EmPOWER Maryland Energy Efficiency Act
 
PJM Tariff
PJM Open Access Transmission Tariff
ENEC
Expanded Net Energy Cost
 
POLR
Provider of Last Resort
EPA
United States Environmental Protection Agency
 
POR
Purchase of Receivables
EPS
Earnings per Share
 
PPA
Purchase Power Agreement
ERO
Electric Reliability Organization
 
PPB
Parts per Billion
ESP IV
Electric Security Plan IV
 
PPUC
Pennsylvania Public Utility Commission

iii



PUCO
Public Utilities Commission of Ohio
 
SIP
State Implementation Plan(s) Under the Clean Air Act
PURPA
Public Utility Regulatory Policies Act of 1978
 
SO2
Sulfur Dioxide
RCRA
Resource Conservation and Recovery Act
 
SOS
Standard Offer Service
Regulation FD
Regulation Fair Disclosure promulgated by the SEC
 
SREC
Solar Renewable Energy Credit
RFC
ReliabilityFirst Corporation
 
SSO
Standard Service Offer
RFP
Request for Proposal
 
Tax Act
Tax Cuts and Jobs Act adopted December 22, 2017
RGGI
Regional Greenhouse Gas Initiative
 
TMI-2
Three Mile Island Unit 2
ROE
Return on Equity
 
Twitter®
Twitter is a registered trademark of Twitter, Inc.
RTEP
Regional Transmission Expansion Plan
 
UCC
Official committee of unsecured creditors appointed in connection with the FES Bankruptcy
RTO
Regional Transmission Organization
 
VIE
Variable Interest Entity
S&P
Standard & Poor’s Ratings Service
 
VMS
Vegetation Management Surcharge
SBC
Societal Benefits Charge
 
VSCC
Virginia State Corporation Commission
SCOH
Supreme Court of Ohio
 
WVPSC
Public Service Commission of West Virginia
SEC
United States Securities and Exchange Commission
 
ZEC
Zero Emissions Certificate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


iv



PART I. FINANCIAL INFORMATION

ITEM I.         Financial Statements

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

For the Three Months Ended March 31,
(In millions, except per share amounts)
 
2020
 
2019
 
 
 
 
 
REVENUES:
 
 
 
 
Distribution services and retail generation
 
$
2,124

 
$
2,309

Transmission
 
397

 
352

Other
 
188

 
222

Total revenues(1)
 
2,709

 
2,883

 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
Fuel
 
98

 
131

Purchased power
 
694

 
781

Other operating expenses
 
749

 
779

Provision for depreciation
 
317

 
297

Amortization of regulatory assets, net
 
52

 
5

General taxes
 
267

 
261

Total operating expenses
 
2,177

 
2,254

 
 
 
 
 
OPERATING INCOME
 
532

 
629

 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
Miscellaneous income, net
 
100

 
54

Pension and OPEB mark-to-market adjustment (Note 5)
 
(423
)
 

Interest expense
 
(263
)
 
(253
)
Capitalized financing costs
 
18

 
18

Total other expense
 
(568
)
 
(181
)
 
 
 
 
 
INCOME (LOSS) BEFORE INCOME TAXES (BENEFITS)
 
(36
)
 
448

 
 
 
 
 
INCOME TAXES (BENEFITS)
 
(60
)
 
93

 
 
 
 
 
INCOME FROM CONTINUING OPERATIONS
 
24

 
355

 
 
 
 
 
Discontinued operations (Note 3)(2) 
 
50

 
(35
)
 
 
 
 
 
NET INCOME
 
$
74

 
$
320

 
 
 
 
 
INCOME ALLOCATED TO PREFERRED STOCKHOLDERS (Note 4)
 

 
5

 
 
 
 
 
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
 
$
74

 
$
315

 
 
 
 
 
EARNINGS PER SHARE OF COMMON STOCK (Note 4):
 
 
 
 
Basic - Continuing Operations
 
$
0.05

 
$
0.66

Basic - Discontinued Operations
 
0.09

 
(0.07
)
Basic - Net Income Attributable to Common Stockholders
 
$
0.14

 
$
0.59

 
 
 
 
 
Diluted - Continuing Operations
 
$
0.05

 
$
0.66

Diluted - Discontinued Operations
 
0.09

 
(0.07
)
Diluted - Net Income Attributable to Common Stockholders
 
$
0.14

 
$
0.59

 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
Basic
 
541

 
530

Diluted
 
543

 
533

 
 
 
 
 

(1) Includes excise and gross receipts tax collections of $92 million and $102 million during the three months ended March 31, 2020 and 2019, respectively.

(2) Net of income tax expense (benefits) of $(36) million and $5 million for the three months ended March 31, 2020 and 2019, respectively.

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.


1



FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
 
For the Three Months Ended March 31,
(In millions)
 
2020
 
2019
 
 
 
 
 
NET INCOME
 
$
74

 
$
320

 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS):
 
 

 
 

Pension and OPEB prior service costs
 
(23
)
 
(7
)
Amortized losses on derivative hedges
 

 
1

Other comprehensive loss
 
(23
)
 
(6
)
Income tax benefits on other comprehensive loss
 
(5
)
 
(1
)
Other comprehensive loss, net of tax
 
(18
)
 
(5
)
 
 
 
 
 
COMPREHENSIVE INCOME
 
$
56

 
$
315

 
 
 
 
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.



2



FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share amounts)
 
March 31,
2020
 
December 31,
2019
ASSETS
 
 

 
 

CURRENT ASSETS:
 
 

 
 

Cash and cash equivalents
 
$
152

 
$
627

Restricted cash
 
33

 
52

Receivables-
 
 

 
 
Customers
 
1,053

 
1,137

Less — Allowance for uncollectible customer receivables
 
44

 
46

 
 
1,009

 
1,091

Affiliated companies, net of allowance for uncollectible accounts of $1,063 in 2019
 

 

Other, net of allowance for uncollectible accounts of $26 in 2020 and $21 in 2019
 
245

 
203

Materials and supplies, at average cost
 
285

 
281

Prepaid taxes and other
 
279

 
157

Current assets - discontinued operations
 

 
33

 
 
2,003

 
2,444

PROPERTY, PLANT AND EQUIPMENT:
 
 

 
 

In service
 
42,184

 
41,767

Less — Accumulated provision for depreciation
 
11,635

 
11,427

 
 
30,549

 
30,340

Construction work in progress
 
1,456

 
1,310

 
 
32,005

 
31,650

 
 
 
 
 
INVESTMENTS:
 
 

 
 

Nuclear fuel disposal trust
 
275

 
270

Other
 
288

 
299

Investments - held for sale (Note 10)
 
875

 
882

 
 
1,438

 
1,451

DEFERRED CHARGES AND OTHER ASSETS:
 
 

 
 

Goodwill
 
5,618

 
5,618

Regulatory assets
 
91

 
99

Other
 
935

 
1,039

 
 
6,644

 
6,756

 
 
$
42,090

 
$
42,301

LIABILITIES AND CAPITALIZATION
 
 

 
 

CURRENT LIABILITIES:
 
 

 
 

Currently payable long-term debt
 
$
381

 
$
380

Short-term borrowings
 
750

 
1,000

Accounts payable
 
898

 
918

Accounts payable - affiliated companies
 

 
87

Accrued interest
 
278

 
249

Accrued taxes
 
566

 
545

Accrued compensation and benefits
 
252

 
258

Other
 
572

 
1,425

 
 
3,697

 
4,862

CAPITALIZATION:
 
 

 
 

Stockholders’ equity-
 
 

 
 

Common stock, $0.10 par value, authorized 700,000,000 shares - 541,753,695 and 540,652,222 shares outstanding as of March 31, 2020 and December 31, 2019, respectively
 
54

 
54

Other paid-in capital
 
10,651

 
10,868

Accumulated other comprehensive income
 
2

 
20

Accumulated deficit
 
(3,893
)
 
(3,967
)
Total stockholders’ equity
 
6,814

 
6,975

Long-term debt and other long-term obligations
 
20,821

 
19,618

 
 
27,635

 
26,593

NONCURRENT LIABILITIES:
 
 

 
 

Accumulated deferred income taxes
 
2,774

 
2,849

Retirement benefits
 
3,455

 
3,065

Regulatory liabilities
 
2,266

 
2,360

Asset retirement obligations
 
168

 
165

Adverse power contract liability
 
38

 
49

Other
 
1,357

 
1,667

Noncurrent liabilities - held for sale (Note 10)
 
700

 
691

 
 
10,758

 
10,846

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 10)
 


 


 
 
$
42,090

 
$
42,301


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.


3



FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
Three Months Ended March 31, 2020
 
 
Series A Convertible Preferred Stock
 
Common Stock
 
OPIC
 
AOCI
 
Accumulated Deficit
 
Total Stockholders’ Equity
(In millions)
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance, January 1, 2020
 

 
$

 
541

 
$
54

 
$
10,868

 
$
20

 
$
(3,967
)
 
$
6,975

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
74

 
74

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
(18
)
 
 
 
(18
)
Stock-based compensation
 
 
 
 
 
 
 
 
 
9

 
 
 
 
 
9

Stock Investment Plan and certain share-based benefit plans
 
 
 
 
 
1

 
 
 
(15
)
 
 
 
 
 
(15
)
Cash dividends declared on common stock ($0.39/common share in March)
 
 
 
 
 
 
 
 
 
(211
)
 
 
 
 
 
(211
)
Balance, March 31, 2020
 

 
$

 
542

 
$
54

 
$
10,651

 
$
2

 
$
(3,893
)
 
$
6,814


 
 
Three Months Ended March 31, 2019
 
 
Series A Convertible Preferred Stock
 
Common Stock
 
OPIC
 
AOCI
 
Accumulated Deficit
 
Total Stockholders’ Equity
(In millions)
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance, January 1, 2019
 
0.7

 
$
71

 
512

 
$
51

 
$
11,530

 
$
41

 
$
(4,879
)
 
$
6,814

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
320

 
320

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
(5
)
 
 
 
(5
)
Stock-based compensation
 
 
 
 
 
 
 
 
 
7

 
 
 
 
 
7

Stock Investment Plan and certain share-based benefit plans
 
 
 
 
 
1

 


 
1

 
 
 
 
 
1

Cash dividends declared on common stock ($0.38/common share in March)
 
 
 
 
 
 
 
 
 
(202
)
 
 
 
 
 
(202
)
Cash dividends declared on preferred stock ($0.38/as-converted share in March)
 
 
 
 
 
 
 
 
 
(3
)
 
 
 
 
 
(3
)
Conversion of Series A Convertible Preferred Stock (1)
 
(0.5
)
 
(50
)
 
18

 
2

 
48

 
 
 
 
 

Balance, March 31, 2019
 
0.2

 
$
21

 
531

 
$
53

 
$
11,381

 
$
36

 
$
(4,559
)
 
$
6,932


(1) As of March 31, 2019, there were 209,822 outstanding shares of Series A Convertible Preferred Stock.

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.



4



FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
For the Three Months Ended March 31,
(In millions)
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
74

 
$
320

Adjustments to reconcile net income to net cash from operating activities-
 
 
 
 
Loss (gain) on disposal, net of tax (Note 3)
 
(50
)
 
24

Depreciation and amortization, including regulatory assets, net, and deferred debt-related costs
 
295

 
345

Deferred income taxes and investment tax credits, net
 
(78
)
 
91

Retirement benefits, net of payments
 
(66
)
 
(39
)
Pension trust contributions
 

 
(500
)
Pension and OPEB mark-to-market adjustment
 
423

 

Settlement agreement and tax sharing payments to the FES Debtors
 
(978
)
 

Changes in current assets and liabilities-
 
 
 
 
Receivables
 
51

 
92

Prepaid taxes and other
 
(125
)
 
(148
)
Accounts payable
 
(66
)
 
(143
)
Accrued taxes
 
(37
)
 
(81
)
Accrued interest
 
29

 
13

Accrued compensation and benefits
 
(61
)
 
(123
)
Other current liabilities
 
1

 
(13
)
Other
 
28

 
(20
)
Net cash used for operating activities
 
(560
)
 
(182
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
New financing-
 
 
 
 
Long-term debt
 
2,000

 
1,400

Short-term borrowings, net
 

 
50

Redemptions and repayments-
 
 
 
 
Long-term debt
 
(778
)
 
(628
)
Short-term borrowings, net
 
(250
)
 

Preferred stock dividend payments
 

 
(3
)
Common stock dividend payments
 
(211
)
 
(201
)
Other
 
(36
)
 
(25
)
Net cash provided from financing activities
 
725

 
593

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Property additions
 
(616
)
 
(554
)
Sales of investment securities held in trusts
 
13

 
153

Purchases of investment securities held in trusts
 
(18
)
 
(162
)
Asset removal costs
 
(43
)
 
(65
)
Other
 
5

 
(2
)
Net cash used for investing activities
 
(659
)
 
(630
)
 
 
 
 
 
Net change in cash, cash equivalents, and restricted cash
 
(494
)
 
(219
)
Cash, cash equivalents, and restricted cash at beginning of period
 
679

 
429

Cash, cash equivalents, and restricted cash at end of period
 
$
185

 
$
210


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.



5



FIRSTENERGY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note
Number
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
 
 
 
9
 
 
 
10
 
 
 
11
 
 
 



6



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Terms.

FE was incorporated under Ohio law in 1996. FE’s principal business is the holding, directly or indirectly, of all of the outstanding equity of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), JCP&L, ME, PN, FESC, AE Supply, MP, AGC (a wholly owned subsidiary of MP), PE, WP, and FET and its principal subsidiaries (ATSI, MAIT and TrAIL). In addition, FE holds all of the outstanding equity of other direct subsidiaries including: AESC, FirstEnergy Properties, Inc., FEV, FELHC, Inc., GPUN, Allegheny Ventures, Inc., and Suvon, LLC doing business as both FirstEnergy Home and FirstEnergy Advisors.

FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving over six million customers in the Midwest and Mid-Atlantic regions. FirstEnergy’s transmission operations include approximately 24,500 miles of lines and two regional transmission operation centers. AGC, JCP&L and MP control 3,790 MWs of total capacity.
These interim financial statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements and notes prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2019.

FE and its subsidiaries follow GAAP and comply with the related regulations, orders, policies and practices prescribed by the SEC, FERC, and, as applicable, the NRC, the PUCO, the PPUC, the MDPSC, the NYPSC, the WVPSC, the VSCC and the NJBPU. The accompanying interim financial statements are unaudited, but reflect all adjustments, consisting of normal recurring adjustments, that, in the opinion of management, are necessary for a fair statement of the financial statements. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not necessarily indicative of results of operations for any future period. FE and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

FE and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation as appropriate and permitted pursuant to GAAP. FE and its subsidiaries consolidate a VIE when it is determined that it is the primary beneficiary. Investments in affiliates over which FE and its subsidiaries have the ability to exercise significant influence, but do not have a controlling financial interest, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage of FE’s ownership share of the entity’s earnings is reported in the Consolidated Statements of Income and Comprehensive Income.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Capitalized Financing Costs

For each of the three months ended March 31, 2020 and 2019, capitalized financing costs on FirstEnergy’s Consolidated Statements of Income include $11 million and $13 million, respectively, of allowance for equity funds used during construction and $7 million and $5 million, respectively, of capitalized interest.

COVID-19

The outbreak of COVID-19 has become a global pandemic. FirstEnergy is continuously evaluating the global pandemic and taking steps to mitigate known risks. The full impact on FirstEnergy’s business from the pandemic, including the governmental and regulatory responses, is unknown at this time and difficult to predict. FirstEnergy provides a critical and essential service to its customers and the health and safety of its employees and customers is its first priority. FirstEnergy is continuously monitoring its supply chain and is working closely with essential vendors to understand the impact of COVID-19 to its business and does not currently expect service disruptions or any material impact on its capital spending plan.

Currently, FirstEnergy is effectively managing operations during the pandemic in order to continue to provide critical service to customers and believes it is well positioned to manage the resulting economic slowdown. FirstEnergy Distribution and Transmission revenues benefit from geographic and economic diversity across a five-state service territory, which also allows for flexibility with capital investments and measures to maintain sufficient liquidity over the next twelve months. However, the situation remains fluid and future impacts to FirstEnergy that are presently unknown or unanticipated may occur. Furthermore, the likelihood of an impact to FirstEnergy, and the severity of any impact that does occur, could increase the longer the global pandemic persists.


7




Customer Receivables

Receivables from customers include retail electric sales and distribution deliveries to residential, commercial and industrial customers for the Utilities. The allowance for uncollectible customer receivables is based on historical loss information comprised of a rolling 36-month average net write-off percentage of revenues, in conjunction with a qualitative assessment of elements that impact the collectability of receivables, such as changes in economic factors, regulatory matters, industry trends, customer credit factors, payment options and programs available to customers, and the methods that the Utilities are able to utilize to ensure payment. During the first quarter of 2020, FirstEnergy reviewed its allowance for uncollectible customer receivables based on this qualitative assessment, including consideration of the recent outbreak of COVID-19, along with past trends during times of economic instability, and determined the process and amounts recognized are appropriate, with no significant incremental expense adjustment recognized specifically due to the pandemic. However, due to significant uncertainty surrounding the pandemic, the full impact to FirstEnergy, including governmental and/or regulatory responses, is unknown at this time and difficult to predict. Furthermore, the Ohio Companies and JCP&L have existing regulatory mechanisms in place where incremental uncollectible expenses are able to be recovered through riders with no material impact to earnings. Additionally, in response to the COVID-19 outbreak, the MDPSC issued an order allowing PE to track and create a regulatory asset for future recovery incremental costs, including uncollectible expenses and waived late payment charges, incurred as a result of the pandemic.

Receivables from customers also include PJM receivables resulting from transmission and wholesale sales. FirstEnergy’s credit risk on PJM receivables is reduced due to the nature of PJM’s settlement process whereby members of PJM legally agree to share the cost of defaults and as a result there is no allowance for doubtful accounts.

Activity in the allowance for uncollectible accounts on customer receivables for the three months ended March 31, 2020 and for the year ended December 31, 2019 are as follows:
 
 
(In millions)
 
 
 
Balance, January 1, 2019
 
50

Charged to income
 
81

Charged to other accounts (1)
 
47

Write-offs
 
(132
)
Balance, December 31, 2019
 
$
46

Charged to income
 
19

Charged to other accounts (1)
 
14

Write-offs
 
(35
)
Balance, March 31, 2020
 
$
44

(1) Represents recoveries and reinstatements of accounts written off for uncollectible accounts.

Restricted Cash

Restricted cash primarily relates to cash collected from JCP&L, MP, PE and the Ohio Companies’ customers that is specifically used to service debt of their respective funding companies.
New Accounting Pronouncements

Recently Adopted Pronouncements

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (Issued June 2016