Executive Summary / Key Takeaways

• Strategic Transformation Underway: FirstEnergy is successfully executing a multi-year transformation into a de-risked, fully regulated utility, evidenced by significant balance sheet improvements, investment-grade credit ratings, and a sharpened focus on core operations.
• Robust Capital Investment Fuels Growth: The $28 billion Energize365 program through 2029, targeting a 9% compound annual rate base growth, is driving a projected 6-8% core earnings CAGR, primarily through transmission and distribution upgrades.
• Leveraging Electrification and Data Center Demand: FirstEnergy is strategically positioned to capitalize on surging data center load, with a pipeline exceeding 11 GW and contracted demand of 2.7 GW through 2029, necessitating substantial incremental transmission investments.
• Disciplined Financial and Operational Execution: Strong financial discipline, including year-to-date O&M expenses nearly 4% below plan, and constructive regulatory outcomes across key states (PA, NJ, WV, OH) are bolstering earnings quality and predictability.
• Addressing Industry Challenges: The company is actively engaging in discussions to address PJM's capacity market inefficiencies and exploring new dispatchable generation in West Virginia, advocating for solutions that ensure long-term reliability and affordability for customers.

FirstEnergy's Strategic Evolution: A Regulated Powerhouse in Transition

FirstEnergy Corp. is undergoing a profound transformation, shedding its legacy complexities to emerge as a premier, fully regulated electric utility. Established in 1996, FirstEnergy built an extensive network serving over 6 million customers across Ohio, Pennsylvania, New Jersey, West Virginia, Maryland, and New York, underpinned by 24,000 miles of transmission lines and significant generation assets. However, the company faced a pivotal moment in July 2021 with a Deferred Prosecution Agreement (DPA) related to past lobbying activities, incurring a $230 million penalty. This event catalyzed a strategic pivot towards de-risking and focusing on its core regulated wires business.

The period from late 2023 through mid-2025 has been instrumental in this evolution. FirstEnergy executed a series of comprehensive rate reviews across its regulated states, securing approximately $450 million in net annual revenue increases. A significant pension de-risking initiative, including lift-outs in December 2023 and January 2025, removed approximately $1.4 billion in gross pension obligations. The sale of an incremental 30% equity interest in FirstEnergy Transmission (FET) to Brookfield (BAM) in March 2024 marked the culmination of a $7 billion balance sheet strengthening effort, restoring investment-grade credit ratings from all three major agencies and leading to 40 ratings upgrades in 2024. This financial strength underpins the ambitious Energize365 capital investment program, which saw $4.5 billion deployed in 2024, a 20% increase over 2023.

This strategic shift positions FirstEnergy to capitalize on significant industry trends, particularly the accelerating demand for electricity driven by electrification and the proliferation of data centers. Analysts forecast U.S. electricity consumption by data centers and AI to triple to 390 terawatt-hours by 2030, equivalent to roughly one-third of U.S. homes' energy use. FirstEnergy's service territories, especially in Ohio and Pennsylvania, are becoming hotbeds for this growth. The company has seen load study requests for facilities over 500 megawatts more than triple compared to 2023, with over 95 gigawatts of large load studies requested since early 2024. This surge in demand presents both a substantial opportunity and a challenge for grid infrastructure.

Technological Backbone: Modernizing the Grid for Future Demands

FirstEnergy's technological differentiation is rooted in its strategic investment in modernizing its extensive grid infrastructure, rather than developing proprietary new technologies. The company is systematically deploying advanced grid solutions to enhance reliability, improve efficiency, and build capacity for future demands. This includes significant investments in Advanced Metering Infrastructure (AMI), as seen in Ohio's Grid Mod II program, which allocates over $400 million for smart meter deployment across all Ohio customers.

Furthermore, FirstEnergy is implementing Long-Term Infrastructure Improvement Plans (LTIIPs), such as Pennsylvania's LTIP 3, a $1.6 billion capital program for 2025-2029. This initiative focuses on targeted grid modernization and reliability enhancements, including investments in circuits, reclosers, and other sectionalizing devices, as well as replacing overhead equipment to reduce customer outage times. For instance, the $300 million allocated for 2025 in Pennsylvania aims to directly improve service reliability. Similarly, JCP&L's EnergizeNJ program, with $203 million in capital investments, is dedicated to grid modernization, system resiliency, and substation upgrades, designed to enhance customer benefits.

Operationally, FirstEnergy leverages advanced techniques like infrared and ultraviolet (IR/UV) technology for proactive aerial inspections of its nearly 5,000 miles of high-voltage transmission lines every four years. This allows for the early detection of invisible equipment issues, preventing future service interruptions and improving overall system integrity. The "so what" for investors is clear: these technological deployments directly contribute to FirstEnergy's competitive moat by improving service quality, reducing operational costs over the long term, and justifying rate base growth. This proactive approach to grid modernization not only supports the increasing demand from new loads like data centers but also enhances the company's ability to secure constructive regulatory outcomes, which are crucial for predictable earnings in a regulated environment.

Financial Fortitude: Delivering Consistent Core Earnings Growth

FirstEnergy's financial performance in the first half of 2025 demonstrates the positive impact of its strategic transformation and disciplined execution. The company reported Q2 2025 GAAP earnings of $0.46 per share, a significant increase from $0.08 in Q2 2024. Core earnings, a new metric introduced to provide a clearer view of regulated operations by excluding volatile non-core items like pension and Signal Peak mine earnings, stood at $0.52 per share for Q2 2025, up from $0.51 in Q2 2024. Year-to-date core earnings reached $1.19 per share, representing a robust 19% increase over the first half of 2024. This strong performance is attributed to new base rates in Pennsylvania, increased transmission system investments, and rigorous financial discipline on operating expenses, which are nearly 4% below plan year-to-date.

Segment-wise, the Distribution segment saw earnings attributable to FirstEnergy increase by $93 million in Q2 2025, primarily driven by higher revenues from the Pennsylvania base rate case and lower operating expenses. The Integrated segment also posted an $8 million increase in Q2 earnings, largely due to higher revenues from regulated investment programs. While the Stand-Alone Transmission segment experienced a $6 million decrease in Q2 earnings, primarily due to the expected elimination of a 50 basis point ROE adder for ATSI's RTO membership and true-up adjustments, this was partially offset by higher revenues from regulated capital investments. The Corporate/Other segment significantly reduced its losses by $128 million in Q2 2025, benefiting from the absence of prior-year civil penalties and ARO liability charges.

FirstEnergy's liquidity and capital resources remain robust. The company's net working capital deficit of $2.22 billion as of December 31, 2024, is manageable, with cash from operations and available liquidity deemed sufficient. In the first half of 2025, FirstEnergy strategically issued $1.35 billion of 2029 Convertible Notes (3.62% interest) and $1.15 billion of 2031 Convertible Notes (3.88% interest), generating approximately $2.47 billion in net proceeds. These proceeds were partly used to repurchase $1.20 billion of 2026 Convertible Notes, effectively de-risking future financing requirements. The company maintains investment-grade credit ratings across its subsidiaries, targeting an FFO to debt ratio of 14% plus through 2029, a key indicator of financial health and capacity for future investments.

Capitalizing on Growth: The Data Center Boom and Transmission Opportunities

FirstEnergy is strategically positioned to capture significant growth opportunities, particularly from the burgeoning data center industry. The company's long-term pipeline for data center load has surged over 80% to 11.1 gigawatts since February 2025, with contracted data center load through 2029 increasing approximately 25% to 2.7 gigawatts. This growth is concentrated in Pennsylvania and Ohio, where FirstEnergy has received 40 new large load study requests (each greater than 500 megawatts) in 2025 alone. This demand is expected to drive substantial incremental transmission investments, with annual transmission CapEx projected to grow from $2.4 billion to $3.4 billion by 2029, representing a 15% compound annual growth rate. Overall, transmission investment is expected to increase up to 20% in the next five-year plan.

The company's $28 billion Energize365 capital investment program through 2029 is designed to support this growth, targeting a 6-8% core earnings compound annual growth rate. This program is primarily funded by internally generated cash flow and utility debt issuances, with no incremental equity needs anticipated for the base plan. However, management acknowledges that further incremental investment opportunities, such as competitive transmission awards or additional data center contracts, might necessitate a broader range of financing options, including equity.

Beyond data centers, FirstEnergy is actively pursuing other growth avenues. In West Virginia, the company is preparing to file its 10-year integrated resource plan by October 1, 2025. This plan is expected to highlight the need for new dispatchable generation in the state, potentially leading to incremental investments in regulated generation, leveraging West Virginia's integrated regulatory framework. FirstEnergy has secured approximately $3.1 billion in investments through competitive open windows over the last three years, including its participation in the ValleyLink Transmission Company LLC joint venture with AEP (AEP) and Dominion (D). This joint venture, which was awarded approximately $3 billion in transmission solutions by PJM, represents an $800 million investment opportunity for FirstEnergy Transmission, with a proposed 10.9% base ROE and a 60% equity capital structure.

Navigating the Regulatory Currents and Competitive Arena

FirstEnergy operates within a complex regulatory landscape, which it actively manages to ensure predictable returns and support its investment strategy. The company has achieved constructive regulatory outcomes in Pennsylvania, New Jersey, and West Virginia, securing rate increases that support grid modernization and reliability. In Ohio, the company is progressing its base rate case, with a decision from the PUCO anticipated by year-end 2025. The strategic withdrawal of Ohio's ESP V and the planned transition to a new regulatory framework, including multiyear rate cases and forward test years, are aimed at enhancing transparency and predictability for future capital investments.

In the competitive landscape, FirstEnergy holds an estimated 3-5% aggregate market share in U.S. utilities, primarily in the Midwest and East Coast. While its revenue growth of approximately 4% annually lags the broader sector's 5-7% pace, FirstEnergy distinguishes itself through its established regulatory expertise and a strong focus on customer reliability. For instance, its extensive 24,074 circuit miles in Ohio contribute to reliability metrics that often surpass competitors. The company's strategic adaptability in diversified generation and its focus on customer-centric services in states like Pennsylvania and New York, where it boasts high customer satisfaction, are key differentiators.

However, FirstEnergy faces competitive pressures and vulnerabilities. Its operational efficiency, with estimated per-unit operating costs 10-15% higher than some peers like Duke Energy (DUK), and financial metrics such as lower ROE and net margins compared to rivals like Southern Company (SO) and Exelon (EXC), indicate areas for improvement. Aging infrastructure contributes to higher energy consumption per unit and longer project timelines, impacting margins and potentially limiting market share capture in new, efficiency-driven opportunities. The company's reliance on regulated returns, while providing stability, can also lead to slower adaptability compared to more agile, unregulated entities.

FirstEnergy is actively addressing these challenges. Its O&M discipline program, targeting flat O&M expenses (excluding Pennsylvania-related increases) in 2025 compared to prior years, aims to improve cost structures. The company is also engaging in critical industry discussions, particularly regarding the PJM capacity market, which saw prices clear 22% higher for 2026-2027 with no new dispatchable generation. FirstEnergy's management views this as a "massive wealth transfer" to independent power producers and is advocating for state-level solutions, such as state-run auctions for new dispatchable capacity, to ensure long-term reliability and affordability for customers. The recent sale of its minority stake in the Signal Peak coal mine further underscores its commitment to focusing on its core regulated business and de-risking its portfolio from volatile, non-core assets.

Conclusion

FirstEnergy Corp. is in the midst of a compelling transformation, strategically repositioning itself as a de-risked, fully regulated electric utility poised for stable growth. The core investment thesis is underpinned by its robust $28 billion capital investment program, Energize365, which is modernizing its grid infrastructure and directly addressing the surging demand from electrification and data centers. This disciplined approach, combined with a strong balance sheet and a commitment to operational efficiency, is translating into predictable core earnings growth and an attractive shareholder value proposition.

While facing competitive challenges related to operational efficiency and the complexities of regulatory environments, FirstEnergy's deep regulatory expertise, extensive transmission footprint, and proactive engagement in industry-wide issues like PJM capacity market reform position it to navigate these headwinds effectively. The company's focus on customer-centric investments and its strategic exit from non-core assets further enhance its long-term predictability and risk profile. Investors should recognize FirstEnergy's commitment to delivering on its 6-8% core earnings CAGR, driven by its foundational investments and strategic responses to evolving energy demands, making it a compelling consideration for those seeking stable, regulated utility growth.