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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 September 30, 2023
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, a 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 standards 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 September 30, 2023
Common Stock, $0.10 par value |  | 573,814,823

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 X (the social networking site formerly known as Twitter®), LinkedIn®, YouTube® 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, X (the social networking site formerly known as Twitter®) handle, LinkedIn® profile, YouTube® channel 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 potential liabilities, increased costs and unanticipated developments resulting from government investigations and agreements, including those associated with compliance with or failure to comply with the DPA.
•The risks and uncertainties associated with government investigations and audits regarding HB 6 and related matters, including potential adverse impacts on federal or state regulatory matters, including, but not limited to, matters relating to rates.
•The risks and uncertainties associated with litigation, arbitration, mediation, and similar proceedings, particularly regarding HB 6 related matters, including risks associated with obtaining dismissal of the derivative shareholder lawsuits.
•Changes in national and regional economic conditions, including recession, rising interest rates, inflationary pressure, supply chain disruptions, higher energy costs, and workforce impacts, affecting us and/or our customers and those vendors with which we do business.
•Weather conditions, such as temperature variations and severe weather conditions, or other natural disasters affecting future operating results and associated regulatory actions or outcomes in response to such conditions.
•Legislative and regulatory developments, including, but not limited to, matters related to rates, compliance and enforcement activity, cybersecurity, and climate change.
•The risks associated with cyber-attacks and other disruptions to our, or our vendors’, 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 meet our goals relating to EESG opportunities, improvements, and efficiencies, including our GHG reduction goals.
•The ability to accomplish or realize anticipated benefits from our FE Forward initiative and our other strategic and financial goals, including, but not limited to, overcoming current uncertainties and challenges associated with the ongoing government investigations, executing our transmission and distribution investment plans, executing on our rate filing strategy, controlling costs, improving our credit metrics, growing earnings, strengthening our balance sheet, and satisfying the conditions necessary to close the FET Minority Equity Interest Sale.
•Changing market conditions affecting the measurement of certain liabilities and the value of assets held in our pension trusts may negatively impact our forecasted growth rate, results of operations, and may also cause us to make contributions to our pension sooner or in amounts that are larger than currently anticipated.
•Mitigating exposure for remedial activities associated with retired and formerly owned electric generation assets.
•Changes to environmental laws and regulations, including, but not limited to, those related to climate change.
•Changes in customers’ demand for power, including, but not limited to, economic conditions, the impact of climate change, or energy efficiency and peak demand reduction mandates.
•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.
•Future actions taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity.
•Changes in assumptions regarding factors such as 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.
•The potential of non-compliance with debt covenants in our credit facilities.
•The ability to comply with applicable reliability standards and energy efficiency and peak demand reduction mandates.
•Human capital management challenges, including among other things, attracting and retaining appropriately trained and qualified employees and labor disruptions by our unionized workforce.
•Changes to significant accounting policies.
•Any changes in tax laws or regulations, including, but not limited to, the IRA of 2022, or adverse tax audit results or rulings.
•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 the FE Board 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.

Forward-looking and other statements in this Quarterly Report on Form 10-Q regarding our Climate Strategy, including our GHG emission reduction goals, are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current and forward-looking statements regarding climate matters, including GHG emissions, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future.

TABLE OF CONTENTS

| Page
Part I. Financial Information |
Glossary of Terms | ii
Item 1. Financial Statements |
FirstEnergy Corp. |
Consolidated Statements of Income | 1
Consolidated Statements of Comprehensive Income | 2
Consolidated Balance Sheets | 3
Consolidated Statements of Equity | 4
Consolidated Statements of Cash Flows | 6
Notes To Consolidated Financial Statements | 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 82
Item 4. Controls and Procedures | 82
Part II. Other Information |
Item 1. Legal Proceedings | 83
Item 1A. Risk Factors | 83
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 83
Item 3. Defaults Upon Senior Securities | 83
Item 4. Mine Safety Disclosures | 83
Item 5. Other Information | 83
Item 6. Exhibits | 85

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
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 EH’s nuclear generating facilities
FE PA | FirstEnergy Pennsylvania Electric Company
FES | Energy Harbor LLC (formerly known as FirstEnergy Solutions Corp.), a subsidiary of EH, which provides energy-related products and services
FESC | FirstEnergy Service Company, which provides legal, financial, and other corporate support services
FES Debtors | FENOC, FES, and FES’ subsidiaries as of March 31, 2018
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
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
JCP&L | Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary
KATCo | Keystone Appalachian Transmission Company, a former subsidiary of FET which, in May 2022, became a subsidiary of FE
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
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 FET 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 may be used to identify frequently used terms in this report:
2021 Credit Facilities | Collectively, the six separate senior unsecured five-year syndicated revolving credit facilities entered into by FE, the Utilities and the Transmission Companies, on October 18, 2021, as amended through October 20, 2023
2023 Credit Facilities | Collectively, the two separate senior unsecured syndicated revolving credit facilities entered into by FET and KATCo, on October 20, 2023
2026 Convertible Notes | FE’s 4.00% convertible senior notes, due 2026
2031 Notes | FE’s 7.375% Notes, Series C, due 2031
ACE | Affordable Clean Energy
AEP | American Electric Power Company, Inc.
AEPSC | American Electric Power Service Corporation
AFS | Available-for-sale
AFSI | Adjusted Financial Statement Income
AFUDC | Allowance for Funds Used During Construction
ALJ | Administrative Law Judge
AMI | Advanced Metering Infrastructure
AMT | Alternative Minimum Tax
AOCI | Accumulated Other Comprehensive Income (Loss)
ASC | Accounting Standards Codification
ASU | Accounting Standards Update
A&R FET LLC Agreement | Fourth Amended and Restated Limited Liability Company Operating Agreement of FET
BGS | Basic Generation Service
Brookfield | North American Transmission Company II L.P., a controlled investment vehicle entity of Brookfield Infrastructure Partners
Brookfield Guarantors | Brookfield Super-Core Infrastructure Partners L.P., Brookfield Super-Core Infrastructure Partners (NUS) L.P., and Brookfield Super-Core Infrastructure Partners (ER) SCSp
CAA | Clean Air Act
CCR | Coal Combustion Residual
CERCLA | Comprehensive Environmental Response, Compensation, and Liability Act of 1980
CFIUS | Committee on Foreign Investments in the United States
CFR | Code of Federal Regulations
CO 2 | Carbon Dioxide
COVID-19 | Coronavirus disease
CPP | EPA's Clean Power Plan
CSAPR | Cross-State Air Pollution Rule
CTA | Consolidated Tax Adjustment
D.C. Circuit | United States Court of Appeals for the District of Columbia Circuit
DCR | Delivery Capital Recovery
DMR | Distribution Modernization Rider
DPA | Deferred Prosecution Agreement entered into on July 21, 2021 between FE and the U.S. Attorney’s Office for the S.D. Ohio
DSIC | Distribution System Improvement Charge
DSP | Default Service Plan
EDC | Electric Distribution Company
EDIS | Electric Distribution Investment Surcharge
EESG | Employee, Environmental, Social, and Corporate Governance
EGS | Electric Generation Supplier
EGU | Electric Generation Unit
EH | Energy Harbor Corp.

iii

ELG | Effluent Limitation Guideline
EmPOWER Maryland | EmPOWER Maryland Energy Efficiency Act
ENEC | Expanded Net Energy Cost
EPA | United States Environmental Protection Agency
EPS | Earnings Per Share
ESP IV | Electric Security Plan IV
ESP V | Electric Security Plan V
Exchange Act | Securities and Exchange Act of 1934, as amended
FASB | Financial Accounting Standards Board
FE Board | FE Board of Directors
FE Revolving Facility | FE and the Utilities’ former five-year syndicated revolving credit facility, as amended, and replaced by the 2021 Credit Facilities on October 18, 2021
FERC | Federal Energy Regulatory Committee
FET Board | The Board of Directors of FET
FET Minority Equity Interest Sale | Sale of an additional 30% membership interest of FET, such that Brookfield will own 49.9% of FET
FET P&SA I | Purchase and Sale Agreement entered into on November 6, 2021, by and between FE, FET, Brookfield and the Brookfield Guarantors
FET P&SA II | Purchase and Sale Agreement entered into on February 2, 2023, by and between FE, FET, Brookfield, and the Brookfield Guarantors
FET Revolving Facility | FET’s five-year syndicated revolving credit facility, dated as of October 20, 2023
FIP | Federal Implementation Plan(s) under the CAA
Fitch | Fitch Ratings Service
FMB | First Mortgage Bond
FTR | Financial Transmission Right
GAAP | Accounting Principles Generally Accepted in the United States of America
GHG | Greenhouse Gas
HB 6 | House Bill 6, as passed by Ohio's 133rd General Assembly
IRA of 2022 | Inflation Reduction Act of 2022
IRS | Internal Revenue Service
KATCo Revolving Facility | KATCo’s four-year syndicated revolving credit facility, dated as of October 20, 2023
kWh | Kilowatt-Hour
LIBOR | London Inter-Bank Offered Rate
LOC | Letter of Credit
LTIIP | Long-Term Infrastructure Improvement Plan
MDOPC | Maryland Office of People’s Counsel
MDPSC | Maryland Public Service Commission
MGP | Manufactured Gas Plants
Moody’s | Moody’s Investors Service, Inc.
MW | Megawatt
MWH | Megawatt-hour
NCI | Noncontrolling Interest
N.D. Ohio | Federal District Court, Northern District of Ohio
NERC | North American Electric Reliability Corporation
NJBPU | New Jersey Board of Public Utilities
NOL | Net Operating Loss
NOx | Nitrogen Oxide
NYPSC | New York State Public Service Commission
OAG | Ohio Attorney General
OCC | Ohio Consumers' Counsel
ODSA | Ohio Development Service Agency

iv

Ohio Stipulation | Stipulation and Recommendation, dated November 1, 2021, entered into by and among the Ohio Companies, the OCC, PUCO Staff, and several other signatories
OOCIC | Ohio Organized Crime Investigations Commission, which is composed of members of the Ohio law enforcement community and is chaired by the OAG
OPEB | Other Post-Employment Benefits
OPIC | Other Paid-in Capital
OVEC | Ohio Valley Electric Corporation
PA Consolidation | Consolidation of the Pennsylvania Companies
PEER | FirstEnergy’s Program for Enhanced Employee Retirement
PJM | PJM Interconnection, LLC
PJM Tariff | PJM Open Access Transmission Tariff
PPA | Purchase Power Agreement
PPUC | Pennsylvania Public Utility Commission
PUCO | Public Utilities Commission of Ohio
Regulation FD | Regulation Fair Disclosure promulgated by the SEC
RFC | Reliability First Corporation
RFP | Request for Proposal
ROE | Return on Equity
RTO | Regional Transmission Organization
S.D. Ohio | Federal District Court, Southern District of Ohio
SEC | United States Securities and Exchange Commission
SEET | Significantly Excessive Earnings Test
SIP | State Implementation Plan(s) under the CAA
SLC | Special Litigation Committee of the FE Board
SO 2 | Sulfur Dioxide
SOFR | Secured Overnight Financing Rate
SOS | Standard Offer Service
S&P | Standard & Poor’s Ratings Service
SREC | Solar Renewable Energy Credit
Tax Act | Tax Cuts and Jobs Act adopted December 22, 2017
TMI-1 | Three Mile Island Unit 1
VAR | Volt-Amps Reactive, the measuring unit for reactive power
VSCC | Virginia State Corporation Commission
WVPSC | Public Service Commission of West Virginia

v

PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(In millions, except per share amounts) |  | 2023 |  | 2022 |  | 2023 |  | 2022
REVENUES: |  |  |  |  |  |  |  |
Distribution services and retail generation |  | $ | 2,869 |  |  | $ | 2,767 |  |  | $ | 7,924 |  |  | $ | 7,334 |
Transmission |  | 508 |  |  | 502 |  |  | 1,486 |  |  | 1,393 |
Other |  | 110 |  |  | 206 |  |  | 314 |  |  | 555 |
Total revenues (1) |  | 3,487 |  |  | 3,475 |  |  | 9,724 |  |  | 9,282 |
OPERATING EXPENSES: |  |  |  |  |  |  |  |
Fuel |  | 166 |  |  | 209 |  |  | 439 |  |  | 539 |
Purchased power |  | 1,155 |  |  | 1,109 |  |  | 3,173 |  |  | 2,786 |
Other operating expenses |  | 967 |  |  | 1,111 |  |  | 2,698 |  |  | 2,827 |
Provision for depreciation |  | 366 |  |  | 332 |  |  | 1,088 |  |  | 1,020 |
Deferral of regulatory assets, net |  | (140) |  |  | (86) |  |  | (253) |  |  | (252) |
General taxes |  | 307 |  |  | 295 |  |  | 881 |  |  | 851 |
Total operating expenses |  | 2,821 |  |  | 2,970 |  |  | 8,026 |  |  | 7,771 |
OPERATING INCOME |  | 666 |  |  | 505 |  |  | 1,698 |  |  | 1,511 |
OTHER INCOME (EXPENSE): |  |  |  |  |  |  |  |
Debt redemption costs (Note 6) |  | — |  |  | 1 |  |  | (36) |  |  | (155) |
Equity method investment earnings (Note 1) |  | 43 |  |  | 57 |  |  | 134 |  |  | 134 |
Miscellaneous income, net |  | 24 |  |  | 111 |  |  | 102 |  |  | 300 |
Pension and OPEB mark-to-market adjustment (Note 4) |  | — |  |  | — |  |  | 59 |  |  | — |
Interest expense |  | (289) |  |  | (248) |  |  | (828) |  |  | (788) |
Capitalized financing costs |  | 26 |  |  | 23 |  |  | 69 |  |  | 59 |
Total other expense |  | (196) |  |  | (56) |  |  | (500) |  |  | (450) |
INCOME BEFORE INCOME TAXES |  | 470 |  |  | 449 |  |  | 1,198 |  |  | 1,061 |
INCOME TAXES |  | 29 |  |  | 105 |  |  | 193 |  |  | 237 |
INCOME FROM CONTINUING OPERATIONS |  | 441 |  |  | 344 |  |  | 1,005 |  |  | 824 |
Discontinued operations (Note 1) (2) |  | (21) |  |  | — |  |  | (21) |  |  | — |
NET INCOME |  | $ | 420 |  |  | $ | 344 |  |  | $ | 984 |  |  | $ | 824 |
Income attributable to noncontrolling interest (continuing operations) |  | 20 |  |  | 10 |  |  | 57 |  |  | 15 |
EARNINGS ATTRIBUTABLE TO FIRSTENERGY CORP. |  | $ | 400 |  |  | $ | 334 |  |  | $ | 927 |  |  | $ | 809 |
AMOUNTS ATTRIBUTABLE TO FIRSTENERGY CORP.: |  |  |  |  |  |  |  |
Earnings from continuing operations |  | $ | 421 |  |  | $ | 334 |  |  | $ | 948 |  |  | $ | 809 |
Earnings from discontinued operations |  | (21) |  |  | — |  |  | (21) |  |  | — |
EARNINGS ATTRIBUTABLE TO FIRSTENERGY CORP. |  | $ | 400 |  |  | $ | 334 |  |  | $ | 927 |  |  | $ | 809 |
EARNINGS PER SHARE ATTRIBUTABLE TO FIRSTENERGY CORP. (Note 3): |  |  |  |  |  |  |  |
Basic - continuing operations |  | $ | 0.74 |  |  | $ | 0.58 |  |  | $ | 1.66 |  |  | $ | 1.42 |
Basic - discontinued operations |  | (0.04) |  |  | — |  |  | (0.04) |  |  | — |
Basic |  | $ | 0.70 |  |  | $ | 0.58 |  |  | $ | 1.62 |  |  | $ | 1.42 |
Diluted - continuing operations |  | $ | 0.73 |  |  | $ | 0.58 |  |  | $ | 1.65 |  |  | $ | 1.41 |
Diluted - discontinued operations |  | (0.04) |  |  | — |  |  | (0.04) |  |  | — |
Diluted |  | $ | 0.69 |  |  | $ | 0.58 |  |  | $ | 1.61 |  |  | $ | 1.41 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |  |  |  |  |  |  |  |
Basic |  | 573 |  |  | 571 |  |  | 573 |  |  | 571 |
Diluted |  | 574 |  |  | 572 |  |  | 574 |  |  | 572 |

(1) Includes excise and gross receipts tax collections of $114 million and $111 million during the three months ended September 30, 2023 and 2022, respectively, and $315 million and $305 million during the nine months ended September 30, 2023 and 2022, respectively.
(2) Consists of income taxes of $21 million during the three and nine months ended September 30, 2023.
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 September 30, |  | For the Nine Months Ended September 30, |
(In millions) |  | 2023 |  | 2022 |  | 2023 |  | 2022 |
NET INCOME |  | $ | 420 |  |  | $ | 344 |  |  | $ | 984 |  |  | $ | 824 |  |
OTHER COMPREHENSIVE INCOME (LOSS): |  |  |  |  |  |  |  |  |
Pension and OPEB prior service costs |  | (2) |  |  | (2) |  |  | (5) |  |  | (6) |  |
Amortized losses on derivative hedges |  | — |  |  | — |  |  | 2 |  |  | 8 |  |
Other comprehensive income (loss) |  | (2) |  |  | (2) |  |  | (3) |  |  | 2 |  |
Income tax benefits on other comprehensive income (loss) |  | (1) |  |  | (1) |  |  | (1) |  |  | — |  |
Other comprehensive income (loss), net of tax |  | (1) |  |  | (1) |  |  | (2) |  |  | 2 |  |
COMPREHENSIVE INCOME |  | $ | 419 |  |  | $ | 343 |  |  | $ | 982 |  |  | $ | 826 |  |
Comprehensive income attributable to noncontrolling interest |  | 20 |  |  | 10 |  |  | 57 |  |  | 15 |  |
COMPREHENSIVE INCOME ATTRIBUTABLE TO FIRSTENERGY CORP. |  | $ | 399 |  |  | $ | 333 |  |  | $ | 925 |  |  | $ | 811 |  |

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) |  |  | September 30, 2023 |  | December 31, 2022
ASSETS |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |
Cash and cash equivalents |  |  | $ | 118 |  |  | $ | 160 |
Restricted cash |  |  | 26 |  |  | 46 |
Receivables- |  |  |  |  |
Customers |  |  | 1,387 |  |  | 1,455 |
Less — Allowance for uncollectible customer receivables |  |  | 85 |  |  | 137 |
|  |  | 1,302 |  |  | 1,318 |
Other, net of allowance for uncollectible accounts of $15 in 2023 and $11 in 2022 |  |  | 271 |  |  | 253 |
Materials and supplies, at average cost |  |  | 481 |  |  | 421 |
Prepaid taxes and other |  |  | 322 |  |  | 217 |
|  |  | 2,520 |  |  | 2,415 |
PROPERTY, PLANT AND EQUIPMENT: |  |  |  |  |
In service |  |  | 49,301 |  |  | 47,850 |
Less — Accumulated provision for depreciation |  |  | 13,854 |  |  | 13,258 |
|  |  | 35,447 |  |  | 34,592 |
Construction work in progress |  |  | 2,231 |  |  | 1,693 |
|  |  | 37,678 |  |  | 36,285 |
INVESTMENTS AND OTHER NONCURRENT ASSETS: |  |  |  |  |
Goodwill |  |  | 5,618 |  |  | 5,618 |
Investments (Note 6) |  |  | 626 |  |  | 622 |
Regulatory assets |  |  | 353 |  |  | 33 |
Other |  |  | 676 |  |  | 1,135 |
|  |  | 7,273 |  |  | 7,408 |
TOTAL ASSETS |  |  | $ | 47,471 |  |  | $ | 46,108 |
LIABILITIES AND EQUITY |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |
Currently payable long-term debt |  |  | $ | 1,302 |  |  | $ | 351 |
Short-term borrowings |  |  | 270 |  |  | 100 |
Accounts payable |  |  | 1,262 |  |  | 1,503 |
Accrued interest |  |  | 303 |  |  | 254 |
Accrued taxes |  |  | 657 |  |  | 668 |
Accrued compensation and benefits |  |  | 252 |  |  | 272 |
Customer deposits |  |  | 225 |  |  | 223 |
Dividends payable |  |  | 235 |  |  | 223 |
Other |  |  | 290 |  |  | 364 |
|  |  | 4,796 |  |  | 3,958 |
NONCURRENT LIABILITIES: |  |  |  |  |
Long-term debt and other long-term obligations |  |  | 22,882 |  |  | 21,203 |
Accumulated deferred income taxes |  |  | 4,449 |  |  | 4,202 |
Retirement benefits |  |  | 1,512 |  |  | 2,335 |
Regulatory liabilities |  |  | 1,316 |  |  | 1,847 |
Other |  |  | 1,571 |  |  | 1,920 |
|  |  | 31,730 |  |  | 31,507 |
TOTAL LIABILITIES |  |  | 36,526 |  |  | 35,465 |
EQUITY: |  |  |  |  |
Common stockholders’ equity- |  |  |  |  |
Common stock, $0.10 par value, authorized 700,000,000 shares - 573,814,823 and 572,130,932 shares outstanding as of September 30, 2023 and December 31, 2022, respectively. |  |  | 57 |  |  | 57 |
Other paid-in capital |  |  | 10,705 |  |  | 11,322 |
Accumulated other comprehensive loss |  |  | (16) |  |  | (14) |
Accumulated deficit |  |  | (272) |  |  | (1,199) |
Total common stockholders’ equity |  |  | 10,474 |  |  | 10,166 |
Noncontrolling interest |  |  | 471 |  |  | 477 |
TOTAL EQUITY |  |  | 10,945 |  |  | 10,643 |
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8) |  |  |  |  |
TOTAL LIABILITIES AND EQUITY |  |  | $ | 47,471 |  |  | $ | 46,108 |

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
3

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)

|  | Nine Months Ended September 30, 2023
|  | Common Stock |  | OPIC |  | AOCI |  | Accumulated Deficit |  | Total Common Stockholders’ Equity |  | NCI |  | Total Equity
(In millions) |  | Shares |  | Amount |  |  |  |  |
Balance, January 1, 2023 |  | 572 |  |  | $ | 57 |  |  | $ | 11,322 |  |  | $ | (14) |  |  | $ | (1,199) |  |  | $ | 10,166 |  |  | $ | 477 |  |  | $ | 10,643 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 292 |  |  | 292 |  |  | 18 |  |  | 310 |
Other comprehensive loss, net of tax |  | — |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | (1) |  |  | — |  |  | (1) |
Stock Investment Plan and share-based benefit plans |  | 1 |  |  | — |  |  | 19 |  |  | — |  |  | — |  |  | 19 |  |  | — |  |  | 19 |
Cash dividends declared on common stock ($0.39 per share in March) |  | — |  |  | — |  |  | (223) |  |  | — |  |  | — |  |  | (223) |  |  | — |  |  | (223) |
Distribution to FET minority interest |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (17) |  |  | (17) |
Balance, March 31, 2023 |  | 573 |  |  | $ | 57 |  |  | $ | 11,118 |  |  | $ | (15) |  |  | $ | (907) |  |  | $ | 10,253 |  |  | $ | 478 |  |  | $ | 10,731 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 235 |  |  | 235 |  |  | 19 |  |  | 254 |
Stock Investment Plan and share-based benefit plans |  | — |  |  | — |  |  | 22 |  |  | — |  |  | — |  |  | 22 |  |  | — |  |  | 22 |
Distribution to FET minority interest |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (36) |  |  | (36) |
Balance, June 30, 2023 |  | 573 |  |  | $ | 57 |  |  | $ | 11,140 |  |  | $ | (15) |  |  | $ | (672) |  |  | $ | 10,510 |  |  | $ | 461 |  |  | $ | 10,971 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 400 |  |  | 400 |  |  | 20 |  |  | 420 |
Other comprehensive loss, net of tax |  | — |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | (1) |  |  | — |  |  | (1) |
Stock Investment Plan and share-based benefit plans |  | 1 |  |  | — |  |  | 24 |  |  | — |  |  | — |  |  | 24 |  |  | — |  |  | 24 |
Cash dividends declared on common stock ($0.39 per share in July and $0.41 per share in September) |  | — |  |  | — |  |  | (459) |  |  | — |  |  | — |  |  | (459) |  |  | — |  |  | (459) |
Distribution to FET minority interest |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10) |  |  | (10) |
Balance, September 30, 2023 |  | 574 |  |  | $ | 57 |  |  | $ | 10,705 |  |  | $ | (16) |  |  | $ | (272) |  |  | $ | 10,474 |  |  | $ | 471 |  |  | $ | 10,945 |

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
4

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)

|  | Nine Months Ended September 30, 2022 |  |
|  | Common Stock |  | OPIC |  | AOCI |  | Accumulated Deficit |  | Total Common Stockholders’ Equity |  | NCI |  | Total Equity |  |
(In millions) |  | Shares |  | Amount |  |  |  |  |  |  |
Balance, January 1, 2022 |  | 570 |  |  | $ | 57 |  |  | $ | 10,238 |  |  | $ | (15) |  | 0 | $ | (1,605) |  |  | $ | 8,675 |  |  | $ | — |  |  | $ | 8,675 |  |  |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 288 |  |  | 288 |  |  | — |  |  | 288 |  |  |
Other comprehensive loss, net of tax |  | — |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | (1) |  |  | — |  |  | (1) |  |  |
Stock Investment Plan and share-based benefit plans |  | 1 |  |  | — |  |  | 20 |  |  | — |  |  | — |  |  | 20 |  |  | — |  |  | 20 |  |  |
Cash dividends declared on common stock ($0.39 per share in March) |  | — |  |  | — |  |  | (223) |  |  | — |  |  | — |  |  | (223) |  |  | — |  |  | (223) |  |  |
Other |  | — |  |  | — |  |  | (4) |  |  | — |  |  | — |  |  | (4) |  |  | — |  |  | (4) |  |  |
Balance, March 31, 2022 |  | 571 |  |  | $ | 57 |  |  | $ | 10,031 |  |  | $ | (16) |  |  | $ | (1,317) |  |  | $ | 8,755 |  |  | $ | — |  |  | $ | 8,755 |  |  |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 187 |  |  | 187 |  |  | 5 |  |  | 192 |  |
Other comprehensive income, net of tax |  | — |  |  | — |  |  | — |  |  | 4 |  |  | — |  |  | 4 |  |  | — |  |  | 4 |  |  |
Stock Investment Plan and share-based benefit plans |  | — |  |  | — |  |  | 25 |  |  | — |  |  | — |  |  | 25 |  |  | — |  |  | 25 |  |  |
FET minority interest sale, net of transaction costs |  | — |  |  | — |  |  | 1,887 |  |  | — |  |  | — |  |  | 1,887 |  |  | 451 |  |  | 2,338 |  |  |
Balance, June 30, 2022 |  | 571 |  |  | $ | 57 |  |  | $ | 11,943 |  |  | $ | (12) |  |  | $ | (1,130) |  |  | $ | 10,858 |  |  | $ | 456 |  |  | $ | 11,314 |  |  |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | 334 |  |  | 334 |  |  | 10 |  |  | 344 |  |
Other comprehensive loss, net of tax |  | — |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | (1) |  |  | — |  |  | (1) |  |  |
Stock Investment Plan and share-based benefit plans |  | 1 |  |  | — |  |  | 33 |  |  | — |  |  | — |  |  | 33 |  |  | — |  |  | 33 |  |  |
Cash dividends declared on common stock ($0.39 per share in July and September) |  | — |  |  | — |  |  | (446) |  |  | — |  |  | — |  |  | (446) |  |  | — |  |  | (446) |  |  |
Distribution to FET minority interest |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (15) |  |  | (15) |  |  |
Capital contribution from FET minority interest |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9 |  |  | 9 |  |  |
Consolidated tax benefit allocation |  | — |  |  | — |  |  | (4) |  |  | — |  |  | — |  |  | (4) |  |  | 4 |  |  | — |  |  |
Balance, September 30, 2022 |  | 572 |  |  | $ | 57 |  |  | $ | 11,526 |  |  | $ | (13) |  |  | $ | (796) |  |  | $ | 10,774 |  |  | $ | 464 |  |  | $ | 11,238 |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
5

FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|  | For the Nine Months Ended September 30,
(In millions) |  | 2023 |  | 2022
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
Net income |  | $ | 984 |  |  | $ | 824 |
Adjustments to reconcile net income to net cash from operating activities- |  |  |  |
Depreciation, amortization and impairments |  | 893 |  |  | 1,043 |
Deferred income taxes and investment tax credits, net |  | 157 |  |  | 221 |
Retirement benefits, net of payments |  | (74) |  |  | (283) |
Pension trust contribution |  | (750) |  |  | — |
Pension and OPEB mark-to-market adjustment |  | (59) |  |  | — |
Transmission revenue collections, net |  | (93) |  |  | 89 |
Loss on disposal, net of tax (Note 1) |  | 21 |  |  | — |
Changes in current assets and liabilities- |  |  |  |
Receivables |  | (2) |  |  | (167) |
Materials and supplies |  | (60) |  |  | (101) |
Prepaid taxes and other current assets |  | (66) |  |  | (46) |
Accounts payable |  | (241) |  |  | 182 |
Accrued taxes |  | (147) |  |  | (135) |
Accrued interest |  | 49 |  |  | (27) |
Accrued compensation and benefits |  | (46) |  |  | (82) |
Other current liabilities |  | 55 |  |  | 3 |
Collateral, net |  | (216) |  |  | 240 |
Other |  | 24 |  |  | 76 |
Net cash provided from operating activities |  | 429 |  |  | 1,837 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
Capital investments |  | (2,266) |  |  | (1,852) |
Sales of investment securities held in trusts |  | 28 |  |  | 31 |
Purchases of investment securities held in trusts |  | (37) |  |  | (40) |
Asset removal costs |  | (190) |  |  | (151) |
Other |  | (8) |  |  | 9 |
Net cash used for investing activities |  | (2,473) |  |  | (2,003) |
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |
New financing- |  |  |  |
Long-term debt |  | 3,150 |  |  | 300 |
Short-term borrowings, net |  | 170 |  |  | — |
Redemptions and repayments- |  |  |  |
Long-term debt |  | (537) |  |  | (2,903) |
Proceeds from FET minority interest sale, net of transaction costs |  | — |  |  | 2,348 |
Distributions to FET minority interest |  | (63) |  |  | (15) |
Capital contributions from FET minority interest |  | — |  |  | 9 |
Common stock dividend payments |  | (670) |  |  | (667) |
Other |  | (68) |  |  | (140) |
Net cash provided from (used for) financing activities |  | 1,982 |  |  | (1,068) |
Net change in cash, cash equivalents, and restricted cash |  | (62) |  |  | (1,234) |
Cash, cash equivalents, and restricted cash at beginning of period |  | 206 |  |  | 1,511 |
Cash, cash equivalents, and restricted cash at end of period |  | $ | 144 |  |  | $ | 277 |
SUPPLEMENTAL CASH FLOW INFORMATION: |  |  |  |
Significant non-cash transactions: |  |  |  |
Accrued capital investments |  | $ | 212 |  |  | $ | 133 |

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
6

FIRSTENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note Number |  | Page Number
1 | Organization and Basis of Presentation | 8
2 | Revenue | 11
3 | Earnings Per Share | 12
4 | Pension and Other Post-Employment Benefits | 13
5 | Income Taxes | 15
6 | Fair Value Measurements | 16
7 | Regulatory Matters | 20
8 | Commitments, Guarantees and Contingencies | 28
9 | Segment Information | 33

7

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, MP, AGC (a wholly owned subsidiary of MP), PE and WP. Additionally, FET is a majority-owned subsidiary of FE, and is the parent company of ATSI, MAIT, PATH and TrAIL. In addition, FE holds all of the outstanding equity of other direct subsidiaries including FEV, which currently holds a 33-1/3% equity ownership in Global Holding, the holding company for a joint venture in the Signal Peak mining and coal transportation operations.
On November 6, 2021, FirstEnergy, along with FET, entered into the FET P&SA I, with Brookfield and the Brookfield Guarantors, pursuant to which FET agreed to issue and sell to Brookfield at the closing, and Brookfield agreed to purchase from FET, certain newly issued membership interests of FET, such that Brookfield would own 19.9% of the issued and outstanding membership interests of FET, for a purchase price of $2.375 billion. The transaction closed on May 31, 2022. The difference between the cash consideration received, net of transaction costs of approximately $37 million, and the carrying value of the NCI of $451 million was recorded as an increase to OPIC. FirstEnergy presents the third-party investors’ ownership portion of FirstEnergy's net income, net assets and comprehensive income as NCI. NCI is included as a component of equity on the Consolidated Balance Sheets.
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 24,000 miles of lines and two regional transmission operation centers. AGC and MP control 3,580 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, 2022.
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 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 variable interest entity 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, including presenting long-term debt and other long-term obligations within “Noncurrent Liabilities” on the Consolidated Balance Sheets as compared to “Total Capitalization”.
Economic Conditions
Economic conditions following the global pandemic have increased supply chain lead times across numerous material categories, with some as much as tripling from pre-pandemic lead times. Some key suppliers have struggled with labor shortages and raw material availability, which along with inflationary pressure that appears to be moderating, have increased costs and decreased the availability of certain materials, equipment and contractors. FirstEnergy has taken steps to mitigate these risks and does not currently expect service disruptions or any material impact on its capital spending plan. However, the situation remains fluid and a prolonged continuation or further increase in supply chain disruptions could have an adverse effect on FirstEnergy’s results of operations, cash flow and financial condition. Additionally, interest rates have increased significantly,
8

which has caused the interest expense on borrowings under the various FirstEnergy credit facilities and new capital market issuances to be significantly higher.
Sale of Equity Interest in FirstEnergy Transmission, LLC
On February 2, 2023, FE, along with FET, entered into the FET P&SA II with Brookfield and the Brookfield Guarantors, pursuant to which FE agreed to sell to Brookfield at the closing, and Brookfield agreed to purchase from FE, an incremental 30% equity interest in FET for a purchase price of $3.5 billion. The majority of the purchase price is expected to be paid in cash upon closing, and the remainder will be payable by the issuance of a promissory note, which is expected to be repaid by the end of 2024. As a result of the consummation of the transaction, Brookfield’s interest in FET will increase from 19.9% to 49.9%, while FE will retain the remaining 50.1% ownership interests of FET. The transaction is subject to customary closing conditions, including approval from the FERC, which was received on August 14, 2023, and certain state utility commissions, and completion of review by the CFIUS. In addition, pursuant to the FET P&SA II, FirstEnergy made the necessary filings with the applicable regulatory authorities for the PA Consolidation. The FET Minority Equity Interest Sale is expected to close in early 2024. Upon closing, FET will continue to be consolidated in FirstEnergy’s GAAP financial statements.
Pursuant to the terms of the FET P&SA II, in connection with the closing, Brookfield, FET and FE will enter into the A&R FET LLC Agreement, which will amend and restate in its entirety the current limited liability company agreement of FET. The A&R FET LLC Agreement, among other things, provides for the governance, exit, capital and distribution, and other arrangements for FET from and following the closing. Under the A&R FET LLC Agreement, at the closing, the FET Board will consist of five directors, two appointed by Brookfield and three appointed by FE. Each of Brookfield’s and FE’s respective appointment rights are subject to such party maintaining certain minimum ownership percentages. The A&R FET LLC Agreement contains certain investor protections, including, among other things, requiring Brookfield's approval for FET and its subsidiaries to take certain major actions. Under the terms of the A&R FET LLC Agreement, for so long as Brookfield holds at least a 30.0% interest in FET, Brookfield’s consent is required for FET or any of its subsidiaries to, among other things, undertake certain acquisitions or dispositions in excess of certain dollar thresholds, establish or amend the annual budget, incur cost overruns on certain capital expenditures projects during any fiscal year in excess of a certain percentage overage of the budgeted amounts or incur cost overruns on the aggregate capital expenditure budget of FET’s subsidiaries during any fiscal year in excess of a certain percentage overage of the aggregated budgeted amount, make material decisions relating to litigation where either the potential liability exposure is in excess of a certain threshold dollar amount or such proceeding would reasonably be expected to have an adverse effect on Brookfield or FET, make certain material regulatory filings, incur or refinance indebtedness by FET or its subsidiaries, which, in the case of its subsidiaries, would reasonably be expected to cause such subsidiary to deviate from its targeted capital structure, enter into joint ventures, appoint or replace any member of its transmission leadership team, amend the accounting policies of FET or its subsidiaries (but only if FE is no longer the majority owner of FET), take any action that would reasonably be expected to cause a default or breach of any material contract of FET or any of its subsidiaries, create certain material liens (excluding certain permitted liens), or cause any reorganization of FET or any of its subsidiaries. The A&R FET LLC Agreement also includes provisions relating to the resolution of disputes and to address deadlocks between FET members and provides a mechanism to preserve FE’s economic interest in the MAIT Class B distributions.
Consolidation of Pennsylvania Companies
FirstEnergy is proceeding with the consolidation of the Pennsylvania Companies into FE PA, a new, single operating entity. The PA Consolidation will require, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC and PPUC, which filings were submitted on March 6, 2023. Subject to receipt of the remaining regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.
Capitalized Financing Costs
For the three months ended September 30, 2023 and 2022, capitalized financing costs on FirstEnergy’s Consolidated Statements of Income include $12 million and $15 million, respectively, of allowance for equity funds used during construction and $14 million and $8 million, respectively, of capitalized interest. For the nine months ended September 30, 2023 and 2022, capitalized financing costs on FirstEnergy’s Consolidated Statements of Income include $31 million and $39 million, respectively, of allowance for equity funds used during construction and $38 million and $20 million, respectively, of capitalized interest.
Discontinued Operations
On February 27, 2020, the FES Debtors emerged from bankruptcy and were deconsolidated from FirstEnergy’s consolidated federal income tax group. The bankruptcy, emergence and deconsolidation resulted in FirstEnergy recognizing certain income tax benefits and charges, which were classified as discontinued operations. During the third quarter of 2023, FirstEnergy recognized a $21 million tax-effected charge to income tax expense as a result of identifying an out of period adjustment related
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to the allocation of certain deferred income tax liabilities associated with the FES Debtors and their tax return deconsolidation in 2020. This adjustment at Corporate/Other for segment reporting was immaterial to the 2023 and prior period financial statements, and is reflected within “Discontinued Operations” on the Consolidated Statements of Income and Comprehensive Income and “Loss on disposal, net of tax” on the Consolidated Statements of Cash Flow.
Equity Method Investments
Investments 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 on the Consolidated Balance Sheets. The percentage of FE's ownership share of the entity’s earnings is reported in the Consolidated Statements of Income and Comprehensive Income and reflected in “Other Income (Expense)”.
Equity method investments included within "Investments" on the Consolidated Balance Sheets were approximately $93 million and $90 million as of September 30, 2023 and December 31, 2022, respectively.
Global Holding - FEV currently holds a 33-1/3% equity ownership in Global Holding, the holding company for a joint venture in the Signal Peak mining and coal transportation operations with coal sales primarily focused on international markets. FEV is not the primary beneficiary of the joint venture, as it does not have control over the significant activities affecting the joint venture’s economic performance. FEV's ownership interest is subject to the equity method of accounting. For the three months ended September 30, 2023 and 2022, pre-tax income related to FEV’s ownership in Global Holding was $43 million and $57 million, respectively, and $132 million and $133 million for the nine months ended September 30, 2023 and 2022, respectively. FEV’s pre-tax equity earnings and investment in Global Holding are included in Corporate/Other for segment reporting.
As of September 30, 2023, and December 31, 2022, the carrying value of the equity method investment was $54 million and $57 million, respectively. During the nine months ended September 30, 2023 and 2022, FEV received cash dividends from Global Holding of $135 million and $120 million, which were classified with “Cash from Operating Activities” on the Consolidated Statements of Cash Flow.
PATH WV - PATH, a proposed transmission line from West Virginia through Virginia into Maryland which PJM cancelled in 2012, is a series limited liability company that is comprised of multiple series, each of which has separate rights, powers and duties regarding specified property and the series profits and losses associated with such property. A subsidiary of FE owns 100% of the Allegheny Series (PATH-Allegheny) and 50% of the West Virginia Series (PATH-WV), which is a joint venture with a subsidiary of AEP. FirstEnergy is not the primary beneficiary of PATH-WV, as it does not have control over the significant activities affecting the economics of PATH-WV. FirstEnergy's ownership interest in PATH-WV is subject to the equity method of accounting. As of September 30, 2023 and December 31, 2022, the carrying value of the equity method investment was $18 million.
Goodwill
FirstEnergy evaluates goodwill for impairment annually on July 31 and more frequently if indicators of impairment arise. For 2023, FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission reporting units' goodwill, assessing economic, industry and market considerations in addition to the reporting units' overall financial performance. Key factors used in the assessment included: growth rates, interest rates, expected capital expenditures, utility sector market performance, regulatory and legal developments, and other market considerations. It was determined that the fair values of these reporting units were, more likely than not, greater than their carrying values and a quantitative analysis was not necessary.
Reference Rate Reform
In March of 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (issued March 2020 and subsequently updated). This ASU, which introduces Topic ASC 848 to the FASB codification, provides temporary optional expedients and exceptions, that if elected, will ease the financial reporting burdens related to the market transition from LIBOR and other interbank offered rates to alternative reference rates.
On April 27, 2023, FE, FET, the Utilities and the Transmission Companies entered into amendments to the 2021 Credit Facilities to, among other things: (i) permit the sale from FE to Brookfield of an incremental 30% equity interest in FET for a purchase price of $3.5 billion, (ii) permit the consolidation of the Pennsylvania Companies into a new, single operating entity, FE PA, which will be FE’s only regulated utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies, and (iii) transition the benchmark interest rate for borrowings under the 2021 Credit Facilities from LIBOR to SOFR. During the second quarter of 2023, FirstEnergy utilized the optional expedient within ASC 848 to account for the amendments to the credit facilities as a continuation of the existing contract without additional analysis.
New Accounting Pronouncements
Recently Issued Pronouncements - FirstEnergy is currently assessing the impact of new authoritative accounting guidance issued by the FASB that has not yet been adopted and the impact it will have on its financial statements and disclosures, as well as the potential to early adopt where applicable. The current expectation is that such new standards will not significantly impact FirstEnergy's financial reporting.
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2. REVENUE
The following represents a disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2023 and 2022:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Regulated Distribution |  |  |  |  |  |  |
Retail generation and distribution services |  |  |  |  |  |  |
Residential | $ | 1,894 |  |  | $ | 1,756 |  |  | $ | 5,010 |  |  | $ | 4,608 |
Commercial | 698 |  |  | 686 |  |  | 1,970 |  |  | 1,858 |
Industrial | 296 |  |  | 348 |  |  | 1,002 |  |  | 943 |
Other | 26 |  |  | 23 |  |  | 78 |  |  | 61 |
Wholesale | 65 |  |  | 159 |  | 173 |  |  | 408
Other revenue from contracts with customers | 30 |  |  | 27 |  | 86 |  |  | 82
Total revenues from contracts with customers | 3,009 |  |  | 2,999 |  |  | 8,319 |  |  | 7,960 |
Other revenue unrelated to contracts with customers | 25 |  |  | 24 |  | 83 |  |  | 78
Total Regulated Distribution | $ | 3,034 |  |  | $ | 3,023 |  |  | $ | 8,402 |  |  | $ | 8,038 |
Regulated Transmission |  |  |  |  |  |  |
ATSI | $ | 244 |  |  | $ | 252 |  |  | $ | 712 |  |  | $ | 686 |
TrAIL | 72 |  |  | 78 |  |  | 203 |  |  | 205 |
MAIT | 101 |  |  | 97 |  |  | 289 |  |  | 253 |
JCP&L | 52 |  |  | 45 |  |  | 152 |  |  | 151 |
MP, PE and WP | 39 |  |  | $ | 30 |  |  | 130 |  |  | 98
Total revenues from contracts with customers | 508 |  |  | 502 |  |  | 1,486 |  |  | 1,393 |
Other revenue unrelated to contracts with customers | 1 |  |  | 1 |  |  | 4 |  |  | 4 |
Total Regulated Transmission | $ | 509 |  |  | $ | 503 |  |  | $ | 1,490 |  |  | $ | 1,397 |
Corporate/Other and Reconciling Adjustments (1) |  |  |  |  |  |  |
Wholesale | $ | 1 |  |  | $ | 7 |  |  | $ | 6 |  |  | $ | 21 |
Retail generation and distribution services (1) | (45) |  |  | (46) |  |  | (136) |  |  | (136) |
Other revenue unrelated to contracts with customers (1) | (12) |  |  | (12) |  |  | (38) |  |  | (38) |
Total Corporate/Other and Reconciling | $ | (56) |  |  | $ | (51) |  |  | $ | (168) |  |  | $ | (153) |
FirstEnergy Total Revenues | $ | 3,487 |  |  | $ | 3,475 |  |  | $ | 9,724 |  |  | $ | 9,282 |

(1) Includes eliminations and reconciling adjustments of inter-segment revenues.
Other revenue unrelated to contracts with customers includes revenue from late payment charges of $10 million for both the three months ended September 30, 2023 and 2022. Other revenue unrelated to contracts with customers also includes revenue from derivatives of $4 million and $2 million for the three months ended September 30, 2023 and 2022, respectively.
Other revenue unrelated to contracts with customers includes revenue from late payment charges of $31 million and $29 million for the nine months ended September 30, 2023 and 2022, respectively. Other revenue unrelated to contracts with customers also includes revenue from derivatives of $16 million and $13 million for the nine months ended September 30, 2023 and 2022, respectively.
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Customer Receivables
Receivables from contracts with customers include distribution services and retail generation sales to residential, commercial and industrial customers of the Utilities. Billed and unbilled customer receivables as of September 30, 2023 and December 31, 2022, are included below:

Customer Receivables |  | September 30, 2023 |  | December 31, 2022 |
|  | (In millions)
Billed |  | $ | 848 |  |  | $ | 674 |  |
Unbilled |  | 539 |  |  | 781 |  |
|  | 1,387 |  |  | 1,455 |  |
Less: Uncollectible Reserve |  | 85 |  |  | 137 |  |
Total Customer Receivables |  | $ | 1,302 |  |  | $ | 1,318 |  |

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 to determine if allowances for uncollectible customer receivables should be further adjusted in accordance with the accounting guidance for credit losses.
FirstEnergy reviews its allowance for uncollectible customer receivables utilizing a quantitative and qualitative assessment. Management contemplates available current information such as changes in economic factors, regulatory matters, industry trends, customer credit factors, amount of receivable balances that are past-due, payment options and programs available to customers, and the methods that the Utilities are able to utilize to ensure payment. This analysis includes consideration of the outbreak of the pandemic and the impact on customer receivable balances outstanding and write-offs since the pandemic began and subsequent economic slowdown. FirstEnergy’s uncollectible risk on PJM receivables, resulting from transmission and wholesale sales, is minimal due to the nature of PJM’s settlement process and as a result there is no current allowance for doubtful accounts.
During 2023, various regulatory actions, including extended installment plans, continue to impact the level of past due balances in certain states, resulting in the allowances for uncollectible customer receivables to remain elevated above 2019 pre-pandemic levels. However, normal collection activity has resumed and arrears levels continue to decline towards pre-pandemic levels. As a result, FirstEnergy recognized a $52 million decrease to its allowance during the first nine months of 2023, of which $27 million was applied to existing deferred regulatory assets.
Activity in the allowance for uncollectible accounts on customer receivables for the nine months ended September 30, 2023 and for the year ended December 31, 2022 are as follows:

|  | (In millions)
Balance, January 1, 2022 |  | $ | 159 |
Provision for expected credit losses (1) |  | 59 |
Charged to other accounts (2) |  | 62 |
Write-offs |  | (143) |
Balance, December 31, 2022 |  | $ | 137 |
Provision for expected credit losses (1) |  | 3 |
Charged to other accounts (2) |  | 25 |
Write-offs |  | (80) |
Balance, September 30, 2023 |  | $ | 85 |

(1) Approximately $(7) million and $11 million of which was deferred for future recovery (refund) in the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.
(2) Represents recoveries and reinstatements of accounts written off for uncollectible accounts.
3. EARNINGS PER SHARE
EPS is calculated by dividing earnings attributable to FE by the weighted average number of common shares outstanding.
Basic EPS is computed using the weighted average number of common shares outstanding during the relevant period as the denominator. The denominator for diluted EPS of common stock reflects the weighted average of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised.
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Diluted EPS reflects the dilutive effect of potential common shares from share-based awards and convertible securities. The dilutive effect of outstanding share-based awards was computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of the award would be used to purchase common stock at the average market price for the period. The dilutive effect of the 2026 Convertible Notes, as further discussed in Note 6, “Fair Value Measurements” under Long-term debt and other long-term obligations, is computed using the if-converted method.
The following table reconciles basic and diluted EPS attributable to FE:

|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30, |
Reconciliation of Basic and Diluted EPS |  | 2023 |  | 2022 |  | 2023 |  | 2022 |
(In millions, except per share amounts) |  |  |  |  |  |  |  |  |
Earnings attributable to FE - continuing operations |  | $ | 421 |  |  | $ | 334 |  |  | $ | 948 |  |  | $ | 809 |  |
Earnings attributable to FE - discontinued operations, net of tax |  | (21) |  |  | — |  |  | (21) |  |  | — |  |
Earnings attributable to FE |  | $ | 400 |  |  | $ | 334 |  |  | $ | 927 |  |  | $ | 809 |  |
Share count information: |  |  |  |  |  |  |  |  |
Weighted average number of basic shares outstanding |  | 573 |  |  | 571 |  |  | 573 |  |  | 571 |  |
Assumed exercise of dilutive stock options and awards |  | 1 |  |  | 1 |  |  | 1 |  |  | 1 |  |
Weighted average number of diluted shares outstanding |  | 574 |  |  | 572 |  |  | 574 |  |  | 572 |  |
EPS attributable to FE: |  |  |  |  |  |  |  |  |
Basic - continuing operations |  | $ | 0.74 |  |  | $ | 0.58 |  |  | $ | 1.66 |  |  | $ | 1.42 |  |
Basic - discontinued operations |  | (0.04) |  |  | — |  |  | (0.04) |  |  | — |  |
Basic EPS |  | $ | 0.70 |  |  | $ | 0.58 |  |  | $ | 1.62 |  |  | $ | 1.42 |  |
Diluted - continuing operations |  | $ | 0.73 |  |  | $ | 0.58 |  |  | $ | 1.65 |  |  | $ | 1.41 |  |
Diluted - discontinued operations |  | (0.04) |  |  | — |  |  | (0.04) |  |  | — |  |
Diluted EPS |  | $ | 0.69 |  |  | $ | 0.58 |  |  | $ | 1.61 |  |  | $ | 1.41 |  |

For the three and nine months ended September 30, 2023 and 2022, no shares from stock options and awards were excluded from the calculation of diluted shares outstanding, as their inclusion would have been antidilutive.
The dilutive effect of the 2026 Convertible Notes is limited to the conversion obligation in excess of the aggregate principal amount of the 2026 Convertible Notes being converted. For the three and nine months ended September 30, 2023, there was no dilutive effect resulting from the 2026 Convertible Notes as the average market price of FE shares of common stock was below the initial conversion price of $46.81 per share. See Note 6, “Fair Value Measurements” for additional details on the 2026 Convertible Notes that were issued during the second quarter of 2023.
4. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
The components of FirstEnergy’s net periodic benefit costs (credits) for pension and OPEB were as follows:

Components of Net Periodic Benefit Costs (Credits) |  | Pension | OPEB
For the Three Months Ended September 30, |  | 2023 |  | 2022 |  | 2023 |  | 2022
|  | (In millions)
Service costs |  | $ | 35 |  |  | $ | 46 |  |  | $ | 1 |  |  | $ | 1 |
Interest costs |  | 106 |  |  | 68 |  |  | 5 |  |  | 3 |
Expected return on plan assets |  | (151) |  |  | (164) |  |  | (7) |  |  | (10) |
Amortization of prior service costs (credits) (1) |  | 1 |  |  | 1 |  |  | (3) |  |  | (3) |
Special termination benefits (2) |  | 13 |  |  | — |  |  | 5 |  |  | — |
Net periodic benefit costs (credits) |  | $ | 4 |  |  | $ | (49) |  |  | $ | 1 |  |  | $ | (9) |
Net periodic benefit costs (credits), net of amounts capitalized |  | $ | (15) |  |  | $ | (77) |  |  | $ | 1 |  |  | $ | (9) |

(1) The income tax benefits associated with pension and OPEB prior service costs amortized out of AOCI were $1 million for the three months ended September 30, 2022, and immaterial for the three months ended September 30, 2023.
(2) Related to benefits provided in connection with the PEER.
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Components of Net Periodic Benefit Costs (Credits) |  | Pension | OPEB
For the Nine Months Ended September 30, |  | 2023 |  | 2022 |  | 2023 |  | 2022
|  | (In millions)
Service costs |  | $ | 104 |  |  | $ | 138 |  |  | $ | 2 |  |  | $ | 3 |
Interest costs |  | 322 |  |  | 204 |  |  | 16 |  |  | 8 |
Expected return on plan assets |  | (421) |  |  | (492) |  |  | (23) |  |  | (30) |
Amortization of prior service costs (credits) (1) |  | 2 |  |  | 2 |  |  | (7) |  |  | (8) |
Special termination benefits (2) |  | 18 |  |  | — |  |  | 7 |  |  | — |
Pension and OPEB mark-to-market adjustment |  | (59) |  |  | — |  |  | — |  |  | — |
Net periodic benefit credits |  | $ | (34) |  |  | $ | (148) |  |  | $ | (5) |  |  | $ | (27) |
Net periodic benefit credits, net of amounts capitalized |  | $ | (88) |  |  | $ | (218) |  |  | $ | (6) |  |  | $ | (28) |

(1) The income tax benefits associated with the pension and OPEB prior service costs amortized out of AOCI were $1 million and $2 million for the nine months ended September 30, 2023 and 2022, respectively.
(2) Related to benefits provided in connection with the PEER.
On May 9, 2023, FirstEnergy announced a voluntary retirement program for eligible non-bargaining employees, known as the PEER. More than 65% of eligible employees, totaling approximately 450 employees, accepted the PEER, which included lump sum compensation equivalent to severance benefits, healthcare continuation costs and a temporary pension enhancement with most participating employees expected to depart by the end of 2023. The temporary pension enhancement and healthcare continuation costs are classified as special termination costs within net periodic benefit costs (credits). In addition to the PEER, FirstEnergy notified and involuntarily separated approximately 90 employees on May 9, 2023. Management expects the cost savings resulting from these initiatives to support FirstEnergy’s growth plans.
FirstEnergy’s pension and OPEB funding policy is based on actuarial computations using the projected unit credit method. On May 12, 2023, FirstEnergy made a $750 million voluntary cash contribution to the qualified pension plan. As a result of this contribution, FirstEnergy does not currently expect to have a required contribution to the pension plan through 2027 based on the 7.7% actual return through April 30, 2023, and various assumptions, including an expected rate of return on assets of 5.3% (8.0% on an annualized basis) for May 1, 2023 through December 31, 2023. However, FirstEnergy may elect to contribute to the pension plan voluntarily.
FirstEnergy recognizes a pension and OPEB mark-to-market adjustment for the change in fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for remeasurement. The size of the voluntary contribution made on May 12, 2023, in relation to total pension assets triggered a remeasurement of the pension plan, and as a result, FirstEnergy recognized a non-cash, pre-tax pension mark-to-market adjustment gain of approximately $59 million in the second quarter of 2023. FirstEnergy elected the practical expedient to remeasure pension plan assets and obligations as of April 30, 2023, which is the month-end closest to the date of the voluntary contribution. The pension mark-to-market adjustment primarily reflects higher than expected return on assets, partially offset by a 29 basis points decrease in the discount rate used to measure benefit obligations.
The discount rate used to measure pension obligations was 4.94% as of April 30, 2023 and 5.23% as of December 31, 2022. The discount rate used to measure OPEB obligations was 5.16% as of December 31, 2022.
Based on the following assumptions, FirstEnergy expects its 2023 pre-tax net periodic costs, including amounts capitalized and the $59 million pension mark-to-market adjustment gain in the second quarter of 2023, to be a credit of approximately $47 million.

Assumptions for 2023 net periodic credits |  | Pension |  | OPEB
Effective rate for interest costs on benefit obligations (1) |  | 5.10%/4.80% |  | 5.06 | %
Effective rate for service costs (1) |  | 5.34%/5.11% |  | 5.41 | %
Effective rate for interest on service costs (1) |  | 5.22%/4.94% |  | 5.33 | %
Annualized expected rate of return on plan assets |  | 8.00% |  | 7.00 | %

(1) Pension rates effective for January 1, 2023 through April 30, 2023 and May 1, 2023 through December 31, 2023, respectively.
Service costs, net of capitalization, are reported within Other operating expenses on FirstEnergy’s Consolidated Statements of Income. Non-service costs, other than the pension and OPEB mark-to-market adjustment, which is separately shown, are reported within “Miscellaneous income, net”, within “Other Income (Expense)” on FirstEnergy’s Consolidated Statements of Income.
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5. INCOME TAXES
FirstEnergy’s interim effective tax rates reflect the estimated annual effective tax rates for 2023 and 2022. These tax rates are affected by estimated annual permanent items, such as AFUDC equity and other flow-through items, as well as certain discrete items. The following tables reconcile the effective tax rate to the federal income tax statutory rate for the three and nine months ended September 30, 2023 and 2022:

|  | For the Three Months |  | For the Nine Months
|  | Ended September 30, |  | Ended September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
|  | (In millions)
Income before income taxes (continuing operations) |  | $ | 470 |  |  | $ | 449 |  |  | $ | 1,198 |  |  | $ | 1,061 |
Federal income tax expense at statutory rate (21%) |  | $ | 99 |  |  | $ | 94 |  |  | $ | 252 |  |  | $ | 223 |
Increases (reductions) in tax expense resulting from: |  |  |  |  |  |  |  |
State income taxes, net of federal tax benefit |  | 25 |  |  | 25 |  |  | 49 |  |  | 68 |
AFUDC equity and other flow-through |  | (15) |  |  | (8) |  |  | (25) |  |  | (23) |
Excess deferred tax amortization due to the Tax Act |  | 2 |  |  | (15) |  |  | (30) |  |  | (46) |
Federal tax credits claimed |  | (2) |  |  | (3) |  |  | (2) |  |  | (3) |
Valuation allowances |  | (122) |  |  | (8) |  |  | (113) |  |  | 26 |
Remeasurement of state deferred taxes due to law changes |  | — |  |  | 4 |  |  | — |  |  | (22) |
Uncertain tax positions |  | 50 |  |  | 2 |  |  | 50 |  |  | 2 |
Other, net |  | (8) |  |  | 14 |  |  | 12 |  |  | 12 |
Total income taxes (continuing operations) |  | $ | 29 |  |  | $ | 105 |  |  | $ | 193 |  |  | $ | 237 |
Effective income tax rate (continuing operations) |  | 6.0 | % |  | 23.4 | % |  | 16.1 | % |  | 22.3 | %

During the three months ended September 30, 2023, FirstEnergy recognized a tax benefit of approximately $65 million, net of a reserve for uncertain tax positions, from the reduction of state income taxes and partial release of a valuation allowance for the expected utilization of state net operating losses based on an assessment of regulated business operations and a change in the composition of a state tax return filing group.
During the three months ended September 30, 2023, FirstEnergy increased the reserve for uncertain tax positions by approximately $64 million, before federal tax, due to the assessment of regulated business operations discussed above, and a settlement of a separate state income tax dispute with a taxing authority, the combined effect of which increased FirstEnergy’s effective tax rate by approximately $50 million.
On March 29, 2023, the West Virginia Governor signed into law House Bill 3286, which allows corporate taxpayers a reduction to pre-apportionment federal taxable income with the amount necessary to offset the increase in the net deferred tax liability (or decrease in the net deferred tax asset) caused by West Virginia’s apportionment law change enacted in 2021. Beginning with the 2033 tax year, qualifying taxpayers can subtract one-tenth of the amount each year for ten years. Taxpayers intending to claim this subtraction will have to file a statement with the West Virginia tax commissioner by July 1, 2024, specifying the total amount of subtraction to be claimed. Accordingly, FirstEnergy recorded a state deferred tax asset of approximately $9 million in the first quarter of 2023, which was fully reserved. In conjunction with the assessment of regulated business operations discussed above, FirstEnergy removed the $9 million reserve and reduced the state deferred tax asset to approximately $4 million, and recorded a corresponding $4 million regulatory liability associated with the amount expected to be refunded to customers in future rates.
On August 16, 2022, President Biden signed into law the IRA of 2022, which, among other things, imposes a new 15% corporate AMT based on AFSI applicable to corporations with a three-year average AFSI over $1 billion. The AMT is effective for the 2023 tax year and, if applicable, corporations must pay the greater of the regular corporate income tax or the AMT. Although NOL carryforwards created through the regular corporate income tax system cannot be used to reduce the AMT, financial statement net operating losses can be used to reduce AFSI and the amount of AMT owed. The IRA of 2022 as enacted requires the U.S. Treasury to provide regulations and other guidance necessary to administer the AMT, including further defining allowable adjustments to determine AFSI, which directly impacts the amount of AMT to be paid. Based on interim guidance issued by the U.S. Treasury in late December 2022, FirstEnergy continues to believe that it is more likely than not it will be subject to the AMT beginning in 2023. Accordingly, FirstEnergy made a first quarter estimated payment of AMT of approximately $49 million in April 2023. In June 2023, the U.S. Treasury issued additional guidance that eliminated the requirement of corporations to include AMT in quarterly estimated tax payments, pending further guidance on the application and administration of AMT. In September 2023, the U.S. Treasury issued additional guidance clarifying certain aspects of ASFI, which FirstEnergy is currently assessing but does not believe will have a material impact on its position. Therefore, as a result of guidance issued to date, current forecast of AMT obligation, and the amount of AMT already paid in April 2023, FirstEnergy does not expect to make any additional AMT
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payments in 2023. Until final U.S. Treasury regulations are issued, the amount of AMT FirstEnergy pays could be significantly different than current estimates or it may not be a payer at all. The regulatory treatment of the impacts of this legislation will also be subject to the discretion of the FERC and state public utility commissions. Any adverse development in this legislation, including guidance from the U.S. Treasury and/or the IRS or unfavorable regulatory treatment, could reduce FirstEnergy’s future cash flows and impact financial condition.
As discussed above, FirstEnergy expects to close on the sale of an additional 30% interest in FET in 2024. As a result of the expected additional sale in FET, FirstEnergy recognized a charge to income tax expense in the fourth quarter of 2022 of approximately $752 million, representing the deferred tax liability associated with the deferred tax gain on the initial 19.9% sale of FET that closed in May 2022, such deferred gain consisting of consideration received on the sale and the recapture of estimated negative tax basis in FET impacted by taxable income and loss among other factors. During the three months ended September 30, 2023, FirstEnergy filed its 2022 consolidated federal income tax return, resulting in an immaterial change to the deferred tax liability previously recognized. However, the ultimate tax gain related to the sale of ownership interests in FET is subject to change based on the final computation of the negative tax basis described above in conjunction with the closing of the additional 30% sale in 2024.
6. FAIR VALUE MEASUREMENTS
RECURRING FAIR VALUE MEASUREMENTS
Authoritative accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. The three levels of the fair value hierarchy and a description of the valuation techniques are as follows:

Level 1 | - | Quoted prices for identical instruments in active market.
Level 2 | - | Quoted prices for similar instruments in active market.
| - | Quoted prices for identical or similar instruments in markets that are not active.
| - | Model-derived valuations for which all significant inputs are observable market data.

Models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.

Level 3 | - | Valuation inputs are unobservable and significant to the fair value measurement.

FirstEnergy produces a long-term power and capacity price forecast annually with periodic updates as market conditions change. When underlying prices are not observable, prices from the long-term price forecast are used to measure fair value.
FTRs are financial instruments that entitle the holder to a stream of revenues (or charges) based on the hourly day-ahead congestion price differences across transmission paths. FTRs are acquired by FirstEnergy in the annual, monthly and long-term PJM auctions and are initially recorded using the auction clearing price less cost. After initial recognition, FTRs’ carrying values are periodically adjusted to fair value using a mark-to-model methodology, which approximates market. The primary inputs into the model, which are generally less observable than objective sources, are the most recent PJM auction clearing prices and the FTRs’ remaining hours. The model calculates the fair value by multiplying the most recent auction clearing price by the remaining FTR hours less the prorated FTR cost. Significant increases or decreases in inputs in isolation may have resulted in a higher or lower fair value measurement.
FirstEnergy primarily applies the market approach for recurring fair value measurements using the best information available. Accordingly, FirstEnergy maximizes the use of observable inputs and minimizes the use of unobservable inputs. There were no changes in valuation methodologies used as of September 30, 2023, from those used as of December 31, 2022. The determination of the fair value measures takes into consideration various factors, including but not limited to, nonperformance risk, counterparty credit risk and the impact of credit enhancements (such as cash deposits, LOCs and priority interests). The impact of these forms of risk was not significant to the fair value measurements.
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The following table sets forth the recurring assets and liabilities that are accounted for at fair value by level within the fair value hierarchy:

| September 30, 2023 |  | December 31, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets | (In millions)
Derivative assets FTRs (1) | $ | — |  |  | $ | — |  |  | $ | 10 |  |  | $ | 10 |  |  | $ | — |  |  | $ | — |  |  | $ | 11 |  |  | $ | 11 |
Equity securities | 2 |  |  | — |  |  | — |  |  | 2 |  |  | 2 |  |  | — |  |  | — |  |  | 2 |
U.S. state and municipal debt securities | — |  |  | 259 |  |  | — |  |  | 259 |  |  | — |  |  | 266 |  |  | — |  |  | 266 |
Cash, cash equivalents and restricted cash (2) | 144 |  |  | — |  |  | — |  |  | 144 |  |  | 206 |  |  | — |  |  | — |  |  | 206 |
Other (3) | — |  |  | 41 |  |  | — |  |  | 41 |  |  | — |  |  | 40 |  |  | — |  |  | 40 |
Total assets | $ | 146 |  |  | $ | 300 |  |  | $ | 10 |  |  | $ | 456 |  |  | $ | 208 |  |  | $ | 306 |  |  | $ | 11 |  |  | $ | 525 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities FTRs (1) | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | (3) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | (2) |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | (3) |  |  | $ | — |  |  | $ | — |  |  | $ | (2) |  |  | $ | (2) |
Net assets | $ | 146 |  |  | $ | 300 |  |  | $ | 7 |  |  | $ | 453 |  |  | $ | 208 |  |  | $ | 306 |  |  | $ | 9 |  |  | $ | 523 |

(1) Contracts are subject to regulatory accounting treatment and changes in market values do not impact earnings.
(2) Restricted cash of $26 million and $46 million as of September 30, 2023 and December 31, 2022, respectively, primarily relates to cash collected from MP, PE and the Ohio Companies’ customers that is specifically used to service debt of their respective securitization or funding companies.
(3) Primarily consists of short-term investments.
INVESTMENTS
All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets at cost, which approximates their fair market value. Investments other than cash and cash equivalents include equity securities, AFS debt securities and other investments. FirstEnergy has no debt securities held for trading purposes.
Generally, unrealized gains and losses on equity securities are recognized in income whereas unrealized gains and losses on AFS debt securities are recognized in AOCI. However, the spent nuclear fuel disposal trusts of JCP&L are subject to regulatory accounting with all gains and losses on equity and AFS debt securities offset against regulatory assets.
Spent Nuclear Fuel Disposal Trusts
JCP&L holds debt securities within the spent nuclear fuel disposal trust, which are classified as AFS securities, recognized at fair market value. The trust is intended for funding spent nuclear fuel disposal fees to the United States Department of Energy associated with the previously owned Oyster Creek and TMI-1 nuclear power plants.
The following table summarizes the amortized cost basis, unrealized gains, unrealized losses and fair values of investments held in spent nuclear fuel disposal trusts as of September 30, 2023, and December 31, 2022:

|  | September 30, 2023 (1) |  | December 31, 2022 (2)
|  | Cost Basis |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value |  | Cost Basis |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
|  | (In millions)
Debt securities |  | $ | 296 |  |  | $ | — |  |  | $ | (37) |  |  | $ | 259 |  |  | $ | 294 |  |  | $ | — |  |  | $ | (28) |  |  | $ | 266 |

(1) Excludes short-term cash investments of $9 million as of September 30, 2023.
(2) Excludes short-term cash investments of $5 million as of December 31, 2022.
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Proceeds from the sale of investments in AFS debt securities, realized gains and losses on those sales and interest and dividend income for the three and nine months ended September 30, 2023 and 2022, were as follows:

|  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
|  | (In millions)
Sale proceeds |  | $ | 10 |  |  | $ | 15 |  |  | $ | 28 |  |  | $ | 31 |
Realized gains |  | — |  |  | — |  |  | — |  |  | 1 |
Realized losses |  | — |  |  | (2) |  |  | (2) |  |  | (4) |
Interest and dividend income |  | 3 |  |  | 3 |  |  | 9 |  |  | 9 |

Other Investments
Other investments include employee benefit trusts, which are primarily invested in corporate-owned life insurance policies, and equity method investments. Earnings and losses associated with corporate-owned life insurance policies are reflected in “Miscellaneous income, net” on FirstEnergy’s Consolidated Statements of Income. The total carrying value of other investments were $358 million and $351 million as of September 30, 2023, and December 31, 2022, respectively, and are excluded from the amounts reported above. See Note 1, "Organization and Basis of Presentation," for additional information on FirstEnergy's equity method investments.
Pre-tax income (expense) related to corporate-owned life insurance policies were $(4) million and $(6) million, for the three months ended September 30, 2023 and 2022, respectively, and $6 million and $(28) million for the nine months ended September 30, 2023 and 2022, respectively. Corporate-owned life insurance policies are valued using the cash surrender value and any changes in value during the period are recognized as income or expense.
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
All borrowings with initial maturities of less than one year are defined as short-term financial instruments under GAAP and are reported as Short-term borrowings on the Consolidated Balance Sheets at cost. Since these borrowings are short-term in nature, FirstEnergy believes that their costs approximate their fair market value. The following table provides the approximate fair value and related carrying amounts of long-term debt, which excludes finance lease obligations and net unamortized debt issuance costs, unamortized fair value adjustments, premiums and discounts as of September 30, 2023 and December 31, 2022:

| September 30, 2023 |  | December 31, 2022
| (In millions)
Carrying value | $ | 24,254 |  |  | $ | 21,641 |
Fair value | $ | 21,800 |  |  | $ | 19,784 |

The fair values of long-term debt and other long-term obligations reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective period. The yields assumed were based on securities with similar characteristics offered by corporations with credit ratings similar to those of FirstEnergy. FirstEnergy classified short-term borrowings, long-term debt and other long-term obligations as Level 2 in the fair value hierarchy as of September 30, 2023, and December 31, 2022.
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FirstEnergy had the following redemptions and issuances during the nine months ended September 30, 2023:

Company | Type | Redemption / Issuance Date | Interest Rate | Maturity | Amount (In millions) | Description
Redemptions (1)
ME | Unsecured Notes | March, 2023 | 3.50% | 2023 | $300 | ME redeemed unsecured notes that became due.
FE | Unsecured Notes | May, 2023 | 7.375% | 2031 | $194 | FE repurchased approximately $194 million of the principal amount of its 2031 Notes through the open market for $228 million including a premium of approximately $34 million ($27 million after-tax). In addition, FE recognized approximately $2 million ($1 million after-tax) of deferred cash flow hedge losses associated with the FE debt redemptions.
Issuances
WP | FMBs | January, 2023 | 5.29% | 2033 | $50 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MAIT | Unsecured Notes | February, 2023 | 5.39% | 2033 | $175 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
ME | Unsecured Notes | March, 2023 | 5.20% | 2028 | $425 | Proceeds were used to repay short-term borrowings, including borrowings incurred to repay, at maturity, the $300 million aggregate principal amount of ME's 3.50% unsecured notes due March 15, 2023, to finance capital expenditures and for other general corporate purposes.
PN | Unsecured Notes | March, 2023 | 5.15% | 2026 | $300 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
ATSI | Unsecured Notes | May, 2023 | 5.13% | 2033 | $150 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
FE | Unsecured Convertible Notes | May, 2023 | 4.00% | 2026 | $1,500 | Proceeds were used to repay short-term borrowings, to repurchase a portion of its 2031 Notes, to fund the qualified pension plan and for other general corporate purposes.
PE | FMBs | September, 2023 | 5.64% | 2028 | $100 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
PE | FMBs | September, 2023 | 5.73% | 2030 | $50 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MP | FMBs | September, 2023 | 5.85% | 2034 | $400 | Proceeds are for repaying short-term and long-term debt, including MP’s $400 million 4.1% FMBs due April 15, 2024, to finance capital expenditures and for other general corporate purposes.

(1) Excludes principal payments on securitized bonds.
Convertible Notes
As discussed above, on May 4, 2023, FE issued $1.5 billion aggregate principal amount of 2026 Convertible Notes, with a fixed interest rate of 4.00% per year, payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2023. The 2026 Convertible Notes are unsecured and unsubordinated obligations of FE, and will mature on May 1, 2026, unless required to be converted or repurchased in accordance with their terms. However, FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date. The 2026 Convertible Notes are included within “Long-term debt and other long-term obligations” on the FirstEnergy Consolidated Balance Sheets. Proceeds from the issuance were approximately $1.48 billion, net of issuance costs.
Prior to the close of business on the business day immediately preceding February 1, 2026, the 2026 Convertible Notes will be convertible at the option of the holders only under the following conditions:
•During any calendar quarter, if the last reported sale price of FE’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•During the five consecutive business day period immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Convertible Notes for each trading day of such 10 trading day period was less than 98% of the product of the last reported sale price of FE’s common stock and the conversion rate on each such trading day; or
•Upon the occurrence of certain corporate events specified in the indenture governing the 2026 Convertible Notes.
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On and after February 1, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes at their option at any time at the conversion rate then in effect, irrespective of these conditions. FE will settle conversions of the 2026 Convertible Notes, if any, by paying cash up to the aggregate principal amount of the 2026 Convertible Notes being converted and by paying cash or delivering shares of FE’s common stock (or a combination of each), at its election, of its conversion obligation in excess of the aggregate principal amount of the 2026 Convertible Notes being converted.
The conversion rate for the 2026 Convertible Notes will initially be 21.3620 shares of FE’s common stock per $1,000 principal amount of the 2026 Convertible Notes (equivalent to an initial conversion price of approximately $46.81 per share of FE’s common stock). The initial conversion price of the 2026 Convertible Notes represents a premium of approximately 20% over the last reported sale price of FE’s common stock on the New York Stock Exchange on May 1, 2023. The conversion rate and the corresponding conversion price will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date.
If FE undergoes a fundamental change (as defined in the relevant indenture), subject to certain conditions, holders of the 2026 Convertible Notes may require FE to repurchase for cash all or any portion of their 2026 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the relevant indenture). In addition, if certain fundamental changes occur, FE may be required, in certain circumstances, to increase the conversion rate for any 2026 Convertible Notes converted in connection with such fundamental changes by a specified number of shares of its common stock.
7. REGULATORY MATTERS
STATE REGULATION
Each of the Utilities' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the states in which it operates - in Maryland by the MDPSC, in New Jersey by the NJBPU, in Ohio by the PUCO, in Pennsylvania by the PPUC, in West Virginia by the WVPSC and in New York by the NYPSC. The transmission operations of PE in Virginia, ATSI in Ohio, and the Transmission Companies in Pennsylvania are subject to certain regulations of the VSCC, PUCO and PPUC, respectively. In addition, under Ohio law, municipalities may regulate rates of a public utility, subject to appeal to the PUCO if not acceptable to the utility. Further, if any of the FirstEnergy affiliates were to engage in the construction of significant new transmission facilities, depending on the state, they may be required to obtain state and/or local regulatory authorization to site, construct and operate the new transmission facility.
MARYLAND
PE operates under MDPSC approved base rates that were effective as of March 23, 2019. PE also provides SOS pursuant to a combination of settlement agreements, MDPSC orders and regulations, and statutory provisions. SOS supply is competitively procured in the form of rolling contracts of varying lengths through periodic auctions that are overseen by the MDPSC and a third-party monitor. Although settlements with respect to SOS supply for PE customers have expired, service continues in the same manner until changed by order of the MDPSC. PE recovers its costs plus a return for providing SOS.
On March 22, 2023, PE filed a base rate case with the MDPSC, utilizing a test year based on twelve months of actual 2022 data. The base rate case requests an annual increase in base distribution rates of $50.4 million, plus a request to establish a regulatory asset (or liability) to recover (or refund) in a subsequent base rate case the net differences between the amount of pension and OPEB expense requested in the proceeding (based on average expense from 2018 to 2022) and the actual annual amount each year using the delayed recognition method. The rate case additionally requests approval to continue an EDIS to fund three service reliability and resiliency programs, two new proposed programs to assist low-income customers and cost recovery of certain expenses associated with PE’s pilot electric vehicle charger program and its COVID-19 pandemic response. On October 18, 2023, the MDPSC approved an annual increase in base distribution rates of $28 million, effective October 19, 2023. The order denied PE’s request to establish a pension/OPEB regulatory asset (or liability), allowed recovery of most COVID-19 deferred costs; and rejected the continuation of PE’s EDIS, as PE's reliability has improved such that the surcharge recovery mechanism is no longer merited at this time. The MDPSC also ordered an independent audit of certain allocations from FESC to PE and denied recovery of approximately $12 million in rate base associated with certain corporate support costs recorded to capital accounts resulting from the FERC Audit.
The EmPOWER Maryland program requires each electric utility to file a plan to reduce electric consumption and demand 0.2% per year, up to the ultimate goal of 2% annual savings, for the duration of the 2021-2023 EmPOWER Maryland program cycles to the extent the MDPSC determines that cost-effective programs and services are available. PE's approved 2021-2023 EmPOWER Maryland plan continues and expands upon prior years' programs for a projected total investment of approximately $148 million over the three-year period. PE recovers program investments with a return through an annually reconciled surcharge, with most costs subject to recovery over a five-year period with a return on the unamortized balance. On October 28, 2022, PE submitted its plan, as ordered by the MDPSC, to recover all unamortized balances by the scheduled expiration of the EmPOWER program on December 31, 2029. At the further direction of the MDPSC, PE filed a revised plan on January 11, 2023.
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Maryland law only allows for the utility to recover lost distribution revenue attributable to energy efficiency or demand reduction programs through a base rate case proceeding. On August 1, 2023, PE filed its proposed plan for the 2024-2026 cycle as required by the MDPSC. Consistent with the December 29, 2022, order by the MDPSC phasing out the ability of Maryland utilities to earn a return on EmPOWER investments, PE will be required to expense 33% of its EmPOWER program costs in 2024, 67% in 2025 and 100% in 2026. Notwithstanding the order to phase out PE’s ability to earn a return on its EmPOWER investments, all previously unamortized costs will continue to earn a return and be collected by the end of 2029, consistent with the plan PE submitted on January 11, 2023. Additionally at the direction of the MDPSC, PE together with other Maryland utilities are required to address GHG reductions in addition to energy efficiency. In compliance with the MDPSC directive, PE submitted three scenarios with projected costs over a three-year cycle of $310 million, $354 million, and $510 million, respectively. Hearings on the proposed plans for all Maryland utilities are scheduled to begin on November 6, 2023.
On April 17, 2023, PE submitted a proposal to the MDPSC seeking approval to end its PPA with the Warrior Run generating station. The PPA for Warrior Run was a requirement of the Public Utility Regulatory Policies Act of 1978. PE’s Maryland customers currently pay a surcharge on their electric bill in connection with the Warrior Run PPA, which fluctuates from year to year based on the difference between what PE pays for the output of the plant and what PE is able to recover by reselling that output into PJM. PE negotiated a termination of the PPA, which the MDPSC approved on June 21, 2023, and became effective June 28, 2023, requiring it to pay Warrior Run a fixed amount of $51 million annually through 2029, for a total of $357 million. During the second quarter of 2023, a liability was established for the $357 million termination fee, of which $55 million was included in “Other current liabilities” and $302 million in “Other non-current liabilities”, and as the cost of the termination fee will be recovered through the current surcharge, an offsetting regulatory asset was established on FirstEnergy’s Consolidated Balance Sheets, and results in no impact to FirstEnergy’s or PE’s current or future earnings and is expected to result in savings for PE’s Maryland customers. On July 26, 2023, the MDPSC approved the change in surcharge, effective August 1, 2023, after previously approving the termination of the agreement.
NEW JERSEY
JCP&L operates under NJBPU approved rates that took effect as of January 1, 2021, and were effective for customers as of November 1, 2021. JCP&L provides BGS for retail customers who do not choose a third-party EGS and for customers of third- party EGSs that fail to provide the contracted service. All New Jersey EDCs participate in this competitive BGS procurement process and recover BGS costs directly from customers as a charge separate from base rates.
On March 16, 2023, JCP&L filed a base rate case with the NJBPU, utilizing a test year based on six months of actual data for the second half of calendar year 2022, and six months of forecasted data for the first half of calendar year 2023. The rate case requests an annual net increase in base distribution revenues of approximately $185 million, plus a request to establish a regulatory asset (or liability) to recover (or refund) in a subsequent base rate case the net differences between the amount of pension and OPEB expense requested in the proceeding (based on 2023 expense) and the actual annual amount each year using the delayed recognition method. On August 7, 2023, JCP&L updated its base rate case to provide actual test-year data for the first quarter of calendar year 2023 and update its proposed annual net increase in base rate distribution revenues to approximately $192 million. In addition to the above, JCP&L’s request includes, among other things, approval of two new proposed programs to assist low-income customers, cost recovery of certain investments and expenses associated with its electric vehicle and AMI programs, an update of its depreciation rates, modifications to its storm cost recovery, and tariff modifications to update standard construction costs. A procedural schedule was adopted with evidentiary hearings to be held the week of January 8, 2024. On October 17, 2023, JCP&L requested a suspension of the procedural schedule to enter into formal settlement discussions, which all parties agreed and the administrative law judge granted the same day.
JCP&L has instituted energy efficiency and peak demand reduction programs in accordance with the New Jersey Clean Energy Act as approved by the NJBPU in April 2021. The NJBPU approved plans include recovery of lost revenues resulting from the programs and a three-year plan including total program costs of $203 million, of which $160 million of investment is recovered over a ten-year amortization period with a return as well as operations and maintenance expenses and financing costs of $43 million recovered on an annual basis.
On March 6, 2023, the NJBPU issued final rules modifying its regulations to reflect its CTA policy in base rate cases to: (i) calculate savings using a five-year look back from the beginning of the test year; (ii) allocate 100% of CTA savings to customers; and (iii) exclude transmission assets of EDCs in the savings calculation. The final rules of practice were applied by JCP&L in its most recent base rate case filing described above.
On October 28, 2020, the NJBPU approved a stipulated settlement between JCP&L and various parties, resolving JCP&L’s request for distribution base rate increase. The settlement provided for a $94 million annual base distribution revenues increase for JCP&L based on an ROE of 9.6%, which became effective for customers on November 1, 2021. The settlement additionally provided that JCP&L would be subject to a management audit, which began in May 2021. On April 12, 2023, the NJBPU accepted the final management audit report for filing purposes and ordered that interested stakeholders file comments on the report by May 22, 2023, which deadline was extended until July 31, 2023. JCP&L filed its comments on July 31, 2023. The parties have filed responses.
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On July 2, 2020, the NJBPU issued an order allowing New Jersey utilities to track and create a regulatory asset for future recovery of all prudently incurred incremental costs arising from the COVID-19 pandemic beginning March 9, 2020 and continuing until the New Jersey Governor issues an order stating that the COVID-19 pandemic is no longer in effect. New Jersey utilities can request recovery of such regulatory asset in a stand-alone COVID-19 regulatory asset filing or future base rate case. On October 28, 2020, the NJBPU issued an order expanding the scope of the proceeding to examine all pandemic issues, including recovery of the COVID-19 regulatory assets, by way of a generic proceeding. No moratorium on residential disconnections remains in effect for investor-owned electric utilities such as JCP&L. Legislation was enacted on March 25, 2022, prohibiting utilities from disconnecting electric service to customers that have applied for utility bill assistance before June 15, 2022 until such time as the state agency administering the assistance program makes a decision on the application and further requiring that all utilities offer a deferred payment arrangement meeting certain minimum criteria after the state agency’s decision on the application has been made. On July 17, 2023, JCP&L submitted a stand-alone filing to recover approximately $31 million, through October 1, 2023, in incremental costs and interest incurred during the COVID-19 pandemic.
On September 17, 2021, in connection with Mid-Atlantic Offshore Development, LLC, a transmission company jointly owned by Shell New Energies US and EDF Renewables North America, JCP&L submitted a proposal to the NJBPU and PJM to build transmission infrastructure connecting offshore wind-generated electricity to the New Jersey power grid. On October 26, 2022, the JCP&L proposal was accepted, in part, in an order issued by NJBPU. The proposal, as accepted, included approximately $723 million in investments for JCP&L to both build new and upgrade existing transmission infrastructure. JCP&L’s proposal projects an investment ROE of 10.2% and includes the option for JCP&L to acquire up to a 20% equity stake in Mid-Atlantic Offshore Development, LLC. The resulting rates associated with the project are expected to be shared among the ratepayers of all New Jersey electric utilities. On April 17, 2023, JCP&L applied for the FERC “abandonment” transmission rates incentive, which would provide for recovery of 100% of the cancelled prudent project costs that are incurred after the incentive is approved, and 50% of the costs incurred prior to that date, in the event that some or all of the project is cancelled for reasons beyond JCP&L’s control. FERC staff subsequently requested additional information on JCP&L’s application, which JCP&L provided. On August 21, 2023, FERC approved JCP&L’s application, effective August 22, 2023. Construction is expected to begin in 2025. Consistent with the commitments made in its proposal to the NJBPU, JCP&L intends to pursue an opportunity to finance a portion of the project using low-interest rate loans available under the United States Department of Energy’s Energy Infrastructure Reinvestment Program of the IRA of 2022. JCP&L anticipates submitting the first part of its two-part application in the fourth quarter of 2023, with the second part due in January 2024.
OHIO
The Ohio Companies operate under PUCO-approved base distribution rates that became effective in 2009. The Ohio Companies currently operate under ESP IV, effective June 1, 2016 and continuing through May 31, 2024, that continues the supply of power to non-shopping customers at a market-based price set through an auction process. ESP IV also continues the Rider DCR, which supports continued investment related to the distribution system for the benefit of customers, with increased revenue caps of $20 million per year from June 1, 2019 through May 31, 2022; and $15 million per year from June 1, 2022 through May 31, 2024. In addition, ESP IV includes: (1) continuation of a base distribution rate freeze through May 31, 2024; (2) a goal across FirstEnergy to reduce CO 2 emissions by 90% below 2005 levels by 2045; and (3) contributions, totaling $51 million to: (a) fund energy conservation programs, economic development and job retention in the Ohio Companies’ service territories; (b) establish a fuel-fund in each of the Ohio Companies’ service territories to assist low-income customers; and (c) establish a Customer Advisory Council to ensure preservation and growth of the competitive market in Ohio.
On April 5, 2023, the Ohio Companies filed an application with the PUCO for approval of ESP V, for an eight-year term beginning June 1, 2024, and continuing through May 31, 2032. ESP V proposes to continue providing power to non-shopping customers at market-based prices set through an auction process, with process enhancements designed to reduce costs to customers. ESP V also proposes to continue riders supporting investment in the Ohio Companies’ distribution system, including Rider DCR with annual revenue cap increases of $15 to $21 million per year, based on reliability performance, and Rider AMI for recovery of approved grid modernization investments. ESP V proposes new riders to support continued maintenance of the distribution system, including vegetation management and storm restoration operating expense. In addition, ESP V proposes four-year energy efficiency and peak demand reduction programs for residential and commercial customers, with cost recovery spread over eight years. ESP V further includes a commitment to spend $52 million in total over the eight-year term, without recovery from customers, on initiatives to assist low-income customers, education and incentives to help ensure customers have good experiences with electric vehicles. Hearings are scheduled to commence on November 7, 2023.
On May 16, 2022, the Ohio Companies filed their application for determination of the existence of SEET under ESP IV for calendar year 2021, which demonstrated that each of the individual Ohio Companies did not have significantly excessive earnings.
On July 15, 2022, the Ohio Companies filed an application with the PUCO for approval of phase two of their distribution grid modernization plan that would, among other things, provide for the installation of an additional 700 thousand smart meters, distribution automation equipment on approximately 240 distribution circuits, voltage regulating equipment on approximately 220 distribution circuits, and other investments and pilot programs in related technologies designed to provide enhanced customer benefits. The Ohio Companies propose that phase two will be implemented over a four-year budget period with estimated capital investments of approximately $626 million and operations and maintenance expenses of approximately $144 million over the
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deployment period. Under the proposal, costs of phase two of the grid modernization plan would be recovered through the Ohio Companies’ AMI rider, pursuant to the terms and conditions approved in ESP IV. Hearings are scheduled to commence on December 11, 2023.
On September 8, 2020, the OCC filed motions in the Ohio Companies’ corporate separation audit and DMR audit dockets, requesting the PUCO to open an investigation and management audit, hire an independent auditor, and require FirstEnergy to show it did not improperly use money collected from consumers or violate any utility regulatory laws, rules or orders in its activities regarding HB 6. On December 30, 2020, in response to the OCC's motion, the PUCO reopened the DMR audit docket, and directed PUCO staff to solicit a third-party auditor and conduct a full review of the DMR to ensure funds collected from customers through the DMR were only used for the purposes established in ESP IV. On June 2, 2021, the PUCO selected an auditor and the auditor filed the final audit report on January 14, 2022, which made certain findings and recommendations. The report found that spending of DMR revenues was not required to be tracked, and that DMR revenues, like all rider revenues, are placed into the regulated money pool as a matter of routine, where the funds lose their identity. Therefore, the report could not suggest that DMR funds were used definitively for direct or indirect support for grid modernization. The report also concluded that there was no documented evidence that ties revenues from the DMR to lobbying for the passage of HB 6, but also could not rule out with certainty uses of DMR funds to support the passage of HB 6. The report further recommended that the regulated companies' money pool be audited more frequently and the Ohio Companies adopt formal dividend policies. Final comments and responses were filed by parties during the second quarter of 2022.
On September 15, 2020, the PUCO opened a new proceeding to review the political and charitable spending by the Ohio Companies in support of HB 6 and the subsequent referendum effort, and directing the Ohio Companies to show cause, demonstrating that the costs of any political or charitable spending in support of HB 6, or the subsequent referendum effort, were not included, directly or indirectly, in any rates or charges paid by customers. The Ohio Companies initially filed a response stating that the costs of any political or charitable spending in support of HB 6, or the subsequent referendum effort, were not included, directly or indirectly, in any rates or charges paid by customers, but on August 6, 2021, filed a supplemental response explaining that, in light of the facts set forth in the DPA and the findings of the Rider DCR audit report further discussed below, political or charitable spending in support of HB 6, or the subsequent referendum effort, affected pole attachment rates paid by approximately $15 thousand. On October 26, 2021, the OCC filed a motion requesting the PUCO to order an independent external audit to investigate FE’s political and charitable spending related to HB 6, and to appoint an independent review panel to retain and oversee the auditor. In November and December 2021, parties filed comments and reply comments regarding the Ohio Companies’ original and supplemental responses to the PUCO’s September 15, 2020, show cause directive. On May 4, 2022, the PUCO selected a third-party auditor to determine whether the show cause demonstration submitted by the Ohio Companies is sufficient to ensure that the cost of any political or charitable spending in support of HB 6 or the subsequent referendum effort was not included, directly or indirectly, in any rates or charges paid by ratepayers.
In connection with an ongoing audit of the Ohio Companies’ policies and procedures relating to the code of conduct rules between affiliates, on November 4, 2020, the PUCO initiated an additional corporate separation audit as a result of the FirstEnergy leadership transition announcement made on October 29, 2020, as further discussed below. The additional audit is to ensure compliance by the Ohio Companies and their affiliates with corporate separation laws and the Ohio Companies’ corporate separation plan. The additional audit is for the period from November 2016 through October 2020. The final audit report was filed on September 13, 2021. The audit report makes no findings of major non-compliance with Ohio corporate separation requirements, minor non-compliance with eight requirements, and findings of compliance with 23 requirements. Parties filed comments and reply comments on the audit report.
In connection with an ongoing annual audit of the Ohio Companies’ Rider DCR for 2020, and as a result of disclosures in FirstEnergy’s Form 10-K for the year ended December 31, 2020 (filed on February 18, 2021), the PUCO expanded the scope of the audit on March 10, 2021, to include a review of certain transactions that were either improperly classified, misallocated, or lacked supporting documentation, and to determine whether funds collected from customers were used to pay the vendors, and if so, whether or not the funds associated with those payments should be returned to customers through Rider DCR or through an alternative proceeding. On August 3, 2021, the auditor filed its final report on this phase of the audit, and the parties submitted comments and reply comments on this audit report in October 2021. Additionally, on September 29, 2021, the PUCO expanded the scope of the audit in this proceeding to determine if the costs of the naming rights for FirstEnergy Stadium have been recovered from the Ohio Companies’ customers. On November 19, 2021, the auditor filed its final report, in which the auditor concluded that the FirstEnergy Stadium naming rights expenses were not recovered from Ohio customers. On December 15, 2021, the PUCO further expanded the scope of the audit to include an investigation into an apparent nondisclosure of a side agreement in the Ohio Companies’ ESP IV settlement proceedings, but stayed its expansion of the audit until otherwise ordered by the PUCO.
On August 16, 2022, the U.S. Attorney for the Southern District of Ohio requested that the PUCO stay the above pending HB 6- related matters for a period of six months, which request was granted by the PUCO on August 24, 2022. On February 22, 2023, the U.S. Attorney for the Southern District of Ohio again requested that the PUCO stay the above pending HB-6 related matters for a period of six months, which request was granted by the PUCO on March 8, 2023. On August 10, 2023, the U.S. Attorney for the Southern District of Ohio requested that the PUCO stay the above pending HB 6-related matters for a period of six additional months, which was approved by the PUCO on August 23, 2023. On September 22, 2023, OCC filed an application for rehearing
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challenging the PUCO’s August 23, 2023, order, which the PUCO denied on October 18, 2023. The four cases remain stayed in their entirety, including discovery and motions, and all related procedural schedules are vacated.
In the fourth quarter of 2020, motions were filed with the PUCO requesting that the PUCO amend the Ohio Companies’ riders for collecting the OVEC-related charges required by HB 6 to provide for refunds in the event such provisions of HB 6 are repealed. Neither the Ohio Companies nor FE benefit from the OVEC-related charges the Ohio Companies collect. Instead, the Ohio Companies are further required by HB 6 to remit all the OVEC-related charges they collect to non-FE Ohio electric distribution utilities. The Ohio Companies contested the motions, which are pending before the PUCO.
On May 15, 2023, the Ohio Companies filed their application for determination of the existence of SEET under ESP IV for calendar year 2022, which demonstrated that each of the individual Ohio Companies did not have significantly excessive earnings.
See Note 8, “Commitments, Guarantees and Contingencies” below for additional details on the government investigations and subsequent litigation surrounding the investigation of HB 6.
PENNSYLVANIA
The Pennsylvania Companies operate under rates approved by the PPUC, effective as of January 27, 2017. On November 18, 2021, the PPUC issued orders to each of the Pennsylvania Companies directing they operate under DSPs for the June 1, 2019 through May 31, 2023 delivery period, which DSPs provide for the competitive procurement of generation supply for customers who do not receive service from an alternative EGS. Under the 2019-2023 DSPs, supply will be provided by wholesale suppliers through a mix of 3, 12 and 24-month energy contracts, as well as two RFPs for 2-year SREC contracts for ME, PN and Penn. On December 14, 2021, the Pennsylvania Companies filed proposed DSPs for provision of generation for the June 1, 2023 through May 31, 2027 delivery period, to be sourced through competitive procurements for customers who do not receive service from an alternative EGS. An evidentiary hearing was held on April 13, 2022, and on April 20, 2022, the parties filed a partial settlement with the PPUC resolving certain of the issues in the proceeding and setting aside the remainder of the issues to be resolved through briefing. The PPUC approved the partial settlement, without modification, on August 4, 2022. Under the 2023-2027 DSPs, supply will be provided through a mix of 12 and 24-month energy contracts, as well as long-term solar PPAs.
Pursuant to Pennsylvania Act 129 of 2008 and PPUC orders, the Pennsylvania Companies implemented energy efficiency and peak demand reduction programs with demand reduction targets, relative to 2007 to 2008 peak demands, at 2.9% MW for ME, 3.3% MW for PN, 2.0% MW for Penn, and 2.5% MW for WP; and energy consumption reduction targets, as a percentage of the Pennsylvania Companies’ historic 2009 to 2010 reference load at 3.1% MWH for ME, 3.0% MWH for PN, 2.7% MWH for Penn, and 2.4% MWH for WP.
Pennsylvania EDCs are permitted to seek PPUC approval of an LTIIP for infrastructure improvements and costs related to highway relocation projects, after which a DSIC may be approved to recover LTIIP costs. On January 16, 2020, the PPUC approved the Pennsylvania Companies’ LTIIPs for the five-year period beginning January 1, 2020 and ending December 31, 2024 for a total capital investment of approximately $572 million for certain infrastructure improvement initiatives. On June 25, 2021, the Pennsylvania Office of Consumer Advocate filed a complaint against Penn’s quarterly DSIC rate, disputing the recoverability of the Companies’ automated distribution management system investment under the DSIC mechanism. On January 26, 2022, the parties filed a joint petition for settlement that resolves all issues in this matter, which was approved by the PPUC without modification on April 14, 2022.
Following the Pennsylvania Companies’ 2016 base rate proceedings, the PPUC ruled in a separate proceeding related to the DSIC mechanisms that the Pennsylvania Companies were not required to reflect federal and state income tax deductions related to DSIC-eligible property in DSIC rates. The decision was appealed to the Pennsylvania Supreme Court and in July 2021 the court upheld the Pennsylvania Commonwealth Court’s reversal of the PPUC’s decision and remanded the matter back to the PPUC for determination as to how DSIC calculations shall account for accumulated deferred income taxes and state taxes. The PPUC issued the order as directed.
On March 6, 2023, FirstEnergy filed applications with the PPUC, NYPSC and FERC seeking approval to consolidate the Pennsylvania Companies into a new, single operating entity. The PA Consolidation includes, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the retail utility operations previously conducted individually by the Pennsylvania Companies. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC and PPUC. On August 14, 2023, FERC issued an order approving the proposed PA Consolidation. On August 30, 2023, the parties filed a settlement agreement recommending that the PPUC approve PA Consolidation subject to the terms of the settlement, which include among other things, $650 thousand over five years in bill assistance for income-eligible customers and the Pennsylvania Companies’ commitment to (i) not seek full distribution rate unification until the earlier of 10 years or in the fourth base rate case filed after January 1, 2025 and (ii) track and share with
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customers certain operational and administrative efficiency costs associated with the PA Consolidation. On October 19, 2023, the ALJs issued a decision recommending that the PPUC approve, without modification, the August 30, 2023 settlement agreement. The settlement agreement is pending PPUC approval. Subject to receipt of all regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.
On May 5, 2023, FirstEnergy and Brookfield submitted applications to FERC and to the PPUC to facilitate the FET Minority Equity Interest Sale. On May 12, 2023, the parties also filed an application with the VSCC, which was approved on June 20, 2023. On August 14, 2023, FERC issued an order approving the FET Minority Equity Interest Sale. On August 7, 2023, the PPUC’s presiding officers held a prehearing conference, which, among other things, set evidentiary hearings for early November 2023. The parties also must obtain successful review of the transaction by the CFIUS.
WEST VIRGINIA
MP and PE provide electric service to all customers through traditional cost-based, regulated utility ratemaking and operate under WVPSC-approved rates that became effective in February 2015. MP and PE recover net power supply costs, including fuel costs, purchased power costs and related expenses, net of related market sales revenue through the ENEC. MP’s and PE’s ENEC rate is updated annually.
On August 25, 2022, MP and PE filed with the WVPSC their annual ENEC case requesting an increase in ENEC rates of $183.8 million beginning January 1, 2023, which represents a 12.2% increase to the rates then in effect. The increase was driven by an underrecovery during the review period (July 1, 2021, to June 30, 2022) of approximately $145 million due to higher coal, reagent, and emission allowance expenses. This filing additionally addresses, among other things, the WVPSC’s May 2022 request for a prudence review of current rates. At a hearing on December 8, 2022, the parties in the case presented a unanimous settlement to increase rates by approximately $92 million, effective January 1, 2023, and carry over to MP and PE’s 2023 ENEC case, approximately $92 million at a carrying charge of 4%. In an order dated December 30, 2022, the WVPSC approved the settlement with respect to the proposed rate increase, but MP and PE rates remain subject to a prudence review in their 2023 ENEC case. The order also instructed MP to evaluate the feasibility of purchasing the 1,200 MW Pleasants Power Station and file a summary of the evaluation, which MP and PE filed on March 31, 2023. MP and PE provided the WVPSC with regular status reports throughout the second quarter of 2023 regarding the process of their evaluation. Subsequently, the owner of Pleasants entered into an agreement to sell Pleasants to an indirect wholly owned subsidiary of Omnis Global Technologies, LLC, which transaction closed on August 1, 2023. As a result, MP and PE ceased consideration of the possible purchase of Pleasants and on August 30, 2023, the WVPSC closed the proceeding.
On August 31, 2023, MP and PE filed with the WVPSC their annual ENEC case requesting an increase in ENEC rates of $167.5 million beginning January 1, 2024, which represents a 9.9% increase in overall rates. This increase, which was driven primarily by higher fuel expenses, includes the approximate $92 million carried over from the 2022 ENEC proceeding and a portion of the approximately $267 million underrecovery balance at the end of the review period (July 1, 2022 to June 30, 2023). The remaining $75.6 million of the underrecovery balance not recovered in 2024 will be deferred for collection during 2025, with an annual carrying charge of 4%. A hearing has been set for November 30, 2023.
On November 22, 2021, MP and PE filed with the WVPSC their plan to construct 50 MWs of solar generation at five sites in West Virginia. The plan includes a tariff to offer solar power to West Virginia customers and cost recovery for MP and PE through a surcharge for any solar investment not fully subscribed by their customers. A hearing was held in mid-March 2022 and on April 21, 2022, the WVPSC issued an order approving, effective May 1, 2022, the requested tariff and requiring MP and PE to subscribe at least 85% of the planned 50 MWs before seeking final tariff approval. MP and PE must seek separate approval from the WVPSC to recover any solar generation costs in excess of the approved tariff. On April 24, 2023, MP and PE sought final tariff approval from the WVPSC for three of the five solar sites, representing 30 MWs of generation, and requested approval of a surcharge to recover any costs above the final approved tariff. The first solar generation site is expected to be in-service by the end of 2023 and all construction completed at the other sites no later than the end of 2025 at a total investment cost of approximately $110 million. On August 23, 2023, the WVPSC approved the customer surcharge and granted approval to construct three of the five solar sites.
On January 13, 2023, MP and PE filed a request with the WVPSC seeking approval of new depreciation rates for existing and future capital assets. Specifically, MP and PE are seeking to increase depreciation expense by approximately $76 million per year, primarily for regulated generation-related assets. Any depreciation rates approved by the WVPSC would not become effective until new base rates were established. On August 22, 2023, a unanimous settlement of the case was filed recommending a $33 million per year increase in depreciation expense, effective April 1, 2024. An order from the WVPSC is expected in the first quarter 2024.
On March 2, 2023, the WVPSC ordered an audit of MP and PE focused on: (i) the lobbying and promotional/image building expenses, including those related to HB 6, incurred by MP and PE from 2018 to 2022 (ii) intra-corporate charges, (iii) the accounting for charges included in the ENEC cost recovery accounts of MP and PE during the same time period, and (iv) review and report on the findings, including those specific to MP and PE, set forth in the FERC Audit described below as well as a review and report of the responses by MP and PE thereto. The audit began in September 2023 and is to conclude by year-end with the findings incorporated into the base rate case currently pending before the WVPSC.
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On May 31, 2023, MP and PE filed a base rate case with the WVPSC requesting a total revenue increase of approximately $207 million utilizing a test year of 2022 with adjustments plus a request to establish a regulatory asset (or liability) to recover (or refund) in a subsequent base rate case the net differences between the amount of pension and OPEB expense requested in the proceeding (based on average expense from 2018 to 2022) and the actual annual amount each year using the delayed recognition method. Among other things, the increase includes the approximate $76 million requested in a depreciation case filed on January 13, 2023 and described more fully above, and amounts to support a new low-income customer advocacy program, storm restoration work and service reliability investments. New rates are expected to be effective by the end of March 2024. A hearing has been set for late January 2024.
On August 31, 2023, MP and PE filed its biennial review of their vegetation management program and surcharge. MP and PE have proposed an approximate $17 million increase in the surcharge rates, due to an underrecovery in the prior two-year period and increased forecast costs. An order from the WVPSC is expected by the end of 2023. See “Note 8, “Commitments, Guarantees and Contingencies," below, for additional details on the EPA's ELG.
FERC REGULATORY MATTERS
Under the Federal Power Act, FERC regulates rates for interstate wholesale sales and transmission of electric power, regulatory accounting and reporting under the Uniform System of Accounts, and other matters, including construction and operation of hydroelectric projects. With respect to their wholesale services and rates, the Utilities, AE Supply and the Transmission Companies are subject to regulation by FERC. FERC regulations require JCP&L, MP, PE, WP and the Transmission Companies to provide open access transmission service at FERC-approved rates, terms and conditions. Transmission facilities of JCP&L, MP, PE, WP and the Transmission Companies are subject to functional control by PJM and transmission service using their transmission facilities is provided by PJM under the PJM Tariff.
FERC regulates the sale of power for resale in interstate commerce in part by granting authority to public utilities to sell wholesale power at market-based rates upon showing that the seller cannot exert market power in generation or transmission or erect barriers to entry into markets. The Utilities and AE Supply each have been authorized by FERC to sell wholesale power in interstate commerce at market-based rates and have a market-based rate tariff on file with FERC, although in the case of the Utilities major wholesale purchases remain subject to review and regulation by the relevant state commissions.
Federally enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping and reporting requirements on the Utilities, AE Supply, and the Transmission Companies. NERC is the Electric Reliability Organization designated by FERC to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and enforcement of these reliability standards to six regional entities, including RFC. All of the facilities that FirstEnergy operates are located within the RFC region. FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages its companies in response to the ongoing development, implementation and enforcement of the reliability standards implemented and enforced by RFC.
FirstEnergy believes that it is in material compliance with all currently effective and enforceable reliability standards. Nevertheless, in the course of operating its extensive electric utility systems and facilities, FirstEnergy occasionally learns of isolated facts or circumstances that could be interpreted as excursions from the reliability standards. If and when such occurrences are found, FirstEnergy develops information about the occurrence and develops a remedial response to the specific circumstances, including in appropriate cases “self-reporting” an occurrence to RFC. Moreover, it is clear that NERC, RFC and FERC will continue to refine existing reliability standards as well as to develop and adopt new reliability standards. Any inability on FirstEnergy’s part to comply with the reliability standards for its bulk electric system could result in the imposition of financial penalties, or obligations to upgrade or build transmission facilities, that could have a material adverse effect on its financial condition, results of operations, and cash flows.
FERC Audit
FERC’s Division of Audits and Accounting initiated a nonpublic audit of FESC in February 2019. Among other matters, the audit is evaluating FirstEnergy’s compliance with certain accounting and reporting requirements under various FERC regulations. On February 4, 2022, FERC filed the final audit report for the period of January 1, 2015 through September 30, 2021, which included several findings and recommendations that FirstEnergy has accepted. The audit report included a finding and related recommendation on FirstEnergy’s methodology for allocation of certain corporate support costs to regulatory capital accounts under certain FERC regulations and reporting. Effective in the first quarter of 2022 and in response to the finding, FirstEnergy had implemented a new methodology for the allocation of these corporate support costs to regulatory capital accounts for its regulated distribution and transmission companies on a prospective basis. With the assistance of an independent outside firm, FirstEnergy completed an analysis during the third quarter of 2022 of these costs and how it impacted certain FERC-jurisdictional wholesale transmission customer rates for the audit period of 2015 through 2021. As a result of this analysis, FirstEnergy recorded in the third quarter of 2022 approximately $45 million ($34 million after-tax) in expected customer refunds, plus interest, due to its wholesale transmission customers and reclassified approximately $195 million of certain transmission capital assets to operating expenses for the audit period, of which $90 million ($67 million after-tax) are not expected to be recoverable and impacted FirstEnergy’s earnings since they relate to costs capitalized during stated transmission rate time periods. These
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reclassifications also resulted in a reduction to the Regulated Transmission segment’s rate base by approximately $160 million, which is not expected to materially impact FirstEnergy or the segment’s future earnings. The expected wholesale transmission customer refunds were recognized as a reduction to revenue, and the amount of reclassified transmission capital assets that are not expected to be recoverable were recognized within “Other operating expenses” at the Regulated Transmission segment and on FirstEnergy’s Consolidated Statements of Income. Furthermore, FirstEnergy’s distribution utilities are in the process of addressing the outcomes of the FERC Audit with the applicable state commissions and proceedings, which could result in future charges and/or adjustments to the distribution utilities.
ATSI ROE – Ohio Consumers Counsel v. ATSI, et al.
On February 24, 2022, the OCC filed a complaint with FERC against ATSI, AEP’s Ohio affiliates and AEPSC, and Duke Energy Ohio, LLC asserting that FERC should reduce the ROE utilized in the utilities’ transmission formula rates by eliminating the 50 basis point adder associated with RTO membership, effective February 24, 2022. The OCC contends that this result is required because Ohio law mandates that transmission owning utilities join an RTO and that the 50 basis point adder is applicable only where RTO membership is voluntary. On December 15, 2022, FERC denied the complaint as to ATSI and Duke, but granted it as to AEP. AEP and OCC appealed FERC’s orders to the Sixth Circuit. FirstEnergy is actively participating in the appeal and the case remains pending. FirstEnergy is unable to predict the outcome of this proceeding, but it is not expected to have a material impact.
Transmission ROE Methodology
On March 20, 2020, FERC initiated a rulemaking proceeding on the transmission rate incentives provisions of Section 219 of the 2005 Energy Policy Act. FirstEnergy submitted comments through the Edison Electric Institute and as part of a consortium of PJM Transmission Owners. In a supplemental rulemaking proceeding that was initiated on April 15, 2021, FERC requested comments on, among other things, whether to require utilities that have been members of an RTO for three years or more and that have been collecting an “RTO membership” ROE incentive adder to file tariff updates that would terminate collection of the incentive adder. Initial comments on the proposed rule were filed on June 25, 2021, and reply comments were filed on July 26, 2021. The rulemaking remains pending before FERC. FirstEnergy is a member of PJM and its transmission subsidiaries could be affected by the supplemental proposed rule. FirstEnergy participated in comments on the supplemental rulemaking that were submitted by a group of PJM transmission owners and by various industry trade groups. If there were to be any changes to FirstEnergy's transmission incentive ROE, such changes will be applied on a prospective basis.
Allegheny Power Zone Transmission Formula Rate Filings
On October 29, 2020, MP, PE and WP filed tariff amendments with FERC to implement a forward-looking formula transmission rate, to be effective January 1, 2021. In addition, on October 30, 2020, KATCo filed a proposed new tariff to establish a forward-looking formula rate and requested that the new rate become effective January 1, 2021. In its filing, KATCo explained that while it currently owns no transmission assets, it may build new transmission facilities in the Allegheny zone, and that it may seek required state and federal authorizations to acquire transmission assets from PE and WP by January 1, 2022. These transmission rate filings were accepted for filing by FERC on December 31, 2020, effective January 1, 2021, subject to refund, pending further hearing and settlement procedures and were consolidated into a single proceeding. MP, PE and WP, and KATCo filed uncontested settlement agreements with FERC on January 18, 2023. Also on January 18, 2023, MP, PE and WP filed a motion for interim rates to implement certain aspects of the settled rate. The interim rates were approved by the FERC Chief Administrative Law Judge and took effect on January 1, 2023. As a result of the filed settlement, FirstEnergy recognized a $25 million pre-tax charge during the fourth quarter of 2022, which reflects the difference between amounts originally recorded as assets and amounts which will ultimately be recovered from customers as a result. On May 4, 2023, FERC issued an order approving the settlement agreement without condition or modification. Pursuant to the order, a compliance filing was filed on May 19, 2023, that implemented the terms of the settlement. On June 26, 2023, FERC issued a letter order approving the compliance filing.
Transmission Planning Supplemental Projects: Ohio Consumers Counsel v ATSI, et al.
On September 27, 2023, the OCC filed a complaint against ATSI and PJM and other transmission utilities in Ohio alleging that the PJM Tariff and operating agreement are unjust, unreasonable, and unduly discriminatory because they include no provisions to ensure PJM’s review and approval for the planning, need, prudence and cost-effectiveness of the PJM Tariff Attachment M-3 “Supplemental Projects.” Supplemental Projects are projects that are planned and constructed to address local needs on the transmission system. The OCC demands that FERC: (i) require PJM to review supplemental projects for need, prudence and cost-effectiveness; (ii) appoint an independent transmission monitor to assist PJM in such review; and (iii) require that Supplemental Projects go into rate base only through a “stated rate” procedure whereby prior FERC approval would be needed for projects with costs that exceed an established threshold. Comments are due on November 17, 2023.
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8. COMMITMENTS, GUARANTEES AND CONTINGENCIES
GUARANTEES AND OTHER ASSURANCES
FirstEnergy has various financial and performance guarantees and indemnifications, which are issued in the normal course of business. These contracts include performance guarantees, stand-by LOCs, debt guarantees, surety bonds and indemnifications. FirstEnergy enters into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party.
As of September 30, 2023, outstanding guarantees and other assurances aggregated $818 million, consisting of parental guarantees on behalf of its consolidated subsidiaries ($521 million) and other assurances ($297 million).
COLLATERAL AND CONTINGENT-RELATED FEATURES
In the normal course of business, FE and its subsidiaries may enter into physical or financially settled contracts for the sale and purchase of electric capacity, energy, fuel and emission allowances. Certain agreements contain provisions that require FE or its subsidiaries to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon FE’s or its subsidiaries’ credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty.
As of September 30, 2023, $89 million of net cash collateral has been posted by FE or its subsidiaries and is included in “Prepaid taxes and other current assets” on FirstEnergy’s Consolidated Balance Sheets. FE or its subsidiaries are holding $29 million of net cash collateral as of September 30, 2023, from certain generation suppliers, and such amount is included in “Other current liabilities” on FirstEnergy’s Consolidated Balance Sheets.
These credit-risk-related contingent features stipulate that if the subsidiary were to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating), it would be required to provide additional collateral. The following table discloses the potential additional credit rating contingent contractual collateral obligations as of September 30, 2023:

Potential Collateral Obligations |  |  |  |  |  | Utilities and Transmission Companies |  | FE |  | Total
|  |  | (In millions)
Contractual Obligations for Additional Collateral |  |  |  |  |  |  |  |  |  |
Upon Further Downgrade |  |  |  |  |  | $ | 63 |  |  | $ | — |  |  | $ | 63 |
Surety Bonds (Collateralized Amount) (1) |  |  |  |  |  | 80 |  |  | 79 |  |  | 159 |
Total Exposure from Contractual Obligations |  |  |  |  |  | $ | 143 |  |  | $ | 79 |  |  | $ | 222 |

(1) Surety Bonds are not tied to a credit rating. Surety Bonds’ impact assumes maximum contractual obligations, which is ordinarily 100% of the face amount of the surety bond except with respect to $39 million of surety bond obligations for which the collateral obligation is capped at 60% of the face amount, and typical obligations require 30 days to cure. During the second quarter of 2023, FE was released from its $169 million surety bond to the Pennsylvania Department of Environmental Protection related to the Little Blue Run Disposal Impoundment.
ENVIRONMENTAL MATTERS
Various federal, state and local authorities regulate FirstEnergy with regard to air and water quality, hazardous and solid waste disposal, and other environmental matters. While FirstEnergy’s environmental policies and procedures are designed to achieve compliance with applicable environmental laws and regulations, such laws and regulations are subject to periodic review and potential revision by the implementing agencies. FirstEnergy cannot predict the timing or ultimate outcome of any of these reviews or how any future actions taken as a result thereof may materially impact its business, results of operations, cash flows and financial condition.
Clean Air Act
FirstEnergy complies with SO 2 and NOx emission reduction requirements under the CAA and SIP by burning lower-sulfur fuel, utilizing combustion controls and post-combustion controls and/or using emission allowances.
CSAPR requires reductions of NOx and SO 2 emissions in two phases (2015 and 2017), ultimately capping SO 2 emissions in affected states to 2.4 million tons annually and NOx emissions to 1.2 million tons annually. CSAPR allows trading of NOx and SO 2 emission allowances between power plants located in the same state and interstate trading of NOx and SO 2 emission allowances with some restrictions. On July 28, 2015, the D.C. Circuit ordered the EPA to reconsider the CSAPR caps on NOx and SO 2 emissions from power plants in 13 states, including West Virginia. This followed the 2014 U.S. Supreme Court ruling generally upholding the EPA’s regulatory approach under CSAPR but questioning whether the EPA required upwind states to reduce emissions by more than their contribution to air pollution in downwind states. The EPA issued a CSAPR Update on September 7, 2016, reducing summertime NOx emissions from power plants in 22 states in the eastern U.S., including West
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Virginia, beginning in 2017. Various states and other stakeholders appealed the CSAPR Update to the D.C. Circuit in November and December 2016. On September 13, 2019, the D.C. Circuit remanded the CSAPR Update to the EPA citing that the rule did not eliminate upwind states’ significant contributions to downwind states’ air quality attainment requirements within applicable attainment deadlines.
Also in March 2018, the State of New York filed a CAA Section 126 petition with the EPA alleging that NOx emissions from nine states (including West Virginia) significantly contribute to New York’s inability to attain the ozone National Ambient Air Quality Standards. The petition sought suitable emission rate limits for large stationary sources that are allegedly affecting New York’s air quality within the three years allowed by CAA Section 126. On September 20, 2019, the EPA denied New York’s CAA Section 126 petition. On October 29, 2019, the State of New York appealed the denial of its petition to the D.C. Circuit. On July 14, 2020, the D.C. Circuit reversed and remanded the New York petition to the EPA for further consideration. On March 15, 2021, the EPA issued a revised CSAPR Update that addressed, among other things, the remands of the prior CSAPR Update and the New York Section 126 petition. In December 2021, MP purchased NOx emissions allowances to comply with 2021 ozone season requirements. On April 6, 2022, the EPA published proposed rules seeking to impose further significant reductions in EGU NOx emissions in 25 upwind states, including West Virginia, with the stated purpose of allowing downwind states to attain or maintain compliance with the 2015 ozone National Ambient Air Quality Standards. On February 13, 2023, the EPA disapproved 21 SIPs, which was a prerequisite for the EPA to issue a final Good Neighbor Plan or FIP. On June 5, 2023, the EPA issued the final Good Neighbor Plan with an effective date 60 days thereafter. Certain states, including West Virginia, have appealed the disapprovals of their respective SIPs, and some of those states have obtained stays of those disapprovals precluding the Good Neighbor Plan from taking effect in those states. On August 10, 2023, West Virginia was granted an interim stay of the disapproval of its SIP pending a hearing scheduled for October 27, 2023, meaning the Good Neighbor Plan will not take effect in West Virginia until October 27, 2023, at the earliest. In addition, certain states including West Virginia, and certain trade organizations, including the Midwest Ozone Group of which FE is a member, have separately appealed and filed motions to stay the Good Neighbor Plan itself, with more appeals expected. On September 25, 2023, the DC Circuit denied the motions to stay the Good Neighbor Plan. On October 13, 2023, the aggrieved parties filed an Emergency Application for an Immediate Stay of the Good Neighbor Plan with the U.S. Supreme Court. Unless the West Virginia SIP disapproval is stayed after oral argument on October 27, 2023, or the FIP is successfully stayed, the Good Neighbor Plan will be effective in West Virginia in late October 2023, which could cause MP to accelerate certain of its planned capital expenditures to comply with the new rule.
Climate Change
In September 2016, the U.S. joined in adopting the agreement reached on December 12, 2015, at the United Nations Framework Convention on Climate Change meetings in Paris to reduce GHGs. The Paris Agreement’s non-binding obligations to limit global warming to below two degrees Celsius became effective on November 4, 2016. On June 1, 2017, the Trump Administration announced that the U.S. would cease all participation in the Paris Agreement. On January 20, 2021, President Biden signed an executive order re-adopting the agreement on behalf of the U.S. There are several initiatives to reduce GHG emissions at the state, federal and international level. Certain northeastern states are participating in the Regional Greenhouse Gas Initiative and western states led by California, have implemented programs, primarily cap and trade mechanisms, to control emissions of certain GHGs. Additional policies reducing GHG emissions, such as demand reduction programs, renewable portfolio standards and renewable subsidies have been implemented across the nation.
FirstEnergy has pledged to achieve carbon neutrality by 2050 and set an interim goal for a 30% reduction in GHGs within FirstEnergy’s direct operational control (Scope 1) by 2030, based on 2019 levels. Future resource plans to achieve carbon reductions, including potential changes in operations or any determination of retirement dates of the regulated coal-fired generating facilities, will be subject to the West Virginia legislation effective March 7, 2023, which requires prior approval from the West Virginia Public Energy Authority to decommission MP’s generating facilities. FirstEnergy will work collaboratively with regulators in West Virginia to achieve its climate goals. Determination of the useful life of the regulated coal-fired generation could result in changes in depreciation, and/or continued collection of net plant in rates after retirement, securitization, sale, impairment, or regulatory disallowances. If MP is unable to recover these costs, it could have a material adverse effect on FirstEnergy’s and/or MP’s financial condition, results of operations, and cash flow. Furthermore, FirstEnergy cannot currently estimate the financial impact of climate change policies, although potential legislative or regulatory programs restricting CO 2 emissions, or litigation alleging damages from GHG emissions, could require material capital and other expenditures or result in changes to its operations.
In December 2009, the EPA released its final “Endangerment and Cause or Contribute Findings for GHGs under the Clean Air Act,” concluding that concentrations of several key GHGs constitute an “endangerment” and may be regulated as “air pollutants” under the CAA and mandated measurement and reporting of GHG emissions from certain sources, including electric generating plants. Subsequently, the EPA released its final CPP regulations in August 2015 to reduce CO 2 emissions from existing fossil fuel-fired EGUs and finalized separate regulations imposing CO 2 emission limits for new, modified, and reconstructed fossil fuel-fired EGUs. Numerous states and private parties filed appeals and motions to stay the CPP with the D.C. Circuit in October 2015. On February 9, 2016, the U.S. Supreme Court stayed the rule during the pendency of the challenges to the D.C. Circuit and U.S. Supreme Court. On March 28, 2017, an executive order, entitled “Promoting Energy Independence and Economic Growth,” instructed the EPA to review the CPP and related rules addressing GHG emissions and suspend, revise or rescind the rules if appropriate. On June 19, 2019, the EPA repealed the CPP and replaced it with the ACE rule that established guidelines for states to develop standards of performance to address GHG emissions from existing coal-fired generation. On January 19,
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2021, the D.C. Circuit vacated and remanded the ACE rule declaring that the EPA was “arbitrary and capricious” in its rule making and, as such, the ACE rule is no longer in effect and all actions thus far taken by states to implement the federally mandated rule are now null and void. Vacating the ACE rule had the unintended effect of reinstating the CPP because the repeal of the CPP was a provision within the ACE rule. The D.C. Circuit decision was appealed by several states and interested parties, including West Virginia, arguing that the EPA did not have the authorization under Section 111(d) of the CAA to require “generation shifting” as a way to limit GHGs. On June 30, 2022, the U.S. Supreme Court in West Virginia v. Environmental Protection Agency held that the method the EPA used to regulate GHGs (generation shifting) under Section 111(d) of the CAA (the CPP) was not authorized by Congress and remanded the rule to the EPA for further reconsideration. In response, on May 23, 2023, the EPA published a proposed rule pursuant to CAA Section 111 (b) and (d) in line with the decision in West Virginia v. Environmental Protection Agency intended to reduce power sector GHG emissions (primarily CO 2 emissions) from fossil fuel based EGUs. The rule proposes stringent emissions limitations based on fuel type and unit retirement date. Comments on the proposed rule were submitted to the EPA on August 8, 2023. Depending on how final rules are ultimately implemented and the outcome of any appeals, compliance with these standards could require additional capital expenditures or changes in operation at the Ft. Martin and Harrison power stations.
Clean Water Act
Various water quality regulations, the majority of which are the result of the federal Clean Water Act and its amendments, apply to FirstEnergy’s facilities. In addition, the states in which FirstEnergy operates have water quality standards applicable to FirstEnergy’s operations.
On September 30, 2015, the EPA finalized new, more stringent effluent limits for the Steam Electric Power Generating category (40 CFR Part 423) for arsenic, mercury, selenium and nitrogen for wastewater from wet scrubber systems and zero discharge of pollutants in ash transport water. The treatment obligations were to phase-in as permits are renewed on a five-year cycle from 2018 to 2023. However, on April 13, 2017, the EPA granted a Petition for Reconsideration and on September 18, 2017, the EPA postponed certain compliance deadlines for two years. On August 31, 2020, the EPA issued a final rule revising the effluent limits for discharges from wet scrubber systems, retaining the zero-discharge standard for ash transport water, (with some limited discharge allowances), and extending the deadline for compliance to December 31, 2025 for both. In addition, the EPA allows for less stringent limits for sub-categories of generating units based on capacity utilization, flow volume from the scrubber system, and unit retirement date. On March 29, 2023, the EPA published proposed revised ELGs applicable to coal-fired power plants that include more stringent effluent limitations for wet scrubber systems and ash transport water, and new limits on landfill leachate. Public hearings on the proposed rules were held in April 2023 and comments were accepted through May 30, 2023. In the interim, the rule issued on August 31, 2020, remains in effect. Depending on the outcome of appeals and how final revised rules are ultimately implemented, compliance with these standards could require additional capital expenditures or changes in operation at the Ft. Martin and Harrison power stations from what was approved by the WVPSC in September 2022 to comply with the 2020 ELG rule.
Regulation of Waste Disposal
Federal and state hazardous waste regulations have been promulgated as a result of the Resource Conservation and Recovery Act, as amended, and the Toxic Substances Control Act. Certain CCRs, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA’s evaluation of the need for future regulation.
In April 2015, the EPA finalized regulations for the disposal of CCRs (non-hazardous), establishing national standards for landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to assure the safe disposal of CCRs from electric generating plants. On September 13, 2017, the EPA announced that it would reconsider certain provisions of the final regulations. On July 29, 2020, the EPA published a final rule again revising the date that certain CCR impoundments must cease accepting waste and initiate closure to April 11, 2021. The final rule allowed for an extension of the closure deadline based on meeting identified site-specific criteria. On November 30, 2020, AE Supply submitted a closure deadline extension request to the EPA seeking to extend the cease accepting waste date for the McElroy's Run CCR impoundment facility until 2024, which request is pending technical review by the EPA. AE Supply continues to operate McElroy’s Run as a disposal facility for Pleasants Power Station.
FE or its subsidiaries have been named as potentially responsible parties at waste disposal sites, which may require cleanup under the CERCLA. Allegations of disposal of hazardous substances at historical sites and the liability involved are often unsubstantiated and subject to dispute; however, federal law provides that all potentially responsible parties for a particular site may be liable on a joint and several basis. Environmental liabilities that are considered probable have been recognized on the Consolidated Balance Sheets as of September 30, 2023, based on estimates of the total costs of cleanup, FirstEnergy’s proportionate responsibility for such costs and the financial ability of other unaffiliated entities to pay. Total liabilities of approximately $96 million have been accrued through September 30, 2023, of which, approximately $62 million are for environmental remediation of former MGP and gas holder facilities in New Jersey, which are being recovered by JCP&L through a non-bypassable societal benefits charge. FE or its subsidiaries could be found potentially responsible for additional amounts or additional sites, but the loss or range of losses cannot be determined or reasonably estimated at this time.
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OTHER LEGAL PROCEEDINGS
United States v. Larry Householder, et al.
On July 21, 2020, a complaint and supporting affidavit containing federal criminal allegations were unsealed against the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. In March 2023, a jury found Mr. Householder and his co-defendant, Matthew Borges, guilty and in June 2023, the two were sentenced to prison for 20 and 5 years, respectively. Messrs. Householder and Borges have appealed their sentences. Also, on July 21, 2020, and in connection with the DOJ’s investigation, FirstEnergy received subpoenas for records from the U.S. Attorney’s Office for the Southern District Ohio. FirstEnergy was not aware of the criminal allegations, affidavit or subpoenas before July 21, 2020.
On July 21, 2021, FE entered into a three-year DPA with the U.S. Attorney’s Office that, subject to court proceedings, resolves this matter. Under the DPA, FE has agreed to the filing of a criminal information charging FE with one count of conspiracy to commit honest services wire fraud. The DPA requires that FirstEnergy, among other obligations: (i) continue to cooperate with the U.S. Attorney’s Office in all matters relating to the conduct described in the DPA and other conduct under investigation by the U.S. government; (ii) pay a criminal monetary penalty totaling $230 million within sixty days, which shall consist of (x) $115 million paid by FE to the United States Treasury and (y) $115 million paid by FE to the ODSA to fund certain assistance programs, as determined by the ODSA, for the benefit of low-income Ohio electric utility customers; (iii) publish a list of all payments made in 2021 to either 501(c)(4) entities or to entities known by FirstEnergy to be operating for the benefit of a public official, either directly or indirectly, and update the same on a quarterly basis during the term of the DPA; (iv) issue a public statement, as dictated in the DPA, regarding FE’s use of 501(c)(4) entities; and (v) continue to implement and review its compliance and ethics program, internal controls, policies and procedures designed, implemented and enforced to prevent and detect violations of the U.S. laws throughout its operations, and to take certain related remedial measures. The $230 million payment will neither be recovered in rates or charged to FirstEnergy customers nor will FirstEnergy seek any tax deduction related to such payment. The entire amount of the monetary penalty was recognized as expense in the second quarter of 2021 and paid in the third quarter of 2021. Under the terms of the DPA, the criminal information will be dismissed after FirstEnergy fully complies with its obligations under the DPA.
Legal Proceedings Relating to United States v. Larry Householder, et al.
On August 10, 2020, the SEC, through its Division of Enforcement, issued an order directing an investigation of possible securities laws violations by FE, and on September 1, 2020, issued subpoenas to FE and certain FE officers. On April 28, 2021, July 11, 2022, and May 25, 2023, the SEC issued additional subpoenas to FE, with which FE has complied. While no contingency has been reflected in its consolidated financial statements, FE believes that it is probable that it will incur a loss in connection with the resolution of the SEC investigation. Given the ongoing nature and complexity of the review, inquiries and investigations, FE cannot yet reasonably estimate a loss or range of loss that may arise from the resolution of the SEC investigation.
On June 29, 2023, the OOCIC served FE a subpoena, seeking information relating to the conduct described in the DPA. FirstEnergy was not aware of the OOCIC’s investigation prior to receiving the subpoena and understands that the OOCIC’s investigation is also focused on the conduct described in the DPA. FirstEnergy is cooperating with the OOCIC in its investigation. No contingency has been reflected in FirstEnergy’s consolidated financial statements, as a loss is neither probable, nor is a loss or range of loss reasonably estimable.
In addition to the subpoenas referenced above under “—United States v. Larry Householder, et. al.” and the SEC investigation, certain FE stockholders and FirstEnergy customers filed several lawsuits against FirstEnergy and certain current and former directors, officers and other employees, and the complaints in each of these suits is related to allegations in the complaint and supporting affidavit relating to HB 6 and the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. The plaintiffs in each of the below cases seek, among other things, to recover an unspecified amount of damages (unless otherwise noted). Unless otherwise indicated, no contingency has been reflected in FirstEnergy’s consolidated financial statements with respect to these lawsuits as a loss is neither probable, nor is a loss or range of a loss reasonably estimable.
•In re FirstEnergy Corp. Securities Litigation (S.D. Ohio); on July 28, 2020 and August 21, 2020, purported stockholders of FE filed putative class action lawsuits alleging violations of the federal securities laws. Those actions have been consolidated and a lead plaintiff, the Los Angeles County Employees Retirement Association, has been appointed by the court. A consolidated complaint was filed on February 26, 2021. The consolidated complaint alleges, on behalf of a proposed class of persons who purchased FE securities between February 21, 2017 and July 21, 2020, that FE and certain current or former FE officers violated Sections 10(b) and 20(a) of the Exchange Act by issuing misrepresentations or omissions concerning FE’s business and results of operations. The consolidated complaint also alleges that FE, certain current or former FE officers and directors, and a group of underwriters violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 as a result of alleged misrepresentations or omissions in connection with offerings of senior notes by FE in February and June 2020. On March 30, 2023, the court granted plaintiffs’ motion for class certification. On April 14, 2023, FE filed a petition in the U.S. Court of Appeals for the Sixth Circuit seeking to
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appeal that order. Discovery is ongoing. FE believes that it is probable that it will incur a loss in connection with the resolution of this lawsuit. Given the ongoing nature and complexity of such litigation, FE cannot yet reasonably estimate a loss or range of loss.
•MFS Series Trust I, et al. v. FirstEnergy Corp., et al. and Brighthouse Funds II – MFS Value Portfolio, et al. v. FirstEnergy Corp., et al. (S.D. Ohio) on December 17, 2021 and February 21, 2022, purported stockholders of FE filed complaints against FE, certain current and former officers, and certain current and former officers of EH. The complaints allege that the defendants violated Sections 10(b) and 20(a) of the Exchange Act by issuing alleged misrepresentations or omissions regarding FE’s business and its results of operations, and seek the same relief as the In re FirstEnergy Corp. Securities Litigation described above. FE believes that it is probable that it will incur losses in connection with the resolution of these lawsuits. Given the ongoing nature and complexity of such litigation, FE cannot yet reasonably estimate a loss or range of loss.
•State of Ohio ex rel. Dave Yost, Ohio Attorney General v. FirstEnergy Corp., et al. and City of Cincinnati and City of Columbus v. FirstEnergy Corp. (Common Pleas Court, Franklin County, OH, all actions have been consolidated); on September 23, 2020 and October 27, 2020, the OAG and the cities of Cincinnati and Columbus, respectively, filed complaints against several parties including FE, each alleging civil violations of the Ohio Corrupt Activity Act and related claims in connection with the passage of HB 6. On January 13, 2021, the OAG filed a motion for a temporary restraining order and preliminary injunction against FirstEnergy seeking to enjoin FirstEnergy from collecting the Ohio Companies' decoupling rider. On January 31, 2021, FE reached a partial settlement with the OAG and the cities of Cincinnati and Columbus with respect to the temporary restraining order and preliminary injunction request and related issues. In connection with the partial settlement, the Ohio Companies filed an application on February 1, 2021, with the PUCO to set their respective decoupling riders (Conservation Support Rider) to zero. On February 2, 2021, the PUCO approved the application of the Ohio Companies setting the rider to zero, and no additional customer bills will include new decoupling rider charges after February 8, 2021. On August 13, 2021, new defendants were added to the complaint, including two former officers of FirstEnergy. On December 2, 2021, the cities and FE entered a stipulated dismissal with prejudice of the cities’ suit. After a stay, pending final resolution of the United States v. Larry Householder, et al. criminal proceeding described above, the litigation has resumed pursuant to an order, dated March 15, 2023. Discovery is ongoing. On July 31, 2023, FE and other defendants filed motions to dismiss in part the OAG’s section amended complaint, which the OAG opposed.
On February 9, 2022, FE, acting through the SLC, agreed to a settlement term sheet to resolve the following shareholder derivative lawsuits relating to HB 6 and the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder that were filed in the S.D. Ohio, the N.D. Ohio, and the Ohio Court of Common Pleas, Summit County:
•Gendrich v. Anderson, et al. and Sloan v. Anderson, et al. (Common Pleas Court, Summit County, Ohio, all actions have been consolidated); on July 26, 2020 and July 31, 2020, respectively, purported stockholders of FE filed shareholder derivative action lawsuits against certain current and former FE directors and officers, alleging, among other things, breaches of fiduciary duty.
•Miller v. Anderson, et al. (N.D. Ohio); Bloom, et al. v. Anderson, et al.; Employees Retirement System of the City of St. Louis v. Jones, et al.; Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Anderson et al.; Massachusetts Laborers Pension Fund v. Anderson et al.; The City of Philadelphia Board of Pensions and Retirement v. Anderson et al.; Atherton v. Dowling et al.; Behar v. Anderson, et al. (S.D. Ohio, all actions have been consolidated); beginning on August 7, 2020, purported stockholders of FE filed shareholder derivative actions alleging the FE Board and officers breached their fiduciary duties and committed violations of Section 14(a) of the Exchange Act.
On March 11, 2022, the parties executed a stipulation and agreement of settlement, and filed a motion the same day requesting preliminary settlement approval in the S.D. Ohio, which the S.D. Ohio granted on May 9, 2022. Subsequently, following a hearing on August 4, 2022, the S.D. Ohio granted final approval of the settlement on August 23, 2022.
The settlement includes a series of corporate governance enhancements and a payment to FE of $180 million, to be paid by insurance after the judgment has become final, less approximately $36 million in court-ordered attorney’s fees awarded to plaintiffs. On September 20, 2022, a purported FE stockholder filed a motion for reconsideration of the S.D. Ohio’s final settlement approval. The parties filed oppositions to that motion on October 11, 2022, and the S.D. Ohio denied that motion on May 22, 2023. On June 15, 2023, the purported FE stockholder filed an appeal in the U.S. Court of Appeals for the Sixth Circuit. If the S.D. Ohio’s final settlement approval is affirmed by the U.S. Court of Appeals for the Sixth Circuit, the settlement agreement is expected to resolve fully these shareholder derivative lawsuits.
On June 2, 2022, the N.D. Ohio entered an order to show cause why the court should not appoint new plaintiffs’ counsel, and thereafter, on June 10, 2022, the parties filed a joint motion to dismiss the matter without prejudice, which the N.D. Ohio denied on July 5, 2022. On August 15, 2022, the N.D. Ohio issued an order stating its intention to appoint one group of applicants as new plaintiffs’ counsel, and on August 22, 2022, the N.D. Ohio ordered that any objections to the appointment be submitted by August 26, 2022. The parties filed their objections by that deadline, and on September 2, 2022, the applicants responded to those objections. In the meantime, on August 25, 2022, a purported FE stockholder represented by the applicants filed a motion to intervene, attaching a proposed complaint-in-intervention purporting to assert claims that the FE Board and officers breached their fiduciary duties and committed violations of Section 14(a) of the Exchange Act as well as a claim against a third party for
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professional negligence and malpractice. The parties filed oppositions to that motion to intervene on September 8, 2022, and the proposed intervenor's reply in support of his motion to intervene was filed on September 22, 2022. On August 24, 2022, the parties filed a joint motion to dismiss the action pending in the N.D. Ohio based upon and in light of the approval of the settlement by the S.D. Ohio. On August 30, 2022, the parties filed a joint motion to dismiss the state court action, which the court granted on September 2, 2022. On September 29, 2023, the N.D. Ohio issued a stay of the case pending the appeal in the U.S. Court of Appeals for the Sixth Circuit.
In letters dated January 26, and February 22, 2021, staff of FERC's Division of Investigations notified FirstEnergy that the Division was conducting an investigation of FirstEnergy’s lobbying and governmental affairs activities concerning HB 6, and staff directed FirstEnergy to preserve and maintain all documents and information related to the same as such have been developed as part of an ongoing non-public audit being conducted by FERC's Division of Audits and Accounting. On December 30, 2022, FERC approved a Stipulation and Consent Agreement that resolves the investigation. The agreement includes a FirstEnergy admission of violating FERC’s “duty of candor” rule and related laws, and obligates FirstEnergy to pay a civil penalty of $3.86 million, and to submit two annual compliance monitoring reports to FERC’s Office of Enforcement regarding improvements to FirstEnergy’s compliance programs. FE paid the civil penalty on January 4, 2023 and it will not be recovered from customers.
The outcome of any of these lawsuits, governmental investigations and audit is uncertain and could have a material adverse effect on FE’s or its subsidiaries’ reputation, business, financial condition, results of operations, liquidity, and cash flows.
Other Legal Matters
There are various lawsuits, claims (including claims for asbestos exposure) and proceedings related to FirstEnergy’s normal business operations pending against FE or its subsidiaries. The loss or range of loss in these matters is not expected to be material to FE or its subsidiaries. The other potentially material items not otherwise discussed above are described under Note 7, “Regulatory Matters.”
FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an obligation for such costs and can reasonably estimate the amount of such costs. In cases where FirstEnergy determines that it is not probable, but reasonably possible that it has a material obligation, it discloses such obligations and the possible loss or range of loss if such estimate can be made. If it were ultimately determined that FE or its subsidiaries have legal liability or are otherwise made subject to liability based on any of the matters referenced above, it could have a material adverse effect on FE’s or its subsidiaries’ financial condition, results of operations, and cash flows.
9. SEGMENT INFORMATION
FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity through its reportable segments, Regulated Distribution and Regulated Transmission. FirstEnergy evaluates segment performance based on earnings attributable to FE from continuing operations.
The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York, and purchases power for its provider of last resort, SOS, standard service offer and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland. This segment also controls 3,580 MWs of regulated electric generation capacity located primarily in West Virginia and Virginia. The segment’s results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.
The Regulated Transmission segment provides transmission infrastructure owned and operated by the Transmission Companies and certain of FirstEnergy’s utilities (JCP&L, MP, PE and WP) to transmit electricity from generation sources to distribution facilities. The segment’s revenues are primarily derived from forward-looking formula rates. Under forward-looking formula rates, the revenue requirement is updated annually based on a projected rate base and projected costs, which is subject to an annual true-up based on actual rate base and costs. The segment’s results also reflect the net transmission expenses related to the delivery of electricity on FirstEnergy’s transmission facilities. On November 6, 2021, FirstEnergy, along with FET, entered into the FET P&SA I, with Brookfield and the Brookfield Guarantors pursuant to which FET agreed to issue and sell to Brookfield at the closing, and Brookfield agreed to purchase from FET, certain newly issued membership interests of FET, such that Brookfield would own 19.9% of the issued and outstanding membership interests of FET, for a purchase price of $2.375 billion. The transaction closed on May 31, 2022. KATCo, which was a subsidiary of FET, became a wholly owned subsidiary of FE prior to the closing of the FET P&SA I and remains in the Regulated Transmission segment.
On February 2, 2023, FE, along with FET, entered into the FET P&SA II with Brookfield and the Brookfield Guarantors, pursuant to which FE agreed to sell to Brookfield at the closing, and Brookfield agreed to purchase from FE, an incremental 30% equity interest in FET for a purchase price of $3.5 billion. The majority of the purchase price is expected to be paid in cash upon closing, and the remainder will be payable by the issuance of a promissory note, which is expected to be repaid by the end of 2024. As a result of the consummation of the transaction, Brookfield’s interest in FET will increase from 19.9% to 49.9%, while FE will retain the remaining 50.1% ownership interests of FET. The transaction is subject to customary closing conditions, including approval from the PPUC, and completion of review by the CFIUS. In addition, pursuant to the FET P&SA II, FirstEnergy made the
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necessary filings with the applicable regulatory authorities for the PA Consolidation. The FET Minority Equity Interest Sale is expected to close by early 2024. Upon closing, FET will continue to be consolidated in FirstEnergy’s GAAP financial statements.
Corporate/Other reflects corporate support and other costs not charged or attributable to the Utilities or Transmission Companies, including FE’s retained pension and OPEB assets and liabilities of former subsidiaries, interest expense on FE’s holding company debt and other investments or businesses that do not constitute an operating segment, including FEV’s investment of 33-1/3% equity ownership in Global Holding. Reconciling adjustments for the elimination of inter-segment transactions are shown separately in the following table of Segment Financial Information. As of September 30, 2023, 67 MWs of electric generating capacity, representing AE Supply’s OVEC capacity entitlement, was also included in Corporate/Other for segment reporting. As of September 30, 2023, Corporate/Other had approximately $6.8 billion of FE holding company debt.
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Financial information for FirstEnergy’s business segments and reconciliations to consolidated amounts is presented below:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) |  | 2023 |  | 2022 |  | 2023 |  | 2022
External revenues |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 2,978 |  |  | $ | 2,965 |  |  | $ | 8,231 |  |  | $ | 7,867 |
Regulated Transmission |  | 508 |  |  | 503 |  |  | 1,487 |  |  | 1,394 |
Corporate/Other |  | 1 |  |  | 7 |  |  | 6 |  |  | 21 |
Reconciling Adjustments |  | — |  |  | — |  |  | — |  |  | — |
Total external revenues |  | $ | 3,487 |  |  | $ | 3,475 |  |  | $ | 9,724 |  |  | $ | 9,282 |
Internal revenues |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 56 |  |  | $ | 58 |  |  | $ | 171 |  |  | $ | 171 |
Regulated Transmission |  | 1 |  |  | — |  |  | 3 |  |  | 3 |
Corporate/Other |  | — |  |  | — |  |  | — |  |  | — |
Reconciling Adjustments |  | (57) |  |  | (58) |  |  | (174) |  |  | (174) |
Total internal revenues |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total revenues |  | $ | 3,487 |  |  | $ | 3,475 |  |  | $ | 9,724 |  |  | $ | 9,282 |
Depreciation |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 256 |  |  | $ | 242 |  |  | $ | 762 |  |  | $ | 719 |
Regulated Transmission |  | 93 |  |  | 72 |  |  | 272 |  |  | 245 |
Corporate/Other |  | — |  |  | 3 |  |  | 3 |  |  | 6 |
Reconciling Adjustments |  | 17 |  |  | 15 |  |  | 51 |  |  | 50 |
Total depreciation |  | $ | 366 |  |  | $ | 332 |  |  | $ | 1,088 |  |  | $ | 1,020 |
Deferral of regulatory assets, net |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | (136) |  |  | $ | (85) |  |  | $ | (249) |  |  | $ | (250) |
Regulated Transmission |  | (4) |  |  | (1) |  |  | (4) |  |  | (2) |
Corporate/Other |  | — |  |  | — |  |  | — |  |  | — |
Reconciling Adjustments |  | — |  |  | — |  |  | — |  |  | — |
Total deferral of regulatory assets, net |  | $ | (140) |  |  | $ | (86) |  |  | $ | (253) |  |  | $ | (252) |
Equity method investment earnings |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Regulated Transmission |  | — |  |  | — |  |  | — |  |  | — |
Corporate/Other |  | 43 |  |  | 57 |  |  | 134 |  |  | 134 |
Reconciling Adjustments |  | — |  |  | — |  |  | — |  |  | — |
Total equity method investment earnings |  | $ | 43 |  |  | $ | 57 |  |  | $ | 134 |  |  | $ | 134 |
Interest expense |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 159 |  |  | $ | 132 |  |  | $ | 456 |  |  | $ | 389 |
Regulated Transmission |  | 65 |  |  | 41 |  |  | 185 |  |  | 155 |
Corporate/Other |  | 87 |  |  | 99 |  |  | 244 |  |  | 276 |
Reconciling Adjustments |  | (22) |  |  | (24) |  |  | (57) |  |  | (32) |
Total interest expense |  | $ | 289 |  |  | $ | 248 |  |  | $ | 828 |  |  | $ | 788 |

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|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Income taxes (benefits) |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 70 |  |  | $ | 92 |  |  | $ | 170 |  |  | $ | 213 |
Regulated Transmission |  | 45 |  |  | 5 |  |  | 131 |  |  | 85 |
Corporate/Other |  | (86) |  |  | 8 |  |  | (108) |  |  | (61) |
Reconciling Adjustments |  | — |  |  | — |  |  | — |  |  | — |
Total income taxes (benefits) |  | $ | 29 |  |  | $ | 105 |  |  | $ | 193 |  |  | $ | 237 |
Earnings (losses) attributable to FE from continuing operations |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 275 |  |  | $ | 361 |  |  | $ | 688 |  |  | $ | 828 |
Regulated Transmission |  | 123 |  |  | 27 |  |  | 371 |  |  | 275 |
Corporate/Other |  | 23 |  |  | (54) |  |  | (111) |  |  | (294) |
Reconciling Adjustments |  | — |  |  | — |  |  | — |  |  | — |
Total earnings attributable to FE from continuing operations |  | $ | 421 |  |  | $ | 334 |  |  | $ | 948 |  |  | $ | 809 |
Cash Flows From Investing Activities: |  |  |  |  |  |  |  |
Capital investments |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 409 |  |  | $ | 415 |  |  | $ | 1,136 |  |  | $ | 1,127 |
Regulated Transmission |  | 424 |  |  | 236 |  |  | 1,097 |  |  | 700 |
Corporate/Other |  | 15 |  |  | 15 |  |  | 33 |  |  | 25 |
Reconciling Adjustments |  | — |  |  | — |  |  | — |  |  | — |
Total capital investments |  | $ | 848 |  |  | $ | 666 |  |  | $ | 2,266 |  |  | $ | 1,852 |
(In millions) |  | As of September 30, 2023 |  | As of December 31, 2022
Assets |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 32,434 |  |  | $ | 31,749 |
Regulated Transmission |  | 14,454 |  |  | 13,835 |
Corporate/Other |  | 583 |  |  | 524 |
Reconciling Adjustments |  | — |  |  | — |
Total assets |  | $ | 47,471 |  |  | $ | 46,108 |
Goodwill |  |  |  |  |  |  |  |
Regulated Distribution |  | $ | 5,004 |  |  | $ | 5,004 |
Regulated Transmission |  | 614 |  |  | 614 |
Corporate/Other |  | — |  |  | — |
Reconciling Adjustments |  | — |  |  | — |
Total goodwill |  | $ | 5,618 |  |  | $ | 5,618 |

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FIRSTENERGY CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRSTENERGY’S BUSINESS
FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity through its reportable segments, Regulated Distribution and Regulated Transmission.
FirstEnergy is proceeding with the consolidation of the Pennsylvania Companies into FE PA, a new, single operating entity. The PA Consolidation will require, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies and is expected to realize increased regulatory and administrative efficiencies, streamlined operational functions and certain financing benefits. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC and PPUC, which filings were submitted on March 6, 2023. Subject to receipt of such regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.
The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York, and purchases power for its provider of last resort, SOS, standard service offer and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland. This segment also controls 3,580 MWs of regulated electric generation capacity located primarily in West Virginia and Virginia. The segment’s results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.
The Regulated Transmission segment provides transmission infrastructure owned and operated by the Transmission Companies and certain of FirstEnergy’s utilities (JCP&L, MP, PE and WP) to transmit electricity from generation sources to distribution facilities. The segment’s revenues are primarily derived from forward-looking formula rates. Under forward-looking formula rates, the revenue requirement is updated annually based on a projected rate base and projected costs, which is subject to an annual true-up based on actual rate base and costs. The segment’s results also reflect the net transmission expenses related to the delivery of electricity on FirstEnergy’s transmission facilities. On November 6, 2021, FirstEnergy, along with FET, entered into the FET P&SA I, with Brookfield and the Brookfield Guarantors pursuant to which FET agreed to issue and sell to Brookfield at the closing, and Brookfield agreed to purchase from FET, certain newly issued membership interests of FET, such that Brookfield would own 19.9% of the issued and outstanding membership interests of FET, for a purchase price of $2.375 billion. The transaction closed on May 31, 2022.
On February 2, 2023, FE, along with FET, entered into the FET P&SA II with Brookfield and the Brookfield Guarantors, pursuant to which FE agreed to sell to Brookfield at the closing, and Brookfield agreed to purchase from FE, an incremental 30% equity interest in FET for a purchase price of $3.5 billion. The majority of the purchase price is expected to be paid in cash upon closing, and the remainder will be payable by the issuance of a promissory note, which is expected to be repaid by the end of 2024. As a result of the consummation of the transaction, Brookfield’s interest in FET will increase from 19.9% to 49.9%, while FE will retain the remaining 50.1% ownership interests of FET. The transaction is subject to customary closing conditions, including approval from the PPUC, and completion of review by the CFIUS. In addition, pursuant to the FET P&SA II, FirstEnergy made the necessary filings with the applicable regulatory authorities for the PA Consolidation. The FET Minority Equity Interest Sale is expected to close by early 2024. Upon closing, FET will continue to be consolidated in FirstEnergy’s GAAP financial statements.
Corporate/Other reflects corporate support and other costs not charged or attributable to the Utilities or Transmission Companies, including FE’s retained pension and OPEB assets and liabilities of former subsidiaries, interest expense on FE’s holding company debt and other investments or businesses that do not constitute an operating segment, including FEV’s investment of 33-1/3% equity ownership in Global Holding. Additionally, reconciling adjustments for the elimination of inter-segment transactions are included in Corporate/Other. As of September 30, 2023, 67 MWs of electric generating capacity, representing AE Supply’s OVEC capacity entitlement, was also included in Corporate/Other for segment reporting. As of September 30, 2023, Corporate/Other had approximately $6.8 billion of FE holding company debt.
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EXECUTIVE SUMMARY
FirstEnergy is a forward-thinking electric utility centered on integrity, powered by a diverse team of employees, committed to making customers’ lives brighter, the environment better and our communities stronger.
FirstEnergy's core values encompass what matters most to the company. They guide the decisions we make and the actions we take. FirstEnergy's core values should inspire our actions today and shine a light on who we aspire to be in the future.
FirstEnergy Core Values:
•Integrity: We always act ethically with honesty, humility and accountability.
•Safety: We keep ourselves and others safe.
•Diversity, Equity and Inclusion: We embrace differences, ensure every employee is treated fairly and create a culture where everyone feels they belong.
•Performance Excellence: We pursue excellence and seek opportunities for growth, innovation and continuous improvement.
•Stewardship: We positively impact our customers, communities and other stakeholders, and strive to protect the environment.
Employees are encouraged and expected to have conversations with their leaders and peers about the core values and FirstEnergy's commitment to building a culture centered on integrity.
At FirstEnergy, we are dedicated to staying true to our mission and core values. We understand the impact our company can make in the world around us, which means pursuing initiatives and goals that align with our foundational principles, support our EESG and strategic priorities and positively impact our stakeholders.
To solidify our role as an industry leader, we have developed a long-term strategy with priorities that are centered on our mission statement. These priorities reflect a strong foundation with a customer-centered focus that emphasizes modern experiences, new growth and affordable energy bills, and enables the energy transition to a clean, resilient and secure electric grid.
We are proud of the steps we have already taken to demonstrate our commitment to our strategy and look forward to improving our performance and executing on these strategic priorities.
As a fully regulated electric utility, FirstEnergy is focused on stable and predictable earnings and cash flow from its Regulated Distribution and Regulated Transmission businesses flowing through investments that deliver enhanced customer service and reliability. FirstEnergy expects $3.7 billion of capital investments in 2023, which is $300 million more than the original plan of $3.4 billion, and with current plans for 2024 and 2025 of $3.9 billion and $4.1 billion, respectively, will bring total capital investments over the three-year period to approximately $12 billion, which is comprised of 47% transmission and 51% distribution.
FirstEnergy's Regulated Distribution business is comprised of a geographically and regulatory diverse collection of electric utilities delivering customer-focused sustainable growth. This business operates in a territory of 65,000 square miles, across the Midwest & Mid-Atlantic regions, one of the largest contiguous territories in the United States, and allows the Utilities to be uniquely positioned for growth through investments that strengthen the grid and enable the clean energy transition. Through its investment plan, Regulated Distribution is focused on improving reliability and added operating flexibility to the distribution infrastructure, which provide benefits to the customers and communities those Utilities serve.
In addition to our investments to rebuild critical infrastructure and improve reliability, current and future distribution investment opportunities that support our EESG and strategic priorities include:
•Advanced Metering Infrastructure – install smart meters and related infrastructure;
•Grid Modernization Investments that support distribution automation and voltage and VAR optimization;
•Installation of electric vehicle charging stations;
•Energy efficiency and demand response initiatives that assist customers in lowering their overall energy bills while also helping us to reduce peak system demand;
•Utility-Scale Solar Generation that lowers our carbon footprint;
•Pilot program to install battery storage systems;
•Information Systems – enhance our core information infrastructure of our distribution systems; and
•Supporting economic development to attract new business.
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FirstEnergy has an active regulatory calendar in 2023 and 2024 to support its regulated growth strategy and address the critical investments that support reliability and a smarter and cleaner electric grid, including:
•On January 13, 2023, MP and PE filed a request with the WVPSC seeking approval of new depreciation rates for existing and future capital assets. On August 22, 2023, the parties filed a unanimous settlement of the case recommending a $33 million annual increase in depreciation expense, effective April 1, 2024. An order is expected in the first quarter of 2024;
•On March 16, 2023, JCP&L filed a base rate case in New Jersey, requesting a $185 million increase in base distribution revenues, which supports investments to strengthen the energy grid, enhance the customer experience and provide assistance to low-income as well as senior citizen customers. JCP&L subsequently updated its base rate case on August 7, 2023, which, among other things, increased its proposed annual net increase in base rate distribution revenues to approximately $192 million. Key proposals to the filing include: a distribution rate base of $3.1 billion, ROE of 10.4%, and a capital structure of debt/equity of 48%/52%. Additionally, JCP&L plans to file an infrastructure investment program in the fourth quarter of 2023;
•On October 18, 2023, the MDPSC issued an order approving an annual increase in base distribution rates of $28 million, effective October 19, 2023, with respect to the base rate case that PE filed on March 22, 2023. The MDPSC denied PE’s request to establish a pension/OPEB regulatory asset, rejected the continuation of PE’s EDIS, and allowed recovery of most COVID-19 deferred costs. The MDPSC also ordered an independent audit of certain allocations from FESC to PE and denied recovery of approximately $12 million in rate base associated with certain corporate support costs recorded to capital accounts resulting from the FERC Audit;
•On April 5, 2023, the Ohio Companies sought approval from the PUCO for its ESP V. The proposed plan would maintain an eight-year term beginning June 1, 2024, and seeks to continue riders recovering costs associated with distribution infrastructure investments and approved grid modernization investments. ESP V additionally proposes new riders that would support reliability, and includes provisions supporting affordability and enhancing the customer experience;
•On May 31, 2023, MP and PE filed a base rate case in West Virginia requesting a $207 million increase in revenue, which supports reliability investments, grid resiliency, an enhanced customer experience and provides assistance to low-income customers. Key proposals to the filing include: a distribution rate base of $3.2 billion, ROE of 10.85%, and a capital structure of debt/equity of 51%/49%; and
•FirstEnergy plans to continue its active regulatory filings in 2024 with base rate case filings in Ohio and potentially Pennsylvania.
FirstEnergy's Regulated Transmission business is a premier, high quality transmission business, with approximately 24,000 miles of transmission lines in operation and one of the largest transmission systems in PJM. The Transmission Companies and certain of FirstEnergy's utilities (JCP&L, MP, PE and WP) are focused on "Energizing the Future" with investments that support clean energy, improve grid reliability and resiliency and support a carbon neutral future. "Energizing the Future" is the centerpiece of FirstEnergy’s regulated investment strategy with all investments recovered under FERC-regulated forward-looking formula rates. FirstEnergy believes there is a continued long-term pipeline of investment opportunities for its existing transmission infrastructure beyond those identified through 2025, which are expected to strengthen grid and cyber-security and make the transmission system more reliable, robust, secure and resistant to extreme weather events, with improved operational flexibility.
In addition to our Energizing the Future investments, current and future transmission investment opportunities that support our EESG and strategic priorities include:
•Transmission Asset Health Center: real-time monitoring to reduce outages and lower expenses;
•Integrating digital technology to enhance equipment monitoring and lower costs;
•JCP&L awarded approximately $723 million of projects to connect clean energy generated by New Jersey's offshore wind farms to the power grid;
•Exploring real-time technologies: emerging technologies to enhance data collection; and
•Making smart investments to modernize the grid to integrate future renewables.
On February 2, 2023, FE, along with FET, entered into the FET P&SA II with Brookfield and the Brookfield Guarantors, pursuant to which FE agreed to sell to Brookfield at the closing, and Brookfield agreed to purchase from FE, an incremental 30% equity interest in FET for a purchase price of $3.5 billion. The majority of the purchase price is expected to be paid in cash upon closing, and the remainder will be payable by the issuance of a promissory note, which is expected to be repaid by the end of 2024. As a result of the consummation of the transaction, Brookfield’s interest in FET will increase from 19.9% to 49.9%, while FE will retain the remaining 50.1% ownership interests of FET. The transaction is subject to customary closing conditions, including approval from the PPUC, and completion of review by the CFIUS. In addition, pursuant to the FET P&SA II, FirstEnergy made the necessary filings with the applicable regulatory authorities for the PA Consolidation. The FET Minority Equity Interest Sale is expected to close by early 2024. Upon closing, FET will continue to be consolidated in FirstEnergy’s GAAP financial statements.
FirstEnergy is proceeding with the consolidation of the Pennsylvania Companies into FE PA, a new, single operating entity. The PA Consolidation will require, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and
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liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC and PPUC. On August 14, 2023, FERC issued an order approving the proposed PA Consolidation. On August 30, 2023, the parties filed a settlement agreement recommending that the PPUC approve PA Consolidation subject to the terms of the settlement, which include among other things, $650,000 over five years in bill assistance for income-eligible customers and the Pennsylvania Companies’ commitment to (i) not seek full distribution rate unification until the earlier of 10 years or in the fourth base rate case filed after January 1, 2025 and (ii) track and share with customers certain operational and administrative efficiency costs associated with the PA Consolidation. On October 19, 2023, the ALJs issued a decision recommending that the PPUC approve, without modification, the August 30, 2023 settlement agreement. The settlement agreement is pending PPUC approval. Subject to receipt of all regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024. FirstEnergy is also evaluating the legal, financial, operational and branding benefits of consolidating the Ohio Companies into a single Ohio utility company.
FE Forward is our ongoing effort of continuous improvement, including the strategic reduction of operating expenditures and continued reinvestment in a more diverse capital program in support of our long-term strategy. FirstEnergy will leverage other opportunities to reduce costs, such as filling only critical positions, and will explore other additional, sustainable opportunities, such as reducing contractor spend. Additionally, we will begin implementing our facility optimization plans, which focus on both cost savings and alignment with our flexible working arrangements, and will result in our exiting the General Office in Akron, Ohio, and other corporate facilities in Brecksville, Ohio, Greensburg, Pennsylvania and Morristown, New Jersey beginning in 2024. Our corporate headquarters will remain in Akron, moving to our West Akron Campus, and we continue to explore real estate options and relocation opportunities for the other corporate facilities. As FirstEnergy continues to transform the business and implement initiatives to reduce cost, including the facility optimization plan, the impact of such actions may result in future impairments or other charges that may be significant. The result of our combined efforts will help build a stronger, more sustainable company for the near and long term.
On May 4, 2023, FE issued $1.5 billion aggregate principal amount of 2026 Convertible Notes, with a fixed interest rate of 4.00% per year, payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2023. The 2026 Convertible Notes are unsecured and unsubordinated obligations of FE, and will mature on May 1, 2026, unless required to be converted or repurchased in accordance with their terms. However, FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date. See “Capital Resources and Liquidity - Convertible Notes" below for more details.
On May 9, 2023, FirstEnergy announced a voluntary retirement program for eligible non-bargaining employees, known as the PEER. More than 65% of eligible employees, totaling approximately 450 employees, accepted the PEER, which included lump sum compensation equivalent to severance benefits, healthcare continuation costs and a temporary pension enhancement with most participating employees expected to depart by the end of 2023. The temporary pension enhancement and healthcare continuation costs are classified as special termination costs within net periodic benefit costs (credits). In addition to the PEER, FirstEnergy notified and involuntarily separated approximately 90 employees on May 9, 2023. Management expects the cost savings resulting from these initiatives to support FirstEnergy’s growth plans.
On June 1, 2023, Brian X. Tierney joined the FE Board and began serving as President and Chief Executive Officer of FirstEnergy. Mr. Tierney, 55, previously served as Senior Managing Director and Global Head of Infrastructure Operations and Asset Management at Blackstone. Prior to joining Blackstone in July 2021, Mr. Tierney spent 23 years with AEP. John W. Somerhalder II ceased serving as Interim President and Chief Executive Officer on May 31, 2023, and continues to serve as the Chair of the FE Board.
In September 2023, the FE Board declared a $0.02 per share increase to the quarterly common dividend payable December 1, 2023, to $0.41 per share, which represents a 5% increase compared to the quarterly payments of $0.39 per share paid by FE since March 2020. Modest dividend growth enables enhanced shareholder returns, while still allowing for continued substantial regulated investments. Dividend payments are subject to declaration by the FE Board and future dividend decisions determined by the FE Board may be impacted by earnings growth, credit metrics and other business conditions.
Climate Strategy
Our commitment to climate is a significant component of our company’s overarching strategy, especially our desire to enable the transition to a clean energy future. Executing our Climate Strategy and advancing the transition to clean energy requires addressing, among other things: emerging federal and state decarbonization goals; physical risks of climate change; industry trends and technology advancements; and customer expectations for cleaner energy, increased usage control, and more sustainable alternatives in transportation, manufacturing and industrial processes. Through our investment plan, we aim to enhance the resiliency, reliability and security of the electric system and support the integration of renewables, electric vehicles, grid modernization improvements and other emerging technologies.
As part of our Climate Strategy, we have pledged to achieve carbon neutrality by 2050, with an interim 30% reduction in GHGs by 2030 based on 2019 levels. This GHG goal addresses company-wide emissions within our direct operational control, also known as Scope 1 emissions, across our transmission, distribution and regulated generation operations.
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Key steps in working toward carbon neutrality by 2050 include:
•Reducing Sulfur Hexafluoride Emissions: We're working to repair or replace, as appropriate, transmission breakers that leak sulfur hexafluoride, which is a gas commonly used by energy companies as an electrical insulating material and arc extinguisher in high-voltage circuit breakers and switchgear. If escaped to the atmosphere, it acts as a potent GHG with a global warming potential significantly greater than CO 2;
•Electrifying our Vehicle Fleet: We’re targeting 30% electrification of our light-duty and aerial truck fleet by 2030 and 100% electrification by 2050. To reach our electrification goal, we’re striving for 100% electric or hybrid vehicle purchases for our light-duty and aerial truck fleet moving forward, beginning with the first hybrid electric vehicle additions to the fleet in 2021; and
•Transitioning Away from Coal Generation: We've committed to moving beyond coal-fired generation no later than 2050.
Future resource plans to achieve carbon reductions, including potential changes in operations or any determination of retirement dates of the regulated coal-fired generating facilities, will be subject to West Virginia law, including that certain legislation effective March 7, 2023, which requires prior approval from the West Virginia Public Energy Authority to decommission MP’s generating facilities. We will work collaboratively with regulators in West Virginia to achieve our climate goals. Determination of the useful life of the regulated coal-fired generating facilities could result in changes in depreciation, and/or continued collection of net plant in rates after retirement, securitization, sale, impairment or regulatory disallowances. If MP is unable to recover these costs, it could have a material adverse effect on FirstEnergy’s and/or MP’s financial condition, results of operations and cash flow.
HB 6 and Related Investigations
On July 21, 2021, FE entered into a three-year DPA with the U.S. Attorney’s Office that, subject to court proceedings, resolves the U.S. Attorney’s Office investigation into FirstEnergy relating to FirstEnergy’s lobbying and governmental affairs activities concerning HB 6 related to the federal criminal allegations made in July 2020, against former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. Among other things, the DPA required FE to pay a monetary penalty of $230 million, which FE paid in the third quarter of 2021. Under the DPA, FE agreed to the filing of a criminal information charging FE with one count of conspiracy to commit honest services wire fraud. The $230 million payment will neither be recovered in rates or charged to FirstEnergy customers nor will FirstEnergy seek any tax deduction related to such payment. The criminal information will be dismissed after FirstEnergy fully complies with its obligations under the DPA.
The OAG, certain FE shareholders and FE customers filed several lawsuits against FirstEnergy and certain current and former directors, officers and other employees, each relating to the allegations against the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. On February 9, 2022, FE, acting through the SLC, agreed to a settlement term sheet to resolve multiple shareholder derivative lawsuits that were filed in the S.D. Ohio, the N.D. Ohio, and the Ohio Court of Common Pleas, Summit County. On March 11, 2022, the parties executed a stipulation and agreement of settlement, and filed a motion the same day requesting preliminary settlement approval in the S.D. Ohio, which was granted on May 9, 2022. On August 23, 2022, the S.D. Ohio granted final approval of the settlement. On September 20, 2022, a purported FE stockholder filed a motion for reconsideration of the S.D. Ohio’s final settlement approval. The parties filed oppositions to that motion on October 11, 2022, and the S.D. Ohio denied that motion on May 22, 2023. On June 15, 2023, the purported FE stockholder filed an appeal in the U.S. Court of Appeals for the Sixth Circuit. The N.D. Ohio issued a stay of the case pending the appeal in the U.S. Court of Appeals for the Sixth Circuit. If the S.D. Ohio’s final settlement approval is affirmed by the U.S. Court of Appeals for the Sixth Circuit, the settlement agreement is expected to fully resolve these shareholder derivative lawsuits.
The settlement includes a series of corporate governance enhancements and a payment to FE of $180 million, to be paid by insurance after the judgment has become final, less approximately $36 million in court-ordered attorney’s fees awarded to plaintiffs.
In addition, on August 10, 2020, the SEC, through its Division of Enforcement, issued an order directing an investigation of possible securities laws violations by FE, and on September 1, 2020, issued subpoenas to FE and certain FE officers. Subsequently, on April 28, 2021, July 11, 2022, and May 25, 2023, the SEC issued additional subpoenas to FE. Further, in letters dated January 26, and February 22, 2021, staff of FERC's Division of Investigations notified FirstEnergy that it was investigating FirstEnergy’s lobbying and governmental affairs activities concerning HB 6. On December 30, 2022, FERC approved a Stipulation and Consent Agreement that resolves the investigation. The agreement obligates FE to pay a civil penalty of $3.86 million, which was paid in January 2023, and to submit two annual compliance monitoring reports to FERC’s Office of Enforcement regarding improvements to FirstEnergy’s compliance programs.
On June 29, 2023, the OOCIC served FE a subpoena, seeking information relating to the conduct described in the DPA. FirstEnergy was not aware of the OOCIC’s investigation prior to receiving the subpoena and understands that the OOCIC’s investigation is also focused on the conduct described in the DPA. FirstEnergy is cooperating with the OOCIC in its investigation.
41

No contingency has been reflected in FirstEnergy’s consolidated financial statements, as a loss is neither probable, nor is a loss or range of loss reasonably estimable.
FirstEnergy has taken numerous steps to address challenges posed by the HB 6 investigations and improve its compliance culture, including the refreshment of the FE Board, the hiring of key senior executives committed to supporting transparency and integrity, and strengthening and enhancing FirstEnergy’s compliance culture through several initiatives; however, the outcomes of the unresolved HB 6 investigations and state regulatory audits remain unknown.
Despite the many disruptions FirstEnergy is currently facing, the leadership team remains committed and focused on executing its strategy and running the business. See “Outlook - Other Legal Proceedings” below for additional details on the government investigations, the DPA, and subsequent litigation surrounding the investigation of HB 6. See also “Outlook - State Regulation - Ohio” below for details on the PUCO proceeding reviewing political and charitable spending and legislative activity in response to the investigation of HB 6. The outcome of the government investigations, PUCO proceedings, legislative activity, and any of these lawsuits is uncertain and could have a material adverse effect on FirstEnergy’s financial condition, results of operations and cash flows.
42

FINANCIAL OVERVIEW AND RESULTS OF OPERATIONS

(In millions) |  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
|  | 2023 |  | 2022 |  | Change |  | 2023 |  | 2022 |  | Change
Revenues |  | $ | 3,487 |  |  | $ | 3,475 |  |  | $ | 12 |  |  | — | % |  | $ | 9,724 |  |  | $ | 9,282 |  |  | $ | 442 |  |  | 5 | %
Operating expenses |  | 2,821 |  |  | 2,970 |  |  | (149) |  |  | (5) | % |  | 8,026 |  |  | 7,771 |  |  | 255 |  |  | 3 | %
Other expenses, net |  | (196) |  |  | (56) |  |  | (140) |  |  | (250) | % |  | (500) |  |  | (450) |  |  | (50) |  |  | (11) | %
Income taxes |  | 29 |  |  | 105 |  |  | (76) |  |  | (72) | % |  | 193 |  |  | 237 |  |  | (44) |  |  | (19) | %
Income attributable to noncontrolling interest |  | 20 |  |  | 10 |  |  | 10 |  |  | 100 | % |  | 57 |  |  | 15 |  |  | 42 |  |  | 280 | %
Earnings attributable to FE from continuing operations |  | $ | 421 |  |  | $ | 334 |  |  | $ | 87 |  |  | 26 | % |  | $ | 948 |  |  | $ | 809 |  |  | $ | 139 |  |  | 17 | %

The financial results discussed below include revenues and expenses from transactions among FirstEnergy’s business segments. A reconciliation of segment financial results is provided in Note 9, “Segment Information,” of the Notes to Consolidated Financial Statements.
43

Summary of Results of Operations — Third Quarter 2023 Compared with Third Quarter 2022
Financial results for FirstEnergy’s business segments in the third quarter of 2023 and 2022 were as follows:

Third Quarter 2023 Financial Results |  | Regulated Distribution |  | Regulated Transmission |  | Corporate/Other and Reconciling Adjustments |  | FirstEnergy Consolidated
|  | (In millions)
Revenues: |  |  |  |  |  |  |  |
Electric |  | $ | 2,979 |  |  | $ | 508 |  |  | $ | (44) |  |  | $ | 3,443 |
Other |  | 55 |  |  | 1 |  |  | (12) |  |  | 44 |
Total Revenues |  | 3,034 |  |  | 509 |  |  | (56) |  |  | 3,487 |
Operating Expenses: |  |  |  |  |  |  |  |
Fuel |  | 166 |  |  | — |  |  | — |  |  | 166 |
Purchased power |  | 1,149 |  |  | — |  |  | 6 |  |  | 1,155 |
Other operating expenses |  | 898 |  |  | 117 |  |  | (48) |  |  | 967 |
Provision for depreciation |  | 256 |  |  | 93 |  |  | 17 |  |  | 366 |
Deferral of regulatory assets, net |  | (136) |  |  | (4) |  |  | — |  |  | (140) |
General taxes |  | 226 |  |  | 67 |  |  | 14 |  |  | 307 |
Total Operating Expenses |  | 2,559 |  |  | 273 |  |  | (11) |  |  | 2,821 |
Other Income (Expense): |  |  |  |  |  |  |  |
Equity method investment earnings |  | — |  |  | — |  |  | 43 |  |  | 43 |
Miscellaneous income, net |  | 19 |  |  | 2 |  |  | 3 |  |  | 24 |
Interest expense |  | (159) |  |  | (65) |  |  | (65) |  |  | (289) |
Capitalized financing costs |  | 10 |  |  | 15 |  |  | 1 |  |  | 26 |
Total Other Expense |  | (130) |  |  | (48) |  |  | (18) |  |  | (196) |
Income taxes (benefits) |  | 70 |  |  | 45 |  |  | (86) |  |  | 29 |
Income attributable to noncontrolling interest |  | — |  |  | 20 |  |  | — |  |  | 20 |
Earnings Attributable to FE from Continuing Operations |  | $ | 275 |  |  | $ | 123 |  |  | $ | 23 |  |  | $ | 421 |

44

Third Quarter 2022 Financial Results |  | Regulated Distribution |  | Regulated Transmission |  | Corporate/Other and Reconciling Adjustments |  | FirstEnergy Consolidated
|  | (In millions)
Revenues: |  |  |  |  |  |  |  |
Electric |  | $ | 2,972 |  |  | $ | 502 |  |  | $ | (39) |  |  | $ | 3,435 |
Other |  | 51 |  |  | 1 |  |  | (12) |  |  | 40 |
Total Revenues |  | 3,023 |  |  | 503 |  |  | (51) |  |  | 3,475 |
Operating Expenses: |  |  |  |  |  |  |  |
Fuel |  | 209 |  |  | — |  |  | — |  |  | 209 |
Purchased power |  | 1,105 |  |  | — |  |  | 4 |  |  | 1,109 |
Other operating expenses |  | 848 |  |  | 315 |  |  | (52) |  |  | 1,111 |
Provision for depreciation |  | 242 |  |  | 72 |  |  | 18 |  |  | 332 |
Deferral of regulatory assets, net |  | (85) |  |  | (1) |  |  | — |  |  | (86) |
General taxes |  | 219 |  |  | 64 |  |  | 12 |  |  | 295 |
Total Operating Expenses |  | 2,538 |  |  | 450 |  |  | (18) |  |  | 2,970 |
Other Income (Expense): |  |  |  |  |  |  |  |
Debt redemption costs |  | — |  |  | — |  |  | 1 |  |  | 1 |
Equity method investment earnings |  | — |  |  | — |  |  | 57 |  |  | 57 |
Miscellaneous income, net |  | 90 |  |  | 17 |  |  | 4 |  |  | 111 |
Interest expense |  | (132) |  |  | (41) |  |  | (75) |  |  | (248) |
Capitalized financing costs |  | 10 |  |  | 13 |  |  | — |  |  | 23 |
Total Other Expense |  | (32) |  |  | (11) |  |  | (13) |  |  | (56) |
Income taxes |  | 92 |  |  | 5 |  |  | 8 |  |  | 105 |
Income attributable to noncontrolling interest |  | — |  |  | 10 |  |  | — |  |  | 10 |
Earnings (Loss) Attributable to FE from Continuing Operations |  | $ | 361 |  |  | $ | 27 |  |  | $ | (54) |  |  | $ | 334 |

45

Changes Between Third Quarter 2023 and Third Quarter 2022 Financial Results |  | Regulated Distribution |  | Regulated Transmission |  | Corporate/Other and Reconciling Adjustments |  | FirstEnergy Consolidated
|  | (In millions)
Revenues: |  |  |  |  |  |  |  |
Electric |  | $ | 7 |  |  | $ | 6 |  |  | $ | (5) |  |  | $ | 8 |
Other |  | 4 |  |  | — |  |  | — |  |  | 4 |
Total Revenues |  | 11 |  |  | 6 |  |  | (5) |  |  | 12 |
Operating Expenses: |  |  |  |  |  |  |  |
Fuel |  | (43) |  |  | — |  |  | — |  |  | (43) |
Purchased power |  | 44 |  |  | — |  |  | 2 |  |  | 46 |
Other operating expenses |  | 50 |  |  | (198) |  |  | 4 |  |  | (144) |
Provision for depreciation |  | 14 |  |  | 21 |  |  | (1) |  |  | 34 |
Deferral of regulatory assets, net |  | (51) |  |  | (3) |  |  | — |  |  | (54) |
General taxes |  | 7 |  |  | 3 |  |  | 2 |  |  | 12 |
Total Operating Expenses |  | 21 |  |  | (177) |  |  | 7 |  |  | (149) |
Other Income (Expense): |  |  |  |  |  |  |  |
Debt redemption costs |  | — |  |  | — |  |  | (1) |  |  | (1) |
Equity method investment earnings |  | — |  |  | — |  |  | (14) |  |  | (14) |
Miscellaneous income, net |  | (71) |  |  | (15) |  |  | (1) |  |  | (87) |
Interest expense |  | (27) |  |  | (24) |  |  | 10 |  |  | (41) |
Capitalized financing costs |  | — |  |  | 2 |  |  | 1 |  |  | 3 |
Total Other Expense |  | (98) |  |  | (37) |  |  | (5) |  |  | (140) |
Income taxes (benefits) |  | (22) |  |  | 40 |  |  | (94) |  |  | (76) |
Income attributable to noncontrolling interest |  | — |  |  | 10 |  |  | — |  |  | 10 |
Earnings (Loss) Attributable to FE from Continuing Operations |  | $ | (86) |  |  | $ | 96 |  |  | $ | 77 |  |  | $ | 87 |

46

Regulated Distribution — Third Quarter 2023 Compared with Third Quarter 2022
Regulated Distribution’s earnings attributable to FE from continuing operations decreased $86 million in the third quarter of 2023, as compared to the same period of 2022, primarily resulting from lower customer usage as a result of the weather, lower net pension and OPEB credits, higher interest expense and costs from the PEER, as further discussed below, partially offset by certain lower other operating expenses, higher revenues from regulated investment programs and higher weather-adjusted customer usage and demand.
Revenues —
The $11 million increase in total revenues resulted from the following sources:

|  | For the Three Months Ended September 30,
Revenues by Type of Service |  | 2023 |  | 2022 |  | Increase (Decrease)
|  | (In millions)
Distribution |  | $ | 1,526 |  |  | $ | 1,457 |  |  | $ | 69 |
Generation sales: |  |  |  |  |  |
Retail |  | 1,388 |  |  | 1,356 |  |  | 32 |
Wholesale |  | 65 |  |  | 159 |  |  | (94) |
Total generation sales |  | 1,453 |  |  | 1,515 |  |  | (62) |
Other |  | 55 |  |  | 51 |  |  | 4 |
Total Revenues |  | $ | 3,034 |  |  | $ | 3,023 |  |  | $ | 11 |

Distribution revenues increased $69 million in the third quarter of 2023, as compared to the same period of 2022, primarily resulting from higher rider revenues associated with certain investment programs, higher weather-adjusted customer usage and demand, lower customer refunds and credits associated with the PUCO-approved Ohio Stipulation and other rider rate adjustments at the Pennsylvania Companies, which has no material impact to current period earnings, partially offset by lower customer usage as a result of the weather.
Distribution services by customer class are summarized in the following table:

|  | For the Three Months Ended September 30, |  |  |  |  |
(In thousands) |  | Actual |  | Weather-Adjusted |  |  |  |  |
Electric Distribution MWH Deliveries |  | 2023 |  | 2022 |  | (Decrease) |  | 2023 |  | 2022 |  | Increase |  |  |  |  |
Residential |  | 14,955 |  |  | 15,500 |  |  | (3.5) | % |  | 15,293 |  |  | 14,945 |  |  | 2.3 | % |  |  |  |  |
Commercial (1) |  | 9,541 |  |  | 9,662 |  |  | (1.2) | % |  | 9,629 |  |  | 9,514 |  |  | 1.2 | % |  |  |  |  |
Industrial |  | 14,275 |  |  | 14,274 |  |  | — | % |  | 14,275 |  |  | 14,274 |  |  | — | % |  |  |  |  |
Total Electric Distribution MWH Deliveries |  | 38,771 |  |  | 39,436 |  |  | (1.7) | % |  | 39,197 |  |  | 38,733 |  |  | 1.2 | % |  |  |  |  |

(1) Includes street lighting.
Residential and commercial distribution deliveries were impacted by lower customer usage as a result of the weather. Heating degree days in the third quarter of 2023 were 22% below the same period of 2022 and 7% below normal. Cooling degree days in the third quarter of 2023 were 17% below the same period of 2022 and 6% below normal. Industrial deliveries in the third quarter were flat compared to the same period of 2022, primarily due to increases in deliveries to shale gas customers offset by lower deliveries to chemical manufacturing and plastics and rubber products manufacturing.
Compared to pre-pandemic levels in 2019, weather-adjusted residential distribution deliveries for the third quarter of 2023 increased 6%. Commercial and industrial deliveries decreased 3% and 1%, respectively.
47

The following table summarizes the price and volume factors contributing to the $62 million decrease in generation revenues for the third quarter of 2023, as compared to the same period of 2022:

Source of Change in Generation Revenues |  | Increase (Decrease)
|  | (In millions)
Retail: |  |
Change in sales volumes |  | $ | (118) |
Change in prices |  | 150 |
|  | 32 |
Wholesale: |  |
Change in sales volumes |  | (47) |
Change in prices |  | (50) |
Capacity revenue |  | 3 |
|  | (94) |
Change in Generation Revenues |  | $ | (62) |

The decrease in retail generation sales volumes was primarily due to increased customer shopping in Pennsylvania, New Jersey and Ohio and lower usage as a result of the weather. Total generation provided by alternative suppliers as a percentage of total MWH deliveries in the third quarter of 2023, as compared to the same period of 2022, increased to 62% from 60% in Pennsylvania, to 37% from 36% in New Jersey and to 89% from 81% in Ohio. The increase in retail generation prices primarily resulted from higher non-shopping generation auction rates. Retail generation sales, other than those in West Virginia, have no material impact to earnings.
Wholesale generation revenues decreased $94 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to lower sales volumes and market prices. The difference between current wholesale generation revenues and certain energy costs incurred is deferred for future recovery or refund, with no material impact to current period earnings.
Operating Expenses —
Total operating expenses increased $21 million, primarily due to the following:
•Fuel expense decreased $43 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to lower generation output and unit costs. Due to the ENEC, fuel expense has no material impact on current period earnings.
•Purchased power costs, which have no material impact on current period earnings, increased $44 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to increased prices, partially offset by lower sales volumes as described above.

Source of Change in Purchased Power |  | Increase (Decrease)
|  | (In millions)
Purchases |  |
Change due to unit costs |  | $ | 397 |
Change due to volumes |  | (342) |
|  | 55 |
Capacity expense |  | (11) |
Change in Purchased Power Costs |  | $ | 44 |

48

•Other operating expenses increased $50 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to the following:
•Lower other operating and maintenance expenses of $36 million, primarily associated with lower labor costs and lower vegetation management expenses, including accelerated work during the third quarter of 2022.
•Lower network transmission expenses of $13 million. These costs are deferred for future recovery, resulting in no material impact on current period earnings.
•Higher storm expenses of $54 million, of which $48 million was deferred.
•Lump sum compensation and severance benefits of $26 million associated with the PEER program, as further discussed below.
•Higher energy efficiency and other state mandated program costs of $19 million, which are deferred for future recovery, resulting in no material impact on current period earnings.
•Depreciation expense increased $14 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to a higher asset base.
•Deferral of regulatory assets increased $51 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to:
•$49 million increase due to higher deferral of storm related expenses,
•$25 million increase due to higher generation and transmission related deferrals,
•$16 million related to net increases in other amortizations, and
•$10 million increase due to lower energy efficiency related amortizations, partially offset by
•$49 million decrease due to the absence of the return of certain Tax Act savings to Pennsylvania customers.
•General taxes increased $7 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to higher gross receipts taxes and Ohio property taxes, partially offset by lower Ohio kWh taxes.
Other Expense —
Other expense increased $98 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to lower pension and OPEB non-service credits, higher interest expense associated with new long-term issuances and higher short-term borrowings, and a charge from an environmental settlement agreement requiring a $10 million contribution to the EPA associated with a former generation plant of OE.
Income Taxes —
Regulated Distribution’s effective tax rate was 20.3% for both the three months ended September 30, 2023 and 2022.
Regulated Transmission — Third Quarter 2023 Compared with Third Quarter 2022
Regulated Transmission’s earnings attributable to FE from continuing operations increased $96 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to the absence of a reserve for customer refunds and the reclassification of certain transmission capital assets that are not expected to be recoverable resulting from the FERC Audit that was recognized in the third quarter of 2022, as further discussed below, and increased earnings as a result of regulated capital investments that increased rate base.
Revenues —
Total revenues increased $6 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to the absence of a reserve for customer refunds associated with the FERC Audit, as further discussed below, and a higher rate base, partially offset by recovery of lower operating expenses.
49

The following table shows revenues by transmission asset owner:

|  | For the Three Months Ended September 30,
Revenues by Transmission Asset Owner |  | 2023 |  |  | 2022 |  |  | Increase (Decrease)
|  | (In millions)
ATSI |  | $ | 244 |  |  |  | $ | 252 |  |  |  | $ | (8) |
TrAIL |  | 73 |  |  |  | 79 |  |  |  | (6) |
MAIT |  | 101 |  |  |  | 97 |  |  |  | 4 |
JCP&L |  | 52 |  |  |  | 45 |  |  |  | 7 |
MP, PE and WP |  | 39 |  |  |  | 30 |  |  |  | 9 |
Total Revenues |  | $ | 509 |  |  |  | $ | 503 |  |  |  | $ | 6 |

Operating Expenses —
Total operating expenses decreased $177 million in the third quarter of 2023, as compared to the same period of 2022, primarily due to the absence of the reclassification of certain transmission capital assets to operating expenses as a result of the FERC Audit, as further discussed below, partially offset by higher depreciation and property tax expenses from a higher asset base. Other than the write off of nonrecoverable transmission assets, all operating expenses are recovered through formula rates, resulting in no material impact on current period earnings.
Other Expense —
Total other expense increased $37 million in the three months ended September 30, 2023, as compared to the same period of 2022, primarily due to lower affiliated company interest income at FET and lower pension and OPEB non-service credits.
Income Taxes —
Regulated Transmission’s effective tax rate was 23.9% and 11.9% for the three months ended September 30, 2023 and 2022, respectively, as a result of the absence of a 2022 discrete tax benefit.
Corporate / Other — Third Quarter 2023 Compared with Third Quarter 2022
Financial results at Corporate/Other resulted in a $77 million decrease in losses attributable to FE from continuing operations in the third quarter of 2023, as compared to the same period of 2022, primarily due to a tax benefit in the third quarter of 2023 of approximately $65 million, net of a reserve for uncertain tax positions, from the reduction of state income taxes and partial release of a valuation allowance for the expected utilization of state net operating losses based on an assessment of regulated business operations and the composition of a state tax return filing group. Financial results compared to the same period of 2022 also reflect lower affiliated company interest expense and lower interest expense from the redemption of certain FE notes, as further discussed below, partially offset by higher investigation and other related costs associated with government investigations, lower investment earnings on FEV’s equity method investment in Global Holding, interest from the 2026 Convertible Notes and a charge associated with an update to the McElroy’s Run ARO.
50

Summary of Results of Operations — First Nine Months of 2023 Compared with First Nine Months of 2022
Financial results for FirstEnergy’s business segments in the first nine months of 2023 and 2022 were as follows:

First Nine Months 2023 Financial Results |  | Regulated Distribution |  | Regulated Transmission |  | Corporate/Other and Reconciling Adjustments |  | FirstEnergy Consolidated
|  | (In millions)
Revenues: |  |  |  |  |  |  |  |
Electric |  | $ | 8,233 |  |  | $ | 1,486 |  |  | $ | (130) |  |  | $ | 9,589 |
Other |  | 169 |  |  | 4 |  |  | (38) |  |  | 135 |
Total Revenues |  | 8,402 |  |  | 1,490 |  |  | (168) |  |  | 9,724 |
Operating Expenses: |  |  |  |  |  |  |  |
Fuel |  | 439 |  |  | — |  |  | — |  |  | 439 |
Purchased power |  | 3,158 |  |  | — |  |  | 15 |  |  | 3,173 |
Other operating expenses |  | 2,507 |  |  | 328 |  |  | (137) |  |  | 2,698 |
Provision for depreciation |  | 762 |  |  | 272 |  |  | 54 |  |  | 1,088 |
Deferral of regulatory assets, net |  | (249) |  |  | (4) |  |  | — |  |  | (253) |
General taxes |  | 646 |  |  | 199 |  |  | 36 |  |  | 881 |
Total Operating Expenses |  | 7,263 |  |  | 795 |  |  | (32) |  |  | 8,026 |
Other Income (Expense): |  |  |  |  |  |  |  |
Debt redemption costs |  | — |  |  | — |  |  | (36) |  |  | (36) |
Equity method investment earnings |  | — |  |  | — |  |  | 134 |  |  | 134 |
Miscellaneous income, net |  | 89 |  |  | 4 |  |  | 9 |  |  | 102 |
Pension and OPEB mark-to-market adjustment |  | 57 |  |  | 7 |  |  | (5) |  |  | 59 |
Interest expense |  | (456) |  |  | (185) |  |  | (187) |  |  | (828) |
Capitalized financing costs |  | 29 |  |  | 38 |  |  | 2 |  |  | 69 |
Total Other Expense |  | (281) |  |  | (136) |  |  | (83) |  |  | (500) |
Income taxes (benefits) |  | 170 |  |  | 131 |  |  | (108) |  |  | 193 |
Income attributable to noncontrolling interest |  | — |  |  | 57 |  |  | — |  |  | 57 |
Earnings (Loss) Attributable to FE from Continuing Operations |  | $ | 688 |  |  | $ | 371 |  |  | $ | (111) |  |  | $ | 948 |

51

First Nine Months 2022 Financial Results |  | Regulated Distribution |  | Regulated Transmission |  | Corporate/Other and Reconciling Adjustments |  | FirstEnergy Consolidated
|  | (In millions)
Revenues: |  |  |  |  |  |  |  |
Electric |  | $ | 7,878 |  |  | $ | 1,393 |  |  | $ | (115) |  |  | $ | 9,156 |
Other |  | 160 |  |  | 4 |  |  | (38) |  |  | 126 |
Total Revenues |  | 8,038 |  |  | 1,397 |  |  | (153) |  |  | 9,282 |
Operating Expenses: |  |  |  |  |  |  |  |
Fuel |  | 539 |  |  | — |  |  | — |  |  | 539 |
Purchased power |  | 2,772 |  |  | — |  |  | 14 |  |  | 2,786 |
Other operating expenses |  | 2,496 |  |  | 496 |  |  | (165) |  |  | 2,827 |
Provision for depreciation |  | 719 |  |  | 245 |  |  | 56 |  |  | 1,020 |
Deferral of regulatory assets, net |  | (250) |  |  | (2) |  |  | — |  |  | (252) |
General taxes |  | 626 |  |  | 191 |  |  | 34 |  |  | 851 |
Total Operating Expenses |  | 6,902 |  |  | 930 |  |  | (61) |  |  | 7,771 |
Other Income (Expense): |  |  |  |  |  |  |  |
Debt redemption costs |  | — |  |  | — |  |  | (155) |  |  | (155) |
Equity method investment earnings |  | — |  |  | — |  |  | 134 |  |  | 134 |
Miscellaneous income, net |  | 269 |  |  | 30 |  |  | 1 |  |  | 300 |
Interest expense |  | (389) |  |  | (155) |  |  | (244) |  |  | (788) |
Capitalized financing costs |  | 25 |  |  | 33 |  |  | 1 |  |  | 59 |
Total Other Expense |  | (95) |  |  | (92) |  |  | (263) |  |  | (450) |
Income taxes (benefits) |  | 213 |  |  | 85 |  |  | (61) |  |  | 237 |
Income attributable to noncontrolling interest |  | — |  |  | 15 |  |  | — |  |  | 15 |
Earnings (Loss) Attributable to FE from Continuing Operations |  | $ | 828 |  |  | $ | 275 |  |  | $ | (294) |  |  | $ | 809 |

52

Changes Between First Nine Months 2023 and First Nine Months 2022 Financial Results |  | Regulated Distribution |  | Regulated Transmission |  | Corporate/Other and Reconciling Adjustments |  | FirstEnergy Consolidated
|  | (In millions)
Revenues: |  |  |  |  |  |  |  |
Electric |  | $ | 355 |  |  | $ | 93 |  |  | $ | (15) |  |  | $ | 433 |
Other |  | 9 |  |  | — |  |  | — |  |  | 9 |
Total Revenues |  | 364 |  |  | 93 |  |  | (15) |  |  | 442 |
Operating Expenses: |  |  |  |  |  |  |  |
Fuel |  | (100) |  |  | — |  |  | — |  |  | (100) |
Purchased power |  | 386 |  |  | — |  |  | 1 |  |  | 387 |
Other operating expenses |  | 11 |  |  | (168) |  |  | 28 |  |  | (129) |
Provision for depreciation |  | 43 |  |  | 27 |  |  | (2) |  |  | 68 |
Deferral of regulatory assets, net |  | 1 |  |  | (2) |  |  | — |  |  | (1) |
General taxes |  | 20 |  |  | 8 |  |  | 2 |  |  | 30 |
Total Operating Expenses |  | 361 |  |  | (135) |  |  | 29 |  |  | 255 |
Other Income (Expense): |  |  |  |  |  |  |  |
Debt redemption costs |  | — |  |  | — |  |  | 119 |  |  | 119 |
Equity method investment earnings |  | — |  |  | — |  |  | — |  |  | — |
Miscellaneous income, net |  | (180) |  |  | (26) |  |  | 8 |  |  | (198) |
Pension and OPEB mark-to-market adjustment |  | 57 |  |  | 7 |  |  | (5) |  |  | 59 |
Interest expense |  | (67) |  |  | (30) |  |  | 57 |  |  | (40) |
Capitalized financing costs |  | 4 |  |  | 5 |  |  | 1 |  |  | 10 |
Total Other Expense |  | (186) |  |  | (44) |  |  | 180 |  |  | (50) |
Income taxes (benefits) |  | (43) |  |  | 46 |  |  | (47) |  |  | (44) |
Income attributable to noncontrolling interest |  | — |  |  | 42 |  |  | — |  |  | 42 |
Earnings (Loss) Attributable to FE from Continuing Operations |  | $ | (140) |  |  | $ | 96 |  |  | $ | 183 |  |  | $ | 139 |

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Regulated Distribution — First Nine Months of 2023 Compared with First Nine Months of 2022
Regulated Distribution’s earnings attributable to FE from continuing operations decreased $140 million in the first nine months of 2023, as compared to the same period of 2022, primarily resulting from lower customer usage as a result of the weather, lower net pension and OPEB credits (net of the mark-to-market adjustment gain), and higher interest expense and costs from the PEER and involuntary separations, as further discussed below, partially offset by certain lower other operating expenses, higher revenues from regulated investment programs and higher weather-adjusted customer usage and demand.
Revenues —
The $364 million increase in total revenues resulted from the following sources:

|  | For the Nine Months Ended September 30,
Revenues by Type of Service |  | 2023 |  | 2022 |  | Increase (Decrease) |  |  |  |  |  |
|  | (In millions) |  |  |  |  |  |
Distribution services |  | $ | 4,072 |  |  | $ | 4,021 |  |  | $ | 51 |  |  |  |  |  |  |
Generation sales: |  |  |  |  |  |  |  |  |  |  |  |
Retail |  | 3,988 |  |  | 3,449 |  |  | 539 |  |  |  |  |  |  |
Wholesale |  | 173 |  |  | 408 |  |  | (235) |  |  |  |  |  |  |
Total generation sales |  | 4,161 |  |  | 3,857 |  |  | 304 |  |  |  |  |  |  |
Other |  | 169 |  |  | 160 |  |  | 9 |  |  |  |  |  |  |
Total Revenues |  | $ | 8,402 |  |  | $ | 8,038 |  |  | $ | 364 |  |  |  |  |  |  |

Distribution services revenues increased $51 million in the first nine months of 2023, as compared to the same period of 2022, primarily resulting from higher rider revenues associated with certain investment programs, higher weather-adjusted customer usage and demand, lower customer refunds and credits associated with the PUCO-approved Ohio Stipulation and other rider rate adjustments at the Pennsylvania Companies, which have no material impact to current period earnings, partially offset by lower customer usage as a result of the weather and lower recovery or transmission expenses.
Distribution services by customer class are summarized in the following table:

|  | For the Nine Months Ended September 30, |  |  |  |  |
(In thousands) |  | Actual |  | Weather-Adjusted |
Electric Distribution MWH Deliveries |  | 2023 |  | 2022 |  | Increase (Decrease) |  | 2023 |  | 2022 |  | Increase |  |  |  |  |
Residential |  | 39,730 |  |  | 42,860 |  |  | (7.3) | % |  | 42,786 |  |  | 41,910 |  |  | 2.1 | % |  |  |  |  |
Commercial (1) |  | 26,335 |  |  | 27,668 |  |  | (4.8) | % |  | 27,394 |  |  | 27,406 |  |  | — | % |  |  |  |  |
Industrial |  | 41,671 |  |  | 41,568 |  |  | 0.2 | % |  | 41,671 |  |  | 41,569 |  |  | 0.2 | % |  |  |  |  |
Total Electric Distribution MWH Deliveries |  | 107,736 |  |  | 112,096 |  |  | (3.9) | % |  | 111,851 |  |  | 110,885 |  |  | 0.9 | % |  |  |  |  |

(1) Includes street lighting.
Residential and commercial distribution deliveries were impacted by lower customer usage as a result of the weather. Heating degree days in the first nine months of 2023 were 16% below the same period of 2022 and 17% below normal. Cooling degree days in the first nine months of 2023 were 25% below the same period of 2022 and 16% below normal. Increases in industrial deliveries were primarily from oil and gas extraction, educational services, mining, and transportation equipment manufacturing, partially offset by decreases in deliveries to plastic and rubber manufacturing and chemical manufacturing.
Compared to pre-pandemic levels in 2019, weather-adjusted residential distribution deliveries for the first nine months of 2023 increased 5%, while commercial and industrial deliveries decreased 5% and 1%, respectively.
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The following table summarizes the price and volume factors contributing to the $304 million increase in generation revenues for the first nine months of 2023, as compared to the same period of 2022:

Source of Change in Generation Revenues |  | Increase (Decrease)
|  | (In millions)
Retail: |  |
Change in sales volumes |  | $ | 56 |
Change in prices |  | 483 |
|  | 539 |
Wholesale: |  |
Change in sales volumes |  | (156) |
Change in prices |  | (47) |
Capacity revenue |  | (32) |
|  | (235) |
Change in Generation Revenues |  | $ | 304 |

The increase in retail generation sales volumes was primarily due to decreased customer shopping in New Jersey and Ohio, partially offset by increased customer shopping in Pennsylvania, and lower usage as a result of the weather. Total generation provided by alternative suppliers as a percentage of total MWH deliveries in the first nine months of 2023, as compared to the same period of 2022, decreased to 38% from 41% in New Jersey, to 73% from 83% in Ohio and increased to 62% from 60% in Pennsylvania. The increase in retail generation prices primarily resulted from higher non-shopping generation auction rates. Retail generation sales, other than those in West Virginia, have no material impact to earnings.
Wholesale generation revenues decreased $235 million in the first nine months of 2023, as compared to the same period in 2022, primarily due to lower capacity revenues, sales volumes and market prices. The difference between current wholesale generation revenues and certain energy costs incurred is deferred for future recovery or refund, with no material impact to current period earnings.
Operating Expenses —
Total operating expenses increased $361 million, primarily due to the following:
•Fuel costs decreased $100 million during the first nine months of 2023, as compared to the same period of 2022, primarily due to lower generation output and unit costs. Due to the ENEC, fuel expense has no material impact on current period earnings.
•Purchased power costs, which have no material impact on current period earnings, increased $386 million during the first nine months of 2023, as compared to the same period of 2022, primarily due to increased volumes and prices as described above, partially offset by lower capacity expenses.

Source of Change in Purchased Power |  | Increase (Decrease)
|  | (In millions)
Purchases: |  |
Change due to unit costs |  | $ | 299 |
Change due to volumes |  | 135 |
|  | 434 |
Capacity |  | (48) |
Change in Purchased Power Costs |  | $ | 386 |

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•Other operating expenses increased $11 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to:
•Lower other operating and maintenance expenses of $102 million, primarily associated with lower labor costs and employee benefits, lower vegetation management expenses, including accelerated work during the same period of 2022 and decreased regulated generation outage spend.
•Lower network transmission expenses of $26 million. These costs are deferred for future recovery, resulting in no material impact on current period earnings.
•Lower uncollectible expenses of $22 million, of which $6 million was deferred.
•Higher storm expenses of $87 million, of which $82 million was deferred.
•Lump sum compensation and severance benefits of $36 million associated with the PEER program and involuntary separations in 2023, as further discussed below.
•Higher vegetation management in West Virginia, energy efficiency and other state mandated program costs of $38 million, which are deferred for future recovery, resulting in no material impact on current period earnings.
•Depreciation expense increased $43 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to a higher asset base.
•Deferral of regulatory assets decreased $1 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to:
•$53 million decrease due to the absence of the customer refunds associated with the Ohio Stipulation,
•$52 million decrease due to the absence of the return of certain Tax Act savings to Pennsylvania customers in 2022, and
•$26 million net decrease due to lower generation and transmission related deferrals, partially offset by
•$84 million increase due to higher deferral of storm related expenses,
•$25 million related to net increases in other deferrals,
•$14 million increase due to higher energy efficiency related deferrals, and
•$7 million increase due to lower vegetation related amortizations.
•General taxes increased $20 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to higher gross receipts taxes and Ohio property taxes, partially offset by lower Ohio kWh taxes.
Other Expense —
Other expense increased $186 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to lower net pension and OPEB non-service credits (net of the mark-to-market adjustment gain), higher net interest expense associated with new long-term issuances and higher short-term borrowings, and a charge from an environmental settlement agreement requiring a $10 million contribution to the EPA associated with a former generation plant of OE.
Income Taxes —
Regulated Distribution’s effective tax rate was 19.8% and 20.5% for the nine months ended September 30, 2023 and 2022, respectively.
Regulated Transmission — First Nine Months of 2023 Compared with First Nine Months of 2022
Regulated Transmission’s earnings attributable to FE from continuing operations increased $96 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to the absence of a reserve for customer refunds and the reclassification of certain transmission capital assets that are not expected to be recoverable resulting from the FERC Audit that was recognized in the third quarter of 2022, as further discussed below. Additionally, earnings increased as a result of regulated capital investments that increased rate base and is partially offset by the 19.9% minority equity interest sale in FET that closed in May 2022, and higher net financing costs.
Revenues —
Total revenues increased $93 million, primarily due to the absence of a reserve for customer refunds associated with the FERC Audit, as further discussed below, and a higher rate base, partially offset by recovery of lower operating expenses.
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The following table shows revenues by transmission asset owner:

|  | For the Nine Months Ended September 30,
Revenues by Transmission Asset Owner |  | 2023 |  |  | 2022 |  |  | Increase (Decrease)
|  | (In millions)
ATSI |  | $ | 712 |  |  |  | $ | 686 |  |  |  | $ | 26 |
TrAIL |  | 207 |  |  |  | 209 |  |  |  | (2) |
MAIT |  | 289 |  |  |  | 253 |  |  |  | 36 |
JCP&L |  | 152 |  |  |  | 151 |  |  |  | 1 |
MP, PE and WP |  | 130 |  |  |  | 98 |  |  |  | 32 |
Total Revenues |  | $ | 1,490 |  |  |  | $ | 1,397 |  |  |  | $ | 93 |

Operating Expenses —
Total operating expenses decreased $135 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to the absence of the reclassification of certain transmission capital assets to operating expenses as a result of the FERC Audit, as further discussed below, partially offset by higher depreciation and property tax expenses from a higher asset base. Other than the write off of nonrecoverable transmission assets, nearly all operating expenses are recovered through formula rates, resulting in no material impact on current period earnings.
Other Expense —
Total other expense increased $44 million in the first nine months of 2023, as compared to the same period of 2022, primarily due to lower affiliated company interest income at FET, lower net pension and OPEB non-service credits (net of the pension and OPEB mark-to-market gain) and higher net interest expense due to the new debt issuances at MAIT and ATSI.
Income Taxes —
Regulated Transmission’s effective tax rate was 23.4% and 22.7% for the nine months ended September 30, 2023 and 2022, respectively.
Corporate / Other — First Nine Months of 2023 Compared with First Nine Months of 2022
Financial results at Corporate/Other resulted in a $183 million decrease in losses attributable to FE from continuing operations in the first nine months of 2023, as compared to the same period of 2022, primarily due to lower interest and debt redemption expenses from the redemption of certain FE notes, as further discussed below, lower affiliated company borrowings and a tax benefit in the third quarter of 2023 of approximately $65 million, net of a reserve for uncertain tax positions from the reduction of state income taxes and partial release of a valuation allowance for the expected utilization of state net operating losses based on an assessment of regulated business operations and the composition of a state tax return filing group. Financial results compared to the same period of 2022 also reflect higher investment earnings on corporate-owned life insurance policies, partially offset by expenses associated with the cancellation of certain sponsorship agreements in 2023, higher investigation and other related costs associated with government investigations, a charge associated with an update to the McElroy’s Run ARO, lower pension and OPEB non-service credits (including the mark-to-market adjustment in the second quarter of 2023) and higher interest from the 2026 Convertible Notes.
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REGULATORY ASSETS AND LIABILITIES
Regulatory assets represent incurred costs that have been deferred because of their probable future recovery from customers through regulated rates. Regulatory liabilities represent amounts that are expected to be credited to customers through future regulated rates or amounts collected from customers for costs not yet incurred. FirstEnergy, the Utilities and the Transmission Companies net their regulatory assets and liabilities based on federal and state jurisdictions.
Management assesses the probability of recovery of regulatory assets, and settlement of regulatory liabilities, at each balance sheet date and whenever new events occur. Factors that may affect probability relate to changes in the regulatory environment, issuance of a regulatory commission order or passage of new legislation. Upon material changes to these factors, where applicable, FirstEnergy will record new regulatory assets and liabilities and will assess whether it is probable that currently recorded regulatory assets and liabilities will be recovered or settled in future rates.
The following table provides information about the composition of net regulatory assets and liabilities as of September 30, 2023, and December 31, 2022, and the changes during the nine months ended September 30, 2023:

Net Regulatory Assets (Liabilities) by Source |  | September 30, 2023 |  | December 31, 2022 |  | Change
|  | (In millions)
Customer payables for future income taxes |  | $ | (2,369) |  |  | $ | (2,463) |  |  | $ | 94 |
Spent nuclear fuel disposal costs |  | (72) |  |  | (83) |  |  | 11 |
Asset removal costs |  | (659) |  |  | (675) |  |  | 16 |
Deferred transmission costs |  | 172 |  |  | 50 |  |  | 122 |
Deferred generation costs |  | 626 |  |  | 235 |  |  | 391 |
Deferred distribution costs |  | 224 |  |  | 164 |  |  | 60 |
Storm-related costs |  | 790 |  |  | 683 |  |  | 107 |
Pandemic-related costs |  | 25 |  |  | 26 |  |  | (1) |
Energy efficiency program costs |  | 156 |  |  | 94 |  |  | 62 |
New Jersey societal benefit costs |  | 74 |  |  | 94 |  |  | (20) |
Vegetation management costs |  | 99 |  |  | 63 |  |  | 36 |
Other |  | (29) |  |  | (2) |  |  | (27) |
Net Regulatory Liabilities included on the Consolidated Balance Sheets |  | $ | (963) |  |  | $ | (1,814) |  |  | $ | 851 |

The following is a description of the regulatory assets and liabilities described above:
Customer payables for future income taxes - Reflects amounts to be recovered or refunded through future rates to pay income taxes that become payable when rate revenue is provided to recover items such as AFUDC-equity and depreciation of property, plant and equipment for which deferred income taxes were not recognized for ratemaking purposes, including amounts attributable to federal and state tax rate changes such as the Tax Act and Pennsylvania House Bill 1342. These amounts are being amortized over the period in which the related deferred tax assets reverse, which is generally over the expected life of the underlying asset.
Spent nuclear fuel disposal costs - Reflects amounts collected from customers, and the investment income, losses and changes in fair value of the trusts for spent nuclear fuel disposal costs related to former nuclear generating facilities, Oyster Creek and TMI-1.
Asset removal costs - Primarily represents the rates charged to customers that include a provision for the cost of future activities to remove assets, including obligations for which an asset retirement obligation has been recognized, that are expected to be incurred at the time of retirement.
Deferred transmission costs - Reflects differences between revenues earned based on actual costs for FirstEnergy’s formula-rate transmission subsidiaries and the amounts billed, including amounts expected to be refunded to, or recoverable from, wholesale transmission customers resulting from the FERC Audit, as further described below, which amounts are recorded as a regulatory asset or liability and recovered or refunded, respectively, in subsequent periods. Also included is the recovery of non-market based costs or fees charged to certain of the Utilities by various regulatory bodies including FERC and RTOs, which can include PJM charges and credits for service including, but not limited to, procuring transmission services and transmission enhancement.
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Deferred generation costs - Relates to regulatory assets associated with the securitized recovery of certain fuel and purchased power regulatory assets at the Ohio Companies (amortized through 2034) as well as the ENEC at MP and PE. MP and PE recover net power supply costs, including fuel costs, purchased power costs and related expenses, net of related market sales revenue through the ENEC. Generally, the ENEC rate is updated annually. Also included is the termination fee associated with ending PE’s PPA with the Warrior Run generating station as further discussed below.
Deferred distribution costs - Relates to the Ohio Companies' deferral of certain distribution-related expenses, including interest (amortized through 2034), costs related to the AMI and electric vehicle programs in New Jersey, and smart meters program in Pennsylvania.
Storm-related costs - Relates to the deferral of storm costs, which vary by jurisdiction. Approximately $275 million and $206 million are currently being recovered through rates as of September 30, 2023 and December 31, 2022, respectively.
Pandemic-related costs - Includes the deferral of incremental costs arising from the pandemic.
Energy efficiency program costs - Relates to the recovery of costs in excess of revenues associated with energy efficiency programs including New Jersey energy efficiency and renewable energy programs, the Pennsylvania Companies’ Energy Efficiency and Conservation programs, the Ohio Companies’ Demand Side Management and Energy Efficiency Rider, and PE’s EmPOWER Maryland Surcharge. Investments in certain of these energy efficiency programs earn a long-term return.
New Jersey societal benefit costs - Primarily relates to regulatory assets associated with MGP remediation, universal service and lifeline funds, and the New Jersey Clean Energy Program.
Vegetation management costs - Relates to regulatory assets associated with the recovery of certain distribution vegetation management costs in New Jersey and West Virginia as well as certain transmission vegetation management costs at MAIT, ATSI and WP/PE, which are amortized through 2024, 2030 and 2036, respectively.
The following table provides information about the composition of net regulatory assets that do not earn a current return as of September 30, 2023 and December 31, 2022, of which approximately $467 million and $511 million, respectively, are currently being recovered through rates over varying periods, through 2068, depending on the nature of the deferral and the jurisdiction:

Regulatory Assets by Source Not Earning a Current Return |  | September 30, 2023 |  | December 31, 2022 |  | Change
|  | (In millions)
Deferred transmission costs |  | $ | 6 |  |  | $ | 8 |  |  | $ | (2) |
Deferred generation costs |  | 523 |  |  | 262 |  |  | 261 |
Deferred distribution costs |  | 59 |  |  | 27 |  |  | 32 |
Storm-related costs |  | 612 |  |  | 568 |  |  | 44 |
Pandemic-related costs |  | 40 |  |  | 45 |  |  | (5) |
Vegetation management costs |  | 24 |  |  | 52 |  |  | (28) |
Other |  | 32 |  |  | 35 |  |  | (3) |
Regulatory Assets Not Earning a Current Return |  | $ | 1,296 |  |  | $ | 997 |  |  | $ | 299 |

CAPITAL RESOURCES AND LIQUIDITY
FirstEnergy’s business is capital intensive, requiring significant resources to fund operating expenses, construction and other investment expenditures, scheduled debt maturities and interest payments, dividend payments and potential contributions to its pension plan.
FE and its distribution and transmission subsidiaries expect their existing sources of liquidity to remain sufficient to meet their respective anticipated obligations. In addition to internal sources to fund liquidity and capital requirements for 2023 and beyond, FE and its distribution and transmission subsidiaries expect to rely on external sources of funds. Short-term cash requirements not met by cash provided from operations are generally satisfied through short-term borrowings. Long-term cash needs may be met through the issuance of long-term debt by FE and certain of its distribution and transmission subsidiaries to, among other things, fund capital expenditures and other capital-like investments, and refinance short-term and maturing long-term debt, subject to market conditions and other factors. In certain instances, FE may utilize instruments other than senior notes to fund its liquidity and capital requirements, including hybrid securities.
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In alignment with FirstEnergy’s strategy to invest in its Regulated Distribution and Regulated Transmission segments as a fully regulated company, FirstEnergy is focused on maintaining balance sheet strength and flexibility. Specifically, at the regulated businesses, regulatory authority has been obtained for various regulated distribution and transmission subsidiaries to issue and/or refinance debt.
Any financing plans by FE or any of its consolidated subsidiaries, including the issuance of equity and debt, and the refinancing of short-term and maturing long-term debt are subject to market conditions and other factors. No assurance can be given that any such issuance, financing or refinancing, as the case may be, will be completed as anticipated or at all. Any delay in the completion of financing plans could require FE or any of its consolidated subsidiaries to utilize short-term borrowing capacity, which could impact available liquidity. In addition, FE and its consolidated subsidiaries expect to continually evaluate any planned financings, which may result in changes from time to time.
On February 2, 2023, FE, along with FET, entered into the FET P&SA II with Brookfield and the Brookfield Guarantors, pursuant to which FE agreed to sell to Brookfield at the closing, and Brookfield agreed to purchase from FE, an incremental 30% equity interest in FET for a purchase price of $3.5 billion. The majority of the purchase price is expected to be paid in cash upon closing, and the remainder will be payable by the issuance of a promissory note, which is expected to be repaid by the end of 2024. As a result of the consummation of the transaction, Brookfield’s interest in FET will increase from 19.9% to 49.9%, while FE will retain the remaining 50.1% ownership interests of FET. The transaction is subject to customary closing conditions, including approval from the PPUC, and completion of review by the CFIUS. In addition, pursuant to the FET P&SA II, FirstEnergy made the necessary filings with the applicable regulatory authorities for the PA Consolidation. The FET Minority Equity Interest Sale is expected to close by early 2024. Upon closing, FET will continue to be consolidated in FirstEnergy’s GAAP financial statements.
FirstEnergy is proceeding with the consolidation of the Pennsylvania Companies into FE PA, a new, single operating entity. The PA Consolidation will require, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies and is expected to realize increased regulatory and administrative efficiencies, streamlined operational functions and certain financing benefits. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC and PPUC, which filings were submitted on March 6, 2023. Subject to receipt of such regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.
In light of the FET P&SA I transaction completed in 2022 and the FET P&SA II announced earlier this year, FirstEnergy does not currently anticipate the need to issue additional equity through 2025, with the exception of annual issuances of up to $100 million under regular dividend reinvestment plans and employee benefit stock investment plans.
Economic conditions following the global pandemic have increased supply chain lead times across numerous material categories, with some as much as tripling from pre-pandemic lead times. Some key suppliers have struggled with labor shortages and raw material availability, which along with inflationary pressure that appears to be moderating, have increased costs and decreased the availability of certain materials, equipment and contractors. FirstEnergy has taken steps to mitigate these risks and does not currently expect service disruptions or any material impact on its capital spending plan. However, the situation remains fluid and a prolonged continuation or further increase in supply chain disruptions could have an adverse effect on FirstEnergy’s results of operations, cash flow and financial condition. Additionally, interest rates have increased significantly, which has caused the interest expense on borrowings under the various FirstEnergy credit facilities and new capital market issuances to be significantly higher.
On May 9, 2023, FirstEnergy announced a voluntary retirement program for eligible non-bargaining employees, known as the PEER. More than 65% of eligible employees, totaling approximately 450 employees, accepted the PEER, which included lump sum compensation equivalent to severance benefits, healthcare continuation costs and a temporary pension enhancement with most participating employees expected to depart by the end of 2023. The temporary pension enhancement and healthcare continuation costs are classified as special termination costs within net periodic benefit costs (credits). In addition to the PEER, FirstEnergy notified and involuntarily separated approximately 90 employees on May 9, 2023. Management expects the cost savings resulting from these initiatives to support FirstEnergy’s growth plans.
As of September 30, 2023, FirstEnergy’s net deficit in working capital (current assets less current liabilities) was primarily due to accounts payable, currently payable long-term debt, short-term borrowings, and accrued interest, taxes, and compensation and benefits. FirstEnergy believes its cash from operations and available liquidity will be sufficient to meet its current working capital needs. See further discussion on cash from operations below.
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Short-Term Borrowings / Revolving Credit Facilities
On October 18, 2021, FE, FET, the Utilities, and the Transmission Companies entered into the 2021 Credit Facilities, which were six separate senior unsecured five-year syndicated revolving credit facilities with JPMorgan Chase Bank, N.A., Mizuho Bank, Ltd. and PNC Bank, National Association that replaced the FE Revolving Facility and the FET Revolving Facility, and provide for aggregate commitments of $4.5 billion. The 2021 Credit Facilities are available until October 18, 2026, as follows:
•FE and FET, $1.0 billion revolving credit facility;
•Ohio Companies, $800 million revolving credit facility;
•Pennsylvania Companies, $950 million revolving credit facility;
•JCP&L, $500 million revolving credit facility;
•MP and PE, $400 million revolving credit facility; and
•Transmission Companies, $850 million revolving credit facility.
Under the 2021 Credit Facilities, an aggregate amount of $4.5 billion is available to be borrowed, repaid and reborrowed, subject to each borrower’s respective sublimit under the respective facilities. These new credit facilities provide substantial liquidity to support the Regulated Distribution and Regulated Transmission businesses, and each of the operating companies within the businesses. As discussed further in Item 5 below, on October 20, 2023, FE and certain of its subsidiaries entered into the amendments to each of the 2021 Credit Facilities to, among other things; (i) amend the FE Revolving Facility to release FET as a borrower and (ii) extend the maturity date of the 2021 Credit Facilities for an additional one-year period, from October 18, 2026 to October 18, 2027. Also, on October 20, 2023, each of FET and KATCo entered into the 2023 Credit Facilities.
Borrowings under the 2021 Credit Facilities may be used for working capital and other general corporate purposes. Generally, borrowings under each of the credit facilities are available to each borrower separately and mature on the earlier of 364 days from the date of borrowing or the commitment termination date, as the same may be extended. Each of the 2021 Credit Facilities contain financial covenants requiring each borrower, with the exception of FE, to maintain a consolidated debt-to-total-capitalization ratio (as defined under each of the 2021 Credit Facilities) of no more than 65%, and 75% for FET, measured at the end of each fiscal quarter. FE is required under its 2021 Credit Facility to maintain a consolidated interest coverage ratio of not less than 2.50 times, measured at the end of each fiscal quarter for the last four fiscal quarters beginning with the quarter ending December 31, 2021.
FirstEnergy’s 2021 Credit Facilities and 2023 Credit Facilities bear interest at fluctuating interest rates, primarily based on SOFR, including term SOFR and daily simple SOFR. FirstEnergy has not hedged its interest rate exposure with respect to its floating rate debt. Accordingly, FirstEnergy’s interest expense for any particular period will fluctuate based on SOFR and other variable interest rates. Interest rates have increased significantly, which has caused the rate and interest expense on borrowings under the various FirstEnergy credit facilities to be significantly higher. Restricted access to capital markets and/or increased borrowing costs could have an adverse effect on FirstEnergy’s results of operations, cash flows, financial condition and liquidity.
FirstEnergy had $270 million and $100 million of outstanding short-term borrowings as of September 30, 2023 and December 31, 2022, respectively. FirstEnergy’s available liquidity from external sources as of October 23, 2023, was as follows:

Revolving Credit Facility |  | Maturity |  | Commitment |  | Available Liquidity |
|  |  |  | (In millions) |
FE |  | October 2027 |  | $ | 1,000 |  |  | $ | 682 |  |
FET |  | October 2028 |  | 1,000 |  |  | 1,000 |  |
Ohio Companies |  | October 2027 |  | 800 |  |  | 800 |  |
Pennsylvania Companies |  | October 2027 |  | 950 |  |  | 950 |  |
JCP&L |  | October 2027 |  | 500 |  |  | 499 |  |
MP and PE |  | October 2027 |  | 400 |  |  | 400 |  |
Transmission Companies |  | October 2027 |  | 850 |  |  | 850 |  |
KATCo (1) |  | October 2027 |  | 150 |  |  | — |  |
|  | Subtotal |  | $ | 5,650 |  |  | $ | 5,181 |  |
Cash and cash equivalents |  | — |  |  | 106 |  |
|  | Total |  | $ | 5,650 |  |  | $ | 5,287 |  |

(1) KATCo may not draw on the KATCo Credit Facility until the completion of the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, which transfer is expected to be completed in early 2024.
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The following table summarizes the limitations on short-term indebtedness applicable to each borrower under current regulatory approvals and applicable statutory and/or charter limitations as of September 30, 2023:

Individual Borrower |  | Regulatory Debt Limitations |  | Credit Facility Limitations
|  | (In millions)
FE |  |  | N/A |  |  | $ | 1,000 |
ATSI | (1) |  | $ | 500 |  |  |  | 350 |
CEI | (1) |  | 500 |  |  |  | 300 |
FET |  |  | N/A |  |  | 1,000 |
JCP&L | (1) |  | 500 |  |  |  | 500 |
ME | (1) |  | 500 |  |  |  | 350 |
MAIT | (1) |  | 400 |  |  |  | 350 |
MP | (1) |  | 500 |  |  |  | 250 |
OE | (1) |  | 500 |  |  |  | 300 |
PN | (1) |  | 300 |  |  |  | 300 |
Penn | (1) |  | 150 |  |  |  | 100 |
PE | (1) |  | 150 |  |  |  | 150 |
TE | (1) |  | 300 |  |  |  | 200 |
TrAIL | (1) |  | 400 |  |  |  | 150 |
WP | (1) |  | 300 |  |  |  | 200 |

(1) Includes amounts which may be borrowed under the regulated companies’ money pool.
Subject to each borrower’s sublimit, the amounts noted below are available for the issuance of LOCs (subject to borrowings drawn under the 2021 Credit Facilities) expiring up to one year from the date of issuance. The stated amount of outstanding LOCs will count against total commitments available under each of the 2021 Credit Facilities and against the applicable borrower’s borrowing sublimit. As of September 30, 2023, FirstEnergy had $4 million in outstanding LOCs.

Revolving Credit Facility |  | LOC Availability (1)
|  | (In millions)
FE and FET |  | $ | 100 |
Ohio Companies |  | 150 |
Pennsylvania Companies |  | 200 |
JCP&L |  | 100 |
MP and PE |  | 100 |
Transmission Companies |  | 200 |

(1) As detailed more fully in Item 5 below, the FET Credit Facility and the KATCo Credit Facility provide for LOC availability of up to $100 million and $35 million, respectively.
The 2021 Credit Facilities do not contain provisions that restrict the ability to borrow or accelerate payment of outstanding advances in the event of any change in credit ratings of the borrowers. Pricing is defined in “pricing grids,” whereby the cost of funds borrowed under the 2021 Credit Facilities are related to the credit ratings of the company borrowing the funds. Additionally, borrowings under each of the 2021 Credit Facilities are subject to the usual and customary provisions for acceleration upon the occurrence of events of default, including a cross-default for other indebtedness in excess of $100 million.
As of September 30, 2023, the borrowers were in compliance with the applicable interest coverage and debt-to-total-capitalization ratio covenants in each case as defined under the 2021 Credit Facilities.
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FirstEnergy Money Pools
FirstEnergy’s utility operating subsidiary companies also have the ability to borrow from each other and FE to meet their short-term working capital requirements. Similar but separate arrangements exist among FirstEnergy’s unregulated companies with AE Supply, FE, FET, FEV and certain other unregulated subsidiaries. FESC administers these money pools and tracks surplus funds of FE and the respective regulated and unregulated subsidiaries, as the case may be, as well as proceeds available from bank borrowings. Companies receiving a loan under the money pool agreements must repay the principal amount of the loan, together with accrued interest, within 364 days of borrowing the funds. The rate of interest is the same for each company receiving a loan from their respective pool and is based on the average cost of funds available through the pool. Interest rates have increased significantly, which has caused the rate and interest expense on borrowings under the various FirstEnergy credit facilities to be significantly higher.

Average Interest Rates | Regulated Companies’ Money Pool |  | Unregulated Companies’ Money Pool
| 2023 |  | 2022 |  | 2023 |  | 2022
For the Three Months Ended September 30, | 6.48 | % |  | 2.92 | % |  | 5.78 | % |  | 2.58 | %
For the Nine Months Ended September 30, | 6.16 | % |  | 1.59 | % |  | 5.69 | % |  | 1.52 | %

Long-Term Debt Capacity
FE’s and its subsidiaries’ access to capital markets and costs of financing are influenced by the credit ratings of their securities. The following table displays FE’s and its subsidiaries’ credit ratings as of October 23, 2023:

|  | Corporate Credit Rating |  | Senior Secured |  | Senior Unsecured |  | Outlook/CreditWatch (1)
Issuer |  | S&P |  | Moody’s |  | Fitch |  | S&P |  | Moody’s |  | Fitch |  | S&P |  | Moody’s |  | Fitch |  | S&P |  | Moody’s |  | Fitch
FE |  | BBB- |  | Ba1 |  | BBB- |  | — |  | — |  | — |  | BB+ |  | Ba1 |  | BBB- |  | P |  | P |  | S
AGC |  | BB+ |  | Baa2 |  | BBB |  | — |  | — |  | — |  | — |  | — |  | — |  | P |  | S |  | S
ATSI |  | BBB |  | A3 |  | BBB |  | — |  | — |  | — |  | BBB |  | A3 |  | BBB+ |  | P |  | S |  | S
CEI |  | BBB |  | Baa3 |  | BBB |  | A- |  | Baa1 |  | A- |  | BBB |  | Baa3 |  | BBB+ |  | P |  | S |  | S
FET |  | BBB- |  | Baa2 |  | BBB- |  | — |  | — |  | — |  | BB+ |  | Baa2 |  | BBB- |  | P |  | S |  | S
JCP&L |  | BBB |  | A3 |  | BBB |  | — |  | — |  | — |  | BBB |  | A3 |  | BBB+ |  | P |  | S |  | S
ME |  | BBB |  | A3 |  | BBB |  | — |  | — |  | — |  | BBB |  | A3 |  | BBB+ |  | P |  | S |  | S
MAIT |  | BBB |  | A3 |  | BBB |  | — |  | — |  | — |  | BBB |  | A3 |  | BBB+ |  | P |  | S |  | S
MP |  | BBB |  | Baa2 |  | BBB |  | A- |  | A3 |  | A- |  | BBB |  | Baa2 |  | — |  | S |  | S |  | S
OE |  | BBB |  | A3 |  | BBB |  | A- |  | A1 |  | A- |  | BBB |  | A3 |  | BBB+ |  | P |  | S |  | S
PN |  | BBB |  | Baa1 |  | BBB |  | — |  | — |  | — |  | BBB |  | Baa1 |  | BBB+ |  | P |  | S |  | S
Penn |  | BBB |  | A3 |  | BBB |  | A- |  | A1 |  | — |  | — |  | — |  | — |  | P |  | S |  | S
PE |  | BBB |  | Baa2 |  | BBB |  | A- |  | A3 |  | A- |  | — |  | — |  | — |  | S |  | S |  | S
TE |  | BBB |  | Baa2 |  | BBB |  | A- |  | A3 |  | A- |  | — |  | — |  | — |  | P |  | S |  | S
TrAIL |  | BBB |  | A3 |  | BBB |  | — |  | — |  | — |  | BBB |  | A3 |  | BBB+ |  | P |  | S |  | S
WP |  | BBB |  | A3 |  | BBB |  | A- |  | A1 |  | A- |  | — |  | — |  | — |  | P |  | S |  | S

(1) S = Stable, P = Positive
The applicable undrawn and drawn margin on the 2021 Credit Facilities are subject to ratings-based pricing grids. The applicable fee paid on the undrawn commitments under the 2021 Credit Facilities are based on each borrower’s senior unsecured non-credit enhanced debt ratings as determined by S&P and Moody’s. The fees paid on actual borrowings are determined based on each borrower’s senior unsecured non-credit enhanced debt ratings as determined by S&P and Moody’s.
The interest rates payable on approximately $2.1 billion in FE’s senior unsecured notes are subject to adjustments from time to time if the ratings on the notes from any one or more of S&P, Moody’s and Fitch decreases to a rating set forth in the applicable governing documents. Generally, a one-notch downgrade by the applicable rating agency may result in a 25 basis point coupon rate increase beginning at BB, Ba1, and BB+ for S&P, Moody’s and Fitch, respectively, to the extent such rating is applicable to the series of outstanding senior unsecured notes, during the next interest period, subject to an aggregate cap of 2% from issuance interest rate.
Debt capacity is subject to the consolidated interest coverage ratio in the 2021 Credit Facilities. As of September 30, 2023, FirstEnergy could incur approximately $815 million of incremental interest expense or incur a $2.0 billion reduction to the
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consolidated interest coverage earnings numerator, as defined under the covenant, and FE would remain within the limitations of the financial covenant requirements by the 2021 Credit Facilities.
Cash Requirements and Commitments
FirstEnergy has certain obligations and commitments to make future payments under contracts. For an in-depth discussion of FirstEnergy’s cash requirements and commitments, see “Capital Resources and Liquidity - Cash Requirements and Commitments" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" within FirstEnergy’s Form 10-K for the year ended December 31, 2022 (filed on February 13, 2023).
Changes in Cash Position
As of September 30, 2023, FirstEnergy had $118 million of cash and cash equivalents and $26 million of restricted cash as compared to $160 million of cash and cash equivalents and $46 million of restricted cash as of December 31, 2022, on the Consolidated Balance Sheets.
Cash Flows From Operating Activities
FirstEnergy’s most significant sources of cash are derived from electric service provided by its distribution and transmission operating subsidiaries. The most significant use of cash from operating activities is buying electricity to serve non-shopping customers, return of cash collateral associated with certain generation suppliers that serve shopping customers, pension contributions and paying fuel suppliers, employees, tax authorities, lenders and others for a wide range of materials and services.
Cash provided from operating activities was $429 million and $1,837 million in the first nine months of 2023 and 2022, respectively. The change in cash flows from operating activities is primarily due to:
•A $750 million cash contribution to the qualified pension plan in the second quarter of 2023,
•Higher accounts payable payments, primarily on generation energy purchases for certain customers, net of related customer receivable receipts,
•The return of cash collateral to certain generation suppliers that serve shopping customers that was previously received as a result of changes in power prices,
•Lower net transmission revenue collection based on the timing of formula rate collections, partially offset by
•Higher cash dividend distributions received by FEV from its equity investment in Global Holding,
•Higher returns from regulated distribution and transmission capital investments, and
•Lower customer refunds and credits associated with the PUCO-approved Ohio Stipulation.
Cash Flows From Investing Activities
Cash used for investing activities in the first nine months of 2023 principally represented cash used for capital investments. The following table summarizes investing activities for the first nine months of 2023 and 2022:

|  | For the Nine Months Ended September 30,
Cash Used for Investing Activities |  | 2023 |  | 2022 |  | Increase
|  | (In millions)
Capital investments: |  |  |  |  |  |
Regulated Distribution |  | $ | 1,136 |  |  | $ | 1,127 |  |  | $ | 9 |
Regulated Transmission |  | 1,097 |  |  | 700 |  |  | 397 |
Corporate / Other |  | 33 |  |  | 25 |  |  | 8 |
Asset removal costs |  | 190 |  |  | 151 |  |  | 39 |
Other |  | 17 |  |  | — |  |  | 17 |
|  | $ | 2,473 |  |  | $ | 2,003 |  |  | $ | 470 |

Cash used for investing activities for the first nine months of 2023 increased $470 million, compared to the same period of 2022, primarily due to capital investments.
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Cash Flows From Financing Activities
In the first nine months of 2023 and 2022, cash provided from (used for) financing activities was $1,982 million and $(1,068) million, respectively. The following table summarizes financing activities for the first nine months of 2023 and 2022:

|  | For the Nine Months Ended September 30,
Financing Activities |  | 2023 |  | 2022
|  | (In millions)
New Issues: |  |  |  |
Unsecured notes |  | $ | 1,050 |  |  | $ | 300 |
Unsecured convertible notes |  | 1,500 |  |  | — |
FMBs |  | 600 |  |  | — |
|  | $ | 3,150 |  |  | $ | 300 |
Redemptions / Repayments: |  |  |  |
Unsecured notes |  | $ | (494) |  |  | $ | (2,636) |
FMBs |  | — |  |  | (200) |
Senior secured notes |  | (43) |  |  | (67) |
|  | $ | (537) |  |  | $ | (2,903) |
Distributions to FET minority interest |  | $ | (63) |  |  | $ | (15) |
Capital Call from FET minority interest |  | — |  |  | 9 |
Short-term borrowings, net |  | 170 |  |  | — |
Proceeds from FET minority interest sale, net of transaction costs |  | — |  |  | 2,348 |
Common stock dividend payments |  | (670) |  |  | (667) |
Other |  | (68) |  |  | (140) |
|  | $ | 1,982 |  |  | $ | (1,068) |

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FirstEnergy had the following redemptions and issuances during the nine months ended September 30, 2023:

Company | Type | Redemption / Issuance Date | Interest Rate | Maturity | Amount (In millions) | Description
Redemptions (1)
ME | Unsecured Notes | March, 2023 | 3.50% | 2023 | $300 | ME redeemed unsecured notes that became due.
FE | Unsecured Notes | May, 2023 | 7.375% | 2031 | $194 | FE repurchased approximately $194 million of the principal amount of its 2031 Notes through the open market for $228 million including a premium of approximately $34 million ($27 million after-tax). In addition, FE recognized approximately $2 million ($1 million after-tax) of deferred cash flow hedge losses associated with the FE debt redemptions.
Issuances
WP | FMBs | January, 2023 | 5.29% | 2033 | $50 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MAIT | Unsecured Notes | February, 2023 | 5.39% | 2033 | $175 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
ME | Unsecured Notes | March, 2023 | 5.20% | 2028 | $425 | Proceeds were used to repay short-term borrowings, including borrowings incurred to repay, at maturity, the $300 million aggregate principal amount of ME's 3.50% unsecured notes due March 15, 2023, to finance capital expenditures and for other general corporate purposes.
PN | Unsecured Notes | March, 2023 | 5.15% | 2026 | $300 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
ATSI | Unsecured Notes | May, 2023 | 5.13% | 2033 | $150 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
FE | Unsecured Convertible Notes | May, 2023 | 4.00% | 2026 | $1,500 | Proceeds were used to repay short-term borrowings, to repurchase a portion of its 2031 Notes, to fund the qualified pension plan and for other general corporate purposes.
PE | FMBs | September, 2023 | 5.64% | 2028 | $100 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
PE | FMBs | September, 2023 | 5.73% | 2030 | $50 | Proceeds were used to repay short-term borrowings, to finance capital expenditures and for other general corporate purposes.
MP | FMBs | September, 2023 | 5.85% | 2034 | $400 | Proceeds are for repaying short-term and long-term debt, including MP’s $400 million 4.1% FMBs due April 15, 2024, to finance capital expenditures and for other general corporate purposes.

(1) Excludes principal payments on securitized bonds.
FE or its affiliates may, from time to time, seek to retire or purchase outstanding debt through open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as FE or its affiliates may determine, and will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.
Convertible Notes
As discussed above, on May 4, 2023, FE issued $1.5 billion aggregate principal amount of 2026 Convertible Notes, with a fixed interest rate of 4.00% per year, payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2023. The 2026 Convertible Notes are unsecured and unsubordinated obligations of FE, and will mature on May 1, 2026, unless required to be converted or repurchased in accordance with their terms. However, FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date. The 2026 Convertible Notes are included within “Long-term debt and other long-term obligations” on the FirstEnergy Consolidated Balance Sheets. Proceeds from the issuance were approximately $1.48 billion, net of issuance costs.
Prior to the close of business on the business day immediately preceding February 1, 2026, the 2026 Convertible Notes will be convertible at the option of the holders only under the following conditions:
•During any calendar quarter, if the last reported sale price of FE’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•During the five consecutive business day period immediately after any 10 consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Convertible Notes for each trading day of such 10 trading day
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period was less than 98% of the product of the last reported sale price of FE’s common stock and the conversion rate on each such trading day; or
•Upon the occurrence of certain corporate events specified in the indenture governing the 2026 Convertible Notes.
On and after February 1, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes at their option at any time at the conversion rate then in effect, irrespective of these conditions. FE will settle conversions of the 2026 Convertible Notes, if any, by paying cash up to the aggregate principal amount of the 2026 Convertible Notes being converted and by paying cash or delivering shares of FE’s common stock (or a combination of each), at its election, of its conversion obligation in excess of the aggregate principal amount of the 2026 Convertible Notes being converted.
The conversion rate for the 2026 Convertible Notes will initially be 21.3620 shares of FE’s common stock per $1,000 principal amount of the 2026 Convertible Notes (equivalent to an initial conversion price of approximately $46.81 per share of FE’s common stock). The initial conversion price of the 2026 Convertible Notes represents a premium of approximately 20% over the last reported sale price of FE’s common stock on the New York Stock Exchange on May 1, 2023. The conversion rate and the corresponding conversion price will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. FE may not elect to redeem the 2026 Convertible Notes prior to the maturity date.
If FE undergoes a fundamental change (as defined in the relevant indenture), subject to certain conditions, holders of the 2026 Convertible Notes may require FE to repurchase for cash all or any portion of their 2026 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date (as defined in the relevant indenture). In addition, if certain fundamental changes occur, FE may be required, in certain circumstances, to increase the conversion rate for any 2026 Convertible Notes converted in connection with such fundamental changes by a specified number of shares of its common stock.
GUARANTEES AND OTHER ASSURANCES
FirstEnergy has various financial and performance guarantees and indemnifications, which are issued in the normal course of business. These contracts include performance guarantees, stand-by LOCs, debt guarantees, surety bonds and indemnifications. FirstEnergy enters into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. The maximum potential amount of future payments FE and its subsidiaries could be required to make under these guarantees as of September 30, 2023, was $818 million, as summarized below:

Guarantees and Other Assurances |  | Maximum Exposure
|  | (In millions)
FE’s Guarantees on Behalf of its Consolidated Subsidiaries (1) |  |
Deferred compensation arrangements |  | $ | 431 |
Vehicle leases |  | 75 |
Other |  | 15 |
|  | 521 |
FE’s Guarantees on Other Assurances |  |
Surety Bonds (2) |  | 175 |
Deferred compensation arrangements |  | 118 |
LOCs |  | 4 |
|  | 297 |
Total Guarantees and Other Assurances |  | $ | 818 |

(1) During the third quarter of 2023, FE was required by PJM to issue a guarantee to cover non-performance until FE PA is able to provide audited financial statements to PJM, which is expected to occur in early 2025. The guarantee is expected to be immaterial to FE.
(2) During the second quarter of 2023, FE was released from its $169 million surety bond to the Pennsylvania Department of Environmental Protection related to the Little Blue Run Disposal Impoundment.
Collateral and Contingent-Related Features
In the normal course of business, FE and its subsidiaries may enter into physical or financially settled contracts for the sale and purchase of electric capacity, energy, fuel and emission allowances. Certain agreements contain provisions that require FE or its subsidiaries to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon FE’s or its subsidiaries’ credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty.
As of September 30, 2023, $89 million of net cash collateral has been posted by FE or its subsidiaries and is included in “Prepaid taxes and other current assets” on FirstEnergy’s Consolidated Balance Sheets. FE or its subsidiaries are holding $29 million of
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net cash collateral as of September 30, 2023, from certain generation suppliers, and such amount is included in “Other current liabilities” on FirstEnergy’s Consolidated Balance Sheets.
These credit-risk-related contingent features stipulate that if the subsidiary were to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating), it would be required to provide additional collateral. The following table discloses the potential additional credit rating contingent contractual collateral obligations as of September 30, 2023:

Potential Collateral Obligations |  |  |  |  |  | Utilities and Transmission Companies |  | FE |  | Total
|  |  | (In millions)
Contractual Obligations for Additional Collateral |  |  |  |  |  |  |  |  |  |
Upon further downgrade |  |  |  |  |  | $ | 63 |  |  | $ | — |  |  | $ | 63 |
Surety bonds (collateralized amount) (1) |  |  |  |  |  | 80 |  |  | 79 |  |  | 159 |
Total Exposure from Contractual Obligations |  |  |  |  |  | $ | 143 |  |  | $ | 79 |  |  | $ | 222 |

(1) Surety bonds are not tied to a credit rating. Surety bonds’ impact assumes maximum contractual obligations, which is ordinarily 100% of the face amount of the surety bond except with respect to $39 million of surety bond obligations for which the collateral obligation is capped at 60% of the face amount, and typical obligations require 30 days to cure. During the second quarter of 2023, FE was released from its $169 million surety bond to the Pennsylvania Department of Environmental Protection related to the Little Blue Run Disposal Impoundment.
MARKET RISK INFORMATION
FirstEnergy uses various market risk sensitive instruments, including derivative contracts, primarily to manage the risk of price and interest rate fluctuations. FirstEnergy’s Enterprise Risk Management Committee, comprised of members of senior management, provides general oversight for risk management activities throughout FirstEnergy.
Commodity Price Risk
FirstEnergy has limited exposure to financial risks resulting from fluctuating commodity prices, such as prices for electricity, coal and energy transmission. FirstEnergy’s Risk Management Department and Enterprise Risk Management Committee are responsible for promoting the effective design and implementation of sound risk management programs and overseeing compliance with corporate risk management policies and established risk management practice.
The valuation of derivative contracts is based on observable market information. As of September 30, 2023, FirstEnergy has a net asset of $7 million in non-hedge derivative contracts that are related to FTRs at certain of the Utilities. FTRs are subject to regulatory accounting and do not impact earnings. See Note 6, “Fair Value Measurements,” of the Notes to Consolidated Financial Statements for additional details on FirstEnergy’s FTRs.
Equity Price Risk
As of September 30, 2023, the FirstEnergy pension plan assets were allocated approximately as follows: 34% in equity securities, 20% in fixed income securities, 9% in alternatives, 11% in real estate, 18% in private debt/equity, 4% in derivatives and 4% in cash and short-term securities. As a result of the voluntary cash contribution discussed below, FirstEnergy does not currently expect to have a required contribution to the pension plan through 2027 based on the 7.7% actual return through April 30, 2023, and various assumptions, including an expected rate of return on assets of 5.3% (8.0% on an annualized basis) for May 1, 2023 through December 31, 2023. However, FirstEnergy may elect to make additional contributions to the pension plan voluntarily in the future. As of September 30, 2023, FirstEnergy’s OPEB plan assets were allocated approximately as follows: 49% in equity securities, 48% in fixed income securities and 3% in cash and short-term securities. See Note 4, “Pension and Other Post-Employment Benefits,” of the Notes to Consolidated Financial Statements for additional details on FirstEnergy’s pension and OPEB plans.
In the nine months ended September 30, 2023, FirstEnergy’s OPEB plan assets have gained approximately 5.9% as compared to an annualized expected return on plan assets of 7.0%. During the second quarter of 2023, FirstEnergy remeasured its pension plan assets as of April 30, 2023 as a result of the voluntary contribution discussed below. Actual returns on the pension assets through the date of the voluntary contribution were approximately 7.7%, as compared to expected return on assets of 2.67% (8.0% on an annualized basis). From May 1, 2023, through September 30, 2023, the pension plan assets lost approximately 7.8% as compared to expected return on assets of 3.33% (8.0% on an annualized basis).
Interest Rate Risk
FirstEnergy recognizes net actuarial gains or losses for its pension and OPEB plans in the fourth quarter of each year and whenever a plan is determined to qualify for a remeasurement (which occurred during the second quarter of 2023). A primary factor contributing to these actuarial gains and losses are changes in the discount rates used to value pension and OPEB obligations as of the measurement date and the difference between expected and actual returns on the plans’ assets.
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The remaining components of pension and OPEB expense, primarily service costs, interest cost on obligations, expected return on plan assets and amortization of prior service costs, are set at the beginning of the calendar year (unless a remeasurement is triggered) and are recorded on a monthly basis. Changes in asset performance and discount rates will not impact these pension costs for 2023, unless an additional remeasurement were to be triggered during the year, however, future years could be impacted by changes in the market.
On May 12, 2023, FirstEnergy made a $750 million voluntary cash contribution to the qualified pension plan. The size of the voluntary contribution made on May 12, 2023, in relation to total pension assets triggered a remeasurement of the pension plan. FirstEnergy elected the practical expedient to remeasure pension plan assets and obligations as of April 30, 2023, which is the month-end closest to the date of the voluntary contribution.
FirstEnergy utilizes a spot rate approach in the estimation of the components of benefit cost by applying specific spot rates along the full yield curve to the relevant projected cash flows. The discount rate used to measure pension obligations was 4.94% as of April 30, 2023 and 5.23% as of December 31, 2022 compared to 5.87% as of September 30, 2023. The discount rate used to measure OPEB obligations was 5.16% as of December 31, 2022 as compared to 5.79% as of September 30, 2023.
The final discount rate and return or loss on plan assets as of the year-end remeasurement date is difficult to predict based on the currently volatile equity markets and interest rate environment. As a result, FirstEnergy is unable to determine or meaningfully project the mark-to-market adjustment, or estimate a reasonable range of adjustment, that will be recorded as of December 31, 2023.
FirstEnergy’s 2021 Credit Facilities and 2023 Credit Facilities bear interest at fluctuating interest rates, primarily based on SOFR, including term SOFR and daily simple SOFR. FirstEnergy has not hedged its interest rate exposure with respect to its floating rate debt. Accordingly, FirstEnergy’s interest expense for any particular period will fluctuate based on SOFR and other variable interest rates. Interest rates have increased significantly, which has caused the rate and interest expense on borrowings under the various FirstEnergy credit facilities to be significantly higher.
Economic Conditions
Economic conditions following the global pandemic have increased supply chain lead times across numerous material categories, with some as much as tripling from pre-pandemic lead times. Some key suppliers have struggled with labor shortages and raw material availability, which along with inflationary pressure that appears to be moderating, have increased costs and decreased the availability of certain materials, equipment and contractors. FirstEnergy has taken steps to mitigate these risks and does not currently expect service disruptions or any material impact on its capital spending plan. However, the situation remains fluid and a prolonged continuation or further increase in supply chain disruptions could have an adverse effect on FirstEnergy’s results of operations, cash flow and financial condition. Additionally, interest rates have increased significantly, which has caused the interest expense on borrowings under the various FirstEnergy credit facilities and new capital market issuances to be significantly higher.
CREDIT RISK
Credit risk is the risk that FirstEnergy would incur a loss as a result of nonperformance by counterparties of their contractual obligations. FirstEnergy maintains credit policies and procedures with respect to counterparty credit (including a requirement that counterparties maintain specified credit ratings) and require other assurances in the form of credit support or collateral in certain circumstance in order to limit counterparty credit risk. FirstEnergy has concentrations of suppliers and customers among electric utilities, financial institutions and energy marketing and trading companies. These concentrations may impact FirstEnergy’s overall exposure to credit risk, positively or negatively, as counterparties may be similarly affected by changes in economic, regulatory or other conditions. In the event an energy supplier of the Ohio Companies, Pennsylvania Companies, JCP&L or PE defaults on its obligation, the affected company would be required to seek replacement power in the market. In general, subject to regulatory review or other processes, it is expected that appropriate incremental costs incurred by these entities would be recoverable from customers through applicable rate mechanisms, thereby mitigating the financial risk for these entities. FirstEnergy’s credit policies to manage credit risk include the use of an established credit approval process, daily credit mitigation provisions, such as margin, prepayment or collateral requirements. FirstEnergy and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties’ credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit.
OUTLOOK
INCOME TAXES
On August 16, 2022, President Biden signed into law the IRA of 2022, which, among other things, imposes a new 15% corporate AMT based on AFSI applicable to corporations with a three-year average AFSI over $1 billion. The AMT is effective for the 2023 tax year and, if applicable, corporations must pay the greater of the regular corporate income tax or the AMT. Although NOL carryforwards created through the regular corporate income tax system cannot be used to reduce the AMT, financial statement
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net operating losses can be used to reduce AFSI and the amount of AMT owed. The IRA of 2022 as enacted requires the U.S. Treasury to provide regulations and other guidance necessary to administer the AMT, including further defining allowable adjustments to determine AFSI, which directly impacts the amount of AMT to be paid. Based on interim guidance issued by the U.S. Treasury in late December 2022, FirstEnergy continues to believe that it is more likely than not it will be subject to the AMT beginning in 2023. Accordingly, FirstEnergy made a first quarter estimated payment of AMT of approximately $49 million in April 2023. In June 2023, the U.S. Treasury issued additional guidance that eliminated the requirement of corporations to include AMT in quarterly estimated tax payments, pending further guidance on the application and administration of AMT. In September 2023, the U.S. Treasury issued additional guidance clarifying certain aspects of ASFI, which FirstEnergy is currently assessing but does not believe will have a material impact on its position. Therefore, as a result of guidance issued to date, current forecast of AMT obligation, and the amount of AMT already paid in April 2023, FirstEnergy does not expect to make any additional AMT payments in 2023. Until final U.S. Treasury regulations are issued, the amount of AMT FirstEnergy pays could be significantly different than current estimates or it may not be a payer at all. The regulatory treatment of the impacts of this legislation will also be subject to the discretion of the FERC and state public utility commissions. Any adverse development in this legislation, including guidance from the U.S. Treasury and/or the IRS or unfavorable regulatory treatment, could reduce FirstEnergy’s future cash flows and impact financial condition.
As discussed above, FirstEnergy expects to close on the sale of an additional 30% interest in FET in 2024. As a result of the expected additional sale in FET, FirstEnergy recognized a charge to income tax expense in the fourth quarter of 2022 of approximately $752 million, representing the deferred tax liability associated with the deferred tax gain on the initial 19.9% sale of FET that closed in May 2022, such deferred gain consisting of consideration received on the sale and the recapture of estimated negative tax basis in FET impacted by taxable income and loss among other factors. During the three months ended September 30, 2023, FirstEnergy filed its 2022 consolidated federal income tax return, resulting in an immaterial change to the deferred tax liability previously recognized. However, the ultimate tax gain related to the sale of ownership interests in FET is subject to change based on the final computation of the negative tax basis described above in conjunction with the closing of the additional 30% sale in 2024.
STATE REGULATION
Each of the Utilities' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the states in which it operates - in Maryland by the MDPSC, in New Jersey by the NJBPU, in Ohio by the PUCO, in Pennsylvania by the PPUC, in West Virginia by the WVPSC and in New York by the NYPSC. The transmission operations of PE in Virginia, ATSI in Ohio, and the Transmission Companies in Pennsylvania are subject to certain regulations of the VSCC, PUCO and PPUC, respectively. In addition, under Ohio law, municipalities may regulate rates of a public utility, subject to appeal to the PUCO if not acceptable to the utility. Further, if any of the FirstEnergy affiliates were to engage in the construction of significant new transmission facilities, depending on the state, they may be required to obtain state and/or local regulatory authorization to site, construct and operate the new transmission facility.
MARYLAND
PE operates under MDPSC approved base rates that were effective as of March 23, 2019. PE also provides SOS pursuant to a combination of settlement agreements, MDPSC orders and regulations, and statutory provisions. SOS supply is competitively procured in the form of rolling contracts of varying lengths through periodic auctions that are overseen by the MDPSC and a third-party monitor. Although settlements with respect to SOS supply for PE customers have expired, service continues in the same manner until changed by order of the MDPSC. PE recovers its costs plus a return for providing SOS.
On March 22, 2023, PE filed a base rate case with the MDPSC, utilizing a test year based on twelve months of actual 2022 data. The base rate case requests an annual increase in base distribution rates of $50.4 million, plus a request to establish a regulatory asset (or liability) to recover (or refund) in a subsequent base rate case the net differences between the amount of pension and OPEB expense requested in the proceeding (based on average expense from 2018 to 2022) and the actual annual amount each year using the delayed recognition method. The rate case additionally requests approval to continue an EDIS to fund three service reliability and resiliency programs, two new proposed programs to assist low-income customers and cost recovery of certain expenses associated with PE’s pilot electric vehicle charger program and its COVID-19 pandemic response. On October 18, 2023, the MDPSC approved an annual increase in base distribution rates of $28 million, effective October 19, 2023. The order denied PE’s request to establish a pension/OPEB regulatory asset (or liability), allowed recovery of most COVID-19 deferred costs; and rejected the continuation of PE’s EDIS, as PE's reliability has improved such that the surcharge recovery mechanism is no longer merited at this time. The MDPSC also ordered an independent audit of certain allocations from FESC to PE and denied recovery of approximately $12 million in rate base associated with certain corporate support costs recorded to capital accounts resulting from the FERC Audit.
The EmPOWER Maryland program requires each electric utility to file a plan to reduce electric consumption and demand 0.2% per year, up to the ultimate goal of 2% annual savings, for the duration of the 2021-2023 EmPOWER Maryland program cycles to the extent the MDPSC determines that cost-effective programs and services are available. PE's approved 2021-2023 EmPOWER Maryland plan continues and expands upon prior years' programs for a projected total investment of approximately $148 million over the three-year period. PE recovers program investments with a return through an annually reconciled surcharge, with most costs subject to recovery over a five-year period with a return on the unamortized balance. On October 28,
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2022, PE submitted its plan, as ordered by the MDPSC, to recover all unamortized balances by the scheduled expiration of the EmPOWER program on December 31, 2029. At the further direction of the MDPSC, PE filed a revised plan on January 11, 2023. Maryland law only allows for the utility to recover lost distribution revenue attributable to energy efficiency or demand reduction programs through a base rate case proceeding. On August 1, 2023, PE filed its proposed plan for the 2024-2026 cycle as required by the MDPSC. Consistent with the December 29, 2022, order by the MDPSC phasing out the ability of Maryland utilities to earn a return on EmPOWER investments, PE will be required to expense 33% of its EmPOWER program costs in 2024, 67% in 2025 and 100% in 2026. Notwithstanding the order to phase out PE’s ability to earn a return on its EmPOWER investments, all previously unamortized costs will continue to earn a return and be collected by the end of 2029, consistent with the plan PE submitted on January 11, 2023. Additionally at the direction of the MDPSC, PE together with other Maryland utilities are required to address GHG reductions in addition to energy efficiency. In compliance with the MDPSC directive, PE submitted three scenarios with projected costs over a three-year cycle of $310 million, $354 million, and $510 million, respectively. Hearings on the proposed plans for all Maryland utilities are scheduled to begin on November 6, 2023.
On April 17, 2023, PE submitted a proposal to the MDPSC seeking approval to end its PPA with the Warrior Run generating station. The PPA for Warrior Run was a requirement of the Public Utility Regulatory Policies Act of 1978. PE’s Maryland customers currently pay a surcharge on their electric bill in connection with the Warrior Run PPA, which fluctuates from year to year based on the difference between what PE pays for the output of the plant and what PE is able to recover by reselling that output into PJM. PE negotiated a termination of the PPA, which the MDPSC approved on June 21, 2023, and became effective June 28, 2023, requiring it to pay Warrior Run a fixed amount of $51 million annually through 2029, for a total of $357 million. During the second quarter of 2023, a liability was established for the $357 million termination fee, of which $55 million was included in “Other current liabilities” and $302 million in “Other non-current liabilities”, and as the cost of the termination fee will be recovered through the current surcharge, an offsetting regulatory asset was established on FirstEnergy’s Consolidated Balance Sheets, and results in no impact to FirstEnergy’s or PE’s current or future earnings and is expected to result in savings for PE’s Maryland customers. On July 26, 2023, the MDPSC approved the change in surcharge, effective August 1, 2023, after previously approving the termination of the agreement.
NEW JERSEY
JCP&L operates under NJBPU approved rates that took effect as of January 1, 2021, and were effective for customers as of November 1, 2021. JCP&L provides BGS for retail customers who do not choose a third-party EGS and for customers of third- party EGSs that fail to provide the contracted service. All New Jersey EDCs participate in this competitive BGS procurement process and recover BGS costs directly from customers as a charge separate from base rates.
On March 16, 2023, JCP&L filed a base rate case with the NJBPU, utilizing a test year based on six months of actual data for the second half of calendar year 2022, and six months of forecasted data for the first half of calendar year 2023. The rate case requests an annual net increase in base distribution revenues of approximately $185 million, plus a request to establish a regulatory asset (or liability) to recover (or refund) in a subsequent base rate case the net differences between the amount of pension and OPEB expense requested in the proceeding (based on 2023 expense) and the actual annual amount each year using the delayed recognition method. On August 7, 2023, JCP&L updated its base rate case to provide actual test-year data for the first quarter of calendar year 2023 and update its proposed annual net increase in base rate distribution revenues to approximately $192 million. In addition to the above, JCP&L’s request includes, among other things, approval of two new proposed programs to assist low-income customers, cost recovery of certain investments and expenses associated with its electric vehicle and AMI programs, an update of its depreciation rates, modifications to its storm cost recovery, and tariff modifications to update standard construction costs. A procedural schedule was adopted with evidentiary hearings to be held the week of January 8, 2024. On October 17, 2023, JCP&L requested a suspension of the procedural schedule to enter into formal settlement discussions, which all parties agreed and the administrative law judge granted the same day.
JCP&L has instituted energy efficiency and peak demand reduction programs in accordance with the New Jersey Clean Energy Act as approved by the NJBPU in April 2021. The NJBPU approved plans include recovery of lost revenues resulting from the programs and a three-year plan including total program costs of $203 million, of which $160 million of investment is recovered over a ten-year amortization period with a return as well as operations and maintenance expenses and financing costs of $43 million recovered on an annual basis.
On March 6, 2023, the NJBPU issued final rules modifying its regulations to reflect its CTA policy in base rate cases to: (i) calculate savings using a five-year look back from the beginning of the test year; (ii) allocate 100% of CTA savings to customers; and (iii) exclude transmission assets of EDCs in the savings calculation. The final rules of practice were applied by JCP&L in its most recent base rate case filing described above.
On October 28, 2020, the NJBPU approved a stipulated settlement between JCP&L and various parties, resolving JCP&L’s request for distribution base rate increase. The settlement provided for a $94 million annual base distribution revenues increase for JCP&L based on an ROE of 9.6%, which became effective for customers on November 1, 2021. The settlement additionally provided that JCP&L would be subject to a management audit, which began in May 2021. On April 12, 2023, the NJBPU accepted the final management audit report for filing purposes and ordered that interested stakeholders file comments on the report by May 22, 2023, which deadline was extended until July 31, 2023. JCP&L filed its comments on July 31, 2023. The parties have filed responses.
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On July 2, 2020, the NJBPU issued an order allowing New Jersey utilities to track and create a regulatory asset for future recovery of all prudently incurred incremental costs arising from the COVID-19 pandemic beginning March 9, 2020 and continuing until the New Jersey Governor issues an order stating that the COVID-19 pandemic is no longer in effect. New Jersey utilities can request recovery of such regulatory asset in a stand-alone COVID-19 regulatory asset filing or future base rate case. On October 28, 2020, the NJBPU issued an order expanding the scope of the proceeding to examine all pandemic issues, including recovery of the COVID-19 regulatory assets, by way of a generic proceeding. No moratorium on residential disconnections remains in effect for investor-owned electric utilities such as JCP&L. Legislation was enacted on March 25, 2022, prohibiting utilities from disconnecting electric service to customers that have applied for utility bill assistance before June 15, 2022 until such time as the state agency administering the assistance program makes a decision on the application and further requiring that all utilities offer a deferred payment arrangement meeting certain minimum criteria after the state agency’s decision on the application has been made. On July 17, 2023, JCP&L submitted a stand-alone filing to recover approximately $31 million, through October 1, 2023, in incremental costs and interest incurred during the COVID-19 pandemic.
On September 17, 2021, in connection with Mid-Atlantic Offshore Development, LLC, a transmission company jointly owned by Shell New Energies US and EDF Renewables North America, JCP&L submitted a proposal to the NJBPU and PJM to build transmission infrastructure connecting offshore wind-generated electricity to the New Jersey power grid. On October 26, 2022, the JCP&L proposal was accepted, in part, in an order issued by NJBPU. The proposal, as accepted, included approximately $723 million in investments for JCP&L to both build new and upgrade existing transmission infrastructure. JCP&L’s proposal projects an investment ROE of 10.2% and includes the option for JCP&L to acquire up to a 20% equity stake in Mid-Atlantic Offshore Development, LLC. The resulting rates associated with the project are expected to be shared among the ratepayers of all New Jersey electric utilities. On April 17, 2023, JCP&L applied for the FERC “abandonment” transmission rates incentive, which would provide for recovery of 100% of the cancelled prudent project costs that are incurred after the incentive is approved, and 50% of the costs incurred prior to that date, in the event that some or all of the project is cancelled for reasons beyond JCP&L’s control. FERC staff subsequently requested additional information on JCP&L’s application, which JCP&L provided. On August 21, 2023, FERC approved JCP&L’s application, effective August 22, 2023. Construction is expected to begin in 2025. Consistent with the commitments made in its proposal to the NJBPU, JCP&L intends to pursue an opportunity to finance a portion of the project using low-interest rate loans available under the United States Department of Energy’s Energy Infrastructure Reinvestment Program of the IRA of 2022. JCP&L anticipates submitting the first part of its two-part application in the fourth quarter of 2023, with the second part due in January 2024.
OHIO
The Ohio Companies operate under PUCO-approved base distribution rates that became effective in 2009. The Ohio Companies currently operate under ESP IV, effective June 1, 2016 and continuing through May 31, 2024, that continues the supply of power to non-shopping customers at a market-based price set through an auction process. ESP IV also continues the Rider DCR, which supports continued investment related to the distribution system for the benefit of customers, with increased revenue caps of $20 million per year from June 1, 2019 through May 31, 2022; and $15 million per year from June 1, 2022 through May 31, 2024. In addition, ESP IV includes: (1) continuation of a base distribution rate freeze through May 31, 2024; (2) a goal across FirstEnergy to reduce CO 2 emissions by 90% below 2005 levels by 2045; and (3) contributions, totaling $51 million to: (a) fund energy conservation programs, economic development and job retention in the Ohio Companies’ service territories; (b) establish a fuel-fund in each of the Ohio Companies’ service territories to assist low-income customers; and (c) establish a Customer Advisory Council to ensure preservation and growth of the competitive market in Ohio.
On April 5, 2023, the Ohio Companies filed an application with the PUCO for approval of ESP V, for an eight-year term beginning June 1, 2024, and continuing through May 31, 2032. ESP V proposes to continue providing power to non-shopping customers at market-based prices set through an auction process, with process enhancements designed to reduce costs to customers. ESP V also proposes to continue riders supporting investment in the Ohio Companies’ distribution system, including Rider DCR with annual revenue cap increases of $15 to $21 million per year, based on reliability performance, and Rider AMI for recovery of approved grid modernization investments. ESP V proposes new riders to support continued maintenance of the distribution system, including vegetation management and storm restoration operating expense. In addition, ESP V proposes four-year energy efficiency and peak demand reduction programs for residential and commercial customers, with cost recovery spread over eight years. ESP V further includes a commitment to spend $52 million in total over the eight-year term, without recovery from customers, on initiatives to assist low-income customers, education and incentives to help ensure customers have good experiences with electric vehicles. Hearings are scheduled to commence on November 7, 2023.
On May 16, 2022, the Ohio Companies filed their application for determination of the existence of SEET under ESP IV for calendar year 2021, which demonstrated that each of the individual Ohio Companies did not have significantly excessive earnings.
On July 15, 2022, the Ohio Companies filed an application with the PUCO for approval of phase two of their distribution grid modernization plan that would, among other things, provide for the installation of an additional 700 thousand smart meters, distribution automation equipment on approximately 240 distribution circuits, voltage regulating equipment on approximately 220 distribution circuits, and other investments and pilot programs in related technologies designed to provide enhanced customer benefits. The Ohio Companies propose that phase two will be implemented over a four-year budget period with estimated capital
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investments of approximately $626 million and operations and maintenance expenses of approximately $144 million over the deployment period. Under the proposal, costs of phase two of the grid modernization plan would be recovered through the Ohio Companies’ AMI rider, pursuant to the terms and conditions approved in ESP IV. Hearings are scheduled to commence on December 11, 2023.
On September 8, 2020, the OCC filed motions in the Ohio Companies’ corporate separation audit and DMR audit dockets, requesting the PUCO to open an investigation and management audit, hire an independent auditor, and require FirstEnergy to show it did not improperly use money collected from consumers or violate any utility regulatory laws, rules or orders in its activities regarding HB 6. On December 30, 2020, in response to the OCC's motion, the PUCO reopened the DMR audit docket, and directed PUCO staff to solicit a third-party auditor and conduct a full review of the DMR to ensure funds collected from customers through the DMR were only used for the purposes established in ESP IV. On June 2, 2021, the PUCO selected an auditor and the auditor filed the final audit report on January 14, 2022, which made certain findings and recommendations. The report found that spending of DMR revenues was not required to be tracked, and that DMR revenues, like all rider revenues, are placed into the regulated money pool as a matter of routine, where the funds lose their identity. Therefore, the report could not suggest that DMR funds were used definitively for direct or indirect support for grid modernization. The report also concluded that there was no documented evidence that ties revenues from the DMR to lobbying for the passage of HB 6, but also could not rule out with certainty uses of DMR funds to support the passage of HB 6. The report further recommended that the regulated companies' money pool be audited more frequently and the Ohio Companies adopt formal dividend policies. Final comments and responses were filed by parties during the second quarter of 2022.
On September 15, 2020, the PUCO opened a new proceeding to review the political and charitable spending by the Ohio Companies in support of HB 6 and the subsequent referendum effort, and directing the Ohio Companies to show cause, demonstrating that the costs of any political or charitable spending in support of HB 6, or the subsequent referendum effort, were not included, directly or indirectly, in any rates or charges paid by customers. The Ohio Companies initially filed a response stating that the costs of any political or charitable spending in support of HB 6, or the subsequent referendum effort, were not included, directly or indirectly, in any rates or charges paid by customers, but on August 6, 2021, filed a supplemental response explaining that, in light of the facts set forth in the DPA and the findings of the Rider DCR audit report further discussed below, political or charitable spending in support of HB 6, or the subsequent referendum effort, affected pole attachment rates paid by approximately $15 thousand. On October 26, 2021, the OCC filed a motion requesting the PUCO to order an independent external audit to investigate FE’s political and charitable spending related to HB 6, and to appoint an independent review panel to retain and oversee the auditor. In November and December 2021, parties filed comments and reply comments regarding the Ohio Companies’ original and supplemental responses to the PUCO’s September 15, 2020, show cause directive. On May 4, 2022, the PUCO selected a third-party auditor to determine whether the show cause demonstration submitted by the Ohio Companies is sufficient to ensure that the cost of any political or charitable spending in support of HB 6 or the subsequent referendum effort was not included, directly or indirectly, in any rates or charges paid by ratepayers.
In connection with an ongoing audit of the Ohio Companies’ policies and procedures relating to the code of conduct rules between affiliates, on November 4, 2020, the PUCO initiated an additional corporate separation audit as a result of the FirstEnergy leadership transition announcement made on October 29, 2020, as further discussed below. The additional audit is to ensure compliance by the Ohio Companies and their affiliates with corporate separation laws and the Ohio Companies’ corporate separation plan. The additional audit is for the period from November 2016 through October 2020. The final audit report was filed on September 13, 2021. The audit report makes no findings of major non-compliance with Ohio corporate separation requirements, minor non-compliance with eight requirements, and findings of compliance with 23 requirements. Parties filed comments and reply comments on the audit report.
In connection with an ongoing annual audit of the Ohio Companies’ Rider DCR for 2020, and as a result of disclosures in FirstEnergy’s Form 10-K for the year ended December 31, 2020 (filed on February 18, 2021), the PUCO expanded the scope of the audit on March 10, 2021, to include a review of certain transactions that were either improperly classified, misallocated, or lacked supporting documentation, and to determine whether funds collected from customers were used to pay the vendors, and if so, whether or not the funds associated with those payments should be returned to customers through Rider DCR or through an alternative proceeding. On August 3, 2021, the auditor filed its final report on this phase of the audit, and the parties submitted comments and reply comments on this audit report in October 2021. Additionally, on September 29, 2021, the PUCO expanded the scope of the audit in this proceeding to determine if the costs of the naming rights for FirstEnergy Stadium have been recovered from the Ohio Companies’ customers. On November 19, 2021, the auditor filed its final report, in which the auditor concluded that the FirstEnergy Stadium naming rights expenses were not recovered from Ohio customers. On December 15, 2021, the PUCO further expanded the scope of the audit to include an investigation into an apparent nondisclosure of a side agreement in the Ohio Companies’ ESP IV settlement proceedings, but stayed its expansion of the audit until otherwise ordered by the PUCO.
On August 16, 2022, the U.S. Attorney for the Southern District of Ohio requested that the PUCO stay the above pending HB 6- related matters for a period of six months, which request was granted by the PUCO on August 24, 2022. On February 22, 2023, the U.S. Attorney for the Southern District of Ohio again requested that the PUCO stay the above pending HB-6 related matters for a period of six months, which request was granted by the PUCO on March 8, 2023. On August 10, 2023, the U.S. Attorney for the Southern District of Ohio requested that the PUCO stay the above pending HB 6-related matters for a period of six additional months, which was approved by the PUCO on August 23, 2023. On September 22, 2023, OCC filed an application for rehearing
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challenging the PUCO’s August 23, 2023, order, which the PUCO denied on October 18, 2023. The four cases remain stayed in their entirety, including discovery and motions, and all related procedural schedules are vacated.
In the fourth quarter of 2020, motions were filed with the PUCO requesting that the PUCO amend the Ohio Companies’ riders for collecting the OVEC-related charges required by HB 6 to provide for refunds in the event such provisions of HB 6 are repealed. Neither the Ohio Companies nor FE benefit from the OVEC-related charges the Ohio Companies collect. Instead, the Ohio Companies are further required by HB 6 to remit all the OVEC-related charges they collect to non-FE Ohio electric distribution utilities. The Ohio Companies contested the motions, which are pending before the PUCO.
On May 15, 2023, the Ohio Companies filed their application for determination of the existence of SEET under ESP IV for calendar year 2022, which demonstrated that each of the individual Ohio Companies did not have significantly excessive earnings.
See below for additional details on the government investigations and subsequent litigation surrounding the investigation of HB 6.
PENNSYLVANIA
The Pennsylvania Companies operate under rates approved by the PPUC, effective as of January 27, 2017. On November 18, 2021, the PPUC issued orders to each of the Pennsylvania Companies directing they operate under DSPs for the June 1, 2019 through May 31, 2023 delivery period, which DSPs provide for the competitive procurement of generation supply for customers who do not receive service from an alternative EGS. Under the 2019-2023 DSPs, supply will be provided by wholesale suppliers through a mix of 3, 12 and 24-month energy contracts, as well as two RFPs for 2-year SREC contracts for ME, PN and Penn. On December 14, 2021, the Pennsylvania Companies filed proposed DSPs for provision of generation for the June 1, 2023 through May 31, 2027 delivery period, to be sourced through competitive procurements for customers who do not receive service from an alternative EGS. An evidentiary hearing was held on April 13, 2022, and on April 20, 2022, the parties filed a partial settlement with the PPUC resolving certain of the issues in the proceeding and setting aside the remainder of the issues to be resolved through briefing. The PPUC approved the partial settlement, without modification, on August 4, 2022. Under the 2023-2027 DSPs, supply will be provided through a mix of 12 and 24-month energy contracts, as well as long-term solar PPAs.
Pursuant to Pennsylvania Act 129 of 2008 and PPUC orders, the Pennsylvania Companies implemented energy efficiency and peak demand reduction programs with demand reduction targets, relative to 2007 to 2008 peak demands, at 2.9% MW for ME, 3.3% MW for PN, 2.0% MW for Penn, and 2.5% MW for WP; and energy consumption reduction targets, as a percentage of the Pennsylvania Companies’ historic 2009 to 2010 reference load at 3.1% MWH for ME, 3.0% MWH for PN, 2.7% MWH for Penn, and 2.4% MWH for WP.
Pennsylvania EDCs are permitted to seek PPUC approval of an LTIIP for infrastructure improvements and costs related to highway relocation projects, after which a DSIC may be approved to recover LTIIP costs. On January 16, 2020, the PPUC approved the Pennsylvania Companies’ LTIIPs for the five-year period beginning January 1, 2020 and ending December 31, 2024 for a total capital investment of approximately $572 million for certain infrastructure improvement initiatives. On June 25, 2021, the Pennsylvania Office of Consumer Advocate filed a complaint against Penn’s quarterly DSIC rate, disputing the recoverability of the Companies’ automated distribution management system investment under the DSIC mechanism. On January 26, 2022, the parties filed a joint petition for settlement that resolves all issues in this matter, which was approved by the PPUC without modification on April 14, 2022.
Following the Pennsylvania Companies’ 2016 base rate proceedings, the PPUC ruled in a separate proceeding related to the DSIC mechanisms that the Pennsylvania Companies were not required to reflect federal and state income tax deductions related to DSIC-eligible property in DSIC rates. The decision was appealed to the Pennsylvania Supreme Court and in July 2021 the court upheld the Pennsylvania Commonwealth Court’s reversal of the PPUC’s decision and remanded the matter back to the PPUC for determination as to how DSIC calculations shall account for accumulated deferred income taxes and state taxes. The PPUC issued the order as directed.
On March 6, 2023, FirstEnergy filed applications with the PPUC, NYPSC and FERC seeking approval to consolidate the Pennsylvania Companies into a new, single operating entity. The PA Consolidation includes, among other steps: (a) the transfer of certain Pennsylvania-based transmission assets owned by WP to KATCo, (b) the contribution of Class B equity interests of MAIT currently held by PN and ME to FE (and ultimately transferred to FET as part of the FET Minority Equity Interest Sale), (c) the formation of FE PA and (d) the merger of each of the Pennsylvania Companies with and into FE PA, with FE PA surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies. Following completion of the PA Consolidation, FE PA will be FE’s only regulated utility in Pennsylvania encompassing the retail utility operations previously conducted individually by the Pennsylvania Companies. Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC and PPUC. On August 14, 2023, FERC issued an order approving the proposed PA Consolidation. On August 30, 2023, the parties filed a settlement agreement recommending that the PPUC approve PA Consolidation subject to the terms of the settlement, which include among other things, $650 thousand over five years in bill assistance for income-eligible customers and the Pennsylvania Companies’ commitment to (i) not seek full distribution rate unification until the earlier of 10 years or in the fourth base rate case filed after January 1, 2025 and (ii) track and share with
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customers certain operational and administrative efficiency costs associated with the PA Consolidation. On October 19, 2023, the ALJs issued a decision recommending that the PPUC approve, without modification, the August 30, 2023 settlement agreement. The settlement agreement is pending PPUC approval. Subject to receipt of all regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.
On May 5, 2023, FirstEnergy and Brookfield submitted applications to FERC and to the PPUC to facilitate the FET Minority Equity Interest Sale. On May 12, 2023, the parties also filed an application with the VSCC, which was approved on June 20, 2023. On August 14, 2023, FERC issued an order approving the FET Minority Equity Interest Sale. On August 7, 2023, the PPUC’s presiding officers held a prehearing conference, which, among other things, set evidentiary hearings for early November 2023. The parties also must obtain successful review of the transaction by the CFIUS.
WEST VIRGINIA
MP and PE provide electric service to all customers through traditional cost-based, regulated utility ratemaking and operate under WVPSC-approved rates that became effective in February 2015. MP and PE recover net power supply costs, including fuel costs, purchased power costs and related expenses, net of related market sales revenue through the ENEC. MP’s and PE’s ENEC rate is updated annually.
On August 25, 2022, MP and PE filed with the WVPSC their annual ENEC case requesting an increase in ENEC rates of $183.8 million beginning January 1, 2023, which represents a 12.2% increase to the rates then in effect. The increase was driven by an underrecovery during the review period (July 1, 2021, to June 30, 2022) of approximately $145 million due to higher coal, reagent, and emission allowance expenses. This filing additionally addresses, among other things, the WVPSC’s May 2022 request for a prudence review of current rates. At a hearing on December 8, 2022, the parties in the case presented a unanimous settlement to increase rates by approximately $92 million, effective January 1, 2023, and carry over to MP and PE’s 2023 ENEC case, approximately $92 million at a carrying charge of 4%. In an order dated December 30, 2022, the WVPSC approved the settlement with respect to the proposed rate increase, but MP and PE rates remain subject to a prudence review in their 2023 ENEC case. The order also instructed MP to evaluate the feasibility of purchasing the 1,200 MW Pleasants Power Station and file a summary of the evaluation, which MP and PE filed on March 31, 2023. MP and PE provided the WVPSC with regular status reports throughout the second quarter of 2023 regarding the process of their evaluation. Subsequently, the owner of Pleasants entered into an agreement to sell Pleasants to an indirect wholly owned subsidiary of Omnis Global Technologies, LLC, which transaction closed on August 1, 2023. As a result, MP and PE ceased consideration of the possible purchase of Pleasants and on August 30, 2023, the WVPSC closed the proceeding.
On August 31, 2023, MP and PE filed with the WVPSC their annual ENEC case requesting an increase in ENEC rates of $167.5 million beginning January 1, 2024, which represents a 9.9% increase in overall rates. This increase, which was driven primarily by higher fuel expenses, includes the approximate $92 million carried over from the 2022 ENEC proceeding and a portion of the approximately $267 million underrecovery balance at the end of the review period (July 1, 2022 to June 30, 2023). The remaining $75.6 million of the underrecovery balance not recovered in 2024 will be deferred for collection during 2025, with an annual carrying charge of 4%. A hearing has been set for November 30, 2023.
On November 22, 2021, MP and PE filed with the WVPSC their plan to construct 50 MWs of solar generation at five sites in West Virginia. The plan includes a tariff to offer solar power to West Virginia customers and cost recovery for MP and PE through a surcharge for any solar investment not fully subscribed by their customers. A hearing was held in mid-March 2022 and on April 21, 2022, the WVPSC issued an order approving, effective May 1, 2022, the requested tariff and requiring MP and PE to subscribe at least 85% of the planned 50 MWs before seeking final tariff approval. MP and PE must seek separate approval from the WVPSC to recover any solar generation costs in excess of the approved tariff. On April 24, 2023, MP and PE sought final tariff approval from the WVPSC for three of the five solar sites, representing 30 MWs of generation, and requested approval of a surcharge to recover any costs above the final approved tariff. The first solar generation site is expected to be in-service by the end of 2023 and all construction completed at the other sites no later than the end of 2025 at a total investment cost of approximately $110 million. On August 23, 2023, the WVPSC approved the customer surcharge and granted approval to construct three of the five solar sites.
On January 13, 2023, MP and PE filed a request with the WVPSC seeking approval of new depreciation rates for existing and future capital assets. Specifically, MP and PE are seeking to increase depreciation expense by approximately $76 million per year, primarily for regulated generation-related assets. Any depreciation rates approved by the WVPSC would not become effective until new base rates were established. On August 22, 2023, a unanimous settlement of the case was filed recommending a $33 million per year increase in depreciation expense, effective April 1, 2024. An order from the WVPSC is expected in the first quarter 2024.
On March 2, 2023, the WVPSC ordered an audit of MP and PE focused on: (i) the lobbying and promotional/image building expenses, including those related to HB 6, incurred by MP and PE from 2018 to 2022 (ii) intra-corporate charges, (iii) the accounting for charges included in the ENEC cost recovery accounts of MP and PE during the same time period, and (iv) review and report on the findings, including those specific to MP and PE, set forth in the FERC Audit described below as well as a review and report of the responses by MP and PE thereto. The audit began in September 2023 and is to conclude by year-end with the findings incorporated into the base rate case currently pending before the WVPSC.
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On May 31, 2023, MP and PE filed a base rate case with the WVPSC requesting a total revenue increase of approximately $207 million utilizing a test year of 2022 with adjustments plus a request to establish a regulatory asset (or liability) to recover (or refund) in a subsequent base rate case the net differences between the amount of pension and OPEB expense requested in the proceeding (based on average expense from 2018 to 2022) and the actual annual amount each year using the delayed recognition method. Among other things, the increase includes the approximate $76 million requested in a depreciation case filed on January 13, 2023 and described more fully above, and amounts to support a new low-income customer advocacy program, storm restoration work and service reliability investments. New rates are expected to be effective by the end of March 2024. A hearing has been set for late January 2024.
On August 31, 2023, MP and PE filed its biennial review of their vegetation management program and surcharge. MP and PE have proposed an approximate $17 million increase in the surcharge rates, due to an underrecovery in the prior two-year period and increased forecast costs. An order from the WVPSC is expected by the end of 2023. See “Outlook - Environmental Matters - Clean Water Act" below, for additional details on the EPA's ELG.
FERC REGULATORY MATTERS
Under the Federal Power Act, FERC regulates rates for interstate wholesale sales and transmission of electric power, regulatory accounting and reporting under the Uniform System of Accounts, and other matters, including construction and operation of hydroelectric projects. With respect to their wholesale services and rates, the Utilities, AE Supply and the Transmission Companies are subject to regulation by FERC. FERC regulations require JCP&L, MP, PE, WP and the Transmission Companies to provide open access transmission service at FERC-approved rates, terms and conditions. Transmission facilities of JCP&L, MP, PE, WP and the Transmission Companies are subject to functional control by PJM and transmission service using their transmission facilities is provided by PJM under the PJM Tariff.
FERC regulates the sale of power for resale in interstate commerce in part by granting authority to public utilities to sell wholesale power at market-based rates upon showing that the seller cannot exert market power in generation or transmission or erect barriers to entry into markets. The Utilities and AE Supply each have been authorized by FERC to sell wholesale power in interstate commerce at market-based rates and have a market-based rate tariff on file with FERC, although in the case of the Utilities major wholesale purchases remain subject to review and regulation by the relevant state commissions.
Federally enforceable mandatory reliability standards apply to the bulk electric system and impose certain operating, record-keeping and reporting requirements on the Utilities, AE Supply, and the Transmission Companies. NERC is the Electric Reliability Organization designated by FERC to establish and enforce these reliability standards, although NERC has delegated day-to-day implementation and enforcement of these reliability standards to six regional entities, including RFC. All of the facilities that FirstEnergy operates are located within the RFC region. FirstEnergy actively participates in the NERC and RFC stakeholder processes, and otherwise monitors and manages its companies in response to the ongoing development, implementation and enforcement of the reliability standards implemented and enforced by RFC.
FirstEnergy believes that it is in material compliance with all currently effective and enforceable reliability standards. Nevertheless, in the course of operating its extensive electric utility systems and facilities, FirstEnergy occasionally learns of isolated facts or circumstances that could be interpreted as excursions from the reliability standards. If and when such occurrences are found, FirstEnergy develops information about the occurrence and develops a remedial response to the specific circumstances, including in appropriate cases “self-reporting” an occurrence to RFC. Moreover, it is clear that NERC, RFC and FERC will continue to refine existing reliability standards as well as to develop and adopt new reliability standards. Any inability on FirstEnergy’s part to comply with the reliability standards for its bulk electric system could result in the imposition of financial penalties, or obligations to upgrade or build transmission facilities, that could have a material adverse effect on its financial condition, results of operations, and cash flows.
FERC Audit
FERC’s Division of Audits and Accounting initiated a nonpublic audit of FESC in February 2019. Among other matters, the audit is evaluating FirstEnergy’s compliance with certain accounting and reporting requirements under various FERC regulations. On February 4, 2022, FERC filed the final audit report for the period of January 1, 2015 through September 30, 2021, which included several findings and recommendations that FirstEnergy has accepted. The audit report included a finding and related recommendation on FirstEnergy’s methodology for allocation of certain corporate support costs to regulatory capital accounts under certain FERC regulations and reporting. Effective in the first quarter of 2022 and in response to the finding, FirstEnergy had implemented a new methodology for the allocation of these corporate support costs to regulatory capital accounts for its regulated distribution and transmission companies on a prospective basis. With the assistance of an independent outside firm, FirstEnergy completed an analysis during the third quarter of 2022 of these costs and how it impacted certain FERC-jurisdictional wholesale transmission customer rates for the audit period of 2015 through 2021. As a result of this analysis, FirstEnergy recorded in the third quarter of 2022 approximately $45 million ($34 million after-tax) in expected customer refunds, plus interest, due to its wholesale transmission customers and reclassified approximately $195 million of certain transmission capital assets to operating expenses for the audit period, of which $90 million ($67 million after-tax) are not expected to be recoverable and impacted FirstEnergy’s earnings since they relate to costs capitalized during stated transmission rate time periods. These
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reclassifications also resulted in a reduction to the Regulated Transmission segment’s rate base by approximately $160 million, which is not expected to materially impact FirstEnergy or the segment’s future earnings. The expected wholesale transmission customer refunds were recognized as a reduction to revenue, and the amount of reclassified transmission capital assets that are not expected to be recoverable were recognized within “Other operating expenses” at the Regulated Transmission segment and on FirstEnergy’s Consolidated Statements of Income. Furthermore, FirstEnergy’s distribution utilities are in the process of addressing the outcomes of the FERC Audit with the applicable state commissions and proceedings, which could result in future charges and/or adjustments to the distribution utilities.
ATSI ROE – Ohio Consumers Counsel v. ATSI, et al.
On February 24, 2022, the OCC filed a complaint with FERC against ATSI, AEP’s Ohio affiliates and AEPSC, and Duke Energy Ohio, LLC asserting that FERC should reduce the ROE utilized in the utilities’ transmission formula rates by eliminating the 50 basis point adder associated with RTO membership, effective February 24, 2022. The OCC contends that this result is required because Ohio law mandates that transmission owning utilities join an RTO and that the 50 basis point adder is applicable only where RTO membership is voluntary. On December 15, 2022, FERC denied the complaint as to ATSI and Duke, but granted it as to AEP. AEP and OCC appealed FERC’s orders to the Sixth Circuit. FirstEnergy is actively participating in the appeal and the case remains pending. FirstEnergy is unable to predict the outcome of this proceeding, but it is not expected to have a material impact.
Transmission ROE Methodology
On March 20, 2020, FERC initiated a rulemaking proceeding on the transmission rate incentives provisions of Section 219 of the 2005 Energy Policy Act. FirstEnergy submitted comments through the Edison Electric Institute and as part of a consortium of PJM Transmission Owners. In a supplemental rulemaking proceeding that was initiated on April 15, 2021, FERC requested comments on, among other things, whether to require utilities that have been members of an RTO for three years or more and that have been collecting an “RTO membership” ROE incentive adder to file tariff updates that would terminate collection of the incentive adder. Initial comments on the proposed rule were filed on June 25, 2021, and reply comments were filed on July 26, 2021. The rulemaking remains pending before FERC. FirstEnergy is a member of PJM and its transmission subsidiaries could be affected by the supplemental proposed rule. FirstEnergy participated in comments on the supplemental rulemaking that were submitted by a group of PJM transmission owners and by various industry trade groups. If there were to be any changes to FirstEnergy's transmission incentive ROE, such changes will be applied on a prospective basis.
Allegheny Power Zone Transmission Formula Rate Filings
On October 29, 2020, MP, PE and WP filed tariff amendments with FERC to implement a forward-looking formula transmission rate, to be effective January 1, 2021. In addition, on October 30, 2020, KATCo filed a proposed new tariff to establish a forward-looking formula rate and requested that the new rate become effective January 1, 2021. In its filing, KATCo explained that while it currently owns no transmission assets, it may build new transmission facilities in the Allegheny zone, and that it may seek required state and federal authorizations to acquire transmission assets from PE and WP by January 1, 2022. These transmission rate filings were accepted for filing by FERC on December 31, 2020, effective January 1, 2021, subject to refund, pending further hearing and settlement procedures and were consolidated into a single proceeding. MP, PE and WP, and KATCo filed uncontested settlement agreements with FERC on January 18, 2023. Also on January 18, 2023, MP, PE and WP filed a motion for interim rates to implement certain aspects of the settled rate. The interim rates were approved by the FERC Chief Administrative Law Judge and took effect on January 1, 2023. As a result of the filed settlement, FirstEnergy recognized a $25 million pre-tax charge during the fourth quarter of 2022, which reflects the difference between amounts originally recorded as assets and amounts which will ultimately be recovered from customers as a result. On May 4, 2023, FERC issued an order approving the settlement agreement without condition or modification. Pursuant to the order, a compliance filing was filed on May 19, 2023, that implemented the terms of the settlement. On June 26, 2023, FERC issued a letter order approving the compliance filing.
Transmission Planning Supplemental Projects: Ohio Consumers Counsel v ATSI, et al.
On September 27, 2023, the OCC filed a complaint against ATSI and PJM and other transmission utilities in Ohio alleging that the PJM Tariff and operating agreement are unjust, unreasonable, and unduly discriminatory because they include no provisions to ensure PJM’s review and approval for the planning, need, prudence and cost-effectiveness of the PJM Tariff Attachment M-3 “Supplemental Projects.” Supplemental Projects are projects that are planned and constructed to address local needs on the transmission system. The OCC demands that FERC: (i) require PJM to review supplemental projects for need, prudence and cost-effectiveness; (ii) appoint an independent transmission monitor to assist PJM in such review; and (iii) require that Supplemental Projects go into rate base only through a “stated rate” procedure whereby prior FERC approval would be needed for projects with costs that exceed an established threshold. Comments are due on November 17, 2023.
ENVIRONMENTAL MATTERS
Various federal, state and local authorities regulate FirstEnergy with regard to air and water quality, hazardous and solid waste disposal, and other environmental matters. While FirstEnergy’s environmental policies and procedures are designed to achieve
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compliance with applicable environmental laws and regulations, such laws and regulations are subject to periodic review and potential revision by the implementing agencies. FirstEnergy cannot predict the timing or ultimate outcome of any of these reviews or how any future actions taken as a result thereof may materially impact its business, results of operations, cash flows and financial condition.
Clean Air Act
FirstEnergy complies with SO 2 and NOx emission reduction requirements under the CAA and SIP by burning lower-sulfur fuel, utilizing combustion controls and post-combustion controls and/or using emission allowances.
CSAPR requires reductions of NOx and SO 2 emissions in two phases (2015 and 2017), ultimately capping SO 2 emissions in affected states to 2.4 million tons annually and NOx emissions to 1.2 million tons annually. CSAPR allows trading of NOx and SO 2 emission allowances between power plants located in the same state and interstate trading of NOx and SO 2 emission allowances with some restrictions. On July 28, 2015, the D.C. Circuit ordered the EPA to reconsider the CSAPR caps on NOx and SO 2 emissions from power plants in 13 states, including West Virginia. This followed the 2014 U.S. Supreme Court ruling generally upholding the EPA’s regulatory approach under CSAPR but questioning whether the EPA required upwind states to reduce emissions by more than their contribution to air pollution in downwind states. The EPA issued a CSAPR Update on September 7, 2016, reducing summertime NOx emissions from power plants in 22 states in the eastern U.S., including West Virginia, beginning in 2017. Various states and other stakeholders appealed the CSAPR Update to the D.C. Circuit in November and December 2016. On September 13, 2019, the D.C. Circuit remanded the CSAPR Update to the EPA citing that the rule did not eliminate upwind states’ significant contributions to downwind states’ air quality attainment requirements within applicable attainment deadlines.
Also in March 2018, the State of New York filed a CAA Section 126 petition with the EPA alleging that NOx emissions from nine states (including West Virginia) significantly contribute to New York’s inability to attain the ozone National Ambient Air Quality Standards. The petition sought suitable emission rate limits for large stationary sources that are allegedly affecting New York’s air quality within the three years allowed by CAA Section 126. On September 20, 2019, the EPA denied New York’s CAA Section 126 petition. On October 29, 2019, the State of New York appealed the denial of its petition to the D.C. Circuit. On July 14, 2020, the D.C. Circuit reversed and remanded the New York petition to the EPA for further consideration. On March 15, 2021, the EPA issued a revised CSAPR Update that addressed, among other things, the remands of the prior CSAPR Update and the New York Section 126 petition. In December 2021, MP purchased NOx emissions allowances to comply with 2021 ozone season requirements. On April 6, 2022, the EPA published proposed rules seeking to impose further significant reductions in EGU NOx emissions in 25 upwind states, including West Virginia, with the stated purpose of allowing downwind states to attain or maintain compliance with the 2015 ozone National Ambient Air Quality Standards. On February 13, 2023, the EPA disapproved 21 SIPs, which was a prerequisite for the EPA to issue a final Good Neighbor Plan or FIP. On June 5, 2023, the EPA issued the final Good Neighbor Plan with an effective date 60 days thereafter. Certain states, including West Virginia, have appealed the disapprovals of their respective SIPs, and some of those states have obtained stays of those disapprovals precluding the Good Neighbor Plan from taking effect in those states. On August 10, 2023, West Virginia was granted an interim stay of the disapproval of its SIP pending a hearing scheduled for October 27, 2023, meaning the Good Neighbor Plan will not take effect in West Virginia until October 27, 2023, at the earliest. In addition, certain states including West Virginia, and certain trade organizations, including the Midwest Ozone Group of which FE is a member, have separately appealed and filed motions to stay the Good Neighbor Plan itself, with more appeals expected. On September 25, 2023, the DC Circuit denied the motions to stay the Good Neighbor Plan. On October 13, 2023, the aggrieved parties filed an Emergency Application for an Immediate Stay of the Good Neighbor Plan with the U.S. Supreme Court. Unless the West Virginia SIP disapproval is stayed after oral argument on October 27, 2023, or the FIP is successfully stayed, the Good Neighbor Plan will be effective in West Virginia in late October 2023, which could cause MP to accelerate certain of its planned capital expenditures to comply with the new rule.
Climate Change
In September 2016, the U.S. joined in adopting the agreement reached on December 12, 2015, at the United Nations Framework Convention on Climate Change meetings in Paris to reduce GHGs. The Paris Agreement’s non-binding obligations to limit global warming to below two degrees Celsius became effective on November 4, 2016. On June 1, 2017, the Trump Administration announced that the U.S. would cease all participation in the Paris Agreement. On January 20, 2021, President Biden signed an executive order re-adopting the agreement on behalf of the U.S. There are several initiatives to reduce GHG emissions at the state, federal and international level. Certain northeastern states are participating in the Regional Greenhouse Gas Initiative and western states led by California, have implemented programs, primarily cap and trade mechanisms, to control emissions of certain GHGs. Additional policies reducing GHG emissions, such as demand reduction programs, renewable portfolio standards and renewable subsidies have been implemented across the nation.
FirstEnergy has pledged to achieve carbon neutrality by 2050 and set an interim goal for a 30% reduction in GHGs within FirstEnergy’s direct operational control (Scope 1) by 2030, based on 2019 levels. Future resource plans to achieve carbon reductions, including potential changes in operations or any determination of retirement dates of the regulated coal-fired generating facilities, will be subject to the West Virginia legislation effective March 7, 2023, which requires prior approval from the West Virginia Public Energy Authority to decommission MP’s generating facilities. FirstEnergy will work collaboratively with regulators in West Virginia to achieve its climate goals. Determination of the useful life of the regulated coal-fired generation
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could result in changes in depreciation, and/or continued collection of net plant in rates after retirement, securitization, sale, impairment, or regulatory disallowances. If MP is unable to recover these costs, it could have a material adverse effect on FirstEnergy’s and/or MP’s financial condition, results of operations, and cash flow. Furthermore, FirstEnergy cannot currently estimate the financial impact of climate change policies, although potential legislative or regulatory programs restricting CO 2 emissions, or litigation alleging damages from GHG emissions, could require material capital and other expenditures or result in changes to its operations.
In December 2009, the EPA released its final “Endangerment and Cause or Contribute Findings for GHGs under the Clean Air Act,” concluding that concentrations of several key GHGs constitute an “endangerment” and may be regulated as “air pollutants” under the CAA and mandated measurement and reporting of GHG emissions from certain sources, including electric generating plants. Subsequently, the EPA released its final CPP regulations in August 2015 to reduce CO 2 emissions from existing fossil fuel-fired EGUs and finalized separate regulations imposing CO 2 emission limits for new, modified, and reconstructed fossil fuel-fired EGUs. Numerous states and private parties filed appeals and motions to stay the CPP with the D.C. Circuit in October 2015. On February 9, 2016, the U.S. Supreme Court stayed the rule during the pendency of the challenges to the D.C. Circuit and U.S. Supreme Court. On March 28, 2017, an executive order, entitled “Promoting Energy Independence and Economic Growth,” instructed the EPA to review the CPP and related rules addressing GHG emissions and suspend, revise or rescind the rules if appropriate. On June 19, 2019, the EPA repealed the CPP and replaced it with the ACE rule that established guidelines for states to develop standards of performance to address GHG emissions from existing coal-fired generation. On January 19, 2021, the D.C. Circuit vacated and remanded the ACE rule declaring that the EPA was “arbitrary and capricious” in its rule making and, as such, the ACE rule is no longer in effect and all actions thus far taken by states to implement the federally mandated rule are now null and void. Vacating the ACE rule had the unintended effect of reinstating the CPP because the repeal of the CPP was a provision within the ACE rule. The D.C. Circuit decision was appealed by several states and interested parties, including West Virginia, arguing that the EPA did not have the authorization under Section 111(d) of the CAA to require “generation shifting” as a way to limit GHGs. On June 30, 2022, the U.S. Supreme Court in West Virginia v. Environmental Protection Agency held that the method the EPA used to regulate GHGs (generation shifting) under Section 111(d) of the CAA (the CPP) was not authorized by Congress and remanded the rule to the EPA for further reconsideration. In response, on May 23, 2023, the EPA published a proposed rule pursuant to CAA Section 111 (b) and (d) in line with the decision in West Virginia v. Environmental Protection Agency intended to reduce power sector GHG emissions (primarily CO 2 emissions) from fossil fuel based EGUs. The rule proposes stringent emissions limitations based on fuel type and unit retirement date. Comments on the proposed rule were submitted to the EPA on August 8, 2023. Depending on how final rules are ultimately implemented and the outcome of any appeals, compliance with these standards could require additional capital expenditures or changes in operation at the Ft. Martin and Harrison power stations.
Clean Water Act
Various water quality regulations, the majority of which are the result of the federal Clean Water Act and its amendments, apply to FirstEnergy’s facilities. In addition, the states in which FirstEnergy operates have water quality standards applicable to FirstEnergy’s operations.
On September 30, 2015, the EPA finalized new, more stringent effluent limits for the Steam Electric Power Generating category (40 CFR Part 423) for arsenic, mercury, selenium and nitrogen for wastewater from wet scrubber systems and zero discharge of pollutants in ash transport water. The treatment obligations were to phase-in as permits are renewed on a five-year cycle from 2018 to 2023. However, on April 13, 2017, the EPA granted a Petition for Reconsideration and on September 18, 2017, the EPA postponed certain compliance deadlines for two years. On August 31, 2020, the EPA issued a final rule revising the effluent limits for discharges from wet scrubber systems, retaining the zero-discharge standard for ash transport water, (with some limited discharge allowances), and extending the deadline for compliance to December 31, 2025 for both. In addition, the EPA allows for less stringent limits for sub-categories of generating units based on capacity utilization, flow volume from the scrubber system, and unit retirement date. On March 29, 2023, the EPA published proposed revised ELGs applicable to coal-fired power plants that include more stringent effluent limitations for wet scrubber systems and ash transport water, and new limits on landfill leachate. Public hearings on the proposed rules were held in April 2023 and comments were accepted through May 30, 2023. In the interim, the rule issued on August 31, 2020, remains in effect. Depending on the outcome of appeals and how final revised rules are ultimately implemented, compliance with these standards could require additional capital expenditures or changes in operation at the Ft. Martin and Harrison power stations from what was approved by the WVPSC in September 2022 to comply with the 2020 ELG rule.
Regulation of Waste Disposal
Federal and state hazardous waste regulations have been promulgated as a result of the Resource Conservation and Recovery Act, as amended, and the Toxic Substances Control Act. Certain CCRs, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA’s evaluation of the need for future regulation.
In April 2015, the EPA finalized regulations for the disposal of CCRs (non-hazardous), establishing national standards for landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to assure the safe disposal of CCRs from electric generating plants. On September 13, 2017, the EPA announced that it would reconsider certain provisions of the final regulations. On July 29,
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2020, the EPA published a final rule again revising the date that certain CCR impoundments must cease accepting waste and initiate closure to April 11, 2021. The final rule allowed for an extension of the closure deadline based on meeting identified site-specific criteria. On November 30, 2020, AE Supply submitted a closure deadline extension request to the EPA seeking to extend the cease accepting waste date for the McElroy's Run CCR impoundment facility until 2024, which request is pending technical review by the EPA. AE Supply continues to operate McElroy’s Run as a disposal facility for Pleasants Power Station.
FE or its subsidiaries have been named as potentially responsible parties at waste disposal sites, which may require cleanup under the CERCLA. Allegations of disposal of hazardous substances at historical sites and the liability involved are often unsubstantiated and subject to dispute; however, federal law provides that all potentially responsible parties for a particular site may be liable on a joint and several basis. Environmental liabilities that are considered probable have been recognized on the Consolidated Balance Sheets as of September 30, 2023, based on estimates of the total costs of cleanup, FirstEnergy’s proportionate responsibility for such costs and the financial ability of other unaffiliated entities to pay. Total liabilities of approximately $96 million have been accrued through September 30, 2023, of which, approximately $62 million are for environmental remediation of former MGP and gas holder facilities in New Jersey, which are being recovered by JCP&L through a non-bypassable societal benefits charge. FE or its subsidiaries could be found potentially responsible for additional amounts or additional sites, but the loss or range of losses cannot be determined or reasonably estimated at this time.
OTHER LEGAL PROCEEDINGS
United States v. Larry Householder, et al.
On July 21, 2020, a complaint and supporting affidavit containing federal criminal allegations were unsealed against the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. In March 2023, a jury found Mr. Householder and his co-defendant, Matthew Borges, guilty and in June 2023, the two were sentenced to prison for 20 and 5 years, respectively. Messrs. Householder and Borges have appealed their sentences. Also, on July 21, 2020, and in connection with the DOJ’s investigation, FirstEnergy received subpoenas for records from the U.S. Attorney’s Office for the Southern District Ohio. FirstEnergy was not aware of the criminal allegations, affidavit or subpoenas before July 21, 2020.
On July 21, 2021, FE entered into a three-year DPA with the U.S. Attorney’s Office that, subject to court proceedings, resolves this matter. Under the DPA, FE has agreed to the filing of a criminal information charging FE with one count of conspiracy to commit honest services wire fraud. The DPA requires that FirstEnergy, among other obligations: (i) continue to cooperate with the U.S. Attorney’s Office in all matters relating to the conduct described in the DPA and other conduct under investigation by the U.S. government; (ii) pay a criminal monetary penalty totaling $230 million within sixty days, which shall consist of (x) $115 million paid by FE to the United States Treasury and (y) $115 million paid by FE to the ODSA to fund certain assistance programs, as determined by the ODSA, for the benefit of low-income Ohio electric utility customers; (iii) publish a list of all payments made in 2021 to either 501(c)(4) entities or to entities known by FirstEnergy to be operating for the benefit of a public official, either directly or indirectly, and update the same on a quarterly basis during the term of the DPA; (iv) issue a public statement, as dictated in the DPA, regarding FE’s use of 501(c)(4) entities; and (v) continue to implement and review its compliance and ethics program, internal controls, policies and procedures designed, implemented and enforced to prevent and detect violations of the U.S. laws throughout its operations, and to take certain related remedial measures. The $230 million payment will neither be recovered in rates or charged to FirstEnergy customers nor will FirstEnergy seek any tax deduction related to such payment. The entire amount of the monetary penalty was recognized as expense in the second quarter of 2021 and paid in the third quarter of 2021. Under the terms of the DPA, the criminal information will be dismissed after FirstEnergy fully complies with its obligations under the DPA.
Legal Proceedings Relating to United States v. Larry Householder, et al.
On August 10, 2020, the SEC, through its Division of Enforcement, issued an order directing an investigation of possible securities laws violations by FE, and on September 1, 2020, issued subpoenas to FE and certain FE officers. On April 28, 2021, July 11, 2022, and May 25, 2023, the SEC issued additional subpoenas to FE, with which FE has complied. While no contingency has been reflected in its consolidated financial statements, FE believes that it is probable that it will incur a loss in connection with the resolution of the SEC investigation. Given the ongoing nature and complexity of the review, inquiries and investigations, FE cannot yet reasonably estimate a loss or range of loss that may arise from the resolution of the SEC investigation.
On June 29, 2023, the OOCIC served FE a subpoena, seeking information relating to the conduct described in the DPA. FirstEnergy was not aware of the OOCIC’s investigation prior to receiving the subpoena and understands that the OOCIC’s investigation is also focused on the conduct described in the DPA. FirstEnergy is cooperating with the OOCIC in its investigation. No contingency has been reflected in FirstEnergy’s consolidated financial statements, as a loss is neither probable, nor is a loss or range of loss reasonably estimable.
In addition to the subpoenas referenced above under “—United States v. Larry Householder, et. al.” and the SEC investigation, certain FE stockholders and FirstEnergy customers filed several lawsuits against FirstEnergy and certain current and former directors, officers and other employees, and the complaints in each of these suits is related to allegations in the complaint and
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supporting affidavit relating to HB 6 and the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder. The plaintiffs in each of the below cases seek, among other things, to recover an unspecified amount of damages (unless otherwise noted). Unless otherwise indicated, no contingency has been reflected in FirstEnergy’s consolidated financial statements with respect to these lawsuits as a loss is neither probable, nor is a loss or range of a loss reasonably estimable.
•In re FirstEnergy Corp. Securities Litigation (S.D. Ohio); on July 28, 2020 and August 21, 2020, purported stockholders of FE filed putative class action lawsuits alleging violations of the federal securities laws. Those actions have been consolidated and a lead plaintiff, the Los Angeles County Employees Retirement Association, has been appointed by the court. A consolidated complaint was filed on February 26, 2021. The consolidated complaint alleges, on behalf of a proposed class of persons who purchased FE securities between February 21, 2017 and July 21, 2020, that FE and certain current or former FE officers violated Sections 10(b) and 20(a) of the Exchange Act by issuing misrepresentations or omissions concerning FE’s business and results of operations. The consolidated complaint also alleges that FE, certain current or former FE officers and directors, and a group of underwriters violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 as a result of alleged misrepresentations or omissions in connection with offerings of senior notes by FE in February and June 2020. On March 30, 2023, the court granted plaintiffs’ motion for class certification. On April 14, 2023, FE filed a petition in the U.S. Court of Appeals for the Sixth Circuit seeking to appeal that order. Discovery is ongoing. FE believes that it is probable that it will incur a loss in connection with the resolution of this lawsuit. Given the ongoing nature and complexity of such litigation, FE cannot yet reasonably estimate a loss or range of loss.
•MFS Series Trust I, et al. v. FirstEnergy Corp., et al. and Brighthouse Funds II – MFS Value Portfolio, et al. v. FirstEnergy Corp., et al. (S.D. Ohio) on December 17, 2021 and February 21, 2022, purported stockholders of FE filed complaints against FE, certain current and former officers, and certain current and former officers of EH. The complaints allege that the defendants violated Sections 10(b) and 20(a) of the Exchange Act by issuing alleged misrepresentations or omissions regarding FE’s business and its results of operations, and seek the same relief as the In re FirstEnergy Corp. Securities Litigation described above. FE believes that it is probable that it will incur losses in connection with the resolution of these lawsuits. Given the ongoing nature and complexity of such litigation, FE cannot yet reasonably estimate a loss or range of loss.
•State of Ohio ex rel. Dave Yost, Ohio Attorney General v. FirstEnergy Corp., et al. and City of Cincinnati and City of Columbus v. FirstEnergy Corp. (Common Pleas Court, Franklin County, OH, all actions have been consolidated); on September 23, 2020 and October 27, 2020, the OAG and the cities of Cincinnati and Columbus, respectively, filed complaints against several parties including FE, each alleging civil violations of the Ohio Corrupt Activity Act and related claims in connection with the passage of HB 6. On January 13, 2021, the OAG filed a motion for a temporary restraining order and preliminary injunction against FirstEnergy seeking to enjoin FirstEnergy from collecting the Ohio Companies' decoupling rider. On January 31, 2021, FE reached a partial settlement with the OAG and the cities of Cincinnati and Columbus with respect to the temporary restraining order and preliminary injunction request and related issues. In connection with the partial settlement, the Ohio Companies filed an application on February 1, 2021, with the PUCO to set their respective decoupling riders (Conservation Support Rider) to zero. On February 2, 2021, the PUCO approved the application of the Ohio Companies setting the rider to zero, and no additional customer bills will include new decoupling rider charges after February 8, 2021. On August 13, 2021, new defendants were added to the complaint, including two former officers of FirstEnergy. On December 2, 2021, the cities and FE entered a stipulated dismissal with prejudice of the cities’ suit. After a stay, pending final resolution of the United States v. Larry Householder, et al. criminal proceeding described above, the litigation has resumed pursuant to an order, dated March 15, 2023. Discovery is ongoing. On July 31, 2023, FE and other defendants filed motions to dismiss in part the OAG’s section amended complaint, which the OAG opposed.
On February 9, 2022, FE, acting through the SLC, agreed to a settlement term sheet to resolve the following shareholder derivative lawsuits relating to HB 6 and the now former Ohio House Speaker Larry Householder and other individuals and entities allegedly affiliated with Mr. Householder that were filed in the S.D. Ohio, the N.D. Ohio, and the Ohio Court of Common Pleas, Summit County:
•Gendrich v. Anderson, et al. and Sloan v. Anderson, et al. (Common Pleas Court, Summit County, Ohio, all actions have been consolidated); on July 26, 2020 and July 31, 2020, respectively, purported stockholders of FE filed shareholder derivative action lawsuits against certain current and former FE directors and officers, alleging, among other things, breaches of fiduciary duty.
•Miller v. Anderson, et al. (N.D. Ohio); Bloom, et al. v. Anderson, et al.; Employees Retirement System of the City of St. Louis v. Jones, et al.; Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Anderson et al.; Massachusetts Laborers Pension Fund v. Anderson et al.; The City of Philadelphia Board of Pensions and Retirement v. Anderson et al.; Atherton v. Dowling et al.; Behar v. Anderson, et al. (S.D. Ohio, all actions have been consolidated); beginning on August 7, 2020, purported stockholders of FE filed shareholder derivative actions alleging the FE Board and officers breached their fiduciary duties and committed violations of Section 14(a) of the Exchange Act.
On March 11, 2022, the parties executed a stipulation and agreement of settlement, and filed a motion the same day requesting preliminary settlement approval in the S.D. Ohio, which the S.D. Ohio granted on May 9, 2022. Subsequently, following a hearing on August 4, 2022, the S.D. Ohio granted final approval of the settlement on August 23, 2022.
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The settlement includes a series of corporate governance enhancements and a payment to FE of $180 million, to be paid by insurance after the judgment has become final, less approximately $36 million in court-ordered attorney’s fees awarded to plaintiffs. On September 20, 2022, a purported FE stockholder filed a motion for reconsideration of the S.D. Ohio’s final settlement approval. The parties filed oppositions to that motion on October 11, 2022, and the S.D. Ohio denied that motion on May 22, 2023. On June 15, 2023, the purported FE stockholder filed an appeal in the U.S. Court of Appeals for the Sixth Circuit. If the S.D. Ohio’s final settlement approval is affirmed by the U.S. Court of Appeals for the Sixth Circuit, the settlement agreement is expected to resolve fully these shareholder derivative lawsuits.
On June 2, 2022, the N.D. Ohio entered an order to show cause why the court should not appoint new plaintiffs’ counsel, and thereafter, on June 10, 2022, the parties filed a joint motion to dismiss the matter without prejudice, which the N.D. Ohio denied on July 5, 2022. On August 15, 2022, the N.D. Ohio issued an order stating its intention to appoint one group of applicants as new plaintiffs’ counsel, and on August 22, 2022, the N.D. Ohio ordered that any objections to the appointment be submitted by August 26, 2022. The parties filed their objections by that deadline, and on September 2, 2022, the applicants responded to those objections. In the meantime, on August 25, 2022, a purported FE stockholder represented by the applicants filed a motion to intervene, attaching a proposed complaint-in-intervention purporting to assert claims that the FE Board and officers breached their fiduciary duties and committed violations of Section 14(a) of the Exchange Act as well as a claim against a third party for professional negligence and malpractice. The parties filed oppositions to that motion to intervene on September 8, 2022, and the proposed intervenor's reply in support of his motion to intervene was filed on September 22, 2022. On August 24, 2022, the parties filed a joint motion to dismiss the action pending in the N.D. Ohio based upon and in light of the approval of the settlement by the S.D. Ohio. On August 30, 2022, the parties filed a joint motion to dismiss the state court action, which the court granted on September 2, 2022. On September 29, 2023, the N.D. Ohio issued a stay of the case pending the appeal in the U.S. Court of Appeals for the Sixth Circuit.
In letters dated January 26, and February 22, 2021, staff of FERC's Division of Investigations notified FirstEnergy that the Division was conducting an investigation of FirstEnergy’s lobbying and governmental affairs activities concerning HB 6, and staff directed FirstEnergy to preserve and maintain all documents and information related to the same as such have been developed as part of an ongoing non-public audit being conducted by FERC's Division of Audits and Accounting. On December 30, 2022, FERC approved a Stipulation and Consent Agreement that resolves the investigation. The agreement includes a FirstEnergy admission of violating FERC’s “duty of candor” rule and related laws, and obligates FirstEnergy to pay a civil penalty of $3.86 million, and to submit two annual compliance monitoring reports to FERC’s Office of Enforcement regarding improvements to FirstEnergy’s compliance programs. FE paid the civil penalty on January 4, 2023 and it will not be recovered from customers.
The outcome of any of these lawsuits, governmental investigations and audit is uncertain and could have a material adverse effect on FE’s or its subsidiaries’ reputation, business, financial condition, results of operations, liquidity, and cash flows.
Other Legal Matters
There are various lawsuits, claims (including claims for asbestos exposure) and proceedings related to FirstEnergy’s normal business operations pending against FE or its subsidiaries. The loss or range of loss in these matters is not expected to be material to FE or its subsidiaries. The other potentially material items not otherwise discussed above are described under Note 7, “Regulatory Matters.”
FirstEnergy accrues legal liabilities only when it concludes that it is probable that it has an obligation for such costs and can reasonably estimate the amount of such costs. In cases where FirstEnergy determines that it is not probable, but reasonably possible that it has a material obligation, it discloses such obligations and the possible loss or range of loss if such estimate can be made. If it were ultimately determined that FE or its subsidiaries have legal liability or are otherwise made subject to liability based on any of the matters referenced above, it could have a material adverse effect on FE’s or its subsidiaries’ financial condition, results of operations, and cash flows.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1, "Organization and Basis of Presentation," for a discussion of new accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “FirstEnergy Corp. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Information” in Item 2 above.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The management of FirstEnergy, with the participation of the Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of its disclosure controls and procedures, as defined under the Exchange Act, in Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive
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Officer and Chief Financial Officer of FirstEnergy have concluded that its disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2023, there were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, FirstEnergy’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information required for Part II, Item 1 is incorporated by reference to the discussions in Note 7, “Regulatory Matters,” and Note 8, “Commitments, Guarantees and Contingencies,” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
ITEM 1A. RISK FACTORS
You should carefully consider the risk factors discussed in "Item 1A. Risk Factors" in FirstEnergy’s Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect FirstEnergy’s business, financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASE OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Amendments to Existing Revolving Credit Facilities
On October 20, 2023, FE and certain of its subsidiaries entered into the following amendments to each of the 2021 Credit Facilities to, among other things, (i) amend the FE Revolving Facility to release FET as a borrower and (ii) extend the maturity date of the 2021 Credit Facilities for an additional one-year period, from October 18, 2026 to October 18, 2027:
•Amendment No. 2 to Credit Agreement and Consent, Limited Waiver and Limited Release, dated as of October 20, 2023, among FE, as borrower, the banks and other financial institutions party thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent;
•Amendment No. 2 to Credit Agreement and Consent and Limited Waiver, dated as of October 20, 2023, among CEI, OE and TE, as borrowers, the banks and other financial institutions party thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent;
•Amendment No. 2 to Credit Agreement and Consent and Limited Waiver, dated as of October 20, 2023, among ME, PN, Penn and WP, as borrowers, the banks and other financial institutions party thereto, as lenders, and Mizuho Bank, Ltd., as administrative agent;
•Amendment No. 2 to Credit Agreement, dated as of October 20, 2023, among JCP&L, as borrower, the banks and other financial institutions party thereto, as lenders, and Mizuho Bank, Ltd., as administrative agent;
•Amendment No. 2 to Credit Agreement, dated as of October 20, 2023, among MP and PE, the banks and other financial institutions party thereto, as lenders, and Mizuho Bank, Ltd., as administrative agent; and
•Amendment No. 2 to Credit Agreement and Consent and Limited Waiver, dated as of October 20, 2023, among ATSI, MAIT and TrAIL, as borrower, the banks and other financial institutions party thereto, as lenders, and PNC Bank, National Association, as administrative agent.
The foregoing descriptions of the amendments to the 2021 Credit Facilities above do not purport to be complete and are qualified in their entirety by reference to the agreements themselves.
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Entry into New Revolving Credit Facilities
On October 20, 2023, each of FET and KATCo entered into the 2023 Credit Facilities, as follows:
•the Credit Agreement, dated as of October 20, 2023, among FET, as borrower, the banks and other financial institutions party thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, establishing the $1.0 billion FET Revolving Facility; and
•the Credit Agreement, dated as of October 20, 2023, among KATCo, as borrower, the banks and other financial institutions party thereto, as lenders, and PNC Bank, National Association, as administrative agent, establishing the $150 million KATCo Revolving Facility.
Under the FET Revolving Facility, $1.0 billion is available to be borrowed, repaid and reborrowed until October 20, 2028. Under the KATCo Revolving Facility, (i) $150 million is available to be borrowed, repaid and reborrowed until October 20, 2027, (ii) borrowings will mature on the earlier of 364 days from the date of borrowing or the commitment termination date, as the same may be extended; upon KATCo demonstrating to the administrative agent authorization to borrow amounts maturing more than 364 days from the date of borrowing, its borrowings will mature on the latest commitment termination date.
Borrowings under the 2023 Credit Facilities may take the form of alternate base rate advances or term SOFR rate advances, borrowed pro rata from all lenders in proportion to their respective commitments. Outstanding alternate base rate advances will bear interest at a fluctuating interest rate per annum equal to the sum of an applicable margin for alternate base rate advances determined by reference to the applicable borrower’s then-current senior unsecured non-credit enhanced debt ratings (reference ratings) plus the highest of (i) the “prime rate” published by the Wall Street Journal from time to time, (ii) the sum of 1/2 of 1% per annum plus the federal funds rate in effect from time to time and (iii) the adjusted term SOFR rate for a one-month interest period plus 1%. Outstanding term SOFR rate advances will bear interest at the term SOFR rate for interest periods of one, three or six months plus an applicable margin determined by reference to the applicable borrower’s reference ratings. Changes in reference ratings of a borrower would lower or raise its applicable margin depending on whether ratings improved or were lowered, respectively.
Under each of the 2023 Credit Facilities, the applicable borrower will pay the lenders a commitment fee on the amount of the unused commitments on a quarterly basis.
In addition, under each of the 2023 Credit Facilities, borrowers may request from time to time the issuance of letters of credit which are renewable upon the request of the borrowers and which expire upon the earlier of one year from the date of issuance or the third business day preceding the commitment termination date applicable to the issuing bank under the applicable 2023 Credit Facility. The stated amount of outstanding letters of credit will count against total commitments available under the 2023 Credit Facilities and against the applicable borrower’s sub-limit under such facility. Currently, the initial fronting banks have agreed to issue up to an aggregate amount of letters of credit with respect to (a) the FET Revolving Facility, $100 million and (b) the KATCo Revolving Facility, $35 million. Each borrower will pay the lenders a fee equal to the then-applicable margin for term SOFR rate advances for such borrower multiplied by the stated amount of each letter of credit issued for its account, in each case for the number of days that such letter of credit is issued but undrawn, payable quarterly in arrears.
Under the terms of the 2023 Credit Facilities, borrowings are available upon customary representations and warranties, terms and conditions for facilities of this type, and the borrowers are subject to certain customary affirmative and negative covenants. Under the 2023 Credit Facilities, each borrower is also required to maintain a consolidated debt to total capitalization ratio, as defined in each of the 2023 Credit Facilities, which in the case of KATCo, is of no more than 0.65 to 1.00, and in the case of FET, is of no more than 0.75 to 1.00.
The borrowers paid customary arrangement, upfront and fronting fees to the arranging banks and other lenders in connection with the closing of the 2023 Credit Facilities. The borrowers maintain ordinary banking and investment banking relationships with lenders under the 2023 Credit Facilities.
The foregoing descriptions of the 2023 Credit Facilities above do not purport to be complete and are qualified in their entirety by reference to the agreements themselves.
Trading Arrangements
During the quarter ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of FE adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).
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ITEM 6. EXHIBITS

Exhibit Number | Description
(A) | 10.1 |  | Amendment No. 2 and Consent and Limited Waiver to Credit Agreement, dated as of October 20, 2023, by and among FirstEnergy Corp., , the banks and other financial institutions party thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent
(A) | 10.2 |  | Amendment No. 2 and Consent and Limited Waiver to Credit Agreement, dated as of October 20, 2023, by and among The Cleveland Electric Illuminating Company, Ohio Edison Company, The Toledo Edison Company, the banks and other financial institutions party thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent
(A) | 10.3 |  | Amendment No. 2 and Consent and Limited Waiver to Credit Agreement, dated as of October 20, 2023, by and among Metropolitan Edison Company, Pennsylvania Power Company, Pennsylvania Electric Company, West Penn Power Company, the banks and other financial institutions party thereto on the date hereof, as lenders, and Mizuho Bank, Ltd., as administrative agent
(A) | 10.4 |  | Amendment No. 2 and Consent and Limited Waiver to Credit Agreement, dated as of October 20, 2023, by and among American Transmission Systems, Incorporated, Mid-Atlantic Interstate Transmission, LLC, Trans-Allegheny Interstate Line Company, the banks and other financial institutions party thereto on the date hereof, as lenders, and PNC Bank, National Association, as administrative agent
(A) | 10.5 |  | Amendment No. 2 to Credit Agreement, dated as of October 20, 2023, by and among Jersey Central Power & Light Company, the banks and other financial institutions party thereto on the date hereof, as lenders, and Mizuho Bank, Ltd., as administrative agent
(A) | 10.6 |  | Amendment No. 2 to Credit Agreement, dated as of October 20, 2023, by and among Monongahela Power Company, The Potomac Edison Company, the banks and other financial institutions party thereto on the date hereof, as lenders, and Mizuho Bank, Ltd, as administrative agent
(A) | 10.7 |  | Credit Agreement, dated as of October 20, 2023, by and among Keystone Appalachian Transmission Company, the banks and other financial institutions party thereto on the date hereof, as lenders, and PNC Bank, National Association, as administrative agent
(A) | 10.8 |  | Credit Agreement, dated as of October 20, 2023, by and among FirstEnergy Transmission, LLC, the banks and other financial institutions party thereto on the date hereof, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent
(A) | 31.1 |  | Certification of chief executive officer, as adopted pursuant to Rule 13a-14(a)
(A) | 31.2 |  | Certification of chief financial officer, as adopted pursuant to Rule 13a-14(a)
(A) | 32 |  | Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. Section 1350
| 101 |  | The following materials from the Quarterly Report on Form 10-Q of FirstEnergy Corp. for the period ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) related notes to these financial statements and (vi) document and entity information
| 104 |  | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101)

(A) Provided herein in electronic format as an exhibit.
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, FirstEnergy has not filed as an exhibit to this Form 10-Q any instrument with respect to long-term debt if the respective total amount of securities authorized thereunder does not exceed 10% of its respective total assets, but hereby agrees to furnish to the SEC on request any such documents.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
October 26, 2023

| FIRSTENERGY CORP.
| Registrant
| /s/ Jason J. Lisowski
| Jason J. Lisowski
| Vice President, Controller and Chief Accounting Officer

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