What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-13 compared with 2023-02-13 · 790 added, 646 removed, 919 unchanged (61% of the section changed)

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• 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, 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.

• 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 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, greenhouse gas reduction goals, 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.

• Legislative and regulatory developments, including, but not limited to, matters related to rates, compliance and enforcement activity, cyber security, and climate change.

• The risks associated with physical attacks, such as acts of war, terrorism, sabotage or other acts of violence, and 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 through establishing a culture of continuous improvement and our other strategic and financial goals, including, but not limited to, overcoming current uncertainties and challenges associated with the ongoing government investigations, executing Energize365 , our transmission and distribution investment plan, 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.

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• 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.

• Changes in customers’ demand for power, including, but not limited to, economic conditions, the impact of climate change, emerging technology, particularly with respect to electrification, energy storage and distributed sources of generation.

• The ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us, including the increasing number of financial institutions evaluating the impact of climate change on their investment decisions.

• Actions that may be taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity.

• 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.

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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.

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.

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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 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 transfer 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 PA NewCo and (d) the merger of each of the Pennsylvania Companies with and into PA NewCo, with PA NewCo surviving such mergers as the successor-in-interest to all assets and liabilities of the Pennsylvania Companies.

Following completion of the PA Consolidation, PA NewCo 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, PPUC and FERC.

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 POLR, SOS, SSO and default service requirements in Ohio, Pennsylvania, New Jersey, and Maryland.

On January 1, 2024, FirstEnergy consolidated the Pennsylvania Companies into FE PA, including OE subsidiary, Penn, making FE PA a new, single operating entity.

In addition to merging 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, (i) WP transferred certain of its Pennsylvania-based transmission assets to KATCo, and (ii) PN and ME contributed their respective Class B equity interests of MAIT to FE.

FE PA, as of January 1, 2024, is FE’s only regulated distribution utility in Pennsylvania encompassing the operations previously conducted individually by the Pennsylvania Companies and serves an area with a population of approximately 4.5 million.

FE PA operates under the rate districts of the former Pennsylvania Companies.

FirstEnergy is also evaluating the legal, financial, operational and branding benefits of consolidating the Ohio Companies into a single Ohio utility company.

The Regulated Distribution segment distributes electricity through FirstEnergy’s 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 POLR, SOS, SSO 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 service areas of, and customers served by, FirstEnergy's regulated distribution utilities as of December 31, 2022, are summarized below:

The service areas and number of customers served by FirstEnergy's regulated distribution utilities as of December 31, 2023, are summarized below:

Company Area Served Customers Served

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WP Southwest, South Central and Northern Pennsylvania 739

PN Western Pennsylvania and Western New York 588

PN Western, Northern, and South Central Pennsylvania, and Western New York 589

ME Eastern Pennsylvania 590

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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 revenues are derived from primarily forward-looking formula rates, pursuant to which 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 purchase price will be payable in part by the issuance of a promissory note expected to be in the principal amount of $1.75 billion.

The remaining $1.75 billion of the purchase price will be payable in cash at the closing.

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 and certain state utility commissions, and completion of review by the CFIUS.

In addition, pursuant to the FET P&SA II, FirstEnergy has agreed to make 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 the FES Debtors, interest expense on FE’s holding company debt and other investments or businesses that do not constitute an operating segment.

As described above, Brookfield holds 19.9% of the issued and outstanding membership interests of FET and has entered into an agreement to purchase from FE, an incremental 30% equity interest in FET, such that Brookfield’s interest in FET will increase from 19.9% to 49.9%, while FE will retain the remaining 50.1%.

The transaction is subject to customary closing conditions, including PPUC approval, and is expected to close by the end of the first quarter of 2024.

Upon closing, FET will continue to be consolidated in FirstEnergy’s 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 December 31, 2022, 67 MWs of electric generating capacity, representing AE Supply's OVEC capacity entitlement, was also included in Corporate/Other for segment reporting.

As of December 31, 2022, Corporate/Other had approximately $5.4 billion of FE holding company debt.

As of December 31, 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 December 31, 2023, Corporate/Other had approximately $7.1 billion of external FE holding company debt.

In 2024, FirstEnergy changed its reportable segments to include the following:

• Distribution Segment, which will consist of the Ohio Companies and FE PA;

• Integrated Segment, which will consist of MP, PE and JCP&L;

• Stand-Alone Transmission Segment, which will consist of FE's ownership in FET and KATCo.

On January 1, 2024, WP transferred certain of its Pennsylvania-based transmission assets to KATCo.

Corporate/Other will continue to reflect corporate support and other support 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.

EXECUTIVE SUMMARY

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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.

FirstEnergy's Business

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 that deliver enhanced customer service and reliability.

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, with more than $9 billion in investment plans (or 53% of the total FirstEnergy investment plan) from 2021 to 2025.

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;

• Supporting economic development to attract new business.

FirstEnergy expects to file base rate cases in Maryland, New Jersey, and West Virginia in 2023 and in Ohio in 2024.

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, and approximately $8 billion in investment plans (or 45% of the total FirstEnergy investment plan) from 2021 to 2025.

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 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;

• Making smart investments to modernize the grid to integrate future renewables.

On June 1, 2023, Brian X.

Tierney joined the FE Board and began serving as President and Chief Executive Officer of FirstEnergy.

Tierney previously served as Senior Managing Director and Global Head of Operations and Asset Management at Blackstone Infrastructure Partners.

Prior to joining Blackstone Infrastructure Partners in July 2021, Mr.

Tierney spent 23 years with AEP.

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.

We are focused on making the necessary investments in our core regulated businesses, our employees and in our systems to enhance the customer experience.

To execute that vision, we are shifting decision-making and accountability closer to where the work is being done to serve customers.

We are making progress to fill several key executive positions in an organization that will be structured to allow greater execution at the business unit level, including the following:

• On November 30, 2023, Toby L.

Thomas joined FirstEnergy as the Chief Operating Officer.

Thomas previously served as Senior Vice President, Energy Delivery at AEP, where he was responsible for transmission engineering, construction, operations, maintenance and compliance, and creating efficiencies by bringing together transmission and distribution-related engineering and standards.

Thomas spent 22 years at AEP.

• On December 18, 2023, A.

Wade Smith joined FirstEnergy as President, FirstEnergy Utilities.

Smith previously served as the Executive Vice President and Chief Operating Officer of Puget Sound Energy, Inc.

Prior to joining Puget Sound Energy, Inc., Mr.

Smith held a variety of roles and has more than 30 years of industry experience.

Additionally, five business unit executives will lead our state operations and our stand-alone transmission companies.

In our new organization, the business unit executives will have financial responsibility and will be accountable for regulatory direction and outcomes, as well as operational performance.

Beginning in 2024, FirstEnergy changed its reportable segments to align with its updated organizational structure, and will include:

Distribution Segment, which will consist of the Ohio Companies and FE PA;

Integrated Segment, which will consist of MP, PE and JCP&L and provides distribution, transmission, and for MP, generation, services to their customers;

and Stand-Alone Transmission Segment, which will consist of FE's ownership in FET and KATCo.

Corporate/Other will continue to reflect

corporate support and other support costs not charged to the Distribution, Integrated or Transmission segments, 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.

This will simplify its segment reporting to provide more transparency and align with its new organizational structure that allows for financial and operational decision-making in how we manage our business.

This provides:

• Greater transparency into our business unit performance;

• Alignment with our cash flow, credit metrics, balance sheet and earnings;

• Simplification of our segment reporting so entire entity resides within a segment;

• Consistency with peers.

In 2023, FirstEnergy made investments of $3.7 billion, which was $300 million above our original plan.

As a fully regulated electric utility, FirstEnergy is focused on stable and predictable earnings and cash flow through investments that deliver enhanced customer service and reliability.

Energize365 is the centerpiece of FirstEnergy’s regulated distribution and transmission capital investment strategy that aims to utilize all investments to support our EESG and strategic priorities including clean energy, improving grid reliability and resiliency and supports a carbon neutral future.

Through the Energize365 program, FirstEnergy expects approximately $26 billion in system-wide capital investments from 2024 through 2028, which is comprised of 29% Distribution, 39% Integrated and 32% Stand-Alone Transmission and are focused on the following:

• Energy Transition:

Distribution and Transmission investments made to support improvements in grid reliability and resiliency and support interconnection of renewable sources.

◦ Clean Energy:

Including West Virginia solar generation, energy efficiency, electric vehicle infrastructure and energy storage

◦ Grid Modernization:

Programs to drive system resiliency through automation technology and communication, including Ohio's Grid Mod I and II, Pennsylvania's LTIIP, New Jersey's EnergizeNJ, and implementing advanced metering infrastructure

◦ Transmission:

▪ Operational Flexibility Projects that build capacity and support evolving grid such as interconnection of New Jersey offshore wind and data center load

▪ Enhance system performance by implementing new designs and technologies to reduce load at risk

▪ Upgrade system conditions that enhance reliability

• Infrastructure Renewal:

Base distribution projects to address aging infrastructure

• Fossil Generation:

Projects to maintain operations of fossil plants and remain compliant with environmental regulations through the end of their useful life

FirstEnergy believes there is a continued long-term pipeline of investment opportunities for its existing distribution and transmission infrastructure beyond those identified through 2028, 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.

FirstEnergy has an active regulatory calendar 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 concurrent with approval of MP and PE’s base rate case described below;

• 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%.

On February 1, 2024, JCP&L, joined by various parties, filed a stipulated settlement with the NJBPU resolving JCP&L’s request for a distribution base rate increase.

The settlement provides for an $85 million annual base distribution revenues increase for JCP&L, which, if approved by the NJBPU, is expected to be effective for customers on June 1, 2024;

• 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%.

On January 23, 2024, MP, PE and various parties filed with a joint settlement agreement with the WVPSC, which recommends a base rate increase of $105 million.

Among other things,

the settlement additionally includes a new low-income customer advocacy program, storm restoration work and service reliability investments.

An order is expected by the end of the first quarter of 2024 with new rates to be effective upon the issuance of such order;

• 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 January 3, 2024, the MDPSC issued an order granting PE’s request for reconsideration and increased PE’s allowed distribution rates by another $0.7 million;

• On November 9, 2023, JCP&L also filed with the NJBPU a petition for approval of the second phase of its EnergizeNJ program that would, among other things, support grid modernization, system resiliency and substation modernization in technologies designed to provide enhanced customer benefits.

JCP&L anticipates filing amendments to the EnergizeNJ program after receipt of approval from the NJBPU of the base rate case stipulation that was filed on February 2, 2024;

• FE PA plans to file a base rate case by April 2024 and request approval for the continuation of its LTIIP program by the end of the third quarter of 2024;

• The Ohio Companies plan to file a base rate case in the second quarter of 2024.

The purchase price will be payable in part by the issuance of a promissory note expected to be in the principal amount of $1.75 billion.

The remaining $1.75 billion of the purchase price will be payable in cash at the closing.

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 and certain state utility commissions, and completion of review by the CFIUS.

In addition, pursuant to the FET P&SA II, FirstEnergy has agreed to make 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 a new, single operating entity.

The PA Consolidation will require, among other steps:

Consummation of the PA Consolidation is contingent upon numerous conditions, including the approval of NYPSC, PPUC and FERC.

Subject to receipt of such regulatory approvals, FirstEnergy expects that the PA Consolidation will close by early 2024.

On December 13, 2021, FE privately issued to BIP Securities II-B L.P., an affiliate of Blackstone Infrastructure Partners L.P., 25,588,535 shares of FE’s common stock, par value $0.10 per share, at a price of $39.08 per share, representing an investment of $1.0 billion.

On April 21, 2022, FERC approved the Blackstone representative’s ability to participate as a voting member of the FE Board.

Klimczak, the Blackstone Infrastructure Partners-selected representative, was elected to the FE Board at the 2022 annual shareholders’ meeting.

On October 18, 2021, FE, FET, the Utilities, and the Transmission Companies entered into six separate senior unsecured five-year syndicated revolving credit 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.

See “Capital Resources and Liquidity" below for additional details.

Together, these transactions enhance FirstEnergy’s credit profile, provide funding for the strategic investments discussed above, and address all of FirstEnergy’s equity plans, with the exception of annual issuances of up to $100 million under regular dividend reinvestment plans and employee benefit stock investment plans, through at least 2025.

Also, as with the recently completed FET transaction, premium valuations of our distribution and transmission businesses, together with growth in cash flow from operations resulting from the investment opportunities described above, could provide FirstEnergy future optionality to accelerate further strengthening of the balance sheet and enhance shareholder value.

On September 15, 2022, FirstEnergy announced that the FE Board had appointed Mr.

Somerhalder II to serve as Interim President and Chief Executive Officer of FirstEnergy, effective as of September 16, 2022.

In connection with his appointment as Interim President and Chief Executive Officer, Mr.

Somerhalder will continue to serve as Chair of the FE Board.

The FE Board is conducting a search of external candidates to identify a permanent President and Chief Executive Officer of FirstEnergy.

Somerhalder’s appointment follows the decision of Mr.

Strah on September 15, 2022, to retire as Director and President and Chief Executive Officer of FirstEnergy, effective as of September 16, 2022.

In February 2021, FirstEnergy announced a new transformation initiative, FE Forward, to build upon FirstEnergy’s strong operations and business fundamentals and deliver immediate value and resilience, with targeted working capital improvements by 2022, and capital efficiencies ramping up through 2024 that would be redeployed in a more diverse capital investment program.

In the two years that FE Forward has been active, we have built new solutions to serve our customers, changed how we plan and execute work in the field, established a “digital factory” within our information technology organization to automate and modernize our business solutions, reorganized the company to enable more efficiency and collaboration, and realized working capital improvements and annualized capital expenditures in line with our previously published expectations.

After assessing our accomplishments and shortfalls, including the continuing challenges from inflation and supply chain disruptions, FE Forward has been integrated into our ongoing efforts for 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.

As such, FirstEnergy has transitioned away from measuring these cash flow metrics and will no longer publish a forecast of these metrics.

In addition to FE Forward, FirstEnergy will leverage other opportunities to reduce costs – such as filling only critical positions, implementing our facility optimization plans, as well as exploring other additional, sustainable opportunities, such as reducing contractor spend.

Similar to our PA Consolidation discussed above, FirstEnergy is also evaluating the legal, financial, operational, and branding benefits of consolidating the Ohio Companies into a single Ohio operating entity.

The transaction is subject to customary closing conditions, including approval from the PPUC.

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 the end of the first quarter of 2024.

Upon closing, FET will continue to be consolidated in FirstEnergy’s financial statements.

On January 1, 2024, FirstEnergy consolidated the Pennsylvania Companies into FE PA, including OE subsidiary, Penn, making FE PA a new, single operating entity.

FE PA operates under the rate districts of the former Pennsylvania Companies.

FirstEnergy is also evaluating the legal, financial, operational and branding benefits of consolidating the Ohio Companies into a single Ohio utility company.

FirstEnergy is focused on 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.

We have begun 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.

In December 2023, FirstEnergy purchased the General Office building with the intention to sell in the future.

It is currently expected that the exit of the General Office and sale will occur in 2025.

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 costs, 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.

Most PEER participating employees departed in 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.

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, cash flows, credit metrics, risks and uncertainties of the government investigations and other business conditions.

In December 2023, FirstEnergy, executed a lift-out transaction with Banner Life Insurance Company and Reinsurance Group of America that transferred approximately $683 million of plan assets and $719 million of plan obligations, associated with approximately 1,900 former FES and FENOC employees, who will assume future and full responsibility to fund and administer their benefit payments.

There was no change to the pension benefits for any participants as a result of the transfer.

The transaction was funded by pension plan assets and resulted in a pre-tax gain of approximately $36 million, which was included in the fourth quarter 2023 pension mark-to-market charge.

FirstEnergy expects that the transaction further de-risked potential volatility with the pension plan assets and liabilities, and FirstEnergy will continue to evaluate other lift-outs in the future based on market and other conditions.

Climate Strategy

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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 are also committed to reducing GHG emissions.

We’ve pledged to achieve carbon neutrality by 2050, with an interim 30% reduction in GHGs within our direct operational control (Scope 1) by 2030 based on 2019 levels.

This Scope 1 GHG goal encompasses company-wide emissions across our transmission, distribution and regulated generation operations.

Key steps in working toward carbon neutrality by 2050 include:

As part of our Climate Strategy, we pledged in 2020 to achieve carbon neutrality by 2050.

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.

At that time, we also set an interim target to reduce our GHG emissions by 30% from the 2019 baseline by 2030.

After careful consideration and evaluation, we have made the determination to remove our interim target and remain focused on our 2050 goal.

FirstEnergy’s primary focus is on our transmission and distribution businesses.

However, emissions from our West Virginia power stations – Fort Martin and Harrison – serve as the primary source of our Scope 1 emissions - representing approximately 99% of our overall GHG emissions as of December 31, 2022 - and greatly outnumber the emissions from our transmission and distribution operations.

As such, achieving the 2030 interim target was dependent on GHG reductions at Fort Martin and Harrison that could be realized only through a meaningful reduction in operation of these two plants prior to 2030.

In 2020, the interim target and corresponding reduction strategy were believed to be within our operational control.

However, the following challenges have emerged, impeding our path to achieve the 2030 interim target:

• West Virginia supports coal generation, from political, regulatory, energy and economic perspectives, as illustrated in 2023 by its energy policy initiatives and actions.

We believe an intentional reduction in output at the power stations solely to reduce GHG emissions would not be prudent, as it is inconsistent with the state’s energy policy.

In light of the significant retirements of baseload generation scheduled through 2030, as reported by PJM, there is uncertainty about what resources will replace that generating capacity, including energy market developments that may make it more economical than originally projected to run our coal plants.

In light of these challenges, we believe it was prudent to remove our 2030 interim target.

We remain committed to achieving carbon neutrality for Scope 1 emissions by 2050.

While we can no longer project that we can meaningfully reduce generation-based GHG emissions in West Virginia by 2030, we have publicly stated through various filings with the WVPSC, that the end of useful life date is 2035 for Fort Martin and 2040 for Harrison.

These dates are based on our assessment of when it is projected to no longer be cost effective and beneficial to customers to make the capital investments needed to keep these facilities operating effectively and in compliance with evolving environmental regulations.

In 2025, FirstEnergy will submit an Integrated Resource Plan to the WVPSC that will include our analysis of market conditions and identify how we believe we can best fulfill our obligation to supply our generation customers with reliable and cost-effective energy through 2040 (a requirement every five years in the state of West Virginia).

In the near-term, we continue our focus on GHG reduction in our transmission and distribution businesses.

These emissions are within our control, pervasive in every state across our footprint, and aligned with our long-term, forward-looking transmission and distribution strategy to enable the energy transition.

In addition to moving beyond our two West Virginia power stations, key steps in working toward carbon neutrality by 2050 include:

• Reducing sulfur hexafluoride emissions:

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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.

• Transitioning Away from Coal Generation:

We've committed to moving beyond our two coal-fired generating plants no later than 2050.

Our commitment is consistent with the depreciation rates filing we submitted to the WVPSC, in which we proposed end-of-life dates for the Fort Martin (2035) and Harrison (2040) plants.

We intend to engage in a broad stakeholder dialogue and work closely with the WVPSC as we develop and seek approval for that future transition plan.

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 developed by working collaboratively with regulators in West Virginia.

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.

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.

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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.

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.

Among other things under the DPA, FE paid a $230 million monetary penalty in 2021 and 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 criminal information will be dismissed after FirstEnergy fully complies with its obligations under the DPA, which is expected in July 2024.

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.

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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.

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Ohio’s final settlement approval.

The parties filed oppositions to that motion on October 11, 2022 and the motion is under consideration by the S.D.

Ohio matter remains pending.

The settlement agreement is expected to fully resolve these shareholder derivative lawsuits and includes a series of corporate governance enhancements, that have resulted in the following:

• Six then-members of the FE Board did not stand for re-election at FE’s 2022 annual shareholder meeting;

• A special FE Board committee of at least three recently appointed independent directors was formed to initiate a review process of the then current senior executive team.

The review of the senior executive team by the special FE Board committee and the FE Board was completed in September 2022;

• The FE Board will oversee FE’s lobbying and political activities, including periodically reviewing and approving political and lobbying action plans prepared by management;

• An FE Board committee of recently appointed independent directors will oversee the implementation and third-party audits of the FE Board-approved action plans with respect to political and lobbying activities;

• FE will implement enhanced disclosure to shareholders of political and lobbying activities, including enhanced disclosure in its annual proxy statement;

• FE will further align financial incentives of senior executives to proactive compliance with legal and ethical obligations.

The settlement also includes a payment to FE of $180 million, to be paid by insurance after the judgment has become final, less $36 million in court-ordered attorney’s fees awarded to plaintiffs.

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.

Ohio issued a stay of the case pending the appeal in the U.S.

Court of Appeals for the Sixth Circuit.

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, and July 11, 2022, 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 is investigating FirstEnergy’s lobbying and governmental affairs activities concerning HB 6.

Subsequently, on April 28, 2021, July 11, 2022, and May 25, 2023, the SEC issued additional subpoenas to FE.

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 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.

The first compliance monitoring report was submitted in December 2023.

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.

On February 12, 2024, and in connection with the OOCIC’s ongoing investigation, an indictment by a grand jury of Summit County, Ohio was unsealed against the former chairman of the PUCO, Samuel Randazzo, and two former FirstEnergy senior officers, Charles E.

Jones, and Michael J.

Dowling, charging each of them with several felony counts, including bribery, telecommunications fraud, money laundering and aggravated theft, related to payments described in the DPA.

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;

Although the outcome of the HB 6 investigations and state regulatory audits remain unknown, FirstEnergy has also taken several proactive steps to reduce regulatory uncertainty affecting the Ohio Companies.

FE terminated Charles E.

Jones as its chief executive officer effective October 29, 2020.

As a result of Mr.

Jones’ termination, and due to the determination of a committee of independent members of the FE Board that Mr.

Jones violated certain FirstEnergy policies and its code of conduct, all grants, awards and compensation under FirstEnergy’s short-term incentive compensation program and long-term incentive compensation program with respect to Mr.

Jones that were outstanding on the date of termination were forfeited.

In November 2021, after a determination by the Compensation Committee of the FE Board that a demand for recoupment was warranted pursuant to the Recoupment Policy, FE made a recoupment demand to Mr.

Jones of compensation previously paid to him totaling approximately $56 million, the maximum amount permissible under the Recoupment Policy.

As such, any amounts payable to Mr.

Jones under the EDCP will be set off against FE’s recoupment demand.

There can be no assurance that the efforts to seek recoupment from Mr.

Jones will be successful.

Despite the many disruptions FirstEnergy is currently facing, the leadership team remains committed and focused on executing its strategy and running the business.

however, the outcomes of the unresolved HB 6 investigations and state regulatory audits remain unknown.

Despite the many disruptions FirstEnergy has faced, and continues to currently face, 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.

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A reconciliation of segment financial results is provided in Note 15, "Segment Information," of the Notes to Consolidated Financial Statements.

Net income by business segment was as follows:

Earnings attributable to FE from continuing operations by business segment was as follows:

(In millions, except per share amounts) For the Years Ended December 31, Increase (Decrease)

2023 2022 2021 2023 vs 2022 2022 vs 2021

Net Income By Business Segment:

Earnings Attributable to FE from Continuing Operations by Business Segment:

Regulated Distribution $ 740 $ 957 $ 1,288 $ (217) $ (331)

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Corporate/Other (131) (912) (457) 781 (455)

Income from Continuing Operations $ 439 $ 1,239 $ 1,003 $ (800) $ 236

Discontinued Operations — 44 76 (44) (32)

Net Income $ 439 $ 1,283 $ 1,079 $ (844) (65.8) % $ 204 18.9 %

Income attributable to noncontrolling interest (continuing operations) 33 — — 33 —

Earnings attributable to FE $ 406 $ 1,283 $ 1,079 $ (877) (68.4) % $ 204 18.9 %

Earnings attributable to FE from continuing operations $ 1,123 $ 406 $ 1,239 $ 717 176.6 % $ (833) (67.2) %

EPS Attributable to FE:

Income from continuing operations, basic $ 0.71 $ 2.27 $ 1.85 $ (1.56) $ 0.42

Discontinued operation, basic — 0.08 0.14 (0.08) (0.06)

Basic EPS $ 0.71 $ 2.35 $ 1.99 $ (1.64) (69.8) % $ 0.36 18.1 %

Income from continuing operations, diluted $ 0.71 $ 2.27 $ 1.85 $ (1.56) $ 0.42

Discontinued operation, diluted — 0.08 0.14 (0.08) (0.06)

Diluted EPS $ 0.71 $ 2.35 $ 1.99 $ (1.64) (69.8) % $ 0.36 18.1 %

Basic - continuing operations $ 1.96 $ 0.71 $ 2.27 $ 1.25 $ (1.56)

Basic - discontinued operations (0.04) — 0.08 (0.04) (0.08)

Basic $ 1.92 $ 0.71 $ 2.35 $ 1.21 170.4 % $ (1.64) (69.8) %

Diluted - continuing operations $ 1.96 $ 0.71 $ 2.27 $ 1.25 $ (1.56)

Diluted - discontinued operations (0.04) — 0.08 (0.04) (0.08)

Diluted $ 1.92 $ 0.71 $ 2.35 $ 1.21 170.4 % $ (1.64) (69.8) %

Summary of Results of Operations — 2023 Compared with 2022

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Total Operating Expenses 9,606 1,051 (53) 10,604

Operating Income (Loss) 1,388 665 (143) 1,910

Other Income (Expense):

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Total Other Expense (525) (236) (41) (802)

Income (Loss) Before Income Taxes (Benefits) 1,208 504 (273) 1,439

Income taxes (benefits) 167 179 (79) 267

Net Income (Loss) $ 957 $ 394 $ (912) $ 439

Income attributable to noncontrolling interest — 74 — 74

Earnings (Loss) Attributable to FE $ 957 $ 361 $ (912) $ 406

Earnings (Loss) Attributable to FE from Continuing Operations $ 740 $ 514 $ (131) $ 1,123

2022 Financial Results Regulated Distribution Regulated Transmission Corporate/Other and Reconciling Adjustments FirstEnergy Consolidated

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Provision for depreciation 967 335 73 1,375

Amortization of regulatory assets, net 260 9 — 269

Deferral of regulatory assets, net (362) (3) — (365)

General taxes 831 255 43 1,129

DPA Penalty — — 230 230

Gain on sale of Yards Creek (109) — — (109)

Total Operating Expenses 9,413 1,203 (67) 10,549

Operating Income (Loss) 1,465 678 (417) 1,726

Other Income (Expense):

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Total Other Expense (180) (161) (130) (471)

Income (Loss) from Continuing Operations Before Income Taxes (Benefits) 1,652 535 (628) 1,559

Income taxes (benefits) 364 127 (171) 320

Income (Loss) From Continuing Operations 1,288 408 (457) 1,239

Discontinued Operations, net of tax — — 44 44

Net Income (Loss) $ 1,288 $ 408 $ (413) $ 1,283

Income taxes 251 110 639 1,000

Income attributable to noncontrolling interest — 33 — 33

Earnings (Losses) Attributable to FirstEnergy Corp.

from Continuing Operations $ 957 $ 361 $ (912) $ 406

Changes Between 2023 and 2022

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Provision for depreciation 54 32 — 86

Amortization (deferral) of regulatory assets, net (622) (12) — (634)

Deferral of regulatory assets, net 106 (2) — 104

General taxes 20 11 4 35

DPA penalty — — (230) (230)

Gain on sale of Yards Creek 109 — — 109

Total Operating Expenses 193 (152) 14 55

Operating Income (Loss) (77) (13) 274 184

Other Income (Expense):

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Total Other Expense (345) (75) 89 (331)

Income (Loss) from Continuing Operations Before Income Taxes (Benefits) (444) (31) 355 (120)

Income taxes (benefits) (84) 69 (718) (733)

Income (Loss) From Continuing Operations (331) (14) (455) (800)

Discontinued Operations, net of tax — — (44) (44)

Net Income (Loss) $ (331) $ (14) $ (499) $ (844)

Income attributable to noncontrolling interest (continuing operations) — 33 — 33

Earnings (Loss) Attributable to FE $ (331) $ (47) $ (499) $ (877)

Income attributable to noncontrolling interest — 41 — 41

Earnings (Loss) Attributable to FE from Continuing Operations $ (217) $ 153 $ 781 $ 717

Regulated Distribution — 2023 Compared with 2022

Regulated Distribution's net income decreased $331 million in 2022, as compared to 2021, primarily resulting from higher other operating expenses, customer rate credits associated with the PUCO-approved Ohio Stipulation, change in pension and OPEB mark-to-market adjustments, and higher pension and OPEB expenses, partially offset by higher weather-related usage, rider revenues from capital investment programs, as well as the absence of a $27 million refund for previously collected decoupling revenues in Ohio, with interest.

Regulated Distribution's earnings attributable to FE from continuing operations decreased $217 million in 2023, as compared to 2022, primarily resulting from lower customer usage as a result of the weather, lower net pension and OPEB credits, and higher interest expense and costs from the PEER, as further discussed below, partially offset by lower other operating expenses, higher revenues from regulated investment programs and higher weather-adjusted customer usage and demand.

The $237 million increase in total revenues resulted from the following sources:

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Distribution services $ 5,372 $ 5,261 $ 111

$ 5,261 $ 5,406 $ (145)

Generation sales:

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Total Revenues $ 11,038 $ 10,801 $ 237

(1) Includes $(27) million of ARP revenues for the year ended December 31, 2021, which is related to the Ohio Companies refund to customers that was previously collected under decoupling mechanisms, with interest.

Distribution services revenues decreased $145 million in 2022, as compared to 2021, primarily resulting from customer rate credits associated with the PUCO-approved Ohio Stipulation, as well as adjusted customer rates of the Pennsylvania Companies associated with the Tax Act and lower transmission recovery, which has no material impact to current period earnings, partially offset by higher weather-related usage, the absence of a $27 million refund for previously collected decoupling revenues in Ohio with interest, and higher rates associated with riders in Ohio, Pennsylvania and New Jersey for the recovery of certain capital investment programs.

Distribution services revenues increased $111 million in 2023, as compared to 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 of transmission expenses.

Distribution services by customer class are summarized in the following table:

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(In thousands) Actual Weather-Adjusted

Electric Distribution MWH Deliveries 2022 2021 Increase 2022 2021 Increase (Decrease)

Electric Distribution MWh Deliveries 2023 2022 Increase (Decrease) 2023 2022 Increase

Residential 52,216 55,995 (6.7) % 55,908 55,081 1.5 %

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(1) Includes street lighting.

Residential and commercial distribution deliveries were impacted by higher weather-related customer usage.

Cooling degree days were 2.9% below 2021 and 11.5% above normal.

Heating degree days were 8.4% above 2021 and 1.0% below normal.

Increases in industrial deliveries were primarily from the primary and fabricated metal and transportation equipment manufacturing sectors.

Compared to pre-pandemic levels in 2019, weather-adjusted residential distribution deliveries for the year ended December 31, 2022 increased 2.7%, while commercial and industrial deliveries decreased 4.5% and 0.9%, respectively.

Residential and commercial distribution deliveries were impacted by lower customer usage as a result of the weather.

Heating degree days in 2023 were 14% below 2022 and 15% below normal.

Cooling degree days in 2023 were 23% below 2022 and 15% below normal.

Increases in industrial distribution deliveries were primarily from oil and gas extraction, 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 in 2023 increased 4.3%, while commercial and industrial deliveries decreased 4.1% and 0.2%, respectively.

The following table summarizes the price and volume factors contributing to the $107 million increase in generation revenues in 2023, as compared to 2022:

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Change in Generation Revenues $ 107

The increase in retail generation sales volumes was primarily due to higher weather-related usage and decreased customer shopping in New Jersey, Ohio and Pennsylvania.

Total generation provided by alternative suppliers as a percentage of total MWH deliveries in 2022, as compared to 2021, decreased to 41% from 46% in New Jersey, to 78% from 86% in Ohio, and to 60% from 63% in Pennsylvania.

Retail generation sales, other than those in West Virginia, have no material impact to FirstEnergy's earnings.

The decrease in retail generation sales volumes was primarily due to lower usage as a result of the weather and increased customer shopping in Pennsylvania, Total generation provided by alternative suppliers as a percentage of total MWh deliveries in 2023, as compared to 2022, 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, excluding those in West Virginia, have no material impact to earnings.

Wholesale generation revenues increased $132 million in 2022, as compared to 2021, primarily due to an increase in spot market energy prices, partially offset by lower capacity revenues and sales volumes.

The difference between current wholesale generation revenues and certain energy costs incurred are deferred for future recovery or refund, with no material impact to current period earnings.

Wholesale generation revenues decreased $266 million in 2023, as compared to 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 $193 million primarily due to the following:

• Fuel expense increased $249 million in 2022, as compared to 2021, primarily due to higher unit costs and increased generation output.

Due to the ENEC, fuel expense has no material impact on current earnings.

• Purchased power costs increased $896 million in 2022, as compared to 2021, primarily due to higher market prices and increased volumes as described above.

• Fuel expense decreased $192 million in 2023, as compared to 2022, primarily due to lower generation output and unit costs.

However, due to the ENEC, fuel expense has no material impact on current period earnings.

• Purchased power costs increased $245 million in 2023, as compared to 2022, primarily due to increased prices, partially offset by lower capacity expenses and decreased volumes as described above.

Source of Change in Purchased Power Increase (Decrease)

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Change in Purchased Power Costs $ 245

• Other operating expenses increased $437 million in 2022, as compared to 2021, primarily due to:

• Higher network transmission expenses of $99 million.

• Other operating expenses decreased $40 million in 2023, as compared to 2022, primarily due to:

• Lower other operating and maintenance expenses of $47 million, primarily associated with lower labor costs and fewer regulated generation planned outages;

• Lower vegetation management expenses of $86 million, including accelerated work during 2022;

• Lower network transmission expenses of $46 million.

These costs are deferred for future recovery, resulting in no material impact on current period earnings;

• Higher expenses of $65 million resulting from lower capitalization of vegetation management costs.

• Higher expenses of $59 million resulting from lower capitalization of corporate support costs.

• Lower uncollectible expenses of $46 million of which $24 million was deferred for future recovery, resulting in no material impact on current period earnings;

partially offset by:

• Lump sum compensation and severance benefits of $42 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 $58 million, which are deferred for future recovery, resulting in no material impact on current period earnings;

• Higher expenses of $19 million resulting from higher regulated generation planned outage spend.

• Higher expenses of $18 million resulting from accelerated maintenance activities into 2022.

• Higher other operating and maintenance expenses of $60 million, primarily associated with higher materials, contractor and labor costs.

• Higher expense due to the absence of a $27 million reduction to a reserve recognized in the third quarter of 2021.

• Lower uncollectible expenses of $4 million, which was deferred.

• Higher storm expenses of $85 million, which was all deferred for future recovery, resulting in no material impact on current period earnings.

• Depreciation expense increased $54 million in 2023, as compared to 2022, primarily due to a higher asset base.

• Amortization (deferral) of regulatory assets, net decreased $622 million in 2022, as compared to 2021, primarily due to:

• $170 million decrease due to the return of certain Tax Act savings to Pennsylvania customers,

• $197 million decrease due to transmission and generation related deferrals primarily as a result of lower recovery of transmission related expenses,

• $112 million decrease due to customer refunds associated with the Ohio Stipulation,

• $109 million decrease due to the absence of the reduction of the New Jersey storm cost regulatory asset as a result of the Yards Creek sale, and

• $34 million decrease due to lower recovery of previously deferred uncollectible expenses as a result of a return to pre-pandemic levels

• General taxes increased $42 million in 2022, as compared to 2021, primarily due to higher gross receipts and kWh taxes, and Ohio property taxes, partially offset by lower West Virginia Business and Occupation taxes as a result of a state tax law change that became effective July 2021.

• The absence of the gain on sale of the Yards Creek Generating Facility of $109 million, which was netted against the New Jersey storm deferral, as described above, resulting in no impact to earnings.

• Deferral of regulatory asset decreased $106 million in 2023, as compared to 2022, primarily due to:

• $100 million decrease due to the absence of a return of certain Tax Act savings to Pennsylvania customers in 2022;

• $97 million net decrease due to lower generation and transmission related deferrals, and

• $51 million decrease due to the absence of the customer refunds associated with the Ohio Stipulation;

partially offset by:

• $91 million increase due to higher deferral of storm related expenses;

• $28 million increase due to higher energy efficiency related deferrals;

• $14 million related to net increases in other deferrals;

• $9 million increase due to lower vegetation related amortizations.

• General taxes increased $20 million in 2023, as compared to 2022, primarily due to higher gross receipts taxes and Ohio property taxes, partially offset by lower Ohio kWh taxes.

Other Expense —

Other expense increased $367 million in 2022, as compared to 2021, primarily due to a $320 million change in pension and OPEB mark-to-market adjustments, higher pension and OPEB non-service costs, higher interest from borrowings under the regulated money pool and lower capitalized interest, partially offset by lower borrowings under the revolving credit facilities.

Other expense increased $345 million in 2023, as compared to 2022, primarily due to lower net pension and OPEB non-service credits, a $28 million change in pension and OPEB mark-to-market adjustments, 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.

Regulated Distribution’s effective tax rate was 18.4% and 20.8% for 2023 and 2022, respectively.

Regulated Transmission — 2023 Compared with 2022

Regulated Transmission's net income decreased $14 million in 2022, as compared to 2021, primarily due to a charge resulting from the filed settlement by MP, PE and WP with FERC in January 2023, as well as expected customer refunds associated with the FERC Audit, as further discussed below, partially offset by higher rate base and lower net financing costs.

Total revenues increased $250 million in 2022, as compared to 2021, primarily due to the recovery of higher recoverable expenses and a higher rate base, partially offset by expected customer refunds associated with the FERC Audit, as further discussed below.

Regulated Transmission’s earnings attributable to FE from continuing operations increased $153 million in 2023, as compared to 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 an adjustment associated with the recovery of certain costs during 2023.

Additionally, earnings increased as a result of regulated capital investments that increased rate base, which is partially offset by the 19.9% minority equity interest sale in FET that closed in May 2022.

Total revenues increased $186 million in 2023, as compared to 2022, primarily due to the absence of a reserve for customer refunds associated with the FERC Audit, as further discussed below, a true-up adjustment for the recovery of certain transmission formula rate operating costs during 2023 and a higher rate base.

Revenues by transmission asset owner are shown in the following table:

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Operating Expenses —

Total operating expenses increased $263 million in 2022, as compared to 2021, primarily due to the reclassification of certain transmission capital assets to operating expenses as a results of the FERC Audit, as further discussed below, higher operating and maintenance expenses and a charge resulting from the filed settlement with FERC in January 2023, partially offset by a charge in the third quarter of 2021 resulting from the filed ATSI settlement.

Other than the customer refunds and write-off of nonrecoverable transmission assets, nearly all operating expenses are recovered through formula rates, resulting in no material impact on current period earnings.

Total operating expenses decreased $152 million in 2023, as compared to 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 $18 million in 2022, as compared to 2021, primarily due to a $46 million change in the pension and OPEB mark-to-market adjustment, partially offset by lower interest on long-term debt and borrowings under the revolving credit facilities, higher unregulated money pool interest income at ATSI, MAIT and TrAIL, and higher capitalized financing cost.

Total other expense increased $75 million in 2023, as compared to 2022, primarily due to lower affiliated company interest income at FET, lower net pension and OPEB non-service credits and higher net financing costs due to the new debt issuances at MAIT and ATSI.

Income Taxes —

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Corporate/Other — 2023 Compared with 2022

Financial results from Corporate/Other and reconciling adjustments resulted in a $499 million increase in net loss for 2022 compared to 2021, primarily due to higher income tax expense resulting from an income tax charge of $752 million in 2022 representing the deferred tax liability associated with the deferred tax gain on the 19.9% sale of FET membership interests to Brookfield that closed in May 2022, as well as expenses associated with the FE debt redemptions.

These were partially offset by the absence of the $230 million DPA monetary penalty, higher net investment income on certain equity method and other investments and the change in pension and OPEB mark-to-market adjustments.

For the year ended December 31, 2021, FirstEnergy recorded a gain from discontinued operations, net of tax, of $44 million.

The gain was primarily due to income tax benefits from the final true-up to the worthless stock deduction and a final federal NOL allocation between the FES Debtors and FirstEnergy resulting from the filing of the 2020 FirstEnergy federal income tax return during 2021.

Financial results from Corporate/Other resulted in a $781 million decrease in losses attributable to FE from continuing operations for 2023 compared to 2022, primarily due to lower income tax expense, lower interest and debt redemption expenses from the redemption of certain FE notes, as further discussed below, and lower affiliated company borrowings.

Lower income tax expense was primarily due to the absence of an income tax charge of $752 million in 2022, representing the deferred tax liability associated with the deferred tax gain on the 19.9% sale of FET membership interest to Brookfield, and a 2023 tax benefit of $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 operation and the composition of a state tax return filing group, partially offset by a $58 million tax charge in 2023 associated with a true-up adjustment associated with the deferred tax gain on the 19.9% sale of FET membership interest.

Financial results compared to the same period of 2022 also reflect higher investment earnings on corporate-owned life insurance policies and FEV’s interests in Signal Peak and lower debt redemption costs, 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 and higher interest from the 2026 Convertible Notes issuance.

REGULATORY ASSETS AND LIABILITIES

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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 December 31, 2022 and December 31, 2021, and the changes during the year ended December 31, 2022:

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 December 31, 2023 and 2022, and the changes during the year 2023:

As of December 31,

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Storm-related costs 799 683 116

Uncollectible and pandemic-related costs 63 56 7

Energy efficiency program costs 198 94 104

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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 ARO has been recognized, that are expected to be incurred at the time of retirement.

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Approximately $254 million and $206 million are currently being recovered through rates as of December 31, 2023 and 2022, respectively.

Uncollectible and pandemic-related costs - Includes the deferral of incremental costs arising from the pandemic and in some cases including uncollectible expenses.

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.

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Vegetation management 21 52 (31)

Other 33 35 (2)

Regulatory Assets Not Earning a Current Return $ 1,197 $ 997 $ 200

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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.

FE and its 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 2024 and beyond, FE and its 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.

Investments for 2022 and forecasts for 2023, 2024, and 2025 by business segment are included below:

Long-term cash needs may be met through the issuance of long-term debt by FE and certain of its 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.

FE may utilize instruments other than senior notes to fund its liquidity and capital requirements, including hybrid securities.

Investments in 2023 by business segment are included below:

Business Segment 2023

(In millions)

Regulated Distribution (1)

Regulated Transmission 1,781

Corporate/Other 114

Total $ 3,747

(1) Includes capital expenditures and capital-like investments that earn a return.

Beginning in 2024, FirstEnergy changed its reportable segments to include Distribution, which will consist of the Ohio Companies and FE PA;

Integrated, which will consist of MP, PE and JCP&L;

and Stand-Alone Transmission, which will consist of FE's ownership in FET and KATCo.

On January 1, 2024, WP transferred certain of its Pennsylvania-based transmission assets to KATCo.

Corporate/Other will reflect corporate support and other support 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.

Capital investment forecasts for the years ended 2024, 2025, 2026, 2027, and 2028 by business segment are included below:

Business Segment 2024

2025 Forecast

2026 Forecast

2027 Forecast

2028 Forecast

(In millions)

Regulated Distribution (1)

Distribution $ 1,200 $ 1,300 $ 1,500 $ 1,700 $ 1,800

Stand-Alone Transmission 1,400 1,500 1,600 1,700 1,900

Integrated (1)

1,600 1,800 2,000 2,200 2,400

Regulated Transmission 1,394 1,675 1,800 1,850

Corporate/Other 100 100 100 100 100

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(1) Includes capital expenditures and capital-like investments that earn a return.

(2) FirstEnergy expects to update the forecast over the period for items such as regulatory filings and approvals and other changes.

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.

In alignment with FirstEnergy’s strategy to invest in its 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 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.