FirstEnergy Earnings Call Insights: Balance Sheet Analysis and FES

FirstEnergy Corp (NYSE:FE) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Balance Sheet Analysis

Dan Eggers – Credit Suisse: Just following up on Tony’s comments and Leila’s comments about Harrison. Can you just maybe help us understand how important it is you think at this point in time to move that asset over from a balance sheet perspective relative to a customer benefit perspective? And then given kind of the wide or the low bid made in the intervenor testimony, how important it is to take a lower price or accept a lower price to get this done relative to keep in at FES if the pricing doesn’t makes sense?

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James F. Pearson – SVP and CFO: I’ll start off with that, Dan. Well, let me start off. I think the low price of the $565 million or whatever that’s just a nonstarter. So, I’ll leave that at that. From a balance sheet perspective, we think we are in pretty good shape by getting the FirstEnergy Corp. bond deal done where we upsize to $1.5 billion. We also feel that we’re in very good position with the hydro asset sales. So, we feel real comfortable about that. And as you know, we plan to infuse equity from FirstEnergy down into Mon Power associated with this asset transfer. If the asset transfer doesn’t go forward, we would likely infuse that equity that we have planned for Mon Power down into FES. So, I think we end up at a good position for the balance sheet there at FES.

Anthony J. Alexander – President and CEO: Dan, this is Tony. As I’m looking at this, I think, this is far more important to West Virginia and Mon Power in terms of providing them with a stable and long-term resource that they can rely on than it is at this point from a balance sheet standpoint at FES or at FirstEnergy.

Dan Eggers – Credit Suisse: But if it didn’t transfer, you’d feel comfortable keeping that extra capacity at FES?

Anthony J. Alexander – President and CEO: Absolutely. It’s a great asset. So that’s not a consideration…

Dan Eggers – Credit Suisse: And then I guess, on RPM outlook, you guys have kind of signaled, Donny, I think of kind of flattish in prior comments with a clarity on the DR rules and the AMP project not going through. Is there any change in your thought process?

James F. Pearson – SVP and CFO: Give me that again Dan because I was talking the same time you were.

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Dan Eggers – Credit Suisse: I am sorry. I was just going to ask Donny since, he said prior, that RPM expectations were relatively flatter, that’s kind of where he thought it was going to come. Just curious if you had any updated thoughts now that we have the DR rule clarification out of FERC and the decision on the AMP project not going forward.

Donald R. Schneider – President, FirstEnergy Solutions: I really haven’t changed my opinion here, Dan. We will see here in a couple of weeks, obviously where the auction comes out.

Dan Eggers – Credit Suisse: And then just one last question on industrial load. You said you were seeing signs that steel was looking better in the first quarter, had pretty good demand growth. Are you reevaluating what you guys think normalized load growth is going to be at this point, Tony, or is it just a little early?

Anthony J. Alexander – President and CEO: Dan, I think it’s a little early. It’s still spotty. We’re seeing real strength right now in steel and in chemicals. There’s absolutely a lot of upside, if we can get this manufacturing and further development of the shale gas plays really into an economic development engine for this area. But I think it’s still too early to say because some of the others things are not as strong. Automotive is down a little bit, but the fact of the matter is there’s been a number of announced projects that as they go forward, should provide some upside on the industrial sales side. So right now, I’m cautiously optimistic that we’re going to start seeing the economy improve and begin to see some of the expected real growth that can occur in this area as a real energy center for America.

FES

Jonathan Arnold – Deutsche Bank: Just a quick one, so, use of proceeds if you are successful in Harrison and hydro, because you’ve already hit your delevering targets at FES I think with this new deal in April. Should we just assume more the same or something different?

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James F. Pearson – SVP and CFO: We would use those proceeds, Jonathan, to pay down some of the short-term borrowings that we have there right now associated with paying down the debt.

Jonathan Arnold – Deutsche Bank: At FES?

James F. Pearson – SVP and CFO: That’s correct.