FirstEnergy (NYSE:FE) is close to a deal with “quality investors” to sell a minority interest in its profitable transmission company, officials said Friday during the company’s third quarter earnings call.

“Currently, we are engaged in a process to sell a minority interest in our transmission holding company, FirstEnergy Transmission,” CFO Jon Taylor told analysts. FET owns American Transmission Systems Inc., Mid-Atlantic Interstate Transmission and Trans-Allegheny Interstate Line.

“The interest is very strong, and preliminary indications are very supportive of our financial plan and targets. But given where we are in the process, we can’t comment any further on the details,” he said.  

When pressed later in the call for more detail, Taylor declined to give specifics but described the investors potential buyers as “top-notch quality firms.

“And they’re very supportive of the business plan and very supportive of future transmission opportunities,” he added.

Published reports since the company’s second quarter earnings call in August when the sale of a minority interest came up have estimated FirstEnergy could sell nearly a 20% interest in the transmission company for as much as $2.5 billion.

The company broached the idea in April, telling analysts during the first quarter earnings call that selling a minority interest in one of its subsidiaries — as Duke Energy sold 19.9% interest in its Indiana subsidiary —  was something it might consider as a way to raise cash without issuing common equity.

Rating agencies downgraded FirstEnergy credit ratings to “junk status” in November 2020 after some of its subsidiaries borrowed $2 billion from a revolving credit facility.

The company last month completed a reorganization of the credit facility, prompting an S&P rating uptick back to investment status for the corporation’s 10 utilities and three transmission companies. S&P kept a “credit watch” on the companies, however.

“The 2021 credit facilities provide for aggregate commitments of $4.5 billion and are available until October of 2026,” Taylor said.

“While we’re glad to return to investment grade ratings for these companies with all three rating agencies, we remain committed to improving our balance sheet and the overall credit profile at the parent company,” Taylor said.

Key to that is achieving a 13% ratio of funds from operations (FFO) to debt, and the company will do that, he said.  

“During the fourth quarter, we expect to provide you with 2022 guidance and a detailed capital plan along with the runway of our FFO to debt target, longer term capital forecasts and targeted rate base and earnings growth rates,” Taylor said.

The Numbers

FirstEnergy reported third quarter earnings of $463 million ($0.85/share) on revenue of $3.1 billion.

In the third quarter of 2020, the company earned $454 million ($0.84/share) on revenue of $3 billion.

Excluding the impact of one-time or special charges or credits, the company earned $0.82/share — exceeding the top end of the company’s guidance. In the third quarter of 2020, operating earnings were $0.84/share.

FirstEnergy updated its full-year 2021 earnings forecast range to $1.17 billion to $1.22 billion ($2.14 to $2.24/share).

The company expects cash from operations for the year of about $2.8 billion. That total includes expenses such as the $230 million fine the company paid the Justice Department in a plea deal to avoid prosecution in the $61 million bribery probe, which the DOJ has continued.

FirstEnergy announced Monday after the close of business that it had agreed to settle a yearslong battle with the Ohio Consumers’ Council, the Northeast Ohio Public Energy Council and eight other consumer and business groups over extra charges levied since 2013.  

The company filed a negotiated stipulation settling 10 separate cases pending before the Ohio Public Utilities Commission. The agreement, which must be approved by the commission, calls for FirstEnergy to refund $306 million, some of that in immediate cash refunds.

The deal, supported by the staff analysts at the PUC, calls for FirstEnergy’s Ohio utilities to refund $96 million (which includes interest) related to the utilities’ 2017-2019 annual excessive earnings review.  

Residential customers would receive a one-time bill credit of about $27. Commercial and industrial customers would be given a credit of about $2.60/MWh used over six months. The remaining $210 million would be refunded as bill credits from 2022 through 2025.