FirstEnergy (FE) Q4 2025: $36B CapEx Plan Lifts Rate Base Growth to 10%, Anchoring Long-Term Upside
FirstEnergy’s five-year capital plan jumps 30%, prioritizing grid reliability and transmission scale to capture rising demand and regional investment opportunities. Management’s disciplined approach to regulatory engagement and cost control underpins robust earnings growth, while incremental generation and data center investments signal further upside. Investors should focus on execution risk, evolving regulatory outcomes, and the company’s ability to preserve affordability as investments accelerate.
Summary
- Transmission and Grid Modernization Accelerate: FE’s outsized $36B CapEx plan pushes rate base growth to 10%, with 75% formula rate recovery de-risking returns.
- Affordability and Cost Discipline Remain Central: Management highlights bills 20% below peers and O&M savings, but rising CapEx will test long-term rate competitiveness.
- Incremental Upside from Data Center and Generation Pipeline: West Virginia generation and data center-driven transmission projects offer growth beyond the current plan.
Performance Analysis
FirstEnergy delivered a strong finish to 2025, with core earnings per share at the top end of guidance and a 7.6% YoY increase. The company’s capital deployment surged to $5.6B, up 25% from 2024, primarily targeting grid reliability and resiliency across its five-state footprint. Notably, distribution reliability metrics improved 10% systemwide, with standout gains in New Jersey and Pennsylvania, where commission-approved programs supported accelerated investment.
Operationally, 75% of CapEx flowed through formula rate mechanisms, ensuring timely cost recovery and earnings stability. Transmission investments, comprising 50% of total spend, fueled an 11% annual increase in transmission rate base. FE’s return on equity rose to 9.8% on a $27.8B rate base, reflecting both regulatory outcomes and disciplined O&M management. Cash from operations topped $3.7B, over $800M above prior year, supporting both capital needs and a 5% dividend increase.
- Transmission Investment Outpaces Prior Plan: $19B transmission CapEx marks a 35% increase, positioning FE for load growth and system upgrades.
- Distribution Spend Targets Reliability: Distribution investments rose 25%, with Pennsylvania’s LTIP program driving the largest share.
- Customer Bills Remain Below Peers: Despite higher CapEx, average bills are 20% below in-state peers, aided by recent Ohio property tax relief and O&M discipline.
FirstEnergy’s financial execution provides a stable foundation, but the pace and scale of planned investments will require continued regulatory and operational agility.
Executive Commentary
"We executed on our plan, achieved several important milestones and position FirstEnergy for long-term success in one of the most dynamic periods in our industry's history. We delivered strong financial results across all of our key metrics... and we reinforced our foundation for sustainable financial growth resulting in a positive ratings action at S&P."
Brian Tierney, Chairman, President and CEO
"Core earnings for the year came in at $2.55 per share, which is close to 8% above our 2024 results and 2% above our original guidance midpoint... This was largely driven by new base rates and formula rate investments, residential customer demand that was 3% above 2024 levels, and strong financial discipline in our operating expenses."
John Taylor, Senior Vice President and CFO
Strategic Positioning
1. Transmission Scale and Competitive Positioning
FE’s $19B transmission program, spanning both standalone and integrated segments, leverages its status as one of PJM’s largest operators. Formula rate recovery, a mechanism allowing cost pass-through with minimal lag, covers most spend, while open window awards have already netted $5B in incremental projects since 2022. Management expects further upside from the 2026 PJM solicitation, with approvals anticipated in early 2027.
2. Generation Investment and State-Led Opportunity
West Virginia’s 1.2GW gas plant filing exemplifies FE’s ability to capitalize on favorable regulatory climates. The $2.5B EPC project, if approved, would boost consolidated rate base CAGR to 11% and opens the door for further generation tied to data center demand. FE’s approach—pursuing cost recovery via surcharges during construction and leveraging DOE low-interest loans—minimizes customer rate shock and enhances project viability.
3. Data Center Load and Demand-Driven Upside
Data center growth is emerging as a material demand driver, with Maryland, Pennsylvania, and Ohio seeing the most near-term pipeline activity. Each GW of contracted data center load could drive $250M of incremental transmission CapEx, with the bulk of new demand expected to ramp post-2030. FE’s system is well-positioned to capture this secular load growth, providing optionality beyond the current plan.
4. Affordability and Regulatory Engagement
Affordability remains a central pillar, with FE’s bills 20% below peer averages and management targeting bill inflation below CPI through 2030. Ongoing O&M savings (down 15% since 2022) and constructive regulatory settlements—such as Ohio’s property tax relief—enable FE to balance investment with customer impact. The company’s proactive engagement with state regulators, especially in New Jersey and Maryland, is designed to preserve rate competitiveness amid rising CapEx.
5. Financial Flexibility and Capital Allocation
FE’s funding plan relies on robust cash generation (65% of CapEx), $16B in new long-term debt, and up to $2B in equity or hybrid securities. Equity needs are modest, averaging 1% of market cap annually, with the DRIP program absorbing a portion. Management’s focus on maintaining investment-grade credit metrics and minimizing regulatory lag underpins the long-term earnings trajectory.
Key Considerations
FirstEnergy’s 2025 results and new five-year plan reflect a decisive pivot toward grid modernization, transmission expansion, and regulated generation investment. The company’s ability to execute on this ambitious plan, while maintaining affordability and regulatory support, will define its risk-reward profile over the coming cycle.
Key Considerations:
- Transmission Awards as Growth Catalyst: Success in PJM’s open window processes could add billions in incremental CapEx, enhancing rate base growth and earnings visibility.
- Regulatory Recovery and Rate Case Cadence: Frequent rate filings in Pennsylvania, West Virginia, and Maryland are necessary to align earned ROEs with authorized levels amid accelerated investment.
- Affordability as Competitive Differentiator: FE’s below-peer rate structure is a strategic asset, but sustained CapEx growth will require continued O&M discipline and regulatory cooperation.
- Data Center Demand as Structural Tailwind: The evolving data center pipeline offers significant upside, both in transmission investment and load-based revenue growth, but timing is back-weighted to early 2030s.
- Capital Markets Access and Funding Mix: Execution of the $36B plan depends on stable access to debt and equity markets, as well as successful DOE loan participation for generation projects.
Risks
Execution risk is elevated as FE ramps CapEx 30% above prior plans, particularly in transmission where labor and supply chain constraints could impact timelines and costs. Regulatory lag remains a concern in states with less formula rate coverage, and incremental equity needs, though modest, could pressure valuation if market conditions tighten. Affordability could come under strain if inflation or interest rates rise faster than anticipated, or if regulatory outcomes become less constructive. Changes in PJM market design or state energy policy could also alter the investment calculus.
Forward Outlook
For Q1 2026, FirstEnergy guided to:
- Continued execution of the $36B five-year CapEx plan, with transmission and distribution investments pacing ahead of prior years.
- Core earnings growth near the top end of the 6% to 8% CAGR range through 2030, excluding incremental generation or transmission awards.
For full-year 2026, management maintained guidance:
- 10% rate base growth, with upside to 11% pending West Virginia project approval.
Management highlighted several factors that will shape results:
- Regulatory filings in Maryland, West Virginia, and Ohio to secure timely cost recovery.
- Potential incremental CapEx from PJM open window awards and data center-driven demand.
Takeaways
FirstEnergy’s 2025 results mark a strategic inflection, with a step-change in capital deployment and a clear focus on regulated, formula-based growth. The company’s disciplined approach to cost control, regulatory engagement, and capital allocation supports long-term earnings visibility, but execution and affordability risks remain as investment accelerates.
- CapEx Acceleration Drives Growth: The $36B plan is a lever for sustained rate base and earnings expansion, with formula rate mechanisms providing downside protection.
- Regulatory and Execution Discipline: Maintaining constructive relationships with state commissions and delivering on project milestones will be critical to preserving both returns and customer goodwill.
- Watch Data Center and Transmission Upside: Investors should monitor incremental project awards and data center pipeline conversion as key sources of future upside.
Conclusion
FirstEnergy enters 2026 with momentum, a fortified balance sheet, and a capital plan that positions it as a leading beneficiary of grid modernization and regional load growth. The next phase will test its ability to execute at scale while preserving affordability and regulatory support, setting the stage for above-average utility growth if managed well.
Industry Read-Through
FirstEnergy’s aggressive CapEx ramp and focus on formula rate recovery reflect a broader utility sector pivot toward transmission and grid modernization as key growth engines. The interplay between data center-driven load, state-level generation policy, and affordability concerns is shaping capital allocation strategies across regulated utilities. Success in securing DOE financing and maintaining below-peer rates will be closely watched by peers and regulators alike. The experience in West Virginia and with PJM open window awards may serve as a template for other utilities seeking to align infrastructure investment with regional economic development and evolving demand profiles.