FirstEnergy Corp, the fully regulated, "mostly wires" utility giant, painted a picture of a bright future during its Q1 2024 earnings call. A robust five-year, $26 billion investment plan, dubbed "Energize 365", promises to modernize the grid, improve reliability, and attract lucrative data center load. All of this, according to CEO Brian Tierney, will be achieved with a strong balance sheet and no need for incremental equity. A compelling story, indeed.

But hidden beneath the surface of this optimistic narrative, a curious detail emerges, one that seems to have escaped the attention of the Wall Street analysts peppering Tierney with questions about data centers and dividend payouts. It's a detail that hints at a potential contrarian bet, a play that could upend the company's clean energy narrative and perhaps even signal a shift in the broader energy landscape.

The clue lies in FirstEnergy's subtle backpedaling on its 2030 interim greenhouse gas emissions goal. The company, which had previously aimed for a 30% reduction in Scope 1 emissions by 2030, has quietly abandoned that target, citing "resource adequacy concerns in the PJM region and state energy policy initiatives". While the company maintains its aspirational goal of net carbon neutrality by 2050, this retreat from the 2030 commitment raises intriguing questions.

What are these "resource adequacy concerns" that have prompted FirstEnergy to revise its emissions strategy? Are they truly insurmountable, forcing the company to abandon its interim goal? Or could this be a calculated maneuver, a signal that FirstEnergy sees a future where coal, despite the prevailing narrative of its imminent demise, remains a significant player in the energy mix?

The explanation for FirstEnergy's revised stance likely lies in the complex interplay of factors shaping the PJM region's resource adequacy landscape. Rapidly growing demand from data centers, coupled with the planned retirement of numerous coal-fired power plants, is creating a potential energy crunch, leaving the grid vulnerable to reliability issues, particularly during periods of peak demand.

Adding to the complexity are the evolving state energy policies, which are driving a rapid build-out of intermittent renewable resources like wind and solar. While these resources are crucial for decarbonizing the grid, their intermittency poses challenges for maintaining resource adequacy, particularly in the absence of adequate storage and grid-enhancing technologies.

FirstEnergy's decision to abandon its 2030 emissions target suggests a growing awareness of these challenges and perhaps a tacit acknowledgement that coal, at least in the near term, will be needed to bridge the gap between growing demand and the limitations of intermittent renewables.

This implicit bet on coal's continued relevance is further reinforced by FirstEnergy's own filings in West Virginia, which forecast the end of the useful life of its Fort Martin coal plant in 2035 and its Harrison plant in 2040. These dates, notably later than the 2030 interim emissions target, suggest a potential scenario where FirstEnergy leverages its existing coal fleet to capitalize on the anticipated resource adequacy gap, extending the life of these plants beyond what many industry observers might expect.

While FirstEnergy's executives have been tight-lipped about the specifics of their resource adequacy strategy, the numbers tell a compelling story. The company's $26 billion investment plan, while heavily focused on transmission and distribution, could also enable strategic investments in technologies that enhance the flexibility and resilience of its coal fleet. This could include upgrades that allow for more efficient cycling of coal plants, allowing them to better complement intermittent renewable resources.

Furthermore, FirstEnergy's ownership of the Signal Peak coal mine, while a declining source of earnings, provides a strategic hedge against rising coal prices. The mine's planned output, while dwindling, could be adjusted to meet the needs of FirstEnergy's own coal plants, ensuring a secure and potentially cost-advantageous fuel supply.

Shifting Earnings Contributions: From Coal to Regulated Growth

The following chart, based on FirstEnergy's Q4 2023 and Q1 2024 earnings calls, illustrates the company's projected shift in earnings contributions from its Signal Peak coal mine to consolidated regulated growth.

While it's impossible to say with certainty whether FirstEnergy is making a calculated bet on coal's resurgence, the evidence suggests a more nuanced strategy than the straightforward "mostly wires" narrative might suggest. The company's retreat from its 2030 emissions goal, coupled with its continued ownership of coal assets and a massive investment plan that could enable coal fleet enhancements, hints at a potential contrarian play, one that could have significant implications for both the company and the broader energy landscape.

This hidden signal, obscured beneath the optimism of FirstEnergy's growth story, warrants close attention from investors and analysts alike. It's a signal that could point to a future where coal, far from fading into obscurity, plays a strategic role in bridging the energy transition, and perhaps even enjoys a surprising resurgence in the years to come.

"Fun Fact: Despite the growing focus on renewable energy, coal still accounted for approximately 20% of U.S. electricity generation in 2023, highlighting its continued importance in the energy mix."