FirstEnergy’s Tariff Resilience: Minimal Direct Exposure Amid Broader Economic Challenges

In an interview with CNBC and during FirstEnergy’s Q1 2025 earnings call, CEO Brian Tierney emphasized the utility’s minimal direct exposure to the Trump administration’s tariffs on foreign imports, with tariff impacts accounting for less than 0.2% of its $28 billion five-year capital investment program. This limited exposure stems from proactive supply chain diversification since the start of the pandemic, which reduced reliance on single-source suppliers. However, Tierney also highlighted broader economic risks tied to tariffs, including potential delays in industrial investment and softer demand in key sectors like steel production.

Tariff Exposure: A Niche Concern for FirstEnergy

FirstEnergy’s minimal tariff exposure is rooted in its labor-centric operations and maintenance (O&M) costs, which account for most of its expenses. Tierney noted that tariffs primarily affect goods like steel and copper—materials for which the company has diversified suppliers since 2020. The company’s supply chain strategy has also insulated it from inflationary pressures, with O&M expenses falling 3.5% year-over-year in Q1 2025.

A Cleveland Federal Reserve report cited during the earnings call found that 64% of businesses anticipate negative tariff impacts, including higher input costs and reduced demand. Yet Tierney argued that FirstEnergy’s regulated utility model and labor-driven cost structure shield it from these broader economic headwinds.

Economic Challenges Looming Over Industrial Sectors

Despite FirstEnergy’s limited direct exposure, its industrial customers are feeling the pinch. Industrial sales fell 6% year-over-year in Q1 2025 (to 12.8 million MWh), driven by reduced steel production linked to automotive demand. While Tierney attributed this decline to sector-specific economic factors rather than tariffs, he acknowledged that prolonged trade policy uncertainty could further deter industrial investment.

The company’s focus on data center demand offers a counterbalance. FirstEnergy reported 15 new interconnection study requests for data centers in Q1 2025, totaling 9 GW of potential load—part of an 80 GW pipeline since early 2024. This growth reflects a strategic shift toward high-demand, regulated infrastructure projects.

Regulatory Headwinds and Financial Resilience

FirstEnergy’s near-term challenges include navigating PJM capacity market price hikes, which could raise New Jersey residential rates by 20.2% starting in June 2025. Tierney criticized the lack of new dispatchable capacity tied to these price increases, urging state-level solutions to address resource adequacy without reverting to re-regulation.

Financially, the company delivered strong results in Q1 2025:
- Core EPS rose 37% to $0.67 per share (vs. $0.49 in Q1 2024), driven by rate base growth in Pennsylvania, New Jersey, and West Virginia.
- Capital investments hit $1.05 billion, a 15% year-over-year increase, with projects like the Valley Link transmission line advancing.
- The company reaffirmed its 2025 core EPS guidance of $2.40–$2.60 and its 6%–8% CAGR through 2029, underpinned by its $28 billion capital program.

Conclusion: A Utility Built for Uncertainty

FirstEnergy’s minimal direct tariff exposure and robust financial performance underscore its resilience in a challenging macroeconomic environment. Its diversified supply chain, labor-heavy cost structure, and focus on regulated growth—especially in data center demand—are key competitive advantages.

However, investors should monitor two critical factors:
1. Regulatory outcomes: Delays or adjustments to PJM capacity market prices could impact near-term rate hikes and customer sentiment.
2. Industrial recovery: A rebound in steel and automotive demand could stabilize industrial sales, but prolonged trade policy uncertainty remains a risk.

With a 37% EPS growth in Q1 2025 and a disciplined capital plan, FirstEnergy appears positioned to weather both tariff-related and regulatory headwinds. For income-focused investors, its 5.2% dividend yield (as of Q1 2025) and steady earnings trajectory offer a compelling risk-reward profile.

In short, while tariffs pose negligible direct financial risks to FirstEnergy, its success hinges on navigating broader economic and regulatory currents—a challenge its leadership seems prepared to tackle.