FirstEnergy’s strong quarterly financial performance hasn’t
saved it from a continued punishment on Wall Street, or CEO Charles
Jones from spending much of an hourlong Friday earnings conference
call defending the Ohio utility against implications of its
involvement in a�federal
corruption and racketeering investigation tied to last yearâ€™s
passage of House Bill 6.
FirstEnergy reported second-quarter revenue of $2.5 billion and
earnings of $309 million, or 57 cents per share on a GAAP and
operating earnings basis, at the upper end of its earnings
guidance. It has received positive regulatory rulings for COVID-19
pandemic-related cost recovery and has access to about $3.5 billion
in liquidity over the next year to manage further disruptions. And
it affirmed long-term growth projections of 6 to 8 percent compound
annual operating earnings growth from 2018 to 2021
But the positive financial picture didnâ€™t help FirstEnergyâ€™s
shares recover from the hit they took last week, after Ohio House
Speaker Larry Householder and four associates were arrested on
federal charges of conspiring to direct $61 million toward efforts
to pass a law subsidizing nuclear power plants operated by former
subsidiary FirstEnergy Solutions, and to defend it against a
popular referendum to overturn it.
The affidavit filed by the U.S. Attorneyâ€™s Office of the
Southern District of Ohio doesnâ€™t name FirstEnergy, referring
instead to â€œCompany Aâ€ and other unnamed subsidiaries. But U.S.
Attorney David M. DeVillers made clear that FirstEnergy and
subsidiaries are the companies identified as sources of the money,
which went to a nonprofit group controlled by Householder and his
alleged accomplices, and FirstEnergy acknowledged that it has
received federal subpoenas related to the investigation.
FirstEnegy shares plummeted from more than $41 last Tuesday to
less than $25 on the following day, and have since traded at about
$30. Fridayâ€™s earnings report yielded no discernible uptick, with
shares trading at about $29 as of mid-Monday trading.
Jones opened Fridayâ€™s call by stating that â€œat no time does
our support for nuclear plants in Ohio interfere or supersede our
ethical obligations to conduct our business properly. The facts
will become clear as the investigation progresses and we support
bringing the facts forward.â€
He also noted that â€œwe are no longer in a competitive
generation business and would not get a single dollar of the House
Bill 6 funding for those plants.â€
FirstEnergy Solutions, the owner of the nuclear power plants set
to receive about $1.2 billion in subsidies over the next 10 years
because of House Bill 6, emerged from bankruptcy under new
ownership and the new name Energy Harbor earlier this year.
In response to a question about how much of the $61 million
referenced in the affidavit was from FirstEnergy versus its former
subsidiary, Jones said FirstEnergyâ€™s share is about 25 percent.
â€œWe intend to provide the details on what we spent, how we spent
it to the Department of Justice in the coming weeks.â€
He also said the company plans to do â€œan internal review of
everything involved in the affidavit, which obviously is going to
be necessary for us to respond to the questions in the
FirstEnergy CEO denies lobbyist payment came from him
Jones declined to respond in detail to other questions during
Fridayâ€™s conference call, such as one asking him to expand on the
affidavitâ€™s statement that Householder had
84 phone contacts with FirstEnergyâ€™s CEO from February 2017
to July 2019.
â€œI talk to a lot of people, I text with lot of people, I
probably text more than I talk these days. So we have to see what
they’re talking about,â€ he said. â€œI can tell you this, in every
meeting, every phone call, every text message that I participate
in, I talked about our obligations to conduct our business
transparently, ethically, professionally,â€ he said.
In response to another question regarding the affidavitâ€™s
reference to a CEO of an unnamed company making a payment to a
lobbyist arrested last week, Jones said, â€œI think that the CEO
reference in some of that affidavit wasn’t me. I don’t know who it
was, but it was not me and I’ve never made a payment directly to a
lobbyist in my life nor asked any lobbyists to make a payment to
anyone else on behalf of our company in my life.â€
Jones also said that a lobbyist arrested last week â€œdid not
work for FirstEnergy on House Bill 6. And to my knowledge, they
have never worked for FirstEnergy.â€
In a Monday
statement, Jones reiterated that FirstEnergy had separated its
external affairs, i.e. lobbying, efforts from those of FirstEnergy
Solutions after its April 2018 Chapter
11 bankruptcy protection filing.
In response to a question about the post-arrest downgrades to
FirstEnergyâ€™s credit rating by Standard & Poorâ€™s and
Moodyâ€™s, Jones said that he had spoken to representatives of both
ratings agencies. â€œI told them that they should not put the
ratings integrity of their ratings on the line for FirstEnergy.
That it’s my job and our company’s executive teamâ€™s job to take
care of our reputation, and we will do that, but I also told them
that we’re the same underlying company that existed before
In response to questions about the potential impact of repealing
House Bill 6, as Ohio Gov.
Mike DeWine said he supported last week, Jones said a repeal
would not have any significant financial impacts on the utility now
that it’s separate from Energy Harbor and the nuclear and coal
plants that are the law’s main beneficiaries.
Beyond directing subsidies to Energy Harborâ€™s nuclear plants
and coal-fired power plants owned by a utility consortium, the law
ends the stateâ€™s
energy efficiency and renewable energy subsidies collected on
customerâ€™s bills. This allowed the nuclear subsidies to be added
to customersâ€™ bills without increasing their overall cost, but
reduced an energy efficiency rider that helped pay
FirstEnergyâ€™sdistribution grid costs.
However, House Bill 6 does allow FirstEnergy to use a
â€œdecoupling mechanismâ€ to assure it earns the equivalent
returns as it did in 2018 through the start of its next rate case
in 2023. But Jones said that this decoupling has so far helped
reduce customer costs for residential customers who have been
forced by COVID-19 pandemic-related stay-at-home orders to increase
their energy use during hotter than usual summer weather.
Source: FS – GreenTech Media
FirstEnergy CEO Defends Utility Amid Bribery Scandal