FirstEnergy CEO Defends Utility Amid Bribery Scandal Questions

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 year’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 didn’t help FirstEnergy’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. Attorney’s Office of the
Southern District of Ohio doesn’t name FirstEnergy, referring
instead to “Company A†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. Friday’s earnings report yielded no discernible uptick, with
shares trading at about $29 as of mid-Monday trading. 

Jones opened Friday’s call by stating that “at 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.†

He also noted that “we 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 FirstEnergy’s share is about 25 percent.
“We intend to provide the details on what we spent, how we spent
it to the Department of Justice in the coming weeks.†

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
subpoena.†

FirstEnergy CEO denies lobbyist payment came from him

Jones declined to respond in detail to other questions during
Friday’s conference call, such as one asking him to expand on the
affidavit’s statement that Householder had
84 phone contacts
 with FirstEnergy’s CEO from February 2017
to July 2019.

“I 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,†he said. “I 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,†he said. 

In response to another question regarding the affidavit’s
reference to a CEO of an unnamed company making a payment to a
lobbyist arrested last week, Jones said, “I 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.†

Jones also said that a lobbyist arrested last week “did 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
FirstEnergy’s credit rating by Standard & Poor’s and
Moody’s, Jones said that he had spoken to representatives of both
ratings agencies. “I 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 team’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
Tuesday.†

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 Harbor’s nuclear plants
and coal-fired power plants owned by a utility consortium, the law
ends the state’s
energy efficiency and renewable
energy subsidies collected on
customer’s bills. This allowed the nuclear subsidies to be added
to customers’ bills without increasing their overall cost, but
reduced an energy efficiency rider that helped pay
FirstEnergy’sdistribution grid costs. 

However, House Bill 6 does allow FirstEnergy to use a
“decoupling mechanism†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
Questions