As Corruption Investigation Continues, FirstEnergy Shows Reluctance to Disclose Information
When fracking led to the discovery of abundant natural gas in eastern Ohio, it shook up Ohio’s energy market. Akron-based FirstEnergy is facing scrutiny for the decisions it made in the wake of that shakeup and how it sought to influence energy policy in Ohio.
A federal investigation has charged a politician, his advisers and a lobbyist with taking bribes from the company to pass an energy bill--House Bill 6--that is now facing repeal. And FirstEnergy has cut ties with five top executives as it seeks to distance itself from corruption allegations.
FirstEnergy employs thousands and provides electricity to millions. Journalist and attorney Kathiann Kowalski, who's been reporting on the corruption scandal for Eye on Ohio, says that is one thing that won't likely change. "FirstEnergy’s utilities are going to be around. They’re regulated utilities and Public Utilities Commission of Ohio is going to make sure that they can keep working and they will still be able to get revenue for the distribution and transmission of electricity in their service territory," Kowalski said.
But these are tumultuous times for the company. It's undergone a major leadership change in recent days and is facing lawsuits from shareholders as well as the Securities and Exchange Commission. Kowalski says "there may well be some charges brought by the SEC, which could be either civil or criminal. In the shareholder suits, there could be claims against the company or its directors. I don't know how those will ultimately come out."
Kowalski expects the discovery involved in these lawsuits could be revealing, but "there may be confidentiality agreements as well, so we're going to have to wait and see."
In a recent call with investors, the new acting CEO, Steven Strah, expressed optimism about future earnings, but acknowledged its current situation will present challenges.
Kowalski finds it troubling that FirstEnergy has not been forthcoming with information. "I think there's a problem with transparency," she said. "So far, FirstEnergy—as is its right—has been fairly reluctant to disclose more information than it's had to." She says the company's constituents—from ratepayers to investors—likely have a lot of questions.
Energy industry observers have been critical of FirstEnergy's apparent reluctance to embrace renewable sources of energy. Kowalski traces this back to decisions made years ago. "FirstEnergy basically doubled down on coal during the first part of the last decade," Kowalski said. "At the same time, fracking and horizontal drilling were opening up a vast market in natural gas from shale resources. Those resources quickly outcompeted coal."
This week, FirstEnergy announced that it intends to achieve carbon neutrality by 2050. It plans to do this, in part, by moving away from coal-fired power in West Virginia where it says it will also seek approval next year to build a solar generation source. (See full release below)
Kowalski notes that renewable energy sources, including new solar and wind generation are now also competing against coal and natural gas. "When you look at the levelized cost, it is more economical than existing coal plants," she said. "From FirstEnergy's perspective, while it still had FirstEnergy Solutions as a subsidiary, its strategy seemed basically to be protecting its sunk costs."
FirstEnergy spun off that subsidiary to shed the risks involved in the energy marketplace and return to the reliable earnings of a regulated utility.
FirstEnergy Solutions sought protection from bankruptcy court and emerged as a standalone company now called Energy Harbor. Kowalski expects the new company will face some challenges. "One ripple there is, we honestly don't know what their financial need had been in the first place for the nuclear bailouts (provided in House Bill 6). Energy Harbor’s bankruptcy plan, when it was confirmed, was not made contingent upon House Bill 6. And in large part the investors in Energy Harbor were companies and groups that had bought in at a time when it was a gamble to see whether House Bill 6 would be passed and whether it would stand up to a referendum effort. In theory, the confirmation plan made the existing debt situation a lot easier, so arguably there's a viable company going forward with or without House Bill 6. Again, though, we don't know the financial information because that has not been disclosed."
Kowalski says that information likely will not be disclosed unless the Ohio legislature demands it.
The bankruptcy plan was confirmed earlier this year and Kowalski says it will likely stand. "However, there has not been final disbursement of lawyer fees and the bankruptcy judge has set hearings for November 17 and December 15." Kowalski says the bankruptcy judge has the authority to reconsider things, however "If I had to place a bet, I would say more than likely most of the confirmation plan would stand."