Dive Brief:
- FirstEnergy may need to “put a little money on the table” to settle an investigation by the Ohio Organized Crime Investigations Commission and a civil suit by the Ohio attorney general related to the H.B. 6 bribery scandal, according to Brian Tierney, FirstEnergy president and CEO.
- “We don't think it will be material but we'd like to put a period on both those issues as it relates to the company, and move on,” Tierney said Friday during an earnings call with analysts.
- FirstEnergy also expects to face losses from a pending Securities and Exchange Commission investigation for possible securities laws violations and from stockholder and customer lawsuits connected to the bribery scandal, the company said in a quarterly earnings filing with the SEC on Thursday.
Dive Insight:
It is unlikely FirstEnergy will encounter additional substantial penalties similar to the $230 million it paid under a deferred prosecution agreement entered into in July 2021 between the company and the U.S. Attorney’s Office for the Southern District of Ohio, Shahriar Pourreza, a Guggenheim Partners equity analyst, said in a client note Friday.
“The real story of [FirstEnergy,] in our view, remains its strong growth trajectory and upside potential,” he said.
Looking ahead, FirstEnergy expects data centers to expand in the states where its companies operate, such as Maryland, Ohio and Pennsylvania, according to Tierney.
“Given what's happened with a number of power plant retirements over the years, our service territory has ample brownfield sites that have land available and connectivity to the high voltage transmission system, so we think we're well positioned for some of that growth,” Tierney said.
The PJM Interconnection in December awarded FirstEnergy utilities about $800 million in transmission projects, partly in response to data center growth in Northern Virginia, he noted.
In addition to growing demand, PJM faces coal-fired power plant retirements, raising concerns about whether the region will have enough power supplies to meet its needs, according to Tierney.
Outside of West Virginia, FirstEnergy’s utilities operate in “wires-only” states. “I don't think we'd ever be interested in owning generation in those states on a merchant basis but if a state were to come to us and ask us to build on a regulated basis … I think that's something that we'd consider,” Tierney said.
With its $26 billion, five-year capital spending plan, FirstEnergy, based in Akron, Ohio, has shifted to a more proactive capital investment philosophy, according to Tierney.
“We've transitioned from a capex that's kind of ‘break, fix, repair in kind’ to one that gets our customers ahead in terms of reliability and gives us the opportunity to improve the customer experience rather than just treading water,” he said.
FirstEnergy’s capital spending program will be supported by the recent strengthening of its balance sheet, according to Tierney.
Moody’s Investors Service and Standard & Poor’s Ratings Service elevated FirstEnergy to an investor grade credit rating after the company on March 25 sold a 30% stake in its FirstEnergy Transmission subsidiary to Brookfield Super-Core Infrastructure Partners for $3.5 billion, Tierney told analysts.
FirstEnergy also “proved that we can obtain constructive regulatory outcomes across our jurisdictions,” in the first quarter, Tierney said.
In mid-February, New Jersey utility regulators approved an $85 million base rate hike for Jersey Central Power & Light, with a 9.6% return on equity and a 52% equity capitalization ratio, according to Jon Taylor, FirstEnergy senior vice president and chief financial officer.
And in late March, the West Virginia Public Service Commission approved a $105 million rate hike, with a 9.8% ROE and 49.6% equity ratio, Taylor said.
In Ohio, FirstEnergy and stakeholders filed a settlement agreement on a $421 million, four-year capital investment program to finish installing 1.4 million smart meters, according to Taylor. The company expects to ask Ohio regulators for a roughly $100 million rate hike next month, he said.
FirstEnergy’s first-quarter earnings fell about 15% year over year to $253 million from $292 million as revenue increased to $3.3 billion from $3.2 billion in the same period last year. The drop in earnings was partly driven by higher operating and financing costs, the company said.
