Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

4-Traders Homepage  >  Equities  >  Nyse  >  FirstEnergy Corp.    FE

SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector news 
The feature you requested does not exist. However, we suggest the following feature:

Stakeholder Soapbox: The Ripple Effects of Subsidizing Monopolies

share with twitter share with LinkedIn share with facebook
share via e-mail
0
12/07/2016 | 11:33am CET

Ohio regulators recently provided $600 million to FirstEnergy, the states largest utility. Although the decision was labeled as a distribution modernization rider, the money seemingly came with no strings attached, meaning the utility giant need not do anything to update or improve its system of wires and transformers.

Even the chairman of the Public Utilities Commission of Ohio, Asim Haque, described the decision as undoubtedly unconventional. His rationale for the subsidy was that FirstEnergy could not modernize its grid until it reduced its debt, which would allow it to obtain a better credit rating, which, in turn, would lead to lower financing costs for future grid investments if they occur.

That line of thinking led to the $600 million decision, raising six questions.

First, rather than advance grid modernization in the state, has the decision actually set it back? FirstEnergy will not spend any of the money on near-term upgrades. Plus, other electricity companies will avoid investing in Ohio, as regulators are showing a preference for the incumbent utility monopolies. Innovative entrepreneurs will not risk their capital when regulators have stacked the market against them.

Second, should we reward a utilitys poor management? FirstEnergy needed to reduce its debt because its executives made bad business decisions, particularly buying up old coal-fired power plants at the very time the price of natural gas was falling, making those plants uneconomic. Rather than reduce executive bonuses or trim generous dividends to shareholders, regulators sent the tab to customers, every one of whom must pay $36 more per year to cover FirstEnergys mistakes. Regulators are signaling more interest in a utilitys pleas than its performance.

Third, how much will Ohioans really have to pay? Since every other utility in the state is now lining up to get the same deal regulators gave to FirstEnergy, the cost will certainly be much more than $600 million.

Fourth, doesnt the subsidy distort regional power markets? FirstEnergy originally asked for money to cover power purchase agreements that would support the continued operation of its uneconomic (and dirty) power plants. Federal regulators objected, saying such a subsidy would distort competitive markets. To skirt those objections, the utility then asked for the subsidy to go to a different subsidiary instead. The effect, however, is the same state regulators have provided a competitive advantage to FirstEnergys generators. As a result, FERC will need to decide if such a virtual PPA also illegally disrupts regional markets.

Fifth, is there true corporate separation between FirstEnergys generation and distribution subsidiaries, as required by Ohios deregulation law? As mentioned, FirstEnergy diverted the subsidy, directing the money away from its generation units to its distribution companies. Those subsidiaries, ironically, are doing very well financially, largely because they are monopolies that enjoy guaranteed profits. Although state law requires arms-length dealings among the utilitys subsidiaries, the subsidy came in through a different door but ended up in the same house. In effect, it is still propping up FirstEnergys economically challenged generation units that are not able to compete in regional power markets.

Sixth, should utilities get something for nothing? Ohio regulators did not place restrictions on the use of the subsidy and said FirstEnergy could use the funds to cover outstanding pension obligations, reducing debt or taking other steps to reduce the long-term costs of accessing capital. Almost as an afterthought, PUCO also said FirstEnergy could use the subsidy to indirectly support grid modernization investments. The operative word, of course, is indirectly, noting the utility need not show any connection to grid modernization efforts. Put another way, Ohioans are paying millions of dollars for something they have no guarantee of receiving.

Such questions suggest a simple subsidy prompts ripple effects that set back grid upgrades, hurt customers and distort competitive markets. The PUCO chairman has said he wants to move beyond the subsidy debate so regulators can focus on modernizing the grid. Perhaps the question he should be considering is, what are the investments and innovation needed to build a cleaner, more affordable energy system?

(c) 2003-2016 Mehr News Agency Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on FIRSTENERGY CORP.
11:33a STAKEHOLDER SOAPBOX : The Ripple Effects of Subsidizing Monopolies
12/06 FIRSTENERGY CORP : Creation of a Direct Financial Obligation or an Obligation un..
12/06 FIRSTENERGY : JCP&L Nearing Completion of 2016 Circuit Upgrade Program
12/06 FIRSTENERGY : Names Dan DeVille Director of External Affairs for The Illuminatin..
12/01 FIRSTENERGY : Met-Ed Completing Long-Term Infrastructure Improvement Plan
11/30 FIRSTENERGY : Holiday Lighting Safety Reminder from FirstEnergy
11/30 FIRSTENERGY : New FirstEnergy Transmission Line Energized in West Virginia to Su..
11/23 FIRSTENERGY : Penn Power Announces "Merry & Bright" Holiday Lights Photo Contest
11/23 FIRSTENERGY : JCP&L Announces "Merry & Bright" Holiday Lights Photo Contest
11/23 FIRSTENERGY : West Penn Power Announces "Merry & Bright" Holiday Lights Photo Co..
More news
Sector news : Electric Utilities - NEC
12/06DJORIGIN ENERGY : to Sell Oil-and Gas Operations Through IPO -- Update
12/05DJOrigin Energy to Float Conventional Upstream Business
12/02DJOrigin Energy's New CEO Makes Changes to Leadership Team
11/25DJDOMINION RESOURCES : Saudi Arabia to Skip Meeting With Non-OPEC Producers
11/24 FROM BOOKS TO BANKS : Investors place bets against Italy meltdown
More sector news : Electric Utilities - NEC
News from SeekingAlpha
12/02 Is FirstEnergy's 4.4% Yield Worth The Risk?
12/02 Barclays throws in the towel on FirstEnergy, Xcel Energy
11/22 Post-Election Losers
11/21 MY 86 STOCK PORTFOLIO DIVIDENDS REVI : 1 New BDC: Monroe Capital (MRCC), 4 Sells..
11/14 FirstEnergy Solutions Debt - Swan Dive Or Bungee Jump...?
Advertisement
Financials ($)
Sales 2016 14 998 M
EBIT 2016 2 680 M
Net income 2016 363 M
Debt 2016 18 643 M
Yield 2016 4,74%
P/E ratio 2016 187,47
P/E ratio 2017 11,77
EV / Sales 2016 2,11x
EV / Sales 2017 2,07x
Capitalization 12 930 M
More Financials
Chart FIRSTENERGY CORP.
Duration : Period :
FirstEnergy Corp. Technical Analysis Chart | FE | US3379321074 | 4-Traders
Full-screen chart
Technical analysis trends FIRSTENERGY CORP.
Short TermMid-TermLong Term
TrendsBearishBearishBearish
Technical analysis
Income Statement Evolution
More Financials
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 20
Average target price 35,1 $
Spread / Average Target 15%
Consensus details
EPS Revisions
More Estimates Revisions
Managers
NameTitle
Charles E. Jones President, Chief Executive Officer & Director
George M. Smart Non-Executive Chairman
James F. Pearson Executive Financial Officer & Senior VP
Robert B. Heisler Independent Director
Paul T. Addison Independent Director
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
FIRSTENERGY CORP.-3.88%12 930
DUKE ENERGY CORP3.46%50 885
SOUTHERN CO0.30%45 991
DOMINION RESOURCES, IN..7.50%45 571
IBERDROLA SA-11.83%39 377
EXELON CORPORATION19.01%30 514
More Results