Firstenergy anticipates impact from federal probe
Firstenergy released positive third quarter financial results Monday, but much of its attention continues to revolve around last week’s firing of its chief executive officer and two others as part of the $61 million Larry Householder scandal.
Firstenergy addressed its leadership changes in its filings Monday, acknowledging that the outcome of a federal investigation into bribery allegations involving former Ohio House Speaker Householder and others over House Bill 6 could have a substantial impact on its finances and stock price.
Company officials said they are taking steps now to improve the utility’s financial flexibility in case the outcome of ongoing investigations results in substantial monetary damages. They said they have no idea when the investigations may conclude, what the findings may be or whether Firstenergy will be fined or face other penalties.
Firstenergy released its results before the stock market opened Monday. Executives spoke during an analyst conference call that started at 9 a.m.
Christopher Pappas, a board member named last week as the utility’s non-management executive director as part of the major leadership shakeup, said in the conference call with industry analysts that the board continues to take action. He said the company has reached out to “key stakeholders” that include credit ratings agencies, banks, regulators, elected officials and others.
Firstenergy’s board on Thursday fired Chuck Jones, an Akron native and chief executive officer for the past five years. Two other executives were also fired. The utility said the three men “violated certain Firstenergy policies and its code of conduct” following an internal investigation spurred by the Householder scandal.
The scandal involves tens of millions of dollars in apparent payments to Householder and others to pass and support what is called House Bill 6. The bill provides more than $1 billion in subsidies to the Davis-besse and
Perry nuclear power plants in Ohio now owned and operated by Energy Harbor, an independent company spun off earlier this year as former Firstenergy Corp. subsidiary Firstenergy Solutions.
“I agree the actions taken by our board last week were absolutely essential,” Steven Strah, acting CEO, said in the conference call. Strah, 56, a longtime Firstenergy executive, was promoted earlier this year to president from chief financial officer and then named acting CEO last week. Strah said he is “disappointed we have arrived at this point.”
Pappas, in the analyst conference call, said Strah is the heir apparent to become full CEO. Prior to last week’s leadership changes, Strah was on track to become CEO as part of Firstenergy’s succession planning, he said.
Pappas, Strah and others said Firstenergy will not provide details of its ongoing internal investigations or the Department of Justice and Securities and Exchange Commission investigations. Any disclosures will take place after the DOJ concludes its investigation, they said.
Firstenergy reported earning $454 million, or 84 cents per share on revenue of $3 billion compared to $391 million, or 73 cents per share, on revenue of $2.9 billion a year ago. Results beat Firstenergy’s internal expectations by a penny, the Akron utility said. The company also reaffirmed its outlook for the remainder of its fiscal year as well as long-term growth projections.
Firstenergy acknowledged it was told Sept. 2 that the SEC is investigating the company. It said it continues to cooperate with both Department of Justice and SEC investigations.
The utility’s board of directors also said it is doing a full review of its governance and oversight processes.
In a related filing Monday with the Securities and Exchange Commission, Firstenergy said the outcomes of the DOJ and SEC investigations, plus related shareholder lawsuits, could result in substantial expenses. Outcomes could also result in damages that could hurt the utility’s reputation, finances and share price, the company said.
Because Firstenergy potentially can be hurt financially, the utility is taking steps now to curb capital spending and operating expenses to give it additional flexibility if needed, said Jon Taylor, senior vice president and chief financial officer. Firstenergy also anticipates no increases to its dividend in the short term, he said.
Taylor said “it’s all manageable” if credit ratings agencies downgrade Firstenergy’s debt over the investigations and related governance issues.
Also, if Columbus repeals H.B. 6 and takes other potential actions related to that, Firstenergy earnings could take a 5 cent per share hit, he said.
Jim Mackinnon covers business. He can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com. Follow him @Jimmackinnonabj on Twitter or www.facebook.com/ Jimmackinnonabj.