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IEEFA Report: What’s Wrong With FirstEnergy, Part 4

October 09, 2014
Tom Sanzillo and Cathy Kunkel

By Tom Sanzillo and Cathy Kunkel

Over the past few days we’ve detailed some of the findings described in a report we published on Monday,  “FirstEnergy: A Major Utility Seeks a Subsidized Turnaround.”

On Tuesday we discussed the financial weakness of the company, and yesterday we delved into FirstEnergy’s deeply flawed forward-looking business strategy. Tomorrow we’ll have a blog post highlighting some of our research around FirstEnergy’s regulatory machinations. Today we’ll talk a little about how FirstEnergy has adopted a public-relations strategy meant to prop up its sagging performance.

FirstEnergy’s CEO Anthony Alexander has led the company’s PR effort, which has included campaigns to discourage improved energy efficiency and to thwart the development of alternative sources of electricity.

Here’s what Alexander told the U.S. Chamber of Commerce in a speech this past April: “In the electricity utility industry, energy efficiency, renewable power, distributed generation, micro grids, roof-top solar and demand reduction are examples of what ‘sounds good’—and while they may all play some role in meeting the energy needs of customers, they are not substitutes for what has worked to sustain a reliable, affordable and environmentally responsible electric system.”

Alexander’s argument for the future—“what has worked”—is striking for its absence of any inspired practical vision, rooted as it is in an energy-policy agenda that continues to rely too heavily on coal. (And FirstEnergy’s actions mirror Alexander’s words: It is a textbook example of a utility company with under-diversified power sources.) His view, it is important to note, stands in stark contrast to more progressive outlooks that have embraced a changing world—and changing expectations.

The sensible point of view has been stated well more than once, but perhaps never so eloquently as in 2011, when Jim Rogers, the now-retired CEO of Duke Energy, said this in a Q&A with SNL:

“I think this industry is in a very transformative time. I look back on the past 23 years, and this is probably the most exciting time. Coming out of the 20th century, I think our mission was to provide universal access to electricity. I think in the 21st century our mission will be really two things: One is to modernize our supply, decarbonize it, and modernize our grid, and, secondly, I think our mission is to make our communities the most energy-efficient in the world because if we succeed in that, we increase the probability that our product, which is an enabler for so many products that drive our economy, will be lower-cost and meet our criteria, which is to provide affordable, reliable and clean electricity.”

It’s tough to say it any better than that.

Utility markets in the U.S. are in transition toward a more economically sustainable footprint, having rejected the idea that a whole new fleet of coal plants should be built to sustain outdated business models like FirstEnergy’s. In the past few years, 183 new coal-plant proposals have been rejected for their dubious financial footing and because of the growing tide of popular opposition against them. It is a trend that shows utterly no sign of reversal.

The leadership of  FirstEnergy needs to stop regretting the future and become part of it.

Tom Sanzillo is IEEFA’s director of finance. Cathy Kunkel is an IEEFA research fellow.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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Cathy Kunkel

Former Energy Finance Analyst Cathy Kunkel has written reports and given expert testimony on the finances of Appalachian natural gas pipelines and drilling; electric utility mergers, rates and resource planning; energy efficiency; and Puerto Rico’s electrical system. She has degrees in physics from Princeton and Cambridge.

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