Akron-Based FirstEnergy Warns of Default As Soon as April

Jan 29, 2018

 

Pearson says the impact of a default on jobs is unclear.
Credit TIM RUDELL / WKSU

Big changes are coming to one of Akron’s largest employers. FirstEnergy may soon separate itself from its power generating business. Chief Financial Officer, Jim Pearson talks about what’s ahead.

 

First Energy is a major national player in the electric utility business. It is known for its nuclear power stations and coal-fired generating plants. It also has 24,000 miles of transmission lines and 6 million residential and commercial customers.

Soon, the power plants could be gone. Chief Financial Officer Jim Pearson discussed changes in the core structure of the company that are just months away. 

 

Different businesses

Although closely related, First Energy’s main businesses fall into two different categories.  

 

“First, we have competitive generation, which I equate to manufacturing. It produces energy in a competitive environment where it is not regulated and the market sets the price.”

 

“Our second business, which we are going to focus on going forward, is the regulated business. And that is essentially the transporting of the product that power generation creates to people’s homes and business. And those rates are regulated.”

 

Separation

Both of Ohio's nuclear plants -- Davis Besse (pictured) and Perry -- are owned by FirstEnergy. CFO Pearson says the market for them would be slim.
Credit TIM RUDELL / WKSU

The competitive generation side "has an independent board of directors that is separate from the FirstEnergy board. And they look at whether payments should be made for upcoming debt payments and principle payments. And we have a very large principal payment coming due at the competitive business unit ... at the beginning of April.

'It cannot be seen as a viable entity. So I think a very major decision is in the near term on what happens with that business segment.'

  "Based on current conditions as well as looking at their cash-flow forecast going forward, it cannot be seen as a viable entity. So I think a very major decision is in the near term on what happens with that business segment.”

 

“If they decide not to make that (payment), they would be considered in default and they would file for a restructuring or bankruptcy. We would essentially de-consolidate them from our entity. We would turn over the assets to the creditors. And then the decisions would be made from there.”

James F. Pearson, Executive Vice President and Chief Financial Officer, FirstEnergy Corporation
Credit Tim Rudell / WKSU

Options and impact
“I would not expect that that business would change any on day one. They would continue to operate and they would continue to look at what is the best path forward.”

 

“In this market condition, I think it would be extremely difficult to sell any of the nuclear units. There would probably be some value to some of the other assets."

 

The other thing they can do is totally restructure everything there and see if they can make that a viable entity.”

'I think it would be extremely difficult to sell any of the nuclear units. There would probably be some value to some of the other assets.'

 

Jobs
“We have a group that supports these competitive business units out of our corporate support group, and they buy those services. Depending on the level of service they would require going forward, it could have an impact. But if these power plants shut down, the courts or the creditors would make those decisions.

 

Pension funding
“We have a very large obligation on the pension side. We have 15,000 employees right now, as well as more than that in retirees. So, what we’ve decided to do with a portion of this capital we got from our investors [about $2.5 billion], we’re investing an additional $750 million in the pension plan. I think it should give our employees a lot of security that we decided to make that investment.”