When companies fall into financial trouble, shareholders and executives are usually held responsible. If a firm, for instance, assumes too much debt, its owners face several options. They could issue more equity or stock, bringing in more revenue but decreasing the value of their current stock holdings. They could cut the dividends to shareholders. They also could trim their own bonuses.
FirstEnergy seems to think it is different. The giant utility would prefer its bad business decisions – like buying coal-fired power plants just as natural gas was becoming cheap – be covered by their customers, allowing its owners and managers to continue enjoying large dividends, fat salaries, and high stock prices.
Amazingly enough, the supposedly independent regulators in Ohio think it’s their job to rescue the utility from its own mistakes – by imposing higher costs on Ohioans. Several months ago, despite strong protests from the state’s manufacturers and consumers, the Public Utilities Commission of Ohio (PUCO) approved a $4-billion bailout for FirstEnergy. After federal regulators overturned that decision, the PUCO staff – presumably with the blessing of the commissioners – devised a new $400-million subsidy. Although cloaked in suggestions of smart grid benefits, the staff’s recommendation includes no strings.
But FirstEnergy, not surprisingly, greedily wants more. In fact, it wants to receive the original $4 billion as well as an additional $4.5 billion that expands on the PUCO staff’s proposal, plus $4 billion to keep its headquarters in Ohio. The deal is currently under review, and a decision is expected in the coming weeks.
The new PUCO chairman, Asim Haque, seems to be tired of the controversy his commission’s rubberstamp approach has garnered in the state. “We’ve got to put some things in our rearview,” he declared.
That “thing in the rearview,” of course, puts a big dent in customers’ wallets – the same customers the PUCO is supposed to protect. And for what? As stated by the Ohio Consumers’ Counsel, the bailout “will inappropriately provide [FirstEnergy] Ohio Utilities with excessive monopoly profits.”
Commission staffers justify their latest bailout proposal by arguing FirstEnergy faces a “financial emergency.” In fact, the utility’s economic woes have decreased as the company’s stock has risen over the past few months. FirstEnergy doesn’t want Wall Street to think it faces a “financial emergency” or stock prices would fall, but the utility is happy to let regulators use that term to justify charging customers more. Rather than cut bonuses to its executives or dividends to its shareholders, the utility wants Ohioans to pay $8.5 billion to cover its debt from bad business decisions.
Recent PUCO hearings on the proposed bailout appear to be pre-ordained theater, with regulators striking testimony from critics and overlooking the contradictions of supporters. It gives the impression the regulators will continue their rubber-stamp streak.
Rather than skewer the state’s citizens, commissioners should exert independence and force the utility’s owners to accept responsibility for their own poor business decisions. Only a rejection of an unnecessary bailout will enable the PUCO to maintain its credibility, while putting FirstEnergy’s pleas in the rearview.