FirstEnergy Corp. is looking at combining its three Ohio utilities (2024)

COLUMBUS, Ohio — FirstEnergy Corp. is considering combining its three Ohio utilities -- Ohio Edison, Cleveland Electric Illuminating Company and Toledo Edison -- and its three Pennsylvania utilities into unified companies, respectively, according to the company’s CEO.

While FirstEnergy says that such moves could increase efficiency and increase investment opportunities, critics and analysts say it could reduce transparency and also allow the Akron-based utility to skirt state restrictions on utilities making excessive profits.

FirstEnergy CEO Steve Strah, speaking during the company’s annual meeting held online, says the company is “beginning a longer-term review to consider the possible benefits of combining our Ohio utilities, as well as those in Pennsylvania, from a legal and financial perspective.”

The Akron-based company has formed an internal team with representatives from the company’s legal, rates, and regulation sectors, among others, to examine whether it makes sense to combine the three Ohio subsidiaries into one entity and its three Pennsylvania utilities into a second entity, FirstEnergy spokeswoman Jennifer Young said in an email.

FirstEnergy’s three Ohio utilities serve approximately 2 million customers, mainly in Northern Ohio, according to the utilities’ websites. The company’s three Pennsylvania utilities -- West Penn Power, Penelec, and Met-Ed -- deliver power to about 1.9 million customers.

Asked what would change if FirstEnergy combined its three Ohio companies, given they’re already owned by the same company, Young replied: “One legal and financial entity could offer benefits such as the potential for additional efficiencies in some of our administrative functions and the possibility that it could provide better access to capital markets.”

Young continued: “The team is charged with performing a critical cost-benefit analysis as part of their process, and once we’re completed with that, we will do what makes sense for our customers and for our company.”

She added that there’s no timeline for the team to complete its analysis.

The office of the Ohio Consumers’ Counsel, a state agency representing ratepayers, said that consolidating FirstEnergy’s three Ohio utilities could help the company circumvent a 2008 state law prohibiting regulated utilities from making “significantly excessive” profits.

State law doesn’t precisely define what constitutes “significantly excessive” profits, though two Public Utilities Commission of Ohio rulings in recent years indicate the threshold is about 17 percent per year.

FirstEnergy previously convinced state lawmakers to alter the law so state regulators would consider the profits made by all three subsidiaries averaged together. Such a change would allow Ohio Edison to make a windfall, as its higher profits would be grouped with the lower profit margins of Toledo Edison and the Illuminating Company, Ohio Consumers’ Counsel Bruce Weston testified at the time.

However, that change was repealed in legislation signed by Gov. Mike DeWine last year that partially repealed the scandal-tainted House Bill 6.

Last year, FirstEnergy agreed to refund customers more than $300 million to settle claims that it violated Ohio’s ban on utilities making “significantly excessive” profits because the company’s calculations didn’t include the money it took from a “grid modernization” rider overturned by the Ohio Supreme Court.

“FirstEnergy just doesn’t give up on money from consumers,” said OCC spokeswoman Merrilee Embs in a statement. “Stay tuned.”

Former PUCO Chair Todd Snitchler told cleveland.com he also believed FirstEnergy was looking at combining the utilities because, with the repeal of the “significantly excessive” profits provision, “it may not be financially advantageous” for FirstEnergy “to retain three separate entities.”

The announcement, Snitchler said, “probably means that they’ve run the numbers and it would make more sense to combine (the utilities) and earn a higher rate of return.”

Ashley Brown, another former PUCO chair, said in an interview that consolidating FirstEnergy’s three Ohio utilities would likely reduce financial transparency.

“The bigger the entity they create, the easier it becomes to move money around in ways that are going to be impossible to trace,” Brown said.

Cleveland.com reached out to Young on Tuesday afternoon seeking a response to these comments.

Separately, at the end of the half-hour-long meeting on Tuesday, six of FirstEnergy’s 16 board members stepped down: board chair Don Misheff, Michael Anderson, Julia Johnson, Thomas Mitchell, Christopher Pappas and Luis Reyes.

Their departures are part of a pending court settlement with company shareholders, who claim that FirstEnergy leaders’ failure to provide proper oversight led to the company to pay more than $60 million in bribes to former Ohio House Speaker Larry Householder’s political operation to secure the passage of HB6.

HB6, among other things, gave a $1 billion-plus ratepayer bailout to two nuclear power plants owned by a then-subsidiary of FirstEnergy and allowed the company to collect millions more from customers.

Under the tentative settlement, $180 million would also be paid to FirstEnergy (not the shareholders themselves) by an insurer for company executives. A federal judge in Columbus has given preliminary approval to the deal. However, the matter is still pending in federal court in Akron and Summit County Common Pleas Court.

FirstEnergy is reducing the size of its board from 16 to 12, meaning it will only fill two of the six open seats. The two new board members are Sean Klimczak, a senior managing director at the Blackstone investment firm (which bought $1 billion of FirstEnergy stock last year), and Jana Croom, chief financial officer for Indiana-based Kimball Electronics.

John W. Somerhalder II, who has been serving as FirstEnergy’s executive director and vice chair of the board since March 2021, is taking over for Misheff as board chair, according to a company filing with federal regulators.