Wrong Answer Downgrades FirstEnergy Stock

Remember FirstEnergy's little fib about being happy to keep Harrison if their proposed transfer from Allegheny Energy Supply to Mon Power/Potomac Edison isn't approved during the company's last quarterly earnings call? 

Dan Eggers - Credit Suisse: Just following up on Tony's comments and Leila's comments about Harrison. Can you just maybe help us understand how important it is you think at this point in time to move that asset over from a balance sheet perspective relative to a customer benefit perspective? And then given kind of the wide or the low bid made in the intervenor testimony, how important it is to take a lower price or accept a lower price to get this done relative to keep in at FES if the pricing doesn't makes sense?
James F. Pearson - SVP and CFO: I'll start off with that, Dan. Well, let me start off. I think the low price of the $565 million or whatever that's just a nonstarter. So, I'll leave that at that. From a balance sheet perspective, we think we are in pretty good shape by getting the FirstEnergy Corp. bond deal done where we upsize to $1.5 billion. We also feel that we're in very good position with the hydro asset sales. So, we feel real comfortable about that. And as you know, we plan to infuse equity from FirstEnergy down into Mon Power associated with this asset transfer. If the asset transfer doesn't go forward, we would likely infuse that equity that we have planned for Mon Power down into FES. So, I think we end up at a good position for the balance sheet there at FES.
Anthony J. Alexander - President and CEO: Dan, this is Tony. As I'm looking at this, I think, this is far more important to West Virginia and Mon Power in terms of providing them with a stable and long-term resource that they can rely on than it is at this point from a balance sheet standpoint at FES or at FirstEnergy.
Dan Eggers - Credit Suisse: But if it didn't transfer, you'd feel comfortable keeping that extra capacity at FES?
Anthony J. Alexander - President and CEO: Absolutely. It's a great asset. So that's not a consideration.

Keeping that "great asset" became a "great liability" yesterday when Credit Suisse's Eggers downgraded FirstEnergy's rating.  I'm thinking that maybe Eggers wasn't convinced that Harrison really is a "great asset" after the results of PJM's latest RPM capacity auction were released on Friday (as if he ever really believed Tony the Trickster's silly bluster about keeping Harrison).

Eggers took FirstEnergy at their word.  If the company keeps its "great asset" it will continue to be unprofitable and drag down its balance sheet.  However, if the company can successfully unload the cost of running the plant on its West Virginia regulated customers, it will improve the balance sheet. 

Credit Suisse noted, “We have liked FE shares over peers for some time, attracted to the large base of regulated utility earnings (73% of 2015) that to us better protected the rich 5.2% dividend yield as well as management's commitment to, and success in, finding ways to extract value from the generation business (FES) in spite of sustained weak power market conditions through the early adoption of Retail, aggressive O&M controls, and fleet management through plant closures and seasonal dispatch until unit economics improved. We still see FE striving to do these things but the ugly reality of the 2016/17 RPM auction results are hard to deny: poor discipline by incumbent generators in the face of depressed forwards and the crushing impact of newbuild capacity plus greater imports are all contributing to an oversupplied market that will inevitably leave energy and capacity prices weak. We are lowering FE to Neutral (from Outperform) - meaning performance in-line with peers - and a target of $40 (from $45) built from our sum-of-the-parts valuation methodology. We see downside from here in all of the Integrated power names as the long and uncertain path to a power market recovery forces investors to reconsider the multiples paid for commodity cyclical power generation assets.”

PJM's auction results saw a sharp drop in prices for 2016-2017.  This means that not only will it ultimately be cheaper for Mon Power and Potomac Edison to purchase needed capacity from the market rather than buy Harrison to supply needed capacity, but all that unneeded excess supply from Harrison that FirstEnergy is proposing that Mon Power/Potomac Edison buy is now worth less than ever as a source of income that would offset the cost of purchasing the plant. 

Shares of FirstEnergy Corp. took a hit on Tuesday after Dan Eggers, an analyst for Credit Suisse, downgraded the company's stock to “neutral” from “outperform.”

At around 1:45 p.m., FirstEnergy was trading below $39.50 a share, or a price that was down more than 7% from its close last Friday of $42.62 a share.

In issuing the downgrade, Credit Suisse cited “an oversupplied market that will inevitably leave energy and capacity prices weak.” Mr. Eggers reduced his price target for FirstEnergy to $40 from $45.

FirstEnergy needs to unload their unprofitable Harrison power station on West Virginia electric consumers now more than ever.  The transaction will cause an increase in your monthly bill of at least 6% over current rates.  The Public Service Commission begins hearing the case today. 

Will FirstEnergy be able to fool the PSC into believing that Harrison is "a great asset?"  Or will the Commission face reality like Eggers did?

It is imperative that you let the PSC know that you do not support the Harrison transfer.  Click here to send your comments online quickly and easily.  Simply select case 12-1571 from the drop down menu and type in your comments.  Do it now!