TrAILCo Has Too Much Capital — FirstEnergy Wants It

What a great way to start an article:

Insisting that the move will raise no risk of “corporate officials raiding corporate coffers for their personal financial benefit,” Trans-Allegheny Interstate Line Co. asked FERC to confirm that it can pay periodic dividends out of paid-in capital to its parent, FirstEnergy Transmission LLC, without violating the Federal Power Act.

That was part of outlaw FirstEnergy’s appeal to FERC to allow it to withdraw capital from its transmission subsidiary TrAILCo.  TRAILCo is filling up so fast with its extra-high rate payer subsidies from FERC for its obsolete transmission lines that failing FirstEnergy wants to get its hands on some of the loot.  Note also that the quote about corporate raiding was written by FirstEnergy’s own lawyers in the company’s FERC filing.

Back in 2001, Dick Cheney and Enron’s Kenny Lay whined in their secret energy task force report that the US transmission infrastructure was falling apart because there weren’t enough profit incentives in place for investors.  The Republican-controlled Congress obliged them in the 2005 Energy Policy Act by creating rate payer financed giveaways to high voltage bulk transmission owners. TrAILCo’s TrAIL line through PA, WV and East VA was one of those lines guaranteed extra high profits.

A new report has been released by The Power Line’s own Cathy Kunkel and Tom Sanzillo for the Institute for Energy Economics and Financial Analysis about FirstEnergy’s desperate attempts to rescue itself from a financial death spiral.  They document how FE is grabbing for all the subsidies it can get its hands on and how it is attempting to suck capital from its profitable subsidiaries to shore up its obsolete coal-fired and nuke plants.  TrAILCo is about the only profitable part of FirstEnergy right now, and they want to loot that subsidiary too.

FirstEnergy’s financial condition has deteriorated since it merged with Allegheny, and its key financial metrics are on a downward trajectory. Over the past three years, it has experienced declining revenues, declining net income, declining stock price, declining dividends, and rising debt. It has retired 4,769 MW of merchant coal plants and has booked impairments totaling $1.1 billion against the value of its coal plants from 2011 to 2013. To shore up its balance sheet, FirstEnergy has relied heavily on “one-time resources,” including proceeds from asset sales and short-term borrowings. FirstEnergy’s poor financial performance stems from the underlying condition that the company’s business – the sale of electricity – is performing poorly and not generating sufficient revenue to cover expenses.
The original quote cited above refers to paying dividends from paid-in capital.  There is no such thing as paying dividends from paid-in capital in standard accounting practice.  When you take capital out of a company, you are simply taking capital out of a company.  This has nothing to do with dividends, which are paid as a share of annual profit or net income.  FE is raiding TrAILCo, plain and simple.

Without the Cheney/Lay-inspired rate payer subsidies, TrAILCo would just be another of FE’s failing business ventures.  Thanks to the 2005 Energy Policy Act, FE doesn’t have to liquidate TrAILCo because the subsidiary is actually an asset that is earning them money, unlike their coal and nuke plants.  Now FE wants FERC to let them milk their cash cow dry.

One thought on “TrAILCo Has Too Much Capital — FirstEnergy Wants It

  1. How sad. It used to be that capitalists made their money from innovation, service and creating a unique place in the market, Utilities are somewhat different, but properly run, generating modest yet guaranteed profits. First Energy is a prime example of what happens when short-sighted MBA types who needed a place to hide after the last financial collapse wake up in a regulated utility. They look for every way possible to milk a company of its cash while spending energy on an exit strategy for themselves. The lost objects of focus – the customers. Utilities are regulated because it is tough to enter into that space, known as barriers to entry. The folks at the ends of the wires are ultimately the ones who pay the price for the short-sighted money games of this new crop of so-called business managers, Service becomes unreliable because of delayed maintenance. The workforce is disillusioned because of a lack of good-faith bargaining from management seeking to cut costs. Meters are not read on the old reliable schedule in order to cut costs and estimates are intentionally high in order to build non-interest-bearing cash reserves. All affected states within the AEP/First Energy/Potomac Edison service area need to step up their oversight of these companies and hold them to higher standards so that power delivery is reliable, costs are controlled, maintenance is up-to-date and workers are paid a living wage for the dangerous work they do. Surely, that is not asking too much.

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