UTILITY OUTLOOK

FirstEnergy turns focus to regulated operations

11/14/2013

COLUMBUS — Ohio’s two largest electricity companies are looking a lot alike, which is a departure from a recent history in which these rival heavyweights — FirstEnergy Corp. and American Electric Power Co. — had dramatically different approaches.

“Does FirstEnergy want to be AEP?” asks the headline of a research note issued Tuesday by analyst Hugh Wynne of Bernstein Research.

The note was in response to FirstEnergy’s presentation at an electricity-industry conference in which the Akron utility said it is focusing on its regulated operations and reducing its emphasis on unregulated ones.

AEP of Columbus has long focused on regulated businesses, which include local utilities that deliver power to 5.3 million customers in 11 states, and interstate transport of electricity.

In contrast, FirstEnergy, the parent firm of Toledo Edison Co., has spent years investing in its unregulated business, which carries the possibility of big profits but also heightened risk.

The company’s unregulated subsidiary, FirstEnergy Solutions, sells electricity contracts to residents and businesses within and outside its home territory.

These differing approaches have meant that the companies often have had dueling priorities when energy issues came before state regulators or legislators.

But lately, FirstEnergy has been hurt by low electricity prices and other market factors. The company has 6 million utility customers in five states, not counting the additional customers of its unregulated businesses.

AEP faces the same challenges, but it has the benefit of getting a larger share of its income from regulated activities. Regulated tasks provide more reliable returns.

On Sunday, at the same conference in San Francisco, AEP said it anticipates steady profit growth in 2014 through 2016.

The company’s “strategy is based on what we’ve proven we do well — growing our rate base through investment in our regulated operations and achieving cost savings through sustainable process improvements,” Nick Akins, AEP’s president and CEO, said in a statement.

Compare that with what his counterpart at FirstEnergy, Anthony Alexander, said last week when the company issued its quarterly earnings report.

“Looking forward, we are pursuing opportunities for growth in our regulated businesses and will continue to focus on controlling costs across our organization, and profitable sales at our competitive segment,” Mr. Alexander said.