FirstEnergy Corp Earnings Call Nuggets: Coal Generation, Retail Business

On Tuesday, FirstEnergy Corp (NYSE:FE) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Coal Generation

Dan Eggers – Credit Suisse: It looks like you guys are on course to get the customer shift you were looking for, but the AEP issues have probably complicated the story a little bit. If they were to be successful in front of commission and used the reversal in their shopping caps, how would the mix shift you guys saw this quarter potentially reshuffle if you started mitigating some of the contracts because the capacity prices got goofy?

Anthony J. Alexander – President and CEO: I think we wouldn’t change our strategy at all. I mean, we’ve got aggregated communities that voted to aggregate. As I said earlier Dan, we have moved additional load into Pennsylvania, Michigan, Illinois, so there are a lot of markets outside of Central Ohio. But we are really pleased with where the retail group is and what they’ve been able to do, particularly shifting megawatts of within channels, and into different markets. So I don’t think it would change what we’re doing one iota.

Dan Eggers – Credit Suisse: Then on the coal generation side, with the low output on the subcriticals and the supercriticals as well, can you talk a little bit about your coal supply considerations in inventories and if you’re continuing to shift your expectations for coal generation output for the year versus the analyst day?

Mark T. Clark – EVP and CFO: That’s a great question. We are shifting our focus. We had some opportunities to build up our coal inventory in the first quarter. Those opportunities no longer are there and we will be reversing that and actually burning down our inventory over the last nine months of the year, and on a cash basis we expect to end about where we thought at the beginning of the year. So cash to cash it’s about even. We just took advantage of some opportunities and we’re pleased to where we are. But a little long from where we would normally be, but nothing out of the norm.

Dan Eggers – Credit Suisse: So we shouldn’t be perpetuating the 16% utilization rate on subcriticals for the rest of the year I guess, the punch line?

Mark T. Clark – EVP and CFO: No, I wouldn’t.

Retail Business

Steven Burd – Morgan Stanley: Just wanted to talk about the retail business, it looks like you had great success in expanding your sales there, could you talk a little about the competitive dynamics and in the context of the pricing that you’re getting on sales relative to as we see trends in power prices relative to hedge prices, are you seeing the ability to weather the storm in terms of the economics of hedges relative to changes in just power prices, which are driven by gas, are you seeing that sort of as a – is that turning out to be a good buffer or are hedges on that side following directly along with power price moves?

Mark T. Clark – EVP and CFO: I’d say for this year, 91% is already sold, so it’s not going to have much impact next year at 60%. One of the avenues that we’re using to address the power prices and I think our retail group’s done a great job is understanding the margin within each channel, within each EDC, within each channel, so we can move megawatt hours between EDC’s to try to generate higher margin and then move between channels themselves to generate higher margin on the same megawatt hour. So power prices being power prices what they are, there is a certain reality to it, but we are pretty comfortable with where we are. We’re getting away from the polar more into the direct, more contract, extending some of the contracts out for longer terms, I think we’re pretty comfortable, I don’t know, Bill, you want to add anything?

William D. Byrd – Vice President of Corporate Risk and Chief Risk Officer: I agree with everything Mark said, it’s spot on. I would also mention that the inevitably over time, our retail revenue will reflect market conditions if they don’t change, but that movement to market will take years given our retail strategy, it’s not something that would occur very quickly.

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