FirstEnergy Corp.’s decision to cut its quarterly dividend by 34 percent was to align it with the utility’s regulated operations and “provide the best path forward,” its leader said Wednesday in a conference call to industry analysts.
The company said Tuesday that its quarterly dividend would be 36 cents a share. That is a 34 percent drop from the 55 cents per share paid since 2008.
“While it was a difficult decision, the board believes this action will reduce uncertainty and create a dividend environment that is more sustainable and predictable,” said Anthony J. Alexander, president and chief executive officer. “As you know, we have suffered from a multiyear economic downturn that has directly affected us in many ways, including essentially no load growth at our utilities and declining energy prices.”
The term “load growth” refers to electricity revenues.
Alexander continued, “We also experienced significant storm activity both in 2011 and 2012, pressuring cash, and accumulating more than $1 billion in storm-related expenditures that we’re not yet recovering.”
Alexander said there were “significant actions across the entire company,” including aggressive operation and maintenance reductions, deactivation programs, substantial decreases in spending for environmental compliance and maintenance capital at its generating facilities and the planned sale of some assets.
However, he continued, the actions still have “not offset the impact to our business of the continuing recession in our service area, depressed power prices, and storm expenditures. While the recession and depressed power prices are not new, the expected recovery has been long delayed.”
The plan includes setting the dividend at an “appropriate level,” he said.
Another announcement concerned planned spending on the company’s transmission systems. An original estimate for the next four years was $4.2 billion to $4.6 billion.
But Alexander and James F. Pearson, FirstEnergy senior vice president and chief financial officer, now said it will be on the low end at $4.2 billion.
Also, the plan had originally called for $2.8 billion in investments in Ohio Edison’s transmission lines and substations. Officials on Wednesday said they did not have an updated number for Ohio Edison, based on the new total figure.
The company narrowed its 2013 operating earnings guidance range to $2.95 to $3.05 per share, down from $2.95 to $3.10 per share.
FirstEnergy plans to release fourth quarter and 2013 earnings results on Feb. 25.
The company also provided earnings guidance of $2.45 to $2.85 per share for 2014.
In other news, FirstEnergy spokesman Todd Schneider said a water leak at the company’s Perry nuclear plant that contained the radioactive material tritium has been stopped. FirstEnergy and U.S. Nuclear Regulatory Commission officials on Tuesday both said while the levels found were higher than EPA standards, they did not reach the safety levels of the NRC. The company and NRC were both monitoring the repairs and said there were no concerns about the radioactive material entering the public waterways.
Also, FirstEnergy said union employees of its Metropolitan Edison Co. ratified a new three-year contract agreement. The new contract for International Brotherhood of Electrical Workers (IBEW) Local 777 replaces an agreement that was to expire April 30.
Key provisions include an 8 percent pay increase over the span of the contract. IBEW Local 777 members will receive a 3 percent wage increase the first year of the contract and then 2.5 percent wage increases during each of the final two years. In addition, the contract increases hourly pay rates for IBEW Local 777 members working second or third shifts or on Sundays.
IBEW Local 777 represents approximately 550 line workers, substation electricians, meter readers and support personnel in an 1,800-square-mile service territory covering 15 central and eastern Pennsylvania counties. Met-Ed serves approximately 550,000 customers.
The company continues negotiations with at least two other unions in Pennsylvania — IBEW Local 272 (representing 283 workers at the Bruce Mansfield plant) and Utility Workers of America System Local 102, in the ninth week of a lockout. That union represents 142 line and substation workers, meter readers, technicians and other employees.
Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com. Follow her on Twitter at www.twitter.com/blinfisher and see all her stories at www.ohio.com/betty.