New Jersey is stepping up its review of Jersey Central Power & Light by ordering a probe of its fiscal stability — a move prompted by credit downgrades of its parent, FirstEnergy Corp. and the utility, in the wake of a bribery scandal in Ohio.
The downgrades issued earlier this month by two of the top three Wall Street rating agencies followed allegations of FirstEnergy’s involvement in what prosecutors said was a $60 million racketeering scheme that led to passage of a bill in Ohio awarding subsidies for two nuclear power plants owned by a former subsidiary of the Akron-based energy company.
In New Jersey, the Board of Public Utilities ordered the review of JCP&L’s creditworthiness, following the downgrades. Earlier this fall, the agency had ordered an audit of the state’s second-largest utility, which often has drawn heightened scrutiny of its operations from regulators.
“The credit downgrade of First Energy and its subsidiaries, including JCP&L, resulting from allegations of bribery and malfeasance in Ohio warrants a careful review by the board,’’ according to an order issued by the agency. The downgrade of a parent company could have a negative effect on the financial stability of its electric distribution companies’ and ‘’warrants further exploration,’’ the board said.
“Clearly the troubles of the parent company are weighing down on its subsidiary,’’ said Ben Witherell, the chief economist at the BPU. “The New Jersey subsidiary is financially solid, but the parent company’s risks weigh upon that.’’
For the moment, JCP&L’s finances appear to be sustainable, according to BPU staff and its president.
“Our first concern is JCP&L remain financially strong. That does not seem to be a problem,’’ said BPU President Joseph Fiordaliso.
In a mitigation plan the utility submitted to the BPU, JCP&L said its current liquidity and cash on hand are more than sufficient, particularly to address a major concern of regulators that it can pay energy suppliers who provide the power their 1.1 million customers need to keep the lights on.
Big problems in Ohio
The rating agencies were more worried about FirstEnergy, lowering its credit rating to junk status in downgrades released Tuesday or late Friday.
In a note to investors, S&P said its two-notch downgrade reflected the company’s termination of its CEO Chuck Jones, and two senior vice presidents for violating the company’s policies and code of conduct.
“We view the severity of these violations at the highest level of the company as demonstrative of insufficient internal controls and a cultural weakness,’’ S&P said. “We view these violations as significantly outside of industry norms and, in our view, represent a material deficiency in the company’s governance.’’
The racketeering scandal in Ohio erupted in late summer when the FBI searched the homes of Republican Larry Househoulder, the former speaker of the Ohio House of Representatives, and four associates, all of whom were indicted on racketeering and public-corruption charges. Two of the former associates have pled guilty; another awaits trial.
FirstEnergy was tied to the investigation as a subsidiary contributed $60 million to help speed passage of the nuclear subsidy bill.
Meanwhile, last week the head of the commission that regulates Ohio utilities resigned, days after the FBI raided his home. Earlier this month the Ohio Public Utility Commission also ordered an audit of FirstEnergy to determine whether the company abided by separation rules when it spun off its nuclear reactors in 2016.