FES Raises White Flag

FirstEnergy Solutions (FES), one of Ohio’s most dominate electricity suppliers, has recently announced it no longer intends to sell electricity to most commercial and industrial customers. FES owns and operates a fleet of generating plants and is the deregulated marketing affiliate of FirstEnergy Corp . The announcement stated they will honor existing contracts but will not be providing renewal offers to most customers and they will no longer be hitting the streets for much new business. Why did this happen to such a huge supplier and what does this mean for the Ohio deregulated electricity market?

There has been much speculation by the media and Wall Street analysts about how and why this happened, but it can all be boiled down to this: FES was not charging enough for their product to account for the risk they were taking. A majority of Ohio customers reaped the benefits of these extremely low electricity rates over the past few years, but that strategy was not sustainable by FES.

As a utility affiliate, the tolerance for earnings volatility is extremely low. This makes for a tough situation when dealing with a volatile energy and capacity markets and unpredictable consumer demand. FES has now announced a re-dedication to their regulated business where rate of returns are guaranteed.

So what does that do for the consumer?  Luckily, Ohio has a vibrant marketplace of over 25 suppliers lining up to provide electricity to commercial and industrial customers. Since FES held the frequent role of low price bidder, other suppliers are now going to be in position to win this business. We have seen many suppliers taking this lead position with no one supplier consistently wining all. This makes for very good competition for buyers. Spreading the market share across suppliers will help keep the market healthy for Ohio consumers and will likely result in more innovative products in the future. With Goliath out of the game there have already been many David’s ready to play.