Dominant Retail Supplier Drops Customers to POLR, Exiting Mass Market, Mid-Merit Retail Sales

Citing a, "fundamental change in the markets," FirstEnergy Solutions told investors yesterday that it is exiting the retail market for mass market and mid-sized commercial and industrial customers, reporting that it already has returned "selected" customers to POLR service.

"[W]e intend to exit the medium commercial and industrial or MCI and mass market retail channels as existing contracts expire, but we will continue to serve strategic large industrial and commercial customers as well as our governmental aggregation and POLR channels as appropriate," FirstEnergy Corp. CEO Anthony Alexander said.

Since the time that FirstEnergy announced during the spring a more "conservative" retail strategy for FirstEnergy Solutions, "we have allowed some attrition of our customer base and returned selected customers to POLR service," Leila Vespoli, FirstEnergy Executive Vice President of Markets, said.

However, Vespoli said that, going forward, FES intends to serve all existing customers through their contract term.

FES will eliminate selling and renewal efforts in the mid-C&I and mass markets and to certain large C&I customers.

FES intends to maintain its sales efforts in government aggregation, primarily in Ohio, serve POLR load, and focus on selective, strategic sales to large C&I customers, Vespoli said.

"While our focus on a retail strategy during the last several years has created profitable margins and stable prices for customers, a fundamental change in the markets is underway," FirstEnergy said in an investor presentation.

Alexander said that FES's strategy change is meant to, "reduc[e] our exposure to weather sensitive retail loads [while] maintaining a more open position to take advantage of market upsides and to provide our own reserve margins since the wholesale markets can no longer be relied upon to assure reasonable pricing."

"[W]e intend to continue sales to government aggregation communities primarily when contract prices move with the market at a percent off the price to compare. These sales also have relatively low acquisition costs, and margins are generally attractive," Vespoli said

"With the POLR channel, we have virtually no acquisition cost. We have the flexibility to make decisions at the time of each of auction as to the value of the load," Vespoli said

"We also plan to continue selling to strategic large commercial and industrial customers where we have a significant relationship, or where the customer has a very high load factor that is not weather sensitive," Vespoli said

"Basically, these customers represent a wholesale-type load, but include a modest retail margin," Vespoli said

Vespoli told investors that the company expects FES's redfined focus on aggregation, POLR sales, and selected Large C&I sales will settle in at about 10-45 TWh annually, as forecast below:

FES Target Portfolio, Annual TWh Load:
Gov't Aggregation         10-15 TWh
POLR                       0-10 TWh
Large C&I                  0-20 TWh

The bulk of existing sales to mass market and middle C&I customers will roll off by 2015-16, though some sales will continue through 2019.

FirstEnergy reported that it recorded about $29 million in charges during the quarter ended June 30, 2014 from its decision to exit certain retail sales channels, with an expected ongoing savings of about $90 million annually from reduced expenses associated with such former channels