Bailout nation - Illinois & Ohio face scandals

Mike Zaccardi, CFA, CMT

Bailouts & pay for play are never a good thing. And they often get messy – especially in my home state of Illinois. I live in sunny and infected Florida now, but I keep tabs on the goings-on in the Land of Lincoln. Besides the Cubbies starting up the regular season today, there are other.. interesting.. developments in the (less fun) utilities space.

ComEd, a subsidiary of Exelon, is the big utility across Chicagoland. ComEd recently agreed to a whopping $200 million fine due to a bribery charge that involved many high-level elected officials in Illinois from 2011 to 2019. This is so Illinois, I hate to say it. The illegal activity was found to be strictly between ComEd and the politicians, so while it may not be a bigger scandal involving Exelon managers, many groups are calling for stricter oversight from Exelon to their subsidiaries.

What’s more, there’s another political bribery scandal that took place – over in the Buckeye State of Ohio. There, FirstEnergy received subpoenas in connection with an investigation of Ohio House Speaker Larry Householder. The Speaker is alleged to have accepted a bribe to keep alive two Ohio nuclear facilities, of course owned by FirstEnergy.

FirstEnergy’s stock plummeted 44% earlier this week on the troubling news. FES had been seeking a bailout for its unprofitable nuclear units in the state, the Davis-Besse and Perry generators. The bill passed last year, effectively raising rates on many Ohio payers. Renewable energy and lower natural gas prices have priced-out many coal and nuclear power plants in the last few years.

Don’t say the utilities sector ain’t interesting. Whenever business and politics are mixed, things can get ugly. Unfortunately, our lawmakers who are supposed to be good stewards of tax-payers dollars, do the wrong thing sometimes. And corporations are too driven by near-term profits and their own career-interests that they are tempted to make wrong choices.

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Chart used with permission from Tradingview.com