Transcript of Energy Conference Call on FirstEnergy’s ESG Eligibility, Petroleum Logistics Competitors Share a Board Member, and Mountain Valley Pipeline Update

Jun 20, 2023

On June 16, The Capitol Forum’s Teddy Downey, Daniel Sherwood, Julia Arbutus and Sharon Kelly held a conference call to discuss the most pertinent issues impacting energy markets and policy. The full transcript, which has been modified slightly for accuracy, can be found below.

TEDDY DOWNEY:  Welcome, everyone. Thanks for joining us on this fine Friday to talk Energy. I’m Teddy Downey, Executive Editor here at The Capitol Forum. I’m joined by Daniel Sherwood, Julia Arbutus and Sharon Kelly, our esteemed Energy Team, to talk about a variety of things.

If you have questions for us, please email That’s Or you can plug it into this chat function over here. I’ll try to see it. I think you can remain anonymous if you do that, but if you want, just email us and we’ll take the questions.

First, can we start with the board member? I would love to do that. Can we start with the board member just because that was just such a good story? And can you walk me through this overlapping board member at NGL Energy Partners and Martin Midstream? Just recap that story because that was just a great story that we did.

DANIEL SHERWOOD:  Awesome. Of course. So, Martin Midstream Partners and NGL Energy

partners are two kind of obscure—and welcome everybody. Happy Friday. We were just talking about it in our pre‑conference of how we can keep this fun and light. We appreciate you guys joining us. And hopefully, like The Capitol Forum, you have Monday off. So hopefully you’re staring down the tunnel to a nice long weekend. And before we get to the weekend, let’s talk some really specific and fun energy files.

So, MMLP and NGL are relatively obscure midstream companies. Martin, in particular, is very small and concentrated on the Gulf Coast and markets their business to the refinery sector and chemical sector. And that business is nested very much within what NGL Energy does, which also transports and stores crude oil for its clients, as well as natural gas liquids like propane and others, and sells to refineries, buys from refineries. So they have the same customers, the same commodities and overlapping footprint. And they identify one another as peers in various – well, NGL Energy Partner identifies Martin Midstream as a peer in security filings. So the evidence is relatively voluminous in what demonstrates that they’re their competitors. And despite that, they share a board member, Mr. Collingsworth.

So when we spoke with the General Counsel of Martin Midstream, they said “it checks out” and NGL didn’t return requests for comment. All of the revenue thresholds are above what they need to be to be pertinent to the Clayton Act. And so that’s what we did. It was really fun. You know, sometimes I think part of our job—right Teddy?—when we write is to make it simple and understandable. But in the back, so much more goes on. And so, for the research component, it was super fun to get down to the bottom of exactly what terminal they own and where and what commodities it handles and how and where it offloads and to whom they sell and to whom they buy from.

Those things can be difficult. Sometimes you’d think it would be readily accessible, but it’s not. For instance, NGL Energy and Martin both sort their different segments in a different fashion. So it’s not as easy as just logging on and being like, oh, look. They both sell propane. Propane is a highly regional market, for instance. And there’s a lot of different considerations that go into our analysis. And this one was a fun one.

I’ll leave us on this last note. And, of course, any questions, Teddy. But one of the advantages of the call is I think is we can kind of throw out our suppositions a little bit. And a trend I noticed that I found noteworthy, over the years that Mr. Collingsworth, for instance, was a board member, both NGL and Martin kind of pivoted in and out of the same sector at weird times. Martin Midstream, for instance, owned a crude oil terminal in Corpus Christi, which competes with Point Comfort, Texas, where NGL Energy owns a crude oil facility. But then Martin Midstream sold its asset to NuStar, I believe, if I remember correctly. And then soon thereafter, NGL then gained its exposure to the Point Comfort, I believe.

Another example, Martin Midstream has a relatively robust marine transportation segment, some of it inland, some of it offshore facing, not to the point that they’re exporting things like internationally. NGL, as well, had one, but just divested it in March. So it’s like, you know, beyond the fact that Mr. Collingsworth has insight into what contract rates that they’re getting in their marine terminal business on NGL versus Martin, separately, there might be information when they’re shopping these assets or looking in the market to buy these assets.

So it stuck out to me and I just wanted to note it. And so, we’ve got a whole Excel sheet of possible interlocking directorates like this. We are going to continue to look at it. But this one stuck out to us and we’ll see if Mr. Collingsworth remains.

TEDDY DOWNEY:  Yeah, I think it’s worth noting the last time we mentioned problematic overlap was in a merger context, and that became an issue for the FTC doing a review of that merger. So high impact, I think, we’ll wait to see if DOJ or whoever, if they reach out to question the companies about the board member. Most of the times we’ve done one of these articles, there’s been some kind of reaction. So I’m looking forward to that.

FirstEnergy. Let’s switch gears. We could stay on that a little bit more, but let’s switch to FirstEnergy and the ESG stuff. Because I love this as well and there’s a lot to tackle here. We did a piece on Sustainalytics, which is an ESG ratings company changing their revenue figure for FirstEnergy, their coal revenue from 2.5 to 10 percent, which kicked it out of eligibility for a lot of funds that use Sustainalytics. And I’d love to just talk about how does Sustainalytics’ methodology work? And what’s the impact of these types of changes? And I know it’s pretty complicated, but I think we’re going to have some follow‑up questions from there also.

DANIEL SHERWOOD:  Thank you, yes. So this is our ongoing investigation. We’re right in the middle of this. We caught a couple of different entities with their pants down to a certain degree. I mean, this is a revision that was issued after a relatively important document was published. And these firms, their whole business model relies on being accurate and timely.

So, yeah, we can’t wait to get you guys up to date with where we are now and we have more on this. So, Sharon, if you want, our loose outline of how we’re thinking about this can flow – Sharon can demonstrate to everyone how we got here in the first place. And then Julia can deconstruct the answer to that first question. And then we’ll put it back to the ripple effect.

SHARON KELLY:  Absolutely. So we got into this with a little bit of a mystery. Obviously, there’s a significant amount of interest in ESG funds and ESG in general. ESG stands for Environmental, Social and Governance concerns, which are metrics that have not historically been at the center of the conversation about corporate performance.

And so, that’s a lot to wrap your head around and there’s a lot of questions about what are the practical applications of ESG? And how is this push towards ESG recognition going to sort of shake out in terms of market impacts?

So we started taking a look at some ESG funds. And as we’re going through them, we started seeing a lot of names that we wouldn’t necessarily have expected to see in funds that are marketed as fossil free funds or coal free funds. And we’re energy reporters, we’re going through this list, we recognize a lot of these companies and we’re familiar with their operational footprints. And we couldn’t quite figure out, how are these companies being included in the portfolios of funds? There seems to be a disconnect.

TEDDY DOWNEY:  And when you say disconnect, it’s like, well, this is a coal company. How is it in an ESG fund? How could that possibly qualify?

SHARON KELLY:  Exactly. And how is it not just in an ESG fund in general, but how is it in funds whose name include terms like “thermal coal free?” We can loop back to specific funds in particular, and that’s something that we’re looking at in general. But keep in mind, this is all happening in an ESG sort of universe, that’s rapidly evolving—it’s kind of incredible, right? You’re seeing companies and policymakers who are developing in real time essentially accounting standards for a whole new wide array of metrics and it’s being implemented, literally in some cases, as the rules are still being written. Both formal rules and informal rules are still evolving.

And so within this nascent sort of developing area, we’re trying to understand, is this as nebulous as there’s this broad perception that it is? Or where are there meaningful hard lines that are starting to emerge? What do the nuts and bolts look like?

And so to figure that out, we had to understand this whole pyramid of ESG investors and then funds and then index providers and then finally data providers like Sustainalytics, whose work is foundational to this area. And so, Julia, if you want to take it away on helping us understand what Sustainalytics is?

JULIA ARBUTUS:  Yeah. Like Sharon mentioned, Sustainalytics is a data provider for a lot of indexes. And then separately, funds that maybe don’t even track an index may look to Sustainalytics for their ESG ratings. Sustainalytics partners with a number of index providers like S&P Global, FTSE and JPMorgan and a few others. And the way they quantify their ESG risk is by looking at unmanaged risk and unmanageable risk.

Unmanaged risk is risk that can be managed by a company, but maybe isn’t. And then unmanageable risk is, like every company, just based on their business model, is going to have some things that maybe they can’t address. If you’re looking at their “how we calculate our ESG risk rating” videos, Sustainalytics points to an airline company. They can’t really mitigate their CO2 emissions because their whole business model rests on being an airline company. Something like that would be unmanageable risk.

So they calculate that down and they arrive at a number and that number kind of fits on a scale of no risk to severe risk. And they classify FirstEnergy as moderate risk. It’s not really severe, not really nothing. And they point to like, okay, they’re involved in thermal coal. And they have these governance concerns with the bribery case from 2021 and things like that. So that’s probably more of an unmanaged, but currently managing risk.

There’s a lot of moving factors into how Sustainalytics creates this number. But something that we found, when we were diving deeper into this and reaching out to Sustainalytics to really figure out what was going on here, is that originally they had quantified FirstEnergy’s coal revenues or coal power generated revenue as 2.5 percent of their total revenue.

We have been trying to quantify on our own what that revenue percentage is, and we came to a number closer to 10 percent. And so we reached out to them. We were like, hey, like, what’s going on? We’re not really understanding where this number is coming from. And they came back to us and said, oh, we actually revised this in April of this year in a client document. We sent out that we had revised this, that it jumped from 2.5 to 10 percent. This was a mistake that we had made because we had estimated the 2.5 percent number from their 2021 reports. And once we initially published that, FirstEnergy got back to us and were like, oh, actually it’s 10 percent.

So then Sustainalytics published the revised 10 percent number. Which, when we come back to these indexes and these funds and the methodologies that build them, 5 to 10 percent is the magic number for thermal coal power generation. So, now we’re wondering, if this went out a month ago, why haven’t all these funds and indexes that we’ve identified just gotten rid of FirstEnergy, gotten it off their list?

DANIEL SHERWOOD:  And how often does this happen? We arrived at FirstEnergy because they have an incredibly coal reliant business model. What we’ve discovered through this, you know, how we got to Sustainalytics is because a bunch of other people were like, well, we use Sustainalytics. When we were like, hey, your stuff looks wrong. They’re like, well, look at Sustainalytics. And then we go to Sustainalytics and they’re like, no, we’re right. No wait, we’re wrong. And now we’re like, what? You know, not to sound like I’m at a high school lunch table gossiping, but that’s how this process happened.

And my first question is how often does this happen? How many companies is this? If you have one or two analysts at 600 companies and these numbers change every year. And there’s a conflict here because it’s in Sustainalytics’ best interest and S&P’s best interest to include as many companies as possible. Both of these companies are getting paid by the companies that they’re reviewing. And also, for S&P, for instance, they’re getting paid by people who are wanting a license to their index while S&P is also internally evaluating the data.  That’s a lot of weird overlap to then be marketing a product that says, hey, we’re rigorously making sure that there’s no coal in here. This is our coal-free index. And they have an entity that’s got so much coal in it. And we’re playing on their level. We’re not even talking about including distribution. We’re not even talking about adding retail with wholesale. We’re not getting into the PJM Interconnect.

We are only evaluating the generation assets that FirstEnergy owns directly, not including OVEC, not including—there’s so many exceptions that have been made for FirstEnergy to try to get them to be included. And even with that, their coal generation assets made around $1.2 billion last year. And the fact that us three could kind of almost stumble into that discovery by saying, hey, look. Just at its face, this looks to be incorrect. And now all of a sudden, it’s like, oh wait. Whoopsie. There are some questions that need to be answered.

TEDDY DOWNEY:  I think, before we even get into all of these conflicts and how messy the ripple effect is. We have to take a step back and just say how unusual it seems that an ESG ratings company would not disqualify a company for governance when their executives are in a bribery scandal. I mean, what do you need to do to get kicked out for governance? What do you think is bad governance if you’re in a bribery scandal or your culture allows for a bribery? Do they settle that? Or they admitted it? Or they got convicted? Was there a result to that? But it’s not like they’re fighting it. They’re not like we didn’t bribe them.

DANIEL SHERWOOD:  Oh, it is very ongoing. Sharon, do you want to talk about the ongoing aspects of it?

SHARON KELLY:  Yeah, I mean, I think that’s exactly what made this particular company’s governance scandal seem so interesting to me. You recently had some of the politicians that were involved in this HB6 scandal in Ohio, which federal prosecutors have called the biggest bribery scandal in Ohio history—Ohio’s former Speaker of the House was recently convicted at trial. And I believe the Chair of the Ohio Republican Party, another political actor, was also convicted. And there are signals that this is not the end, that it’s possible you might see further prosecutions, specifically of then-FirstEnergy officials. And at the same time, FirstEnergy itself made admissions to the Justice Department where they essentially, my understanding is, they admitted to some underlying conduct. And they agreed to—I believe it was a deferred prosecution.

DANIEL SHERWOOD:  Deferred prosecution agreement, yeah. And a multi $100 million settlement. But there are still ongoing federal investigations is my understanding. There’s so much fallout from this corruption that they’re unwinding— I mean, to the point that FirstEnergy’s revenues are continuing to be impacted because they’re clawing back aspects of the rates that they got in this fraudulently crafted bill.

SHARON KELLY:  And the underlying legislation, HB6, part of it is still in effect. So it’s a fascinating case. It’s not simply that there are allegations out there. This is a criminal process that resulted in convictions and that remains ongoing as far as we understand it.

TEDDY DOWNEY:  And so I think on its face, it’s pretty preposterous that you wouldn’t get disqualified from any kind of ESG calculation for having such an egregious bribery scandal. The second thing, and this gets into why I think ESG is like fake news at this point—not fake news, but it’s silly. Because if you do the revenues from coal as a percentage, you just create an incentive for all of the coal assets. If they want to be an ESG fund, to just be owned by a big conglomerate. And then all of a sudden, it’s okay. It’s clean. It’s green. It’s like green by conglomerate.


TEDDY DOWNEY:  Which just seems absurd. And I know we’re playing with them at their own game, but it seems indefensible to have that be the statistic. And so, it just seems like if they’re going to have such a silly statistic, as you pointed out earlier, this is mostly a silly exercise in creating ways for as many companies as possible to be considered ESG. And, over time, I think we’ve got a couple of interesting questions here.

One is are there going to be moves to make it a more rigorous and serious exercise here, right? Because people want ESG. Ostensibly, the environmentalists who are pushing the E part want them to be real statistics. You know, maybe the funds. I don’t know if the funds will actually believe in what they’re doing, if they’re calling themselves ESG. Ostensibly, they want to be investing in ESG. And I guess we’re going to be looking at Europe and the SEC and whoever is involved in making these more serious metrics, right?

DANIEL SHERWOOD:  Absolutely. And the point you make about the incentive to just sell off or conglomerate, I mean, that’s literally what’s happened in this case. And that gets to this distribution risk generation question which we’ll save for future calls. But it’s baked into the equation. And what’s the answer to that question? In my opinion, it’s in marketing. It’s like look at non-GMO corn or beef. Or look at any industry. Industry loves to have distinctions that they can apply willy‑nilly to their products, because that’s an awesome thing to do from the perspective of widening the scope of what you can sell.

What marketers don’t like is when those conditions are actually applied in reality. And I think what we’re talking about is already trillions of dollars of shares here. Like this does have an impact. And right now, what I’m learning through this process, why Wall Street, I think, likes ESG, is because right now it’s providing a whole new avenue for them to get capital. And until there is any legitimacy to it, because you’re right. It’s so silly. But why are we getting so much engagement?

Well, I think because it’s in their best interest right now to try to prove that it’s not so silly. And I think we benefited from saying, hey, we’ll take your process at face value without even talking about the ridiculousness of it. And even then you’re not doing it. That’s not a good base point to be starting from. And if you have really legitimate entities like the London Stock Exchange, like you have very large firms – MSCI for instance –important actors in this space that are tacitly endorsing this move, while they, in action, aren’t really applying the level of rigor that they’re marketing. You know, that’s a perfect place for us to look.

TEDDY DOWNEY:  I think the other thing that’s going to be interesting here is the analogies to credit rating agencies. During the financial collapse, all of these conflicts of interest were there. All of the kind of oligopolistic behavior by the rating agencies sounds like it’s here. And by the way the SEC is involved in this space, the SEC is technically in charge of rating credit rating agencies. So they should have some familiarity even though they haven’t, I don’t think, done anything with that Dodd-Frank authority to date really.

But it will be interesting. I think it’s interesting, one, from a regulatory standpoint, but also from a political standpoint B, because everyone is kind of pointing at the antitrust conversation around ESG has sort of been Republicans saying, look, basically these do‑gooders are colluding against coal. But really what’s happening is there is this weird oligopoly rating and data that’s making fake stuff, making fake numbers. And I think that’s going to be for my purposes, probably the more long‑term where the antitrust attention in this market goes. I don’t know what you three think. But reading what you’ve written so far, and just learning about this with you, that’s how I see the antitrust angle going forward. But I’m curious to get your reaction.

DANIEL SHERWOOD:  I agree. An example: the fact that the London Stock Exchange Group, which makes its money by hosting equity companies that get traded on an exchange, also offers a data company that provides indexes that screens and tracks those equities and sells a license to it, while it’s also doing its own data analysis on those screenings. Or the example with S&P. They contract some of their data services out to Morningstar. Some of them are in-house, while they provide the index, while they’re providing, you know what I mean? While they’re getting paid by these same companies to give them the data about how much coal they’re being used, You know, the whole thing doesn’t really make—it seems to have some issues, some conflicts, there.

TEDDY DOWNEY:  Yeah, and the last thing I would say is you mentioned they have one or two analysts for 600 of these or whatever. But the seriousness of the operation, this is actually, if you were going to do this well, would require a lot of resources, right? It would require a lot of people to actually be digging the way that we are into these companies. And no, this can’t reasonably be considered an ESG company. You can’t just be coming up with all these fake statistics. Or you’d have to have a rigorous conversation about what’s a good statistic? You know, this is not like a fly by night couple of analysts operation. You would really need to invest pretty heavily to do it right.

So I think that’s another thing we can look to see if that’s what’s actually going on. I mean, these are big companies. They should be able to do that. But, I mean, we’ll see. It certainly would hurt the margin on that side of the business if they did that, if they invest in a lot of people.

But I think we can move onto one of my favorite topics. I’m glad it’s back, Mountain Valley Pipeline. Everyone’s excited about sort of how Congress did this kind of amazing just bypassing of law to allow for it to go forward. What are you looking at now that they’re saying they’re going to get construction started as soon as—is it next week, the week after, in the next week and a half here?

DANIEL SHERWOOD:  Yeah, absolutely. I kept this on here for you there, Teddy. So that June 24 number is coming from a legal filing from Mountain Valley Pipeline’s counsel. I have done more research since I wrote this draft invite, and I think that the media kind of didn’t treat that data point in the way that we would have if we had reported on it. Just generally speaking.

That came from a filing in the Fourth Circuit, that was like, hey, we can start construction as soon as June 24. Let us do our thing. More realistically, and what the CEO of Equitrans has been saying is to fully mobilize—the language he’s using—by early July. So, who cares, right? I mean, what matters from my perspective is that it was June eighth. And on June eighth, the WVDEP reissued its permit.

It’s still unclear to me whether or not that can be challenged anywhere based on my read of the text of the Congressional Act. If you were a very zealous attorney, I think you could still challenge that on state permit grounds. And then if it’s kind of thrown out on the ground of the Act/now law, I would then try to argue a due process thing. That’s just me riffing. I have talked about that with some attorneys in this space, and they didn’t go on the record to say that’s what they’re going to do, but they’re thinking about it. Where there’s been more of the NGO type attorneys who are on the record saying that they are planning a formal challenge, but it sounds like they’re trying to target the actual bill itself and not the specific permit. So that’s the legal risk overhang.

The construction. Mobilize by early July. The CEO of Equitrans says they have four to five months of construction. So you can do the math. It’s July, August, September, October, November, December. You know what I mean? Even by the CEO’s own metrics, like that’s tight.

As I’ve been kind of alluding to, one of our little hacks in the spaces is skimming union job postings. We’ve not seen a similar uptick. This is like compared to 2019 was the last time that they had this type of construction deployment, but there hasn’t been that increase yet. Those are relatively expensive contractors. I’m kind of surprised though, to be honest. I would have expected to see a more concerted increase. But maybe because it’s been mothballed for so long, the contractors like MasTec and stuff have people on standby. I’m not sure. We could report out on that more. But that’s what we’ll be watching.

So yeah, it’s a bunch of streams. We’ve talked about that. Yeah, if anybody has any specific questions, we have an incredible bunch of sources on pretty much any aspect of this file. I’ll wrap with this. Right now, I guess the biggest kind of headline on why there’s risk is this notion about that the pipes were left out in the sun, which leads to embrittlement and coating issues, which is legitimate but hypertechnical. And candidly, I don’t think that’s going to rise to the level of like getting an injunction, especially with Congress behind it. So, yes, there you go. That’s our update.

TEDDY DOWNEY:  In terms of like the biggest, you know, if that’s not a big logistical issue, you know. Is it a big problem? I mean, we’ve talked about this before. But is it just navigating all those streams and the remaining erosion or whatever, sort of the challenging terrain that they’re going over? Is that kind of the biggest challenge from here on out? Or what’s your take that’s the biggest things that could lead to a delay?

DANIEL SHERWOOD:  I mean, the coating is an issue. I mean, all of these are issues. And they’re issues in the construction, but then also the operation. You know, something like the coating, you’re not going to see the impact of that until—I don’t know, I’ll guess—like four or five years into operation when – hopefully, this ever happens‑‑ but there’s a rupture in some remote area and they figure it out. And they do its investigation and finds, oh, there was stress on this pipe because the coating was distressed due to the sun damage. You know what I mean? We’re not going to know about whether or not that’s a real impact until quite some time from now. But that doesn’t mean it’s not a real problem.

As far as delays in particular, yes. The first big problem is going to be deploying the crew, hiring the crew. That’s why I keep talking about these job postings. Because there’s a labor shortage in that region of the country right now. It’s highly specialized labor. It’s expensive. A lot of the EPC contractors and GCs ETRN worked with don’t really like Equitrans anymore due to all these delays. They found more profitable, like higher margin places to deploy their workers and it’s not in Appalachia. So that’s their first biggest issue is can they get their literal boots on the ground and tractor trailers in the woods to build it.

And then, yeah, to your point, what we’ve discussed ad nauseam is the geology and the terrain and that will lead to issues in both—not issues—barriers maybe or hurdles in the construction development and then the operation. So yeah, I mean, it will be what do we do when they go into construction mode beyond the job postings? We look at the construction updates to FERC. So every month they have to file to FERC this is what milepost we’re working on. This is how far we’ve gotten. We’ve put in these erosion sedimentation controls in these places. The rivers are fine. And then, stereotypically, you see other commenters saying the rivers aren’t fine there. There’s a bunch of soil here. There’s an erosion here. And I very much expect that skirmish to continue.

TEDDY DOWNEY:  Okay, great. Well, as always, we covered a lot of ground. Fascinating. I’m excited about the ESG stuff in particular going forward. That seems really interesting. Like I said, it kind of reminds me of the rating agencies during the banking crisis. And I love a topic—I think Sharon really put it well. It’s like this is a market that’s being created, right? The statistics, the rules, the laws for this market are being written now, I mean, either in an informal way or a silly way or potentially in a more rigorous, thoughtful, legitimate way by—I don’t know if it’s going to be by industry or in Europe or here. But that’s kind of, I think, going to be how this market becomes a legitimate market if those rules move forward and kind of clear out the sort of silly metrics that we’re stumbling across.

But I’m also just interested in what are other companies—are people going to actually divest from FirstEnergy, first of all? And then second of all, are there any other kind of silly companies that just like, to Sharon’s point also, like you can’t have a coal company in your “no thermal coal” ESG fund. I mean, how is that, you know? So I’ll be interested to see if we find any more of those. But thank you, as always, Team Energy, The Capitol Forum. And thank you to all of our listeners for joining us today. And this concludes the call. Thanks, everyone.