Tuesday, March 19, 2019

FirstEnergy Hopeful on State, Federal Support

By Jason Fordney

FirstEnergy is encouraged by possible new state and federal support for nuclear and coal-fired plants, but the company said it has not changed its plan to divest its merchant generation and become a fully regulated company by the middle of next year.

“There is absolutely no change in the strategic direction that we want to take this company in,” FirstEnergy CEO Charles Jones said during an April 28 call to discuss first-quarter earnings. “We do not want to be exposed to commodity-exposed generation any longer than we have to be.”

In light of a $164 million first-quarter charge over unfulfilled coal delivery contracts, the Ohio-based utility holding company is eyeing a proposed nuclear subsidy from its home state and signals from U.S. Energy Secretary Rick Perry that federal policies toward coal generation could change.

The company reported earnings of $205 million in the quarter on revenues of $3.6 billion, including the charge related to coal delivery contracts. In the first quarter last year, the company earned $328 million on revenue of $3.9 billion.

Subsidiary FirstEnergy Solutions recently reached a $109 million settlement with BNSF Railway and CSX over long-term coal delivery contracts it terminated. The payments, guaranteed by FirstEnergy, are set to have begun on May 1, the company told the U.S. Securities and Exchange Commission in an April 27 filing. If that settlement is not completed — or a similar dispute with BNSF and Norfolk Southern Railway is not settled — damages could be much higher and lead FES to file for bankruptcy.

Coal supplier Tunnel Ridge also filed suit against First Energy subsidiary AE Supply over a terminated coal supply contract, which the company said could “be material.”

FirstEnergy executives are hopeful that a bill for a proposed “zero-emission nuclear resource program” will reach Ohio Gov. John Kasich’s desk by the end of June. The legislation would require electric distribution companies to secure the credits from qualified generation resources and recover the costs from ratepayers. Awarded according to nuclear output, the credits would gain FirstEnergy about $300 million/year.

“That amount in and of itself, I don’t think, is enough to necessarily avoid a FES bankruptcy,” Jones said. “It would be enough potentially for those assets to emerge from bankruptcy and for a reputable nuclear operator to be willing to take them on and run them forward.”

FirstEnergy touts the proposal as helping the state meet its energy goals, but critics say it is a bailout for the company’s nuclear plants. Ohio Citizen Action said the money should instead be invested in renewable energy and energy efficiency projects.

FirstEnergy owns the 889-MW Davis-Besse nuclear plant near Toledo and the 1,231-MW Perry plant near Cleveland, but the company wants to close or sell them.

Perry Nuclear Plant | Wainstead

Jones said that as the company assesses the implications of a FES bankruptcy, it is closely monitoring whether a new Energy Department study will lead to some type of support for coal plants.

Perry last month ordered his department to present by mid-June its evaluation of the premature retirements of baseload power plants, which is in part intended to determine whether energy markets adequately compensate the reliability benefits they provide. It is unclear what initiatives might flow from the process.

Perry’s memo mentioned “the market-distorting effects of federal subsidies that boost one form of energy at the expense of others” and said the study would provide “concrete policy recommendations and solutions.”

Jones said the Bulk Electric System is being overlaid on a congested and “not robust” natural gas delivery system, and problems with the natural gas system will flow to the electricity system.

FirstEnergy last quarter entered into an agreement to sell about 1,500 MW of AE Supply’s gas and hydro assets for $925 million, a deal expected to close in the third quarter. A $40 million agreement to sell property and assets at the Hatfield’s Ferry power station is expected to close in the third quarter of next year.  Mon Power in March agreed to purchase the Pleasants power plant from AE Supply for $195 million.

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