By John Funk
AKRON, Ohio — A U.S. bankruptcy judge signaled Thursday he will not confirm a reorganization plan for FirstEnergy Solutions that would have absolved its parent company from liability for environmental damages from its coal and nuclear power plants.
Bankruptcy Judge Alan Koschik of the Northern District of Ohio ruled orally from the bench that the “disclosure statement” FES must send to creditors describes a reorganization plan the court would find “patently unconfirmable.”
In other words, the judge has — at least for now — ruled the reorganization plan as proposed will not be confirmed.
FES said late Thursday it will submit a revised disclosure statement.
“Working with our advisors, we have already initiated action to address the court’s ruling and will submit a new request to have the disclosure statement approved in a timely manner,” said FES CEO John Judge. “The company remains focused on a plan that will significantly strengthen its financial position and allow it to exit Chapter 11 in 2019.”
Koschik said the restructuring plan giving broad protection to parent FirstEnergy Corp. does not meet case law established by the Sixth Circuit Court of Appeals.
Environmental groups, including the Sierra Club and a coalition led by the Chicago-based Environmental Law and Policy Center, had challenged the attempt to limit parent FirstEnergy’s environmental liability for months. The Ohio Consumers’ Counsel had also weighed in.
“Judge Koschik correctly determined that debtor FirstEnergy Solutions’ extraordinarily broad releases of environmental liabilities and responsibilities make the proposed reorganization plan ‘patently unconfirmable,’” wrote ELPC Executive Director Howard Learner in a statement released after the hearing.
Attorneys representing EPA, the Nuclear Regulatory Commission and other agencies weighed into the case aggressively in recent weeks saying FES lawyers had ignored them.
They made it clear they consider FirstEnergy responsible for power plant environmental damages and labeled the reorganization plan a “scheme.”
Koschik initially was not certain the bankruptcy court had the broad powers ascribed to it by FES attorneys to protect the parent company far into the future.
Complicating the situation was the court’s approval of a settlement FirstEnergy and FES negotiated last summer, with the concurrence of the major creditors. In exchange for indemnity, FE agreed to pay FES $600 million in cash and about $400 in services and limited guarantees.
While the judge approved that settlement, separating the two companies, he explained since then he did not approve the details absolving FE from future claims for environmental damage.
But in the months following that September 2018 court ruling, FirstEnergy ballyhooed the approval as proof it would now be profitable as a fully regulated, delivery-only company. That news helped push FE’s share price to a high of $42.13 in the last 52 weeks.
The stock tumbled more than 4% Thursday afternoon, closing at $39.44 on the New York Stock Exchange.
In filings late last month, opponents said approval of the proposed restructuring would make it difficult or impossible to file claims against FE over coal ash or nuclear contamination.
The OCC argued that, under the proposed reorganization, “FirstEnergy would be shielded from any claims or causes of action related in any way to the debtors’ businesses and property, including from any liability for the costly decommissioning of its power plants.”
“Were funds for decommissioning to be inadequate, for example, consumers or taxpayers might be (unfairly) called upon to fund FirstEnergy and FES’s power plant decommissioning liabilities to federal and state governments,” the OCC said.