FirstEnergy looks to the feds for help with coal and nuclear

The future of FirstEnergy's coal and nuclear power plants in Pennsylvania and Ohio now is being assessed through the lens of a speedy federal study which, it is widely understood, is looking for ways to prop up coal and nuclear plants.

Chuck Jones, the CEO of Akron-based FirstEnergy Corp., said on Friday that the company's subsidiary that operates those plants has delayed a decision on filing for bankruptcy until the U.S. Department of Energy releases a study it commissioned two weeks ago.

The study which, among other things, is meant to explore "the extent to which continued regulatory burdens, as well as mandates and tax and subsidy policies, are responsible for forcing the premature retirement of baseload power plants," is supposed to be done by June 19.

"I think the administration is serious about this," Mr. Jones said during a call with analysts on Friday. "Our Washington team tells me that this is a very serious initiative.

“If their intention is to keep these fuel-secure base load assets from closing then they're going to have to do something to make sure that there's a financial incentive for these plants to not close," he said.

Mr. Jones said he's traveled to Washington, D.C., to discuss the matter with representatives of the Trump administration and officials at the Department of Energy.

"And I'm sure this also clearly ties in to one of the president's key initiatives, which is to protect our coal natural resource and the mining and jobs that go along with that," he said.

Another government solution that could impact the company's bankruptcy considerations is a set of bills moving through the Ohio legislature that would subsidize nuclear plants through zero emission nuclear credits. If enacted, the measures would give FirstEnergy's two nuclear power stations in Ohio $300 million in annual income.

But that alone won't be enough to ward off bankruptcy, Mr. Jones cautioned. What it will do, he said, is give those plants a better chance of being scooped up by a buyer during a bankruptcy proceeding.

While he did not address efforts brewing in Pennsylvania to explore nuclear subsidies, he said the way the Ohio legislation is written, the Beaver Valley nuclear plant might qualify for credits across the state line.

Skeptical analysts

It's unusual for financial analysts to throw as much cold water on a company's narrative as was spilling every which way during FirstEnergy's earnings call on Friday.

Some questioned whether the Department of Energy has the power to enact measures that would help coal and nuclear plants directly. Others said that even if the DOE study does produce a policy framework, it will likely trigger involvement from other federal agencies, stretching the timeline for implementing any helpful measures.

Wouldn't this bump up against FirstEnergy's stated goal of getting rid of its unregulated power plants by the middle of next year, one analyst asked.

Mr. Jones said the company's timeline — as well as its goal of getting out of this business — remains unchanged, but "if the DOE study does what I believe it should do, then we will take a pause and see how that evaluates," he said.

The monkey wrench of the federal study was too jarring for some analysts on the conference call.

Even if the DOE study finds there's a problem, that coal and nuclear plants aren't being credited properly for their contributions, "What (might they) actually do considering we've already sort of heard this from the federal government before?" asked Paul Patterson, an analyst with Glenrock Associates LLC.

What's clear is that the current system isn't working, Mr. Jones said, because FirstEnergy's power plants aren't making enough money to stay alive. In its quarterly report, FirstEnergy said a prolonged decrease in demand and excess generation supply compelled it to close more than half of its generation capacity in recent years.

What's the likelihood of the federal government identifying the problem and coming up with a solution that actually resolves it, and in short order, to boot, Mr. Patterson asked.

"I can't tell you how they're going to do that," Mr. Jones said. "We are obviously working fast and furious inside FirstEnergy to develop our own ideas as to how that could happen that, hopefully, we'll get a chance to inject into the process at some point in time."

Looking to national security

Reading "between the lines a little bit," Mr. Jones said, he thinks Energy Secretary Rick Perry's references to national security might hold a clue.

The Department of Energy declined to provide an implementation plan for the study, which was due on April 19, five days after Mr. Perry set the wheels in motion.

PJM Interconnection, a Valley Forge-based nonprofit that coordinates the flow of electricity for 13 states including Pennsylvania and encompasses FirstEnergy’s coal and nuclear plants, has not yet been contacted by the Department of Energy to provide input into its study, a spokesperson said on Friday. PJM regularly performs analyses of grid reliability and fuel mix. 

Stu Bresler, senior vice president of operations and markets at PJM, recently told Pennsylvania’s nuclear caucus that if all of the state’s nuclear plants were to shut down — a scenario he believes is unlikely — the grid would remain reliable.

Anya Litvak: or 412-263-1455.

First Published April 28, 2017 3:32 PM

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