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FirstEnergy Solutions files for bankruptcy

By Tom Henry • Apr 2, 2018 at 11:00 AM

AKRON — With a late-night Chapter 11 bankruptcy filing by FirstEnergy Solutions and FirstEnergy Nuclear Operating Co., FirstEnergy Corp. — the parent company that for years has been one of the nation’s largest utilities — has further distanced itself from major power-generating units such as the Davis-Besse nuclear power plant in Ottawa County, the Perry nuclear power plant east of Cleveland, and the twin-reactor Beaver Valley nuclear complex west of Pittsburgh.

Unable to make them profitable in an electricity market upended by record-low natural gas prices, the fate of those plants — plus two coal-fired power plants, one dual fuel gas/oil plant, and a pet-coke fired plant — appears even bleaker now unless a buyer or a bailout emerges.

The market has been changed radically by a worldwide surge in fracking brought on a little more than a decade ago by a revolutionary horizontal drilling technique that allows the oil and gas industry to recover fuel from previously inaccessible areas. The Washington-based Nuclear Energy Institute has said it is especially hard for nuclear plants to compete in deregulated electricity markets, which Ohio and Michigan have had since 1996.

Davis-Besse, Perry, and the two Beaver Valley units are the latest of several nuclear plants across America that have recently closed or have announced they will close prematurely because of failing economics.

The anticipated closure date for Davis-Besse is now listed as May 31, 2020, by PJM Interconnection LLC, the Pennsylvania-based operator of the 13-state regional electric grid that includes Ohio — one of the nation’s largest electric grids.

That information is posted online on an updated PJM page that lists future deactivations within the grid’s operator’s service area.

Closure dates for Perry and Beaver Valley Unit 1 are May 31, 2021. For Beaver Valley Unit 2, it is Oct. 31, 2021.

While each of those plants is operating safely, there is no guarantee FirstEnergy Solutions will keep them running until those dates, either. Corporate executives have said FirstEnergy Solutions will not make any major improvements to those plants going forward, and have acknowledged the U.S. Nuclear Regulatory Commission will not allow them to continue operating if there comes a point in which substantial work would need to be done to ensure safety.

FirstEnergy — which is not part of the Chapter 11 filing — announced on July 22, 2016, that it will shut down or sell the last unit it has in operation at its aging Bay Shore power plant in Oregon by October, 2020. That unit, known as Unit 1, has been operating exclusively off petroleum coke from the nearby BP-Husky refinery since 2000. FirstEnergy ceased operations at Bay Shore Units 2-4 in 2012, ones that had for decades been fueled by coal.

The largest coal-fired facility that had been under FirstEnergy ownership has been the huge W.H. Sammis power plant in eastern Ohio, which the utility also announced two years ago will have at least four of its seven units closed by May, 2020.

The bankruptcy filing was made online late Saturday night by FirstEnergy Solutions and the nuclear operating company in U.S. Bankruptcy Court in the Northern District of Ohio in Akron. FirstEnergy Solutions had a $100 million debt-principal payment due Monday.

FirstEnergy turned over ownership and operations of its nuclear and coal-based power plants to FirstEnergy Solutions a while back in anticipation of this weekend’s bankruptcy filing.

The parent company said in a statement Saturday night it has “reached a milestone in its previously announced strategy to exit the competitive generation business and become a fully regulated utility company with a stronger balance sheet, solid cash flows and more predictable earnings.”

Its whole business model is moving away from unprofitable power plants to focus on electricity distribution, which has less overhead. FirstEnergy, which less than three months ago said it was more than $3.5 billion in debt, has said it sees that as its best option to remain viable as a corporation.

Earlier this year, it announced investments of more than $10 billion in its regulated businesses, which include 10 electric distribution utilities that serve six million customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland, and New York — one of America’s largest investor-owned electric systems. The corporation’s transmission lines span some 24,000 miles.

“FirstEnergy and its other subsidiaries are not part of this Chapter 11 filing,” according to a statement attributed to Charles E. Jones, FirstEnergy president and chief executive officer. “The six million customers of our regulated utilities will continue to receive the same reliable service, while our regulated generation facilities will continue normal operations, with the same longstanding commitment to safety and the environment.”

FirstEnergy Solutions and FirstEnergy Nuclear Operating Co. have more than $550 million in cash, which they believe is sufficient liquidity to continue normal operations and meet post-petition obligations to employees, suppliers and customers as they come due, according to FES.

Donald R. Schneider, FirstEnergy Solutions president, said the governing boards of both his company and the nuclear operating company “determined that the Chapter 11 filing represents our best path forward as we continue to pursue opportunities for restructuring, asset sales and legislative and regulatory relief.”

“We believe that this decision will best serve our customers, employees and business partners,” he said in a prepared statement.

FirstEnergy Solutions oversees coal-fired plants and other fossil-fuel burners capable of producing 5,381 megawatts of electricity, as well as 4,048 megawatts of plants fueled by nuclear power.

Their closures could potentially mean a huge loss to the regional electric grid that PJM operates: Every megawatt produces roughly the energy needed to power 1,000 homes, meaning the energy for almost 9.4 million homes will need to come from other sources.

PJM said Thursday, in response to a 44-page appeal for help FirstEnergy Solutions made with the Trump Administration, that it fully expects to transition to other energy sources over the next three years without service interruptions.

“This is not an issue of reliability. There is no immediate emergency,” PJM said, adding that it “has adequate power supplies and healthy reserves in operation today, and resources are more diverse than they have ever been.”

PJM further states there are about 10,000 megawatts of generation under construction or in the review process to connect to the grid in Ohio alone.

On Sunday, PJM communications chief Susan Buehler noted that power generators can successfully continue to operate during a Chapter 11 bankruptcy.

“Although we cannot discuss the financial situation of any individual member, all PJM members are currently in compliance with our credit policy,” she said.

The tone of FirstEnergy Solutions’ request for help from U.S. Energy Secretary Rick Perry sparked a rebuttal from PJM, which accused the utility’s subsidiary of embellishment and misleading statements to the Trump Administration. It led to a flurry of statements from others, too, such as the American Petroleum Institute and Public Utilities Commission of Ohio Chairman Asim Z. Haque as the Easter holiday weekend approached and the bankruptcy filing became more imminent.

In its request, FirstEnergy Solutions cited a section of the Federal Power Act, which it said gives the U.S. Secretary of Energy broad power for emergencies.

The corporation’s subsidiary told Secretary Perry an emergency exists because PJM’s policies have failed to take into account the fuel security and diversity benefits of nuclear and coal-powered plants.

Now, it asserts that what’s happening in this region is part of a national crisis that’s being underplayed or ignored.

“PJM has done little to prevent this emergency despite the numerous signs for many years that the emergency was coming,” FirstEnergy Solutions said in its letter to Secretary Perry. “PJM continues to claim that all is well with its system, but at the same time shows it does not have a clear view of what resilience is, how to measure it, or how to ensure it.”

It further stated in the letter that premature retirements of nuclear and coal-powered plants “must stop immediately in PJM lest the grid be placed at risk of failure through a lack of generation diversity and over-reliance on generating units that lack secure fuel supply and often compete with other utilities and customers for limited firm fuel delivery capabilities.”

FirstEnergy Solutions likewise said the Federal Energy Regulatory Commission, or FERC, has “for several years failed to heed this warning and to act to prevent this impending crisis.”

FERC in January rejected a modified bailout that the PUCO had approved in October, 2016, one that would have guaranteed FirstEnergy $204 million annually in new surcharges through 2019 with an option to receive two additional years of payments. The rejection came following an appeal to the Ohio Supreme Court.

Had it been approved by the FERC, it could have cost U.S. businesses and residential customers up to $10.6 billion annually, according to the Energy Innovation and the Climate Policy Initiative.

In a two-page rebuttal, PJM told Secretary Perry it “can state without reservation there is no immediate threat to system reliability.”

It said it will do a thorough analysis of its system to make sure there will be an orderly transition. In the meantime, FirstEnergy Solutions could continue to try finding buyers to keep plants operating.

“But even assuming these units do in fact close as of the dates announced, PJM, FERC, and the Department of Energy will have ample time before then to take measures, which at the extreme might include the kind of relief sought in the instant request,” PJM’s letter stated.

A statement issued on Easter by Mr. Haque offered more assurances on behalf of the PUCO.

“The decision by FirstEnergy Solutions, Inc. (FES) to reorganize in bankruptcy has been widely expected by the energy industry and Wall Street,” according to Mr. Haque’s statement, which also acknowledges the PUCO has a responsibility of “ensuring reliable power delivery and we will continue to do so for all Ohioans.”

“There is no reason for customers of FES — or anyone else in Ohio — to be concerned about whether or not they will have electricity. They will,” the statement said.


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