FirstEnergy Solutions filed for bankruptcy over the weekend. The debt-laden company had asked Energy Secretary Rick Perry last week to use his department’s emergency powers to keep its coal and nuclear power plants open.
Industry observers blamed the bankruptcy filing on the company’s decision to tie itself to coal and nuclear plants instead of diversifying into renewable energy and other types of electric generation.
FirstEnergy Solutions, a subsidiary of Akron, Ohio-based FirstEnergy Corp., owns several coal and nuclear plants in Ohio, Pennsylvania, and West Virginia. The filing in the U.S. Bankruptcy Court for the Northern District of Ohio (Case No. 18-50757) shows FirstEnergy Solutions’ biggest creditor, the Bank of New York Mellon Trust Co., is owed more than $1 billion.
The company filed for bankruptcy on Saturday, only two days after asking Perry’s Department of Energy (DOE) to rescue its coal and nuclear plants by declaring an “emergency” in the power industry. FirstEnergy Solutions claimed in its letter to Perry that “the nation’s security is jeopardized if DOE does not act now” to keep the plants open.
The emergency declaration request was widely panned by industry officials and experts, with NRG Energy, one of FirstEnergy Solutions’ competitors in the eastern U.S., describing the scenario as a “manufactured crisis.” In a statement emailed to ThinkProgress, NRG Energy said there is no reliability problem in the area overseen by grid operator PJM Interconnection, where most of FirstEnergy Solutions’ plants are located.
Despite the bankruptcy filing, FirstEnergy Solutions said in a statement Saturday that it will continue to seek “legislative and regulatory relief,” including the emergency order from DOE.
For the past two years, FirstEnergy Corp. has been warning that its troubled subsidiary may need to file for bankruptcy protection. FirstEnergy Solutions’ coal and nuclear plants have been struggling to compete in the competitive power markets because of low wholesale power prices, a trend that has been sustained by low natural gas prices, rising renewable energy penetration, and relatively flat electricity demand.
Last Wednesday, FirstEnergy Solutions announced the planned retirement of three of its nuclear plants. The company’s Davis-Besse nuclear power station in Ohio, with a capacity of 908 megawatts, would retire in 2020. Its 1,268-megawatt Perry nuclear plant, also located in Ohio, would retire in 2021. And its 1,872-megawatt Beaver Valley nuclear station, located in Pennsylvania, would retire in 2021.
John Hanger, the former secretary of Pennsylvania’s Department of Environmental Protection, attributed the bankruptcy filing to FirstEnergy Solutions’ parent company “doubling down on coal” by buying Allegheny Energy, an owner of several coal plants, in 2008.
The surge in natural gas production and an end to growth in electricity demand also contributed to FirstEnergy Solutions’ dire financial predicament, Hanger said Sunday in a tweet.
Four things "caused" this bankruptcy. 1. First Energy doubling down on coal by buying Allegheny Energy in 2008; 2. Marcellus Shale boom as of 2007; 3. EE flattening demand; 4. No rate base protection/"Restructuring." https://t.co/B6gyM1V34U
— John Raymond Hanger (@johnrhanger) April 1, 2018
FirstEnergy Corp., a strong supporter of President Donald Trump’s pro-coal agenda, had failed in its attempts to shift the costs of its subsidiary’s struggling power plants onto the backs of customers.
For example, FirstEnergy Solutions’ coal-fired Pleasants power station — located in Willow Island, West Virginia — has failed to compete with lower-cost sources of electricity in the unregulated market. To help revive the coal plant, FirstEnergy wanted to force its utility customers, who don’t have a choice of what type of fuel generates their electricity, to subsidize the plant.
To do this, the company tried to transfer the Pleasants plant — owned by a FirstEnergy Solutions subsidiary — to Monongahela Power and Potomac Edison, FirstEnergy Corp.’s regulated utilities in West Virginia. But regulators at the federal and state levels did not support FirstEnergy’s strategy, leading the company to withdraw its plan.
FirstEnergy Solutions’ bankruptcy is a “cautionary tale” for utilities, investors, and public officials who think the coal and nuclear industries will rebound in the coming years, Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign, said Sunday in a statement. “Coal and nuclear plants are too expensive and too dirty to compete in the modern market,” she said.
The bankruptcy filing occurred because FirstEnergy Solutions “ignored America’s shift to clean energy by investing in uneconomic coal and nuclear plants which have been losing money for years,” Hitt said.
The Sierra Club stressed that FirstEnergy Solutions must now concentrate on protecting its workers and their benefits during the bankruptcy process. The company also cannot ignore its environmental obligations at its power plants, particularly if its plants are shut down or sold.
FirstEnergy Solutions’ power plants employ 2,967 people, according to the company.
FirstEnergy was hoping to accomplish on a smaller scale the same goals that the Trump administration had set in its proposal to subsidize the nation’s coal and nuclear plants with guaranteed cost recovery from electricity customers — even if the plants cannot compete in the wholesale power market with lower-cost natural gas and renewable energy generation sources.
Under the guise of grid resilience, Perry released a proposal last fall that would have provided cost recovery for power plants such as coal and nuclear facilities that keep 90 days of fuel onsite. The Federal Energy Regulatory Commission voted unanimously in January to reject Perry’s proposal.
“On its march to failure, FirstEnergy has tried time and again to get its ratepayers –both business and residential — to bail it out,” Sandy Buchanan, executive director of the Institute for Energy Economics and Financial Analysis, a research and consulting firm, wrote in a report released last Friday. “The utility has been rebuffed in these efforts by the Ohio legislature, the governor, the Federal Energy Regulatory Commission, and in some cases the Public Utilities Commission of Ohio.”
The size and the number of FirstEnergy Solutions’ planned closings of coal-fired and nuclear plants in Ohio makes the state an epicenter of energy industry disruption, wrote Buchanan. “Ohio’s leaders should address these closings in the same organized way the Department of Defense musters resources when it closes military bases, Buchanan said.