FirstEnergy Corp.’s competitive arm FirstEnergy Solutions (FES) and several key subsidiaries, including FirstEnergy Nuclear Operating Co. (FENOC), on March 31 sought Chapter 11 bankruptcy protection. FirstEnergy said the move would facilitate an “orderly financial restructuring” and accelerate its strategy to become a fully regulated utility.
FES—the parent company of FE Aircraft Leasing Corp., FirstEnergy Generation, FirstEnergy Nuclear Generation—along with FirstEnergy Generation Mansfield Unit 1 Corp., Norton Energy Storage, and FENOC filed the voluntary petition seeking relief under Chapter 11 with the U.S. Bankruptcy Court for the Northern District of Ohio.
In aggregate, the companies have about $ 3.8 billion of funding indebtedness. FES, which sells power and related services to retail and wholesale customers in Illinois, Maryland, Michigan, New Jersey, Ohio, and Pennsylvania, in December 2017 reported total assets, liabilities, and capitalization of about $ 5.5 billion, but brought in revenues of about $ 3.1 billion.
FES holds about $ 1.5 billion of funded indebtedness, including a $ 700 million secured revolving credit facility; about $ 332 million of 6.05% of unsecured notes, which are due in 2021; about $ 363 million of 8.80% unsecured notes due in 2039; and a $ 150 million revolving credit note with Allegheny Energy Supply Co., under which $ 102 million is outstanding, due on April 2.
FirstEnergy Generation, which owns and operates three fossil plants in Ohio and one in Pennsylvania—a combined 5.4 GW, which it sells to FES—has about $ 1 billion of funded indebtedness.
FirstEnergy Sees a Silver Lining
The filing does not involve FirstEnergy or its distribution, transmission, regulated generation, or Allegheny Energy Supply (AE Supply) subsidiaries, which still hold competitive generation assets, FirstEnergy Corp. said in a March 31 statement. Charles E. Jones, president and chief executive officer of FirstEnergy, said: “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.”
However, while the filing will affect 3,076 of FirstEnergy’s 15,513 employees, the Akron, Ohio–based company noted that it marks a milestone in its much-publicized 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,” Jones said.
“FirstEnergy will remain focused on creating long-term value for its customers, employees and shareholders,” Jones said. “Simply put, we will be better positioned to deliver on the tremendous opportunities for customer-focused growth.”
A Shelter from Financial Headwinds
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| FirstEnergy Corp. wants to deactivate the Pleasants Power Station, a 1.3-GW coal power plant near Belmont, West Virginia, by January 2019. The plant began operations in 1979. During construction of the plant, Cooling Tower No. 2 collapsed, killing 51 workers. The construction accident in April 1978 is still considered one of the worst in U.S. history. Courtesy: FirstEnergy |
The filing comes days after FES told PJM Interconnection on March 28 that it will close three uneconomic nuclear plants in the regional transmission organization’s footprint: the 908-MW Davis-Besse Nuclear Power Station in Oak Harbor, Ohio, by 2020; the twin-unit 1,872-MW Beaver Valley Power Station in Shippingport, Pennsylvania, in 2021; and the 1,268-MW Perry Nuclear Power Plant in Perry, Ohio, in 2021.
In a much-criticized move, FES on March 29 also filed an application for an emergency order with the DOE under Section 202(c) of the Federal Power Act, urging Energy Secretary Rick Perry to “find an emergency condition exists” in PJM’s region, and to force PJM to compensate at-risk merchant nuclear and coal plants to maintain stability of the grid.
FirstEnergy, facing stiff financial headwinds exacerbated by market volatility that have shaken up FES’s finances, suffered steep losses in 2017. In January, as the company received a $ 2.5 billion equity injection from four private investment groups to boost its transition to a fully regulated utility company, it agreed to form a restructuring working group to maximize value and certainty, and “minimize the timing” to exit competitive generation.
FirstEnergy on March 31 noted it had plans for more than $ 10 billion in capital investments in its regulated businesses through 2021. These include 10 electric distribution utilities, which serve six million customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York, as well as its transmission operations, which include about 24,000 miles of lines and two regional transmission operation centers.
The company’s 3.8-GW regulated generation fleet includes four plants in West Virginia, Virginia, and New Jersey: the 1,098 MW coal-fired Fort Martin Plant in Maidsville, West Virginia; the 1,984 MW coal-fired Harrison Plant in Haywood, West Virginia; 487 MW of regulated generation at the Bath County Hydro facility in Warm Springs, Virginia; and 210 MW of hydro generation at the Yards Creek facility in Blairstown, New Jersey.
However, the company’s exit from competitive markets is not yet complete. Its AE Supply subsidiary still owns two competitive generation assets: the 1,300-MW Pleasants Plant in Willow Island, West Virginia—but that plant is slated to be shuttered by January 2019—and 713 MW of competitive generation at Bath County Hydro, whose sale is slated to close in the first half of the year, FirstEnergy said.
—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)
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