FirstEnergy Corp. bled $2.64 billion from its competitive businesses over 2017, financial losses exacerbated by marked declines in contract sales, higher operating expenses, and costs associated with asset impairment and plant exit.
The Akron, Ohio–based company, which in January received a $2.5 billion equity injection from four private investment groups to boost its transition to a fully regulated utility company, on February 20 reported full-year 2017 losses of $1.7 billion on revenues of $14 billion. In 2016, the company recorded losses of $6.2 billion on revenues of $14.6 billion.
The losses, though significant, are indicative of progress for the company, which has, since 2016, announced the sale or closure of 2,471 MW of competitive generation operated in Ohio, Pennsylvania, and Virginia. The closures are part of a continued retreat from coal-fired power generation across the U.S.
Closure of a 1.3-GW Coal-Fired Power Plant
On February 16, FirstEnergy announced it had notified PJM Interconnection of a plan to deactivate its 1979-built Pleasants Power Station in Willow Island, West Virginia. The 1,300-MW plant will be sold or closed on January 1, 2019. FirstEnergy said it “continues to complete a strategic review of its remaining competitive generating fleet.”
During the fourth quarter of 2017, the company recorded non-cash, pre-tax asset impairment and plant exit costs of $2.4 billion. Those costs were primarily to fully impair the carrying of its nuclear generating assets, to increase the nuclear asset retirement obligations, and to reduce the carrying value of the Pleasants Power Station.
FirstEnergy’s competitive energy services also suffered a 14% decrease in contract sales of about 1.6 million MWh, even though wholesale sales increased 477,000 MWh. It gained more revenues, owing to higher capacity prices on the PJM grid, and it had lower fuel expenses, primarily due to lower fossil generation output associated with outages and economic dispatch.
Restructuring Working Group
The company’s bid to shed financially hemorrhaging assets or return them to regulated markets is meanwhile progressing through other avenues.
In January, FirstEnergy accepted a $2.5 billion investment—$1.62 billion in mandatory convertible preferred equity and $850 million of common equity—from investment firms, including affiliates of Elliott Management Corp. (Elliott), Bluescape, GIC, and Zimmer Partners LP (Zimmer). As part of that deal, the company said it would form a restructuring working group to maximize value and certainty, and “minimize the timing” to exit competitive generation. The group comprises three company executives and two industry professionals: John Wilder, executive chairman of Bluescape, and Anthony Horton, chief financial officer and executive vice president of Energy Future Holdings Corp.
Ratings agency Moody’s Investors Service on January 23 said that the formation of the restructuring working group indicates that FirstEnergy Solutions (FES), the company’s merchant power generator, is getting closer to default. “Moody’s expects the likelihood of FES repaying its $98.9 million senior unsecured bond maturity on April 2nd is very low,” it said.
It also noted that two clear avenues for additional regulatory or political intervention aimed at providing any additional cash flows to FES through Ohio state legislation and federal plans through the Department of Energy’s grid resiliency proposal had failed to be implemented.
However, Moody’s forecast that FirstEnergy would divest all of its merchant power generation businesses, including Allegheny Energy Supply, “over the next few months” if there are no significant changes in the regulatory environment for its utility operations.
Reshaping Its Fleet
The changes could significantly alter the company’s generation fleet. Jim Pearson, the company’s chief financial officer—who is part of the restructuring working group—reportedly told the Toledo Blade in January that FirstEnergy Corp.’s Davis-Besse nuclear plant in Oak Harbor, Ohio, is headed for premature closure. Pearson also reportedly said that the outlook for the company’s Perry plant in Ohio and twin-reactor Beaver Valley nuclear plant in Pennsylvania is “bleak.”
On Friday, the company said that after deactivation of the Pleasants coal plant in January 2019—which is subject to PJM’s review for reliability impacts—it will own or control generating capacity totaling approximately 14,795 MW from scrubbed coal, nuclear, natural gas, and renewable energy facilities across Ohio, Pennsylvania, West Virginia, New Jersey, Virginia, and Illinois.
Deactivation of the two-unit coal-fired power plant owned by FirstEnergy subsidiary Allegheny Energy Supply was a “difficult choice,” but “recent federal and West Virginia decisions leave FirstEnergy no reasonable option but to expeditiously move forward with deactivation of the plant,” said FirstEnergy President and CEO Charles E. Jones. “We will continue to pursue opportunities to sell the plant while planning for deactivation.”
Tuesday, as the company published its fourth-quarter earnings, Jones noted that FirstEnergy had made important progress in its transition to a fully regulated utility.
“This strategy and the opportunities for growth in our regulated businesses earned the confidence of prominent investors,” he said. “With their equity investment earlier this year, we began 2018 with stronger corporate financial metrics, and we are well positioned to accelerate growth in our transmission and distribution businesses, as we continue our exit from competitive generation.”
—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)