Utility FirstEnergy has taken the long-threatened step of filing for bankruptcy protection for its competitive power generation subsidiaries. It's the latest development for a coal and nuclear power fleet that has become a focus of the Trump administration’s efforts to shift energy policies to favor fossil-fired electricity.
Saturday’s filing with the U.S. Bankruptcy Court for the Northern District of Ohio seeks Chapter 11 protection for FirstEnergy Solutions (FES), as well as for subsidiaries FirstEnergy Generation and FirstEnergy Nuclear Operating Company. The companies, which operate power plants in the Midwest and mid-Atlantic, hold about $3.8 billion in collective debt, as compared to 2017 revenues of $3.1 billion.
FirstEnergy’s fleet has been losing money for years, unable to compete against cheap natural-gas-fired power, as well as a rising share of low-cost renewable energy. The company warned of possible bankruptcy in its nuclear business in early 2017, and in February of this year, CEO Chuck Jones warned that its power plant subsidiary faced insolvency as early as the next month.
Saturday’s filing noted that the companies involved have about $3.8 billion of funding indebtedness. By comparison, in December 2017, FES reported total assets, liabilities and capitalization of about $5.5 billion, and revenues of about $3.1 billion. The filing notes that FES and its subsidiaries have more than $550 million in cash, “sufficient to continue normal operations and meet post-petition obligations to employees, suppliers and customers as they come due.”
Parent company FirstEnergy Corp., which is not part of the bankruptcy filing, also operates 10 regulated utilities providing transmission, distribution and some generation for about 6 million customers in Ohio, Pennsylvania, West Virginia, New Jersey, Maryland and New York.
Saturday’s bankruptcy filing would appear to cement the company’s shift to becoming an operator of regulated utilities. FirstEnergy received a $2.5 billion boost in equity from investors in January, largely aimed at moving it into regulated businesses.
FirstEnergy has also responded to its ongoing financial crisis by seeking both state and federal subsidies for its struggling generation fleet, without much success. It has also joined lawsuits seeking to reverse policies it has deemed harmful to coal and nuclear power, including one effort to overturn federal regulations that support demand response that reached the U.S. Supreme Court.
FirstEnergy’s woes have also become the focus of a concerted effort by Trump administration officials to rewrite federal energy regulations in ways that would provide extra payments to its struggling power plants, largely at the cost of increased energy prices and reduced competitiveness for renewables.
That includes Energy Secretary Rick Perry’s Federal notice of proposed rulemaking (NOPR) which sought out-of-market payments for power plants with 90 days of fuel supply — something only coal and nuclear power plants have — on the grounds that the grid could fail without them.
The NOPR, which was denied by the Federal Energy Regulatory Commission in January, appears to have been influenced by Perry’s association with coal company CEO and owner Robert Murray, an outspoken financial supporter of Donald Trump’s presidential campaign.
Murray Energy, which counts FirstEnergy as its largest customer, has long argued that the coal industry deserves regulatory relief from market forces, environmental laws and other constraints. Last year, the company sought federal emergency relief for its own operations, claiming that it faced bankruptcy if FirstEnergy’s plants closed. While the request was denied, Perry’s NOPR was seen by some industry-watchers as a backdoor attempt to fulfill the company’s request for financial relief for its biggest customer.
On Friday, FirstEnergy followed Murray Energy in asking DOE to provide financial relief to its power plants under its rarely-used authority under Section 202(c) of the Federal Power Act to intervene in energy markets and respond to power grid reliability emergencies. The petition was widely criticized by energy industry groups, consumer and environmental advocates, and competitors such as NRG Energy, as a last-ditch attempt to save the company from insolvency.
FirstEnergy also warned the FERC last week that it plans to close three nuclear power plants in the next three years. FirstEnergy will retain a handful of competitive generators under its bankruptcy plan, but expects to close or sell most in the next 18 months.
FirstEnergy’s bankruptcy filing comes amid a rash of coal power plant retirements across the country. According to data from the Sierra Club and the Energy Information Administration, more coal capacity closed in the first 45 days of 2018 than in the first three years of the Obama administration. An important milestone was reached in February when the number of coal plants closed or planned for retirement hit 262, surpassing the 261 coal-fired power plants still operating in the United States.
Dick Munson, director of Midwest Clean Energy for the Environmental Defense Fund, said in an email that FirstEnergy Solutions’ bankruptcy “shows that markets work, as does the company’s decision to close its uneconomic nuclear reactors."
"Investors and executives, not customers, should pay for a company’s bad business decisions," he said. "We’ll be keeping a close eye on FirstEnergy to make sure it doesn’t try to use the bankruptcy as an excuse to avoid its responsibilities, like decommissioning its reactors and cleaning up coal-ash pollution.”