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FirstEnergy Solutions ‘Flirting with Bankruptcy,’ Report Finds

YOUNGSTOWN, Ohio – Energy giant FirstEnergy Solutions, an Akron-based subsidiary of FirstEnergy Corp., is “flirting with bankruptcy” and is unlikely to find a buyer for its outdated coal and nuclear-power generating plants in Ohio and Pennsylvania, according to an assessment by Cleveland-based Institute for Energy Economics and Financial Analysis.

The study said the fortunes of the utility have not changed since the IEEFA published a comprehensive study three years ago that concluded First Energy is in financial trouble and that the bailouts it seeks might not be enough to save its business.

“Its stock price has not recovered, and in 2016, the company posted a loss of $6.2 billion,” writes Cathy Kunkel, a fellow at IEEFA. “FirstEnergy’s net income has been less than the dividends paid to shareholders every year from 2011 through 2016, meaning that FirstEnergy has not been generating enough profit to support annual payments to shareholders.”

At the core of FirstEnergy Solution’s trouble are its nuclear and coal-powered electrical generation plants, which can’t compete with more efficient, natural gas-fueled electrical generation plants, the report says.

Revenues for the corporation have declined each year beginning in 2013 and within the past six months all three major credit rating agencies have downgraded its corporate bonds, the analysis says. During the fourth quarter of 2016, First Energy reported it wrote down $8 billion on the value of its coal and nuclear power assets, or 88% and 90% of their value respectively.

FirstEnergy operates seven major energy plants in Ohio and Pennsylvania. Five are in Ohio: the David-Besse and Perry nuclear plants, the Bay Shore coal plant, the Sammis coal plant and the West Lorain gas plant. In Pennsylvania, FirstEnergy owns the Beaver Valley nuclear plant and the Bruce Mansfield coal plant.

Should FirstEnergy Solutions declare bankruptcy, the assessment continues, FirstEnergy would look to sell or shut down its nuclear and coal assets. “Given the poor performance of the portfolio, we think it highly unlikely that FirstEnergy would be able to finds a buyer who would continue to operate these units for the long-term – if it can find a buyer at all,” Kunkel writes.

However, a bill circulating through the Ohio General Assembly could help FirstEnergy market its nuclear plants, Kunkel notes in her report. The bill would essentially grant FirstEnergy a bailout of $350 million a year over 16 years, or roughly $5.6 billion over the life of the program.

FirstEnergy has said should the legislation become law, consumers would see a 5% increase in their energy rates, or roughly $5 per month. No legislation has drawn up as of now to subsidize coal-fueled plants.

Moreover, as FirstEnergy continues to unwind its production business, it stands to affect those communities that are home to the utilities coal-fired or nuclear plants, the report noted. “An industry in decline is not compatible with job stability, balanced municipal and county budgets, and economic growth,” it said.

One way to soften the impact of closing the electrical plants is for Ohio and Pennsylvania to adopt policies akin to what New York set up in 2016, Kunkel suggests. The Empire State created an Electric Generation Facility Cessation Mitigation fund that sets aside money to help communities preserve their tax base when plants shut down. New York’s program was recently expanded to $42 million annually over seven years from $30 million annually over five years.

“State support of this type will prove crucial in Ohio and Pennsylvania, allowing the continuation of public services and school funding during a transition [when] they can develop alternatives to power-plant economies,” the report concludes.

Those with interests in nonutility plants that use natural gas as a source of fuel have come out in opposition to the FirstEnergy bailout bills, among them Clean Energy Future, which is building a $900 million combined-cycle electrical generation plant in Lordstown.

“There is no need for a $5.6 billion bailout, and it should be rejected,” said Clean Energy Future President Bill Siderewicz May 9 during a testimony before the Ohio House Public Utilities Committee.

Siderewicz’s company is planning a second $900 million plant at the Lordstown site, which he said is in jeopardy should this legislation pass the Ohio House and Senate. These plants, he testified, are much more efficient than the older FirstEnergy operations, and are fueled with a combination of natural gas and steam.

There are 10 such plants under construction in Ohio, Siderewicz said, adding that another 15 would be needed to satisfy demand across the state.

Because of the abundance of natural gas in Ohio’s Utica shale and the nearby Marcellus shale in Pennsylvania and West Virginia, the combined cycle operations have access to this supply for years to come.

“Ohio is in the unique position of sitting on top of the lowest-cost gas in the world with hundreds of years of supply,” Siderewicz said. “The current free market system for electricity generation and purchase is on pace to meet Ohio’s needs with in-state plants while supplying electricity at rock-bottom prices.”

Others have joined in saying that the nuclear bailout is a bad plan for Ohio.

“By transferring business risk, the effect of this bill is to convert customers into investors,” Jeff Jacobson, president of Northeast Ohio Public Energy Council, or NOPEC, said before the Public Utilities Committee May 9. “Customers should not have to bear the risks of FirstEnergy investors.”

Published by The Business Journal, Youngstown, Ohio.