May 15, 2017 Read More →

FirstEnergy Concedes Change Is Coming to Ohio: ‘It’s Not the Kind of News We Like to See About Ourselves, Obviously’

Crain’s Cleveland Business:

Akron-based FirstEnergy Solutions is in trouble. So are the Ohio communities where it owns power plants. And the state should be preparing now for the economic fallout that’s about to come as a result of plant closures.

That’s the take of the Institute for Energy Economics and Financial Analysis, or IEEFA, a Cleveland-based nonprofit that says it “conducts research and analyses on financial and economic issues related to energy and the environment.”

It has a fairly influential voice, and lobbyists say its May 5 report on FirstEnergy Corp. and its generation subsidiary, FirstEnergy Solutions, has been making the rounds around the Ohio Statehouse. But the IEEFA is hardly a bastion of support for fossil fuels and, with funding from groups like the Rockefeller Foundation and the Wallace Global Fund, it routinely warns of the impact of climate change risk on energy industries.

So, the current situation is a particularly strange one, as IEEFA is saying the same thing FirstEnergy Corp. is now telling Ohio legislators: that most of its Ohio plants, and FirstEnergy Solutions, face a very real and existential threat.

The IEEFA report paints a dire picture of the position of FirstEnergy Solutions, which it refers to as FES.

“FES’s revenues declined every year from 2013 through 2016, and just within the past six months all three major credit rating agencies have downgraded its corporate bonds. In the fourth quarter of 2016, FES took an $8 billion loss to write down the value of its remaining coal and nuclear units — an acknowledgment that FES’s coal and nuclear plants have lost 88 percent and 90 percent of their value, respectively,” wrote IEEFA author and researcher Cathy Kunkel.

That means that all six of FirstEnergy Solutions’ major coal and nuclear plants — four in Ohio and two in Pennsylvania — are at risk, she contended. The Ohio plants are the Bay Shore coal plant and Davis-Besse nuclear plant near Toledo, the Perry nuclear plant in Lake County, and the Sammis coal plant in tiny Stratton on the Ohio River.

Most of the Sammis plant already is slated for closure. The outlook for the others is grim.

“If FirstEnergy Solutions goes bankrupt, FirstEnergy would be looking to sell or retire FES coal and nuclear assets. Given the poor performance of the portfolio (as evidenced by the recent write-down of nearly 90 percent of its value), we think it highly unlikely that FirstEnergy would be able to find a buyer who would continue to operate these units for the long term — if it can find a buyer at all,” Kunkel wrote.

“Bankruptcy” is a word that is appearing more and more in terms of referencing FirstEnergy Solutions, and even FirstEnergy CEO Chuck Jones has said it’s a possibility.

So perhaps it should not come as a huge surprise that FirstEnergy reluctantly agrees with Kunkel’s assessment of its performance and condition.

“It’s not the kind of news we like to see about ourselves, obviously … but there are definitely some valid points in there, and it’s certainly consistent with what we’ve been saying in our earnings calls and testimony. It backs up the position we’ve taken,” said Tricia Ingraham, a spokeswoman in FirstEnergy’s financial communications department.

Ingraham also agreed that some of the Ohio communities where it operates plants are at severe risk, because they often depend heavily on the plants for their local economies.

IEEFA’s Kunkel suggests that Ohio lawmakers might copy others.

“Ohio and Pennsylvania lawmakers could look to nearby New York State, which created the Electric Generation Facility Cessation Mitigation Fund in 2016 to help communities protect their tax bases when power plants close,” Kunkel wrote. “The fund, originally set up with $30 million in annual funding for five years, recently was expanded to provide $42 million annually for seven years.”

In the meantime, the conditions that have caused much of FirstEnergy’s problem persist — namely, that its older coal plants can’t compete with new natural gas plants, which are using a newfound fuel that is cheaper, cleaner and does not have to be shoveled.

The company is a bit like a fixed-income senior citizen in an era of high-inflation. It can cut its costs to a certain point, but not beyond what it pays for necessities like coal.

Matt Brakey, a consultant with Cleveland Heights-based Brakey Energy who watches FirstEnergy for commercial customers, said that unless something changes dramatically, the company’s plants can’t turn the corner.

“If current market conditions hold, it’s hard to see how many of these plants will be profitable now and into the future,” Brakey said.

FirstEnergy Solutions facing risky future

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