FirstEnergy Solutions Files for Bankruptcy, Anticipates Plant Closures

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As expected, FirstEnergy Solutions filed for chapter 11 bankruptcy protection on March 31, 2018.  The company simultaneously made a direct request to the Energy Department for financial subsidies to support keeping its fleet of coal and nuclear plants operational, which the company has stated it will otherwise shut down.  FES has struggled to make money from coal and nuclear plants as many other plant operators have struggled in recent years with competition from mainly renewable energy and natural gas fueled power plants, which are benefitting from low natural gas prices.  FES has notified PJM and the U.S. Nuclear Regulatory Commission that two nuclear plants in Ohio and one in Pennsylvania would be deactivated over the next three years, totaling 4 GW of capacity in the PJM market.  FES recently asked the U.S. Department of Energy to issue an emergency order to provide cost recovery to coal and nuclear plants in the PJM Interconnection market, but PJM rejected the order stating nothing suggests any emergency impact on the units retiring as this capacity is equivalent to only 2% of PJM’s installed capacity of 177 GW.  The company’s more recent appeal directly to the Energy Department and the Trump administration is under review.

This filing will help the company to work towards its goal of transforming itself into a fully-regulated utility company, giving them a stronger balance sheet, solid cash flow and more predictable earnings.  First Energy Solutions is the competitive subsidiary of First Energy Corporation and the plants in question are merchant (non-regulated) plants. FES sent out a notice to its customers as follows:  “The Filing Entities have filed customary first-day motions with the Bankruptcy Court to support operations during the court-supervised process, including motions requesting authority to continue to pay and honor all customer contracts and programs.”

The filing and announcement of the potential closure of several coal and nuclear power plants continues a trend of coal and nuclear plants being shuttered prior to the end of their useful life.  Nuclear plants in California, New York, Wisconsin and several other states have already closed or have announced their closure in the coming years.  Luminant’s retirement of 4 GW of coal capacity early in 2018 has sent summer power prices in Texas to multi year highs.  Price impacts in PJM from First Energy’s announcement have so far been very modest, though the price reactions in Texas when Luminant made its announcement in 2017 were also fairly modest.  The large increases in Texas forward prices did not come until 3 months after the announcement of the retirements as market participants prepared for summer.

April 9th, 2018|News|