FirstEnergy says strategic options include sale of 13 power plants
FirstEnergy Corp. is undertaking a “strategic review” of its competitive generation business that could lead to selling off as many as 13 power plants, including its three nuclear plants, where nearly 3,000 people work, its chief executive officer said Friday.
“The fact is, competitive generation is weighing down the rest of the company,” Charles Jones, FirstEnergy’s CEO and president, said in a conference call with analysts. “We do not think competitive generation is a good fit.”
While the Akron utility on Friday said it showed a profit for its third quarter, FirstEnergy said it has lost $381 million for the first nine months of 2016 and expects to end the year with a loss as well.
The “strategic options” will be implemented over the next 12 to 18 months, he said. He said FirstEnergy intends to act quickly and become a fully regulated electric utility again after operating under the state’s 1999 electric deregulation initiative.
It’s possible that FirstEnergy could sell off all, or most, of its coal, nuclear, hydro, gas and oil power plants that make up its FirstEnergy Solutions unit, Jones said in an interview afterward.
Of those 13 power plants, six are powered by natural gas, four are fossil-fuel coal plants (including Sammis and Bruce Mansfield) and three nuclear plants — Davis-Besse, Perry and Beaver Valley. A part interest in a hydroelectric plant could also be sold off. Some units could be closed if buyers are not found, Jones said.
Those facilities employ 2,967 people, according to the utility.
“It’s still too early to tell where this will end,” Jones said. He said it does not appear to make sense to spin off FirstEnergy Solutions as a separate company.
“We are at a crossroads,” Jones said. “We have to make some tough decisions.”
The utility needs to act quickly, in large part because FirstEnergy Solutions has $515 million in debt coming due in 2018, he said. Without a financial restructuring, FES will be unable to pay its obligations.
“We just put several thousand of our employees’ lives in limbo,” Jones said. “I need to get those lives out of limbo.”
Jones was to address FirstEnergy employees on Friday and said he expected many questions. He said he would ask them to still come into work and focus on their jobs as the review takes place. FirstEnergy will continue to fulfill its pension obligations to employees, he said.
‘Fully regulated’ utility
One option is to move its power plants in Ohio, West Virginia and Pennsylvania from a competitive market into a regulated entity, Jones said.
“At the end, you will be looking at a fully regulated company,” Jones said.
After 12 to 18 months, FirstEnergy Corp. will be a fully regulated utility company, he said. That means returning to a business where government, not market forces, controls utility prices.
A top goal will be to keep as many of its power plants operating as it can, Jones said.
It’s possible that the debt-laden FirstEnergy Solutions competitive generation unit could file for Chapter 11 bankruptcy protection and reorganize.
It’s “way too early on how we approach that,” Jones said.
Jones said he expects ratings agencies will downgrade FirstEnergy Solutions debt, making it highly unlikely that its bonds due in 2018 can be refinanced, he said.
Jones noted that FirstEnergy’s strategic review follows Duke Energy’s sale of all of its Ohio power plant assets. In addition, AEP is looking at getting out of the competitive generation market in Ohio as well.
Ohio policymakers need to look at this and make decisions regarding electric utilities in the state, he said. About 40 percent of the electricity used in Ohio comes from other states, he said, and policymakers need to ask if they want that percentage to increase.
“We’re going to ask that question,” Jones said.
Preserving assets
After next week’s election, Jones said, “we plan to begin legislative and regulatory efforts designed to preserve our remaining generation assets.”
The company met last week with all three major credit ratings agencies to outline the utility’s planned transition to becoming a fully regulated utility, he said.
FirstEnergy’s effort to become re-regulated in Ohio will be opposed by others in the industry as well as by consumer watchdogs, said Todd Snitchler, spokesman for the Alliance for Energy Choice. What FirstEnergy and AEP propose in terms of becoming fully regulated utilities again clearly requires legislative action, he said.
Other companies that have entered Ohio’s energy markets are going to defend their investments under the state’s deregulation system, Snitchler said.
Under deregulation and the success of fracking that has produced vast quantities of low-cost natural gas, consumer energy prices are down and risks have shifted from rate payers to utility investors and shareholders, Snitchler said. Customer choice in Ohio has been “remarkable in its success,” he said.
“We’ll see how this legislative battle shapes up,” he said.
Jones said FirstEnergy took the first steps to becoming a fully regulated utility in 2013.
‘A terrific quarter’
Jones made his initial remarks during a conference call with industry analysts following the company’s release of its third-quarter earnings. The announcement of the power generation strategic review was not included in the earnings release.
FirstEnergy said it had third-quarter net income of $380 million, or 89 cents per share, on revenue of $3.9 billion. Adjusted earnings per share were 90 cents.
“On balance, it was a terrific quarter,” Jones said.
The company said it expects to lose between 90 cents per share and $1.30 per share for the full year, an increase from previous guidance of a loss of 55 cents to 75 cents per share. Adjusted earnings per share for the full year are expected to show a profit of $2.60 to $2.70 per share, an increase from previous guidance of $2.40 to $2.60 per share, the company said.
