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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Following moves by its nuclear energy brethren in New York and Illinois, FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) is pushing a proposal at the Ohio legislature to get compensated for the carbon-free electricity generated by its two Ohio nuclear power plants, Perry and Davis-Bessie. FirstEnergy (FE) calls its proposal Zero-Emissions Nuclear or ZEN. Like Exelon Corporation (NYSE:EXC) (Chicago, Illinois), FE said it would be prepared to shut down the two plants, which have a combined generating capacity of 2,165 megawatts (MW).
FE operates 10 electric utilities and serves 6 million customers in six Midwestern and Mid-Atlantic states. It also operates one of the largest transmission networks in the PJM (Pennsylvania-New Jersey-Maryland) Interconnection (Valley Forge, Pennsylvania). After a few difficult years in the competitive merchant power business, FE is assessing its strategic options for that line of business. However, it does plan to invest at least $7.9 billion between 2017 and 2019, mainly in its regulated transmission & distribution (T&D) business.
The company's competitive generation unit operates in the PJM reliability area, which conducts periodic auctions for electric generation. The low price of natural gas has caused gas-fired generators to win most of those bids to supply electricity. In awarding competitive generation bids, PJM does not pay for electric capacity--basically, the ability to generate electricity. It only pays for actual electric generation.
FE recorded a $9.2 billion asset impairment charge in the fourth quarter of 2016, causing the utility holding company to post a full-year 2016 net loss of $6.2 billion. Most of the asset impairment charges stemmed from the company's uneconomic merchant nuclear and coal generators. FE already has decided to exit the merchant generation business, and it's trying to decide exactly what it should do with its uneconomic merchant plants: sell them, close them down, or find a way to reintegrate them into the company's regulated utility business.
Illinois-based Exelon had threatened to close two nuclear plants in Illinois and two in New York unless it received a subsidy from those states that reflected the value of the carbon-free power they were generating. Last year, Exelon won separate battles for nuclear subsidies in Illinois and New York. After New York came through with financial support for nuclear power, Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana), which owned the James FitzPatrick Nuclear Power Station in New York, decided to sell that plant to Exelon. For more on these issues, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants and August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation.
When announcing full-year 2016 results on February 21, FE President and Chief Executive Charles Jones said, "In 2016, we achieved our financial targets, made significant progress on our regulated growth plans, and began an important strategic review that is designed to support our transition into a fully regulated company. We continue to focus on this transformation, which will allow us to best serve our customers while providing predictable growth to investors."
Jones added that the company's "top priority" was the preservation of Ohio's two nuclear power plants, Davis-Besse and Perry. He said the company has begun a "meaningful dialogue" with Ohio utilities and regulators on options that could help ensure the state's future energy security. He said he expected the state would soon introduce legislation for "a zero-emission nuclear program."
Such legislation, Jones said, would give state lawmakers greater control and flexibility to preserve nuclear generation. "We believe this legislation would preserve not only zero emission assets but jobs, economic growth, fuel diversity, price stability and reliability, and grid security for the region," he said. "We are advocating for Ohio's support for its two nuclear plants, even though the likely outcome is that FirstEnergy won't be the long-term owner of these assets."
Unlike Exelon, which publicly disclosed its plans to close its uneconomic nuclear units, most of FE's plan remains hidden from public view. Reporters obtained a copy of a 13-page document, "Benefits of Ohio's Nuclear Assets," that was shared with lawmakers in January. That document, which some said resembled an investor presentation, is not posted on FE's website.
A FE spokesperson confirmed the authenticity and parentage of that document, but the company is not circulating it because some of its language may change, according to a report in The Cleveland Plain Dealer. FE is said to lobbying Ohio's lawmakers to reopen the state's electric restructuring law, enacted in the late 1990s, and provide for annual customer electric price increases of about $300 million in perpetuity, even if FE sells its nuclear units or customers buy their power from another generator and only have an FE operating company deliver it. The company is said to be seeking legislation by 2018, which would correspond to its long-running strategic review of its options. For more on that, see February 8, 2017, article--Stung by Competitive Power Markets, FirstEnergy Focuses on T&D Investments.
While FE's proposal has been supported by American Electric Power (NYSE:AEP) (Columbus, Ohio), consumer advocates and environmental organizations, as well as merchant generators like NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) and Dynegy Incorporated (NYSE:DYN) (Houston, Texas) are pushing back.
FE's plan is "a pure exercise in greed," Abraham Silverman, vice president and deputy general counsel of NRG Energy, told The Plain Dealer. "We want educated customers who look at and evaluate these bailouts and see them as a bad deal to call and register their opposition with their legislators and regulators."
In an interview with the Cleveland newspaper, Dean Ellis, senior vice president for regulatory affairs at Dynegy, also blasted the FE plan as "a handout scheme" and a "stealth tax on Ohio citizens and businesses. It enriches FirstEnergy shareholders at the expense of Ohio's competitiveness."
Other states, reportedly including New Jersey, Connecticut and Pennsylvania, are looking into ways to financially support their in-state nuclear plants. FE also operates the two-unit Beaver Valley pressurized water reactor in Pennsylvania, but any deal FE strikes in Ohio would not apply to the Pennsylvania plant.
Exelon also operates nuclear units in Pennsylvania, which, like Ohio, restructured its electricity market. News reports in Pennsylvania say Exelon is taking the lead in that state in lobbying lawmakers to modify the state's electric rules. Its message there, as it was in Illinois and New York, is that the market needs to recognize the economic, energy security and environmental benefits of nuclear power.
"No customer or business like to see their electric prices go up, but to ensure reliability alone, if not environmental protection, lawmakers and regulators in a variety of states are going to have to decide if they will place a value on the carbon-free electricity generated by nuclear plants," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "We all know how the electricity business has been upended by low gas prices, but gas prices are volatile, Renewables also are driving a lot of change, but until a commercially viable electric storage solution is available, solar and wind don't generate anything when the sun isn't shining and the wind isn't blowing. Right now, I'd say it 'put up or shut up' time for lawmakers and regulators when it comes to nuclear power."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
FE operates 10 electric utilities and serves 6 million customers in six Midwestern and Mid-Atlantic states. It also operates one of the largest transmission networks in the PJM (Pennsylvania-New Jersey-Maryland) Interconnection (Valley Forge, Pennsylvania). After a few difficult years in the competitive merchant power business, FE is assessing its strategic options for that line of business. However, it does plan to invest at least $7.9 billion between 2017 and 2019, mainly in its regulated transmission & distribution (T&D) business.
The company's competitive generation unit operates in the PJM reliability area, which conducts periodic auctions for electric generation. The low price of natural gas has caused gas-fired generators to win most of those bids to supply electricity. In awarding competitive generation bids, PJM does not pay for electric capacity--basically, the ability to generate electricity. It only pays for actual electric generation.
FE recorded a $9.2 billion asset impairment charge in the fourth quarter of 2016, causing the utility holding company to post a full-year 2016 net loss of $6.2 billion. Most of the asset impairment charges stemmed from the company's uneconomic merchant nuclear and coal generators. FE already has decided to exit the merchant generation business, and it's trying to decide exactly what it should do with its uneconomic merchant plants: sell them, close them down, or find a way to reintegrate them into the company's regulated utility business.
Illinois-based Exelon had threatened to close two nuclear plants in Illinois and two in New York unless it received a subsidy from those states that reflected the value of the carbon-free power they were generating. Last year, Exelon won separate battles for nuclear subsidies in Illinois and New York. After New York came through with financial support for nuclear power, Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana), which owned the James FitzPatrick Nuclear Power Station in New York, decided to sell that plant to Exelon. For more on these issues, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants and August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation.
When announcing full-year 2016 results on February 21, FE President and Chief Executive Charles Jones said, "In 2016, we achieved our financial targets, made significant progress on our regulated growth plans, and began an important strategic review that is designed to support our transition into a fully regulated company. We continue to focus on this transformation, which will allow us to best serve our customers while providing predictable growth to investors."
Jones added that the company's "top priority" was the preservation of Ohio's two nuclear power plants, Davis-Besse and Perry. He said the company has begun a "meaningful dialogue" with Ohio utilities and regulators on options that could help ensure the state's future energy security. He said he expected the state would soon introduce legislation for "a zero-emission nuclear program."
Such legislation, Jones said, would give state lawmakers greater control and flexibility to preserve nuclear generation. "We believe this legislation would preserve not only zero emission assets but jobs, economic growth, fuel diversity, price stability and reliability, and grid security for the region," he said. "We are advocating for Ohio's support for its two nuclear plants, even though the likely outcome is that FirstEnergy won't be the long-term owner of these assets."
Unlike Exelon, which publicly disclosed its plans to close its uneconomic nuclear units, most of FE's plan remains hidden from public view. Reporters obtained a copy of a 13-page document, "Benefits of Ohio's Nuclear Assets," that was shared with lawmakers in January. That document, which some said resembled an investor presentation, is not posted on FE's website.
A FE spokesperson confirmed the authenticity and parentage of that document, but the company is not circulating it because some of its language may change, according to a report in The Cleveland Plain Dealer. FE is said to lobbying Ohio's lawmakers to reopen the state's electric restructuring law, enacted in the late 1990s, and provide for annual customer electric price increases of about $300 million in perpetuity, even if FE sells its nuclear units or customers buy their power from another generator and only have an FE operating company deliver it. The company is said to be seeking legislation by 2018, which would correspond to its long-running strategic review of its options. For more on that, see February 8, 2017, article--Stung by Competitive Power Markets, FirstEnergy Focuses on T&D Investments.
While FE's proposal has been supported by American Electric Power (NYSE:AEP) (Columbus, Ohio), consumer advocates and environmental organizations, as well as merchant generators like NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) and Dynegy Incorporated (NYSE:DYN) (Houston, Texas) are pushing back.
FE's plan is "a pure exercise in greed," Abraham Silverman, vice president and deputy general counsel of NRG Energy, told The Plain Dealer. "We want educated customers who look at and evaluate these bailouts and see them as a bad deal to call and register their opposition with their legislators and regulators."
In an interview with the Cleveland newspaper, Dean Ellis, senior vice president for regulatory affairs at Dynegy, also blasted the FE plan as "a handout scheme" and a "stealth tax on Ohio citizens and businesses. It enriches FirstEnergy shareholders at the expense of Ohio's competitiveness."
Other states, reportedly including New Jersey, Connecticut and Pennsylvania, are looking into ways to financially support their in-state nuclear plants. FE also operates the two-unit Beaver Valley pressurized water reactor in Pennsylvania, but any deal FE strikes in Ohio would not apply to the Pennsylvania plant.
Exelon also operates nuclear units in Pennsylvania, which, like Ohio, restructured its electricity market. News reports in Pennsylvania say Exelon is taking the lead in that state in lobbying lawmakers to modify the state's electric rules. Its message there, as it was in Illinois and New York, is that the market needs to recognize the economic, energy security and environmental benefits of nuclear power.
"No customer or business like to see their electric prices go up, but to ensure reliability alone, if not environmental protection, lawmakers and regulators in a variety of states are going to have to decide if they will place a value on the carbon-free electricity generated by nuclear plants," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "We all know how the electricity business has been upended by low gas prices, but gas prices are volatile, Renewables also are driving a lot of change, but until a commercially viable electric storage solution is available, solar and wind don't generate anything when the sun isn't shining and the wind isn't blowing. Right now, I'd say it 'put up or shut up' time for lawmakers and regulators when it comes to nuclear power."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
