FirstEnergy idles some coal units, others still on RMR reprieve

As of Sept. 1, 2012, the following coal-fired power plants of FirstEnergy (NYSE: FE), which collectively include sixteen units, were deactivated: Albright, Armstrong, Bay Shore Units 2-4, Eastlake Units 4-5, R. Paul Smith, Rivesville and Willow Island.

Five additional coal-fired units – Ashtabula, Eastlake Units 1-3, and Lake Shore – will remain active pursuant to reliability must run (RMR) arrangements with PJM Interconnection until their anticipated deactivation, which is expected in the spring of 2015, FirstEnergy reported in its Feb. 15 annual Form 10-K report.

FirstEnergy’s generating portfolio consists of 20,372 MW of diversified capacity (Competitive-18,096 MW and Regulated-2,276 MW). Of the generation asset portfolio:

  • approximately 12,120 MW (59.5%), consists of coal-fired capacity;
  • 3,991 MW (19.6%) consists of nuclear capacity;
  • 1,832 MW (9.0%) consists of hydroelectric capacity;
  • 1,745 MW (8.6%) consists of oil and natural gas units;
  • 496 MW (2.4%) consists of wind and solar facilities; and
  • 188 MW (0.9%) consists of capacity entitlements to output from coal-fired generation assets owned by Ohio Valley Electric.

All units are located within PJM and sell electric energy, capacity and other products into the wholesale markets that are operated by PJM.

Some shut units being converted to synchronous condensers

On Dec. 20, 2012, FERC approved the transfer by FirstEnergy Generation LLC (FG) to American Transmission Systems Inc. (ATSI) of certain deactivated generation assets associated with Eastlake Units 1-5 and Lakeshore Unit 18 to facilitate their conversion to synchronous condensers to provide voltage support on the ATSI transmission system. The transfer of Eastlake Units 4 and 5 was completed on Jan. 31, 2013, and ATSI’s completion of the conversion of those coal units to synchronous condensers is expected to be completed by June 1, 2013, for Eastlake Unit 5 and by Dec. 1, 2013, for Eastlake Unit 4. The transfer of the remaining units and their conversion to synchronous condensers will occur when the use of the units for RMR purposes is no longer required.

FirstEnergy reported that it currently has long-term coal contracts with various terms to acquire about 27.3 million tons of coal in 2013 which is approximately 86% of its estimated 2013 coal requirements of 32.1 million tons. This contract coal is produced primarily from mines in Ohio, Pennsylvania, West Virginia, Montana and Wyoming. The contracts expire at various times through Dec. 31, 2030.

On Nov. 16, 2012, FirstEnergy’s Monongahela Power (MP) and Potomac Edison units filed a proposal with the West Virginia Public Service Commission that, if approved, would transfer full ownership of the coal-fired Harrison plant in northern West Virginia to MP and full ownership of the coal-fired Pleasants plant in West Virginia to Allegheny Energy Supply Co. LLC (AE Supply). This two-part transaction, if approved as filed, would provide FirstEnergy Solutions Corp. (FES) and AE Supply with approximately $1.1bn of cash which can be used to redeem debt.

This proposed coal plant transfer also would implement a cost-effective plan to assist MP in meeting its energy and capacity obligations with its own generation resources, as a result of the net addition of 1,476 MW, eliminating the need to make additional electricity and capacity purchases from the spot market, which is expected to result in greater rate stability for MP’s customers, the Form 10-K said.

Current projections are for $975m in MATS compliance spending

FirstEnergy said in the Form 10-K that it is well-positioned for upcoming environmental regulations, including the Mercury and Air Toxics Standards (MATS), and expects to make capital investments over the next several years in certain of its unregulated and regulated generating plants of approximately $975m to comply with MATS.

FirstEnergy’s capital expenditures in 2013 are estimated to be $2.4bn (excluding nuclear fuel), a decrease of about $889m from 2012, primarily due to restoration spending for major storms in its service territory in 2012. In addition to internal sources to fund capital requirements for 2013 and beyond, FirstEnergy expects to rely on external sources of funds, which may include access to the capital markets.

The company has spent more than $10bn on environmental protection efforts since the initial passage of the Clean Air and Water Acts in the 1970s. Recent investments of $3bn at the coal-fired Hatfield, Fort Martin and Sammis plants further reduced emissions of SO2 by over 95%, and NOx by at least 64% from these facilities.

“We have taken aggressive steps over the past two decades that have increased our generating capacity without adding to overall CO2 emissions,” the Form 10-K noted. “In early 2012, we announced our intent to deactivate approximately 3,400 MW of older, coal-based generation. Approximately 2,500 MW were deactivated in September 2012, with 885 MW remaining available to meet electric system reliability concerns identified by the regional transmission operator. We expect FirstEnergy’s CO2 emissions to be approximately 20% below our 1990 levels, depending on economic conditions.”

Total operating expenses decreased $636m in 2012. Excluding the Allegheny Energy companies, total operating expenses decreased by $542m in 2012 due to various factors, including:

  • Fuel costs increased $92m primarily due to the absence of cash received in 2011 from the assignment of a substantially below-market, long-term fossil fuel contract to a third party ($123m) and higher unit prices ($57m), partially offset by lower volumes consumed ($88m). Higher unit prices resulted primarily from a $50m termination charge associated with the retirement of a coal contract that is no longer needed as a result of the plant deactivations. Volumes decreased as a result of the deactivation of fossil generating units, the temporary reduction in operations at the Sammis plant in September 2012 and an increase in economic purchases of power.
  • Impairments of long-lived assets decreased $315m compared to 2011. The 2011 charges are due to the decision to deactivate the six unregulated, coal-fired plants.

In December 2011, the EPA finalized the MATS imposing emission limits for mercury, PM, and HCl for all existing and new coal-fired units effective in April 2015, with averaging of emissions from multiple units located at a single plant. State permitting authorities can grant an additional compliance year through April 2016, as needed, including instances when necessary to maintain reliability where electric generating units are being closed. On Dec. 28, 2012, the West Virginia Department of Environmental Protection granted a conditional exemption through April 16, 2016, for MATS compliance at the Fort Martin, Harrison and Pleasants coal plants.

In addition, an EPA enforcement document contemplates up to an additional year to achieve compliance, including FirstEnergy’s challenge of the particulate matter (PM) emission limit imposed on petroleum coke boilers, such as Bay Shore Unit 1. FirstEnergy and other entities have also petitioned EPA to reconsider and revise various regulatory requirements under MATS. Depending on the outcome of these proceedings and how the MATS are ultimately implemented, FirstEnergy’s future cost of compliance with MATS is estimated to be about $975m.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.