FirstEnergy’s power markets are weak, coal units get targeted

A depressed power market and the need for emissions controls at coal-fired units have combined to lead to a wave of past and near-term shutdowns of coal-fired capacity at FirstEnergy (NYSE: FE), the company said in its Aug. 6 Form 10-Q statement.

On July 8, officers of FirstEnergy and its Allegheny Energy Supply subsidiary committed to deactivating the following coal units by Oct. 9:

  • Hatfield’s Ferry Units 1-3, 1,710 MW, located at Masontown, Pa.; and
  • Mitchell Units 2-3, 370 MW, at Courtney, Pa.

AE Supply has obligations, such as fuel supply, that could be affected by the plant closings and management is currently unable to reasonably estimate potential costs, or a range thereof, that could be incurred, the Form 10-Q noted.

Those were the recent shutdown decisions. For a longer period, FirstEnergy has executed or had in the works a number of other coal-fired shutdowns, triggered by advancing age for these units and a need for expensive new emissions controls to meet U.S. Environmental Protection Agency regulations, including the Mercury and Air Toxics Standards (MATS).

As of Sept. 1, 2012, Albright, Armstrong, Bay Shore Units 2-4, Eastlake Units 4-5, R. Paul Smith, Rivesville and Willow Island were deactivated. In April 2012, PJM Interconnection concluded its initial analysis of the reliability impacts from the previously announced plant deactivations and requested reliability must-run (RMR) arrangements for Eastlake Units 1-3, Ashtabula Unit 5 and Lake Shore Unit 18 through the spring of 2015.

“FirstEnergy continues to experience weak economic conditions across its multi-state utility service territory, as evidenced by relatively flat distribution sales over the last three years,” said the Form 10-Q. “This prolonged low demand environment, coupled with excess generation supply in the region, has caused a period of protracted low power and capacity prices. The PJM RPM Auction for 2016/2017 capacity that was conducted in May 2013 produced prices in the regions served by FirstEnergy’s Competitive Energy Services Segment that were lower than expected. This result may be a broader indication of an underlying supply/demand imbalance that is expected to continue to affect power producers in this region, adding pressure on already depressed energy prices and potentially pushing any significant power price recovery further into the future than FirstEnergy, or the industry at large, previously expected. FirstEnergy’s estimated contracted competitive sales for 2013 are 107 million MWH and have exceeded its original target of 104 million MWH.”

The company added: “The Competitive Energy Services Segment has adjusted its hedging strategy by slowing forward sales in order to capture potential future improvements in power prices. With the deactivation of certain of our generating units, we will have less self-generated electricity to sell. To mitigate the impact of this decrease, we are being more selective in the customers we target and focusing more on those customers with higher profit margins. Currently, FirstEnergy’s estimated contracted competitive sales for 2014 are more than 75 million MWH. As FirstEnergy experiences these ongoing trends, it plans to fully review all facets of its operations for potential cost savings. In particular, FirstEnergy recently undertook a comprehensive review of competitive operations related to, among other things, plant economics, which resulted in the previously announced decision to deactivate the Hatfield’s Ferry and Mitchell plants. The reduction in capital expenditures at these facilities, including the $275 million decrease for MATS, is expected to total approximately $500 million over the next five years. FirstEnergy has also canceled or delayed certain planned investments in other generating facilities which are expected to further reduce the capital needs in our competitive generation fleet by approximately $375 million over that same period.”

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.