FirstEnergy, NextEra CEOs ponder non-regulated power

The chief executives of Ohio-based FirstEnergy (NYSE:FE) and Florida-based NextEra (NYSE:NEE) gave differing views Sept. 25 on prospects for non-utility generation over the next several years.

FirstEnergy CEO Anthony Alexander and NextEra CEO James Robo both told the Bank of America/Merrill Lynch Power and Gas Leaders Conference in New York that they are investing in their regulated utilities and currently see rough times for merchant generation.

Looking down the road, however, Robo, sounded like the more bearish of the two on the longer-term prospects of merchant generation.

While the explosion in natural gas production from shale reserves is definitely good for consumers, it hasn’t necessarily been good for competitive generation, Robo said.

The NextEra CEO pointed to weak natural gas and power prices, significant reserve capacity and “political meddling” with competitive markets in New England and PJM.

“I’m pretty bearish” on merchant markets, Robo said. He noted NextEra has divested some of its non-utility gas plants in recent years.

But Alexander thinks the market dynamics will, eventually, shift back to a scenario that’s kinder to non-intermittent power generators.  

“I don’t know believe the country can operate without significant generation,” Alexander said. “I’m a tad more bullish on it,” Alexander said.

While there are problems with capacity markets, operators of the markets are beginning to recognize the problem, Alexander said.

Some fossil plants scheduled to shut down in 2015 due in part to tougher environmental standards were forced to run a lot this summer, Alexander said.

But there’s no question today’s market is difficult on most merchant generation, Alexander said. “What do you do when the market is shifting away from physical assets to softer forms of providing reliable service in the long term?”

Projections show these “softer forms” of energy (demand response, energy efficiency and imports) will account for 81% of PJM’s installed reserve requirements by 2017, Alexander said.

FirstEnergy makes nuke upgrades; NextEra busy with gas, renewables;

Currently, both companies are putting much emphasis on their regulated businesses and making selective non-utility investments.

NextEra’s Florida Power & Light (FPL) will be an anchor tenant on a major new natural gas pipeline announced in Florida. FPL has expanding its combined-cycle fleet in recent years and is also upgrading its peaking units, Robo said.

On the non-regulated front at NextEra Energy Resources, “we have made great progress in our wind business,” Robo said.

NextEra is also happy to see the Internal Revenue Service (IRS) has recently clarified what’s required to place a wind project “in construction” in order to qualify for the production tax credit (PTC).

NextEra is one of the largest renewable energy developers in North America.

As for FirstEnergy, it has 10 regulated distribution companies that serve six million customers in the Midwest and Mid-Atlantic regions. FirstEnergy is increasing its investment in its wires business, Alexander said.

FirstEnergy is also making significant capital improvements in some of its nuclear plants, which fall under the non-regulated FirstEnergy Solutions. Following its merger with Allegheny Energy, FirstEnergy now has four units at three sites that produce nearly 4,000 MW of nuclear power, according to the company website.

New steam generator equipment at the Davis Besse plant in Ohio will enter service in 2014, Alexander said. Likewise, steam generator replacement at Beaver Valley Unit 2 in Pennsylvania occurs in in 2017, the CEO said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.