FirstEnergy (NYSE: FE), with last fall’s deactivations of the big Hatfield’s Ferry and Mitchell coal plants prominent among them, is in the final stages of a series of shutdowns of coal plants due to clean-air needs.
In its Feb. 27 annual Form 10-K report, FirstEnergy noted that costs associated with Mercury and Air Toxics Standards (MATS) compliance, and other environmental laws, is substantial and contributed to the company’s decision to deactivate 21 older coal-fired units in 2012 and 2013 and its plans to deactivate five additional coal-fired units when reliability must-run (RMR) requirements issued by PJM Interconnection terminate.
MATS is being challenged by numerous entities, including unregulated subsidiary FirstEnergy Generation, in the U.S. Court of Appeals for the D.C. Circuit. Depending on the outcome of these legal proceedings and how MATS and other EPA regulations are ultimately implemented, the future cost of compliance may be substantial and changes to FirstEnergy’s operations may result.
As a result of the cost of compliance with current and future environmental regulations and the continued low market price for electricity, FirstEnergy deactivated its 1,700-MW Hatfield’s Ferry and 370-MW Mitchell coal-fired plants on Oct. 9, 2013. In connection with the deactivations, in the second quarter of 2013, FirstEnergy recorded a pre-tax impairment of about $473m to continuing operations, which also includes pre-tax impairments of $13m related to excessive inventory at these facilities.
In a non-coal move, on Jan. 9, FirstEnergy deactivated the 60-MW, oil-fired Mad River power station in Springfield, Ohio, as PJM Interconnection found no reliability issues.
FirstEnergy has spent heavily over the years on environmental compliance
More than $10bn has been spent by FirstEnergy companies on environmental protection efforts since the initial passage of the Clean Air and Water Acts in the 1970s, and these investments demonstrate FirstEnergy’s continuing commitment to the environment. Recent investments of $3bn at the Fort Martin and Sammis coal plants further reduced emissions of SO2 by over 95%, and NOx by at least 64% from these facilities. Since 1990, NOx emissions have been reduced by more than 80%, SO2 by more than 90%, and mercury by about 70% at FirstEnergy generating units.
Aggressive steps have also been taken by FirstEnergy to reduce its overall CO2 emissions by 24% below 2005 levels, seven years ahead of the Presidential 2020 goal of a 17% carbon pollution reduction below 2005 levels. In early 2012 and 2013, FirstEnergy announced its intent to deactivate 5,429 MW of older, coal-based generation, with 2,464 MW deactivated in September 2012, another 2,080 MW deactivated in October, 2013, and 885 MW remaining available to meet electric system reliability concerns pursuant to RMR arrangements with PJM. As a result of these further deactivations, FirstEnergy’s CO2 emissions are expected to continue to decline, depending on economic conditions.
The new MATS rule was finalized at the end of 2011, which contributed to FirstEnergy’s decision to deactivate some of its older coal-fired plants. The total MATS compliance cost for the remaining fleet is estimated at $465m with $240m at the competitive fleet and $225m at the regulated fleet.
MATS compliance is needed in April 2015 with averaging of emissions from multiple units located at a single plant. Under the Clean Air Act, state permitting authorities can grant an additional compliance year through April 2016, as needed, including instances when necessary to maintain reliability where generating units are being closed. In December 2012, the West Virginia Department of Environmental Protection (WVDEP) granted a conditional extension through April 16, 2016, for MATS compliance at the Fort Martin, Harrison and Pleasants stations. In March 2013, the Pennyslvania DEP granted an extension through April 16, 2016, for MATS compliance at the Hatfield’s Ferry and Bruce Mansfield stations.
In addition, an EPA enforcement policy document contemplates up to an additional year to achieve compliance, through April 2017, under certain circumstances for reliability critical units. MATS has been challenged in the U.S. Court of Appeals for the D.C. Circuit by various entities, including FirstEnergy’s challenge of the particulate matter (PM) emission limit imposed on petroleum coke boilers, such as Bay Shore Unit 1. Oral arguments were heard on Dec. 10, 2013.
As of September 2012, Albright, Armstrong, Bay Shore Units 2-4, Eastlake Units 4-5, R. Paul Smith, Rivesville and Willow Island were deactivated. FirstEnergy Generation entered into RMR arrangements with PJM for Eastlake Units 1-3, Ashtabula Unit 5 and Lake Shore Unit 18 in Ohio through the spring of 2015, when they are scheduled to be deactivated. In February 2014, PJM notified FirstEnergy Generation that Eastlake Units 1-3 and Lake Shore Unit 18 will be released from RMR status as of Sept. 15, 2014.
In January 2012 and February 2012, FirstEnergy subsidiaries announced the deactivation by September 2012 (subject to a reliability review by PJM) of nine coal-fired power plants (Albright, Armstrong, Ashtabula, Bay Shore except for generating unit 1, Eastlake, Lakeshore, R. Paul Smith, Rivesville and Willow Island) with a total capacity of 3,349 MW due to MATS and other environmental regulations. As a result of this decision, FirstEnergy recorded a pre-tax impairment of $334m to continuing operations during the year ended 2011.