FirstEnergy readies new round of coal plant shutdowns

FirstEnergy (NYSE: FE) has shut a number of coal-fired units already due to environmental needs, including compliance with the federal Mercury and Air Toxics Standards (MATS), and it said in its Aug. 5 Form 10-Q quarterly report that it has other shutdowns in the works.

MATS takes effect in April 2015, though state agencies can grant a one-year extension, to April 2016, as needed, including instances when necessary to maintain reliability where electric 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 coal stations. In March 2013, the Pennsylvania DEP granted an extension through April 16, 2016, for MATS compliance at the Hatfield’s Ferry and Bruce Mansfield stations. Hatfield’s Ferry was then shut in the fall of 2013, with the Mansfield coal plant still operating.

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 was 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 in Ohio. On April 15, MATS was upheld by the U.S. Court of Appeals for the D.C. Circuit. However, the court refused to decide FirstEnergy’s challenge of the PM emission limit on petroleum coke boilers due to a January 2013 petition for reconsideration still pending but not addressed by EPA. On July 14, various entities filed a petition seeking further review by the U.S. Supreme Court. Depending on the outcome of further appeals, if any, and how the MATS are ultimately implemented, FirstEnergy said its total cost of MATS compliance is currently estimated to be about $370m, reduced from the previous estimate of $465m.

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 (FG) entered into reliability must run (RMR) arrangements with PJM Interconnection for Eastlake Units 1-3, Ashtabula Unit 5 and Lake Shore Unit 18, all located in Ohio, through the spring of 2015, when they are scheduled to be deactivated.

In February 2014, PJM notified FG that Eastlake Units 1-3 and Lake Shore Unit 18 will be released from RMR status as of Sept. 15, 2014. FG intends to operate the plants through April 2015, subject to market conditions. As of Oct. 9, 2013, the Hatfield’s Ferry and Mitchell coal stations in Pennsylvania were also deactivated.

FirstEnergy and FirstEnergy Solutions (FES) have various long-term coal transportation agreements, some of which run through 2025 and certain of which are related to the plants subject to shutdown. FirstEnergy (FE) the parent company and FES have asserted force majeure defenses for delivery shortfalls under certain agreements, and are in discussion with the applicable counterparties.

“As to two agreements, FE and FES have agreed to pay liquidated damages for delivery shortfalls for 2014,” said the Form 10-Q. “If FE and FES fail to reach a resolution with applicable counterparties for coal transportation agreements associated with the deactivated plants or unresolved aspects of the transportation agreements and it were ultimately determined that, contrary to their belief, the force majeure provisions or other defenses do not excuse delivery shortfalls, the results of operations and financial condition of both FirstEnergy and FES could be materially adversely impacted. If that were to occur, FE and FES are unable to estimate the loss or range of loss.”

On July 1, 2014, FES terminated a long-term fuel supply agreement with an unnamed supplier, the Form 10-Q said. In connection with this termination, FES recognized a pre-tax charge of $67m in the second quarter of 2014.

In the first six months of this year, at FirstEnergy’s Competitive Energy Services segment, fuel costs decreased $211m primarily due to lower generation volumes resulting from a Harrison/Pleasants asset transfer, the deactivation of certain power plants in 2013 and increased outages as compared to the same period of 2013. Higher unit prices, primarily driven by increased peaking generation, was partially offset by the suspension of a U.S. Department of Energy disposal fee, which became effective May 16, 2014. Additionally, fuel costs were impacted by an increase in settlement and termination costs related to coal and transportation contracts. In the first six months of 2014, fuel supply agreements were terminated for approximately $85m, while settlements associated with damages on coal and transportation contracts amounted to $33m in the first six months of 2013.

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.