FirstEnergy (NYSE: FE) in its July 30 quarterly Form 10-Q statement said that five more coal units were deactivated in April as part of a continuing series of coal unit shutdowns due to environmental rules like the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS), which took initial effect in April.
FirstEnergy noted that in December 2012, the West Virginia Department of Environmental Protection granted a conditional extension through April 16, 2016, for MATS compliance at the Fort Martin, Harrison and Pleasants coal plants. In March 2013, the Pennsylvania Department of Environmental Protection granted an extension through April 16, 2016, for MATS compliance at the Hatfield’s Ferry and Bruce Mansfield coal plants. Hatfield’s Ferry was later shut, so that extension wasn’t really needed.
On Feb. 5 of this year, the Ohio Environmental Protection Agency granted an extension through April 16, 2016, for MATS compliance at the Bay Shore and Sammis coal plants. Nearly all spending for MATS compliance at Bay Shore and Sammis has been completed through 2014.
“Eastlake Units 1-3, Ashtabula Unit 5 and Lake Shore Unit 18 were deactivated in April 2015, which completes the deactivation of 5,429 MW of coal-fired plants since 2012,” said the Form 10-Q.
FirstEnergy and FirstEnergy Solutions Corp. (FES) have various long-term coal supply and transportation agreements, some of which run through 2025 and certain of which are related to deactivated coal-fired plants. “FirstEnergy and FES have asserted force majeure defenses for delivery shortfalls under certain agreements, and are in discussion with the applicable counterparties,” the Form 10-Q said. “If FirstEnergy and FES fail to reach a resolution with the applicable counterparties for the agreements associated with the deactivated plants and it were ultimately determined that, contrary to their belief, the force majeure provisions or other defenses, do not excuse or otherwise mitigate the delivery shortfalls, the results of operations and financial condition of both FirstEnergy and FES could be materially adversely impacted. If that were to occur, FirstEnergy and FES are unable to estimate the loss or range of loss.
“As to a specific coal supply agreement, FirstEnergy and [Allegheny Energy Supply Co. LLC] have asserted termination rights effective in 2015. In response to notification of the termination, the coal supplier commenced litigation alleging FirstEnergy and AE Supply do not have sufficient justification to terminate the agreement. FirstEnergy and AE Supply have filed an answer denying any liability related to the termination. There are 6 million tons remaining under the contract for delivery. At this time, FirstEnergy cannot estimate the loss or range of loss regarding the on-going litigation with respect to this agreement.”
FirstEnergy also reported the end of coal contract litigation that pre-dated the MATS-related plant shutdowns. In December 2006, AE Supply and Monongahela Power filed a complaint in the Court of Common Pleas of Allegheny County, Pennsylvania, against International Coal Group and affiliates for failure to supply coal required by a long-term contract for the Harrison power plant in northern West Virginia. ICG had declared force majeure due to geology issues at the supplying coal mine. A jury trial, appeal and other proceedings followed. On April 6, 2015, and in lieu of further appeals and litigation process, the parties agreed to a full and final settlement of all remaining claims and on April 7, 2015, ICG paid the $15 million settlement amount in full of which $12 million was allocated to AE Supply and $3 million to Monongahela Power. The trial and appellate courts were notified of the settlement and the cases were discontinued by the parties. Notable is that Arch Coal (NYSE: ACI) took over ICG in 2011, during the pendency of this case.