By Rory D. Sweeney
FirstEnergy supports the U.S. Department of Energy’s call to financially support nuclear and coal-fired units, but that won’t stop the company from selling off its merchant generation fleet and retreating to the predictable returns of regulated assets.
CEO Chuck Jones last week said he is also “pleased” with signs of state-level support, including a resolution from the Pennsylvania legislature supporting the department’s proposal and the introduction of the Ohio Clean Energy Jobs bill to support nuclear units with zero-emissions credits (ZECs). But “whether these state or federal activities result in meaningful and timely support remains to be seen,” he said.
“We have no interest in maintaining generating assets that have commodity exposure, and we’re moving forward with exiting the commodity-exposed generation business,” Jones said during a call to discuss third-quarter earnings.
FirstEnergy reported earnings of $396 million ($0.89/share) on $3.7 billion in revenue, missing guidance by $80 million. However, operating earnings of 97 cents/share beat guidance by 10 cents. The results exceeded performance from the same quarter a year ago, when the company reported earnings of $380 million ($0.89/share) on revenue of $3.9 billion and non-GAAP earnings of 90 cents.
Company executives credited the success to “stronger-than-expected results” in its competitive and corporate segments, along with solid regulated performance that included distribution deliveries that were better than forecasted and higher transmission revenues.
The company increased its GAAP forecast for 2017 to a range of $2.02 to $2.42/share and non-GAAP to $3 to $3.10/share, which had been targeted at $2.70 to $3/share.
Jones said Ohio’s House Bill 381 was introduced earlier this month with terms that were “reduced” from FirstEnergy’s previous requests for nuclear price supports. But they’re “likely” enough to make plants “economically viable” when combined with the planned restructuring of First Energy Solutions (FES), the company’s competitive generation arm. He expects a final vote on the measure around the middle of the first quarter next year.
“We believe this effort is imperative for Ohio’s energy security,” he said.
Despite the price support discussions, the company remains focused on shedding FES, Jones said.
“A preferred outcome” would include agreement from FES’ creditors, he said, but Chapter 11 bankruptcy remains an option that hinges on several variables, including DOE’s proposal, FERC’s actions and discussions with creditors’ advisers.
“We recognize the varied interests of our stakeholders, but we’re also aware that some have an interest in floating rumors about our company,” he said in warning that he would not discuss the progress of negotiations.
The company is moving quickly to disgorge the assets. LS Power has agreed to pay $825 million in cash for 1,615 MW of capacity that includes four Pennsylvania gas-fired plants and interests in the Bath County Hydro and Buchanan gas-fired facilities in Virginia, which are owned by FirstEnergy’s Allegheny Energy Supply subsidiary. The transaction involving the four Pennsylvania gas plants is expected to close this year, while the sale of the interest in the Virginia facilities is expected to close in the first quarter of 2018.
Jones said the full deal, which added some assets but was still reduced by $100 million since it was announced earlier this year, was priced on “the existing market conditions.”
The company’s regulated Monongahela Power subsidiary in West Virginia “continues to work through the regulatory process” to take ownership of the 1,300-MW Pleasants plant and expects approval from the West Virginia Public Service Commission and FERC by early 2018, Jones said. Allegheny expects to receive $350 million in net proceeds after paying off all its remaining long-term debt.