This is a ‘test case’ for whether Trump is really serious about saving coal and nuclear plants

Source: By By Steven Mufson, Washington Post • Posted: Wednesday, April 4, 2018

This Monday Aug. 18, 2003 file photo shows the sun beginning to set behind FirstEnergy Corp. power plant in Eastlake, Ohio. . (AP Photo/Jamie-Andrea Yanak, File)

A broad array of critics are urging the Trump administration to ignore pleas to use its emergency powers for a bailout of nuclear and coal plants owned by a unit of the politically well-connected FirstEnergy.

FirstEnergy Solutions, a subsidiary of the FirstEnergy holding company, filed for bankruptcy last weekend and, warning of a “power crisis,” beseeched the Energy Department to invoke emergency powers to keep open four nuclear reactors and several coal plants in the name of grid reliability.

The utility comes to the issue well-armed with lobbyists with connections to Congress and the Energy Department. It has spent on average more than $2 million a year for the past seven years on lobbying. Its top lobbyist last year was Jeff Miller, who was campaign manager of Rick Perry’s presidential campaign.

But environmental groups, former regulators, rival utility executives and consumer groups have declared that there is no emergency and that tilting the scales in FirstEnergy Solutions’ direction would undermine the free market competition that has helped consumers keep low rates.

“It’s corporate welfare and it is not something we should tolerate because all it does is make consumers pay more for power plants that should go through belt tightening or leave the market,” Abraham Silverman, general counsel for the utility NRG, said in an interview.

“We have a set of rules,” Silverman added. “We all know what those rules are. We’re all playing by the same rules. If you start taking an individual company’s plants and say the rules of the market don’t apply to you, we start losing the competitiveness of markets.”

The bankruptcy filing is the latest cry for government assistance by FirstEnergy and one of its main suppliers of coal, Murray Energy.

“Trump seems to have a soft spot for coal and this will be a test case for whether Trump’s policies are having an effect on the coal industry and bringing it back,” Jack Tracy, head of legal analysis at Debtwire, a New York research firm, said.

FirstEnergy’s chief executive Charles E. Jones — who earned $13.9 million last year — met with President Trump in mid-2017 to ask for assistance to coal and nuclear plants. Earlier, in March 2017, Murray Energy’s chief executive Robert Murray had urged Energy Secretary Rick Perry to declare an emergency to help coal plants and mines.

Perry instead asked the independent Federal Energy Regulatory Commission to factor in resilience and reliability and subsidize coal and nuclear plants that had 90 days of fuel on site. FERC, whose new chairman Kevin McIntyre had FirstEnergy as a client at the firm Jones Day, rejected that request in January.

Now FirstEnergy Solutions is trying a new tactic, known as a 202(c) application, which asks the Energy Department to invoke an emergency and force the regional grid operator to pay nuclear and coal plants a guaranteed profit if they’re capable of storing 25 days worth of fuel on-site.

It has also threatened to close down four nuclear power units with more than 4 gigawatts of capacity.

The Energy Department said in an email that the application “is now under review.”

“We see the request to DOE as a last-ditch effort that is very unlikely to succeed,” said a note to investors by the advisory firm Height Securities.

“It’s not an emergency,” said Vince Duane, general counsel at PJM Interconnection, a regional transmission system that covers all or parts of 13 states and the District. “It’s a fair question to ask what may happen in three years,” he said but he added “We’re not expecting anything will happen as far as these plants’ performance in near or medium term.”

Regional transmission systems like PJM use the lowest cost power plants and keep costs low. They also plan ahead several years to make sure there is enough power supply. Duane noted that the FirstEnergy nuclear plants will continue to operate during bankruptcy, and beyond.

FirstEnergy appears to be trying to upset that planning and balance. It has said it will not participate in PJM’s next auction covering the years 2021-2022. Moody’s analyst Toby Shea, an expert on the PJM regional grid, said taking the nuclear units out of the auction could boost power costs sharply, indirectly benefiting coal plants in the region.

But Shea added that the nuclear plants are “uneconomic” and amount to only 2 percent of PJM’s capacity. The Beaver Valley unit needs to spend hundreds of millions of dollars replacing a steam generator, he said.

PJM’s Duane said the emergency provision weren’t designed for this kind of issue, but for very specific purposes, such as “continuance of a war” and only to “require by order temporary connections of facilities.” One example: it kept open the Alexandria coal-powered plant because of national security concerns about blackouts in the nation’s capital.

“This looks very much to us like a corporate decision,” Duane said. “We don’t see immediate reliability concerns. And we’re not expecting any long-term reliability concerns.”

FirstEnergy has repeatedly sought to obtain government help in the past, many analysts say. FirstEnergy is the product of a merger that took place in 1997. Like many utilities at the time, FirstEnergy sought to shrink its regulated business, where public utility commissions approved unspectacular but reliable returns. Instead, utilities rushed to take advantage of new competitive electricity markets. FirstEnergy put its merchant assets in a subsidiary FirstEnergy Solutions.

For a while, the companies made considerable amounts of money, but then market conditions changed. And FirstEnergy (and other utilities) rushed back to the protection of utility commissions. FirstEnergy has said it would exit competitive markets by the middle of this year.

FirstEnergy also took part in a huge misguided merger with Allegheny Energy in 2010that left it holding $3.8 billion in Allegheny debt and a fleet of coal plants just as natural gas prices began to plummet and put coal plants out of business.

Over the years, FirstEnergy has continued to try to take advantage of regulations and politics to bolster its fortunes. Dick Munson, director of Midwest energy for the Environmental Defense Fund, has said that in August 2014, FirstEnergy unsuccessfully sought $4 billion from the Ohio Public Utility Commission to underwrite power purchase agreements that would have allowed one FirstEnergy affiliate to buy expensive power from another FirstEnergy affiliate. FERC blocked the plan.

FirstEnergy later proposed $4.5 billion bailout in return for keeping its headquarters in Akron. And in 2016, it pressed the state of Ohio Public Utilities Commission to approve ratepayer subsidies to support its Sammis coal-fired power plant and Davis-Besse nuclear plant. The commission approved $131 million a year for three years, and insisted the headquarters stay in Akron.

The Akron-based utility also lobbied the state legislature and Gov. John Kasich (R) to set aside the state renewable portfolio standards. Kasich rejected the effort.

FirstEnergy’s latest effort to pry subsidies from the government isn’t likely to succeed, analysts say. If the Energy Department did issue an emergency order, it would likely be blocked in court.

But the FirstEnergy Solutions bankruptcy case leaves other issues in limbo. FirstEnergy Solutions includes 33 coal ash ponds and 15 landfills that require cleanup under federal regulations. The firm also has a $350 million shortfall in a trust fund set aside for decommissioning its nuclear reactors.

EDF’s Munson said that “as an environmentalist I fear that they will use bankruptcy to shed nuclear waste and coal ash clean up obligations and try to put those on the backs of ratepayers or taxpayers.”