FIXING THE DAMAGE

With plants struggling, FirstEnergy sets up meeting with creditors

Pittsburgh Post-Gazette

FirstEnergy officials will meet with creditors of the company’s struggling competitive generation unit, FirstEnergy Solutions, which includes two power plants in Beaver County employing about 1,000 people.

The meeting with creditors, reported during an earnings call on Friday, is a development in the Akron, Ohio-based energy company’s plan to shed its power plants in competitive energy markets.

And the move is a sign that FirstEnergy is interested in negotiating a deal to restructure FirstEnergy Solutions and is considering a plan that could either be presented as part of a Chapter 11 bankruptcy filing or be used to avert bankruptcy.

“I think we always knew somewhere along the line this engagement with creditors was going to happen,” Chuck Jones, FirstEnergy’s president and chief executive officer, told investors and analysts.

Mr. Jones said the FirstEnergy Solutions management team recently got a call from a group representing about 80 percent of the creditors offering some proposals. The discussion was “intriguing enough” to schedule talks next week, he said, adding that a mutually agreeable deal is “clearly the preferred route if we end up in a bankruptcy.”

Mr. Jones declined to elaborate when analysts pushed for more detail on the discussions.

“We’re not going to negotiate with creditors in the public venue,” he said. “We just need to start those discussions and see them through to the end and see what comes out of them.”

FirstEnergy is shedding its competitive business as the Trump administration plans to release a study launched in April to determine if a wave of coal plant shutdowns in recent years has threatened reliability of the U.S. grid.

The study, which Mr. Jones expects “in the next couple of weeks,” is expected to encourage electric market reforms and could include higher payments for coal and nuclear power, both of which have struggled to compete with electricity from burning natural gas.

That’s particularly true for the two FirstEnergy plants in Beaver County. As of last year, the Bruce Mansfield coal-fired power station employed 296 workers and the Beaver Valley nuclear plant employed 744.

On Friday’s call, Mr. Jones said he had spent recent days in Washington, D.C., telling policy-makers that relying too heavily on natural gas for electricity is a national security and economic disaster waiting to happen.

The electric grid can’t be disrupted in the same way as natural gas pipelines, he said, and, if gas prices increase, “volatility in electric markets will be so great that I don’t think industry in our country will be able to tolerate it.”

Regardless of the study’s outcome, Mr. Jones said, FirstEnergy will push to exit competitive power generation by sometime next year. Any benefit or value from the federal study would fall to creditors or future owners of the power plants, he said.

FirstEnergy’s goal is to become a fully regulated company, focused on its electric transmission and distribution utility businesses. Its second-quarter earnings show why: The company reported profit of $174 million, or 39 cents a share, in the second quarter, as rising profits from transmission and distribution more than offset a loss in generation.

Excluding non-recurring costs, adjusted earnings per share were 61 cents, which is what analysts surveyed by Zack’s Investment Research expected.

That compared with a loss of $1.1 billion, or $2.56 a share, during the second quarter of 2016, when the company assessed a $1.5 billion asset impairment charge on its generation business.

The company saw earnings increase across its electric utility businesses, which include Greensburg-based West Penn Power, after hiking power rates in Ohio, Pennsylvania and New Jersey in January. Even though residential and commercial electric sales decreased because of milder weather, sales increased to industrial customers, driven by shale gas and steel operations, the company said in a press release.

FirstEnergy shares closed up 3 percent Friday, at about $32.15.