Plagued by uneconomical coal plants, FirstEnergy posts $1.1B Q2 loss
- FirstEnergy on Friday reported a $1.1 billion second quarter loss, largely due to several uneconomic coal units and the costs the company will incur to shut them down, the Pittsburgh Post-Gazette reports.
- The loss includes pre-tax asset impairment and plant exit costs of $1.5 billion related to the planned deactivation of coal-fired W.H. Sammis Units 1-4, and Bay Shore Unit 1, fueled by petroleum coke.
- FirstEnergy has struggled to win support for the plants, and though state regulators signed off on income guarantees, the plan was ultimately blocked by the Federal Energy Regulatory Commission (FERC).
FirstEnergy's uneconomic coal plants have bedeviled the utility for years, ultimately leading to the decision to shut them down. The company's earnings report last week gives an indication of the financial drag they've been, and emphasizes the need to change its business model.
"We continue to make steady progress on our strategic initiatives, while positioning FirstEnergy for stable, predictable, and customer-service oriented growth," FirstEnergy CEO Charles Jones said in a statement. "At the same time, we have made difficult but necessary decisions to address the continuing impact of challenging market conditions on our competitive business."
In addition to the costs involved with shutting down the five uneconomic units, the company also recorded valuation allowances against state and local net operating loss carryforwards of $159 million.
On the retail side, FirstEnergy's distribution deliveries decreased 1.7% compared with the same period in 2015, and residential sales decreased 1.5%. Commercial sales decreased 0.6%, "primarily due to the use of more energy-efficient products." Deliveries to industrial customers decreased 2.7% "as continued growth in the shale gas sector was more than offset by lower usage from steel and coal mining activity."
Earnings declined In FirstEnergy's regulated transmission business, primarily due to increased net financing costs and lower transmission revenues. In the competitive energy services segment, the company said charges related to asset impairment and plant exit costs, as well as mark-to-market adjustments on commodity contract positions, "more than offset stronger commodity margin compared to the second quarter of 2015."
Ohio regulators approved eight-year power purchase agreements last year for several of FirstEnergy's plants, but FERC blocked the subsidies over concerns of anti-competitive behavior. The Sammis facility will continue to produce power, however, with Units 5-7 remaining in operation and generating almost 1,500 MW.
- Pittsburgh Post-Gazette Power plants weigh down FirstEnergy's earnings
Follow Robert Walton on Twitter