By Tom Henry - Jan 25, 2018 updated 1:59 pm
OAK HARBOR, Ohio — A FirstEnergy Corp. executive confirmed Thursday what many people have feared for months: The utility’s Davis-Besse nuclear plant is headed for a premature closure.
The outlook for FirstEnergy’s coal-fired power plants and its other nuclear plants — its twin-reactor Beaver Valley nuclear plant west of Pittsburgh and its Perry nuclear plant east of Cleveland — is just as bleak, James Pearson, FirstEnergy’s chief financial officer, said.
While no date has been set for the permanent closure of Davis-Besse or other plants yet, Mr. Pearson said their days under FirstEnergy ownership have become numbered and they are “probably impossible to sell in today’s market,” especially in states such as Ohio and Pennsylvania that have deregulated electricity markets.
Both of those states embraced deregulation in 1996, a decade before a global fracking boom brought on by a revolutionary horizontal drilling technique resulted in record-low natural gas prices. That, along with growing investments in wind and solar power that dropped prices for the renewable energy sector, made nuclear and coal non-competitive.
“Those units cannot generate enough cash to cover costs,” Mr. Pearson said of FirstEnergy’s nuclear and coal-fired plants.
FirstEnergy is one of several utilities heavily invested in nuclear and coal that lobbied government officials on the state and federal levels for special consideration, claiming those industries have unique attributes.
Most efforts have been defeated, one of the biggest being a Federal Energy Regulatory Commission ruling earlier this month that denied Trump administration efforts to help out nuclear and coal-fired power plants.
Now, with an April 2 deadline looming for a $100 million debt principal payment, FirstEnergy has its back against a wall.
With combined debt estimated at $3.5 billion and losses mounting daily because of the budget drains from its nuclear and coal-fired plants, the utility has turned to a combination of hedge funds managed by four high-powered private investor groups to keep it viable.
The groups — New York-based Elliott Management Corp., Dallas-based Bluescape Resources Co., Singapore-based GIC Private Limited (formerly the Government of Singapore Investment Corp.), and New York-based Zimmer Partners LP — have agreed to invest $2.5 billion in FirstEnergy, but only if it cuts ties with its plants deemed non-competitive.
“They like the strategy of moving to a purely regulated [corporation],” Mr. Pearson said.
Exact details will take months to work out in court, as will details of how and when FirstEnergy Solutions will likely file for bankruptcy protection.
But Mr. Pearson said that whatever happens will almost assuredly mean the end of FirstEnergy Nuclear Operating Co., the division of the corporation in charge of Davis-Besse, Perry, and Beaver Valley, as well as the closure of the utility’s massive Sammis and Mansfield plants, and other coal-fired power plants.
“The longer we go down this path, the deeper we would get into debt,” he said.
Absent any last-minute relief from state or federal officials, the corporation cannot escape massive first-quarter losses through March 31, and will likely go into the April 2 meeting with a plan to start divesting itself of nuclear and coal.
Davis-Besse is beginning a monthlong refueling in early April, one that plant employees reportedly are of the belief will be the last under FirstEnergy ownership.
Mr. Pearson said that belief is “entirely accurate.”
A recent letter to shareholders states the utility’s new business model will be based around a focus on its most competitive assets, which does not include nuclear and coal.
Once refueled, Davis-Besse will have enough power in its reactor to last another two years. Nuclear plants refuel every 18 months to two years, based on the isotope of uranium in their fuel.
But Mr. Pearson confirmed there will be no more major improvements at Davis-Besse. He agreed the Nuclear Regulatory Commission will not allow plants to continue operation indefinitely without needed upgrades. The last major upgrade was the installment of two new steam generators in 2014 at a cost of $600 million.
The timing of the shutdown will be largely determined by what courts and creditors decide, a process that company executives want done in “an orderly fashion,” Mr. Pearson said.
The inevitability of the decision has been building since the fracking boom began a little more than seven years ago, he said.
The moves — when they happen — will likely signal the end of commercial-scale nuclear power generation in Ohio. FirstEnergy is one of several utilities operating coal-fired power plants in this part of the country.
Davis-Besse has been Ottawa County’s largest employer since the 1970s, with a current workforce of about 700 employees.
Perry and Beaver Valley, with similar-sized workforces, have likewise been major employers in their respective regions.
Davis-Besse came online in 1977 and is licensed to operate through April 22, 2037. The plant’s original 40-year license expired April 22, 2017. The NRC granted a 20-year extension in December, 2015.
In 2013, a Vermont Law School economic analyst, Mark Cooper, included Davis-Besse on a list of 12 U.S. nuclear plants he considered most at-risk for a premature closure.
Mr. Cooper cited financial pressures brought on by record-low natural gas prices, as well as rising costs of nuclear operations, repairs, and retrofits ordered by the NRC in the aftermath of the historic March, 2011 disaster at the Fukushima Daiichi complex in Japan.
FirstEnergy's initial response was to dismiss the report, which used Wall Street analyses by Moody’s, Credit Suisse, and UBS, as well as an analysis of past early retirements to identify risk factors.
Contact Tom Henry at thenry@theblade.com, 419-724-6079, or via Twitter @ecowriterohio.