The Trump administration, particularly Energy Secretary Rick Perry, suffered a major setback last month when the Federal Energy Regulatory Commission (FERC) rejected Perry’s proposal to pay coal plant operators for their “resilience,” that is, their ability to generate electricity to meet unforeseen demands.
Now some administration officials are proposing that Perry use his authority under Section 202 of the Federal Power Act to order certain plants to remain online if he determines that the plant is needed to “serve the public interest” in an emergency. Among the potential beneficiaries of such an order would be FirstEnergy Corp. (NYSE: FE), which is currently moving to rid itself of its unprofitable merchant power business and become a fully regulated utility.
A U.S. Department of Energy spokeswoman, when asked by Bloomberg News to confirm the talks, said “that is not correct information.” One of Bloomberg’s sources noted that FirstEnergy has not formally requested that Perry issue such an order.
Last month FirstEnergy lost a FERC case when the agency refused to accept the company’s plan to transfer its Pleasants merchant power plant in West Virginia to the company’s regulated business. The West Virginia public services commission accepted the plan that would have kept the Pleasants plant open as a regulated utility but placed conditions on the transfer that would have forced FirstEnergy to accept some of the financial risk.
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On Monday, FirstEnergy said it would not request a rehearing of the FERC decision and that it would not accept the conditions of the West Virginia commission’s order that would result in the company “assuming exposure and significant commodity risk, which is inconsistent with FirstEnergy’s announced corporate strategy.”
Had the Pleasants plant — which has a nameplate capacity of 1,300 megawatts — been sold to FirstEnergy’s regulated business, the plant would have been guaranteed a rate of return of around 10%. If Secretary Perry puts his thumb on the scale, then FirstEnergy gets what it wanted and customers get stuck with the bill, just like the company planned all along.
Activist investor Paul Singer and Elliott Management together with two other firms made an equity investment of $2.5 billion on FirstEnergy in late January that the company will use to reduce debt and make a contribution to its pension plan.
FirstEnergy stock traded up about 0.8% just after Friday’s opening bell, at $30.87 in a 52-week range of $27.93 to $35.22. The 12-month consensus price target on the stock is $36.25.
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