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FirstEnergy Solutions to retain retail assets under amended reorganization plan

FirstEnergy Solutions Corp. has submitted an amended plan of reorganization that would allow the company to emerge from bankruptcy as a new legal entity owning retail assets and liabilities, while also creating a new holding company as the "ultimate corporate parent" of the reorganized debtors.

FirstEnergy Solutions, or FES, submitted the first amended joint plan of reorganization on March 9 in the U.S. Bankruptcy Court in the Northern District of Ohio. The plan covers the reorganization of FES, FirstEnergy Nuclear Operating Co., or FENOC, FirstEnergy Nuclear Generation LLC, FirstEnergy Generation LLC and FirstEnergy Generation Mansfield Unit 1 Corp., as well as the dissolution of FE Aircraft Leasing Corp.

FES, its subsidiaries and FENOC in March 2018 filed for Chapter 11 bankruptcy protection.

As of Dec. 31, 2018, FES reported total assets of about $6.1 billion and FENOC reported total assets of about $1.1 billion, the companies said in a March 9 disclosure statement. FES, FirstEnergy Generation and FirstEnergy Nuclear Generation have funded indebtedness of about $3.6 billion.

Holders of claims against the debtors have been asked to vote in favor of the amended reorganization plan, which is set for a May 6 confirmation hearing.

The plan incorporates a restructuring support agreement, or RSA, reached with key creditor groups holding claims against the company and FENOC.

In its disclosure statement, FES said the parties to the restructuring agreement "have agreed to vote their claims to accept the plan."

"As a result, the plan has the support of the vast majority of the debtors' creditors holding almost $3 billion of claims across the debtors' capital structure," FES wrote.

The RSA and amended reorganization plan also incorporate the implementation of a global plan settlement, which includes the court-approved agreement with FirstEnergy Corp.

FES, in its disclosure statement, said the debtors will be fully separated from FirstEnergy on the effective date of the reorganization plan. On this date, FES will transfer all of the assets and liabilities tied to the retail business to the reorganized legal entity, or New FES, and all other assets and liabilities to New FES, New Holdco or some combination thereof.

The new holding company will issue new common stock to help satisfy claims against the debtors, while such securities will "not be listed for public trading on any securities exchange."

Opposition lines up

Several federal government agencies, including the bankruptcy court's U.S. Trustee, have filed objections to the plan. Ohio environmental groups and unions, the state's consumer advocate and the Sierra Club also filed objections to the reorganization plan and disclosure statement.

The U.S. Trustee raised concerns with the lack of detail around a management incentive plan and the "broad releases" of claims outlined in the amended reorganization plan.

"[T]he disclosure fails to explain in a clear and succinct manner that releases are being imposed on each holder of a claim or interest and what support is found in the Bankruptcy Code and elsewhere for the broad third-party release provisions," the trustee wrote.

The U.S. Securities and Exchange Commission said the disclosure statement "lacks adequate information" and questions the releases of claims that "does not provide an opportunity for creditors subject to these provisions to affirmatively consent to such releases."

The Federal Energy Regulatory Commission argues the plan is "patently unconfirmable."

"Fundamentally, the plan cannot be confirmed because its non-debtor releases and injunctions exceed the jurisdictional reach of this court," FERC wrote, noting the U.S. Court of Appeals for the Sixth Circuit has not yet ruled on the jurisdictional dispute over FES' power purchase agreement with two Ohio coal plants.

Environmental groups and Ohio's consumer advocate filed objections based on "inaccurate, misleading, and incomplete information about the companies' nuclear decommissioning and environmental remediation obligations."

FES has disclosed plans to shut down more than 4,000 MW of coal and oil capacity in Ohio and Pennsylvania because of unfavorable market conditions. In addition, FES in late March 2018 notified PJM Interconnection of its plan to retire the 908-MW Davis-Besse nuclear plant in northwestern Ohio in 2020, followed by the 1,268-MW Perry nuclear plant in northeastern Ohio and the 1,872-MW Beaver Valley nuclear plant in western Pennsylvania in 2021.

"If the power plant decommissioning costs are not being sufficiently funded under the FirstEnergy debtors' plan, then OCC is concerned — and the court should be concerned — that there may later be an effort to make Ohioans pay for these power plant decommissioning costs," the Office of the Ohio Consumers' Counsel, or OCC, wrote in its March 12 objection.