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Federal agencies, unions object to FirstEnergy Solutions reorganization plan

Several federal government agencies, represented by the U.S. Department of Justice, continue to object to the reorganization plan proposed by bankrupt power provider FirstEnergy Solutions Corp.

FirstEnergy Solutions, or FES, on July 23 submitted its sixth amended plan of reorganization in the U.S. Bankruptcy Court for the Northern District of Ohio.

The United States in an Aug. 2 filing in federal bankruptcy court argued the plan "cannot be confirmed because it improperly enjoins the United States' claims against non-debtors through overly broad exculpations and improperly forces the United States into a non-consensual 'settlement.'"

"The exculpation provisions improperly release claims against entities and individuals who are not estate fiduciaries," U.S. attorneys wrote in the objection. The U.S. also argues that the latest reorganization plan does not define creditors "and thus could be interpreted to improperly force federal agencies that have not filed any claims against the estates into a 'settlement.'"

The federal government, as well as the bankruptcy court's U.S. Trustee, are among the entities that filed objections earlier this year to the first amended plan of reorganization filed by FES, its subsidiaries and FirstEnergy Nuclear Operating Co.

The U.S. Bankruptcy Court on April 4 rejected FES' reorganization plan on the grounds that it would have released legal parent FirstEnergy Corp. from any potential, future environmental claims tied to merchant coal and nuclear generation assets.

FirstEnergy and FirstEnergy Solutions, now a separately managed company, then reached a new agreement that would eliminate certain nonconsensual third-party releases from the reorganization plan and related disclosure statement.

The Federal Energy Regulatory Commission, among the federal agencies that objected to the first amended plan of reorganization, on Aug. 2 joined and adopted the new objections of the U.S. FERC's specific arguments are tied to power purchase agreements, regulatory obligations and restructuring transactions subject to the commission's jurisdiction.

"[T]he plan does not contain any statement that the debtors have obtained FERC approval for changes to any rates over which FERC has jurisdiction," the commission wrote.

FERC also asserts jurisdiction over FES' plan to reject certain sales contracts, including its agreement with the Ohio Valley Electric Corp., or OVEC.

U.S. Bankruptcy Judge Alan Koschik in August 2018 issued an order authorizing FES to reject its share of the multiparty power purchase agreement with the OVEC-operated Kyger Creek and Clifty Creek coal plants. FES has a 4.85% sponsoring company stake in the plants through bankrupt subsidiary FirstEnergy Generation LLC.

OVEC appealed the order and a preliminary injunction was granted in May 2018 to the U.S. Court of Appeals for the Sixth Circuit. OVEC in an Aug. 2 objection argued that any change to the inter-company power agreement, which is a wholesale power contract, constitutes a rate change and requires FERC's approval.

"Because the debtors have neither sought FERC's approval nor conditioned confirmation of the plan on FERC's approval, the debtors have not satisfied the requirements of section 1129(a)(6) [of the U.S. Bankruptcy Code] and this court cannot confirm the plan," OVEC wrote.

Ohio environmental groups object to the plan because "it fails to ensure that the debtors can meet their environmental remediation and nuclear decommissioning obligations" as the company shutters coal and nuclear plants.

FES in August 2018 disclosed plans to shut down more than 4,000 MW of coal and oil capacity in Ohio and Pennsylvania because of unfavorable market conditions. The company, however, said July 26 that it plans to rescind the deactivation notice for a 1,490-MW portion of its W.H. Sammis coal plant.

FES still plans to retire the 1,872-MW Beaver Valley nuclear plant in western Pennsylvania in 2021 after recently rescinding deactivation notices for its 908-MW Davis-Besse and 1,268-MW Perry nuclear power plants in Ohio.

The local branches of the Utility Workers Union of America and the International Brotherhood of Electrical Workers also object to confirmation of the plan based on the debtors' claim that they "cannot assume" the collective bargaining agreements, or CBAs, with each union and that they will "either negotiate different terms and conditions of employment for these union-represented employees, or will file motions to reject the CBAs and employee benefits."

"If the plan is approved, the court should hold that the CBAs have been assumed by operation of law. Without assumption of the CBAs, the plan should not be approved by the court," the unions wrote in their Aug. 2 objection.

The court has set an Aug. 20 confirmation hearing on the reorganization plan.