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FirstEnergy calls PJM results 'unsustainable' to support baseload generation

Despite the vast majority of its competitive generation capacity clearing the recent PJM Interconnection capacity auction, FirstEnergy Corp. is moving forward with plans to exit the merchant business.

FirstEnergy disclosed in a May 31 filing with the SEC that nearly 10,000 MW of unregulated generation, including all of its nuclear capacity, cleared PJM's 2020/2021 Base Residual Auction. The results, announced May 23, were disappointing overall. The 2020/2021 delivery year clearing price for capacity performance resources in all of PJM except for four constrained zones cleared at $76.53/MW-day, down 24% from a price of $100/MW-day in May 2016.

"FirstEnergy views these low clearing prices, coupled with low energy prices, as unsustainable to support vital coal and nuclear baseload generation in these regions," the company wrote in its Form 8-K filing.

Specifically, FirstEnergy revealed that competitive unit FirstEnergy Solutions Corp., or FES, cleared 7,037 MW of capacity with associated revenues of about $197 million in the most recent PJM auction. All but 18 MW of the capacity cleared in the ATSI and RTO zones at $76.53/MW-day. FirstEnergy noted that all of FES' nuclear units and a portion of all generation bid into the auction cleared as a capacity performance product, while about 600 MW of remaining capacity did not clear.

FES did not bid W.H. Sammis units 1-4 and the 136-MW Bay Shore unit into the auction because of their planned deactivations.

Allegheny Energy Supply Co. cleared 2,749 MW of capacity with associated revenues of about $76 million, primarily in the RTO zone, according to FirstEnergy. The company added that all but 7 MW cleared as a capacity performance product.

FirstEnergy spokesman Doug Colafella confirmed that the 1,300-MW Pleasants coal plant in West Virginia is part of the cleared capacity. FirstEnergy utility Monongahela Power Co. is seeking regulatory approval from the Public Service Commission of West Virginia and Federal Energy Regulatory Commission to acquire the Pleasants coal plant from AE Supply.

In addition, AE Supply in January entered into an agreement to sell 1,572-MW of natural gas and hydro assets to a subsidiary of LS Power Group affiliate LS Power Equity Partners III LP. The deal includes a nearly 24% interest in the 3,003-MW Bath County pumped storage hydroelectric plant in Virginia. If the deal is terminated for any reason, FirstEnergy said it will market the assets to other potential buyers.

FirstEnergy stands by its plans to exit the competitive business by mid-2018, which could include a bankruptcy or restructuring at FES. Guggenheim Securities LLC believes FirstEnergy could "move swiftly" with an FES sale given the low RTO results.

Nevertheless, the company continues to push for financial support for the competitive unit's at-risk nuclear generation whether at the state or federal level.

"I clearly believe we are making a mistake as a country if we continue to let these fuel secure assets close as rapidly as they are, both nuclear and fossil, and that's why the states are having to step up to solve this problem because the markets are not taking care of it," FirstEnergy President and CEO Charles Jones Jr. said on an earnings call in late April.