Utility wants to buy back stake in plant

| Friday, March 2, 2012

With market prices for electricity falling, FirstEnergy Corp. is looking at buying back a large stake in the Bruce Mansfield Plant in Shippingport that it sold 25 years ago and continues to operate under a lease agreement.

A series of unnamed outside investors have owned 700 megawatts -- about one-third -- of the plant's generating capacity since 1987, FirstEnergy spokeswoman Tricia Ingraham said on Thursday. An option to end the lease buyback deal is set to come up in 2016, but the Akron, Ohio-based company may make the move earlier, she said.

Bruce Mansfield, with 2,490 megawatts of generating capacity, is FirstEnergy's biggest coal-fired plant. FirstEnergy executives mentioned the potential buyback, along with upgrading other plants to make up for nine older coal-fired plants set to close by late summer, in a conference call this week.

"We think with the power prices down, it's the right time to purchase it," said Mark T. Clark, chief financial officer.

The deal could add 16 cents per share to earnings during the next few years, he said, responding to an analyst's question.

Pollution control equipment at the plant is designed to keep almost all of its particulate emissions and 92 percent of sulfur dioxide from boiler flue gases under control, the company said on its website. Complaints about "black rain" emissions from the plant along the Ohio River spurred fines and lawsuits a few years ago.

Power companies often sell pieces of their plants to raise capital while continuing to operate them, said Christopher R. Ellinghaus, principal and senior utility analyst at Williams Capital Group LP. FirstEnergy could be trying to buy back its stake at a far lower price than it sold for.

FirstEnergy also sold a 779-megawatt part of Bruce Mansfield in 2007 to American International Group Inc. and other investors for $1.3 billion, but AIG sold the asset two years later.

FirstEnergy also said yesterday that it's talking with grid operator PJM Interconnection LLC about transmission upgrades, and possibly keeping some plants on its closing list running a little longer, to ensure a reliable electricity supply.

This is part of a standard 90-day analysis of the plant closings that should conclude in late April, spokesman Mark Durbin said.

FirstEnergy said last month that it will close more than half of its coal-fired plants by Sept. 1 rather than upgrade them to meet new federal air pollution standards. The plants, including one in Armstrong County, represent about 14 percent of its generating capacity.

On Wednesday, Houston-based GenOn Energy Inc. followed suit, announcing closings of eight plants by spring 2015. The Elrama plant in Washington County will shut down in June. New Castle, Lawrence County, and Shawville, Clearfield County, plants will close in three years.

Also this week, Edison Mission Energy said it has failed to raise financing for $700 million in air pollution control upgrades at the EME Homer City plant it operates in Indiana County. The company said its ongoing talks with plant owners likely will result in Edison's no longer controlling the plant. General Electric Capital Corp. is the primary owner.

Mercury and Air Toxics Standards finalized by the Environmental Protection Agency in December would require massive investments in anti-pollution equipment for older coal-fired plants.

While he is not familiar with Homer City, "all large coal plants like that that need significant upgrades are going to have a significant amount of uncertainty for a while," Ellinghaus said.

"You are definitely going to see closures. You also will see more sales as people elect to get out rather than use significant amounts" of capital to overhaul plants, he said.

Glen Thomas, a former state Public Utility Commission chairman, said the flurry of activity this week could be tied to yesterday's deadline for power companies to notify PJM as to whether they will participate in a May auction to provide power supply for 2015.

"There are a lot of questions about what environmental regulations will look like in 2015," Thomas said, and meanwhile, low-priced natural gas is increasingly used for power generation.

Power plant consumption of natural gas increased 8.2 percent in December from a year earlier as the price of the fuel declined, a government report showed. Coal demand dropped.

Gas used in electricity generation rose to 639.1 billion cubic feet in December from 590.7 billion a year earlier, the Energy Department said in its Electric Monthly report. Consumption was up 13 percent from 567.7 billion in November. Demand for natural gas at power plants increased even as electricity consumption declined because of unseasonably warm weather, according to the report from the department's Energy Information Administration.

The use of coal to produce electricity fell 17 percent to 73.19 million tons in December from a year earlier, the EIA said.

With the GenOn plant closings and more shutdowns announced in other regions, "it's been a messy week, that's for sure," said Thomas, now president of energy consulting firm GT Power Group of King of Prussia.

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