By Rich Heidorn Jr.

FERC voted 2-1 on Friday to approve FirstEnergy Solutions’ plan to emerge from bankruptcy by allowing investment funds to convert secured and unsecured bond claims into a 50% equity stake (EC19-123).

Avenue Capital Management will claim 15% and Nuveen Asset Management will acquire 35% of FES, FirstEnergy Corp.’s merchant unit, which will be spun off from its parent under a reorganization plan approved by the U.S. Bankruptcy Court for the Northern District of Ohio last year. (See FirstEnergy Reorganization OK’d After Labor Settlement.)

The deal was opposed by Commissioner Bernard McNamee, who said FERC’s action was “premature.”

FES owns about 7,200 MW of capacity, including the coal-fired W.H. Sammis Plant in Stratton, Ohio (2,210 MW) and Pleasants Power Station in Willow Island, W.Va. (1,300 MW). FES also owns three nuclear plants: Beaver Valley Power Station in Shippingport, Pa. (1,872 MW); Davis-Besse Nuclear Power Station in Oak Harbor, Ohio (908 MW); and Perry Nuclear Power Plant in Perry, Ohio (1,268 MW).

The company retired its three-unit coal-fired Bruce Mansfield Plant in Shippingport (2,490 MW) last year.

FES announced in November that it will change its name to Energy Harbor. The company, which will be headquartered in Akron, Ohio, will employ nearly 2,800 people. The company said its “substantial carbon-free power” will make the company competitive in a low-carbon future.

The company withdrew its retirement notices for Davis-Besse and Perry and a portion of the Sammis plant in July after Ohio lawmakers approved legislation subsidizing the plants. (See Ohio Supreme Court Dismisses FES Nuke Lawsuit.) It has not withdrawn plans to retire Beaver Valley in 2021.

No Harm to Competition

The commission concluded that the transaction, which does not include any transmission facilities, will have no impact on vertical competition. It also said the deal will not increase rates, create a regulatory gap, allow for cross-subsidies or harm horizontal competition.

“Overall, the proposed transaction decreases market concentration because debtor applicants will become unaffiliated with 3,825 MW of generation in PJM owned by other FirstEnergy affiliates and will gain an affiliation with only 1,233 MW,” the commission said. “Since the market presence of the larger entity (i.e., FirstEnergy) decreases as a result of the proposed transaction, while that of the smaller entities (i.e., Avenue, Nuveen and their respective affiliates) increases, the market becomes more evenly distributed as a result of the proposed transaction and overall market concentration as measured by [the Herfindahl-Hirschman Index] decreases.”

PPA Terminations

The commission said its approval did not address a dispute over FES’ bid to terminate power purchase agreements and its inter-company power agreement (ICPA) with the Ohio Valley Energy Corp. (OVEC), because the proposed rejection of the agreement is not a part of the proposed transaction and the commission’s review of it under Section 203 of the Federal Power Act.

OVEC owns two coal-fired plants: the 1.1-GW Kyger Creek in Cheshire, Ohio, and 1.3-GW Clifty Creek in Madison, Ind. FES has a 4.85% stake in OVEC, requiring it to pay about $30 million annually to cover OVEC’s losses. (See FES Bankruptcy Creating Additional Uncertainty.)

The commission said it will address whether the proposed rejection of the OVEC agreement is just and reasonable under the 6th U.S. Circuit Court of Appeals’ Dec. 12 ruling that remanded the issue of the rejection to the U.S. Bankruptcy Court in Ohio.

McNamee said the commission should have waited until it has “further guidance from the courts,” noting the reorganization is subject to two appeals pending before the 6th Circuit.

“The outcome of these appeals could affect the proposed transaction,” McNamee said. “Indeed, the restructuring support agreement provides, ‘if an adverse ruling in the PPA appeal proceeding occurs prior to the effective date, the debtors may be unable to comply with the terms of the plan term sheet, which provides that in no event shall either [the] reorganized FES or new FES assume the OVEC ICPA.’”

Purchasers’ Generation Assets

Nuveen, which provides investment management services, is a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), a life insurance company that owns 40% of a 683-MW gas-fired electric generator in Carroll County, Ohio. TIAA is affiliated with Catalina Solar Lessee, which operates a 100-MW solar facility in California, and Otay Landfill Gas, which owns qualifying facilities in California totaling 10.7 MW.

Avenue is a subsidiary of Avenue Capital Group, an investment firm that indirectly owns a portfolio of 2,740 MW of generation:

• CP Crane, a retired coal facility near Baltimore, that may be converted to 160-MW dual fuel peaking facility.
• Middle River Power II, which owns High Desert Power Project, an 852-MW natural gas-fired facility in San Bernardino County, Calif.; Big Sandy Peaker Plant, a 342-MW natural gas-fired generator in Kenova, W.Va., and Wolf Hills Energy, a 250-MW natural gas-fired plant in Bristol, Va.
• San Joaquin Energy, the owner of three generating facilities: Tracy, a 330-MW natural gas-fired combined cycle facility in Tracy, Calif.; Hanford, a 97-MW natural gas-fired facility in Hanford, Calif.; and Henrietta, a 96-MW natural gas-fired facility in Lemoore, Calif.
• Middle River Power IV, which owns a 60.5-MW gas-fired facility in San Diego; a 58.9-MW gas-fired facility in Escondido, Calif.; a 60.5-MW natural gas-fired facility in Vacaville, Calif.; and a 60.5-MW gas-fired facility in Firebaugh, Calif.
• Midway Peaking, which owns a 139.8-MW gas-fired facility in Fresno County, Calif., and Malaga Power, a 121-MW gas-fired facility in Fresno County, Calif.
• Coso Geothermal Power Holdings, which operates several geothermal plants on the Naval Air Weapons Station at China Lake in California.