Dive Brief:

• FirstEnergy officials have not backed off a plan to sell its merchant generation and become a fully-regulated utility company in Ohio, officials said last week in an earnings conference call with analysts.
• The company reported first quarter 2017 GAAP earnings of $205 million on revenue of $3.6 billion, compared with 2016 Q1 GAAP earnings of $328 million on revenue of $3.9 billion. Among the factors impacting earnings were lower capacity revenues in the competitive business.
• Competitive subsidiary FirstEnergy Solutions has been flirting with bankruptcy, and last month a judge determined shutting down plants to comply with the Mercury and Air Toxic Standards rule would not let the company off the hook for railway transportation contracts it had signed.

Dive Insight:

It appears increasingly likely that FirstEnergy's competitive arm will file for bankruptcy, based on comments by CEO Charles Jones last week. The company has been fighting for the state to support its nuclear fleet, but officials pinned some hope on the Department of Energy's baseload power review, which could yield support for struggling plants. 

While there is a possibility state and federal regulators could develop policies to help the company, staving off bankruptcy would still appear a longshot.

"There is absolutely no change in the strategic direction that we want to take this company in. We do not want to be exposed to commodity-exposed generation any longer than we have to be," Jones said. 

Ohio lawmakers are currently considering subsidies to support nuclear facilities in the state, a proposal that could be worth about $300 million to FirstEnergy's two units, according to the CEO. 

"That amount in and of itself, I don't think is enough to necessarily avoid an FES bankruptcy either," said Jones. "It would be enough potentially for those assets to emerge from bankruptcy and for a reputable nuclear operator be willing to take them on and run them forward. And that is why the [subsidy] argument is most critical is to make sure those assets are available to the state of Ohio."

Last month the U.S. Department of Energy ordered a review of the U.S. electrical grid, aiming to ascertain whether policies to boost renewable energy are hastening the retirement of coal and nuclear plants and threatening power reliability. But while the review is targeting concrete policy recommendations, it is unclear what shape they may take and on what timeline.

"Let's just say nothing happens out of the DOE study, they say everything's fine, we're really not that concerned about these baseload assets closing anymore ... and then let's say Ohio decides they don't want to move forward. I would tell you it's pretty clear, there's only one other alternative left for the FES board to consider at least from the way I see it," said Jones.

In the railroad lawsuit, FirstEnergy agreed to pay $109 million by 2020, after it halted contracts for coal deliveries on the CSX and BNSF railroads, after deciding to close some coal plants to comply with the MATS rule.