Coal Finance Case Study: FirstEnergy's Failed Bet on Coal Power
As part of RAN's work to call on banks to commit to the Paris Pledge and end financing for coal and coal-fired power prior to the Paris climate summit this year, we are highlighting case studies of destructive coal projects and failed investments in coal infrastructure around the world. This case study, authored by Mark Kresowik of the Sierra Club highlights FirstEnergy’s financial struggles associated with a failed bet on coal-fired power. FirstEnergy’s coal plants continue to be a huge financial burden, with the company now asking Ohio regulators to allow it to dump the cost of operating the company’s uneconomic power plants on its customers.
In 2014, Tony Alexander, FirstEnergy's CEO stood up before the U.S. Chamber of Commerce to defend coal and deride energy efficiency, wind, solar, demand response, and virtually any other form of clean energy innovation taking place in the U.S. electric sector. In 2011, Mr. Alexander had made a big bet on merchant coal plants, acquiring Allegheny Energy Supply and touting its benefits: “The merger more than doubles our highly efficient, supercritical coal capacity.” As dozens of FirstEnergy’s coal units failed to compete against cleaner and cheaper options, the company refused to take advantage of opportunities to invest in energy efficiency, wind, and solar power. FirstEnergy's stock price dropped starting in 2012, with the company posting the worst total return performance relative to more than 31 comparable utilities. Today Mr. Alexander is no longer the CEO.
Banks and investors should keep FirstEnergy in mind when evaluating other coal-heavy independent power producers such as NRG, Dynegy, and PPL/Riverstone’s spinoff, Talen. NRG most recently acquired GenOn and Midwest Generation, both of which have large fleets of aging coal assets. Dynegy closed a deal with Duke and Energy Capital Partners to pick up merchant coal generation and Talen will own several outdated plants, including Pennsylvania's Brunner Island. All three of these independent power producers have different explanations for why buying up coal plants that few other companies wanted was a smart bet, and why they can extract more value out of them than the last owner. But anyone considering the creditworthiness of these companies should ask tough questions about why the future will play out differently for them than it did for FirstEnergy and why, on the eve of the first nationwide U.S. limits on carbon pollution from power plants, they are doubling down on coal.