Table 1: FirstEnergy / Allegheny Energy Electricity Generationi

This case study on FirstEnergy accompanies "White Paper: Financial Risks of Investments in Coal."

FirstEnergy faces significant risks due to its reliance on coal. Investors owning $4.4 billion of FirstEnergy's capital want the company to disclose how it will mitigate its coal risk and voted in favor of the shareholder proposal on the financial risks of coal at the 2011 Annual General Meeting.

FirstEnergy serves over 6 million customers in Ohio, Pennsylvania, New Jersey, West Virginia, and Maryland. It is the 5th largest consumer of coal in the US, even though it ranked 13th for total power generation. The merger with Allegheny Energy doubled the company's generation capacity from coal and more than doubled the number of coal plants from nine to 20 [Table 1].

Of the 20 coal plants in the combined FE-Allegheny fleet, 13 first went online before 1960. Not one generating unit in the combined fleet was built after 1980 [Tables 2 &3].

Table 2: FirstEnergy Unit Age and Size

Table 3: Allegheny Energy Unit Age and Size

Only eight of the 20 plants are equipped with modern pollution control technologies for SO2 or NOx [Tables 4 & 5]. Analysts have shown that old, small, uncontrolled plants are uneconomical and should be retired.

Capital expenditures for compliance at only five of FirstEnergy's plants are projected at $399 million for 2010-12. Even after these upgrades are complete, the majority of the fleet will not have control equipment installed.

Table 4: FirstEnergy Emissions from Coal

Table 5: Allegeny Energy Emissions from Coal

FirstEnergy has:

FirstEnergy produces over two million tons of coal ash annually. Neither FE nor Allegheny report what percentage of their ash is wet-handled and stored in ponds. The Bruce Mansfield ash pond, with capacity of 84,300 acre-feet, has a 'high risk' classification from the EPA. Allegheny's Pleasants and R Paul Smith stations have high and significant risk rating respectively. All of these ponds date from the 1970s or earlier.iii

Table 6: FirstEnergy / Allegheny Energy Coal Source iv

FirstEnergy's coal comes from Central Appalachia (CAPP) and from the Powder River Basin (PRB). Between December 2009 and December 2010, prices for CAPP coal rose 31% and for PRB coal prices rose 59.5%. Allegheny also sources coal from the Illinois Basin (ILB) [Table 6]. During that time, prices for ILB coal rose 19.4%.

In response to the slow economy and changing economics for coal, FirstEnergy announced it was reducing generation at four of its smaller coal-fired plants beginning in September 2010. Allegheny Energy's merchant fleet also generated approximately 25% less power in 2008 and 2009 "because of the increased amount of time during which it is not economical to run its generating units."v

Even with these announcements, two-thirds of FirstEnergy's growth strategy is tied to coal.vi The Company's capital plan includes nine new coal plant proposals.

FirstEnergy operates in regions where construction costs are rising exponentially. The WH Sammis retrofit, originally estimated to cost $1.1 billion, has cost FirstEnergy $1.8 billion as of the end of 2010, making it one of the largest such projects in the US. The cost of another project in the region—AMP-Ohio's proposed 960 MW coal-fired power plant project—nearly doubled in two years.iiv

Footnotes
i. FirstEnergy, "2010 Form 10-K," U.S. Securities and Exchange Commission, p. 2, 40.
ii. EGrid 2007 data, Sierra Club coal database.
iii. U.S. Environmental Protection Agency, "Information Request Responses from Electric Utilities," updated 23 November 2010, available here.
iv. Calculated using the 2010 Energy Information Agency 923 dataset http://eia.doe.gov/cneaf/electricity/page/eia906_920.html.
v. Allegheny Energy, "2009 Form 10-K," p. 69.
iv. FirstEnergy, Akron Investor Visit, August 2010, available here.
iv. D. Schlissel, A. Smith, and R. Wilson, "Coal-Fired Power Plant Construction Costs," Synapse Energy Economics, July 2008, p. 2, accessed 26 April 2011, available at: http://www.synapse-energy.com/Downloads/SynapsePaper.2008-07.0.Coal-Plant-Construction-Costs.A0021.pdf.