Among last week’s bankruptcies, there was another U.S. energy bankruptcy, but this one has more far-reaching implications than the ones that have come before. It is FirstEnergy’s coal and nuclear operations that are bankrupt. This is not surprising in itself. It has been ten years since coal and nuclear plants were cost-competitive on the U.S. grid. The most alarming thing about the FirstEnergy bankruptcy is the company’s request for an emergency subsidy from the U.S. Department of Energy. That request should be ignored. The Department of Energy has said in the past that the emergency subsidy provisions in federal law are meant for use to stabilize the grid following a regional disaster such as a hurricane or earthquake, and not as a routine way to compensate for investment mistakes. The request provides insight into the company’s intentions, though, which are to shift costs onto the public as much as the law will allow.
FirstEnergy investors lost billions of dollars buying archaic power plants that will ultimately be shut down at additional expense. It is better if those shutdowns do not happen all at once this year, but more gradually and at a more economically opportune time, but the shutdown nevertheless looms over the bankruptcy process. This appears to be a strategic bankruptcy intended to save investors the decommissioning costs of the nearly obsolete coal and nuclear plants. The cleanup has to happen to protect the public even if the investors and owners are unwilling or unable to pay for it. With the bankruptcy, most of the costs will be paid for by the public.
Coal and nuclear bankruptcies are likely to turn into a financial mess on a national scale within ten years. Absent an unexpected series of technological breakthroughs that make existing coal and nuclear plants less expensive to operate, all but a few of the best-designed coal and nuclear plants will be operating at a loss by 2027. The FirstEnergy bankruptcy case will set precedents around the question of how much of the costs of cleanup can be shifted to the public. Investors, obviously, would prefer to raid these utlities for as much money as they can and then pass the bulk of the decommissioning costs along to someone else. Unfortunately, it doesn’t appear that there is much that can be done under current law to stop this severely dysfunctional form of vulture capitalism.
