It's a turning point for electricity markets when coal plants like Hatfield's Ferry, which was retrofitted with $800 million in upgrades a few years ago, are being taken offline.
"This is a really big announcement," said Julien Dumoulin-Smith, executive director of equity research, Electric Utilities & IPPs Group of UBS Securities, after FirstEnergy Corp. said Tuesday morning that it would shut down two southwestern Pennsylvania power plants within three months.
"This is not about the [Environmental Protection Agency]," he said. "This is primarily a reflection of where the market is."
And the market for power just isn't here.
FirstEnergy said the move to deactivate the 1,710 megawatt Hatfield's Ferry power station in Masontown, Greene County, and the 370 megawatt Mitchell plant in Courtney, Washington County, was the result of a combination of factors. One of which is the cost to comply with EPA's mercury and air toxics standards. Another is the cheap price of natural gas nudging coal generation to the side. And a big part of it is the lack of demand for electricity.
FirstEnergy's demand has been stagnant since 2007, said George Farah, the company's vice president of fossil engineering and construction. Last year, it announced that it would close nine coal-fired power plants.
"The economy in this region didn't seem to be recovering," he said.
It's only within the last couple of months that FirstEnergy began to seriously consider deactivating the two plants, in large part as a response to a recent capacity auction.
The auction -- organized by PJM Interconnection, a Valley Forge, Pa.-based grid operator -- is meant to secure electricity supply three years in advance. In May, FirstEnergy learned what would be needed in 2016. It turns out the Mitchell and Hatfield's Ferry plants are not needed.
Power companies offered much lower prices for generation during the most recent capacity auction. Utilities had a lot of generation to choose from, with new natural gas plants pitching in for retiring coal plants. And, on top of that, there was no growth in demand.
The results of the auction signaled neither an appetite for FirstEnergy's two southwestern Pennsylvania coal plants nor a sustainable electricity price to keep them going, Mr. Farah said.
"Power demand isn't growing; in fact it's shrinking," Mr. Dumoulin-Smith said. "There's just a lot of assets that don't make sense."
Nearly 10 gigawatts of coal-fired capacity were offered but did not clear the most recent PJM auction, he noted, predicting more coal plant retirements on the way.
Mr. Farah, however, said "we don't anticipate any more [deactivations] in the near future." But he admits he would have said the same thing just a few months ago.
A total of 380 employees will lose their jobs as a result of the closures. Of those, 183 are union members, some of whom have been transferred to Hatsfield's Ferry and Mitchell after the closure of FirstEnergy's Armstrong power plant last year.
FirstEnergy will work with the unions to place as many workers as it can, but Chuck Cookson, the company's executive director for labor relations and safety, cautioned that few spots are available.
"It's a difficult economic environment," he said, and with other FirstEnergy coal plants shutting down in the past year, there are few spots available to accommodate the impacted workers.
The news early Tuesday morning caught Bob Whalen, president of System Local 102 of the Utility Workers Union of America, off guard.
Mr. Whalen thought with the amount of capital the company pumped into upgrading Hatfield's Ferry, the plant would be viable for years.
"I'm still trying to piece this all together," he said.
Still more jobs could be on the chopping block, as FirstEnergy reviews its staffing levels over the course of the next month.
Within hours of the announcement, Pennsylvania politicians issued statements invoking the so-called War on Coal.
State Rep. Rick Saccone, R-Elizabeth, blamed the "radical environmentalists who are running an agency of government" for the loss of union jobs.
Rep. Tim Murphy, R-Upper St. Clair, said "the president is making good on his promise to 'bankrupt' anyone who operates a coal plant."
Rep. Bill Shuster, R-Blair, headlined his statement: "Obama's War on Coal Puts 380 Pennsylvanians out of Work."
FirstEnergy has estimated it will cost $925 million to comply with the EPA's mercury regulations, a figure that's now $275 million lighter as a result of Tuesday's announcement.
But regulatory compliance alone wouldn't have brought the company to the conclusion to close the plants.
Right now, the focus is on the EPA's mercury and air toxics rules, but new carbon dioxide regulations are a looming cloud over utilities.
"We don't know what to expect," Mr. Farah said. "We're talking about basically building a new energy plant in the back of [an existing] power plant."
For the near term, the point is moot since demand doesn't warrant any new generation. But should the trend reverse, "the technology we would most likely use is natural gas," Mr. Farah said.
But it's not the solution to the company's current problems, he added.
The company continues to evaluate converting its coal plants to burn natural gas -- Hatfield's Ferry would have been one of the first to convert. But conversion doesn't make financial sense now, Mr. Farah said. Natural gas prices would have to be 30 percent lower than they are today and would have to remain at that level for years to make the investment worthwhile, he said.
The utility made two attempts at conversion at a retiring coal plant in Eastlake, Ohio, but both fell through because of low electricity demand and lack of financing.
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Anya Litvak: email@example.com or 412-263-1455. First Published July 9, 2013 9:45 AM