FERC Approves Spinoff Of FirstEnergy Solutions Contemplated By Bankruptcy Reorganization Plan

February 14, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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FERC has approved certain transactions to execute a spinoff of FirstEnergy Solutions (FES), and related competitive companies, to FES's creditors, as part of FES's bankruptcy reorganization plan

As previously reported, FirstEnergy Corp. would no longer own or be affiliated with FES upon close of the transactions

Under the transactions, funds and investment accounts managed by Nuveen Asset Management, LLC will acquire an approximately 35 percent indirect equity interest in the FES Debtor Applicants, and funds and investment accounts managed by Avenue Capital Management II, L.P. will acquire an approximately 15 percent indirect equity interest in the FES Debtor Applicants

As previously reported by EnergyChoiceMatters.com, the spun-off FirstEnergy Solutions Corp. will retain its retail electric supplier business, and previously announced that, upon its successful emergence from restructuring, it will change its corporate name to Energy Harbor.

FERC stressed that its approval of the transaction solely related to its section 203 (merger) review, and does not address issues related to PPAs, or FERC's jurisdiction thereunder, that have arisen in the FES bankruptcy case

"We note that the Proposed Transaction is part of larger Reorganization Plan filed in the Bankruptcy Court, and certain parties to this proceeding request that the Commission consider the broader impact of that Reorganization Plan, particularly FES’s proposed rejection of certain Commission-jurisdictional power purchase agreements (Jurisdictional PPAs), as part of our section 203 review. As explained below, our review under section 203 is focused on the Proposed Transaction itself, and we address only the specific issues considered under our section 203 public interest review," FERC said

"We emphasize that our section 203 public interest review is distinct from our public interest review under FPA section 206, in which that concept arises in the context of the Mobile-Sierra doctrine as a means of ensuring just and reasonable rates. The Commission has not yet addressed FES’s proposed rejection of the Jurisdictional PPAs, as contemplated by the recent decision by the United States Court of Appeals for the Sixth Circuit (Sixth Circuit)," FERC said

"Therefore, the Commission’s approval of the Proposed Transaction does not constitute any finding regarding any aspect of the Reorganization Plan and the Restructuring Support Agreement (RSA), and should not be read as an endorsement of any position in any related proceedings, including in any proceeding in which the Commission is a party. Finally, our approval here is without prejudice to the Commission continuing to pursue its concurrent jurisdiction position in subsequent litigation concerning FES’s bankruptcy, or in other bankruptcy-related proceedings," FERC said

Commissioner Bernard McNamee dissented, stating that approval is premature given certain outstanding issues related to FERC jurisdiction in the bankruptcy case

"The proposed transaction is part of a larger Reorganization Plan filed by the Debtor Applicants in the Bankruptcy Court in the Northern District of Ohio, and subject to two pending appeals in the United States Court of Appeals for the Sixth Circuit. The first appeal raises questions related to the rejection of certain wholesale power contracts, including an agreement with Ohio Valley Electric Corporation (OVEC), and the Commission’s jurisdiction over the rejection of those contracts. The second appeal raises questions about the Commission’s jurisdiction to address rate changes provided for in the Reorganization Plan," McNamee wrote

"The outcome of these appeals could affect the proposed transaction. Indeed, the Restructuring Support Agreement provides, '[i]f an adverse ruling in the PPA Appeal Proceeding occurs prior to the Effective Date, the Debtors may be unable to comply with the terms of the Plan Term Sheet, which provides that in no event shall either Reorganized FES or New FES assume the OVEC ICPA,'" McNamee wrote

"In my opinion, the Commission should wait until it has received the benefit of further guidance from the courts," McNamee wrote

Docket No. EC19-123

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