FirstEnergy Corp. has canceled the $1.5 billion sale of four predominantly coal-fired power plants (2,535 MW) located along Lake Erie in Ohio to NRG Energy in anticipation of a breach of the sale agreement by NRG. FirstEnergy notified NRG, which is struggling through a financial crisis due to credit downgrades, and its NRG Able Acquisition LLC affiliate on Thursday that the agreements have been canceled and that FirstEnergy has reserved its right to pursue legal action against the companies.

The deal, which was announced last November, appeared to be in trouble in mid-July when NRG, a unit of Minneapolis-based Xcel, said it disagreed with an order from federal regulators that it must inform both FirstEnergy and the city of Cleveland of any plan to take plants out of service (see Power Market Today, July 12). That stipulation was part of an earlier settlement between the city and FirstEnergy.

NRG sold a Mississippi power plant to engineering firm The Shaw Group earlier last week when it determined that it would be unable to make the next set of construction payments on the plant. Shaw bought the 1,200 MW LSP-Pike Energy LLC power project for $43 million, forgiving an additional $75 million in unpaid receivables. Shaw officials said they would either complete all or half of the power plant and sell it or sell off the turbines and other assets before construction (see related story).

NRG also canceled a large power plant purchase agreement earlier in the year with Conectiv when it became apparent that higher operating costs and lower spark spreads in the power market would make the deal less profitable to the company. Canceling the Conectiv deal also gave NRG much needed capital to maintain its existing business operations.

The company’s credit rating was downgraded to junk status last month by the top three credit rating agencies (see Power Market Today, July 31). The downgrade may require the company to post $975 million to $1.1 billion of collateral under a revolving construction line. Inability to tap capital markets might leave NRG short of cash to meet a collateral call and result in default. The companies are actively working to renegotiate the construction revolver, but must initiate asset sales to successfully complete the renegotiation.

FirstEnergy is a registered public utility holding company headquartered in Akron, OH. Its electric utility subsidiaries comprise the nation’s fourth largest investor-owned electric system, based on serving 4.3 million customers.

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