U.S. weekly jobless claims hit one-year low; fourth-quarter GDP revised up

By Lucia Mutikani

WASHINGTON (Reuters) -The number of Americans filing new claims for unemployment benefits dropped to a one-year low last week as economic activity rebounds after weather-related disruptions in February.

But the labor market is not out of the woods yet, with the weekly jobless claims report from the Labor Department on Thursday showing a staggering 18.953 million people were still receiving unemployment checks in early March. It will likely take years for a full recovery from the pandemic’s scarring.

“Things have improved over the last year, but there are still millions of people dealing with real economic pain,” said AnnElizabeth Konkel, economist at Indeed Hiring Lab. “Increased vaccinations are hopefully the beginning of the end.”

Initial claims for state unemployment benefits tumbled 97,000 to a seasonally adjusted 684,000 for the week ended March 20, the lowest level since mid-March. Data for the prior week was revised to show 11,000 more applications received than previously reported.

Economists polled by Reuters had forecast 730,000 applications in the latest week. The decline in claims was led by Ohio, which has been dogged by fraudulent filings. There were also large decreases in California and Illinois.

Claims shot up in the second week of March, likely as backlogs after severe winter storms in Texas and other parts of the densely populated South region were processed.

The deep freeze in the second half of February, which also gripped other parts of the country, depressed retail sales, homebuilding, production at factories, orders and shipments of manufactured goods last month.

Warmer weather, the White House’s $1.9 trillion COVID-19 pandemic rescue package and increased vaccinations are expected to boost activity in March. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell struck an optimistic note on the economy at an appearance before lawmakers this week.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.


But the massive fiscal stimulus, which extended government-funded unemployment aid, including a $300 weekly supplement, through Sept. 6, could keep claims elevated as some people reapply for benefits. Rampant fraud has also pushed filings higher. Claims surged to a record 6.867 million in March 2020.

Just over a year after the pandemic barreled across the United States, jobless claims remain above their 665,000 peak during the 2007-09 Great Recession. In a healthy labor market, claims are normally in a 200,000 to 250,000 range.

Employment is 9.5 million jobs below its peak in February 2020. Economists say it could take at least two years for the economy to recover all the 22.4 million jobs lost in March and April last year.

It could even take longer for the labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, to rebound significantly. The participation rate is near a 47-year low, with women accounting for the biggest share of dropouts.

The claims report also showed that people receiving benefits after an initial week of aid dropped 264,000 to 3.870 million in the week ended March 13. But the decline in the so-called continuing claims was partly due to people exhausting their eligibility for benefits, limited to 26 weeks in most states.

At least 5.551 million people were on extended benefits during the week ended March 6, up 734,692 from the prior period. Another 1.068 million were on a state program for those who have exhausted their initial six months of aid.

The government also confirmed on Thursday that the economy lost considerable momentum at the end of last year amid a flare- up in new coronavirus infections and delays in providing more fiscal stimulus.

Gross domestic product increased at a 4.3% annualized rate, the Commerce Department said in its third estimate of fourth-quarter GDP growth. That was up from the 4.1% pace reported last month but a sharp deceleration from the record 33.4% rate logged in the third quarter.

Corporate profits were weak last quarter. After-tax profits without inventory valuation and capital consumption adjustment, which correspond to S&P 500 profits, contracted at a 1.7% rate after accelerating at a 36.1% pace in the third quarter. Profits fell 3.3% in 2020 after rising 1.8% in 2019.

But that is all history. The economy is forecast to grow by as much as a 7.5% rate in the first quarter. Growth this year is expected to top 7%. That would be the fastest growth since 1984 and would follow a 3.5% contraction last year, the worst performance in 74 years.

“We believe there is ample room for corporate profits to rise as company revenues pick up markedly and margins remain well supported,” said Lydia Boussour, lead U.S. economist at Oxford Economics in New York. “Improving health conditions, expanding vaccine distribution, and generous fiscal stimulus will form a powerful growth cocktail.”

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

Texas lawmakers prepare bill to cut $5.1 billion in winter storm power fees

(Reuters) – Texas lawmakers on Monday were preparing legislation to cut about $5.1 billion in disputed electricity and services fees levied on power marketers during a winter freeze that sent the state’s power market into financial crisis.

The cold snap last month spurred a power crisis that pushed the state’s weekly electricity costs by nearly 10 times the usual to about $47 billion. Those costs led at least two bankruptcies and a sparked a battle between lawmakers and the state’s power regulator over the handling of the crisis and resulting prices.

Governor Greg Abbott on Monday submitted an emergency proposal authorizing legislators to address billing errors and service fees that led to a heated battle between lawmakers and the state’s power regulator over who can rescind the charges.

Lawmakers were moving to consider as early as Monday a bill cutting about $3.2 billion in power charges and services fees that state’s market adviser last week testified were improperly levied and should be corrected.

Arthur D’Andrea, the head of the state’s Public Utility Commission (PUC), rejected any change and advised lawmakers they could do it at the risk of a legal backlash. His refusal during a hearing last week to rescind prices sparked a heated comments between senators and the PUC chief.

One state senator, Charles Schwertner, ended his remarks by telling D’Andrea, who was appointed to the commission by Abbott: “My faith in you as chairman is severely, severely lacking.”

(Reporting by Gary McWilliams; Editing by Nick Zieminski and Marguerita Choy)

Oil steady near $70/bbl on hopes of recovering demand

By Laura Sanicola

NEW YORK (Reuters) – Oil hovered near $70 a barrel on Friday, supported by production cuts by major oil producers and optimism about a demand recovery in the second half of the year.

Benchmark Brent fell 22 cents, or 0.3%, to $69.41 a barrel by 1:25 p.m. EST (1825 GMT) while U.S. West Texas Intermediate crude was at $65.85 a barrel, fell 17 cents, or 0.3%.

Brent is on track to end the week flat after prices touched a 13-month high on Monday, following seven straight weeks of gains.

“Demand for risky assets such as oil continues to be buoyed by the White House relief package and an almost daily flow of optimistic vaccine headlines,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

The Organization of the Petroleum Exporting Countries forecast a stronger oil demand recovery this year, weighted to the second half. OPEC, Russia and its allies decided last week to maintain its output curbs almost unchanged.

U.S. drillers are also holding back, cutting the number of oil and natural gas rigs operating for the first time since November, according to data from energy services firm Baker Hughes Co.

“The stronger-than-expected rebound in the second half of this year implies that the global economy and hence oil demand outlook is close to shaking off its COVID woes,” PVM analysts said.

RBC Capital analysts said the fundamentals for summer gasoline was the most bullish in nearly a decade.

The United States, world’s largest oil consumer, saw a big draw on U.S. gasoline stocks last week as the winter storm in Texas disrupted refining output.

Sustained higher oil prices are expected to encourage U.S. producers to increase output, which could eventually weigh on prices, JPMorgan analysts wrote.

JPMorgan expects U.S. oil output to average 11.36 million barrels per day this year compared with 11.32 million bpd in 2020.

Earlier this week, the government revised down 2021’s decline expected in U.S. crude production. Output is seen falling 160,000 bpd to 11.15 million bpd, a smaller decrease than its previous monthly forecast for a 290,000-bpd drop.

(Additional reporting by Shadia Nasalla, Florence Tan; Editing by Marguerita Choy and David Gregorio)

Texas utility sues power grid ERCOT over ‘excessive’ cold snap charges

By Gary McWilliams

(Reuters) – The largest city-owned utility in Texas on Friday sued the state’s grid operator alleging it levied “excessive” power prices during a February deep freeze, and seeking to bar the grid from issuing a default that could affect its credit rating.

High prices for emergency fuel and power during a severe cold spell left Texas utilities facing about $47 billion in one-time costs. Those costs have led to two bankruptcies and knocked two other electric providers off the state’s power grid because of payment defaults.

San Antonio’s municipal utility, CPS Energy, faces about $1 billion in extraordinary charges for natural gas and electricity during a five day deep freeze last month. CPS Energy has about 820,000 electricity customers.

“We are fighting to protect our customers from the financial impacts of the systemic failure of the state’s grid operator,” said Paula Gold-Williams, chief executive of the city-owned utility.

The lawsuit, filed in a Bexar County court, alleges grid operator Electric Reliability Council of Texas (ERCOT) mismanaged the cold weather crisis, and overcharged for power. It asked the court to prevent ERCOT from declaring it in default and to prevent ERCOT from charging CPS Energy for other grid defaults.

An ERCOT spokeswoman did not immediately reply to a request for comment. Nearly $3.1 billion in power charges to grid users have not been paid so far, ERCOT said on Thursday.

ERCOT officials hiked power prices by about 400 times the usual rate to $9,000 per megawatt for five days last month in a vain effort to bring in more power. State officials this week called on ERCOT and the utility regulator to cut those charges for high-price power for the 32-hour period after the grid emergency passed.

CPS Energy’s lawsuit called ERCOT’s handling of the crisis “one of the largest illegal wealth transfers in the history of Texas.” It brought the complaint “to protect its customers from excessive and illegitimate power and natural gas costs,” according to the lawsuit.

Credit rating firms have warned CPS and other Texas municipal and rural cooperative power provider could have their ratings lowered. The state’s largest and old cooperative, Brazos Electric Power Cooperative Inc, filed for bankruptcy earlier this month owing $1.8 billion to ERCOT.

(Reporting by Gary McWilliams; Editing by Marguerita Choy)

Texas regulator warns lawmakers against rollback in storm power prices

(Reuters) – The head of Texas’s power regulator told lawmakers on Thursday that any effort to retroactively reduce the power prices levied during a recent storm would lead to lawsuits that the state could lose.

The state’s power grid operator raised power prices sharply during a February freeze that pushed two power companies into bankruptcy. Others have warned of potential bankruptcies. Top officials this week called on the Public Utility Commission (PUC) of Texas to immediately reduce about $16 billion in power prices.

Any repricing would trigger lawsuits that the commission would lose, PUC Chairman Arthur D’Andrea bluntly told lawmakers at a hearing in Austin. Commodity contracts used to hedge power have closed and any repricing “will have consequences” for the state’s power, agriculture and other markets, he said.

“If I do it, I get sued and lose right away,” he told a state committee. The legislature could attempt to change the pricing by passing a bill, but it also would face lawsuits and could lose, he added.

The state independent market adviser has recommended a pricing of the final 32 hours of the five-day emergency and called for some service fees to be cut, citing grid rules. Emergency charges amounted to $16 billion for power and about $1.5 billion for service fees tied to the power price.

The state’s governor, lieutenant governor and 28 of 32 state senators this week also called on the PUC and grid operator to “correct” the final 32 hours of power pricing, citing the recommendation and impact on utilities.

“These corrections are squarely within your authority, whether by your own action or an order to ERCOT,” the senators told D’Andrea in a letter on Tuesday, referring to the state grid operator by its acronym.

“I disagree” with the senators’ call, D’Andrea said. He has continually ruled out a power price rollback, arguing “it is impossible to unscramble” insisting the decision to raise prices during the cold snap was known to all grid users.

D’Andrea pushed back against the market monitor’s estimate of the power overcharges, telling lawmakers the amount was much smaller, about $3.2 billion.

Intercontinental Exchange Inc. (ICE), which handles Texas power trades, last week closed contracts that covered billions of dollars in state power trades and has no authority to reopen settled contracts. ICE has deferred settling four contracts tied to the service fees that are much smaller in value, people familiar with the matter told Reuters.

(Reporting by Gary McWilliams; Editing by Marguerita Choy and Daniel Wallis)

Texas sheds coronavirus mask, occupancy restrictions

By Brad Brooks

LUBBOCK, Texas (Reuters) – Texans awoke on Wednesday with a statewide mask mandate and occupancy restrictions in businesses lifted, a move some heralded as freedom and others as foolishness.

On paper, Texas’ rollback of coronavirus mitigation efforts is the most sweeping seen in the United States, along with a similar measure in Mississippi. In practice, vast swaths of Texas have rarely enforced mask or occupancy mandates in the past year, anyway.

Several major retailers, grocery and restaurant chains in Texas said they would still require that masks be worn in their stores, which under Abbott’s order relaxing restrictions is their right to do.

Still, some expected to see standoffs between maskless customers and store employees on Wednesday.

Texas was one of the first states to reopen its economy after the first wave of pandemic cases last May, and the nation’s second most populous state led the way again last week when Governor Greg Abbott announced the relaxation amid declines in new daily COVID-19 cases and with the rollout of vaccines.

As of Sunday, 18% of the U.S. population had received at least one dose of a vaccine, according to the Centers for Disease Control.

County officials in regions where COVID patients take up 15% or more of hospital beds for seven consecutive days can enact new mask and occupancy restrictions, under Abbott’s order, but no regions are currently in that situation.

Austin’s city council voted to still require masks – and dared state officials to sue the city.

“In Austin, we’re committed to saving lives,” city council member Greg Casar wrote on Twitter.

The Texas Education Agency’s guidance for public schools is for the continued use of masks, while nursing homes in the state will not loosen restrictions.

The Dallas Jewish Conservatives organization plans to host a party Wednesday evening with about 200 people. There will be a moment of silence for the pandemic’s dead, refreshments for the guests and a bonfire into which folks will be encouraged to toss masks.

“It’s about freedom, liberty and personal responsibility,” said Benjie Gershon, founder of the group. “The act of throwing a mask into the bonfire … is in no way meant to belittle or undermine the tragic numbers of individuals who have fallen ill to COVID.”

(Reporting by Brad Brooks in Lubbock, Texas; Editing by Robert Birsel)

Some Republican governors stand by mask mandates as Texas and Mississippi accelerate reopening

By Gabriella Borter

(Reuters) – While Texas and Mississippi announced complete rollbacks of their states’ COVID-19 mitigation measures this week, several governors of other Republican states have made clear they are not abandoning their mask mandates despite political pressure.

The sharp decline of new daily COVID-19 cases and the rollout of vaccines in the United States have prompted state and local governments to ease business restrictions in recent weeks, with movie theaters set to open at limited capacity in New York and indoor dining resuming in San Francisco on Friday.

However, the decline in cases plateaued last week with new infections rising in 29 out of 50 states compared with the prior week. Texas saw a 69% rise in cases in the week ended Feb. 28.

Few of the rollbacks have been as sweeping as in Texas, where Governor Greg Abbott on Tuesday said the state’s mask mandate would be lifted and most businesses could open at full capacity next week.

The move drew immediate criticism from some politicians and public health experts who have urged caution while the nation’s vaccination program is still underway.

President Joe Biden said on Wednesday that decisions to end the required wearing of masks – such as those made by Texas and Mississippi – amounted to “Neanderthal thinking” given the ongoing deaths being caused by the pandemic.

“I think it’s a big mistake. Look, I hope everybody’s realized by now, these masks make a difference,” he told reporters.

Public health experts agree face coverings are essential to slowing the spread of the virus, which has killed more than half a million Americans. But over the last year, resistance to public health measures in the United States, especially mask-wearing, has become politicized, with many Republican states enacting fewer and looser COVID-19 protocols than Democratic states.

In some Republican-led states, including Florida and South Dakota, there has never been a statewide mask mandate. In others, like Alabama and Ohio, mask mandates remain in effect.

Including the upcoming change in Texas, 34 states mandate that residents wear face masks in public, along with the District of Columbia and Puerto Rico.

In Ohio, U.S. Senate candidate Josh Mandel on Wednesday called on Republican Governor Mike DeWine to follow Texas’ lead and repeal the statewide mask order. The governor quickly rejected the idea.

“Ohio will be keeping its mask mandate to protect Ohioans who have yet to receive the vaccine. Vaccine supply is increasing, and there is light at the end of the tunnel, but the virus is still here and the pandemic is still ongoing today,” a spokesman for DeWine told Reuters in an email.

Governor Jim Justice of West Virginia, a Republican, said on Wednesday he was not ready to ease any restrictions, including an indoor mask mandate.

“All businesses must continue to follow the safety guidelines,” Justice said.

Abbott’s executive order in Texas will lift all mask requirements statewide as of March 10 and forbid local authorities from penalizing residents who do not wear face coverings. It will remove all restrictions on businesses in counties without a high number of hospitalizations.

Local officials can still apply limits to businesses where hospitalizations remain high, according to the order, but are prohibited from mandating that they operate at less than 50% capacity.

As of Monday, Texas was seeing about 7,500 new cases per day on a seven-day average, according to Reuters data, and it was ranked 47th in the list of states that have vaccinated the highest percentage of their populations.

Mississippi Governor Tate Reeves, a Republican, on Tuesday also lifted his state’s mask order and removed all restrictions on businesses.

But Louisiana Governor John Bel Edwards, a Democrat in a majority Republican state, doubled down on his state’s mask order even as it increased capacity to 75% at restaurants and retail businesses on Wednesday.

“Louisiana’s mask mandate is still in place,” Edwards tweeted. “As we vaccinate more and more people, masks are still our most effective tool in stopping the spread of COVID-19 and saving lives.”

(Reporting by Gabriella Borter, Peter Szekely, Jarrett Renshaw and Carl O’Donnell; Editing by Colleen Jenkins and Lisa Shumaker)

Texas electricity regulator cuts some emergency fees tied to winter storm

By Gary McWilliams

HOUSTON (Reuters) – The Texas electricity regulator on Wednesday ordered cuts to emergency fees paid to generators amid a financial crisis in its power market, but adjourned without acting on calls to protect consumers from price spikes.

A mid-February storm temporarily knocked out up to half the state’s generating plants, triggering outages that killed dozens and pushed power prices to 10 times the normal rate. About $47 billion in one-time costs are threatening companies that sell, transmit or generate electricity in the state. Consumers will see higher prices as the costs are passed along.

In its first meeting since the blackout, Public Utility Commissioners (PUC) agreed to revoke charges for standby power services that were not provided. The size of the charges have not been disclosed.

“The PUC has acted with urgency and taken a big step in the right direction,” said Brandon Young, CEO of electricity provider Young Energy LLC. He said the changes would relieve some of the stress on providers and consumers.

The two-person PUC separately endorsed an independent market adviser’s recommendation for an about $2 billion reduction in other fees but took no immediate action.

As the state and federal governments launched investigations into the storm, commissioners backed a state audit of emergency prices that soared when demand spiked during severe cold weather. U.S. lawmakers on Wednesday demanded the state’s grid operator turn over documents and communications with officials from during the storm.

The state’s independent PUC adviser, Carrie Bivens, recommended cuts that could shave about $2 billion from business fees, though she provided no estimate of the total. Commissioners will meet Friday to consider that recommendation.

“I can’t understand why there was no action on immediate relief for consumers” at the hearing, said Tim Morstad, associate state director for consumer advocacy group AARP Texas. His group asked the PUC for protections for consumers being shifted to new utilities.

If left in place, the service fees could force out a quarter of the state’s about 100 providers and concentrate up to 80% of the market among three large utilities, industry experts said.

“There could be a number of retail service providers who aren’t able to remain in business if ERCOT does not relent on the demand for payment,” said Catherine Webking, an attorney who represents companies seeking fee cuts.

The PUC supervises grid operator Electric Reliability Council of Texas (ERCOT), which is facing a $2.46 billion shortfall from companies that have not paid their bills. ERCOT on Monday said it would begin naming businesses that have failed to pay and disclose the amounts each owed.

The crisis claimed its first victim Monday when Brazos Electric Power Cooperative Inc, whose members provide power to about 660,000 in the state, filed for bankruptcy after receiving bills for $2.1 billion from ERCOT. Brazos this week said storm charges could increase consumer bills by 2 cents per kilowatt hour.

(Reporting by Gary McWilliams; Editing by Leslie Adler and Chris Reese)

Texas governor lifts state’s mask mandate, business restrictions

(Reuters) – The governor of Texas lifted most of the state’s coronavirus pandemic restrictions, allowing businesses to reopen at full capacity as of next week and telling residents that masks were no longer required.

The move by Governor Greg Abbott marks the furthest any U.S. state has so far gone to roll back harsh restrictions on businesses and residents imposed by political leaders in the face of the COVID-19 pandemic.

“It is now time to open Texas 100%,” Abbott said at an afternoon news briefing. The full lifting of the mandates will take effect on March 1, he said.

Abbott’s order comes as COVID-19 infections have plummeted in recent weeks across much of the world, including the United States.

According to a Reuters tally roughly 68,240 new cases have been reported on average each day this week, or 27% of the peak daily average reported on Jan. 7. The United States has recorded 28,681,793 infections and 513,721 coronavirus-related deaths since the pandemic began.

(Reporting by Brendan O’Brien in Chicago and Dan Whitcomb in Los Angeles; Editing by Leslie Adler and Matthew Lewis)

How private equity squeezes cash from the dying U.S. coal industry

By Tim McLaughlin

BOSTON (Reuters) – Private equity firms are proving there’s still plenty of profit in the U.S. coal industry despite a decade of falling demand for the fossil fuel. They are spending billions of dollars buying coal-fired plants on the cheap – and getting paid even when they are not providing power.

Since the end of 2014, at least five U.S. private equity firms have bought coal plants in markets where regulators pay them to be on standby to provide emergency power when demand surges with extreme hot or cold weather, according to a Reuters review of U.S. regulatory disclosures and credit-rating agency reports.

The lucrative investments illustrate how fossil fuels will remain an important part of the energy mix – and continue spinning off cash for investors – even years after demand for them peaks as the world transitions toward cleaner energy sources.

The need for reserve power was on display during the utility crisis this month in Texas – the only U.S. grid system that operates without such an emergency system. A cold snap knocked out several of the state’s generating plants and triggered widespread blackouts, leaving a wake of human suffering including several dozen deaths.

The so-called capacity payments are given out in most U.S. power markets, and regulators tend to favor coal-fired generators that store heaps of coal on site when other power sources might be disrupted. In the Pennsylvania, Jersey, Maryland Power Pool (PJM), which has the largest standby market, capacity revenue payments average more than $100 per megawatt per day – an insurance policy that costs about $9 billion a year and aims to make sure the grid’s 65 million customers avoid blackouts during heat waves and Arctic blasts.

“The capacity power market is a certain source of revenue for coal plants that might otherwise be uneconomical,” said Sylvia Bialek, an economist at New York University’s Institute for Policy Integrity.

The administration of former President Donald Trump, a Republican, encouraged capacity market incentives for coal-fired generators. But President Joe Biden, a Democrat, is likely to change those policies in the coming years as part of an effort to slash nearly all of the U.S. power sector’s reliance on fossil fuels by 2035.

In the meantime, private equity firms are in a good position to compete for capacity payments because traditional utilities are under pressure from activist shareholders to reduce greenhouse gas emissions and to limit debt.

The private equity owners of Ohio’s Gavin Power Plant in the PJM grid, for example, have squeezed hundreds of millions of dollars out of the facility since buying it four years ago, even though it only runs about 60% of the time.

Lightstone Generation LLC – a joint venture between Boston’s ArcLight Capital Partners LLC and New York-based Blackstone Group Inc – took on $2.1 billion in debt from Wall Street banks to buy the plant and three much smaller gas-fired units from American Electric Power Company Inc in 2017, according to term sheets viewed by Reuters.

From 2018 to 2020, Lightstone’s power plant operations produced about $1.1 billion in operating profit, according to estimates from Moody’s Investors Service. Up to 50% of Gavin’s cash flow comes from being on standby for emergency power, according to several economists and credit analysts.

About 18 months after the Gavin acquisition, ArcLight and Blackstone went back to Wall Street to finance most of a $375 million special dividend they paid to themselves, according to credit rating agencies. Such dividends are a way for private equity firms to lock in profits and shift risk to their debt-holders, which are often mutual funds. If the business does well, the debt gets paid off at a premium. But if the business fails, the debt-holders end up with equity stakes in plants of declining value.

ArcLight did not respond to requests for comment. Blackstone declined to comment.

The private equity firms’ backers have also been making money on the investments, according to filings. The state of Connecticut’s retirement plan, for example, invested $85 million in ArcLight’s Energy Partners Fund VI, which holds stakes in the Gavin plant along with other energy investments, and has seen returns of about 8%.

Meanwhile, mutual funds that invested in Lightstone’s debt are receiving payments pegged to a floating interest rate that has ranged from 4% to 6% – far higher than about 1.4% on the U.S. benchmark 10-year yield.


Other private equity firms have also been betting on coal power capacity payments.

Atlas Holdings, for example, led a joint venture to buy New Hampshire’s Merrimack Station coal plant in 2018, the centerpiece of a $175 million acquisition of generators from New England-based utility Eversource Energy.

Atlas declined to comment.

The coal plant hardly runs but has been eligible to receive up to $188 million in capacity payments from the New England ISO between 2018 and 2023, according to disclosures by regulators. Workers at Merrimack Station see their mission as a matter of life and death. They keep boilers warm and the plant in a constant state of readiness, said Tony Sapienza, business manager for Local 1837 of the International Brotherhood of Electrical workers.

“The capacity market is absolutely vital,” Sapienza said. “And without Merrimack Station, people might die in the winter or during really hot weather. It’s really that simple.”

The reserve coal plants create good jobs. Private-equity owned coal plants can pay their staff about $100,000 a year for keeping the facilities on standby and firing them up when needed, according to Shawn Steffee, business agent for the Boilermakers Local 154 union in Pennsylvania. He said coal plants in the state “ran like a freight train” during the recent cold snap.

In another profitable investment, private equity firm Riverstone Holdings LLC paid $1.8 billion in late 2016 to buy the remaining stake in electricity producer Talen Energy Corp. The take-private deal included stakes in several coal plants, including ones receiving PJM capacity payments, an “important component” of gross profits, according to an SEC disclosure. About a year later, Talen paid its owners, including Riverstone, a special $500 million dividend. Riverstone did not return messages seeking comment.


Private equity ventures into coal-fired power don’t always turn out well, with some deals getting caught up in the broader decline of the coal industry. A credit fund run by private equity firm KKR & Co Inc in 2015, for example, took a big stake in Longview Power LLC – whose major asset is a West Virginia coal plant plugged into the PJM electric grid – as part of a bankruptcy restructuring.

But in April 2020, Longview filed for bankruptcy protection again, wiping out some $350 million in debt, as coronavirus lockdowns cut electricity demand. KKR declined to comment.

Analysts and economists expect Biden’s administration to crack down on rules that prolong the lifespan of dirty coal plants as part of sweeping measures to fight climate change. Biden has named Richard Glick, a Democrat, as the new chairman of the Federal Energy Regulatory Commission. Under a Republican majority on the commission, Glick had been critical of FERC rules he contends unfairly favor coal over renewable energy sources in capacity power markets, saying they “would have made the Kremlin economists in the old Soviet Union blush.”

FERC did not respond to requests for comment, and the White House declined to comment.

“I’m confident, in the next couple of years, FERC will order changes,” said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School.

Policy changes could make it harder for highly-leveraged private equity owners of coal plants, like Lightstone, to refinance their debts, according to Richard Donner, a credit analyst at Moody’s Investors Service. About $1.7 billion in the company’s debt comes due in 2024.

Even so, Lightstone’s creditors are the ones with the greatest risk, according to Peskoe.

“Somehow the private equity guys always make out OK,” Peskoe said. “It’s everyone else who doesn’t.”

(Reporting by Tim McLaughlin; editing by Richard Valdmanis and Brian Thevenot)