Bankruptcy judge approves rejection of Dynegy plant leases

A federal bankruptcy judge on Dec. 20 approved the rejection of leases held by Dynegy Holdings LLC and affiliated companies for generating capacity at the Danskammer and Roseton power plants.

Dynegy Holdings sought Chapter 11 protection on Nov. 7 at the U.S. Bankruptcy Court for the Southern District of New York. A main thrust of the case was to rid itself of these leases, since it said the power plants were losing money. The leases are with units of Public Service Enterprise Group, which actually own the facilities. The affected facilities are units 3-4 at Danskammer and units 1-2 at Roseton.

Judge Cecelia Morris noted in the Dec. 20 decision that the way for the rejection of the leases was cleared through a Dynegy settlement with the “PSEG Entities,” which are Resources Capital Management Corp., Resources Capital Asset Recovery LLC, Series DD and Series DR, Roseton OL LLC, Danskammer OL LLC, Roseton OP LLC and Danskammer OP LLC.

“In the absence of a further Court order, the Debtors will operate the Leased Facilities until (i) they obtain regulatory approval to transfer those facilities (or not to operate them) or (ii) U.S. Bank and the Debtors reach an alternate arrangement (such as third-party operations), with nothing in this Order preventing such arrangements (or discussions) from occurring,” the judge wrote.

Attached to the judge’s decision is a term sheet describing the Dynegy/PSEG settlement. It said this deal is in lieu of further litigation regarding the Roseton and Danskammer leases, the Debtors’ motion to reject the leases, PSEG’s motion to dismiss the Debtors’ Chapter 11 cases, PSEG’s complaint filed in New York Supreme Court and all of the parties’ rights and claims arising under the documents entered into in connection with the leases, including without limitation a Tax Indemnity Agreement.

As recently as Dec. 9, the PSEG Entities told the court that rejection ofthese leases would be premature. “The proposed rejection would place a very substantial added burden on the Debtors’ estates, create uncertainty over the operation of substantial power facilities and the livelihood of employees, and confer no immediate benefit to the Debtors’ estates,” they said in a court filing. “Moreover, the Lease Rejection Motion is premature. At this early stage of these bankruptcy cases, it is impossible to determine the overall magnitude of rejection damages and the ultimate effect that the proposed rejection will have on the Debtors’ estates.”

In a Nov. 7 announcement about the bankruptcy filing, Dynegy Holdings parent Dynegy Inc. (NYSE:DYN) said that it had reached an agreement with a group of investors holding over $1.4bn of senior notes issued by Dynegy Holdings regarding a framework for the consensual restructuring of over $4bn of obligations owed by Dynegy Holdings. Dynegy Holdings and four of its wholly owned subsidiaries – Dynegy Northeast Generation Inc., Hudson Power LLC, Dynegy Danskammer LLC and Dynegy Roseton LLC – filed voluntary petitions for Chapter 11 in order to implement the agreement and to address the “burdensome” lease obligations at Roseton and Danskammer.

Dynegy and all of its other subsidiaries, including those that own and operate the company’s coal-fired and gas-fired businesses that were separately financed earlier in 2011, have not filed for Chapter 11. All such entities continue to operate their businesses in the ordinary course without any impact from the limited Chapter 11 filings of DH and its subsidiaries that are involved with the Roseton and Danskammer facilities.

Robert Flexon, President and CEO of both Dynegy and Dynegy Holdings, said in the Nov. 7 statement: “This marks an important next step in the Company’s ongoing effort to restructure its consolidated balance sheet and to position its assets in a fashion that will maximize our operational flexibility.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.