A federal bankruptcy court has scheduled an Oct. 10 hearing on a motion by AES Eastern Energy LP to sell four shut coal-fired power plants, basically for scrap.
In December 2011, facing significant constraints on liquidity, AES Eastern and related companies commenced Chapter 11 cases, which were later combined into one case, at the U.S. Bankruptcy Court for the District of Delaware. Since then, AES Eastern has sold its two operating coal-fired plants – Somerset and Cayuga – in New York. But there are four other plants – under AES Greenidge LLC, AES Westover LLC, AES Jennison LLC and AES Hickling LLC –that have been shut and have lately been up for sale.
Early in the bankruptcy case, AES Eastern told the court that in March 2011, it put Westover and Greenidge into “protective lay-up” status, which means that while they were expected to be off-line for some time, they were being maintained. Westover has two existing units, 7 and 8, with a combined net capacity of 126 MW, while Greenidge has two existing units, 3 and 4, with a combined 161 MW of net capacity, the company told the court. Jennison and Hickling were officially retired in 2002.
“From the outset, the Debtors’ goal for these chapter 11 cases has been to find a way to ensure that their assets could be promptly liquidated in a way that would responsibly provide for payment of, and compliance with, asset retirement and environmental closure obligations related to the Debtors’ non-operating plants,” AES Eastern said in a Sept. 19 sale motion. “The first step in that process was the sale of the Operating Facilities, which closed successfully on June 29, 2012, after extensive negotiations and approval by this Court. This Motion now addresses the Debtors’ remaining assets and accomplishes the second major step of the liquidation of the Debtors’ assets and the resolution of their liabilities.”
The pending sale agreement for the four plants covers the assumption by a responsible buyer of the debtors’ long-term asset retirement and environmental closure obligations for these facilities. The debtors and their financial advisor, Barclays Capital Inc., have lately been marketing these distressed assets. They contacted over 50 parties, executed confidentiality agreements with 25 potential purchasers and received seven indications of interest for the purchase of some or all of the assets and the assumption of certain related liabilities.
“Most of these proposals entailed a negative purchase price – that is, the Debtors would have had to pay cash to induce the buyer to acquire the power plant assets and assume associated asset retirement and environmental closure obligations – and several did not include all the Residual Assets, which would have left the Debtors with continued costs and liabilities associated with the properties left behind,” AES Eastern told the court. “After conducting necessary diligence and engaging in extensive discussions with the various parties who submitted proposals, the Debtors eventually received a cash-positive bid from GMMM Holdings, Corporation (the ‘Purchaser’) for substantially all of the Residual Assets. That proposal led to the transaction for which the Debtors now seek approval by this Motion.”
GMMM Holdings to tear out the plants, sell the parts for scrap
The purchaser intends to permanently retire the idle plants, salvage or scrap the equipment, and demolish the buildings so the sites eventually can be redeveloped, AES Eastern said. The buyer has extensive experience with power plant demolition, asbestos abatement, and other necessary skills. In addition, GMMM has presented the strongest evidence of financial ability to pay the purchase price and satisfy the assumed liabilities, AES said.
This sale deal calls for an aggregate cash purchase price of $2.25m. Due to a number of factors, including the current status and condition of the non-operating plants, the presence of related known and unknown asset retirement and environmental closure costs, and the depressed economic environment of the electric power industry, particularly for coal-fired plants, the debtors received only a small number of legitimate indications of interest.
The debtors have taken steps to ensure that the proposed sale will not be subject to unnecessary regulatory approval delays. They have engaged with the New York State Department of Environmental Conservation (DEC) to discuss the proposed sale and the purchaser and to identify any potential obstacles to satisfying various conditions to closing, including permit transfers. The DEC has indicated that it was generally supportive of the sale, subject to review of the final terms of the deal and any necessary permit transfer applications.
Two of the idled coal units just got permanently shut
The handwriting has been on the wall for some time about the Westover and Greenidge plants and the fact they were likely to be permanently shut. AEE2 LLC, an AES Eastern subsidiary that is also in bankruptcy, filed Sept. 18 notices with the New York Public Service Commission that Westover Unit 8, which was placed in protective lay-up in March 2011, would be permanently shut on Sept. 21. Westover Unit 8 is an 84-MW, coal-fired facility.
AEE2 also told the commission that Greenidge Unit 4, also in protective layup since March 2011, would be permanently shut on Sept. 21. Greenidge Unit 4 is a 108-MW coal- and biomass-fired facility.
Finding no market power issues, the New York PSC on June 29 had approved the transfer of control of the coal-fired Cayuga and Somerset power plants to financial entities, including affiliates of J.P. Morgan. On April 13, AES Eastern and Somerset Cayuga Holding Co. Inc., which is also called NewCo, requested approval to transfer ownership of the two coal-fired facilities – the 668-MW Somerset and 311-MW Cayuga plants – from the AES to NewCo, or one of NewCo’s to-be-formed subsidiaries.
Cayuga Operating Co. LLC then filed a July 20 notice with the New York PSC that it intends to mothball the Cayuga plant, which is comprised of two coal-fired units, by Jan. 16, 2013. Unit 1 has 154 MW net capacity and Unit 2 has 158.7 MW of net capacity.
“The current and forecasted wholesale electric prices in New York are inadequate for the Cayuga Facility to operate economically and, therefore, Cayuga Operating Company intends to place the Cayuga Facility in protective lay-up to limit the costs that are incurred at the facility,” said the July 20 notice. “Cayuga Operating Company intends to take all steps within its control to avoid permanently retiring the facility by continuing to explore any and all alternatives with its suppliers and other parties, including reductions in its variable and fixed costs.”