The NRG Energy (NYSE NRG) deal to take over bankrupt power producer Edison Mission Energy looks like a pretty good one, at least on the surface, for Edison Mission Energy’s coal-fired capacity in Illinois.
NRG said Oct 18 that it has entered into a plan sponsor agreement with Edison Mission Energy (EME), certain of EME’s subsidiaries, the unsecured creditors committee, certain of EME’s unsecured noteholders, and the parties to the Powerton and Joliet sale leaseback transaction to acquire substantially all of the assets of EME, including its equity interests in certain of its subsidiaries.
This takeover it to be consummated as part of an EME Chapter 11 plan of reorganization to be sponsored by NRG. Each of EME’s major stakeholders has agreed to support and pursue a Chapter 11 plan sponsored by NRG. EME and related companies, like Illinois-based plant operator Midwest Generation, have been in Chapter 11 protection since December 2012 at the U.S. Bankruptcy Court for the Northern District of Illinois.
The assets to be acquired include EME’s generation portfolio, which consists of nearly 8,000 MW (net) of generation capacity located throughout the U.S., include 4,300 MW of coal-fired capacity and 400 MW of oil- and waste coal-fired capacity.
Joliet and Powerton are coal-fired plants in Illinois that EME leases from financial entities. It has lately been trying to work out a settlement of lease issues related to those plants.
“We are pleased to have reached this agreement with NRG, which maximizes the value of our company for all of our stakeholders and paves the road for our emergence from Chapter 11,” said EME President Pedro Pizarro in an Oct. 18 statement. “NRG is a leader in our industry, and its proposed acquisition of Edison Mission Energy is a powerful affirmation of the reputation and performance the men and women of EME have achieved over the past 25 years. We believe NRG and EME are a great fit operationally. We will continue to operate our fleet of coal, gas and wind energy facilities as we move through this transition and remain focused on ensuring safe and reliable operations.”
NRG said it continues to balance the geographic distribution and dispatch-level diversity of its conventional generation fleet by adding 1,200 MW of contracted gas assets in California and 4,300 MW of coal-fired capacity in PJM West (Illinois). With EME’s coal fleet, NRG said it will further capture commercial opportunities in PJM through its operational improvement initiative.
In connection with the transaction, NRG has agreed to certain financial conditions with the Powerton and Joliet (PoJo) lessor stakeholders subject to which an NRG subsidiary will assume the PoJo leveraged leases and NRG will guarantee the remaining payments under each lease. In connection with this agreement, NRG said it has committed to fund up to $350m in capital expenditures for plant modifications at Powerton and Joliet to ensure federal Mercury and Air Toxics Standards (MATS) compliance. It didn’t specify the emissions projects involved.
EME on Oct. 18 filed a motion to seek approval of the plan sponsor agreement with the bankruptcy court. EME will later file a motion to seek approval of a Chapter 11 plan of reorganization and a related disclosure statement. EME intends to seek approval of the plan during the first quarter of 2014.
Midwest Gen won a delay on mandated air controls
Related to those promised air controls for the two coal plants, the Illinois Environmental Protection Agency is accepting public comment until Oct. 30 on a variance granted by the Illinois Pollution Control Board to Midwest Generation. On Nov. 30, 2012, Midwest Gen requested a variance from portions of the Illinois Combined Pollutant Standard (CPS). Midwest Gen requested relief from the system-wide SO2 emission rates set by Illinois statute from Jan. 1, 2015, to Dec. 31, 2016.
With respect to its coal-fired Waukegan station, Midwest Gen also requested a variance from a state requirement regarding installation of certain SO2 control equipment on Waukegan Unit 8 by Dec. 31, 2014. Midwest Generation requested a five-month delay of such requirement, to May 31, 2015. On April 4, the board granted the variance, subject to certain conditions.
Five of Midwest Gen’s stations with coal-fired boilers were at issue in the proceeding decided April 4: Crawford (in Cook County); Joliet (Will County); Powerton (Tazewell County); Waukegan (Lake County); and Will County (Will County).
In its petition filed Nov. 30, 2012, Midwest Gen asked for a variance from three requirements. The company sought relief from the system-wide average annual SO2 emission rates for the two-year period of Jan. 1, 2015, through Dec. 31, 2016, allowing a delay of a $210m scrubber project at Waukegan Unit 8. It has committed to not operate Waukegan Unit 8 from the end of 2014 until the scrubber is installed.
Midwest Gen sought relief for a period of five months, delaying a requirement until May 31, 2015, for it to install flue gas desulfurization equipment on, or permanently shut down, Waukegan Unit 8 by Dec. 31, 2014.
Midwest Gen sought relief from a condition in the 2012 Waukegan order that requires it to meet, from Dec. 31, 2013 until Dec. 31, 2014, a system-wide SO2 emissions rate.
Midwest Gen told the board that it is still planning to spend $230m in 2013 and 2014 to install controls on Powerton Unit 6 and Waukegan Unit 7, along with engineering and procurement for controls on other units.
Powerton and Joliet the focus of lease compromises
The EME companies have leased for years all of Powerton and part of Joliet from financial entities as part of a sale-leaseback deal. Since the bankruptcy filing, the EME companies have been trying to preserve these leases, for a sale as part of a broader asset sale process, and to cure lease defaults that would allow the leases to remain in force. These are called the “PoJo” facilities for short.
Several financial vehicle affiliates of Public Service Enterprise Group (NYSE: PEG) told the Federal Energy Regulatory Commission on June 14 that it would be premature to allow Midwest Gen to transfer control of these plants to those PSEG affiliates. Preparing for the possibility of losing the leases, Midwest Gen on May 6 had applied with FERC to let it turn back these facilities to the PSEG-affiliated owners. Those PSEG affiliates have names like Nesbitt Asset Recovery Series P-1 and Powerton Trust II.
The Midwest Gen coal plants are:
- Crawford – There are two coal-fired units at Crawford, with 532 MW of capacity. The Illinois Pollution Control Board ordered Midwest Gen to shut down the coal-fired units at Crawford by Dec. 31, 2014. Midwest Gen actually ceased operation of those coal units by the end of August 2012, over two years early.
- Joliet – These coal-fired facilities went online between 1959 and 1966. Midwest Gen operates five coal-fired boilers at Joliet that have the capability to fire at various modes that include the combination of coal or natural gas as principal fuels. Joliet 6 has a capacity of 290 MW, and Units 7-8, across the Des Plaines River from Unit 6, have a combined 1,036 MW.
- Powerton – These 1,538-MW facilities went online between 1973 and 1976. Midwest Gen operates four coal-fired boilers and an auxiliary boiler at Powerton that have the capability to fire at various modes that include the combination of coal and/or natural gas as their principal fuels.
- Waukegan – The 689-MW facilities at Waukegan went online between 1958 and 1962. Midwest Gen operates two units at Waukegan with the capability to fire coal, or a mixture of gas and coal, as their primary fuel. Pursuant to the CPS, Midwest Generation permanently retired Waukegan Unit 6 by the end of 2007.
- Will County – These 761-MW facilities went online between 1957 and 1963. Midwest Gen operates two coal-fired boilers (Units 3 and 4) at Will County that have the capability to fire at various modes that include the combination of coal, petroleum coke, and/or fuel oil as their principal fuels. Midwest Gen permanently retired Will County Units 1 and 2 under the CPS in December 2010.