Dynegy targets Morro Bay plant closure, still working on coal buy

Dynegy (NYSE: DYN) said Nov. 7 that it has begun planning work to shut its Morro Bay power plant in California and is still working on a buy of coal-fired power plants in Illinois from Ameren (NYSE: AEE).

Dynegy also said in its third quarter earnings statement that it and Southern California Edison (SCE) have entered into two new energy and capacity supply transactions from Dynegy’s Moss Landing Power Plant Units 6 and 7 for planning years 2014-2016

Another highlight is that Dynegy Northeast Generation completed the sale of Dynegy Danskammer LLC to Helios Power Capital LLC on Nov. 1, 2013. The Danskammer power plant in New York, partially fired by coal, was shut by Super Storm Sandy in late 2012 and Helios plans to tear it down. The aging plant had only been marginally viable before the storm.

The Federal Energy Regulatory Commission (FERC) approved the planned buy of coal plants in Illinois from Ameren under Section 203 of the Federal Power Act on Oct. 11. The Illinois Pollution Control Board (IPCB) held a hearing on a Illinois Power Holdings (IPH) request for variance relief under the Illinois Multi-Pollutant Standard on Sept. 17; the IPCB is expected to make its decision on or before Nov. 21. The transaction closing targeted for December 2013 pending receipt of variance from IPCB. Dynegy subsidiary IPH is seeking from the board the transfer of a clean-air break previously granted to Ameren.

The generating assets subject to the proposed sale to Dynegy include the 
Duck Creek (410 MW), Coffeen (895 MW), E.D. Edwards (650 MW), and Newton (1,197 MW) coal-fired stations, all located in the Midcontinent ISO footprint, and Ameren’s indirect 80% interest in the Joppa generating station (1,167 MW) and the Midwest Power gas turbines (74 MW), located in the Electric Energy balancing authority area.

“We continued to firmly establish Dynegy’s growth foundation during the third quarter with several notable achievements,” said Dynegy President and Chief Executive Officer Robert Flexon in the Nov. 7 earnings statement. “Most importantly our Company’s safety record for the first nine months of the year reached the top decile performance level – a mark previously not achieved in recent years. Within our Coal segment, we successfully reached a new four year labor agreement with IBEW Local 51, the union which operates our four Illinois coal plants, which will help enhance the long term financial viability of our coal operations. In the Gas segment, we successfully reached agreement with Southern California Edison for new multiyear energy and capacity supply contracts for Moss Landing – Units 6 and 7. We look forward to a strong finish to 2013 with the successful closure of the Ameren Energy Resources acquisition.”

The four current Dynegy coal plants in Illinois are Baldwin, Havana, Hennepin and Wood River.

Morro Bay to be retired, while two Moss Landing units get new business

On Oct. 10, Dynegy and SCE entered into two new transactions for energy and capacity from Dynegy’s Moss Landing Power Plant. Under the first transaction, SCE agreed to purchase energy and capacity from Moss Landing Units 6 and 7 for 2014 and 2015 and, under the second transaction which is subject to approval by the California Public Utilities Commission (CPUC), to purchase energy and capacity from Units 6 and 7 for 2016.

Moss Landing is split into two basic, gas-fired parts. There are the Unit 1 and 2 intermediate load facilities with a combined capacity of 1,020 MW. Then there are the Units 6 and 7 peakers, with a combined capacity of 1,509 MW.

Dynegy intends to initiate the retirement process for the Morro Bay facility with the California Public Utilities Commission, California Independent System Operator and the California Energy Commission and is notifying them that the Morro Bay facility will close once the relevant processes are complete. Dynegy is currently evaluating alternatives for the site including developing renewable energy shaping technologies as well as preferred renewable resources, as defined by California laws and regulations, at the site with Starwood Energy Group Global Inc.

The Dynegy website said that Morro Bay is a 650-MW, gas-fired peaker. That 650 MW represents Units 3 and 4 generating capacity only. Units 1 and 2, with a combined net generating capacity of 352 MW, have been in mothball status and out of operation.

The Morro Bay and Moss Landing matters are interlinked, said Dynegy in its Nov. 7 Form 10-Q filing at the SEC. “In May 2012, SCE notified Dynegy Morro Bay, LLC (‘DMB’) and Dynegy Moss Landing, LLC (‘DML’), that it was terminating certain energy and capacity contracts with those entities,” the Form 10-Q said. “The terminations were disputed by Dynegy in parallel arbitration and federal court litigation. On October 10, 2013, Dynegy and SCE agreed to resolve the dispute by entering into two new transactions between SCE and DML. Under the first transaction, SCE agreed to purchase energy and capacity from Units 6 & 7 of the Moss Landing Energy Facility for 2014 and 2015 and, under the second transaction, to purchase energy and capacity from Units 6 & 7 for 2016. The 2016 transaction is conditioned on approval by the CPUC, which both SCE and Dynegy have agreed to seek in good faith and use commercially reasonable efforts to obtain. The pending arbitration and federal court litigation have been dismissed as a result of the new transactions.”

Dynegy also said in the Form 10-Q that Moss Landing 6-7 face possible early retirement. “The estimated useful lives of our generation facilities consider environmental regulations currently in place. With respect to Units 6 and 7 at our Moss Landing facility, we are continuing to review the potential impact of the California Water Intake Policy. We are currently depreciating these units through 2024; however, depending on (i) a final determination of the compliance term and requirements of the California Water Intake Policy and (ii) our ability to secure energy and/or capacity contracts in the future, we could decide to reduce operations or cease to operate the units prior to 2024.”

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.