Dynegy (NYSE: DYN) is doubling down on investment in the unfashionable coal-fired sector, announcing Aug. 22 that it will acquire 12,500 MW of coal and gas generation in two separate transactions from Duke Energy (NYSE: DUK) and Energy Capital Partners (ECP), almost doubling its existing portfolio to nearly 26,000 MW.
Dynegy late last year closed on a buy from Ameren Corp. (NYSE: AEE) of five coal plants in Illinois: Duck Creek, Coffeen, E.D. Edwards, Newton and Joppa. That, added, to coal plants it already owned in that state, added a lot of coal-fired capacity to its portfolio. Notable is that the ECP deal includes the 1,093-MW Kincaid coal plant in Illinois.
The purchase price is $2.8bn for the Duke assets and $3.45bn for the ECP assets. Dynegy has signed two separate definitive sets of agreements to acquire the ownership interests in Midwest generation assets from Duke Energy, and EquiPower Resources Corp and Brayton Point Holdings LLC from ECP.
The Duke portfolio includes its retail business and ownership interests in these plants: Killen, Stuart, Conesville, Miami Fort, Zimmer, Hanging Rock, Washington, Fayette, Lee and Dicks Creek.
The ECP assets include these facilities: Milford, Lake Road, Dighton, Masspower, Liberty, Elwood, Richland, Stryker, Kincaid and Brayton Point.
“The two acquisitions announced today are both exceptionally high quality portfolios that have been well managed and run by Duke and ECP employees. The addition of these portfolios transforms Dynegy by adding considerable scale in the PJM and New England markets. The Duke and ECP employees are committed, hard-working men and women and we look forward to engaging their expertise and talent in the combined business. In addition, we intend to honor the terms of the collective bargaining agreements in both generating fleets,” said Dynegy President and Chief Executive Officer Robert Flexon. “The addition of these portfolios is forecasted to significantly improve our financial outlook by tripling our 2015 Adjusted EBITDA and being massively accretive to Adjusted EBITDA and Free Cash Flow per share in 2015 and beyond.”
The addition of the ECP assets and the Duke generation portfolio and retail marketing business complements Dynegy’s existing assets and retail business by adding significant scale and fuel diversification in markets Dynegy currently participates in but otherwise lacks scale. Of the 12,500 MW being acquired, 5,053 MW are modern combined cycle natural gas plants and 3,793 MW are environmentally compliant coal generation plants.
“The target capital structure of the combined company has been designed to ensure the continued strength and flexibility of our balance sheet and maintain significant secured capacity for both hedging and liquidity requirements going forward. We appreciate the support of the company’s relationship banks which have provided committed financing to ensure both sufficient funds for closing as well as revolver capacity to manage the liquidity requirements of the combined company,” said Dynegy Executive Vice President and Chief Financial Officer Clint Freeland.
Dynegy said it continues to support environmentally compliant coal- and gas-fired generation as a responsible way to support America’s future energy needs. In addition, Dynegy said it intends to honor the agreement ECP reached to retire the coal-fired Brayton Point facility in Massachusetts on May 31, 2017, and complete the decommissioning following retirement. That coal plant, with new emissions controls added by a prior owner, Dominion Resources (NYSE: D), has had trouble clearing in ISO New England auctions.
Both transactions are expected to close by the end of the first quarter 2015. They are subject to customary closing conditions, including approval from the Federal Energy Regulatory Commission and expiration of Hart-Scott-Rodino waiting periods.
Dynegy’s subsidiaries produce and sell electric energy, capacity and ancillary services in key U.S. markets. The Dynegy Power LLC portfolio consists of about 6,078 MW of primarily natural gas-fired intermediate and peaking power facilities. The Dynegy Midwest Generation LLC portfolio consists of about 2,980 MW of primarily coal-fired baseload plants. The Illinois Power Holdings LLC portfolio, which is the ex-Ameren plants, consists of approximately 4,062 MW of primarily coal-fired baseload plants.
Several coal plants are in the deal with Duke
For Duke, the Midwest generation business includes 11 merchant power plants with a capacity of approximately 6,100 MW. The plants are dispatched into the PJM Interconnection wholesale power market and equipped with significant environmental controls. The plants are fully owned or partially-owned by Duke Energy Ohio and reported in the company’s Commercial Power business unit.
Nine of the power plants are located in Ohio, one is in Illinois and one in Pennsylvania. Dayton Power & Light‘s and American Electric Power‘s (NYSE: AEP) ownership interest in some of the power plants is not included in this transaction.
The Duke Energy Ohio, Duke Energy Kentucky and Duke Energy Indiana regulated utilities are not a part of the transaction.
Here is an alphabetical listing of the 11 power plants being sold by Duke to Dynegy.
- Conesville Station (coal), (780 MW total, 312 MW Duke share) located in Conesville, Ohio. Partially owned by DP&L and AEP.
- Dicks Creek (natural gas), (172 MW) located in Middletown, Ohio. Wholly Duke owned.
- Fayette Energy Facility (natural gas), (620 MW) located in Masontown, Pa. Wholly owned by Duke.
- Hanging Rock Energy Facility (natural gas), (1,240 MW) Ironton, Ohio. Wholly Duke owned.
- Killen Station (coal), (600 MW total, 198 MW Duke share) located in Wrightsville, Ohio. Partially owned by DP&L.
- Lee Energy Facility (gas), (640 MW) located in Dixon, Ill. Wholly Duke owned.
- Miami Fort Station (coal) Units 7 & 8, (1,000 MW total, 640 MW Duke share) located in North Bend, Ohio. Partially owned by DP&L.
- Miami Fort Station (oil), (80 MW) North Bend, Ohio. Wholly Duke owned.
- Stuart Station (coal), (2,340 MW total, 900 MW Duke share) located in Aberdeen, Ohio. Partially owned by DP&L and AEP.
- Washington Energy Facility (natural gas), (620 MW) located in Beverly, Ohio. Wholly owned by Duke.
- Zimmer Generating Station (coal), (1,300 MW total, 605 MW Duke share) located in Moscow, Ohio. Partially owned by DP&L and AEP.
The ECP plants in this deal, as described on the ECP website, are:
- Milford, 555 MW, gas, Connecticut;
- Lake Road, 812 MW, gas, Connecticut;
- Dighton, 178 MW, gas, Massachusetts;
- Masspower, 265 MW, gas, Connecticut;
- Liberty, 583 MW, gas, Pennsylvania;
- Elwood, ECP is 50% owner (735 MW), gas, Illinois;
- Richland, 444 MW, gas/oil, Ohio;
- Stryker, 20 MW, oil, Ohio;
- Kincaid, 1,093 MW, coal, Illinois;
- Brayton Point, coal, 1,528 MW, Massachusetts.