Dynegy takes Q2 2016 loss; to sell 50% interest in Elwood plant

Dynegy (NYSE: DYN) on Aug. 3 reported a net loss for the 2016 second quarter of $801 million, compared to net income of $388 million for the 2015 second quarter.

The quarter-over-quarter decrease is primarily due to a $480 million deferred tax valuation allowance reversal in the second quarter of 2015, which did not reoccur in 2016, and a $645 million asset impairment in the second quarter of 2016 primarily related to previously disclosed asset shutdowns.

“During the quarter we continued the transformation of our portfolio. Through our disciplined approach, we completed efficient uprates, made steady progress on the ENGIE acquisition and arranged for the sale of the Elwood Energy Facility. In addition, we announced the retirement of 1,835 MW of generation, and the movement of 500 MW from MISO to PJM,” said Dynegy President and Chief Executive Officer Robert C. Flexon. “The desired outcome from all of these efforts, as well as our ongoing PRIDE improvement program, is a well-constructed portfolio composed of the right assets in the right markets supported by the right balance sheet that generates a strong return for our shareholders.”

During the second quarter, Dynegy acquired Energy Capital Partners’ (ECP) 35% interest in the Atlas joint venture, which the two companies formed in February 2016 to purchase ENGIE’s U.S. fossil portfolio. Under the agreement with ECP, Dynegy will pay ECP $375 million on the later of Dec. 31, 2016 or three months after the closing of the transaction. Alternatively, Dynegy may pay the ECP buyout price after the first payment date, but in such case, the ECP buyout price would be subject to quarterly escalation up to a maximum of $468.5 million.

After reaching an agreement with ECP to acquire its interest in the Atlas joint venture, Dynegy substantially completed the transaction financing by raising a new $2 billion, seven-year, secured term loan and $460 million in tangible equity units. A total of $125 million in incremental liquidity facilities will also be available upon the completion of the acquisition. Dynegy will use the net proceeds from the financing, together with the proceeds of ECP’s purchase of $150 million of the company’s common stock to occur concurrently with the closing of the acquisition and existing liquidity, to fund the acquisition and pay related fees and expenses.

On July 20, 2016, Dynegy received final approval for the acquisition from the Public Utility Commission of Texas and remains on schedule to complete the acquisition of ENGIE’s U.S. fossil portfolio in the fourth quarter of 2016 pending the approval of FERC.

Dynegy announced Aug. 3 that it has signed a definitive agreement to sell its 50% equity interest in the Elwood Energy Facility in Elwood, Illinois, to its partner, J-Power USA Development Co. Ltd., for $172.5 million in cash. At closing, approximately $35 million in previously posted collateral will be returned to Dynegy, and the non-recourse asset level financing currently in place will remain with the new owner. Dynegy intends to use the proceeds of the sale, which is expected to close in the fourth quarter, to satisfy a portion of its buyout obligation to ECP. JP Morgan serves as financial advisor and Skadden, Arps serves as legal counsel on the transaction.

In late May, Dynegy filed the Illinois Generation Reliability Act to make Illinois a 100% PJM Interconnection market instead of its current split between two markets, PJM and the Midcontinent ISO. The legislation is consistent with Dynegy’s overall objective of moving all of the company’s Illinois generating assets to PJM, where it can get better power market returns.

Outside of this process, Dynegy received approval for 500 MW of incremental MISO capacity from the Hennepin and Joppa coal plants to be pseudo tied to PJM beginning June 1, 2017. Dynegy will continue to explore similar paths for its remaining plants in MISO while it waits for a ruling on the proposed legislation.

On May 3, Dynegy announced plans to shut down Units 1 anf 3 at the coal-fired Baldwin Power Station in Baldwin, Illinois, and Unit 2 at the coal-fired Newton Power Station in Newton, Illinois, after they failed to clear the recent MISO capacity auction. MISO has approved the shutdown of Newton Unit 2 by Sept. 15, 2016, and the shutdown of Baldwin Unit 1 by Oct. 17, 2016. The company plans to file the shutdown notice for Baldwin Unit 3 in the third quarter. Dynegy’s coal-fired Wood River Power Station was retired on June 1, 2016.

During the 2016 second quarter, Dynegy completed nearly 200 MW of AGP uprates at five plants as part of the plans the company announced at its investor day in June 2015.












 

 

 

 

 

 

 

 

 

 

 

 

 

Facility

       

Amount of Uprate

     

Market

     

Total Plant MW post-uprate

                         

 

Ontelaunee

       

40 MW

     

PJM

     

640

Fayette

       

44 MW

     

PJM

     

726

Washington

       

47 MW

     

PJM

     

711

Independence

       

30 MW

     

NYISO

     

1,156

Kendall

       

36 MW

     

PJM

     

1,288

                         

 

Throughout the Midwest and Northeast, Dynegy operates power generating facilities capable of producing nearly 26,000 MW.

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.