Dynegy writes down its stake in Stuart coal plant in Ohio to zero

Dynegy Inc. (NYSE: DYN) said in its Nov. 2 Form 10-Q earnings report that it has written down the value of its 39% (904 MW) stake in the coal-fired J.M. Stuart power plant in Ohio to zero.

The company wrote about Stuart: “In the third quarter 2016, we held strategic discussions with our partners, including the operator, concerning changes to our long term views of required maintenance and environmental capital expenditures, as well as discussing the profitability of the facility. As a result of these discussions, combined with consistently poor reliability and a determination that the facility would experience recurring negative cash flows, we concluded the facility will not recover its book value, thereby failing the recoverability step of an impairment analysis. Due to the recurring nature of the forecasted negative cash flows, we fair valued the asset at zero, resulting in an impairment charge of $55 million recorded to Impairments in our unaudited consolidated statements of operations for the three and nine months ended September 30, 2016.”

Stuart, located at Aberdeen, Ohio, on the Ohio River, has four coal-fired units and four diesel generators, with a total summer generating capacity of 2,318 MW. One of the other plant co-owners, with 35%, is Dayton Power and Light, which is the plant operator.

American Electric Power (NYSE: AEP), another Stuart co-owner (with about a 600 MW stake), said in its Nov. 1 quarterly earnings report that it has taken a $2.3 billion impairment charge on certain merchant generation assets. The $2.3 billion impairment largely relates to AEP’s ownership share of 2,684 MW of competitive generation in Ohio, including the Cardinal, Conesville Units 4-6, Stuart and Zimmer coal plants. It also includes the competitive portion of the coal-fired Oklaunion Plant in Texas, plus the Desert Sky and Trent Mesa wind farms, and some coal-related properties.

Notable is that a projected future resource mix in AEP’s Nov. 1 earnings presentation excludes the Cardinal, Conesville, Stuart and Zimmer plants. The presentation also excludes future (beyond 2017) emissions from those four plants. That would indicate these plants are to be sold, or shut. AEP co-owns some of this capacity, including Stuart, with other parties.

Said AEP in its Nov. 2 Form 10-Q report: “In September 2016, due to AEP’s ongoing evaluation of strategic alternatives for its merchant generation assets, declining forecasts of future energy and capacity prices, and a decreasing likelihood of cost recovery through regulatory proceedings or legislation in the state of Ohio providing for the recovery of AEP’s existing Ohio merchant generation assets, AEP performed an impairment analysis at the unit level on the remaining merchant generation assets in accordance with accounting guidance for impairments of long-lived assets. The evaluation was performed using generating unit specific estimated future cash flows and resulted in a material impairment of certain merchant generation fleet assets. As a result, AEP recorded a pretax impairment of $2.3 billion ($1.5 billion, net of tax) in Asset Impairments and Other Related Charges on the statement of operations related to 2,684 MWs of Ohio merchant generation including Cardinal Unit 1, 43.5% ownership interest in Conesville Unit 4, Conesville Units 5-6, 26.0% ownership interest in Stuart Units 1-4, and 25.4% ownership interest in Zimmer Unit 1, as well as Putnam coal and I&M’s Price River coal reserves, Desert Sky and Trent Wind Farms and the merchant generation portion of the Oklaunion Plant. As of September 30, 2016, the remaining net book value of these assets is $50 million.”

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.