Dynegy Inc. (NYSE: DYN) said Nov. 1 in its quarterly earnings report that it recently retired coal-fired capacity at the Newton power plant in Illinois and has also served notice of plans to retire capacity at the gas-fired Moss Landing plant in California.
Dynegy reported a net loss for the 2016 third quarter of $249 million, compared to a net loss of $24 million for the 2015 third quarter. The quarter-over-quarter decrease is mainly due to a $138 million increase in non-cash asset impairment charges and a $74 million increase in non-cash mark-to-market losses associated with hedging transactions.
The net loss for the first nine months of 2016 was $1,060 million, compared to net income of $184 million for the first nine months of 2015. The year-over-year decrease was primarily driven by asset impairments at the company’s Baldwin, Newton and Stuart coal plants in 2016 and a second quarter 2015 deferred tax valuation allowance reversal which benefitted 2015 results but did not reoccur in 2016. This decrease was partially offset by the first quarter 2016 contribution from the Duke Midwest and EquiPower plants which were acquired in April 2015.
“We remain on track to achieve our 2016 Adjusted EBITDA and Free Cash Flow guidance,” said Dynegy President and Chief Executive Officer Robert C. Flexon. “As we wait for FERC approval on our ENGIE North American power acquisition we have completed all of the necessary financings to close the transaction and are prepared for full integration on Day 1. Our debt reduction efforts remain a priority and, as part of this effort, the successful restructuring of Genco eliminates over $600 million in consolidated debt by the first quarter of 2017. In light of the low commodity price environment, we will continue to conservatively manage our balance sheet into and beyond 2017.”
Looking at plant segments:
- Gas - The 2016 third quarter operating income was $69 million, compared to $152 million for the same period in 2015. The decrease was due to non-cash mark-to-market losses on hedging transactions and lower capacity revenues in the PJM Interconnection market, partially offset by higher realized energy margin. Adjusted EBITDA totaled $271 million during the 2016 third quarter compared to $291 million during the same period in 2015. The decrease was driven by lower capacity revenues due to lower pricing and higher O&M costs primarily due to an increase in property tax assessments at the Ohio combined cycle plants. This decrease was partially offset by higher energy margin, net of hedges, primarily due to higher spark spreads as a result of warmer weather conditions and lower delivered fuel costs.
- Coal - The 2016 third quarter operating loss was $33 million, compared to an operating loss of $36 million for the same period in 2015. Lower energy margin, net of hedges, and lower capacity revenues in 2016 were more than offset by lower impairment charges and O&M costs. Adjusted EBITDA, excluding the retired Wood River coal plant (465 MW), totaled $39 million during the 2016 third quarter as compared to $54 million during the same period in 2015. This decrease of $15 million was driven by lower PJM capacity revenues as a result of performance penalties during the period and lower energy margin, net of hedges, due to lower realized power prices. These items more than offset the benefit of higher generation volumes during the quarter and lower O&M costs resulting from a reduction in property tax assessments at our Ohio coal-fueled generating facilities.
- Illinois Power Holdings (IPH) - The 2016 third quarter operating loss was $104 million, compared to operating income of $31 million for the same period in 2015. The decrease was primarily due to a non-cash asset impairment at the Newton coal facility. Adjusted EBITDA totaled $50 million during the 2016 third quarter compared to $34 million during the same period in 2015. The quarter-over-quarter increase in Adjusted EBITDA was due to higher energy margin, net of hedges, as a result of higher power prices due to warmer weather and higher capacity revenues.
In October, Dynegy reached a restructuring support agreement (RSA) with Illinois Power Generating Co. (Genco) and an ad hoc group of Genco bondholders representing approximately 70% of the $825 million in outstanding unsecured debt at Genco. The existing 2018, 2020 and 2032 Genco notes are to be exchanged for up to $210 million in new seven-year Dynegy Inc. unsecured notes, up to $130 million cash consideration, and warrants for up to 10 million shares of Dynegy Inc. common stock. An additional $9 million in cash consideration will be paid to Genco bondholders who previously participated in the RSA.
Dynegy said it intends to launch the exchange offer in the fourth quarter of 2016 for the restructuring. If less than 97% of outstanding bonds are tendered in the exchange, the restructuring will be consummated through a prepackaged chapter 11 filing of Genco. In the event of a pre-packaged Chapter 11 process, non-accredited investors participating (expected to be less than 20% of noteholders) will receive cash in lieu of unsecured notes and warrants. The amount of notes and warrants issued by Dynegy at that time will be reduced by a like amount so there is no change in total consideration.
Genco consists of 615 MW at the Newton coal plant, 915 MW at the Coffeen coal plant and 1,023 MW at the Joppa coal plant.
Asset Portfolio Changes
Newton Unit 2 (615 MW) was retired on Sept. 15 and Baldwin Unit 3 (630 MW) was shut down on Oct. 17 after failing to clear the most recent Midcontinent ISO capacity auction. Baldwin Unit 1 (520 MW) is to remain online through Planning Year 2017/2018 to support incremental bilateral capacity sales. Newton Unit 1 and Baldwin Unit 2 remain in operation as well.
On Nov. 1, Dynegy filed its 90-day notice with the California Independent System Operator that it intends to retire Moss Landing Units 6 and 7 (1,509 MW) by the end of January 2017. The peaking units failed to secure a Resource Adequacy transaction leaving them unable to recover basic operating costs.
ENGIE and Elwood Transactions Update
Dynegy said it continues to await regulatory approval from the Federal Energy Regulatory Commission (FERC) to purchase ENGIE’s U.S. fossil portfolio. FERC approval of the sale of the company’s 50% interest in Elwood Energy to J-Power USA Development Co. Ltd. is also pending.