How Eight Major Power Companies Are Dealing with Market Turmoil

Dynegy Inc.’s pending merger with Vistra Energy will create a company of a significant diversification and scale designed to weather volatile markets. Over the past year, at least eight other major power companies have embarked on various strategies to guard against distress in unregulated markets.

Duke Energy. Three years ago, Duke Energy announced it would move away from organized competitive markets. “Our merchant power plants have delivered volatile returns in the challenging competitive market in the Midwest,” said Lynn Good, president, CEO, and vice chairman of Duke Energy in February 2014. “This earnings profile is not a strategic fit for Duke Energy, and we have begun a process to exit the business.” In October 2016, the company also completed the sale of its international businesses to stem volatility.

American Electric Power (AEP). In 2015, AEP began looking to shed its plants in competitive markets in an effort to become a fully regulated company. Last November, the company reported a $2.3 billion “impairment” largely relating to its ownership share of 2,684 MW of competitive generation in Ohio. AEP spokeswoman Melissa McHenry told POWER on October 30 that the company sold 5,530 MW of competitive generation earlier this year, but it still owns 3,062 MW of competitive generation that is “part of an ongoing strategic review process, including all or part of four plants in Ohio, a 48-MW hydro plant in Ohio, and part of a coal plant in Oklahoma.”

Entergy Corp. Entergy Corp., which today owns about 30 GW of generating capacity, including 10 GW of nuclear and 2.2 GW of coal, in January reached an agreement with New York state to prematurely close two nuclear reactors at the Indian Point Energy Center by 2021, effectively completing its exit from the merchant power business. As part of that strategy, the company closed Vermont Yankee in December 2014, followed by the sale of the Rhode Island State Energy Center combined cycle gas turbine in 2015. It also plans to retire the Pilgrim plant in Plymouth, Massachusetts by June 2019 and the 798-MW Palisades nuclear power plant in Covert, Michigan, by the spring of 2022 (extended this September from an earlier closure date slated in October 2018). Plans for the early retirement of its James A. FitzPatrick Nuclear Power Plant in New York were thwarted after Exelon Corp. bought the plant for just $110 million. “With sustained low wholesale energy prices and increased operating costs, exiting our merchant power business is a sound strategic decision,” the company said in its most recent annual report.

NRG Energy. NRG Energy, currently the nation’s largest independent power producer, is in the process of separating its business from GenOn—a company it acquired in a $1.7 billion deal just five years ago, but which filed for bankruptcy in June citing difficult market conditions. NRG, which is now poised to be roughly half its previous size, has also embarked on a transformation plan, which involves selling off about half its assets and cutting costs to lower debt. As with Vistra and Dynegy, the company is banking on an integrated strategy to offset low wholesale power prices by securing large retail margins.

Talen Energy Supply. This summer, Talen Energy Supply, an independent power producer with about 16 GW of generating capacity, concluded an offer to exchange a modest amount of its unsecured notes due in 2021 (an outstanding amount of $703 million) for new guaranteed notes due in 2024. The company last December completed a $1.8 billion merger with an affiliate of Riverstone Holdings, a private investment firm, to bolster its financials and secure its market footing.

Calpine Corp. This August, meanwhile, Calpine Corp.—a company whose fleet is mainly composed of natural gas plants—was acquired by Energy Capital Partners and its private equity partners for $5.5 billion. The company was in the midst of executing a $2.7 billion debt reduction plan.

FirstEnergy Corp. In September, Ohio-based FirstEnergy Corp. dropped the price of several assets it had put up for sale in January in its haste to exit the competitive generation market. FirstEnergy CEO Chuck Jones in July told analysts that the company would be engaged in discussions with creditors to discuss the possible restructuring of FirstEnergy Solutions, its competitive subsidiary.

AES Corp. Finally, on October 1, Dayton Power and Light (DP&L) transferred its power assets to its sister company AES Ohio Generation to eliminate exposure to volatile unregulated power markets and low power prices. The transfer leaves the company as a pure electricity transmission and distribution regulated utility. AES Corp. and DPL Inc., DP&L’s parent companies, have reportedly defined a pathway to exit all the group’s merchant coal-fired generation operations—which amount to about 2 GW. Dynegy in April agreed to buy two of DPL’s struggling coal plants in Ohio—William H. Zimmer Generating Station in Moscow, and Units 7 and 8 at the Miami Fort Station in North Bend. Dynegy operates both plants within PJM Interconnection’s competitive wholesale electricity market.

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)