Dynegy and LS Power Dissolve Joint Venture

Dynegy Inc. and LS Power Associates last week said they had dissolved a 2006 joint development venture that planned to expand Dynegy power plants and build new ones in Arkansas, Georgia, Iowa, Michigan, and Nevada, partly because of credit and regulatory uncertainties.

Under the terms of dissolution, Dynegy will acquire exclusive rights, ownership, and developmental control of all repowering or expansion opportunities related to its existing portfolio of operating plants. LS Power will acquire full ownership of and developmental rights for the various “greenfield” projects under consideration in Arkansas, Georgia, Iowa, Michigan, and Nevada, as well as power generation and transmission development not related to Dynegy’s 18,000-MW portfolio.

New York–based LS Power will receive about $19 million in cash in the first quarter of 2009 to reflect the relative value of assets exchanged. Dynegy will record a loss in 2009 related to the venture’s dissolution.

Dynegy CEO Bruce Williamson said that the development landscape had changed significantly since Dynegy and LS Power had entered into the joint venture in the fall of 2006. “Today, the development of new generation is increasingly marked by barriers to entry including external credit and regulatory factors that make development much more uncertain,” he said. “In light of these market circumstances, Dynegy has elected to focus development activities and investments around our own portfolio where we control the option to develop and can manage the costs being incurred more closely.”

Earlier in December, Dynegy told investors that it was reevaluating activity related to siting, permitting, financing, and construction of at least six coal or natural gas projects, including the 1,600-MW White Pine coal plant in Nevada, the 750-MW Elk Run coal project in Iowa, the 750-MW Mid-Michigan coal plant, the 1,200-MW West Deptford gas-fired plant in New Jersey, the 1,200-MW Longleaf coal plant in Georgia, and a 665-MW expansion at Plum Point.

The Houston company had then said it was also rethinking its participation in two coal plants currently under construction: the 665-MW Plum Point power plant in Osceola, Ark., of which Dynegy holds a 20% stake, and the 900-MW Sandy Creek station in Riesel, Texas. Dynegy owns 30% of that project.

Though these two plants were not affected by Friday’s agreement between the two companies, Dynegy said it would continue to reevaluate its role in the projects. Plum Point is expected to enter commercial operation in 2010, while Sandy Creek should come online in 2012.

Environmental groups, especially the Sierra Club, have widely protested the company’s plans to build the coal-fired power plants. Recently, as POWERnews reported, Dynegy was also pushed by New York Attorney General Andrew Cuomo to disclose climate change–related financial risks, including current and projected carbon emissions from coal plants, to its investors.

“The Dynegy-LS Power venture was the largest proposer of new coal plants in the country,” Bruce Nilles, a spokesman for the Sierra Club, told Bloomberg. “Dynegy has recognized the change in landscape with an incoming U.S. president who has committed to regulate carbon dioxide and invest in clean energy.”

Meanwhile, LS Power continues to pursue some coal projects, while dropping others.

LS Power on Monday told the Atlanta Journal Constitution that it would continue to pursue plans to build the coal-fired Longleaf plant in South Georgia because it believed there was demand for the capacity from the plant. A company spokesperson said that the plant, on which work began in 2001, never hinged on Dynegy’s involvement.

The newspaper noted that LS Power would need to first clear legal barriers pushed by the Sierra Club. Last year, a Fulton County judge overturned an environmental permit issued for the proposed plant, citing concerns about unregulated carbon dioxide emissions.

At the same time, The Las Vegas Review-Journal confirmed that LS Power would continue its commitment to the White Pine project in Nevada. “We’re 100 percent committed to all of our Nevada projects,” it quoted Mark Milburn, LS Power’s project development director. “Nothing changes on the ground.”

On Tuesday, however, Elk Run Energy Associates, an affiliate of LS Power, announced it would abandon its plans to develop the proposed $1.3 billion coal-fired Elk Run Energy Station in Iowa, citing concerns about the economic downturn. The Associated Press called the move “abrupt.”

There was no news about LS Power’s proposed 750-MW Mid-Michigan coal-fired plant.

Sources: Dynegy, POWERnews, Bloomberg, Atlanta Journal Constitution, The Las Vegas Review-Journal, AP