by Steve Daniels
When Dynegy, Illinois’ second-largest power generator, and the Rauner administration collaborated last year on a proposal to ease the state’s limits on emissions from the company’s coal-fired plants, the idea was to keep those financially pressured facilities open. Roughly a month after that, in late October, Dynegy announced a deal to sell to fellow Texas-based power company Vistra Energy. Now Vistra’s CEO is talking about closing Illinois plants even if the pollution-control changes are made.
So is the Rauner administration having second thoughts? No. It continues to support the changes, which are pending before the Illinois Pollution Control Board. That panel will hold hearings this month and is expected to act by summer.
Environmentalists harshly criticized the changes when they were unveiled last year. They said the new rules would permit Houston-based Dynegy to close facilities with costly pollution-control equipment in favor of running dirtier plants that are cheaper to operate.
Dynegy and the state countered that the new rules were designed to provide operational flexibility that the current ones don’t. But then, in late February, comments by Vistra CEO Curtis Morgan about Dynegy’s downstate fleet raised questions about whether the enviros had a point. Once the environmental rule changes “free up the assets,” he told analysts Feb. 26, “we’ve got a portfolio optimization exercise to do no different than what we did in Texas. And I think that may result in maybe shrinking the size of our generation. Whether that means we’re trying to sell assets or what, I don’t know yet.”
Late last year, Irving, Texas-based Vistra announced it would close three large coal-fired plants in Texas—removing more than 4,000 megawatts of capacity and eliminating about 850 jobs.
A Vistra spokesman says Morgan has no further comment while the Dynegy acquisition is pending. Federal regulatory approval came April 4, and the deal is now slated to close April 9, Vistra disclosed in an April 5 filing.
Dynegy’s eight downstate coal-fired plants generate up to 5,476 megawatts—enough power for 5 million homes or more—and employ about 1,000. Four of the eight plants have “scrubbers,” expensive systems that remove much of the sulfur from emissions.
Dynegy CEO Robert Flexon has pressed Illinois policymakers to provide relief in various forms. He also opposed in vain a 2016 state law that provided $235 million of yearly subsidies over a decade to rival Exelon to keep two nuclear plants open, including one in Clinton that competes directly with his downstate plants.
“I hate shutting anything down,” Flexon says in an interview. “We’re in the business of generating power. The impact (shutdowns) have on communities and your own employees—we do everything we can not to shut down a plant.”
He says Dynegy has hired business consultancy McKinsey to help find efficiencies to maintain the fleet. He says Vistra has committed to keep McKinsey on, which he says indicates a desire to keep plants open.
GENERATING CASH FLOW
Another issue undermining Dynegy’s case for looser environmental restrictions is that its downstate Illinois operations remain profitable on a cash-flow basis. Company executives have told the Illinois Pollution Control Board that downstate Illinois is posting operating losses. That’s true on paper, but it’s only because Dynegy has written down the value of its plants to the tune of nearly $900 million in the past two years. Those are noncash write-downs. Leave those out, and downstate has produced free cash flow of more than $100 million in each of the past two years, according to Securities & Exchange Commission filings.