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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Midwest Generation (Bolingbrook, Illinois), a subsidiary of Edison International (NYSE:EIX) (Rosemead, California), held off on closing two Chicago-area coal-fired power plants that had a total of 868 megawatts (MW) of generating capacity until the Windy City's peak summer demand season ended. But now that the summer heat is fading and the Crawford and Fisk power plants have been closed, Midwest Generation is facing two interrelated challenges: restructuring its debt and deciding whether to spend between $625 million and $860 million to outfit its four remaining Illinois merchant generators with pollution control equipment. For more information on the closure of the Crawford and Fisk plants, see September 6, 2012, article -Midwest Generation EME Shutters Coal-Fired Crawford and Fisk Power Plants.
Midwest Generation recently told creditors and investors that it will not have enough cash on hand to pay a $500 million loan that is due next June, raising the potential for a Chapter 11 bankruptcy proceeding. Doug McFarlan, a Midwest Generation spokesman, blamed inexpensive natural gas from shale formations for the decision to retire Crawford and Fisk. "That was an economic decision, not a compliance decision," he told Industrial Info in an interview. "At current market prices, we couldn't continue to operate those plants. Every generating unit is operationally challenged in the current gas price environment."
But Midwest Generation plans to continue operating its four remaining coal-fired plants in Illinois, at least for a while. "We have made no decision to retrofit or retire any of these plants right now," McFarlan said. "We'll have to make some retrofit vs. retirement decisions by the end of 2013. The more research we do, the more we are able to find cost-effective ways to lower compliance costs."
Midwest's four remaining Illinois coal-fired generators are:
McFarlan acknowledged there was at least one other option beyond retrofit or retirement --asset sales. "As we look to restructure our debt, selling assets is always an option," he said. "It is not Option A for us, but it is an option. Nothing is off the table, but our focus is on either retrofitting these plants, or retiring them."
If it retrofits the plants, Midwest Generation appears committed to installing flue gas desulphurization equipment. But rather than choosing between wet or dry scrubbers, McFarlan said that if the company goes with the retrofit option, it will use trona injection. "Trona injection has been around for a long time, but it is not all that widely used," he said. "Trona is much more effective at reducing emissions from Western coal than Eastern coal."
Midwest Generation will have to make its decisions in the midst of a very dynamic market. Stricter environmental regulations, coupled with low natural gas prices, have led to closure announcements for thousands of megawatts of coal-fired generation in the Midwest. Some owners of merchant generation, including Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia), have put power plants on the selling block, eager to exit a market with little or no profit potential. In September 2012, Dominion offered to sell a coal-fired Elwood Merchant Generation plant, which is located outside Chicago, and its share of the gas-fired Kincaid Power Station, which is located in southern Illinois. The two plants have a combined generation capacity of about 2,582 MW.
McFarlan said he doesn't expect any significant change in gas prices or electric market dynamics over the next 12 months. "But you never take your eye off the ball," McFarlan said. "It wasn't that long ago that hurricanes sent gas prices soaring. Plus regulators are looking at the environmental consequences of extracting gas from shale formation using hydraulic fracturing. In this business, you don't know what you don't know. Things can change quickly."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Midwest Generation recently told creditors and investors that it will not have enough cash on hand to pay a $500 million loan that is due next June, raising the potential for a Chapter 11 bankruptcy proceeding. Doug McFarlan, a Midwest Generation spokesman, blamed inexpensive natural gas from shale formations for the decision to retire Crawford and Fisk. "That was an economic decision, not a compliance decision," he told Industrial Info in an interview. "At current market prices, we couldn't continue to operate those plants. Every generating unit is operationally challenged in the current gas price environment."
But Midwest Generation plans to continue operating its four remaining coal-fired plants in Illinois, at least for a while. "We have made no decision to retrofit or retire any of these plants right now," McFarlan said. "We'll have to make some retrofit vs. retirement decisions by the end of 2013. The more research we do, the more we are able to find cost-effective ways to lower compliance costs."
Midwest's four remaining Illinois coal-fired generators are:
- Powerton Power Station, a 1,538-MW plant that came online in 1972
- Joliet Power Station, a 1,326-MW plant that began operating in the late 1950s
- Will County Power Station, an 800-MW generator operating since the 1950s
- Waukegan Fossil Station, a 689-MW plant that also began generating electricity near the end of the second Eisenhower administration
McFarlan acknowledged there was at least one other option beyond retrofit or retirement --asset sales. "As we look to restructure our debt, selling assets is always an option," he said. "It is not Option A for us, but it is an option. Nothing is off the table, but our focus is on either retrofitting these plants, or retiring them."
If it retrofits the plants, Midwest Generation appears committed to installing flue gas desulphurization equipment. But rather than choosing between wet or dry scrubbers, McFarlan said that if the company goes with the retrofit option, it will use trona injection. "Trona injection has been around for a long time, but it is not all that widely used," he said. "Trona is much more effective at reducing emissions from Western coal than Eastern coal."
Midwest Generation will have to make its decisions in the midst of a very dynamic market. Stricter environmental regulations, coupled with low natural gas prices, have led to closure announcements for thousands of megawatts of coal-fired generation in the Midwest. Some owners of merchant generation, including Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia), have put power plants on the selling block, eager to exit a market with little or no profit potential. In September 2012, Dominion offered to sell a coal-fired Elwood Merchant Generation plant, which is located outside Chicago, and its share of the gas-fired Kincaid Power Station, which is located in southern Illinois. The two plants have a combined generation capacity of about 2,582 MW.
McFarlan said he doesn't expect any significant change in gas prices or electric market dynamics over the next 12 months. "But you never take your eye off the ball," McFarlan said. "It wasn't that long ago that hurricanes sent gas prices soaring. Plus regulators are looking at the environmental consequences of extracting gas from shale formation using hydraulic fracturing. In this business, you don't know what you don't know. Things can change quickly."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
