Synopsis: Dynegy, the owner of the Morro Bay Power Plant, has seen its bankruptcy filing of last year turn into a near financial collapse with stockholders accusing the company of fraud, the company losing $236 million last year, its stock price diving to .56 cents a share and a federal court examiner trying to figure out how to settle the complex case.
Dynegy, the owner of the Morro Bay Power Plant, has sunk into deep and complex bankruptcy, a group of stockholders has accused the corporation of fraud, it suffered an operating loss of $236 million last year, its stock price has declined to .56 cents a share as of March 30 and the stock was frozen for a period a few weeks ago.
"Once a $13 billion powerhouse, Dynegy’s equity is now worth a mere $70 million," a Reuters news agency article reported recently. Its stock price was at $6.92 a year ago.
Meanwhile, former Dynegy partner, NRG Energy, has just agreed to pay $120 million to the state of California stemming from California's 2000-01 energy "crisis," a shortage of electricity caused by manipulation of energy supplies by private power companies like NRG Energy, Dynegy, Duke Energy and Enron. The state has said the $120 million will be used to construct a statewide network of charging stations for zero-emission vehicles.
California officials claimed that during that fabricated energy shortage, the state overpaid nearly $9 billion to companies, such as Dynegy, that artificially raised prices by withholding energy supplies, driving up rates and causing the notorious rolling blackouts that left power customers sporadically in the dark.
Whether Dynegy paid any of the $120 million penalty is not clear. But Dynegy some years ago paid $281.5 million to the state to settle charges of manipulating the energy market. Duke, which bought the plant from PG&E in 1998 and sought to build a new, larger and more environmentally-destructive plant, paid $207.5 million to the Federal Energy Regulatory Commission on the same price manipulation charges. Dynegy wound up as the plant's owner as Duke exited California.
During that energy shortage, California endured multiple large-scale blackouts, an 800% increase in wholesale prices of electricity and the collapse of one of the state's largest energy companies, PG&E, which filed for bankruptcy.
Whether Dynegy's present bankruptcy will affect the operations of the Morro Bay plant is not clear. A Dynegy spokesperson said Dynegy Holdings and four of its subsidiaries are the only Dynegy entities that are part of a Chapter 11 bankruptcy proceeding and that does not include GasCo, a subsidiary that operates the Morro Bay Power Plant. But the nature and scope of the bankruptcy has been changing. Dynegy also owns the Moss Landing Power Plant northwest of Salinas and a small Oakland plant in California.
The Morro Bay plant only operates two of its four generators on a very limited scale as a "peaking" plant, which supplies electricity to power companies in times of acute need, such as in late summer when temperatures are high and power for cooling is needed. Moss Landing is a major plant that operates at full capacity. NRG Energy almost bought the Morro Bay plant from a company that was set to purchase Dynegy several years ago, but the deal fell through at the last minute. (Slo Coast Journal, December 2010)
The next hearing in the bankruptcy proceeding is scheduled for Wednesday, April 4, in the United States District Court for the Southern District of New York when Judge Cecelia Morris has requested Susheel Kirpalani, the court appointed examiner now acting as mediator between Dynegy Holdings and its creditors, to provide an update at this hearing.
A class action suit against Dynegy by creditors charges that Dynegy made materially false and misleading statements and failed to disclose materially adverse information about the company's business and operations. In particular, the complaint alleges that the company knew and recklessly failed to inform investors that one of Dynegy's wholly-owned subsidiaries fraudulently transferred direct ownership in one of Dynegy's indirectly owned subsidiaries to the company.
On March 9, the bankruptcy-court examiner disclosed that Dynegy improperly acquired direct ownership of an indirectly-owned subsidiary through a fraudulent transfer. The Wall Street Journal reported that this "asset reshuffling" specifically "benefited billionaire Carl Icahn, Dynegy's main stockholder, and other shareholders at the expense of creditors." Shortly after these reports were circulated, Dynegy stock fell approximately 35% below the closing price of the previous day.
"Dynegy is both troubled and disappointed by the Examiner’s Report as we continue to believe our restructuring activities benefited all stakeholders and were conducted in the proper manner," said Robert C. Flexon, Dynegy president and chief executive officer.
The examiner was appointed by a New York judge to probe the $1.7 billion pre-bankruptcy restructuring of Dynegy Holdings and four other Dynegy units. The companies sought court protection last November.
Reuters reported that Icahn, along with hedge fund Seneca Capital, had helped persuade investors that a revival of wholesale natural gas prices, which have declined to all-time lows, would reinvigorate the heavily indebted company. As prices kept tumbling, ever more desperate measures were attempted. The restructuring last November, after Icahn’s appointees joined the board, shifted lucrative coal-fired assets beyond the reach of bondholders, in a move that up-ended the conventional capital structure. The court examiner slammed the maneuver as a "fraudulent transfer" and recommended that Icahn’s representatives--along with other non-officer members--be removed from the board.
The California Water Resources Control Board in late 2011 adopted a new policy requiring all 19 coastal power plants in the state to begin phasing out the use of bay, estuary and ocean water for cooling their generators by certain individual dates. Dynegy withdraws water from the Morro Bay National Estuary, killing crab and fish larvae in the water removed by the plant for cooling. Dynegy was given until Dec. 31, 2015 to end the use of what is called once-through cooling by the plant, either by closing the plant or shifting to other means of cooling the generators. The Morro Bay plant is the only one of the 19 plants in the state that is not considered needed to meet state energy needs.
All plant owners were required to submit plans to the water board in February, 2011, stating how they planned to comply with the new policy, but Dynegy's plans were vague and the board requested more detailed information. Meantime, Dynegy has filed suit against the water board seeking to overturn the policy. The first court hearing in the suit has not yet been set.
