Environmental groups say they are even more wary of the pending, no-cash sale of five Illinois coal-fired power plants from St. Louis-based Ameren Corp. to Dynegy, a Texas-based energy company, now that a new financial analysis has shed more light on the proposed deal.
According to a report issued Thursday by ACM Partners, an independent financial analyst, Dynegy is preparing for the high-risk purchase by creating an unfunded shell company, Illinois Power Holdings, to operate the five central and southern Illinois coal-fired power plants. The plants are located in Bartonville, Canton, Coffeen, Joppa and Newton.
David Johnson, financial analyst and the report's author, said the findings show that Dynegy is purposefully using a shell company for shareholder gain and to minimize any financial hardship for itself. Essentially, the company is taking "a cost-free gamble that energy prices will rise," Johnson said.
The analysis also found that Illinois Power Holdings won't have the proper capital in order to install coal-pollution controls at the plants, conduct daily maintenance or make regular repairs, among other concerns.
It’s also likely that the Dynegy subsidiary will eventually declare bankruptcy, Johnson noted. And if it does, there's a risk that workers’ pensions would be left unfunded and local communities would have to pick up the tab for environmental cleanup costs. The company, however, would suffer no “ill effects.”
“It’s [a] heads they win, tails they win situation,” Johnson stressed.
The report comes just days before an Illinois Pollution Control Board (IPCB) hearing in Springfield Tuesday regarding whether Illinois Power Holdings will receive a pollution variance for the plants.
The company wants a five-year pollution waiver from IPCB before it purchases Ameren’s fleet. Ameren announced it was selling the plants back in March and leaving the state's power generation business in order to reduce the corporation's "business risk" and to "substantially improve predictability of future earnings and cash flow."
Dynegy asked for a pollution waiver in July after IPCB denied Ameren's proposal to transfer its existing variance to Illinois Power Holdings. The board said the company had to demonstrate on its own that following the current law would cause undue financial hardship, like Ameren had previously claimed.
But this hardship is self-imposed, Johnson said, because Dynegy's financial situation is relatively strong, and the company has a “very healthy balance sheet", meaning it could properly fund Illinois Power Holdings if it wanted to.
"Dynegy has the financial wherewithal to properly capitalize these coal plants to enable them to comply with environmental regulations and to reduce the debt load of these operations," he explained. "Dynegy is choosing not to do that.”
If IPCB grants the variance, Illinois Power Holdings would have five extra years to comply with Illinois’ Multi-Pollutant Standards. If this happens, the unchecked pollution from the five plants would cause 2,000 asthma attacks and 125 premature deaths during those five years alone, according to the Respiratory Health Association, one of the groups that filed formal objections with IPCB over the variance request. The extra years of more pollution would come on top of what Ameren's plants have been spewing upon nearby communities for decades, added Kady McFadden, field organizer with the Sierra Club's Beyond Coal campaign.
Last year when Ameren sought its variance, the Environmental Law and Policy Center, Sierra Club and other environmental groups stressed that the company had no clear road to meeting Illinois' clean air standards.
"We were correct," said Andrew Armstrong, an attorney with the Environmental Law and Policy Center. "Months later, Ameren announced its exit from the Illinois power generation market. Now Dynegy proposes to step in with an undercapitalized subsidiary with an equally unclear path to compliance."
There is no evidence, Johnson said, that Illinois Power Holdings has a timeline for implementing the necessary environmental controls required by law.
But looking at the big picture, McFadden noted that the "days of coal are waning in our state". Ameren's departure from Illinois' energy market and Midwest Generation, another major coal-plant operator in the state, grappling with bankruptcy proves that, she said. Basically, the day when these five plants shut down for good is not that far from sight.
The problem, however, is that since neither Ameren nor Dynegy has specifically said how long the current plants will stay open, nearby residents and elected officials can't start crafting responsible transition plans for the sites.
These plans are possible, but they are “completely impossible with the uncertainty that we have surrounding what’s going to happen with the plants currently,” McFadden explained.