The move buys time for Midwest Generation, which, along with EME, filed for Chapter 11 bankruptcy reorganization last December in the U.S. District Court for the Northern District of Illinois, to figure out a long-term solution for the plants while it keeps them in operation.
“The key to the variance was a slight revision to sulfur-dioxide emission rate limits in 2015-16 that would enable us to defer some $200 million of capital expense out of 2013-14, which is the critical period for cash conservation as we undergo our financial restructuring,” said Midwest Generation President Doug McFarlan.
McFarlan said his company took pains to make the board understand that the variance alone does not address all of the company’s financial challenges. “But it does give us the best-possible opportunity to develop a path for maintaining a viable coal fleet,” he said.
The company still needs to make “unit-by-unit decisions on retrofit versus retirement, but the variance gives us additional flexibility to factor into our decision-making,” McFarlan said. Midwest Generation retired its two aging coal plants in the city of Chicago, Crawford and Fisk, last fall, sooner than planned under a deal brokered by Chicago Mayor Rahm Emanuel.
In asking for more time to meet the rules, Midwest Generation, a merchant power generator that sells its electricity on the wholesale market, told the board it faces significant cash flow losses due to “unexpected and significantly declining energy prices.” The company had a net income of $85 million during the first three quarters of 2011, but a net loss of $63 million for the same period of 2012.
Midwest said its financial condition “has been exacerbated” by 60% higher costs for low-sulfur Powder River Basin coal than in 2008 and the debt of EME.
Midwest Generation said its remaining coal plants—Powerton, in addition to Waukegan, Joliet and Will County, could find themselves under new ownership before the bankruptcy process is completed. Together, they generate about 4,300 mw of electricity. Midwest Generation has signed deals to buy 11.8 million tons of PRB coal for the plants this year.
Midwest Generation purchased six coal plants from Commonwealth Edison, also headquartered in Chicago, for $4.9 billion in late 1999.