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Multitude of woes drive WV's cleanest coal-burning power plant to bankruptcy

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It was supposed to be the standard for clean-burning coal-fired power plants, but the Longview Power LLC plant near Morgantown hasn't lived up to the promises in the nearly two years since it went operational.

Market conditions and what the company says were design and construction flaws have kept the plant from reaching its potential.

Thus, on Aug. 30, Longview Power and several affiliated companies filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Delaware.

Promise

Longview Power was formed in 2003 for the purpose of constructing and operating the Longview power plant. Construction began in 2007. According to the bankruptcy filing, the plant used advanced power generation technology to meet the highest environmental standards and a supercritical pulverized coal-fired boiler to generate electric power. When operational, the Longview plant is one of the lowest cost coal-fired producers of power in the regional power grid. Electricity produced by the plant is sold to the grid in the day-ahead and real-time markets.

As recently as May 2011, a technical paper presented at a conference in New Delhi, India, by three employees of Foster Wheeler North America Corp. praised the promise of what Longview would be.

"The project is on schedule and when it goes into commercial operation in the spring of 2011, it will demonstrate these advantages and set the standard for future advanced, high efficiency steam cycle power projects," the paper said.

That comment echoed statements found in nearly identical papers presented at conferences in 2008 and 2009.

Those papers, also from Foster Wheeler, one of the companies involved in the plant's construction, described the plant as "the first U.S. supercritical coal plant developed by an independent power producer (IPP), the first greenfield coal plant in the northeastern USA in over 20 years, the first major private equity participation in a new U.S. coal plant project, and the first Siemens steam reference plant in the U.S."

The 2008 paper also said the plant is in the PJM Interconnection area, "a favorable market with significant upcoming capacity needs as well as a redesigned capacity market structure that is expected to provide greater and more predictable value for capacity."

But then came the 2009 recession, a few years of mild weather, shale gas development and a host of other problems.

Problems

Longview fulfilled part of its promise. Last November, Electric Light and Power magazine found the advanced supercritical pulverized coal plant to be the most efficient coal-fired plant in the U.S. fleet in 2011.

But, in its bankruptcy filing, the company says a combination of poor construction and market conditions have kept the plant from reaching its full operating and financial potential.

Longview Power said it filed for bankruptcy protection in part because the Longview plant "has been plagued by design, construction, and equipment defects and failures … since Longview Power took possession of the Power Facility in December 2011."

The plant has been able to run at only 68 percent capacity because of numerous forced outages, extended planned outages and generation derating, that is, when a plant operates at less than its rated maximum capacity. The plant has had three forced outages to address boiler tube leaks in the past four months alone, the filing says.

Longview names Siemens Energy Inc., Foster Wheeler North America Corp. and Kvaerner North American Construction as the contractors who built the plant.

"The Contractors' Failures are the primary driver for the Debtors' operational and balance sheet challenges," the filing says. Siemens was to lead a team of engineering, procurement and construction contractors and deliver the power plant by a guaranteed completion date. The main piece of equipment was to be the supercritical boiler designed by Foster Wheeler and a turbine island, automated computerized controls and an air pollution control system designed and supplied by Siemens. Kvaerner was to build the power plant.

"The Debtors believe this project was fundamentally mismanaged," the filing says. Longview Power was not able to take over the plant until December 2011 — approximately nine months after the guaranteed completion date — and it had the operational problems.

"These issues have prevented Debtors from operating the Power Facility at full capacity and from selling electricity on anything other than a day-ahead basis, limiting the Debtors' sales and ability to sell higher-margin electricity energy services, and reducing the revenue stream from the Power Facility operations while increasing volatility around their cash flows," the filing says.

The filing also says wholesale electricity prices have fallen significantly since construction began in 2007, in part because of a recession that reduced electricity demand and in part because of low-priced natural gas that came on the market when hydraulic fracturing expanded.

Longview and the contractors are in arbitration over the dispute, the filing says.

Kvaerner mentioned the arbitration case in its 2011 and 2012 annual reports. Kvaerner initiated the proceedings, the annual reports said.

"Kvaener North American Construction Inc (sic) experienced an increase in the cost of construction of the propject from a number of causes, incuding force majeure evet; changes to the project; and third party actions in furnishing engineering services, equipment and materials … The arbitration is intended to recover excess constrution costs and other damages …" the annual reports said.

Payments and power markets

Longview Power filed Chapter 11 on Aug. 30 because that was the date it was due to make an interest payment. Longview Power also faces a debt of about $557 million that will mature in February 2014, the filing says.

Because of operational issues, the company did not expect to satisfy its obligations under the credit agreement.

Also, a $59 million line of credit could be lost based on a request made to the arbitration panel by the contractors, the filing says.

And there's the wholesale market for electric power.

"Wholesale electricity prices have fallen significantly since construction of the Power Facility began in 2007 as a result of, among other things, the broader recession that commenced around that time, resulting in reduced electricity demand and substantial reduction in natural gas prices," the filing says.

"Year-to-date, the average price per megawatt for electricity sold into the PJM on a day-ahead basis was approximately $33 per megawatt-hour — approximately 52 percent of the average power price forecasted for 2013 when construction began on the Power Facility in 2007."

The filing listed the creditors with the largest claims against Longview Power. Among them are:

 

  • Consol Energy Sales Co., trade debt, $791,285.94;
  • GMS Mine Repair & Maintenance, trade debt, $334,526,82;
  • Monongalia County Sheriff Tax Office, taxes, $310,774.03;
  • Brickstreet Mutual Insurance Co., workers' compensation, $274,643.

Longview Affiliates

The Chapter 11 filing of Longview Power also lists several companies that are affiliated with Longview. Those are Alternate Energy, Border Energy, Coresco, Dana Mining Co. of Pennsylvania, Dana Mining Co., Longview Intermediate Holdings, Mepco Conveyor, Mepco Holdings, Mepco Intermediate Holdings A, Mepco Intermediate Holdings, Mepco and Shannopin Materials.

Mepco is a coal company that supplies the Longview with coal. About half of Mepco's production is sold to Longview Power.