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AES Corp. (AES) said Tuesday that the bankruptcy filing of its New York coal plants wouldn't affect the parent company's expected financial results, after warning earlier this year that the plants faced potential closure.
AES Eastern Energy and several affiliates that own or are involved with four coal-fired power plants in New York state, filed for Chapter 11 last week after unsuccessfully trying to sell the plants. The companies said a group of debt holders has agreed to buy two of the plants in a deal that one executive said could save the facilities from closure.
The companies blamed falling power prices, growing debt and a complicated sale-leaseback arrangement for the bankruptcies.
The bankruptcy filings show the difficulties that many U.S. coal plants face as they struggle against low wholesale natural gas and electricity prices, relatively high coal prices, weak power demand in the Northeast and other regions, and additional costs of complying with federal pollution limits.
AES warned in September that the New York plants, overseen by AES Eastern Energy, "may not be able to continue operations" if the company wasn't able to sell them.
The company, which owns utilities and power plants around the world, said Tuesday that it didn't expect the bankruptcy filings to impact its predicted 2011 earnings and that it "is not updating" its guidance for 2012 either.
A telephone call to AES Eastern Energy wasn't immediately returned.
A spokesman for AES Corp. declined to comment on the bankruptcy filings or the New York plants.
Peter Norgeot, president of AES NY LLC, one of the units that filed for bankruptcy, blamed the plants' financial difficulties on "the current depressed economic environment of the electric power industry, particularly for coal-fired power plants," in documents filed with the U.S. Bankruptcy Court in Delaware.
Norgeot said the companies' agreement to sell two of the plants to a group of debt holders was the only way to avoid shutting them down.
Under the deal, the investors will serve as the lead bidder for AES's Cayuga and Somerset coal-fired power plants for $300 million, subject to higher offers at an auction. The buyers will use funds they are owed to purchase the two plants, which will remain in operation during the bankruptcy case.
Top creditors include Deutsche Bank AG (DB) unit Deutsche Bank Trust Co., Bank of Nova Scotia (BNS, BNS.T) and CSX Corp. (CSX), according to court papers.
AES bought six coal plants from New York State Electric & Gas Corp. in 1998 for $950 million and financed the purchase of the Cayuga and Somerset plants through a $550 million sale-leaseback transaction.
Two of the plants were shut down in 2002, and two others were shut down in March 2011, leaving the Cayuga plant in Lansing, N.Y., and the Somerset plant in Barker, N.Y., as the sole operating facilities, according to court documents.
A Connecticut plant, AES Thames LLC, filed for bankruptcy last February under similar circumstances, blaming high coal prices and costs associated with transportation and emissions requirements.
Coal plants that sell their electricity on the wholesale power market, rather than directly to utility customers, have seen their costs rise as power prices have fallen, driven by low natural gas prices.
U.S. natural gas prices have fallen amid a surge in production as new horizontal drilling techniques have been used to tap vast reserves of natural gas from shale rock formations in Texas and other states.
Gas futures in New York, for example, closed below $3 a million British thermal units on Tuesday, down from $4.61 a million BTUs a year ago, and down from a high of $15.39 a million BTUs in December 2006, before the gas production boom.
Shares of AES closed 2.45 higher at $12.12. In November, the company predicted 2011 earnings of 93 cents to 99 cents a share, and forecast 2012 earnings of $1.15 to $1.25 a share.
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; firstname.lastname@example.org