By Rich Heidorn Jr.

Longview Power, a 710-MW supercritical coal-fired generator that claims to be the most efficient coal facility in North America, filed for bankruptcy Wednesday — for the second time.

Its first bankruptcy in 2013 — when it said malfunctioning equipment hampered its operations — resulted in lenders taking all the equity in the company.

This time, the company says it was done in by liquidity problems resulting from rock-bottom natural gas prices, the loss of a nearby mine, and warm winters and energy efficiency that suppressed demand.

The COVID-19 pandemic didn’t help either, CEO Jeffery L. Keffer said in a 21-page affidavit that accompanied the company’s Chapter 11 filing in U.S. Bankruptcy Court in Wilmington, Del. The company, which said the plant generated $28.1 million of adjusted EBITDA in 2019, has $355 million in debt.

But the company said it has a prepackaged agreement that will allow it to emerge with lower debt. The company has been approved for a Payroll Protection Program loan to cover the wages of its 140 employees and says it plans to continue operations uninterrupted — and even expand with a 1,210-MW combined cycle gas turbine (CCGT) plant and a 70-MW solar farm. Keffer noted, without apparent irony, that the additional generation would increase revenues “at lower fixed costs per kilowatt” than the coal plant.

But Keffer insists that the coal plant isn’t a white elephant. “Despite recent trends, the PJM region requires a dependable coal-fired option in place for when energy demands inevitably increase. At times of national crisis, dependable utilities are at their most essential, and one key feature distinguishes coal from other existing energy sources — it can be stored.”

The $2 billion plant in Maidsville, W.Va., was “the first clean coal facility,” Keffer said, with equipment designed to be “one of the most environmentally compliant and cleanest coal plants globally.”

With an 8,750-Btu/kWh heat rate, 20% more efficient than older technology coal plants, “Longview is the future of coal,” the company’s website boasts. Indeed, Energy Secretary Rick Perry deemed it so in a 2017 visit.

But after two bankruptcies, does Longview have a future, or are the plant’s owners whistling past the graveyard? And what does its struggles say about the fate of the nation’s less efficient coal-fired generators?

Michelle Bloodworth, CEO of coal trade group America’s Power (formerly the American Coalition for Clean Coal Electricity), said wholesale markets are failing to compensate coal plants for their resilience and fuel security attributes.

“The exorbitant support in the form of subsidies, over $100 billion, that renewable sources of electricity have received over the past several decades has only further distorted the electricity markets,” she said. “We remain concerned that unless action is soon taken to address these flaws, more coal plant owners could be in the situation that Longview Power is in — which will mean we risk further loss of an important piece of a diverse electricity grid.”

Star-Crossed

Longview has had a star-crossed history.

The plant was designed with infrastructure to allow for development of a second “clean coal” generator, including a 4-mile-long conveyer belt to carry coal to the plant from a nearby mine owned by a Longview subsidiary, Mepco Holdings.

But when the plant went into operation in 2011 following construction delays, unscheduled outages and extended planned outages left the plant running at a capacity factor of only 68%, well below its design level of 90%.

Longview began a multiyear arbitration with its building contractors; unable to repay a $1 billion loan that helped fund construction, it filed for Chapter 11 protection in August 2013.

It emerged from bankruptcy in April 2015, with the company winning repairs to the plant and a $325 million loan as the original lenders took all the equity in the reorganized company.

Since the repairs, the plant has generally operated at its design levels, Keffer said.

But it was saddled with high financing costs, including a $30 million senior note at 12%. Then, in 2018, Mepco discontinued operations at all of its mines, including the one supplying Longview, citing “the aging of the mine and adverse geological conditions” that reduced its productivity and made it uncompetitive.

With the 4-mile conveyor belt no longer of any use, the company spent $8.3 million on a dock on the Monongahela River to receive coal deliveries from other mines.

“Under normal operating conditions, the debtors’ steady cash flows enable them to reliably service their funded debt obligations and weather ordinary variations in customer demands, but recent extraordinary fluctuations in the energy market have presented the debtors with new balance sheet challenges,” the company said in its filing.

In addition to the “demand destruction” resulting from energy efficiency and warm winters in PJM, “the coronavirus pandemic has resulted in significant reductions in demand as industrial and commercial users are shut down throughout the region and country,” it added.

Although they designed the site to accommodate a second coal generator, company officials now say they will add a 1,210-MW CCGT and a 70-MW solar farm. “Realization of these development plans would provide operational and fuel diversity to help shelter Longview from the volatility of energy industry trends in the long term,” Keffer said.

Will the company get there?

Despite its efforts to reduce operating costs, renegotiate fuel contracts and seek cheaper financing, the company began “reviewing strategic alternatives” in January 2020. On March 31, the company and lenders reached a forbearance agreement on a $750,000 amortization payment due that day.

With that breathing room — and facing the inability to pay off a $25 million revolving debt that matured on April 13 — the company reached the prepackaged reorganization with its lenders. Twelve investment funds currently own almost 96% of Longview Intermediate Holdings, the plant’s parent company, led by KKR Credit Advisors with 42%. The Wall Street Journal reported that KKR will lose nearly all of its ownership in the deal.

Keffer said the plan will allow “a comprehensive balance sheet restructuring that will reduce Longview’s debt burden, increase liquidity and send a strong message to Longview’s employees, vendors and other business partners that Longview is well positioned for future success.”

The deal will eliminate $350 million of first lien and subordinated debt and provide the company a $40 million
“exit facility” loan from secured term lenders that will take a 90% stake in the reorganized company. It also allows “unimpaired” payments to unsecured creditors to ensure “minimal impact on the debtors’ operations and their key business partners.”

The company asked the court to have creditors vote on the plan by May 1 and schedule a confirmation hearing on May 22.

But even if all goes as planned, Longview faces a difficult future.

The Independent Market Monitor’s 2019 State of the Market report said only 26% of PJM’s existing coal fleet was able to recover its avoidable costs from energy, capacity and ancillary services revenue in 2019, down from 68% the year before. New coal plants have not received enough net revenue to cover their costs in any zone in the RTO since 2009, two years before Longview began operation.

Conditions have worsened this year with day-ahead electricity prices at the PJM West hub averaging $19.83/MWh, a 47% drop from the $37.48/MWh average in 2018 and 2019, the company said.

Keffer had expressed confidence during Secretary Perry’s 2017 visit that natural gas prices would rise once more pipelines are built to take it from Pennsylvania and West Virginia. “The world is clamoring for our natural gas,” he said. “Once they start consuming that gas, your supply is going to start matching that demand. So the price is going to go back up.”

Natural gas is currently selling at about $1.40/MMBtu at the Dominion South hub, down from the $2.65/MMBtu average in 2018/19, Keffer said. “The price of natural gas is even lower in the immediate area where Longview operates due to the presence of shale gas,” he added.

His filing includes a 13-week pro forma projecting the plant will generate $20.3 million in revenue through July 10. Operating expenses of almost $25 million will leave it with a negative cash flow of $4.6 million for the period.

Expansion Plan

On the positive side, Longview said it will be able to add the combined cycle plant at $200 million less than the cost competitors would have to pay for a comparable new build in PJM, thanks in part to the Dunkard Creek water treatment facility, which can serve both Longview and the CCGT project.

Permitting for the CCGT project is expected to be completed during the first quarter of 2021.

The solar project would involve 188,000 370-watt panels over 300 acres in Maidsville and Greene County, Pa. The solar project will include the laydown areas for the CCGT project — the areas used for receipt, storage and assembly — after the gas plant is completed, the company said.

The math for new gas and solar plants is more encouraging than that of coal. In 2019, a new CCGT would have received sufficient net revenue to cover levelized total costs in half of PJM’s 20 zones, the Monitor reported. Recovery was 98% in 2019 in the APS zone, where Longview is located.

New solar projects would have sufficient net revenue to cover levelized total costs in AECO, JCPL and PSEG, where renewable energy credit revenues are high, but not enough to cover costs in Dominion or DPL, the Monitor said.