Bleeding Red Ink

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    NEWSLETTERS

    Gene Cubbison

    The South Bay Power Plant may be out of commission. But it's far from out of sight; out of mind and getting rid of it figures to be quite an undertaking.
     
    Especially when the firm that's been running it is bleeding red ink.

      Houston-based Dynegy, which has the plant's operating leasehold on the port-owned property on Chula Vista's waterfront, has collected upwards of $32 million from local ratepayers to put toward dismantling the facility and cleaning up the site.
     
    But its corporate bonds carry a ‘junk' rating on Wall Street.
     
    If Dynegy goes bankrupt and creditors descend on its remaining assets, could the plant's decommissioning process go south?
     
    "This piece of property is of vital importance to Chula Vista; it's the biggest deal they've got going," says journalist Will Carless, who's been covering power plant issues for the Voice of San Diego, NBC San Diego's on-line media partner.
     
    "This is a city that's in financial tatters, and this is the one sort of silver lining in their cloud," Carless says. "They've got this bayfront property that can bring in all sort of sales tax revenue. All sorts of stuff could happen there that's only going to be good for the city."
     
    But first, the land where Dynegy had been generating power until last New Year's Eve has to be cleared of the unsightly structure and power lines.
     
    Then, all the toxins polluting the site and surrounding waters have to be 'remediated'.
     
    Dynegy's in financial tatters, too.
     
    And, while it's been stockpiling money for the plant cleanup, "they don't legally have to keep it separate from everything else and hold onto it," Carless notes.  "And that's the crucial thing if this company goes belly-up."
     
    David Byford, Dynegy's chief spokesman is telling the media that it's "ready, willing and able" and able to meet its obligations. 
     
    But can it put money where its mouth is -- in a legal trust?
     
    "I'm not going to get into a discussion along those lines," Byford replied in a telephone interview Friday.
     
    What kind of comfort level does the Port District have with this situation?
     
    "We are hopeful -- and we have faith -- that that money will still be there and can be used for the cleanup," said Port spokesman Ron Powell.
     
    Powell points out that the Port has $22 million in cleanup funds from a state escrow account, and a backup contract with Duke Energy, the power plan's previous operator, to take over Dynegy's responsibilities if creditors and legal proceedings force a default.
     
    "We feel we're on sound legal footing," Powell adds. "And if we have to, we'll go to court to do whatever it takes to make sure that guarantee is honored."
     
    Upshot?
     
    Giving the power site a new lease on life could take some time as well as a lot of money.
     
    Meanwhile, there's a side deal on the table, whereby Dynegy would pay Chula Vista $50 million to assume the cleanup and liabilities for the site.
     
    That sets up a potential approach-avoidance conflict for the city, involving speculative deadlines for deal-making with a company that's in financial turmoil -- perhaps even potentially subject to a bankruptcy trustee's powers.
     
    The city's first priority to its taxpayers: 'due diligence' in determining how extensive, and expensive, the cleanup could be, and insuring against downside risks.

    Bleeding Red Ink

    [DGO] Bleeding Red Ink
    The South Bay Power Plant may be out of commission. But it's far from out of sight; out of mind. (Published Friday, Mar 4, 2011)