Tag Archives: blackouts

How private equity squeezes cash from the dying U.S. coal industry

By Tim McLaughlin

BOSTON (Reuters) – Private equity firms are proving there’s still plenty of profit in the U.S. coal industry despite a decade of falling demand for the fossil fuel. They are spending billions of dollars buying coal-fired plants on the cheap – and getting paid even when they are not providing power.

Since the end of 2014, at least five U.S. private equity firms have bought coal plants in markets where regulators pay them to be on standby to provide emergency power when demand surges with extreme hot or cold weather, according to a Reuters review of U.S. regulatory disclosures and credit-rating agency reports.

The lucrative investments illustrate how fossil fuels will remain an important part of the energy mix – and continue spinning off cash for investors – even years after demand for them peaks as the world transitions toward cleaner energy sources.

The need for reserve power was on display during the utility crisis this month in Texas – the only U.S. grid system that operates without such an emergency system. A cold snap knocked out several of the state’s generating plants and triggered widespread blackouts, leaving a wake of human suffering including several dozen deaths.

The so-called capacity payments are given out in most U.S. power markets, and regulators tend to favor coal-fired generators that store heaps of coal on site when other power sources might be disrupted. In the Pennsylvania, Jersey, Maryland Power Pool (PJM), which has the largest standby market, capacity revenue payments average more than $100 per megawatt per day – an insurance policy that costs about $9 billion a year and aims to make sure the grid’s 65 million customers avoid blackouts during heat waves and Arctic blasts.

“The capacity power market is a certain source of revenue for coal plants that might otherwise be uneconomical,” said Sylvia Bialek, an economist at New York University’s Institute for Policy Integrity.

The administration of former President Donald Trump, a Republican, encouraged capacity market incentives for coal-fired generators. But President Joe Biden, a Democrat, is likely to change those policies in the coming years as part of an effort to slash nearly all of the U.S. power sector’s reliance on fossil fuels by 2035.

In the meantime, private equity firms are in a good position to compete for capacity payments because traditional utilities are under pressure from activist shareholders to reduce greenhouse gas emissions and to limit debt.

The private equity owners of Ohio’s Gavin Power Plant in the PJM grid, for example, have squeezed hundreds of millions of dollars out of the facility since buying it four years ago, even though it only runs about 60% of the time.

Lightstone Generation LLC – a joint venture between Boston’s ArcLight Capital Partners LLC and New York-based Blackstone Group Inc – took on $2.1 billion in debt from Wall Street banks to buy the plant and three much smaller gas-fired units from American Electric Power Company Inc in 2017, according to term sheets viewed by Reuters.

From 2018 to 2020, Lightstone’s power plant operations produced about $1.1 billion in operating profit, according to estimates from Moody’s Investors Service. Up to 50% of Gavin’s cash flow comes from being on standby for emergency power, according to several economists and credit analysts.

About 18 months after the Gavin acquisition, ArcLight and Blackstone went back to Wall Street to finance most of a $375 million special dividend they paid to themselves, according to credit rating agencies. Such dividends are a way for private equity firms to lock in profits and shift risk to their debt-holders, which are often mutual funds. If the business does well, the debt gets paid off at a premium. But if the business fails, the debt-holders end up with equity stakes in plants of declining value.

ArcLight did not respond to requests for comment. Blackstone declined to comment.

The private equity firms’ backers have also been making money on the investments, according to filings. The state of Connecticut’s retirement plan, for example, invested $85 million in ArcLight’s Energy Partners Fund VI, which holds stakes in the Gavin plant along with other energy investments, and has seen returns of about 8%.

Meanwhile, mutual funds that invested in Lightstone’s debt are receiving payments pegged to a floating interest rate that has ranged from 4% to 6% – far higher than about 1.4% on the U.S. benchmark 10-year yield.

‘ABSOLUTELY VITAL’

Other private equity firms have also been betting on coal power capacity payments.

Atlas Holdings, for example, led a joint venture to buy New Hampshire’s Merrimack Station coal plant in 2018, the centerpiece of a $175 million acquisition of generators from New England-based utility Eversource Energy.

Atlas declined to comment.

The coal plant hardly runs but has been eligible to receive up to $188 million in capacity payments from the New England ISO between 2018 and 2023, according to disclosures by regulators. Workers at Merrimack Station see their mission as a matter of life and death. They keep boilers warm and the plant in a constant state of readiness, said Tony Sapienza, business manager for Local 1837 of the International Brotherhood of Electrical workers.

“The capacity market is absolutely vital,” Sapienza said. “And without Merrimack Station, people might die in the winter or during really hot weather. It’s really that simple.”

The reserve coal plants create good jobs. Private-equity owned coal plants can pay their staff about $100,000 a year for keeping the facilities on standby and firing them up when needed, according to Shawn Steffee, business agent for the Boilermakers Local 154 union in Pennsylvania. He said coal plants in the state “ran like a freight train” during the recent cold snap.

In another profitable investment, private equity firm Riverstone Holdings LLC paid $1.8 billion in late 2016 to buy the remaining stake in electricity producer Talen Energy Corp. The take-private deal included stakes in several coal plants, including ones receiving PJM capacity payments, an “important component” of gross profits, according to an SEC disclosure. About a year later, Talen paid its owners, including Riverstone, a special $500 million dividend. Riverstone did not return messages seeking comment.

WITH REWARD COMES RISK

Private equity ventures into coal-fired power don’t always turn out well, with some deals getting caught up in the broader decline of the coal industry. A credit fund run by private equity firm KKR & Co Inc in 2015, for example, took a big stake in Longview Power LLC – whose major asset is a West Virginia coal plant plugged into the PJM electric grid – as part of a bankruptcy restructuring.

But in April 2020, Longview filed for bankruptcy protection again, wiping out some $350 million in debt, as coronavirus lockdowns cut electricity demand. KKR declined to comment.

Analysts and economists expect Biden’s administration to crack down on rules that prolong the lifespan of dirty coal plants as part of sweeping measures to fight climate change. Biden has named Richard Glick, a Democrat, as the new chairman of the Federal Energy Regulatory Commission. Under a Republican majority on the commission, Glick had been critical of FERC rules he contends unfairly favor coal over renewable energy sources in capacity power markets, saying they “would have made the Kremlin economists in the old Soviet Union blush.”

FERC did not respond to requests for comment, and the White House declined to comment.

“I’m confident, in the next couple of years, FERC will order changes,” said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School.

Policy changes could make it harder for highly-leveraged private equity owners of coal plants, like Lightstone, to refinance their debts, according to Richard Donner, a credit analyst at Moody’s Investors Service. About $1.7 billion in the company’s debt comes due in 2024.

Even so, Lightstone’s creditors are the ones with the greatest risk, according to Peskoe.

“Somehow the private equity guys always make out OK,” Peskoe said. “It’s everyone else who doesn’t.”

(Reporting by Tim McLaughlin; editing by Richard Valdmanis and Brian Thevenot)

More than 1.3 million Texans still grappling with water supply disruptions

By Kanishka Singh

(Reuters) – More than 1.3 million people across over 200 counties in Texas still had issues with their water supply by Wednesday, but that was down sharply from recent days, a spokesman for the Texas Commission on Environmental Quality (TCEQ) said.

That figure compared with Tuesday’s 3.4 million, Monday’s 8 million and Sunday’s 9 million, or about a third of the state’s population.

A deadly winter storm caused widespread blackouts last week across Texas, a state unaccustomed to extreme cold, killing at least two dozen people and knocking out power to more than 4 million at its peak.

As of Wednesday evening, “33 Public Water Systems are non-operational, affecting 20,689 Texans,” the spokesman told Reuters in an emailed statement, adding that 204 counties were reporting issues with their public water systems (PWS).

He said around 853 PWSs were on a boil water notice, meaning people were being advised to boil water before consuming it, affecting 1,333,134 Texans. Some 1,176 previously issued boil water notices had been rescinded, he added.

Once the current crisis is over, TCEQ plans to examine the ongoing experience to prevent such a disruption from taking place in the future, TCEQ Executive Director Toby Baker told Reuters on Wednesday.

Texas Governor Greg Abbott pledged on Wednesday to overhaul the state’s electric grid operator after a massive blackout left residents without heat, power or water for days.

The Electric Reliability Council of Texas (ERCOT), which manages the flow of power to about 90% of state residents, has faced sharp criticism over its failure to prepare for severe cold. Outages caused billions of dollars of damages to homes and businesses.

Six ERCOT directors have resigned and a board nominee declined a seat in the wake of sharp criticism of the group’s performance.

(Reporting by Kanishka Singh in Bengaluru; Editing by Tom Hogue and Ana Nicolaci da Costa)

‘Fragile’ Texas energy grid comes back to life, steep challenges remain

By Brad Brooks

LUBBOCK, Texas (Reuters) – A “fragile” energy grid has fully returned to life for frigid Texans who have spent five days dealing with blackouts caused by a historic winter storm, but challenges in finding drinking water and dealing with downed power lines loomed on Friday.

All power plants in the state were once again functioning, but about 280,000 homes were still without power early Friday while 13 million people – nearly half of all Texans – have seen water services disrupted.

Ice that downed power lines during the week and other issues have linesman scrambling to hook all homes back up to power, while the state’s powerful oil and gas sector has looked for ways to renew production.

Hospitals in some hard-hit areas ran out of water and transferred patients elsewhere, while millions of people were ordered to boil water to make it safe for drinking. Water-treatment plants were knocked offline this week, potentially allowing harmful bacteria to proliferate.

Lina Hidalgo, the top elected official in Harris County, which encompasses Houston, said she was pleased with progress in the past 24 hours, but warned residents to brace for more hardship.

“The grid is still fragile,” she said, noting that cold weather would remain in the area for a few days, which would “put pressure on these power plants that have just come back on.”

Texas Governor Greg Abbott confirmed that all power-generating plants in the state were online as of Thursday afternoon. He urged lawmakers to pass legislation to ensure the energy grid was prepared for cold weather in the future.

“What happened this week to our fellow Texans is absolutely unacceptable and can never be replicated again,” Abbott told an afternoon news conference.

The governor lashed out at the Electric Reliability Council of Texas (ERCOT), a cooperative responsible for 90% of the state’s electricity, which he said had told officials before the storm that the grid was prepared for the cold weather.

The lack of power has cut off water supplies for millions, further strained hospitals’ ability to treat patients amid a pandemic, and isolated vulnerable communities, with frozen roads still impassable in parts of the state.

Nearly two dozen deaths have been attributed to the cold snap. Officials say they suspect many more people have died, but their bodies have not yet been discovered.

(Reporting by Brad Brooks in Lubbock, Texas. Editing by Gerry Doyle)

U.S. to withdraw and withhold funds from Afghanistan, blames corruption

WASHINGTON/KABUL (Reuters) – U.S. Secretary of State Mike Pompeo said on Thursday the United States would withdraw about $100 million earmarked for an energy infrastructure project in Afghanistan and withhold a further $60 million in planned assistance, blaming corruption and a lack of transparency in the country.

Pompeo said in a statement the United States would complete the infrastructure project but would do so using an “‘off-budget’ mechanism”, faulting Afghanistan for an “inability to transparently manage U.S. government resources”.

“Due to identified Afghan government corruption and financial mismanagement, the U.S. Government is returning approximately $100 million to the U.S. Treasury that was intended for a large energy infrastructure project,” he added.

The decision comes a day after the U.S. ambassador to Afghanistan, John Bass, in a tweet called out the country’s National Procurement Authority (NPA) for not approving the purchase of fuel for thermal electricity.

Residents of Kabul have accused the NPA of ignoring people’s need for energy, as large parts of the city have been without power for more than seven hours every day this month.

Electricity outages have also inflicted losses for manufacturing companies and emergency health services.

“Hearing reports the National Procurement Authority won’t authorize fuel purchases for the power plant providing the only electricity in Kabul – even while the U.S. & Resolute Support help Afghan security forces enable repairs to power transmission lines. Could this be true?” Bass said in a tweet on Wednesday.

The power crisis intensified further this week after insurgents attack pylons in northern provinces. About a third of the country has been hit by blackouts.

(Reporting by Makini Brice in Washington DC, Rupam Jain in Kabul; Editing by Andrew Heavens and Alex Richardson)

Once oil wealthy, Venezuela’s largest state struggles to keep the lights on

Elizabeth Altuve climbs the stairs at the occupied building where she lives in Maracaibo, Venezuela July 26, 2018. Picture taken July 26, 2018. REUTERS/Marco Bell

By Mayela Armas

MARACAIBO, Venezuela (Reuters) – Across Maracaibo, the capital of Venezuela’s largest state, residents unplug refrigerators to guard against power surges. Many only buy the food they will consume the same day. Others regularly sleep outside.

Judith Palmar holds her mother Sibilina Caro hand after feeding her at their home in Maracaibo, Venezuela July 25, 2018. Picture taken July 25, 2018. REUTERS/Marco Bello

Judith Palmar holds her mother Sibilina Caro hand after feeding her at their home in Maracaibo, Venezuela July 25, 2018. Picture taken July 25, 2018. REUTERS/Marco Bello

The rolling power blackouts in the state of Zulia pile more misery on Venezuelans living under the fifth year of an economic crisis that has sparked malnutrition, hyperinflation and mass emigration. OPEC member Venezuela’s once-thriving socialist economy has collapsed since the 2014 fall of oil prices.

“I never thought I would have to go through this,” said bakery worker Cindy Morales, 36, her eyes welling with tears. “I don’t have food, I don’t have power, I don’t have money.”

Zulia, the historic heart of Venezuela’s energy industry that was for decades known for opulent oil wealth, has been plunged into darkness for several hours a day since March, sometimes leaving its 3.7 million residents with no electricity for up to 24 hours.

In the past, Zulians considered themselves living in a “Venezuelan Texas”, rich from oil and with an identity proudly distinct from the rest of the country. Oil workers could often be seen driving new cars and flew by private jet to the Dutch Caribbean territory of Curacao to gamble their earnings in casinos.

Once famous for its all-night parties, now Maracaibo is often a sea of darkness at night due to blackouts.

The six state-owned power stations throughout Zulia have plenty of oil to generate electricity but a lack of maintenance and spare parts causes frequent breakdowns, leaving the plants running at 20 percent capacity, said Angel Navas, the president of the national Federation of Electrical Workers.

Energy Minister Luis Motta said this month that power cuts of up to eight hours a day would be the norm in Zulia while authorities developed a “stabilization” plan. He did not provide additional details and the Information Ministry did not respond to a request for comment.

The Zulia state government did not respond to a request to comment.

People block a street in protest during a blackout in Maracaibo, Venezuela July 26, 2018. REUTERS/Marco Bello

People block a street in protest during a blackout in Maracaibo, Venezuela July 26, 2018. REUTERS/Marco Bello

Although Caracas has fared far better than Maracaibo, a major outage hit the capital city on Tuesday morning for around two hours due to a fault at a substation. The energy minister said “heavy rains” had been reported near the substation.

Venezuelans were forced to walk or cram into buses as much of the subway was shut. Long lines formed in front of banks and stores in the hopes power would flick back on. The fault also affected some phone lines and the main Maiquetia airport just outside the capital.

“This is terrible. I feel helpless because I want to go to work but I am in this queue instead,” said domestic worker Nassari Parra, 50, as she waited in a line of 20 people in front of a closed bank.

MARACAIBO “GHOST TOWN”

Retiree Judith Palmar, 56, took advantage of having power to cook one afternoon last week in Maracaibo.

When the lights do go out, Palmar wheels her paralyzed mother outside because the house becomes intolerably hot. One power cut damaged an air conditioning unit, which Palmar cannot afford to replace on her pension of about $1.50 a month due to inflation, estimated by the opposition-run Congress in June at 46,000 percent a year.

Outages are taking a toll on businesses in Zulia.

Zulia used to produce 70 percent of Venezuela’s milk and meat but without power to milk cows and keep meat from spoiling, the state’s production has fallen nearly in half, according to Venezuela’s National Federation of Ranchers.

Zulia’s proportion of Venezuela’s total oil production has also slipped over the past 10 years from 38 percent to 25 percent, figures from state oil company PDVSA show.

Maracaibo, Venezuela’s second largest city, seems like a “ghost town,” said Fergus Walshe, head of a local business organization. He said businesses had shortened their operating hours due to the lack of power.

“Before, business activity here was booming,” he said.

Small businesses are also affected. In an industrial park in Maracaibo’s outskirts, 80 percent of the 1,000 companies based there are affected by the power cuts, according to another business association in Zulia.

Sales at Americo Fernandez’ spare parts store are down 50 percent because card readers, which are crucial because even the cheapest goods require unwieldy piles of banknotes, cannot be used during power cuts.

“I have had to improvise to stay afloat. I connect the car battery to the store so that the card readers can work,” Fernandez said during a power outage at his home, surrounded by candles.

(Reporting by Mayela Armas in Maracaibo, additional reporting by Andreina Aponte and Shaylim Castro in Caracas; Writing by Alexandra Ulmer; Editing by Lisa Shumaker and Alistair Bell)

Venezuela begins power rationing as drought causes severe outages

Lisney Albornoz (2nd R) and her family use a candle to illuminate the table while they dine, during a blackout in San Cristobal, Venezuela March 14, 2018. Picture taken March 14, 2018. REUTERS/Carlos Eduardo Ramirez

By Anggy Polanco and Isaac Urrutia

SAN CRISTOBAL, Venezuela (Reuters) – Venezuela imposed electricity rationing this week in six western states, as the crisis-hit country’s creaky power grid suffered from a drought that has reduced water levels in key reservoirs needed to run hydroelectric power generators.

The four-hour formal outages began on Thursday. But many residents scoffed at the announcement, wryly noting that they have been suffering far more extended blackouts during the last week.

“We have spent 14 hours without electricity today. And yesterday electricity came and went: for six hours we had no power,” said Ligthia Marrero, 50, in the western state of San Cristobal, noting that her fridge had been damaged by the frequent interruptions.

Crumbling infrastructure and lack of investments have hit Venezuela’s power supply for years. Now, the situation has been exacerbated by dwindling rains.

In the worst-hit western cities, business has all but ground to a halt at a time when the OPEC nation of 30 million is already suffering hyperinflation and a profound recession. Many Venezuelans are unable to eat properly on salaries of just a couple of dollars per month at the black market rate, sparking malnutrition, emigration and frequent sights of Venezuelans digging through trash or begging in front of supermarkets.

Maybelin Mendoza, a cashier at a bakery in Tachira state, said business has been further hit because points of sale stop working during blackouts – just as Venezuelans are chronically short of cash due to hyperinflation.

In the most dramatic cases, the opposition governor of Tachira state said three people, including a four-month-old, died this week because they failed to receive assistance during a power outage.

“Because of electrical failures, the machines weren’t able to revive the people and they died,” said Laidy Gomez.

Reuters was unable to confirm the report.

Authorities have acknowledged that interruptions will continue for at least two weeks, but they have not said whether they will spread to other states.

A worker tries to start the generator of the Padre Justo hospital during a blackout in Rubio, Venezuela March 14, 2018. Picture taken March 14, 2018. REUTERS/Carlos Eduardo Ramirez

A worker tries to start the generator of the Padre Justo hospital during a blackout in Rubio, Venezuela March 14, 2018. Picture taken March 14, 2018. REUTERS/Carlos Eduardo Ramirez

“Of a possible 1,100 megawatts, we are only generating 150 right now,” Energy Minister Luis Motta told reporters referring to the Fabricio Ojeda dam, in the western Andean state of Merida.

Capital city Caracas and other major cities have not been hit by rationing yet. Two years ago, rationing there lasted five months when a drought hit the Guri dam, the country’s largest hydroelectric dam.

But because of the economic crisis, Venezuela has reduced electricity consumption to about 14,000 megawatts at peak hours, according to engineer and former electricity executive Miguel Lara. Two years ago, state-run Corpoelec put the figure at 16,000 megawatts.

(Writing by Andreina Aponte and Girish Gupta; Editing by Corina Pons, Alexandra Ulmer and David Gregorio)