Eight months ago, we spent some time digging into the plan to dismantle the South Bay Power Plant in Chula Vista.
We identified one big potential problem with Chula Vista and the Unified Port of San Diego’s plans to rid the waterfront of the ugly behemoth that’s sat there since 1960. Dynegy, the company responsible for paying up to $40 million to tear down the plant, was in serious financial trouble.
That trouble got worse Monday. Dynegy’s holding company just declared bankruptcy.
The Port of San Diego, which owns the power plant, has about $22 million stashed away to pay for dismantling the plant and cleaning up any environmental damage it has caused. After that, Dynegy, which ran the plant until it was decommissioned last year, is responsible for paying for the rest of the cleanup. The company says it has $40 million, collected from electricity ratepayers, to meet its obligations.
But, crucially, that that money has not been kept in trust for the port.
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That means the port may have to line up with all Dynegy’s other creditors to collect on its debt, something I analyzed in this story.
Here’s what Pat Shea, a local bankruptcy attorney told me back in March about what was then only a possible bankruptcy:
A claim like this is an unsecured obligation and the company may have hundreds of millions of dollars of other unsecured obligations. A creditors’ group may well say, ‘We’ll give you $5 million or $10 million to walk away,’ and that wouldn’t be an unusual situation.
The Union-Tribune reported yesterday that a consultant hired by the port hasn’t yet confirmed whether that $40 million has been held in trust:
Victor Vilaplana told the City Council last week that it was unknown if the $40.5 million collected by Dynegy from ratepayers for removal of the power plant was protected in a separate escrow account to shield it from bondholder collections.
“We’re still carrying out our investigation, but as far as we know, that money has not been earmarked or segregated, so it could be reachable by creditors of the company should it go bankrupt,” he said.
Port spokesman Ron Powell told me in March that there was no trust to protect the money. So did former Port Commissioner David Malcolm, who brokered the original deal for the port to buy the power plant back in 1998. “There were never any trusts set up. Nothing like that. Ever,” he told me.
There’s another unanswered question that came out of yesterday’s news of the company’s bankruptcy.
According to the Wall Street Journal, the company’s bankruptcy is extremely unusual. Dynegy’s parent company isn’t part of the bankruptcy filing, something the Journal says could protect the company’s shareholders at the expense of its debtors.
The Union-Tribune’s story quoted company spokeswoman Katy Sullivan on that issue:
Sullivan said Monday night that Dynegy South Bay is not a debtor under the Chapter 11 filings and is not directly impacted. It is not among the four other wholly owned subsidiaries of Dynegy Holdings Inc. that also filed for bankruptcy Monday.
“Dynegy South Bay is ready, willing and able to meet its obligations at the site of the South Bay Power Plant,” Sullivan said. “The company is committed to fulfilling its contractual obligations and to returning the Chula Vista site to the Port of San Diego.”
The cleanup at the site has been ongoing for a couple of months now. I’ve called the port district to confirm whether Dynegy has yet paid anything towards the cleanup.
Will Carless is an investigative reporter at voiceofsandiego.org. You can reach him at will.carless@voiceofsandiego.org or 619.550.5670.
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