Dynegy shareholders overwhelmingly approved the $2.2 billion merger with power plant developer LS Power today.
The votes cast by investors in favor of the deal represented 78 percent of the Class A shares. About 79.2 percent of all Class A shareholders at the Houston-based power plant operator cast votes, representing about 317 million shares. Shareholders representing 2.1 million shares voted against the deal.
Chevron Corporation, which owns all of Dynegy's Class B stock, voted all of its shares in favor of the transaction.
Before the specially called shareholder meeting this morning a group of protesters gathered on a street corner outside Dynegy's downtown headquarters to call attention to the company's plans to build eight coal-fired plants in eight different states.
Karen Hadden, executive director of the Sustainable Energy and Economic Development Coalition, said plants like the one the company is planning near Waco are "unacceptable" given the amount of mercury, carbon dioxide and other emissions they produce compared to gas-fired plants or renewable sources like wind turbines.
Hadden said she and representatives from the Sierra Club and other groups met with Dynegy CEO Bruce Williamson in Washington Wednesday to discuss their concerns. She said Williamson was very willing to meet and listen although no agreements were reached after the meeting.
Williamson said he is open to further talks with environmental groups, but stressed the need for diverse fuel sources that are "reliable, affordable and clean."
"But with those three words there can be a lot of debate," Williamson said.
Dynegy hopes the closing of the LS deal will be a crowning moment in its five-year comeback from the brink of bankruptcy, but environmental groups have tried to label the event the crowning of the new "king of coal" in the energy industry.
Conflicting goals
But the country's growing energy needs are on a collision course with a growing sentiment in favor of curbing greenhouse gas emissions, said Dan Bakal, the director of Ceres' electric power program.
"Dynegy is now at the epicenter of that conflict," Bakal said.
When the Dynegy-LS deal was announced last September, it was seen as another milestone in Dynegy's comeback.
The company came close to bankruptcy in 2002 after a failed merger attempt with the crumbling Enron Corp. and the collapse of the merchant energy business. Williamson took the helm in October 2002 and set about selling assets, settling looming legal entanglements and simplifying the business.
The company cut debt from $14 billion to $4 billion, and has seen its stock price recover from less than a dollar. It closed at $9.58 Wednesday, up 8 cents.
Investors have been receptive to the LS deal. The stock has climbed nearly $4 since it was announced and two major shareholder advisory firms have recommended it.
From 20 to 31 plants
The LS deal will expand Dynegy's footprint from 20 plants with a capacity of 12,800 megawatts to 31 plants with more than 20,000 megawatts. Dynegy is also getting a 50 percent stake in a venture that is building nine new power plants with 7,600 megawatts of planned capacity.
In a conference call this week the environmental groups said Dynegy isn't telling its shareholders about the possible added costs of the new coal plants should the U.S. begin regulating carbon dioxide emissions.
Emissions could cost
Eric Kane, an analyst with Innovest Strategic Value Advisors who took part in the call, estimates that the 62.4 million tons of carbon dioxide the eight coal plants could produce annually could cost Dynegy between $624 million and $1.6 billion annually if Congress begins regulating greenhouse gas emissions. Those projections are based on the assumption that emitting a ton of CO2 would cost between $10 to $25.
The groups urged Congress to quickly establish a program to reduce carbon dioxide emissions.
"Dynegy's plans highlight the urgency for Congress to act swiftly, since power companies have proposed building some 150 coal plants over the next several years," said Peter Altman, a coal campaign director at the National Environmental Trust. "With each day, week or month, power companies are moving forward with plans to build new coal plants with no capacity for capturing carbon. We are simply at a point where we can't afford to have that kind of development going on."
Disputing some assertions
Williamson rejected some of the groups' arguments.
Dynegy isn't ignoring the cost to shareholders of potential carbon regulations, he said, but rather has accounted for possible laws in the power sales contracts at its plants under development. The Plum Point coal unit being built in Arkansas, for example, will be able to pass on the future cost of carbon regulations to customers.
The new plants will also be at least 10 percent cleaner than the existing generation of coal plants, Williamson said, and the company is willing to add technologies to further reduce emissions as they become available, such as the storing of carbon emissions underground.
It's also unlikely all eight coal plants will be built, Williamson said.
"No development team is so good that they bat 1.000, but if you get .300 or above, that's really good," Williamson said.
And when it comes to its approach to projects, LS and Dynegy don't use the same tactics TXU did in the past, he said. For the one Texas coal project on the drawing board, the 800-megawatt Sandy Creek project near Waco, LS didn't use the fast-track review program set up by Gov. Rick Perry, and TXU did.
The Texas Commission on Environmental Quality has granted an air permit for the project, but a Waco-area environmental group and Environmental Defense have appealed the decision in state court.
