January 2, 2009 / 2:37 PM / 11 years ago

UPDATE 2-Dynegy ends coal-plant venture with LS Power

(Adds company comment, background)

NEW YORK, Jan 2 (Reuters) - Power company Dynegy Inc DYN.N will end its power plant development joint venture with LS Power Associates because of tough credit markets and regulatory hurdles in building new coal-fired plants, the company said on Friday.

Under the agreement to end the two-year-old venture, Dynegy will pay LS Power $19 million in cash in the first quarter and will record a loss in 2009 related to the transaction, the company said in a statement.

LS Power will acquire ownership and development rights for potential new coal-fired projects in Arkansas, Georgia, Iowa, Michigan and Nevada, along with other projects not related to Dynegy’s operating assets.

Dynegy Chief Executive Bruce Williamson said the climate for new power-plant development has changed significantly since the Houston-based company joined forces with LS in 2006.

“Today, the development of new generation is increasingly marked by barriers to entry, including external credit and regulatory factors that make development much more uncertain,” Williamson said in a statement.

The venture has come under fire from environmental groups for its development of coal plants that emit more carbon dioxide than other fossil-fueled plants. CO2 is a greenhouse gas blamed for global warming.

Dynegy’s action was praised by Bruce Nilles, director of the Sierra Club’s national effort to block development of new coal-fired plants.

“They’ve seen the writing on the wall ... It indicates that 2009 is going to be a very tough year for the coal industry,” said Nilles.

Dynegy said it would focus future development activity around its portfolio of generating assets in the Northeast, Midwest and Western power regions, but declined to give details.

Dynegy said it continues to reevaluate its minority ownership stake in two coal projects in the joint venture, the Plum Point plant in Arkansas and Sandy Creek plant in Texas, both of which are under construction.

In Georgia, a state court last year invalidated a permit to build the venture’s 1,200 MW Longleaf coal-fired plant in a controversial ruling that cited a failure to limit emissions of CO2. The decision has been appealed in Georgia.

Despite the loss of Dynegy, LS Power will move ahead with development of Longleaf and other projects, said Mike Vogt, an LS project manager. “We will continue to push forward in developing the projects we have going now,” Vogt said.

New York-based LS Power holds 40 percent of Dynegy shares. (Reporting by Matt Daily and Eileen O’Grady; Editing by Walter Bagley)

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