Dive Brief:

• The CEO of generating company Dynegy says his company will likely exit the California market, citing low gas prices and market rules which mean its power plants unable to turn a profit there.
• Though there is no timeframe for the company's eventual departure from the West Coast, CEO Robert Flexon told Bloomberg “it’s not worth putting money into California.” The company will instead focus on investments in PJM Interconnection and ISO New England, where it has a large generation fleet and sees market rules better suited to traditional fuels.
• Last month, Flexon also faulted MISO market design in the Midwest, saying that it does not value coal generation properly.

Dive Insight:

Large power producers looking to expand in the United States have taken one of two paths in recent years. Some, like NRG, have disrupted their own business models focused on traditional generation and integrated more renewables and energy services in recognition of a changing power sector. Others, like Dynegy, doubled down on traditional fuels like coal and gas.

In April, Dynegy announced it would buy Duke Energy's merchant generation fleet in the Midwest, nearly doubling its generation capacity. The company purchased 12,500 MW of coal and gas generation assets, bringing its total generation capacity to nearly 26,000 MW. About half of that total is gas, and the other half coal. 

California's plan to go 50% renewable by 2030 isn't helping Dynegy – the state's markets are aimed at fostering solar and wind, not traditional fuels, Flexon said. But ultimately, the price of natural gas may be the deciding factor.

Earlier this year California Gov. Jerry Brown set a goal for the state to get half its power from renewable sources in the next 15 years, calling for doubling the efficiency of existing buildings and making heating fuels cleaner.

But Flexon told Bloomberg he expects gas prices will remain priced from $2.50/MMBtu to $4/MMBtu for the next several years, which puts the squeeze on coal-burning plants up against carbon mandates. But with some gas trading as low as 60 cents/MMBtu, “no coal plant can compete with that,” he said.
Market rules on the West Coast have Dynegy eyeing the door, instead looking to focus on eastern markets where coal can better compete.

“I will minimize any investment possible in the state of California because the business environment there is so hostile to generators that it’s not worth putting money into California,” Flexon told Bloomberg in an interview. Both PJM and ISO New England, where the company has more generation, have market designs better suited to its fleet.

According to the U.S. Energy Information Administration, spot gas prices around the country are below $3/MMBtu recently, with some Mid-Atlantic points seeing prices less than $1/50/MMBtu.

Flexon has been vocal about his contempt for market structures that he sees valuing renewables over traditional generation sources. Last month, he criticized the Midwest Independent Service Operator (MISO) for not valuing coal properly, and said the company would look into shifting its focus to PJM. Dynegy is facing scrutiny, along with Exelon, allegedly manipulating capacity market prices to benefit its coal plants. Illinois Attorney General Lisa Madigan is investigating the auction.