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Longview files Chapter 11 proceeding (Updated)

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Longview Power, which operates the Longview power plant near Morgantown, and some of its affiliates filed for Chapter 11 bankruptcy protection on Aug. 30 as Longview found itself unable to make a payment on its financing package.

Last November, Electric Light and Power magazine found the advanced supercritical pulverized coal plant to be the most efficient coal-fired plant in the U.S. fleet in 2011. But the company says a combination of poor construction and market conditions have kept the plant from reaching its full operating and financial potential.

The companies listed on the filing in U.S. Bankruptcy Court in Delaware were Longview Power, Alternate Energy, Border Energy, Coresco, Dana Mining Co. of Pennsylvania, Dana Mining Co., Longview Intermediate Holdings, Mepco Conveyor, Mepco Holdings, Mepco Intermediate Holdings A, Mepco Intermediate Holdings, Mepco and Shannopin Materials.

The company said it filed for bankruptcy protection because the Longview plant "has been plagued by design, construction, and equipment defects and failures … since Longview Power took possession of the Power Facility in December 2011."

The plant has been able to run at only 68 percent capacity because of numerous forced outages, extended planned outages and generation derating, that is, when a plant operates at less than its rated maximum capacity. The plant has had three forced outages to address boiler tube leaks in the past four months alone, the filing says.

Longview names Siemens Energy Inc., Foster Wheeler North America Corp. and Kvaerner North American Construction as the contractors who built the plant. Longview and the contractors are in arbitration over the dispute, the filing says.

Longview Power also faces a debt of about $557 million that will mature in February 2014, the filing says. Because of operational issues, the company does not expect to satisfy its obligations under the credit agreement.

The filing also says the company faced an interest payment due Aug. 30. Also, a $59 million line of credit could be lost based on a request made to the arbitration panel by the contractors.

Longview Power was formed in 2003 for the purpose of constructing and operating the Longview power plant. Construction began in 2007. According to the bankruptcy filing, the plant used advanced power generation technology to meet the highest environmental standards and a supercritical pulverized coal-fired boiler to generate electric power. When operational, the Longview plant is one of the lowest cost coal-fired producers of power in the regional power grid. Electricity produced by the plant is sold to the grid in the day-ahead and real-time markets.

"The Contractors' Failures are the primary driver for the Debtors' operational and balance sheet challenges," the filing says. Siemens was to lead a team of engineering, procurement and construction contractors and deliver the power plant by a guaranteed completion date. The main piece of equipment was to be the supercritical boiler designed by Foster Wheeler and  a turbine island, automated computerized controls and an air pollution control system designed and supplies by Siemens. Kvaerner was to build the power plant.

"The Debtors believe this project was fundamentally mismanaged," the filing says. Longview Power was not able to take over the plant until December 2011 — approximately nine months after the guaranteed completion date — and it had the operational problems.

"These issued have prevented Debtors from operating the Power Facility at full capacity and from selling electricity on anything other than a day-ahead basis, limiting the Debtors' sales and ability to sell higher-margin electricity energy services, and reducing the revenue stream from the Power Facility operations while increasing volatility around their cash flows," the filing says.

The filing also says wholesale electricity prices have fallen significantly since construction began in 2007, in part because of a recession that reduced electricity demand and in part because of low-priced natural gas that came on the market when hydraulic fracturing expanded.

In a news release issued Friday morning, Longview officials said the businesses seeking protection "intend to operate their businesses as they continue to negotiate a chapter 11 plan with their lenders to de-risk their balance sheet."

"After careful consideration of available alternatives, the Company determined that filing for Chapter 11 was a necessary and prudent step that allows us to strengthen and operate our businesses without interruption while continuing to restructure the Company's balance sheet," Jeffery Keffer, CEO of Longview Power, said in the statement. "The Company has been in consensual negotiations with our senior lenders toward a Chapter 11 plan to maximize value; those negotiations remain ongoing. We remain confident that the Company and our lenders will reach an agreement on the terms of a Chapter 11 plan in the near term."