latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/lincoln-power-pjm-reach-42-8m-settlement-over-2022-winter-storm-penalties-75648339 content esgSubNav
In This List

Lincoln Power, PJM reach $42.8M settlement over 2022 winter storm penalties


Insight Weekly: Loan-to-deposit ratio rises; inventory turnovers ebb; miners add female leaders


Insight Weekly: Sustainable bonds face hurdles; bad loans among landlords; AI investments up


Insight Weekly: Bank oversight steps up; auto insurers’ dismal year; VC investment slumps


Insight Weekly: Renewables lead capacity additions; bank mergers of equals up; nickel IPOs surge

Lincoln Power, PJM reach $42.8M settlement over 2022 winter storm penalties

Independent power producer Lincoln Power LLC asked the US Bankruptcy Court in Delaware to approve a $42.8 million settlement with the PJM Interconnection LLC regarding penalties the power plant owner incurred after a December 2022 winter storm.

Lincoln Power, a Carlyle Group Inc. subsidiary, filed for Chapter 11 bankruptcy March 31 after the 13-state grid operator levied nearly $39 million in nonperformance penalties against its gas-fired, 500-MW Elgin Energy Center and 402-MW Rocky Road facilities, both in Illinois. The plants had failed to comply with an emergency action despite remaining online during the cold weather event.

But Lincoln Power told the court in a May 3 motion to approve the settlement that it could not guarantee a successful bankruptcy exit and reorganization without negotiating with PJM given the "novel and complex questions."

"While the debtors believe they would succeed in litigation with PJM, the debtors recognize that success is not certain," Lincoln and PJM said in the filing. "It is possible that the debtors would not prevail on certain issues, which could jeopardize the debtors' ability to consummate a value-maximizing restructuring transaction."

PJM unexpectedly lost approximately 23% of its generation capacity over the Christmas 2022 holiday weekend due to widespread cold, with gas-fired generators accounting for most of the unplanned outages.

The settlement agreement, which would allow $42.8 million in combined claims against the Elgin Energy and Rocky Road plants, includes $2.2 million of collateral that would be deducted from the general unsecured claim upon payment to PJM. Lincoln Power would also have to reorganize through asset sales instead of a debt-for-equity swap.

The March 31 filing recommended that Lincoln Power creditors vote in favor of the agreement to "facilitate a competitive sale process."

Moody's analysts in April wrote that the $1.8 billion in penalties assessed on PJM generators that failed to perform as expected during the storm represented "a material downside event risk for the credit quality of affected power projects."

While the size and operational diversity of large independent power producers such as Constellation Energy Corp., Vistra Corp. and Calpine Corp. protect their liquidity, Moody's said smaller producers like Lincoln, as well as fellow Carlyle Group subsidiary Nautilus Power LLC and Parkway Generation LLC — a portfolio ArcLight Capital Partners LLC purchased from Public Service Enterprise Group Inc. in 2022 — are more exposed to the penalties.

The Federal Energy Regulatory Commission in April also approved a PJM Interconnection plan to mitigate up to $2 billion in penalties for those underperforming generators to reduce the risk of defaults.

PJM's rules require nonperformance charges to be invoiced and divided by the number of months remaining in a delivery year, which runs from June through May of the following year, giving Lincoln Power and other penalized generators just three months to pay.

The FERC-approved plan, however, allows those companies to pay nonperformance costs across nine monthly bills. The charges would be subject to interest for the months beyond May 2023 to compensate generators that performed beyond their capacity supply obligations and expected to receive full performance bonus payouts by June.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.