Jonathan Matise/AP Photo
Then–Energy Secretary Ernest Moniz, center, tours Longview Power’s coal-fired power plant with energy leaders and political leaders, including Sen. Joe Manchin, September 12, 2016, in Maidsville, West Virginia.
Earlier this year, West Virginia issued a construction permit for a new power plant near Morgantown. Located near the Pennsylvania border in the lush Appalachian foothills, the plant was an example of what both the Obama and Trump administrations had pitched as an “all-of-the-above” approach to energy. The company behind the project already operated a large coal-fired power plant nearby, but now it was adding a natural gas power plant and a solar array to diversify its energy production.
The company behind the plant, Longview Power, had been through a lot in the previous 20 years. Once hailed as the standard-bearer of a clean-coal future, the company had suffered from a bevy of operating issues and had gone bankrupt twice in the previous decade. It survived thanks almost entirely to the good graces of around a dozen private equity firms, which propped the company up against economic headwinds and a shifting energy landscape.
Longview’s roller-coaster history is a testament to the enduring appeal of fossil fuel assets, and to the limits of so-called ESG investing. At a time when public money managers are divesting from dirty forms of energy like coal, private equity firms are swooping in to pick up the pieces, even when those pieces aren’t especially profitable.
The Longview saga begins in the early 2000s, at a time when West Virginia had gone almost 20 years without building a new coal power plant. The price of coal had been on a steady decline for decades, as cheaper forms of energy like oil and natural gas became more available, and most new production was happening in the West rather than in Appalachia.
Into this landscape stepped a new corporation called GenPower, which wanted to build a new power plant in Morgantown that could burn coal from a long-running nearby mine. The financing came from the private equity firm First Reserve, a big player in the energy space.
The marketing for the plant was a textbook example of the “clean coal” rhetoric that dominated the early 2000s. GenPower would still emit many tons of greenhouse gases as it produced power for customers across the Northeast, but it would be more efficient than the rest of West Virginia’s antique coal fleet. The company promised to revolutionize coal power generation through new low-emissions technology.
The partners first conceived the $2 billion project around 2003, but GenPower (now renamed Longview) did not take possession of the plant until 2011, after numerous construction delays and overruns. Even then, the facility suffered from what the company later called “design, construction, and equipment defects and failures,” including boiler tube leaks and a series of power outages. Meanwhile, the fracking revolution produced a flood of cheap shale gas, further reducing demand for coal power.
Longview’s roller-coaster history is a testament to the enduring appeal of fossil fuel assets, and to the limits of so-called ESG investing.
Unable to repay its construction loans, Longview went to federal bankruptcy court in Delaware to restructure its debt. The company negotiated what is known as a debt-for-equity swap, giving its lenders an ownership stake in exchange for debt relief. The lenders who took the deal included private equity firms like KKR, Bain Capital, and American Securities, all massive institutions with billions of dollars under management. The plant had opened under the auspices of a single energy-focused private equity firm, but now it was the joint property of several firms. Those owners would get paid out last in the event of another bankruptcy, but they stood to make a profit if Longview went on to achieve success.
As the plant exited bankruptcy, it received a co-sign from pro-coal Sen. Joe Manchin (D-WV), who visited the plant in 2016 and then again in 2017 with Rick Perry, the Trump administration’s energy secretary. Perry tweeted in support of Longview’s continued coal production on the day of his visit to the plant, saying, “Here’s a little economics lesson …you put the supply out there and the demand will follow.”
Even then, though, the writing was on the wall: The company discontinued its coal-mining operations the following year, deciding it was unable to justify the costs of maintaining the mine given the protracted slump in coal prices.
In April of 2020, as power demand plummeted during the early days of the coronavirus pandemic, Longview again filed for bankruptcy, five years after the initial filing. The pandemic provided a convenient excuse, but former CEO Jeffrey Keffer admitted the company had been working on a filing since January of that year. Longview’s business model depended on a demand surge and price boost during the winter months, and the last few winters had been unseasonably warm. Returning to the Delaware bankruptcy court, the company proposed an agreement that would wipe out more than $350 million in debt that Longview owed to its private equity creditors. KKR in particular would take the restructuring on the chin, losing almost all of its 40 percent stake in the company.
In another world, this might have been the end of the story. KKR and its fellow lenders had suffered heavy losses as a result of Longview’s collapse, and the company’s business was still on life support. The outsize contribution of coal to global warming was well known, and many money managers had already declared their intention to divest from fossil infrastructure as part of a trend known as “environmental, social, and governance,” or ESG, investing.
The calculus for private equity firms is different, especially when bankruptcy is involved, says Joshua Macey, a professor at the University of Chicago Law School who has studied how energy interests use bankruptcy.
“A lot of these private equity firms are pretty diversified,” he says, “and so I think of this as a hedge, it’s like an option value. ‘Look, we can get this [coal plant] really cheap, we basically don’t lose any money, and if our other investments don’t do well, we are able to see enormous upside value from coal.’”
Thus Longview’s demise was not to be. A new generation of private equity firms swooped in to help pull the company out of bankruptcy, lending money to Longview’s exit facility in exchange for minority stakes in the company. The new white knights were smaller and far less visible funds like Cetus and Trilogy, as well as the wealth management firm Eaton Vance. The identities of the other owners, who each hold less than 10 percent of the company, are still not public. (Those remaining owners together have a 40 percent stake in the company.)
As the bankruptcy plan went before the Federal Energy Regulatory Commission for approval, Longview got yet another endorsement from Manchin, who urged FERC to give an “expeditious consideration” to Longview’s bankruptcy filing, saying that the coal plant was “an example of what can be achieved with advanced coal combustion technologies.”
By that time, even Longview itself didn’t believe in the future of coal. At the outset of the second bankruptcy, Keffer had opined that the price of coal would continue to decline. The company’s primary focus, he said, was on completing its new “all-of-the-above” power plant, which would combine natural gas and solar energy. The coal operation had gone bankrupt twice thanks to cheap shale gas and cheap renewables, and now Longview wanted to join the industries it couldn’t beat. In an amusing twist, though, Longview had to build its solar array a few miles away from the rest of the project, across the Pennsylvania state line. The Keystone State offered generous renewable tax incentives that West Virginia didn’t. The company also pitched the all-of-the-above project under a greener-sounding name, Mountain State Clean Energy.
As public financing for coal projects around the world began to evaporate, private capital was rushing in to fill the void.
Macey believes the gas plant is the most appealing asset for the private equity firms that have rescued Longview this time around.
“Maybe the gas will make money, but it just doesn’t seem like they’ll ever get to the point where [the coal plant is] cost-effective,” he said. “It’s unlikely any coal-fired generator that doesn’t have a captive rate base is ever going to be profitable in the United States again, and this facility just looks to have pretty significant infrastructure issues.” Keffer himself offered a tacit endorsement of Macey’s point in 2020, when he said he wanted to keep the coal plant open as a “hedge” against natural gas prices—“you don’t need a large movement in gas prices to make the coal plant very, very profitable.”
Longview was far from the only coal asset receiving financial support from private equity. As public financing for coal projects around the world began to evaporate, private capital was rushing in to fill the void, loaning money for new projects and buying divested assets at auction. The French power utility Engie, for instance, sold off four of its coal plants to an American private equity firm called Riverstone, which continued to operate the plants; Yorktown Partners, meanwhile, holds a large interest in Ramaco Resources, one of the only North American miners that only produces metallurgical coal.
“You have utilities under pressure from ratepayers or state regulators to reduce their carbon footprint, so they sell the assets,” says Alyssa Giachino, a researcher at the Private Equity Stakeholder Project. “So they may sell them on the cheap, and private equity has a hard time turning down cheap deals.” The Longview plant was always a private project, but in many other cases private equity firms have purchased power plants and mines from public entities at cut-rate prices.
“The list of coal plants coming up for retirement or decommissioning grows every year—too slowly, but it’s growing,” Giachino says. “It’s possible that the risk-takers are betting that the few coal plants left are going to have to create more of the burden. It’s a cynical bet that coal is going to keep being in the mix even though it’s to all of our detriment.”
Whether for moral or economic reasons, the financial world has begun to wake up to the threat of climate change. More money managers are divesting from polluting assets, and many major banks and governments have ended the international finance of fossil fuel construction. These measures are consistent with the recommendations of the International Energy Agency, which has said that achieving net-zero emissions by 2050 requires a total moratorium on all new fossil infrastructure.
The Longview saga shows that private equity is worlds away from making such a commitment. Not only are private equity firms snapping up divested coal assets, they are doing so even when those assets are troubled and unprofitable. These firms don’t have shareholders who can mount an ESG campaign against them, nor do they need to focus on achieving immediate returns. So there’s nothing to dissuade them from rescuing a coal plant like Longview as a hedge against better forms of energy. The economic rationale for this hedge position is easy to understand, but the moral rationale is far more elusive.
