OREANDA-NEWS. Low bids and uncertainty over California's once-through-cooling regulations that complicate efforts to sign long-term power sale contracts forced merchant generation owner Dynegy to abandon a plan to auction its 2,700MW California portfolio.

Dynegy sought bids for its California plants last fall, saying it would focus on its growing portfolio of generation in the midwest.

Dynegy owns the Moss Landing natural gas-fired power plant that includes units 1 and 2 with a combined total of 1,020MW and units 6 and 7 with a total of 1,509MW. Dynegy also owns the 165MW oil-fired Oakland plant and has transmission rights at the site of the 650MW Morro Bay plant that shut in 2014.

Knowing that Dynegy wanted to unload the assets for a second time in five years likely tempted potential buyers to "do a little bottom feeding on us," Dynegy chief executive Robert Flexon told analysts on an earnings call.

"Second round bids were substantially below first rounds bids and what we consider to be the portfolio's value under our ownership," Flexon said.

Uncertainty over California's once-through-cooling regulation that will reduce water intake for power plants and its impact on Moss Landing also was a factor for buyers. "I can empathize with the bidders around that. You do not have the final answer so it is hard to pay full value," Flexon said.

Uncertainty over the cooling-water rule and the continuing difficulty Dynegy and other existing generators have competing for long-term power sales contracts against new generation also hurt bids. "If you are putting new steel in the ground, you get off-takes and if you have steel in the ground, you will fight for capacity and you fight for new contracts," Flexon said.

He said it made more sense for Dynegy to keep the assets. Dynegy hopes to have the final approval extending Moss Landing's cooling-water compliance date by three years to late 2020 from the State Water Resources Control Board in April.

"We will work with the utilities on off-takes for the assets and then we will continue to pursue development options at some of the sites," he said.

The California Independent System Operator projects that almost 7GW of gas-fired capacity in the Los Angeles and San Diego regions will retire between 2011 and 2022. Only 3.3GW of gas-fired capacity will be added.

In 2010, investment firm Blackstone Group planned to buy Dynegy and to sell the California plants to NRG Energy for \$1.36bn. Dynegy shareholders rejected the plan.

Dynegy hopes to close its deal to buy 12,500MW of midwest coal and gas generation from Duke Energy and Energy Capital Partners in separate transactions valued at \$6.25bn in the first half of the year after settling concerns with the market monitor for the PJM Interconnection.

The company has asked the Federal Energy Regulatory Commission for a decision by 1 April. With the settlement and a lack of comments, the deal should be on "a clear path for approval," Flexon said.