Dynegy looks to sell coal-plant stakes this year

HOUSTON, May 22 (Reuters) - Power company Dynegy Inc (DYN.N) hopes to find buyers for its minority stakes in two coal-fired power plants under development before year end, said Holli Nichols, Dynegy chief financial officer on Friday.

The coal projects -- the 665-megawatt Plum Point project in Arkansas and the 898-MW Sandy Creek plant in Texas -- are outside the primary U.S. power markets where Dynegy operates in the Midwest, Northeast and West.

The coal plants are expected to begin operations in 2010 and 2012, respectively.

Even though U.S. power demand has fallen as the country's economic recession deepened, Nichols said buyers remain interested in the coal projects.

Dynegy would also sell a gas-fired peaking plant in Kentucky, Nichols said.

Power demand remains near five-year average levels, Nichols said, and Dynegy expects the need for economical, baseload generation to rebound in the next few years.

In the first quarter, Dynegy said its generating volume rose 10 percent as natural gas-fired plants in the Midwest and Northeast increased output from the previous year when fuel prices were much higher and climbing.

The dramatic fall in commodity and power prices since last year has caused Dynegy to contract more of its generating output in forward years, Nichols said.

In 2010, the company plans to have sales contracts for more than 80 percent of its output, compared with about 65 percent this year.

Dynegy Chief Executive Officer Bruce Williamson described the current energy market as one of "extreme turmoil," at Friday's annual shareholder meeting in Houston.

"In this environment, we are focused on the fundamentals of operating our plants well, maintaining a sound balance sheet and commercializing our expected output to add near-term earnings predictability." Williamson said.

In January, Dynegy ended its two-year-old power plant development joint venture with LS Power Associates because of tightening credit markets and significant regulatory hurdles for new coal-fired plants.

Coal-plant opponents at the meeting continued to criticize Dynegy's participation in the development of the Sandy Creek plant. Coal plants emit more carbon dioxide than other fossil-fueled plants. CO2 is blamed for global warming.

However, Williamson said the project has other owners committed to buy electricity once the project comes online.

Nichols said Dynegy disagrees with comments from the head of the Federal Energy Regulatory Commission suggesting that future electric demand growth can be met by renewable power resources, such as wind and solar, and efficiency programs.

New coal plants will be needed to replace aging, less efficient coal plants that lack emission-control equipment, Nichols said.

"It would be unfortunate if we lose sight of the need for baseload power," she said. "If you rely on peakers and intermittent sources, it will require a lot more of those resources," increasing costs for all customers.

(Reporting by Eileen O'Grady; Editing by Lisa Shumaker)