Squeaking in ahead of a June 27 bankruptcy court hearing on the matter, Midwest Generation on June 25 told the court it has worked out a deal to extend the deadline to accept or reject leases on the coal-fired Powerton power plant and two units at the Joliet coal plant.
Midwest Gen since 2000 has leased these coal facilities from financial parties. Edison Mission Energy, Midwest Gen and various affiliates in December 2012 sought Chapter 11 protection at the U.S. Bankruptcy Court for the Northern District of Illinois. They have been facing a court-imposed, July 1 deadline to accept or reject their leases, including the ones for the Powerton and Joliet facilities (known collectively as the PoJo Leases and PoJo Facilities).
Midwest Gen (MWG) and its stakeholders have engaged in extensive, arm’s-length negotiations regarding the terms of the extension over the last several weeks. “These negotiations were successful,” MWG said in the June 25 filing.
“This agreement secures an extension of MWG’s deadline to assume or reject the PoJo Leases through September 30, 2013, thereby affording the parties additional time to explore and potentially agree upon a comprehensive restructuring,” MWG added. “Thus, authorizing MWG’s and EME’s entry into the Extension, on the modified terms as described herein, is undoubtedly in the best interest of the Debtors’ estates and all parties in interest.”
The agreed upon extension contemplates various things, including:
- on the first business day of each month during the extension period after court approval, MWG has to pay by wire transfer to the Trustee the sum of $3.7m in partial satisfaction of any allowed post-petition administrative lease rent accruing from July 3, 2013, onward and the Trustee will refund to MWG the allocable portion of any monthly payment that covers the period subsequent to the effective date of rejection of any of the facility leases;
- MWG will continue to make presently scheduled environmental retrofit capital expenditures for the premises subject to the leases from July 2, 2013, through the earlier of the date of the hearing to consider a motion to reject the leases or Sept. 30, 2013; and
- notwithstanding that the lessor notes have not been accelerated, the lessor notes shall be deemed to accrue, from the commencement of MWG’s Chapter 11 case, interest for all purposes under the operative documents at the overdue rate, calculated based on the entire amount of principal and accrued but unpaid interest outstanding under the lessor notes as of the commencement of MWG’s chapter 11 case and at each scheduled lease payment date, in all cases as though the lessor notes had been declared due and payable as of the commencement of MWG’s Chapter 11 case.
Public Service Enterprise Group affiliates own these facilities
Several financial vehicle affiliates of Public Service Enterprise Group (NYSE: PEG) told the Federal Energy Regulatory Commission on June 14 that it would be premature to allow Midwest Gen to transfer control of these plants to those PSEG affiliates. Preparing for the possibility of losing the leases on these facilities, Midwest Gen on May 6 applied with FERC to let it turn back these facilities to the PSEG-affiliated owners. Those PSEG affiliates have names like Nesbitt Asset Recovery Series P-1 and Powerton Trust II.
“The Applicant, a debtor in an ongoing Chapter 11 bankruptcy proceeding, asks the Commission to authorize its disposal of control over the electric generating facilities in Illinois,” said the June 14 PSEG filing. “The Owner-Lessors protest the Applicant’s unwarranted request for expedited action and respectfully request that the Commission reject the Application in its entirety. In the alternative, the Commission should defer consideration on the Application until multiple threshold transactional, operational, and legal issues implicated by the Application, that could negatively affect the public interest, are resolved.”
MWG told FERC its leases “will be deemed rejected” on July 1, but that is a possibility, not a certainty, the PSEG companies said. “The questions of if and when the leases can be rejected under bankruptcy law will be contested and fully litigated in the Bankruptcy Court,” they added. “This legal dispute is unlikely to be resolved by July 1, 2013. Until that litigation is finally resolved, no rejection will occur.”
The leased facilities have well over 2,000 MW of capacity
Powerton is a 1,538 MW coal-fired facility located in Tazwell County, Ill., and Joliet Units 7 and 8, which are subject to lease, comprise 1,036 MW of the 1,358-MW Joliet plant located in Will County, Ill. The leases for the Powerton facility expire on May 24, 2034, and the leases for Joliet 7 and 8 expire on Aug. 24, 2030.
The PSEG companies told FERC that among other things, there is an issue with the fact that the third coal unit at Joliet is not subject to the sale-leaseback deal. “In the Application, the Applicant states that it will retain ownership and control of a third unit at such facility (unit 6). At the present time, the Joliet 7 and 8 units, which are the subjects of the Application, cannot be segregated and operated separately (from unit 6) without the involvement of the Applicant. By way of example, all coal deliveries and coal handling occur at unit 6, and the Applicant’s ash disposal runs through unit 6 as well. Without alternative arrangements for coal deliveries and ash disposal, Joliet 7 and 8 cannot operate. The Applicant has not addressed this issue at all.”
The PSEG companies added: “For reliable operation of Joliet 7 and 8 to continue, the Applicant and any future operator of those units must agree on how to jointly maintain and use the facilities’ integrated systems, or, alternatively, to separate these systems so that the units can be separately operated. To accomplish this, the parties must perform due diligence regarding operating procedures, processes, and personnel expertise and reach an understanding about how separation of facilities would work.”