Edison Mission Energy told its bankruptcy court on Aug. 20 that it should be allowed to assume two joint venture partnerships with Chevron related to two gas-fired power plants in California, despite the protests of Chevron.
Edison Mission Energy (EME) and many of its related companies sought chapter 11 protection in December 2012 at the U.S. Bankruptcy Court for the Northern District of Illinois. A legal fight immediately broke out with Chevron, which asked the court to order that Edison Mission Energy’s shares of the two power plants be sold to Chevron. EME said that Chevron was offering too little in the way of money to buy out those shares and that there was no danger of defaults in the future by EME under the existing partnership agreements. Chevron lost its case at the bankruptcy court and has appealed that decision.
Any company in Chapter 11 at some point has to decide to assume or reject agreements, like the Chevron partnerships, depending on whether it thinks those agreements are financially advantageous to it as a reorganized company, or to a prospective buyer of the applicable assets. On July 17, EME asked the court to let it assume the partnership agreements, with a hearing on that motion scheduled for Aug. 21.
“The two gas CoGen Partnerships are financially strong and extremely valuable” EME told the court in the Aug. 20 filing. “Historically, the CoGen Partnerships have returned billions of dollars to their partners and are expected to continue to return tens of millions of additional dollars to the partners for at least the next seven years. Even the acting Director and Vice President of the Chevron partners acknowledges that, based on his experience, he does not recall a time when partner equity has been higher, and cash and cash equivalents are on the high end, if not the highest ever.”
EME accuses Chevron of ‘greed’ and ‘fantasy land’ thinking
Chevron’s motivation in opposing the July 17 motion to assume the Gas Partnership Agreements is “greed, pure and simple,” EME wrote. “Chevron is trying to use the bankruptcy process to expel its partner of 30 years from the valuable CoGen Partnerships,” EME added. “That was self-evident from the beginning of these chapter 11 cases, when Chevron moved for relief from the automatic stay and sought injunctive relief just nine days after these cases were commenced. And through its opposition to the Motion to Assume, Chevron is seeking to accomplish what the Court rightly denied at the outset of these cases.”
EME continued: “More specifically, if Chevron can convince the Court that Gas Partnership Debtors should not be permitted to assume the Gas Partnership Agreements because of the presence of a non-existent ‘default,’ it can — and most certainly will — expel the Gas Partnership Debtors from the CoGen Partnerships and purchase their partnership interests at a fraction of their actual value. Chevron’s desired outcome is neither countenanced under the Gas Partnership Agreements nor by the Bankruptcy Code. And Chevron’s self-motivated actions do not provide any basis to deny the Motion to Assume.”
Chevron now wants to delay, arguing that the court need not address the issues presented in the motion to assume until the Debtors opt to pursue either a standalone restructuring or a sale, EME said.
“The timing of the Debtors’ ultimate restructuring strategy is irrelevant to the Motion to Assume,” it said. “The Debtors are fulfilling their fiduciary duties by actively exploring the possibility of a sale and determining what, if anything, would be necessary to implement such a process. This is wholly irrelevant to the question presented in the Motion to Assume — whether the Gas Partnership Debtors can assume the Gas Partnership Agreements pursuant to section 365 of the Bankruptcy Code. The answer is unequivocally yes. Thus, a necessary first step under a standalone plan of reorganization or in connection with a sale is for EME’s indirect subsidiaries — Southern Sierra and Western Sierra — to assume the lucrative Gas Partnership Agreements. In the event the Debtors opt to pursue a standalone restructuring, the Gas Partnership Debtors can be included in the Debtors’ joint plan of reorganization with the assumption of the Gas Partnership Agreements ⎯ and Chevron’s inexorable objections ⎯ already decided. Alternatively, if the Debtors opt to implement a sale transaction with respect to the Gas Partnership Debtors’ corporate parents, then the Debtors may proceed with a potential sale of EME’s interest in the respective non-debtor parents of the Gas Partnership Debtors. In either scenario, deciding the Motion to Assume now will benefit and direct the Debtors’ strategic plans for maximizing value. And what happens in the hypothetical fantasy land that Chevron posits this Court must consider is truly for another day.”
Each of the subject gas-fired cogeneration plants, called Kern River and Sycamore, has 300 MW of total capacity, is 50% controlled by EME affiliates, and is located near Bakersfield, Calif. They serve adjacent oil operations.