Edison Mission Energy looks at claims against parent company

Independent power producer Edison Mission Energy told its bankruptcy court on Aug. 14 that an effort by the unsecured creditors committee in this case to force claims against Edison Mission Energy parent Edison International (NYSE: EIX) is premature.

Edison Mission Energy and related companies, including coal-fired generator Midwest Generation LLC, filed for Chapter 11 protection in December 2012 at the U.S. Bankruptcy Court for the Northern District of Illinois. It has been attempting to work out issues since then, with an asset sale process in the works.

On July 31, the official committee of unsecured creditors asked the court for leave, standing and authority to prosecute, and sole authority to settle, certain claims on behalf of the debtors’ estates. That effort is aimed at Edison International and the July 31 motion is due for a court hearing on Aug. 21.

“The Committee’s Motion is an unfortunate, reckless, and ill-timed litigation tactic that defies settled Seventh Circuit bankruptcy law and already has damaged these estates,” said Edison Mission Energy in its Aug. 14 arguments. “While most, if not all, of the potential claims referenced in the Motion will either be resolved for fair consideration to the estates or pursued by the Debtors in litigation, there is absolutely no reason to force pursuit of the claims now. The Committee concedes that the parties’ investigation — which the Debtors have led in close coordination with the Committee for more than six months pursuant to this Court’s Rule 2004 order — remains ongoing. And the ultimate resolution of the claims the Debtors have against Edison International, its non-debtor affiliates and certain of their current and former directors (collectively, ‘EIX’) are inextricably linked to numerous ongoing aspects of these bankruptcy cases, which are all being prioritized by the Debtors simultaneously with the EIX investigation. Accordingly, no rational person could have believed that filing the Motion now, in the manner the Committee filed it (including with it the Committee’s draft proposed complaint), could conceivably maximize the value of these estates. It must have been filed for another purpose.”

The bankrupt companies said they have been leading an investigation of potential claims against EIX for more than six months and have not declined to prosecute any claims, which is a “fatal blow” to the committee’s motion.

“The Committee knows this: the Debtors have been discussing the claims (subject to completing the investigation) with the Committee for months. Indeed, the Committee fails to disclose that the Debtors delivered to the Committee’s counsel — before the Motion was filed — a lengthy proposed complaint against EIX and related parties, while specifically telling the Committee that: (a) it was only a draft intended to provoke further discussion about potential claims; (b) the Debtors were willing to add any additional claims warranted by the facts and law when the investigation was complete; and (c) once the investigation was complete, the parties should discuss the facts learned and the best path forward. In other words, the Debtors will pursue all colorable claims aggressively. There is no basis to suggest otherwise, and thus no basis to grant derivative standing — the Committee cannot satisfy a fundamental element of the applicable test, i.e., that the Debtors have refused to pursue a claim.”

The bankrupt companies later added: “And the EIX investigation is hardly the only thing going on in these chapter 11 cases — the recently launched sale process, progress in the PoJo leveraged lease negotiations ahead of the September 30th assumption/rejection deadline, tax analysis and structuring, regulatory matters, the Chevron gas partnerships litigation, and (most recently) the potential need to renegotiate the soon-to-expire shared services agreement with EIX — are all being effectively managed by the Debtors. Each of these initiatives must take into account the role that EIX — EME’s 100-percent shareholder, a significant operational and strategic stakeholder, and a potential major creditor and indemnitor — plays and may later play in the Debtors’ restructuring. The pieces of the Debtors’ puzzle (including claims against and by EIX) are strategically and tactically interdependent. Only the Debtors, who manage each aspect of these cases, have a fiduciary duty to all stakeholders (as opposed to the Committee, which is only focused on unsecured creditors). Only the Debtors, therefore, are appropriate stewards positioned to move those puzzle pieces around in a way to maximize value and consummate a successful chapter 11 plan.”

“PoJo” is a reference to capacity at the coal-fired Powerton and Joliet power plants in Illinois that Midwest Generation leases from another party. Oil company Chevron is in litigation against Edison Mission Energy over two gas-fired plants in California that the two sides co-own and where Chevron wants the court to order Edison Mission Energy to sell its shares in these plants to Chevron for what Edison Mission Energy says is a severely and unfairly discounted price.

An Edison International official was unavailable for comment on the possibility of any claims being filed against the parent company.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.