Optim Energy argues for approval of its in-bankruptcy funding

Optim Energy LLC and related companies in bankruptcy, which own three power plants in Texas, on March 3 argued against limited objections to their in-bankruptcy financing filed by Walnut Creek Mining and Lyondell Chemical.

Optim Energy sought Chapter 11 protection on Feb. 12 at the U.S. Bankruptcy Court for the District of Delaware. It owns two gas-fired power plants, and one coal-fired power plant, all three located in Texas. It has indicated a desire to sell the Twin Oaks coal plant as a boost to its finances.

Walnut Creek Mining, a Kiewit Corp. affiliate that supplies the Twin Oaks plant with its minemouth lignite, has been seeking full payment of what it is owed for that coal and has objected to the debtor-in-possession (DIP) financing that Optim Energy lined up to get it through this Chapter 11 case.

“Walnut Creek and Lyondell are arguably the two largest beneficiaries of the DIP Facility,” Optim Energy stated in its March 3 brief. “DIP proceeds will be used to purchase millions of dollars of coal from Walnut Creek each month. In addition, Walnut Creek will receive a new $3 million letter of credit from the DIP Facility as support for the Debtors’ obligations under the Walnut Creek Fuel Supply Agreement. The Debtors will also utilize the DIP Facility to purchase the natural gas that generates the steam and power that Lyondell requires to operate its petrochemical plant. In addition, the DIP Lender will replace Lyondell’s existing $40 million letter of credit with a new letter of credit in the same amount but with a significantly extended termination date.”

Optim Energy added: “While the Objectors make numerous unsubstantiated and uninformed allegations regarding the need to investigate the DIP Lender’s relationship with the Debtors, neither Objector challenges the DIP Motion’s request for a good faith finding under section 364(e) of the Bankruptcy Code. This is not surprising, given that the Debtors have provided ample and uncontested evidence that this DIP Facility is the best and most favorable financing available to the Debtors and is in the best interests of the Debtors’ estates and stakeholders.”

The main Walnut Creek complaint is that a challenge period is too short for it to investigate whether the release of claims against the DIP lender is justified, Optim noted. “Yet, a 75-day Challenge Period, after which the estate or other parties in interest becomes bound, is fully compliant with Local Rules and customary practice for financings of this nature,” it added.

Lyondell has expressed concerns that the DIP Facility should not interfere with the Debtors’ operations under the Lyondell contracts. “It does not,” Optim wrote.

“The Debtors attempted to resolve the Limited Objections prior to filing this response, and will continue to work with the DIP Lender and Objectors on a consensual form of Final DIP Order prior to the Final Hearing,” Optim added. “However, in lieu of a resolution, the Debtors respectfully request this Court to overrule the Limited Objections, and enter the Final DIP Order in its current form, which includes certain revisions requested by the Debtors and approved by the DIP Lender as described further herein. The proposed Final DIP Order, if entered, will afford the Debtors ample liquidity throughout these chapter 11 cases and on the terms the Debtors and the DIP Lender have negotiated.”

Optim says alternative coal, and even natural gas, are options for the Twin Oaks plant

Of note is that Optim Energy in the March 3 brief refuted Walnut Creek’s assertion that the Twin Oaks plant can only operate by burning Walnut Creek’s lignite. “Twin Oaks has a rail loop that gives it the ability to purchase coal or other fuels from alternative sources,” it added. “In addition, the plant may also be retrofitted to burn natural gas, which may be an attractive feature for potential bidders for the Twin Oaks Plant.”

The Optim Energy plants are:

  • Twin Oaks Plant: This is a coal-fired facility capable of producing 305 MW. The plant is located in Robertson County, Texas, and sells energy into the ERCOT market. Twin Oaks purchases the vast majority of its coal to operate the plant from Walnut Creek Mining under a long term fuel supply agreement executed in 1987. Under this agreement, Twin Oaks must purchase in excess of approximately 90% of its coal from Walnut Creek and is required to purchase minimum coal quantities regardless of the Twin Oaks Plant’s actual coal needs. Twin Oaks is obligated to purchase coal from Walnut Creek to operate the Twin Oaks Plant for at least another ten years.
  • Altura Cogen Plant: This is a gas-fired plant capable of producing 600 MW located in Harris County, Texas, and sells the majority of its energy in the ERCOT market. The plant has been commercially operating since 1985 and is located within a complex of petrochemical facilities owned by Lyondell Chemical. Altura Cogen purchases the natural gas to fuel the plant from EDF Trading North America LLC under fuel purchase agreements which typically expire every few years.
  • Cedar Bayou Plant: Cedar Bayou is a gas-fired plant capable of producing 550 MW located in Chambers County, Texas, which operates in ERCOT’s Houston Zone. Debtor Optim Energy Cedar Bayou 4 LLC owns a 50% undivided interest in the Cedar Bayou Plant and NRG Cedar Bayou Development Co. LLC owns the remaining 50% undivided interest. The Cedar Bayou Plant began operating in 2009. It is located within a complex of electric generation facilities owned by NRG Texas Power LLC, which owns the real property upon which the Cedar Bayou Plant is situated. The Cedar Bayou Plant is operated by NRG Cedar Bayou in accordance with a Joint Ownership Agreement. The energy generated by the Cedar Bayou Plant is sold on behalf of Cedar Bayou and NRG Texas as joint owners on a short-term basis into the Texas power market through a scheduling and dispatch agreement with NRG Texas. Cedar Bayou purchases its share of the natural gas to fuel the plant pursuant to short term (typically periods of three months) fuel purchase agreements with NRG Power Marketing LLC.
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.