Optim seeks retention of critical lease with NRG Texas

To help it to prevent the potential loss of a lease for its gas-fired Cedar Bayou Plant in Texas, Optim Energy LLC on Aug. 6 asked its bankruptcy court to let it assume the lease.

Optim, the owner of two gas-fired plants and one coal plant in Texas, sought Chapter 11 protection earlier this year at the U.S. Bankruptcy Court for the District of Delaware. It is in the process of potentially selling the Twin Oaks coal plant, while it has indicated that the two gas plants are more valuable assets.

When a company seeks Chapter 11 protection, it is given the option to assume or reject leases or other contracts in its possession, depending on whether they have a perceived value or burden to the bankruptcy estate.

The Cedar Bayou Plant is a 550-MW, natural-gas powered facility located in Chambers County, Texas, and it operates in the Electric Reliability Council of Texas‘ (ERCOT) Houston Zone. Optim Energy Cedar Bayou 4 LLC (CB4), like its parent also in bankruptcy, 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.

The Cedar Bayou Plant is located within a complex of electric generation facilities owned by NRG Texas, which also owns the real property underlying the Cedar Bayou Plant. CB4 and NRG Cedar Bayou lease the property on which the plant is situated from NRG Texas under a Premises Lease, dated as of August 2007 (called the “CB4 Lease”).

The Cedar Bayou Plant is operated by NRG Texas in accordance with an Amended and Restated Joint Ownership Agreement, dated as of August 2007, between CB4 and NRG Cedar Bayou. The energy generated by the Cedar Bayou Plant is sold on a short-term basis into the Texas power market through a Scheduling and Dispatch Agreement, dated as of June 2009, among CB4, NRG Cedar Bayou and also bankrupt Optim Energy subsidiary Optim Energy Marketing LLC.

Without NRG Texas’ consent to extend a lease deadline, Optim must assume the CB4 Lease in order to avoid the consequence of deemed rejection of the CB4 Lease, which would put Optim’s business at significant risk and threaten the going-concern value of the estates, the Aug. 6 motion said.

“With the lease in hand, the Debtors can continue to benefit from the continued operation of the plant to generate operating income to support their postpetition business operations and march toward a business reorganization with a critical asset intact,” the motion added. “While the Debtors would prefer additional time to consider assumption of the CB4 Lease in tandem with all of the Debtors’ remaining agreements, the Debtors cannot risk losing the CB4 Lease if NRG Texas ultimately does not agree to a reasonable extension of time. The Debtors respectfully submit that, given the exigent circumstances described herein, the Court should authorize the assumption of the CB4 Lease, to become effective as of the Assumption Effective Date, as a sound exercise of the Debtors’ business judgment so the Debtors are well-protected on September 10, 2014 if NRG Texas will not offer the Debtors more time.”

Any objections to this motion need to be filed with the court by Aug, 20, with the motion due for an Aug. 27 court hearing.

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.