Alcoa fails to work out coal issues with Energy Future units in bankruptcy

Alcoa Inc., saying it has failed lately to work out coal mining and power production issues with subsidiaries of Energy Future Holdings, on Feb. 3 filed a limited objection with Energy Future’s bankruptcy court over an Energy Future request for an extended deadline of Oct. 29 of this year to file a chapter 11 reorganization plan.

The limited objection was specific to Luminant Generation LLC, Luminant Mining LLC and Sandow Power Co. LLC, which are referred to collectively by Alcoa as “Luminant” and are also in chapter 11 protection like their parent company.

Alcoa wrote: “Luminant has failed to articulate any basis for such a lengthy extension of exclusivity. In fact, other than the intercompany claims dispute, neither Luminant nor any of the other so-called ‘T-Side Debtors,’ are mentioned at all either in the Motion or in the accompanymg declaration of Paul Keglevic in support of the Motion (the ‘Keglevic Declaration’).

“Alcoa has a significant and complex business relationship with Luminant for the mining of coal and the production of electricity at a facility located in Rockdale, Texas. The contracts concerning the facility are a substantial asset of Luminant. Yet, despite Alcoa’s several attempts to discuss the future of Luminant’s operations at the Rockdale facility, Alcoa has been rebuffed at every turn. While Luminant’s cold-shoulder tactics may be attributable to the Debtors’ need to focus solely on its proposed sale of the assets of the so-called ‘E-Side Debtors’ – specifically the sale of their economic interests in Oncor Electric Delivery Company, LLC (‘Oncor’) – as well as conflict-of-interest issues concerning that sale, such dispute does not excuse Luminant’s fiduciary responsibilities to its estates and creditors. Furthermore, issues with the E-Side Debtors surrounding the Oncor sale cannot be a basis for Luminant ‘s lengthy request to extend its Exclusive Periods.

“Accordingly, Alcoa submits that any extension of Luminant’s Exclusive Periods should be limited to no more than 90 days with respect to Luminant’s Filing Exclusivity Period and no more than an additional 60 days with respect to Luminant’s Soliciting Exclusivity Period.”

In 1951, Alcoa began its decades-long relationship with the complex, interrelated agreements between Alcoa and Luminant to fuel, maintain, and operate a power plant located on an Alcoa smelting facility in Rockdale, Texas. Over the years, the parties entered into dozens of agreements, amendments and supplements, regarding the operation of power generation units at the Rockdale Facility. Generally speaking, Luminant Mining was contracted by Alcoa to mine lignite coal, which Alcoa would then sell to Luminant Generation and Sandow Power. Luminant Generation and Sandow Power would then use the lignite coal it purchased from Alcoa to generate electricity at two units (known as Unit 4 and Unit 5), which are part of the Rockdale Facility.

Alcoa said in the Feb. 3 objection: “Despite Alcoa’s repeated requests, to date Luminant has refused to engage with Alcoa on the future of the Rockdale Facility. Alcoa has no understanding of whether Luminant intends to assume or reject the Alcoa/Luminant Agreements or request modifications of the same. Alcoa’s timely proofs of claim highlight Luminant’s various material defaults under the Alcoa/Luminant Agreements. These defaults will need to be cured prior to any assumption. Given the complexity of the interrelated Alcoa/Luminant Agreements, any discussions regarding their assumption, modification, and/or resolutions of claims related thereto will take several months, at minimum.”

On April 29, 2014, Energy Future Holdings 70 affiliated companies each filed petitions in the U.S. Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 of the United States Bankruptcy Code. There is a current effort to put Oncor, an electricity delivery company in Texas, up for auction, with no major moves lately in regard to the company’s numerous power generating assets in Texas.

Paul Keglevic, the Executive Vice President, Chief Financial Officer and Co-Chief Restructuring Officer of Energy Future Holdings, said in Jan. 20 testimony in support of the deadline extension request: “I believe that maintaining the Exclusivity Periods is critical to the Debtors’ ability to advance plan discussions beyond the early stages. If granted an extension of the Exclusivity Periods, I anticipate that the Debtors’ priority will be to facilitate a continued dialogue with their various stakeholders in order to accomplish the Debtors’ ultimate goal—achieving as much consensus as possible on a plan of reorganization that maximizes value and allows the Debtors to expeditiously exit chapter 11. I believe such a discussion will be more difficult in an environment where multiple plans can be proposed and parties become less willing to engage in a global restructuring discussion.

“In addition, based on the progress of such restructuring discussions to date, I believe that an extension of the Exclusivity Periods will motivate the parties to work with the Debtors to develop plan alternatives, as well as provide the Debtors with additional time to thoughtfully evaluate such alternatives with an eye towards maximizing the value of each of the respective Debtor’s estates. I also believe an extension of the Exclusivity Periods will allow the Debtors to make further progress on the sale process regarding the economic interest in Oncor Electric Delivery Company 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.