Energy Future Holdings and related companies in bankruptcy on April 14 filed with their court a reorganization plan, an accompanying disclosure statement and a request for approval of a schedule for creditors to review and decide on whether to approve that plan.
The proposed schedule includes a creditor voting deadline of Oct. 21 and a confirmation hearing on Nov. 18. There is a June 17 deadline for any objections to the plan to be filed with the U.S. Bankruptcy Court for the District of Delaware.
Said the scheduling motion: “[T[he Plan and Disclosure Statement are the result of substantial efforts by the Debtors’ officers, directors, managers, and advisors (including the disinterested directors and managers) to maximize value for all of the Debtors’ estates.”
In April 2014, each of the debtors, including Texas-based power generator Luminant, filed a voluntary petition for protection with the court under the Bankruptcy Code due in part of a very high debt load and low power prices in Texas.
Said the executive summary of the disclosure statement: “[T]he Debtors believe that the Plan provides for a comprehensive restructuring and recapitalization of the Debtors’ pre-bankruptcy obligations and corporate form, preserves the going concern value of the Debtors’ businesses, maximizes recoveries available to all constituents, provides for an equitable distribution to the Debtors’ stakeholders, protects the jobs of employees, and ensures continued provision of electricity in Texas to the [Texas Competitive Electric Holdings Co. LLC] Debtors’ approximately 1.7 million retail customers and the smooth delivery of electricity to the entire state through the TCEH Debtors’ generation activities.”
Among the debtors is Luminant, which is under TCEH. “Luminant owns and operates 13 power plants comprising 36 electricity generation units,” said the disclosure statement. “Luminant’s total electricity generation6 of 13,772 megawatts (‘MW’) accounts for approximately 15% of the generation capacity in the ERCOT market. Luminant sells approximately 50% of its electricity generation output to TXU Energy, and sells the remainder through bilateral sales to third parties or through sales directly to ERCOT. Luminant also owns and operates 12 surface lignite coal mines in Texas that supply coal to Luminant’s lignite/coal-fueled units. Luminant is the largest coal miner in Texas and the ninth-largest coal miner in the United States.”
Of those 36 units, 33 units are in active year-round operation, and three units (at two coal plants, 1,880 MW in total) are subject to seasonal operation. The units exclude four gas-fired units (at two plants) that are idled and expected to be retired in June 2015. Luminant has noticed ERCOT that the four idled units will be retired, effective June 3, 2015, thereby reducing Luminant’s total nameplate generation capacity by 1,655 MW. Of the lignite mines, eight are active, two are in development, and two are currently idle.
The four idled gas-fired units at two plant sites with 1,655 MW of total nameplate capacity that are to be retired in June are: Valley (1,115 MW) and Permian Basin (540 MW).
In 2014, Luminant generated approximately 68,330 GWh gigawatt hours (GWh), compared to the ERCOT market’s total electricity consumption of approximately 340,000 GWh. Luminant was the 14th largest generator of electricity in the United States in 2014.
The reorganization plan is premised on the following structure:
- The highest or otherwise best form of transaction available to the debtors that will include either a taxable deconsolidation or tax-free spin-off of TCEH (the “Tax-Free Spin-Off”) combined with one of three forms of transaction for Reorganized Energy Future Holdings (EFH): a merger, an equity investment, or a standalone reorganization (the “EFH/EFIH Transaction”). EFIH is Energy Future Intermediate Holding Co. LLC. The Tax-Free Spin-Off is intended to avoid a significant potential tax liability that the debtors believe would, if triggered, materially reduce creditor recoveries at all of the bankruptcy estates.
- Under the Tax-Free Spin-Off, TCEH will spin off from the debtors to form a stand-alone reorganized entity, called Reorganized TCEH.
- TCEH will receive a $700 million settlement claim from Energy Future Holdings Corp. (the “TCEH Settlement Claim”), which will result in a payment up to such amount to be distributed in a to be determined manner among holders of Holders of TCEH First Lien Secured Claims, TCEH Unsecured Debt Claims, and General Unsecured Claims Against the TCEH Debtors other than Energy Future Competitive Holdings Co. LLC (EFCH).
- The EFH/EFIH Transaction proceeds (including Cash and Reorganized EFH Common Stock) will be distributed to holders of certain claims in accordance with their priorities under the Bankruptcy Code.
The statement added about future prospects: “The Debtors’ balance sheet is unsustainable given expected market conditions. Once the Debtors’ balance sheet problems are addressed, however, the Debtors expect to be poised to leverage their core operations, sales and customer service expertise, and shared services skills to take advantage of possible growth opportunities. Demand for electricity in the ERCOT market is forecasted to grow at a compound annual growth rate of 1.3% from 2014 to 2024, resulting in the potential need to build generation resources in the ERCOT market. Additionally, the Debtors’ fundamental business operations are strong notwithstanding the downward pressure placed on wholesale electricity prices by low natural gas prices and high levels of competition. Once the Debtors’ balance sheet is delevered, the Debtors expect that they will be able to operate their businesses profitably and expect that they will be able to pursue opportunities as they arise.”
Noted the disclosure statement about new gas-fired generation: “Luminant filed permit applications with, and received approval from, the Texas Commission on Environmental Quality (the “TCEQ”) to build two natural gas combustion turbine generation units totaling 420 MW to 460 MW at each of Luminant’s existing DeCordova, Tradinghouse and Lake Creek generation facilities. In 2014 and 2015, Luminant filed air permit applications with the TCEQ to build two natural gas combustion turbine generation units totaling 420 MW to 460 MW at each of its existing Valley and Permian Basin generation facilities. In 2014 and 2015, Luminant filed air permit applications with the TCEQ to build a combined cycle natural gas generation unit totaling 730 MW to 810 MW at each of its existing Eagle Mountain and DeCordova generation facilities. In 2015, Luminant filed air permit applications with the TCEQ to build two combined cycle natural gas generation units totaling 1460 MW to 1620 MW at its existing Tradinghouse generation facility. The proposed combined cycle natural gas generation units would be alternatives to the natural gas combustion turbine generation units at Luminant’s DeCordova and Tradinghouse generation facilities. Luminant believes current market conditions, primarily driven by low wholesale electricity prices, do not provide adequate economic returns to warrant completion of these projects at this time.”
EFH’s rate-regulated electricity transmission and distribution operations are conducted by the non-debtor Oncor Electric Delivery Co. LLC.