Sundevil seeks rejection of gas contracts ahead of power unit sale

Sundevil Power Holdings LLC on June 14 asked its bankruptcy court to let it reject certain gas supply agreements since a potential buyer of its power generating assets has no desire to take them on.

Sundevil owns two of the four 550-MW natural gas-fired power blocks of the Gila River Power Station located in Gila Bend, Arizona. Sundevil had entered into certain gas transportation agreements with Transwestern Pipeline Co. LLC and El Paso Natural Gas Co. LLC. Sundevil has released its transportation rights under each of these agreements pursuant to certain asset management agreements with EDF Trading North America LLC and Twin Eagle Resource Management LLC.

As credit support for the contracts with Transwestern and El Paso, Sundevil has provided a cash deposit to Transwestern in the amount of approximately $1,206,000 and a letter of credit in favor of El Paso in the face amount of $500,000.

Sundevil has embarked on a process to sell substantially all of its operating assets, including the Power Blocks, and to assume and assign certain executory contracts. On May 4, Sundevil advised the court that it had accepted, subject to approval of the court and an agreement on definitive documentation, the bid of CLMG Corp., on behalf of itself and Beal Bank USA, for the purchase of substantially all of the assets related to the Sundevil business.

Said the June 14 motion: “While the Debtors are still finalizing the definitive documentation with the Successful Bidder, the Debtors have been advised that the Successful Bidder is not likely to accept the assignment of the Rejected Contracts. As a consequence and in order to mitigate any additional administrative claims that might arise under the Rejected Contracts, the Debtors have determined to seek the rejection of the Rejected Contracts. The Rejected Contracts are not essential to the Debtors’ businesses or reorganization and otherwise are burdensome to the Debtors’ estates. Based on the administrative cost-savings the Debtors will realize if the Rejected Contracts are promptly rejected, the Debtors request entry of an order rejecting the Rejected Contracts effective as of June 30, 2016.”

Sundevil Power Holdings and a related company on Feb. 11 had filed for Chapter 11 protection at the U.S. Bankruptcy Court for the District of Delaware. Raphael T. Wallander, a Principal at Wayzata Investment Partners LLC, a private equity firm that is the investment manager to Wayzata Opportunities Fund LLC and Wayzata Opportunities Fund II LLC, told the court about the circumstances behind this filing in a Feb. 11 affidavit. The Wayzata Funds own, directly or indirectly, the equity interests in Sundevil Power Holdings and SPH Holdco LLC. Sundevil and SPH are affiliated companies that both filed for Chapter 11.

These companies are merchant power generators through Sundevil’s ownership of two of the four 550-MW natural gas-fired power blocks (Power Blocks I and II) of the Gila River Power Station (GRPS). Sundevil and the other power block owners sell energy into the Southwest electric power market, specifically the sub-region of Arizona, New Mexico, and Southern Nevada known as the Desert Southwest (DSW). Most of Sundevil’s output is sold at the Palo Verde hub and to the California Independent System Operator (CAISO) market. Sundevil also is capable of reaching other market hubs such as Mead (Southern Nevada) and Four Corners.

Wallander wrote: “The combination of lower than anticipated power demand growth, declining natural gas prices, increased distributed generation (rooftop solar), slower than expected retirement of older, inflexible coal-fired generation and a substantial buildout of utility scale renewable energy sources has contributed to the Debtors’ inability to generate sufficient revenue and liquidity to continue to maintain their capital structure on a long term basis. While the buildout of substantial utility scale renewable resources actually increases the need for flexible generation resources such as those owned by the Debtors, regulated utilities have continued to rely on older, inflexible, carbon intensive, coal-fired generation to meet electric demand needs despite the ability of Sundevil’s assets to serve those needs more economically while achieving comparatively significant reductions in air emissions – carbon dioxide reductions of up to 65%, nitrous oxide reductions of roughly 95% and sulfur dioxide emissions reductions of nearly 99%. While these older coal generation assets are more expensive to operate, and pollute more, regulated utilities have been allowed to continue to pass such costs on to their customers.”

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.