NRG Energy (NYSE: NRG) reported in its Nov. 4 quarterly Form 10-Q financial statement that the future of its Gregory cogeneration plant in Texas is up in the air due to the bankruptcy of its steam customer.
The company’s Gregory cogeneration plant provided steam, processed water and a small percentage of its electrical generation to the Corpus Christi Sherwin Alumina plant pursuant under an Energy Service Agreement (ESA). On Jan. 11, 2016, Sherwin Alumina Co. filed a voluntary Chapter 11 petition with the U.S. Bankruptcy Court for the Southern District of Texas.
Sherwin agreed to pay all owed pre-petition amounts and, post-petition, Sherwin performed its obligations under the ESA through September 2016 when it shut down its operations, NRG said. On Sept. 28, Sherwin filed a motion with the Bankruptcy Court to reject the ESA, which includes Gregory’s lease, effective Sept. 29, 2016.
NRG wrote: “Gregory objected to the rejection and is asserting its right to remain on its leasehold. The Company is currently evaluating potential options for the Gregory cogeneration plant.”
Gregory is a 550-MW, gas-fired facility that NRG bought in 2013.
NRG says plant may not be operable under Sherwin’s rejection request
NRG’s Gregory Power Partners LLC (GPP) said in an Oct. 11 filing at the court: “Under the ESA that the Debtors propose to reject, GPP holds a leasehold interest on such real property of the Debtors. GPP also holds certain easements on and to real property adjacent to the Gregory Power Plant that is also owned by the Debtors. Of vital concern here, the Debtors also provide GPP with certain critical access and services, including water (both intake and discharge), access for use of GPP’s steam venting equipment located on the Debtors’ property, and use of natural gas delivery systems (as further described below, the ‘Critical Services’), pursuant to the ESA.
“The Critical Services are necessary for the continued operation of the Gregory Power Plant in a manner that is safe, reliable, and compliant with applicable environmental laws and regulations. Thus, the Debtors’ rejection of the ESA has implications not only for GPP’s long-term operations at the Gregory Power Plant, but also for the immediate public interest and the community of Corpus Christi. A sudden and continued disruption in the provision of Critical Services implicates issues of health, safety and the environment. The disruption of operations at the Gregory Power Plant also threatens the employment of GPP’s employees and contract support personnel. Indeed, the proposed rejection of the ESA has already had a significant short-term impact on GPP—the Gregory Power Plant had to be declared to be in a forced outage due to the uncertainty caused by the Debtors’ noticed rejection of the ESA effective September 29th, and the need to arrange for the continued provision of the Critical Services.”
GPP said that any order of the Bankruptcy Court providing for the rejection of the ESA should also provide for the release of: the guarantee of GPP’s obligations under the ESA by GPP’s parent company, NRG Energy; and liens granted in favor of the Debtors that encumber the Gregory Power Plant.
GPP added: “Should the Debtors and GPP fail to reach an agreement on a timely basis regarding the provision of the Critical Services during the Transition Period, GPP reserves the right to modify and supplement this objection and to seek injunctive or other emergency relief from the Court regarding the same. GPP further reserves all of its rights, claims, causes of action and defenses relating in any way to the proposed rejection of the ESA, including without limitation: (i) GPP’s leasehold and other rights that survive rejection of the ESA pursuant to section 365(h) of the Bankruptcy Code; (ii) GPP’s easements under the Easement Agreement and applicable law and related permit rights; (iii) the standard that should apply for purposes of deciding whether the ESA should be rejected; (iv) the amount of rejection damages GPP should be allowed; (v) GPP’s claims relating to the ESA that arise before or after any rejection, including without limitation against the Debtors and Reynolds Metals Company; and (vi) the extent and nature of the Critical Services necessary for the continued operation of the Gregory Power Plant.”