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Texas' Energy Future Holdings files Chapter 11 reorganization plan to cut about $40B in debt

HOUSTON - Energy Future Holdings filed for Chapter 11 bankruptcy reorganization in a Delaware court on Tuesday, an expected move that will not harm power production or distribution in Texas as the company halves its $40 billion debt load.

The company owns TXU Energy, which has the largest share of the Texas retail electricity market, and Luminant, the state's largest power generator, but the bankruptcy is not likely to impact consumers in the short-term because distribution and production will continue.

But the long-term impacts of restructuring remain unknown and could lead to the shutdown of some power plants, a large tax bill for the company or a leaner, more competitive market — a plus for consumers who could then enjoy lower electricity bills.

The outcomes, though, will not be fully apparent until the restructuring is complete, which the company hopes to do within 11 months. Surprises, however, are unlikely because Energy Future has been talking to the largest stakeholders, including the IRS and environmental agencies, said James Hempstead, an analyst for Moody's who has been following the company for more than 20 years.

"It's a little anti-climactic," Hempstead said of Tuesday's filing. "They've done a very good job in keeping everyone apprised as to what the situation is going to look like."

Still, a new owner could, for example, decide to either diminish the company's reliance on coal as it becomes more costly to meet federal clean air regulations — such as a cross-state pollution ruling upheld Tuesday by the U.S. Supreme Court — or even shutter old facilities rather than invest in costly updates, Hempstead said. The impact of such decisions could be widespread because several Texas counties and school districts rely on the coal plants for taxes and jobs.

Energy Future Holdings has insisted the coal plants will continue to operate, and Hempstead notes that for now, they are profitable.

Energy Future's troubles can be traced back to its bet that natural gas prices would rise, helping it repay the interest and loans it took to acquire TXU Energy in 2007. But a glut of U.S. shale production has instead brought natural gas prices to record lows, hurting the company's bottom line and its ability to pay its debt. Recently, it skipped a deadline to pay $109 million in interest.

As part of the bankruptcy, Energy Future's subsidiary, Luminant Mining Co., will no longer be able to participate in the state's self-bonding reclamation program. This program allows companies that have $10 million and other assets to avoid putting up cash in advance for required restoration of mined land.

Now, Luminant has committed to set aside nearly $1.1 billion to restore land to its original condition.

"The era of self-bonding by Luminant Mining appears to be over and rather than the taxpayers of Texas having to rely on a promise and a wink and a nod, there will actually be over $1 billion set aside in the Railroad Commission for restoration, so it's a good first step," said Al Armendariz, Sierra Club's Beyond Coal senior campaign representative.

Another crucial part of the restructuring is a $7 billion tax liability hanging over Energy Future's head. When the company took over TXU Corp. in 2007, the new stakeholders were spared having to pay that federal tax bill on the acquisition. However, the terms of the deal stipulated that if the company split up, the massive tax bill would come due.

Stakeholders hope they have reached a restructuring framework that will allow them to shed some of their assets without having to pay that tax, and have asked the IRS to rule on their request, said Allan Koenig, Energy Future's spokesman.

And because the company has been in constant dialogue with the IRS and others, Hempstead believes this is possible.

"If they think that they've got a deal and a structure then it's likely that they do," he said.

As part of the restructuring, Dallas-based Energy Future Holding said it will separate its Texas Competitive Electric Holdings Co. subsidiary, which includes TXU Energy, and give preferred lenders complete ownership in that reorganized business. It also will give lenders cash proceeds from new debt in exchange for eliminating about $23 billion of Texas Competitive Holdings' funded debt.

Energy Future will still own Energy Future Intermediate Holding Co. and keep its interest in Oncor Electric Delivery Co., a power transmission business, which is not part of the reorganization.

The holding company was formed in the 2007 acquisition of TXU Corp. by private-equity firms KKR & Co., TPG Capital and Goldman Sachs Capital Partners.

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Schmall reported from Fort Worth, Texas.

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Plushnick-Masti can be followed on Twitter at https://twitter.com/RamitMastiAP

The Canadian Press


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