Energy Future Holdings filed for Chapter 11 bankruptcy reorganization in a Delaware court on Tuesday after agreeing with key financial stakeholders to keep its power-producing businesses operating in Texas while it reduces roughly $40 billion in debt.
The company owns TXU Energy, a retail electricity provider, and Luminant, the state's largest power generator, but the bankruptcy is not likely to have a short-term impact on consumers because the distribution and production will continue normally. In the long term, however, analysts and experts have suggested the company's reliance on coal could diminish as it becomes more costly to meet federal clean air regulations, which could lead to the shutdown of old facilities.
Future Holdings has been struggling to pay the interest and loans taken to acquire TXU Energy in 2007 and the company's bankruptcy has been expected for months. It had bet on a rise in natural gas prices, helping to repay the debt, but a glut of U.S. shale production has led prices to plummet, hurting Future Holding's bottomline and its ability to fulfill its debt obligation. Recently, the company skipped a deadline to pay $109 million in interest.
State agencies, including the manager of Texas' power grid and the Railroad Commission, the agency that awards mining permits, have been closely monitoring the company in recent months as the bankruptcy filing loomed.
The Electric Reliability Council of Texas, or ERCOT, which manages the state's grid and the flow of power to 23 million customers in Texas, said in a statement Tuesday it is focused on maintaining system reliability and market efficiency as the restructuring moves forward. It said it understands operations will continue as normal and it does not have "immediate concerns."
"It is our understanding that EFH and its affected subsidiaries expect to continue operating generation assets and serving retail customers in Texas," ERCOT said in its statement, noting that the company's transmission business, Oncor, is not included in the bankruptcy filing. "Therefore, ERCOT sees no immediate concerns related to system reliability or market efficiency associated with this filing."
A Texas' Public Utility Commission statement said it did not foresee any power generation and distribution issues resulting from the bankruptcy.
The Railroad Commission, meanwhile, announced that once the filing occurred, Luminant Mining Co., the arm that scours the earth to remove the soft, lignite coal used for power generation in several Texas plants, would no longer be allowed to participate in a self-bonding reclamation program. This program allows companies that have $10 million and other assets not to put up cash in advance for required restoration of mined land.
Now, though, Luminant will have to set aside nearly $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. "You're already seeing some environmental benefits from the restructuring."
The Railroad Commission did not immediately respond to emails seeking comment. It remains unclear whether the company has already set aside the reclamation funds.
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.
It said it expects day-to-day operations to continue during the reorganization. That includes provision of power to customers, the payment of wages and benefits, and payments to vendors. Energy Future expects to leave its restructuring in about 11 months.
The holding company was acquired in 2007 by private-equity firms KKR & Co., TPG Capital and Goldman Sachs Capital Partners.