Luminant bankruptcy feared

‘No plans to shut down power plants, mines’
Reporter Editor

Some energy financial analysts are predicting Luminant could face bankruptcy, or other financial restructuring, by year’s end.

But the company—Milam County’s number one employer and taxpayer—has no plans to shut down either of the Sandow Power Plants or the Three Oaks Mine.

The complex, high-level financial situation is all about debt, cash flow and the aftermath of the largest leveraged buyout in history, when the former TXU Corp. was purchased six years ago.

“We have no plans to shut down power plants or mines,” Allan Koenig, Luminant spokesman, told The Reporter.

“The value in this company is in our people, our plants and our mines,” he said.

DEBT—Analysts say Luminant is struggling with more than $30 billion in debt.

In 2007, Kohlman, Kravis and Roberts, Texas Pacific and Goldman-Sachs teamed up to buy TXU Corporation for $45 billion. From that purchase came Energy Future Holdings (EFH), parent company of Luminant (power generation) and Oncor (power distribution).

But natural gas prices, which tend to set wholesale electricity prices, have plummeted since the buyout and EFH revenues dropped.

Moody’s Financial Services Company has said EFH, or one of its subsidiaries, would likely engage in some sort of capital restructuring over the next 12 to 18 months.

BANKRUPTCY—While that might mean filing for bankruptcy, it doesn’t mean Luminant, or any other company, would necessarily cease to exist.

“Any restructuring at the company would be financial restructuring of our debt, not an operational restructuring,” Koenig said.”

He pointed out a potential bankruptcy would be a Chapter 11 bankruptcy. “That is a financial reorganization,” he said.

Rockdale residents have already been through a bankruptcy with one of its longtime institutions. In fall, 2000, Richards Memorial Hospital was granted bankruptcy protection enabling it to work out a solvency plan.

The hospital remained open and is still serving the community.

Koenig said any talk of bankruptcy is speculative and that Luminant does not currently have any plans to seek it.

And, shutting down any source of energy production seems unlikely under any scenario in increasingly energy-stressed Texas.

“Our mines provide a big portion of the fuel for our power plants, which provide power for Texas,” Koenig said.

“ERCOT is projecting a declining reserve for the market, so every megawatt becomes important,” he said.

HISTORY—Moody’s, however, noted under a possible restructuring, lenders and investors might become the primary stakeholders in the company and could hold decision-making authority to shut down power plants and mines, regardless of the desires of Luminant executives.

Even if Luminant does eventually shut down some facilities, as a response to debt restructuring, the age and condition of the Sandow Power Plants could be a positive factor to remain open.

It’s happened before.

In 2011, Luminant was faced with a decision on which facilities to close, in light of new Environmental Protection Agency (EPA) guidelines designed to reduce the use of lignite coal.

It selected two mines and two power plant units in east Texas, sparing the Rockdale facilities.

Sandow 5 came on-line in 2009. Sandow 4 received Selective Catalytic Reduction technology in the early 2000s.

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