Dallas-based Electricity Giant Energy Future Holdings Warns of Potential Bankruptcy, Reports Huge Losses

Categories: Biz

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Peter Ryan
The fount of red ink spilling onto the pages of beleaguered power generator Energy Future Holdings' quarterly reports continues unabated. The Dallas company logged $3.36 billion in net losses for 2012.

In its last quarter alone, the company reported a $1.95 billion net loss, due largely to a write-down on the plunging value of its coal-fired power plants. Low natural gas prices -- most often setting the price of electricity in Texas -- have eroded the profit margin for coal plants. That's a headache for any utility. But Energy Future isn't just any utility. The largest in Texas, it was taken private in a highly leveraged purchase -- the biggest in history -- by the financiers who took over the ill-fated RJR Nabisco in '88.

The interest on $40 billion in debt is steep, as you can imagine, So, there isn't a lot of wiggle room when revenues fall and, according to the recent U.S. Securities and Exchange Commission filing, the company is paying roughly $0.62 of every dollar just to cover interest.

That's why, further up in the filing, the company seems to be fretting about defaulting on its debt. Part of its debt covenants requires that it maintain a certain level of earnings relative to its operating expenses. If Energy Future slips below that ratio, it could trigger a default within some of its debt agreements, prompting a cascade of other bondholders to demand their money immediately.

This is the scenario that must keep Energy Future's money-men up at night.

See also:
- Al Armendariz, Ousted EPA Chief, Leads Sierra Club's Drive to Chase Customers from TXU

Says the filing: "If lenders or noteholders accelerate the repayment of all borrowings, we would likely not have sufficient assets and funds to repay those borrowings. Such occurrence could result in EFH Corp. and/or its applicable subsidiary going into bankruptcy, liquidation or insolvency."

Of course, financial analysts believe one of the company's tanking subsidiaries, which holds power generator Luminant and the lion's share of the debt, is headed for bankruptcy within the year anyway. Energy Future has already tapped some high-powered restructuring advisers. If the company heads into Chapter 11, it'll be one of the biggest we've ever seen.


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27 comments
holmantx
holmantx topcommenter

The major climate bill introduced last week by two key liberal senators would not only impose carbon fees on major energy sources and oil refiners, it would also effectively end President Barack Obama's research and development into "clean coal." The Energy Department's Office of Fossil Energy Research and Development would be eliminated under the Sustainable Energy Act introduced by Senate Environment and Public Works Chairman Barbara Boxer, D-Calif. and Sen. Bernie Sanders, I-Vt.

Dallasphotog
Dallasphotog

This is what deregulation of a public utility does.  Who could have possibly thought that this was a good idea...except for Rick Perry and the rest of the legislature who approved this boneheaded decision to deregulate the electrical market in Texas.   I thoroughly expect to see a system-wide collapse of the companies in the electric business.  With deregulation, we didn't get lower prices,  we got more confusion, more contracts and games regarding rates per kwh and awful service with more outages.  Look at some of the best electrical service in the state...Garland, Denton and Austin.  Those municipalities chose to stay in the power business and in general, they have lower prices and more reliable service.

When a company that provides a service that everyone needs is in it to make a profit for their shareholders, there's no incentive to roll profits back into infrastructure.

Deregulation, bad idea, bad for all Texans.

holmantx
holmantx topcommenter

For about a year now EFH has been loading up Luminant and other subsidiaries with the bad debt to cut them loose separately (bankrupt them).  Apaprently the creditors are bucking that idea, since they just released their fears they may have to go south.

Let the courts take them over.  TXU will face no interruption in electricity delivery and without that pesky debt Wall Street hung around its neck, they will be able to make money and invest in new plant construction.

A-nony-mouse
A-nony-mouse

@holmantx 

As much as I would like to see the US move away from coal, ending research and development into "clean coal" is just plain stupid.

cantkeepthetruthdown
cantkeepthetruthdown

@Dallasphotog Is deregulation bad for those Texans with bad credit who would otherwise be required to pay a large deposit? As it stands they have options that do not require a deposit. 


holmantx
holmantx topcommenter

@Dallasphotog We'll get lower electricity fees quicker under this system than under a regulated system that cannot, or will not, adjust to new technology (fracking).

Tom434
Tom434

@Dallasphotog Bush was governor when it passed, Nobody voted against it in the Senate and less than 10 no votes in the House.  Just about everybody in state government and the legislature thought it was a good idea.  Steve Wolens, husband of former mayor   Miller sponsored the bill in the House

Dallasphotog
Dallasphotog

@cantkeepthetruthdown @Dallasphotog Well, I have had to pay deposits in the past, but I believe that your support for deregulation is misguided if you see this as the only benefit. Besides , these programs you gush about charge up to three times per kwh than those on fixed-price contracts. They are not being helped, they are being preyed upon, much like title and payday loan companies do. We are paying billions more as a collective than we need to to pay debt load for these misguided buyouts by vulture capitalists in the first place. Profits to the system of a utility need to go to improvements, not lining CEO and shareholder pockets.

scottindallas
scottindallas topcommenter

@holmantx @Dallasphotog Holman, you're an utter fucking idiot.  Before deregulation we were slated to have surplus supply for as long as the mind could grasp and we were slated to have falling prices.  Utilities markets are not like free markets Holman.  There IS no competition, the "competitors" don't produce a single watt, they're customer service groups--the easiest thing to scale up of the whole matter.  Further, every ad run is a waste of money, as this doesn't put another dime into production.  Holman, you're smarter than this, but you check your brain with bullshit ideology.  One shoe doesn't not fit all feet.

Dallasphotog
Dallasphotog

Thanks for setting the record straight.  I didn't try to imply that this was a republican or democratic decision.  I just think it was a horrible decision.

holmantx
holmantx topcommenter

@Montemalone @holmantx But the worker bees do not.  Salaries can be cut in bankruptcy  and pensions are dumped onto the taxpayer (PBGC), which is broke.  

scottindallas
scottindallas topcommenter

@holmantx @scottindallas @Dallasphotog We were "slated" by ERCOT.  That was their assessment just before the call for Deregulation went out.  That's what I mean by "slated"  Yes, we did this to ourselves, there is no politician even today arguing that we go back. 

scottindallas
scottindallas topcommenter

@holmantx @scottindallas @Dallasphotog and meanwhile we're paying debt services for these charlatans while maintenance and future demand go wanting.  Better off strictly regulating them, limiting profits and providing for anticipated demand

holmantx
holmantx topcommenter

@scottindallas @holmantx @Dallasphotog So who slated us?

The debtholders are going to take over EFH, wipe out the 62 cents of every dollar made that is going to debt, and reprice the product without the debt load.  If they don't, the Bankruptcy judge will order the sale of the assets to someone who WILL restructure the debt load to an amount revenues can feasibly service.  And what caused this to happen?

We did.  We slated ourselves. 

Soon, we'll have to default on that big utility in the sky (the National Debt) for the same reason.


holmantx
holmantx topcommenter

@ScottsMerkin @holmantx Your point is moot.

During fiscal year 2010, the PBGC paid $5.6 billion in benefits to participants of failed pension plans. That year, 147 pension plans failed, and the PBGC's deficit increased 4.5 percent to $23 billion. The PBGC has a total of $102.5 billion in obligations and $79.5 billion in assets.

ScottsMerkin
ScottsMerkin topcommenter

@holmantx My point being though is that you said its taxpayer funded and it currently is not

holmantx
holmantx topcommenter

@ScottsMerkin @holmantx The PBGC is a government corporation like the Post Office.  They are worse than broke. If contributions don't cover payouts, the taxpayer is the underwriter. The head of the PBGC testified before Congress in 2010 they are BILLIONS upside down like the Post Office and must have a taxpayer bailout.  Their situation is dire.

ScottsMerkin
ScottsMerkin topcommenter

@scottindallas @ScottsMerkin @holmantx

Q: What is the Pension Benefit Guaranty Corporation (PBGC)?

A: PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect pension benefits in private-sector defined benefit plans - the kind that typically pay a set monthly amount at retirement. If your plan ends (this is called "plan termination") without sufficient money to pay all benefits, PBGC's insurance program will pay you the benefit provided by your pension plan up to the limits set by law. (Most people receive the full benefit they had earned before the plan terminated.) Our financing comes from insurance premiums paid by companies whose plans we protect, from our investments, from the assets of pension plans that we take over as trustee, and from recoveries from the companies formerly responsible for the plans, but not from taxes. Your plan is insured even if your employer fails to pay the required premiums.


ScottsMerkin
ScottsMerkin topcommenter

@holmantx The PBGC is not taxpayer funded,  corporations who have pensions pay for the pension insurance offered by the PGBC, which is why  its broke, too many companies dumped their pensions on them and there was not enough money to cover it.

scottindallas
scottindallas topcommenter

@holmantx @Montemalone which steals money from this state and sends it to what, NYC?  Great.  That's why you don't deregulate utilities, cause when they fail, the costs invariably fall to the people, unlike free markets, where competitors are present and eager to jump into the breach. 

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