How Texans Could Be on the Hook if Energy Future Holdings Goes Bankrupt

Dallas-based Energy Future Holdings, Texas' largest power generator and utility, is getting its books scrutinized by state mining regulators. The Railroad Commission of Texas is apparently worried that if the company goes bankrupt, which analysts expect it may, it could jeopardize more than a billion dollars in bonds the company put up as collateral toward the restoration of its strip coal mines.

In a December 2012 order to approve a $220 million bond for a new coal mine in East Texas, the Commission allowed EFH's Luminant Mining to use as collateral assets from its sister company, Luminant Generating. It's known as "self bonding," often used in Texas in place of an actual bond for solvent, financially robust companies in no danger of going bankrupt. Which is probably why the Commission placed extra conditions on Luminant Mining's self bond.

Reviewers couldn't help but notice the ubiquitous coverage of EFH's balance-sheet woes. Back in April, it was widely reported that EFH was convening with investors to discuss a restructuring proposal that could erase more than $30 billion from its $40 billion debt.

Because of that, the Commission is requiring the company to submit quarterly, unaudited financial reports from Luminant Generating. Beyond TXU, the Sierra Club's campaign to end the country's dependence on coal, believes the Commission has reason to place Luminant's books under a microscope.

"We're concerned that a company this large and going through bankruptcy has not set aside real cash bonds for more than a dozen coal mines in Texas," former regional EPA chief and Beyond TXU campaign director Al Armendariz tells Unfair Park. "We're concerned that through the bankruptcy process one or more mines might not be reclaimed."

Environmentalists and watchdog group Public Citizen are posing two main questions:

First, why doesn't EFH's $40 billion in debt figure anywhere into the calculation of assets and liabilities Luminant gave to regulators? The company told the Commission it has $3.8 billion in liquidity. That's exactly how much EFH will have to pay on October 2014, when analysts believe the company will run out of cash. Last year alone, EFH spent half of every dollar it earned on interest.

Second, they're wondering if the collateral for Luminant's mine reclamation isn't already promised to another party. Secured bondholders own $30 billion of Texas Competitive Energy Holdings, the umbrella company over Luminant Generating. If EFH goes bankrupt, they get the first bite out of the carcass by contract. By the time they're through, environmental watchdogs fear there may not be much left over for Texas. It's like the mortgage on your house. If you quit paying, the bank owns it. If the bond holders don't want the mines, taxpayers could end up on the hook for the cost of reclamation.

EFH, for its part, says it intends to satisfy its obligations to the state. "The environmentalists are, as usual, wrong," an EFH spokesman writes in an email. "Regardless of how we ultimately resolve our balance sheet issues, we will continue operating and providing Texas with power that is fueled by low-cost Texas lignite. We are not contemplating selling off our assets or walking away from them."

A spokesperson for the Commission says that once a company no longer meets financial requirements, it has 90 days to provide substitute bonding or it must cease mining operations immediately.

EFH notes that it spent $165 million in 2011 and 2012 on mine reclamation.

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Brantley Hargrove