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Bankruptcy judge OKs proposed breakup of Energy Future Holdings

Energy Future Holdings, based in downtown Dallas, filed for bankruptcy in April 2014.
Energy Future Holdings, based in downtown Dallas, filed for bankruptcy in April 2014. STAR-TELEGRAM/JOYCE MARSHALL

Energy Future Holdings took a big step toward getting out of bankruptcy on Thursday as it won court approval to shed about $30 billion in debt and split into two separate companies.

Thursday’s ruling means the bifurcated Energy Future can exit bankruptcy in a few months, provided that Texas regulators bless the reorganization and the Dallas-based company wins the Internal Revenue Service’s endorsement of the tax structure behind the deal.

With lower debt, the two companies will be in a better position to weather the difficult market conditions that caused the $48 billion leveraged buyout — the biggest and perhaps worst-timed ever — to founder about seven years after it was completed.

The plan “easily meets” the public policy goals of the Bankruptcy Code, U.S. Bankruptcy Judge Christopher Sontchi said at a hearing Thursday in Delaware.

In 2007, when the company — formerly known as TXU Corp. — was taken private by big investors including KKR and Fort Worth-based TPG Capital, investors were betting that energy prices would rise. Instead, the global financial crisis hit, followed by the fracking boom, and prices plunged.

Energy Future’s unregulated power-generating side will go to senior lenders owed about $24 billion. Oncor, the regulated power transmission side, will go to a coalition of lower-ranking creditors and Hunt Consolidated, a Dallas-based oil and gas, real estate and power company.

The Hunt plan has the backing of almost all creditors owed money by the generating unit, Texas Competitive Electric Holdings. In October, the state’s Public Utility Commission requested more information from Hunt on whether the benefits of the deal would exceed the costs.

Oncor has already pushed a proposal in Texas that could further hurt generators like Energy Future’s Luminant unit.

It has talked to Tesla Motors about a $2 billion investment in stationary battery storage to solve the problem of fluctuating output from wind and solar sources. Integrating more renewable output into the grid could further depress prices in the already cheap Texas market, and that could hurt the bottom lines of generators that rely more heavily on higher prices amid anemic demand growth.

“I don’t think you would have seen that proposal if Energy Future wasn’t in a bankruptcy proceeding,” Patterson said.

Most customers served by Oncor and Luminant won’t notice any difference from the split, said Kit Konolige, a senior analyst with Bloomberg Intelligence.

Luminant is the biggest electric generator in the state, with 1.7 million customers. Even before it won approval of its bankruptcy plan, Energy Future agreed to pay $1.5 billion for two natural-gas power plants.

Different groups of lower-ranking creditors, owed money by the powerline unit also signed onto the reorganization proposal, leaving a handful of minor objections.

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