Ector’s bankruptcy case subject to dismissal, Direct Energy claims

By Sarah Lizee

Olympia, Wash., April 13 – Ector County Energy Center LLC’s motion to use cash collateral drew a preliminary objection on Wednesday from Direct Energy Business Marketing, LLC, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Ector was party to a heat rate call option (HRCO) which provided for Direct Energy to pay a monthly premium to Ector for the right to call on the debtor to produce energy and various quantities of ancillary services.

Ector said the conditions of winter storm Uri resulted in it being unable to deliver power or ancillary services, ultimately leading to the purported termination of the HRCO by Direct Energy in May 2021, when Direct Energy disputed the debtor’s assertion of a “force majeure” event.

Ercot had said that Direct Energy began litigation in the New York Supreme Court asserting a claim for damages of over $400 million, of which $393 million was alleged to be owed for February 2021.

Direct Energy said in its objection that from its perspective, the debtor’s Chapter 11 case is “very different” from how it has been presented to the court.

Direct Energy said the debtor is governed by a special committee 80% dominated by representatives of the debtor’s parent, Invenergy.

The parent company decided to proceed with a sale process, enter into insider debtor-in-possession financing, enter into a plan support agreement and file the debtor for bankruptcy “without any legitimate impetus” in order to pay down Invenergy’s own debt that Ector guarantees, Direct Energy claims.

Direct Energy said that in May 2021, Ector sued Direct Energy in Ector County, Tex., despite an exclusive forum selection clause designating New York courts as the exclusive forum for disputes. The Texas court dismissed the debtor’s lawsuit. In the following month, Invenergy and Ector submitted a fraudulent drawdown demand to Credit Suisse AG, New York Branch asserting that Direct Energy owed the debtor more than $840,000 under the same agreement Ector had “branded null and void” in Texas.

Direct Energy said it later started a suit in the New York Supreme Court against the debtor and Invenergy, asserting a claim for damages in an amount in excess of $400 million, which the debtor has not paid, as well as particular, direct claims against Invenergy.

“There was no good reason or valid reorganizational purpose to file this case,” Direct Energy said.

“The ‘credit agreement’ – again, which is parent-Invenergy’s primary indebtedness – was not in default or trading at any discount to par.”

Direct Energy said Invenergy’s debt is well covered by its assets and portfolio of energy generation and storage companies without the need to recover from Ector’s assets.

“Nor was the debtor facing any immediate financial difficulty, managerial difficulties, or even an impending judgment; as such, the case is subject to dismissal,” Direct Energy said.

Direct Energy said the cash collateral motion purports to “lay the initial groundwork” for the debtor and Invenergy to divert value to prepetition secured lenders for Invenergy’s benefit and at the expense of the debtor’s estates and unsecured creditors.

Goldsmith, Tex.-based Ector owns and operates a 330 MW natural gas-fired electricity-generating facility. The company filed Chapter 11 bankruptcy on April 11 under case number 22-10320.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.