DALLAS – Falling tax assessments on Energy Future Holdings power plants could strain local budgets in six Texas counties as the company tries to emerge from the nation's largest corporate bankruptcy.
A hospital district south of Fort Worth was late on its Feb. 15 debt payment due to lower property tax payments on the Comanche Peak Nuclear Power Plant, according to a
"The District did not make the interest payment because Energy Futures Holding (Luminant nuclear plant) only paid one half of their budgeted tax payment on January 31," according to the notice from the Somervell County Hospital District.
According to the notice, the district paid $315,000 principal a day late on Feb. 16 using revenue from Glen Rose Medical Center. The $314,931 interest payment came a week late on Feb. 22, the notice said.
The debt payment is for $14 million of certificates of obligation issued in 2008. The unrated certificates with a 5.125% coupon reach final maturity in 2038.
Luminant's parent company Energy Future Holdings is nearing its second anniversary in U.S. Bankruptcy Court. The company could emerge from Chapter 11 this spring if it receives regulatory approval. The U.S. Bankruptcy Court in Wilmington, Del., approved its reorganization plan in December.
EFH's filing in April 2014 was the largest corporate bankruptcy in U.S. history.
On Feb. 15, Luminant went to court to dispute the Somervell County Appraisal District's valuation of the Comanche Peak plant. Luminant claimed that the plant should have been valued at $949 million, less than half of the $2.36 billion assessed by the Somervell County Tax Appraisal District. A judge's ruling in Texas District Court is pending.
Somervell County was one of six in which Luminant challenged appraisals on its power plants, citing the tumbling wholesale price of electricity.
The other plants with values are under challenge are the Monticello Power Plant in Titus County, the Big Brown Power Plant in Freestone County, Oak Grove Power Plant in Robertson County, Martin Lake Power Plant in Rusk County, and the Sandow 4 and Sandow 5 power plants in Milam County.
"We believe the counties' valuations of our plants vastly exceed their market values, which have been driven down by sharply lowered wholesale power prices," Luminant said after filing lawsuits challenging the valuations.
"This would result in the company paying about $40 million in excess property taxes for 2015," the company said. "Given these circumstances, Luminant would be turning to the courts regardless of our financial restructuring."
The Somervell challenge is one of the first in which a state district court has completed a hearing. Luminant spokesman Brad Watson said he could not predict when a ruling might be returned.
In 2008, average annual wholesale power prices were more than $63 per megawatt in the Texas market, Watson said. In January 2015, wholesale power prices averaged $23 per megawatt.
In Titus County, officials said the difference between the appraisal district's valuation of the Luminant plant and the value proposed by the company represents more than a $1 million loss in tax revenue to the county.
The Titus Regional Medical Center said its loss would be about $400,000. The Mount Pleasant Independent School District estimated that it would face a $3.6 million shortfall in Luminant's proposed value were accepted.
Moody's Investors Service placed a negative outlook on its A1 rating of Titus County's $63 million of debt in October 2014 based in part on the falling value of the coal-fired Monticello plant.
The 1,880-megawatt plant's assessed value peaked in 2008 above $1 billion but declined sharply when it was valued at $429 million in 2014. Luminant protested the assessment, arguing that the value was closer to $202 million. They settled with the county in September on $350 million, which Moody's considered "still high at 15% of total assessed value but a difference of over $300,000 in tax levy."
"The plant's future remains an ongoing concern as bankruptcy proceedings continue through the first half of 2015 in addition to increasing stringency of environmental regulations," analysts said.
In Milam County, Luminant rendered a value of $125 million for its Sandow 4 and 5 power plants for 2015. The county appraisal district placed a value of $460 million on the units. In Luminant's opinion, the valuations of the Sandow plants dropped 13% in 2011, another 17% in 2013, and 14% in 2014. If the proposed Luminant valuation is upheld that would represent an 83% drop in five years.
The falling value of power plants is a nationwide phenomenon in a new era of cheap energy.
In Southern Illinois, a local school district warned that it would have to shut down if the owners of the Grand Tower Power Plant succeeded in reducing the plant's valuation by 93%.
The toll of the EFH bankruptcy hit the industrial development bond market hard in 2014 with defaults on $1.16 billion of bonds.
Formerly known as TXU Corp., Energy Future Holdings was created in 2007 in a $45 billion leveraged buyout by the firms Kohlberg, Kravis and Roberts, TPG Capital and Goldman Sachs.
It was the largest leveraged buyout in U.S. history and premised on the expectation that natural gas prices would rise. That scenario would have given EFH an advantage with its lower-cost coal-fired plants. Instead, natural gas prices fell to near-record lows and remain near those levels.
In addition to the power generator Luminant, EFH includes TXU Energy, one of the largest electric retailers in Texas. Oncor Electric Delivery, operator of the utility's transmission system, was not included in the bankruptcy.
After the 2014 bankruptcy filing, Moody's warned of credit implications for government debt issuers in the region, particularly in the event one or more of the coal-fired plants were forced to close due to environmental regulation.
"If one or more of the at-risk plants became subject to early retirement, some local governments will be exposed, we believe, specifically those where the plant's assessed value as a percentage of the municipality's total AV is large," the analysts noted. "This matters to the local governments because property tax bills are based on an entity's assessed valuation."
