Energy Future Holdings and mining reclamation bonds in Texas
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Key Findings
The wide discrepancies between the asset and liability representations of Luminant Generation and EFH/EFCH’s enterprise-wide presentation demand that the commission conduct more than a simple, technical evaluation of the accounting presentations in the applications.
This report recommends a full, independent audit and review of the financial health of EFH and the availability of EFH assets.
Executive Summary
Energy Future Holdings (EFH) Company is publicly reported to be on the brink of a major financial reorganization. The financial problems of EFH and its subsidiaries stem from an ill-conceived buyout of TXU Corporation (the predecessor company) by the EFH management. The debt incurred for the buyout far exceeded the ability of the assets to pay for it. The company has stated that its top priority is debt management and most of its actions appear to be concerned with payment of debt service.
Energy Future Competitive Holdings (EFCH) is a subsidiary of EFH, which in turn has various subsidiaries that create a complex corporate structure. EFCH subsidiary Luminant Mining Company LLC, using Luminant Generation, also known as GENCO, as a third party insurer, has utilized a provision in Texas law that allows for a third party entity to guarantee the performance bond of the mining company. Luminant Mining and Luminant Generation have made multiple applications for such proposals amounting to $1.01 billion in self-bonding authority.
This report presents the case that recent applications made by Luminant Mining, using Luminant Generation as a third party guarantor to the Railroad Commission of Texas (RRC) for selfbonding authority, creates a misleading impression regarding Luminant Generation’s financial condition. Luminant Mining and Luminant Generation are subsidiaries of EFCH and EFH. The report is based primarily on analysis of several EFCH Securities and Exchange Commission (SEC) filings. Those include EFCH’s 2012 Form 10K, EFH’s 2011 and 2012 Form 10Ks, and its 2102 3Q Form for the quarter ending September 30, 2012. The report is also based on the self-bonding applications for individual mines made by Luminant Mining and Luminant Generation to the RRC.
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