Once a high-flying global merchant power plant developer/operator tied to one of the top U.S. energy holding companies, Edison Mission Energy (EME) crash landed Monday with a Chapter 11 bankruptcy filing.
The filing had been predicted (see Daily GPI, Nov. 5) and is indicative of the reversal of fortunes for many of the early independent power producers that sprang up a quarter century ago with the opening of competitive wholesale natural gas and electricity markets.
Among a litany of challenges, EME cited "depressed energy and capacity prices and high fuel costs affecting coal-fired generation plants" as major reasons for its restructuring. To this it added impending maturity dates for major debt and the need to spend hundreds of millions of dollars for retrofitting its coal-fired units to comply with more stringent air quality requirements as further pressures pushing it into Chapter 11.
Separate from the bankruptcy filing, EME said it had reached an agreement with its parent company, Rosemead, CA-based Edison International (EI), and the majority holders of its $3.7 billion in debt that includes as part of the bankruptcy reorganization process EI spinning off EME by transferring its 100% equity interest in the faltering independent power unit to EME credit holders.
The EME agreement with the debt holders and EI is subject to approval of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago. EME said the company's operations will continue throughout the bankruptcy process at 43 generation sites involving wind, natural gas, biomass and coal in 11 states.
Drowning in a sea of red ink the past year or so, EME seemed to have bet too heavily on Midwest and eastern coal-fired generation plants and not enough on natural gas-fired generation, although for the past five to seven years it had made a major effort to diversify into renewables (see Power Market Today, May 12, 2008), particularly wind facilities scattered around the nation. Earlier, the EI power unit had divested a fairly hefty, but unprofitable, set of foreign power plant assets (see Daily GPI, July 20, 2000).
"As part of the restructuring, EI and EME will begin immediately to negotiate agreements to ensure EME's smooth and effective transition to operating as an independent entity following its separation from EI, which is anticipated to occur by December 2014," a Chicago-based EME spokesperson told NGI on Monday.
"At the end of this process, EME will have new owners and be separated entirely from Edison International," said the spokesperson, who said there will be a lot of "transitional agreements" still to be worked out with EI in the weeks and months ahead.
EME President Pedro Pizarro called the reorganization process and separation from the parent company that founded EME in 1986 "an important first step to reduce our debt, enhance our liquidity profile and position EME for continued operation and future success."
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