April 11, 2022 –  Ector County Energy Center LLC (“ECEC” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, case number 22-10320 (Judge TBA). The Debtor, owner/operators of a 330 MW natural gas-fired electricity-generating "peaker*" facility in Odessa, Texas, is represented by Christopher A. Ward of Polsinelli PC. Further board-authorized engagements include: (i) Locke Lord, LLP as special counsel representing the Debtor in the Texas multi-district litigation relating to winter storm Uri, (ii) Crowell & Moring LLP as special counsel representing the Debtor in "litigation, adversary proceedings and contested matters adverse to Direct Energy Business Marketing, LLC,"  (iii) Perella Weinberg Partners LP and Tudor, Pickering, Holt & Co. (collectively “PWP”) as investment bankers, (iv) John Baumgartner of Grant Thornton LLP as the Debtor's chief restructuring officer (“CRO”)  and (v) Donlin Recano & Company Inc as claims agent.

The Debtor's ultimate parent is Invenergy which with its "affiliated companies have successfully developed more than 30,000 megawatts of projects that are in operation, construction or contracted, including wind, solar, and natural gas power generation and advanced energy storage projects." Invenergy launched the Debtor's facility in November 2015.

The Debtor's petition notes between 200 and 1,000 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Direct Energy Business Marketing LLC ($396.0mn litigation claim, this amount after a $7.0mn setoff), (ii) Controlled Fluids, Inc. ($59k trade claim) and (iii) General Electric International, Inc. ($53k trade claim).

*Peaker plants are power plants designed to balance the fluctuating power requirement in the electricity network and operate during periods of high level demand for electricity or shortfalls of electricity supply, such as during periods of extreme heat when air conditioning causes electricity usage to reach its highest levels.

Filing Date Highlights

• Invenergy-owned "peaker" power provider succumbs (ironically, as its business model is to sell electricity into high rate, or peak, periods) to Winter Storm Uri after inability to fill energy supply contract leads to $396.0mn litigation claim and more than 100 tort lawsuits
• Debtor executes Plan Support Agreement with prepetition senior lenders (owed $400.0mn) and agrees to pursue asset sale
• Rockland Capital, LLC (which recently served as stalking horse for Agilon Energy's peaker assets but was ultimately outbid) is to serve as stalking horse with $91.3mn opening bid
• Arranges $5.0mn of "partially" priming DIP financing from non-Debtor affiliate

Plan Support Agreement

The Debtor, has entered into a Plan Support Agreement (the “PSA,” attached to the Baumgartner Declaration) with an ad hoc group of the Prepetition Secured Lenders pursuant to which the Prepetition Secured Lenders will support ECEC in its undertaking a sale process geared towards closing a sale of substantially all of ECEC’s assets by mid-summer 2022, and for the allocation and distribution of the net sale proceeds through a liquidating Chapter 11 plan. The PSA also contains terms for consensual use of the Prepetition Secured Lenders’ cash collateral during the pendency of this case and the Prepetition Secured Lenders’ agreement to partially subordinate their liens and payment priority to $5.0mn of DIP  financing to be provided by the Debtor’s affiliate, ITOI. The Prepetition Secured Lenders also agree to support minimum distributions of $5.0mn to junior unsecured creditors, "which amount may be materially higher depending on the outcome of the bid solicitation process to be undertaken in connection with the sale of the Debtor’s assets."

Sale Efforts

The Baumgarther Declaration provides: "Given the apparent current market interest in ERCOT energy production assets, and the continuing expense and distraction arising from Winter Storm Uri and its fallout, ECEC determined that a concerted sale effort represented the best option to maximize and realize the Debtor’s going-concern value for the benefit of the Debtor and its creditors. The Debtor also concluded that, as a practical matter, maximizing value also turned on affording a purchaser the comfort that it would receive title to the Power Plant free and clear of liens, claims, and interests which is attainable only through a sale under section 363 of the Bankruptcy Code. With a stalking- horse bid having been accepted following a period of substantial marketing efforts led by the Debtor’s professionals, this case has been filed to achieve those results."

The declaration continues as to the selection of a stalking horse: "…after extensive arm’s length negotiations between the Debtor and Ector County Generation LLC, an acquisition entity affiliated with Rockland Capital, LLC (the 'Proposed Purchaser'), ECEC and the Proposed Purchaser executed an Asset Purchase Agreement providing for the sale of substantially all of the Debtor’s assets. Pursuant to the terms of the Asset Purchase Agreement, the Proposed Purchaser has agreed to purchase the Debtor’s assets for a purchase price of $91,250,000….inclusive of $2.7 million in 'Incentive Consideration' to be received if a closing occurs on or prior to July 31, 2022."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Baumgartner Declaration), John Baumgartner, the Debtor’s CFO provides: "ECEC was among the ERCOT industry participants negatively impacted by the storm. As a result of Winter Storm Uri, ECEC was unable to procure natural gas needed to power its turbines for a period of several days when production systems that fed into the gas pipelines froze, effectively preventing the Debtor from dispatching power at a time of extreme demand.

At the time of the storm, ECEC was party to a heat rate call option ('HRCO') which provided for the HRCO counterparty, Direct Energy Business Marketing, LLC ('Direct Energy'), to pay a monthly premium to ECEC for the right to call on ECEC to produce energy and various quantities of ancillary services. The unprecedented conditions of Winter Storm Uri resulted in ECEC 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 ECEC’s assertion of a force majeure event. That purported termination was followed by Direct Energy commencing litigation in the New York Supreme Court asserting a claim for damages in excess of $400 million, of which $393 million was alleged to be owed for the month of February, 2021.

Additional litigation arising from the impact of Winter Storm Uri was brought against ECEC and other utilities and market participants. ECEC has been named as a defendant in approximately 113 personal injury and/or property damage tort claims currently pending in the Texas state court system.

Following the purported termination of the HRCO, ECEC shifted from generating revenue under a pre-agreed pricing model to primarily operating as a merchant peaker plant selling power and ancillary services in the Day Ahead and real-time markets. That shift resulted in uneven cash flow attendant upon changing from primarily a HRCO-driven revenue model with a contractually established stream of minimum monthly payments to selling energy in the ERCOT market based on competitive bid processes. The monthly expense burden resulting from the litigation relating to the purported HRCO termination and the over 100 personal injury and/or property damage cases has further caused uneven and difficult to predict cashflow."

DIP Financing

The Debtor's Petition indicates that the Debtor will seek Court authority for $5.0mn of debtor-in-possession ("DIP") financing to be provided by non-Debtor affiliate Invenergy Thermal Operating I LLC ("ITOI").

Prepetition Indebtedness

The Debtor is a party to an August 2018 credit agreement further to which it now owes in excess of $400.0mn and which is comprised of $337.3mn outstanding under term loans and  $64.6mn of revolving loans.

Prepetition Ownership

Invenergy AMPCI Thermal Power LLC (“IAMPCI”) is the sole Manager of Invenergy Thermal Operating I Holdings LLC, which is the sole manager of Invenergy Thermal Operating I LLC, which is the sole manager of Invenergy Thermal LLC, which is the sole manager of Ector County Energy Center Holding LLC, which is the sole manager of the Debtor.

About the Debtor

According to the Baumgartner Declaration: “The Debtor is in the business of owning and operating a 330 MW natural gas-fired electricity-generating facility (“Power Plant”) located on 32.5 acres of Debtor-owned land in Ector County, Texas, just outside of Odessa, that is part of the Permian Basin. The Debtor dispatches energy generated by its two natural gas fueled simple-cycle combustion turbines and related balance of plant equipment, all designed to enable the Power Plant to generate energy and respond quickly at times when demand is “peaking” and the market requires additional power supply.

 ECEC is licensed as a 'power generating company' by the Public Utilities Commission of Texas or 'PUCT,' and is a participant in the competitive wholesale electricity market operated by the Electric Reliability Council of Texas (“ERCOT”) as a “Qualified Scheduling Entity” ('QSE'). The Power Plant was placed in service on or about September 28, 2015 and has maintained ordinary course peaker^FN operations since then, with one notable exception, during the extraordinary and prolonged cold weather event that occurred in February 2021 referred to as 'Winter Storm Uri'.”

FN Peaker plants are power plants designed to balance the fluctuating power requirement in the electricity network and operate during periods of high level demand for electricity or shortfalls of electricity supply, such as during periods of extreme heat when air conditioning causes electricity usage to reach its highest levels.

About Rockland Capital

Rockland Capital (www.rocklandcapital.com) is a private equity company that was formed in early 2003 in order to acquire and develop selected investment opportunities in power and energy infrastructure markets. Rockland is currently investing Rockland Power Partners III, LP, a $454 million private equity fund with investors that include U.S. endowments and foundations, funds of funds, pension plans and family offices. The firm also manages Rockland PJM Partners, LP, a $200 million private equity fund, Rockland Power Partners II, LP, a $425 million fund, and Rockland Power Partners, LP, a $333 million fund. Investments have been located throughout the United States and the United Kingdom, ranging from 1,875 MW to 5 MW, fueled by natural gas, coal, biomass, oil, energy storage, wind and solar power.

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