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EFH Lining Up $4.25 Billion in Financing For TXU Spin-off, Talks TXU Market Position/Share, Earnings With Investors

July 13, 2016

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Copyright 2010-16
Reporting by Paul Ring •

Texas Competitive Electric Holdings Company LLC (TCEH), a unit of Energy Future Holdings and the parent of TXU Energy and Luminant, is conducting meetings with prospective lenders in connection with the syndication of its $4.25 billion senior secured credit facilities

EFH said that under its bankruptcy plan, which will see TCEH spun-off to creditors, the new credit facilities will initially refinance the TCEH's existing DIP and then will convert to a permanent exit financing upon the TCEH's exit from bankruptcy

TCEH anticipates exiting bankruptcy before the end of 2016 as an independent entity

TCEH told investors that TXU is the largest retail electric provider in ERCOT, with about 1.7 million total customers (1.5 million of these is residential).

TCEH said that TXU has 25% residential market customer share, and 17% business market share (using 2015 data for TXU and 2014 EIA data for other REPs). Market share data for other REPs as reported by TXU is included at the bottom of this story

TCEH said that TXU has the highest retained residential customers for an incumbent territory

TCEH noted, as has been reported by ECM, that TXU's customer attrition rate declined to below 1% in 2015, " despite intense competition." TXU's residential attrition in 2015 was 0.7%, a decline from 4% in 2012

TCEH reported that TXU had $800 million in EBITDA for 2015, with an average EBITDA of $778 million for 2012-2014

TXU has a Total SG&A per RCE of $83/RCE. TCEH listed competitors' Total SG&A per RCE as follows:

Spark Energy   $198
Crius          $140
Reliant        $124
Just Energy     $71

TCEH further said that it benefits from an integrated retail electricity and generation platform (with Luminant's market-leading 16.7 GW in ERCOT), "which creates an attractive and balanced credit profile under various power price environments."

As an aside, TCEH's discussion of the competitive advantage that its owned generation provides its retail business reinforces (as noted ad nauseam in these pages) precisely why compelling other retail providers to pay for the going-forward fixed costs of such generation, through a capacity market, would create an unlevel playing field, as competing REPs would subsidize this beneficial integrated business model for TXU

TCEH cited, "significant operating and financial benefits of a combined platform, including risk management and collateral efficiencies," from the integrated model

The integrated business model, "creates incremental value when compared to pure play generators or retailers," through cash flow stability, through pairing of retail and generation businesses, and credit efficiencies, TCEH said

Additional advantages of the integrated business model cited by TCEH are:

• Higher margins compared to generators with no retail due to integrated business model

• Excess generation volumes can be utilized to cover full requirements of retail contracts

• Avoids negative impacts of Polar Vortex or 2011 ERCOT summer

• Retail competition declines as volatility challenges risk management capabilities of non-integrated competitors

• Provides counter-balance for wholesale power and stabilizes cash flows

• Avoids ISO collateral requirements

• Avoids "bid-ask" cost of transacting on exchanges

"Non-integrated businesses can be exposed to power price volatility and incremental collateral costs," TCEH reiterated

Market Share Data per TCEH (Note all non-TXU data is from 2014)

TCEH reported Texas REPs' residential market share as follows

TXU                     25%
Reliant                 22%
Direct Energy           11%
Ambit Energy             7%
Stream                   5%
Green Mountain Energy    5%
Gexa Energy              2%
Champion Energy          2%

TXU listed Reliant as having 1.3 million residential customers in Texas, and Direct Energy having about 600,000 residential customers in Texas

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