TXU Seeks Court Approval to Execute Settlement Providing Tax Refunds to C&I Customers

Energy Future Holdings, as parent of TXU Energy, has sought bankruptcy court approval of a settlement agreement which would resolve prior litigation concerning the collection by TXU of certain taxes from non-residential customers, and which would facilitate the refunding of such amounts to customers.

At issue is TXU Energy's collection of certain sales taxes from certain customers, specifically owners or managers of apartment complexes, with such taxes including State, Metropolitan Transit Authority, Special Purpose District, and County sales taxes.

A class action suit from various customers alleged that such electricity sales were not subject to sales tax. A prior settlement of the suit created a trust which was to be assigned TXU's right to refunds from the state comptroller for erroneously collected taxes, with the trust paying these amounts to customers.

However, the comptroller did not accept the agreement, raising concern that under the assignment, the trust could receive refunds of the taxes paid but not pass such payments onto customers who originally paid the taxes.

Under a new settlement, which EFH is seeking approval from the bankruptcy court to carry out, TXU would void its assignment, to the trust, of the right to refunds from the comptroller.

Instead, TXU itself would pay $11 million (the amount in dispute, inclusive of interest) into the trust for distribution to customers.

Once paying into the trust, TXU would present proof of such payment to the comptroller, and TXU would be allowed to take a credit on its next sales tax prepayment report in an amount equal to the amount paid into the trust.

In seeking approval of the bankruptcy court to make the required payments, EFH said that the settlement would support TXU's business position.

"A timely resolution of this matter would return due Credit Amounts to the TXU Energy Lawsuit Settlement Class and bolster TXU Energy's customer relations. TXU Energy's businesses center on its customer base. Moreover, as a debtor in a highly competitive industry, TXU Energy is already at risk of losing valuable customers due to its chapter 11 filing. Resolving this issue with a timely settlement will reduce the strain on TXU Energy's customer relations and aid in maintaining customer loyalty," EFH said.