IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE _________________________________
)
In re: ) Chapter 11
) Jointly Administered GRIDWAY ENERGY HOLDINGS, et. al. ) Case No. 14-10833(CSS)
)
Debtors. ) Re: Docket Nos. 13, 218, 221, 260 ) Objection Deadline: 5/29/14, 4:00 p.m.
) Hearing Date: 6/16/14, 11:00 a.m. _________________________________)
SUPPLEMENTAL OBJECTION OF CERTAIN UTILITIES TO THE DEBTORS’ SALE MOTION AND ASSUMPTION AND CURE NOTICE
Texas Central Company, d/b/a American Electric Power (“AEPTCC”), AEP Texas North Company, d/b/a American Electric Power (“AEPTNC”), Ohio Power Company, d/b/a AEP Ohio (“AEP Ohio”), The East Ohio Gas Company, d/b/a Dominion East Ohio (“DEO”), Public Service Electric and Gas Company (“PSE&G”), New York State Electric and Gas Corporation (“NYSEG”), Rochester Gas and Electric Corporation (“RGE”), Duke Energy Ohio, Inc. (“Duke”) and KO Transmission Company, an affiliate of Duke
(“KO”)(collectively, the “Utilities”) for their Supplemental Objection (the “Supplemental Objection”) to (1) the Debtors’ Motion for an Order Pursuant to Sections 105(a), 363 and 365 of The Bankruptcy Code and Bankruptcy Rules 6004 and 6006 (I)(A) Approving Procedures in Connection With Sale of Debtors’ Assets’ (B) Approving Form of APA; (C) Scheduling Auction and Hearing to Consider Approval of Sale; (D) Approving Procedures Related to
(E) Approving Form and Manner of Notice Thereof; and (F) Granting Related Relief; and (II)(A) Authorizing Sale of Such Assets
Pursuant to APA, Free and Clear of All Liens, Claims,
Encumbrances and Other Interests; (B) Approving Assumption and Assignment of Certain Executory Contracts and Unexpired Leases Related Thereto, and (C) Granting Related Relief [Docket No. 13] (the “Sale Motion”) and (2) the Debtors’ Notice of (I) Proposed Assumption and Assignment of Certain Executory Contract(s) and Unexpired Leases in Connection With the Sale of the Debtors’
Assets, and (II) Objection Deadlines With Respect Thereto [Docket No. 218](the “Assumption and Cure Notice”), state the following:
Introduction1
The Debtors operate in a highly regulated industry and their businesses are subject to numerous state laws, public utility commission regulation and, in some instances, regulation by the Federal Energy Regulatory Commission. All of the Debtors’
contracts with the Utilities are subject to the foregoing laws and regulations and in most instances those laws and regulations are incorporated by reference into those contracts. In general terms, the Utilities do not oppose the proposed sale of assets and are working with the Debtors to resolve their concerns. The Utilities, however, need more information and notice regarding
1
All capitalized terms not otherwise defined herein shall have the meaning ascribed to such term in the Initial Objection.
the proposed purchaser and potential designees than what the
current sale process provides. Specifically, the main issues that need to be addressed are as follows:
1. The Debtors need to demonstrate both that (1) the purchaser is an entity that can satisfy the laws and regulations to be a qualified supplier in the Utilities’ jurisdictions and any other legal or regulatory requirement to do business in those states and (2) the Utility
Agreements (and related Purchased Assets) are not actually assigned to the purchaser until the purchaser has obtained all necessary licenses and certifications;
2. With respect to potential designees of the
purchaser, the Debtors need to identify who these potential designees are and to do so in a manner that provides the Utilities with sufficient advance notice of who they are. Absent advance notice to the Utilities of who these
designees are, the Utilities cannot confirm that the designees:(1) are properly licensed in their
jurisdiction;(2) can satisfy all the legal requirements in the Utilities’ contracts; and (3) provide the Utilities with adequate assurance of future performance;
3. For the Utilities that purchase the Debtors’ accounts receivable pursuant to their contracts with the Debtors, Debtors must show that the Utilities’ rights in
those accounts receivable, including the security interests that NYSEG, RGE and DEO have in those accounts receivable, are not impaired by the sale; and
4. Even though no prepetition sums are owed under the Utility Agreements, the Debtors and/or the purchaser
(whomever is obligated for such payments under the APA
and/or TSA) should be required to satisfy all post-petition obligations due under the Utility Agreements as a condition of assumption and assignment.
On June 11, 2014, just five days before the scheduled sale hearing and proposed sale closing date, the Utilities were first notified that Platinum Partners Value Arbitrage Fund LP was the successful bidder at auction (“Platinum” or the “Successful
Bidder”) and that the Stalking Horse Bidder would be the Back-Up Bidder. Prior to that time, the Utilities had not heard of
Platinum and were not provided notice of any potential purchasers other than the Stalking Horse Bidder.
At this time, the Utilities have not been provided with any information or documents that demonstrate that Platinum, the Stalking Horse Bidder, or any of the potential designees (who have not yet been identified) have, or even can, satisfy the various federal, state and regulatory requirements of being a qualified supplier in the applicable jurisdictions. The Debtors have provided the Utilities with only limited, non-specific
information regarding the Back-Up Bidder and no information whatsoever regarding the Successful Bidder or its potential designees. And at this point in time, the Utilities do not believe it is realistic for the Utilities to be able to obtain and review all the necessary information and documents regarding the Successful Bidder prior to the scheduled sale hearing.
Despite the foregoing, under the current sale pleadings, which conflict with the Transition Services Agreement, the
Debtors propose to close on and transfer title to the assets to the purchaser before the necessary legal and regulatory approvals are obtained. Under Section 365(c) of the Bankruptcy Code, the ownership of those contracts cannot be transferred until after the purchaser demonstrates that it has satisfied all of the legal and regulatory requirements.
Procedural Facts
1. On May 29, 2014 (the “Objection Deadline”), the Utilities filed their Objection of Certain Utilities to the Debtors’ Sale Motion and Assumption and Cure Notice [Doc. No. 260] (the “Initial Objection”), objecting to: (1) the inability of the Debtors to assign the Utility Agreements to the Stalking Horse Bidder under Section 365(c), (2) the cure amounts the Debtors are proposing to pay in connection with the assumption and assignment of the Utility Agreements, (3) the failure of the Debtors to (a) demonstrate the authority and qualifications of
the Stalking Horse Bidder and/or any potential designees to be an assignee of the Utility Agreements or (b) to provide adequate assurance of future performance to the Utilities with respect to the Stalking Horse Bidder and/or any potential designees; and (4) the improper impairment of security and setoff rights held by the Utilities, which is contemplated by the proposed Asset Sale.
2. In order to meet the Objection Deadline, the Utilities filed their Initial Objection before having all information
regarding the applicable Utility Agreements and cure amounts owing thereunder. Further, the Utilities only received the limited adequate assurance of future performance information regarding the Stalking Horse Bidder on May 29, 2014 and had not had a time to review or follow up with Debtors’ counsel at the time of filing the Initial Objection.
3. Although the auction was scheduled to commence on June 10, 2014, it appears that it was not held until June 11, 2014, at which time the Utilities were first provided with notice that Platinum, not the Stalking Horse Bidder, was the Successful Bidder at auction.
4. In connection with notifying the Utilities that
Platinum was the Successful Bidder, Debtors’ Counsel advised that he had requested contact information for a person at Platinum to address adequate assurance issues, and would forward the contact information to the Utilities upon receipt. At the time of filing
this Supplemental Objection, however, no Platinum contact has been provided, and no other information whatsoever has been provided to the Utilities regarding Platinum or any potential designees of Platinum.
5. Accordingly, the Utilities are filing this Supplemental Objection to address: (1) contract and cure information not
included in the Initial Objection, (2) the inadequate information that the Debtors have provided in response to the Utilities’
requests for information addressing adequate assurance of future performance of the Buyers under the Utility Agreements, and (3) the complete lack of information provided regarding the
Successful Bidder.
Facts Regarding KO and Duke Agreements
6. KO and Duke deliver gas and electric commodity sold by the Debtors to the Debtors’ customers in Duke’s service territory pursuant to the following agreements:
A. Service Agreement, dated as of March 1, 2013, between KO and Glacial Natural Gas, Inc. (the “KO Agreement”); and
B. Duke Energy Ohio, Inc. Gas Supply
Aggregation/Customer Pooling Agreement Associated With Firm Transportation Program, dated as of September 17, 2010, between Duke and Glacial Natural Gas, Inc. (the “Duke Gas Agreement”);
1, 2009, between Duke Energy Shared Services Inc., on behalf of Duke, and Glacial Energy of Ohio, Inc. (the “Duke Electric
Supplier Agreement”);
D. Electronic Data Interchange (“EDI”) Trading
Partner Agreement, dated as of December 1, 2009, between Duke and Glacial Energy of Ohio, Inc. (the “Duke EDI Agreement”); and
E. Transmission Scheduling Agent (TSA) Designation Agreement, dated as of December 1, 2009, by and among Duke,
Debtor Glacial Energy of Ohio, Inc. and Debtor Glacial Energy of Illinois, Inc., as TSA (the “Duke TSA Agreement”; and together with the Duke Electric Supplier Agreement and the Duke EDI Agreement, the “Duke Electric Agreements”).
Gas Agreements
7. KO is a subsidiary of Duke and operates an interstate pipeline company engaged in the business of transporting natural gas in interstate commerce under the regulation of the Federal Energy Regulatory Commission (“FERC”).
8. Pursuant to the KO and Duke Gas Agreements, KO
transports the Debtors’ gas to Duke, which then transports it to the Debtors’ customers in Duke’s service territory.
9. The KO Agreement expressly incorporates the terms of KO’s ITS Rate Schedule and applicable General Terms and
Conditions of KO’s FERC Gas Tariff, Original Volume No. 1 (the “KO Tariff”).
10. Pursuant to Part 4, §§ 1 and 4 and Part 5, § 2 of the KO Tariff, in order to be awarded capacity and services on KO’s pipeline, a shipper must complete a Request for Service Form, appear on KO’s Approved Bidders List, and provide certain information and documents relating to the shipper’s
creditworthiness. Further, KO may reject any request for service from a shipper not meeting KO’s creditworthiness requirements unless the shipper provides assurance of payment in the form of a deposit, advance payment, irrevocable letter of credit, surety bond, or a guaranty from a creditworthy entity. (KO Agreement, Part 5, §§ 2.7 and 27.2.)
11. Part 5, § 4 of the KO Tariff provides that any assignee of a shipper’s service rights must be listed on KO’s Approved Bidders List and comply with all conditions and requirements of the KO Tariff. Part 5, § 27.3 of the KO Tariff provides that upon assignment of a shipper’s contracts, KO may re-evaluate the creditworthiness of shipper and demand adequate assurance of payment or additional assurances if it determines that the shipper has become in any respect uncreditworthy.
12. Pursuant to Part 5, Section 10.4 of the KO Tariff, KO has up to six months after it issues a bill to a shipper to make adjustments for billing errors.
13. KO is not currently holding any security to secure amounts that the Debtors may owe to KO under the KO Agreement.
14. As of the date of filing this Supplemental Objection, the Debtors owe only about $9.00 to KO for services performed in May 2014 under the KO Agreement, which amount will come due
around June 23, 2014. In addition, the Debtors will continue to incur charges under the KO Agreement through the closing of the Asset Sale.
15. The Duke Gas Agreement expressly incorporates the terms of Rates FT, RFT, FRAS, and SAC of the Schedule of Rates,
Classifications Rules and Regulations for Gas Service of Duke Energy Ohio, P.U.C.O. No. 18 (the “Duke Gas Tariff”).
16. Pursuant to Rate FRAS (at p.6) of the Duke Gas Tariff, each supplier desiring to receive Aggregation Service/Firm
Transportation Service from Duke must first be evaluated to ensure that it possesses the financial resources and sufficient experience to perform its responsibilities as a supplier. In connection with this evaluation, a supplier must:
a) provide proof to Duke that it has been certified by the PUCO to provide retail natural gas service;
b) complete and sign Duke’s credit application form; c) complete and sign the Retail Natural Gas Supplier Registration form;
d) pay a registration fee;
e) attend Duke-sponsored training for Retail Natural Gas Suppliers;
f) demonstrate a working understanding of the proper electronic communications capabilities necessary to transact business with the Company; and
g) complete and sign the Company’s Gas Supply Aggregation/Customer Pooling Agreement.
17. In addition, suppliers not meeting the necessary credit level are required to provide additional security in a form and format specified by Duke. (Rate FRAS, at p.6.)
18. Also pursuant to Rate FRAS (at p.7) of the Duke Gas Tariff and Ohio Administrative Code Rule 4901:1-29-06, suppliers shall not change or authorize the changing of a customer’s
supplier of competitive retail service without the customer’s prior consent.
19. Duke provides consolidated billing services to the Debtors under Rate FRAS, pursuant to which Duke bills and
receives payment from customers for the Debtors’ supply charges and forwards those customer payments to the Debtors.
20. Article III of the Duke Gas Agreement provides that if the Debtors defaults on its obligations thereunder, in addition to Duke’s rights in any deposit or the proceeds of any other security instrument it holds to secure the Debtors’ obligations, Duke shall have the right to setoff against such obligations any revenues obtained through Duke’s billing on the Debtors’ behalf or any other revenues obtained by Duke as a result of any and all
other agreements and relationships between Duke and the Debtors. 21. Rate FRAS (pp.21 and 24) of the Duke Gas Tariff
expressly incorporates Duke’s Rules and Regulations Governing the Distribution and Sale of Gas and all other rules and regulations of PUCO governing the same.
22. Article XIV of the Duke Gas Agreement provides that no assignment of the agreement may be made without the prior written approval of the non-assigning party, which consent shall not be unreasonably withheld.
23. Duke is currently holding a $100,000 deposit to secure amounts that the Debtors may owe to Duke under the Duke Gas
Agreement.
24. As of the date of filing this Supplemental Objection, the Debtors currently owe $953.93 to Duke for services performed in May 2014 under the Duke Gas Agreement, which amount will come due around June 23, 2014. As Duke owes the Debtors $7,956.27 for charges collected from the Debtors’ customers, there will be a netting of the foregoing charges with Duke wiring the balance to the Debtors on or about June 20, 2014. In addition, the Debtors will continue to incur charges under the Duke Gas Agreement through the closing of the Asset Sale.
Duke Electric Agreements
25. The Duke Electric Supplier Agreement expressly
Tariff, P.U.C.O. Electric No. 20 (the “Duke Supplier Tariff”) and is subject to all valid applicable State, Federal and local laws, rules, orders and regulations.
26. Section 5.1 of the Duke Supplier Tariff provides that each Certified Supplier must meet the following requirements in order to participate in Duke’s Customer Choice Program:
a) provide proof to Duke that it has been certified by the PUCO as an authorized Certified Supplier;
b) meet Duke’s credit requirements set forth in the Section VI of the tariff;
c) attend the Duke-sponsored Certified Supplier Training Program;
d) submit a satisfactorily completed Certified Supplier Registration & Credit Application to Duke;
e) Satisfactorily demonstrate that the proper electronic communications capabilities are operational;
f) execute Duke’s EDI Trading Partner Agreement;
g) execute Duke’s Certified Supplier Service Agreement; h) pay the applicable registration fee; and
i) satisfactorily complete EDI testing for applicable transaction sets necessary to commence service.
27. Section 4.12 of the Duke Supplier Tariff provides that a Certified Supplier or its designated TSA shall satisfy all reliability requirements imposed by the PUCO, FERC, NERC,
ReliabilityFirst, or any other governing reliability councils with authority over the Certified Supplier or its designated TSA.
28. Section 4.15 of the Duke Supplier Tariff provides that Duke shall not be required to provide Certified Supplier Services unless the Certified Supplier is current in its payment of all Charges owed under the Duke Supplier Tariff.
29. Under Section 6.2 of the Duke Supplier Tariff, Duke may require a Certified Supplier to provide a parental guarantee of payment, an irrevocable letter of credit, a cash deposit, or other form of security if a Certified Supplier does not meet Duke’s creditworthiness requirements or if its credit
requirements exceed its allowed unsecured credit limit. In addition, Section 6.4 permits Duke to re-evaluate a Certified Supplier’s creditworthiness at any time and require a Certified Supplier to post new or additional security not previously
requested.
30. Duke provides consolidated billing services to the Debtors under the Duke Electric Supplier Agreement and Sections 10.1 and 11.2(b) of the Duke Supplier Tariff, pursuant to which Duke bills and receives payment from customers for the Debtors’ supply charges and forwards those customer payments to the
Debtors.
31. Pursuant to Section 11.5 of the Duke Supplier Tariff, Duke may purchase the Certified Supplier’s receivables for which
Duke bills the customer. If the customer is 60 days or more in arrears in paying such purchased receivables, the Certified
Supplier is required to transfer the customer’s security deposit to Duke.
32. Section 12.3 of the Duke Supplier Tariff and Article XI of the Duke Electric Supplier Agreement provide Duke with the right to setoff amounts received from customers for Certified Supplier charges against amounts owing to Duke from the Certified Supplier under the Duke Electric Supplier Agreement in the event of a default by the Certified Supplier.
33. Pursuant to Section 21.3 of the Duke Supplier Tariff, the Debtors may not assign the Duke Electric Supplier Agreement without first obtaining any necessary regulatory approvals and Duke’s consent.
34. Article IV of the Duke Electric Supplier Agreement also requires the Certified Supplier to comply with the requirements of the Midwest ISO’s Transmission and Energy markets Tariff.
35. The Duke EDI Agreement is expressly governed by and subject to the laws of the State of Ohio and Duke’s rates, riders and tariffs filed with the PUCO.
36. The Duke TSA Agreement requires that the designated TSA comply with all credit requirements of Duke and Duke Energy
Shared Services Inc. and requires that the designated TSA comply with all terms and conditions of the Duke Supplier Tariff. In
addition, the Duke TSA Agreement expressly incorporates the terms of the Open Access Transmission Tariff on file with the FERC.
37. Duke is currently holding two letters of credit issued on behalf of the Debtors in the amounts of $802,000 and $100,000, respectively, to secure amounts that my become owing by the
Debtors to Duke under the Duke Electric Agreements.
38. As of the date of filing this Supplemental Objection, no amounts are owing by the Debtors to Duke under the Duke
Electric Agreements. However, the Debtors will continue to incur charges under the Duke Electric Agreement through the closing of the Asset Sale. In addition, customer security deposits held by the Debtors may become due and payable to Duke on certain
accounts for which Duke purchases the Debtors’ receivables. Additional Facts Regarding Authority
Of Buyer And Adequate Assurance
39. In response to the Utilities’ request for information addressing adequate assurance, by email dated May 29, 2014, Debtors’ counsel provided a three-page letter, dated May 28, 2014, from the Stalking Horse Bidder to Debtors’ counsel (the “Adequate Assurance Letter”).
40. The Adequate Assurance Letter sets forth conclusory statements regarding the financial and operational capabilities of the Stalking Horse Bidder and its affiliates, but does not provide any details regarding the Stalking Horse Bidder’s (or any potential designees’) finances, its ability to satisfy the
creditworthiness requirements set forth in the Utility Agreements and/or required by state law, or its qualifications or ability to operate under the terms of and fulfill the Debtors’ obligations under the Utility Agreements.
41. Further, the Adequate Assurance Letter does not provide any details regarding whether the Stalking Horse Bidder (or any potential designees or other potential bidder) holds the licenses required for a supplier to operate under the terms of the Utility Agreements, meets the requirements for obtaining such licenses, or whether such licenses would be obtained before the applicable assumption date. Rather, it simply states, without any
supporting facts or documentation, that “[u]pon our review, we fully expect [the Stalking Horse Bidder] is competent to obtain such licenses and permits, and we have no reason to believe that [the Stalking Horse Bidder] cannot successfully obtain the
necessary licenses and permits.”
42. The Adequate Assurance Letter further states that “as set forth in the APA, [the Stalking Horse Bidder] will close on the transaction and transfer the assets only after necessary Consents have obtained. Where licenses and permits will be
required, we will apply for those if [the Stalking Horse Bidder] is the winning bidder.... While any applications for licenses and/or permits in any jurisdictions are pending, the [Debtors’] businesses in those jurisdictions will be operated under the
terms of a Transition Services Agreement to be entered into by the Debtors and [the Stalking Horse Bidder].”
43. The draft Transition Services Agreement that Debtors’ counsel has provided (the “TSA”) is between the Debtors and the Stalking Horse Bidder and contemplates two closings, i.e., (1) an Economic Closing, at which time the services to be provided by the Debtors under the TSA would begin, and then (2) a later Asset Transfer Closing (or multiple Partial Asset Transfer Closings with respect to various designees), at which time the transition services would end as to the particular assets transferred.
44. However, neither the term “Economic Closing” or “Asset Transfer Closing” is defined in the TSA or the APA. Thus, it is not clear what either closing would entail, or who would own the Debtors’ applicable gas and electric assets or be the applicable supplier under the Utility Agreements while the transition
services are being provided.
45. Moreover, the APA contemplates only one Closing, at which the parties are to deliver a duly executed bill of sale and assignment agreement, a certified copy of the Sale Order, and the executed TSA. (APA, Article IV.) According to paragraph 58 of the Sale Motion, the Closing is to be completed by June 16, 2014. 46. The Sale Order further provides that as of the Closing Date: (1) the Purchased Assets shall have been transferred to the Buyer free and clear of all liens, claims, encumbrances, and
other interests; (2) the Debtors are authorized to assume each of the Assumed Contracts free and clear of all liens, claims,
encumbrances, and other interests; (3) the Buyer shall be fully and irrevocably vested with all right, title and interest of the Debtors under the Assumed Contracts; (4) the Buyer shall be
deemed to be substituted for the Debtors as a party of the
applicable Assumed Contracts; (5) the transfers of the Purchased Assets constitute legal, valid and effective transfers of all right, title and interest of sellers therein, and (6) the Buyer has provided adequate assurance of future performance under the relevant Assumed Contracts. (Sale Order, §§ 13, 14, 21-23.)
47. Debtors’ counsel has also represented to the Utilities that title to the Purchased Assets and the Utility Agreements are to be transferred to the purchaser as of the closing date, not at some later date.
48. Under the TSA, the Debtors are to continue operating essentially all aspects of the Debtors’ business with respect to those assets for which there has not yet been an Asset Transfer Closing, consistent with the operations, practices and standards used by the Debtors in connection with the conduct of their
businesses during the twelve-month period prior to the Economic Transfer Time. These services would include assisting in
transition of all data interfaces related to all TDSPs, storing (and providing the Buyer with access to) customer billing data,
dealing with customer inquiries, customer communications, and billing, contract administration services, and scheduling and supply services. (TSA, §§ 2.1, 2.2 and Schedule A.)
49. The Debtors would fund such transitional operations through revenues received from operation of the business plus additional funding to be provided by the Stalking Horse Bidder. All cash receipts of the Debtors during the transition period would “belong to and be held by the Debtors for the account and benefit of” the Stalking Horse Bidder and/or a Qualified
Designated Buyer. (TSA, § 3.1.)
50. According to Section 6.3 of the TSA, the Debtors are to perform the transition services set forth in the TSA as an
independent contractor, and not as an employee or agent of the Buyer or its affiliates.
51. None of the sale pleadings, the APA, or the Transition Services Agreement address what procedures will be followed if an entity to whom some or all of the Debtors’ assets have been
transferred is never able to satisfy the applicable legal and regulatory requirements to obtain the required licenses, permits and/or other required approvals to become an authorized supplier.
The Debtors’ Selection Of Platinum As The Successful Bidder At Auction
52. On June 11, 2014, the Debtors filed and provided notice to the Utilities of the Notice of the Debtors’ Selection of
Successful Bidder and Back-Up Bidder in Connection with the Sale of Substantially all of the Debtors’ Assets [Doc. No. 355](the “Notice of Successful Bidder”), which announced that Platinum was the Successful Bidder at auction, and the Stalking Horse Bidder was the Back-Up Bidder.
53. Prior to receiving the Notice of Successful Bidder, the Utilities had not heard of Platinum and had no knowledge that they were a potential bidder.
54. The Notice of Successful Bidder provides that at the June 16 sale hearing, the Debtors intend to seek entry of an
order approving the Sale to Platinum as the Successful Bidder “in accordance with the terms set forth in the asset purchase
agreement (subject to certain modifications reflected on the record of the Auction) submitted by Platinum” and designating Vantage as the Back-up Bidder.
55. The Debtors have promised to provide the Utilities with a contact at Platinum for the purpose of obtaining adequate
assurance information, but have not yet provided that contact. 56. On June 12, the Utilities were first provided with a copy of the asset purchase agreement pursuant to which Platinum is to purchase Purchased Assets and assume Utility Agreements, but were told that it remains subject to further modifications. The Utilities have not yet had an opportunity to review this agreement. In addition, the Utilities requested that the Debtors
provide a list of which Utility Agreements are to be assumed and assigned to Platinum under the Platinum asset purchase agreement but has not yet received the same.
Cure Amounts
57. At this time, the Debtors have satisfied all
prepetition amounts owed to the Utilities in the ordinary course of business pursuant to authority granted in various orders of this Court.
58. Although the Debtors do not owe the Utilities any amounts for prepetition charges, the Debtors may owe amounts to the Utilities for post-petition charges that are not yet known and will not be known until the applicable closing or closings. Accordingly, any Order approving the Sale should specifically provide that the Debtors and/or purchaser (whomever is
responsible for such charges under the APA) are required to satisfy all post-petition cure obligations in addition to any prepetition obligations.
Discussion
I. The Utility Agreements Cannot Be Assumed And Assigned Under Section 365(c) Of The Bankruptcy Code To Entities That Do Not Satisfy Certain Legal And Regulatory
Requirements And There Is No Evidence That The Stalking Horse Bidder Or Any Of Its’ Potential Non-Disclosed Designees Satisfy Those Requirements.
Section 365(c) of the Bankruptcy Code provides, in pertinent part:
(c) The Trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if—
(1)(A) applicable law excuses a party, other than the debtor, to such contract or lease from accepting
performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and
(B)such party does not consent to such assumption or assignment;
The Utilities raised this legal issue in the Initial Objection and have asked the Debtors to demonstrate that the
Stalking Horse Bidder (or any other Successful Bidder or proposed designees) (collectively, “Purchaser”) can satisfy the applicable legal requirements in each of the Utilities’ jurisdictions to be an assignee of the Utility Agreements. As of the date of this Supplemental Objection, the Debtors have failed to provide information that demonstrates that Platinum has or even can satisfy the legal and regulatory requirements necessary for the assumption and assignment of the Utility Agreements. Moreover, under the current sale pleadings, the Debtors propose to transfer ownership of the Utility Agreements to Platinum before Platinum satisfies the legal and regulatory requirements that are required to be a supplier in the applicable jurisdictions. Although the Transition Services Agreement appears to provide that the closing of the various assets will not occur until the necessary legal
and regulatory requirements are met, the current sale pleadings are not in accord. The Utilities are prohibited by applicable law from providing transmission service on behalf of service providers who have not complied with licensing, permitting and other legal and regulatory requirements. Therefore, until
Platinum has satisfied the applicable legal and regulatory
requirements, this Court cannot permit the Utility Agreements (or the related Purchased Assets) to be assumed and assigned to
Platinum.
II. The Debtors And Platinum Have Failed To Provide The
Utilities With Adequate Assurance Of Future Performance As Required By Section 365 Of The Bankruptcy Code.
The complete lack of information regarding the Successful Bidder and the conclusory statements set forth in the Adequate Assurance Letter do not provide the Utilities with sufficient detail from which the Utilities can determine whether all (or any) of the regulatory, financial and operational requirements set forth in the Utility Agreements applicable to the Debtors are met or can ever be met by Platinum. In addition, no financial information on Platinum or any of the potential designees (who have yet to be identified), has been provided. Accordingly, the foregoing production is insufficient to provide the Utilities with adequate assurance of future performance with respect to the Successful Bidder, the Stalking Horse Bidder or any other
Furthermore, the sale pleadings do not provide the Utilities with sufficient advance notice of who any potential designee may be so that the Utilities can confirm that: (1) the designee
satisfies all applicable legal and regulatory requirements to be a supplier in the applicable jurisdiction; and (2) a designee, which will most likely be some newly formed limited liability company, can provide the affected Utility with adequate assurance of future performance. The Utilities and the Debtors are working on trying to resolve these issues, but they have not yet been resolved.
III. There Is A Conflict Between The Transition Services
Agreement (“TSA”) And The Sale Pleadings On How The Proposed Sale Closing Or Closings Will Occur That Is Material With Respect To The Assumption And Assignment Of The Utilities Agreements.
The TSA raises more questions than it answers with respect to how the proposed sale will close and how and when the Utility Agreements will be assumed and assigned. First, the TSA is
expressly between the Debtors and the Back-Up Bidder, so it is not clear whether any transition services agreement will be
entered into with the Successful Bidder or what the terms thereof will be.
Assuming that the Successful Bidder will enter into a
transition services substantially similar to the TSA, there are still problems. Specifically, the TSA contemplates two separate closings, i.e. an Economic Closing and an Asset Transfer Closing.
The TSA also provides for the Debtors to continue operating the Purchased Assets and the business from the time of the Economic Closing through the Asset Transfer Closings, presumably to allow the Buyer(s) time to apply for and obtain the necessary approvals for their lawful operation of the Debtors’ business under the Assumed Contracts. However, this is contrary to the terms of the APA and the Sale Order, which contemplate only a single Closing to take place by June 16, 2014, at which title to the Purchased Assets would be immediately transferred to the Buyer(s) and the Buyer(s) would assume and be vested with all rights, title and interest in and to the Utility Agreements.
Thus, it remains unclear whether Platinum has or can meet the licensing and permitting requirements of state law and/or regulations or any other financial and operational requirements applicable to suppliers under the Utility Agreements. The
Utilities are currently in discussions with the Debtors in an attempt to obtain sufficient information in this regard and to ascertain how the Debtors and Platinum intend to operate under the Utility Agreements until Platinum obtains all required legal and regulatory approvals that are necessary to allow Platinum to be valid assignee(s) of the Utility Agreements.
IV. It Is Unclear What Will Happen If A Purchaser Never
Satisfies The Applicable Legal And Regulatory Requirements To Qualify As An Assignee Of A Utility Agreement.
be followed in the event a Purchaser or its designee is ultimately unable to satisfy the legal and regulatory
requirements, including obtaining all licenses, permits, and
other requirements and approvals, necessary to become a qualified supplier under the applicable Utility Agreement(s). Thus, it is unclear whether the Utility Agreement(s) will be assigned back to the Debtors on a temporary or permanent basis, whether the
related assets will be transferred back to the Debtors, whether another bidding process and auction will ensue, whether the matter will be resolved in some other manner, or who will serve the Debtors’ customers while those issues are being resolved. Accordingly, it is imperative that the Court require the Debtors and/or a Purchaser to demonstrate that the applicable Purchaser or designee can meet all such requirements before a sale to the Purchaser is approved and that the Purchaser does in fact meet all such requirements and obtain all necessary licenses and regulatory approvals before title to the Purchased Assets are transferred and the Utility Agreements are assigned to a
Purchaser.
V. There Is Insufficient Time Before The Scheduled Sale Hearing For The Debtors Or The Purchaser To Demonstrate That They Meet The Requirements To Be Valid Assignees Of The Utility Agreements And To Provide Adequate Assurances Of Future Performance.
As the Utilities were first provided notice of the Successful Bidder on the Thursday immediately preceding the
Monday scheduled sale hearing, it is unrealistic to believe that the Debtors or the Purchaser can provide the Utilities with all information and documents necessary to establish their legal, regulatory and operational qualifications to be valid assignees of the Utility Agreements or to provide the necessary assurances of future performance thereunder.
WHEREFORE, for all of the reasons set forth herein and in the Initial Objection, the Court should enter an Order:
A. Requiring the Purchaser to demonstrate before any Utility Agreement can be assumed and assigned that Platinum and any potential designees satisfy all requirements of applicable state laws and regulations to be entitled to be an assignee of the Utility Agreements;
B. Requiring the Debtors and/or the applicable assignee to pay the applicable any post-petition charges that are due through the applicable closing date as a condition to the Debtors’
assumption and assignment of the Utility Agreements;
C. Requiring the Debtors and Platinum to demonstrate the Purchaser’s qualifications and ability of the applicable
assignee(s) to provide adequate assurance of future performance once such assignee(s) have been finally identified, and
permitting the Utilities to object thereto at the appropriate time;
Utility Agreements, regardless of whether such rights arise
before or after the applicable assumption date, including but not limited to all security interests and setoff rights granted to the Utilities to secure payment of Debtors receivables the Utilities are required to purchase pursuant to consolidated
billing and/or purchase of receivables provisions in the Utility Agreements;
E. Postponing the sale hearing to allow the Utilities to obtain sufficient information demonstrating Platinum’s
qualifications to be a valid assignee(s) of the Utility Agreements and demonstrating its/their ability to provide adequate assurance of future performance thereunder; and
F. Providing such other and further relief as is just and equitable.
Dated: June 12, 2014 STEVENS & LEE, P.C.
/s/ John D. Demmy_____________ John D. Demmy (Bar No. 2802)
1105 North Market Street, 7th Floor Wilmington, Delaware 19801
Telephone: (302) 425-3308 E-mail: jdd@stevenslee.com
and
Russell R. Johnson III John M. Craig
Law Firm of Russell R. Johnson III, PLC 2258 Wheatlands Drive
Manakin-Sabot, Virginia 23103 Telephone: (804) 749-8861
Facsimile: (804) 749-8862 E-mail: russj4478@aol.com
Counsel For AEP Texas Central Company; AEP Texas North Company; Ohio Power Company, d/b/a AEP Ohio; The East Ohio Gas Company, d/b/a Dominion East Ohio; Public Service Electric and Gas Company; New York State Electric and Gas Corporation; Rochester Gas and Electric
Corporation; Duke Energy Ohio, Inc.; and KO Transmission Company
CERTIFICATE OF SERVICE
I hereby certify that on June 12, 2014, in addition to the notice and service provided through the Court’s CM/ECF system, true and correct copies of the foregoing Supplemental Objection of
Certain Utilities to the Debtors’ Sale Motion and Assumption and Cure Notice were served by email on the following:
Michael R. Nestor Joseph M. Barry
Donald J. Bowman, Jr.
Young Conaway Stargatt & Taylor, LLP Rodney Square
1000 North King Street Wilmington, Delaware 19801
Counsel for Debtors
Alan M. Noskow Mark A. Salzberg PATTON BOGGS LLP 2550 M St. NW
Washington, D.C. 20037
Counsel for Debtors
Kenneth Irvin, Esq. Karen Dewis, Esq.
Cadwalader, Wickersham & Taft LLP 700 Sixth Street, N.W.
Washington, D.C. 20001
Counsel for Stalking Horse Bidder
Jason M. Madron, Esq.
Richards, Layton & Finger, P.A. 920 North King Street
Wilmington, Delaware 19801
Counsel for Stalking Horse Bidder
Office of the U.S. Trustee
J. Caleb Boggs Federal Building 844 King Street, Suite 2207 Lockbox 35
Sharon Levine, Esq. Philip J. Gross, Esq. Lowenstein Sandler LLP 65 Livingston Avenue
Roseland, New Jersey 07068
Counsel for the Committee
Frederick B. Rosner, Esq. Julia B. Klein, Esq.
The Rosner Law Group LLC 824 Market Street, Suite 810 Wilmington, Delaware 19801
Counsel for the Committee
/s/ John D. Demmy_____________ John D. Demmy,
