Energy Future Holdings Corp /TX/ - FORM 10-Q - November 3, 2015

Attached files

file filename
EX-32.B - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2015930xexhibit32b.htm
EX-31.A - CERTIFICATION OF JOHN F. YOUNG - Energy Future Holdings Corp /TX/efh-2015930xexhibit31a.htm
EX-32.A - CERTIFICATION OF JOHN F. YOUNG - Energy Future Holdings Corp /TX/efh-2015930xexhibit32a.htm
EX-95.A - MINE SAFETY DISCLOSURES - Energy Future Holdings Corp /TX/efh-2015930xexhibit95a.htm
EX-31.B - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2015930xexhibit31b.htm
EX-99.A - TWELVE MONTHS ENDED SEPTEMBER 30, 2015 STATEMENT OF INCOME (LOSS) - Energy Future Holdings Corp /TX/efh-2015930xexhibit99a.htm
EX-99.B - CONSOLIDATED EBITDA RECONCILIATION TEXAS COMPETITIVE ELECTRIC HOLDINGS COMPANY - Energy Future Holdings Corp /TX/efh-2015930xexhibit99b.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 


FORM 10-Q


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

— OR —

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number 1-12833


Energy Future Holdings Corp.

(Exact name of registrant as specified in its charter)

Texas
 
46-2488810
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1601 Bryan Street, Dallas, TX 75201-3411
 
(214) 812-4600
(Address of principal executive offices) (Zip Code)
 
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o  Accelerated filer o  Non-Accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

At November 3, 2015, there were 1,669,861,379 shares of common stock, without par value, outstanding of Energy Future Holdings Corp. (substantially all of which were owned by Texas Energy Future Holdings Limited Partnership, Energy Future Holdings Corp.’s parent holding company, and none of which is publicly traded).
 


TABLE OF CONTENTS
 
 
PAGE
 
PART I.
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II.
 
Item 1.
Item 1A.
Item 4.
Item 5.
Item 6.
 

Energy Future Holdings Corp.'s (EFH Corp.) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available to the public, free of charge, on the EFH Corp. website at http://www.energyfutureholdings.com, as soon as reasonably practicable after they have been filed with or furnished to the Securities and Exchange Commission. The information on EFH Corp.'s website shall not be deemed a part of, or incorporated by reference into, this quarterly report on Form 10-Q. The representations and warranties contained in any agreement that we have filed as an exhibit to this quarterly report on Form 10-Q, or that we have or may publicly file in the future, may contain representations and warranties made by and to the parties thereto at specific dates. Such representations and warranties may be subject to exceptions and qualifications contained in separate disclosure schedules, may represent the parties' risk allocation in the particular transaction, or may be qualified by materiality standards that differ from what may be viewed as material for securities law purposes.

This quarterly report on Form 10-Q and other Securities and Exchange Commission filings of EFH Corp. and its subsidiaries occasionally make references to EFH Corp. (or "we," "our," "us" or "the Company"), EFCH, EFIH, TCEH, TXU Energy, Luminant, Oncor Holdings or Oncor when describing actions, rights or obligations of their respective subsidiaries. These references reflect the fact that the subsidiaries are consolidated with, or otherwise reflected in, their respective parent company's financial statements for financial reporting purposes. However, these references should not be interpreted to imply that the parent company is actually undertaking the action or has the rights or obligations of the relevant subsidiary company or vice versa.


i

GLOSSARY

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.
2014 Form 10-K
 
EFH Corp.'s Annual Report on Form 10-K for the year ended December 31, 2014
 
 
 
CAIR
 
Clean Air Interstate Rule
 
 
 
Chapter 11 Cases
 
Cases being heard in the US Bankruptcy Court for the District of Delaware (Bankruptcy Court) concerning voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code (Bankruptcy Code) filed on April 29, 2014 by the Debtors
 
 
 
Competitive Electric segment
 
the EFH Corp. business segment that consists principally of TCEH
 
 
 
Consolidated EBITDA
 
Consolidated EBITDA means TCEH EBITDA adjusted to exclude noncash items, unusual items and other adjustments allowable under the agreement governing the TCEH DIP Facility. See the definition of EBITDA below. Consolidated EBITDA and EBITDA are not recognized terms under US GAAP and, thus, are non-GAAP financial measures. We are providing Consolidated EBITDA in this Form 10-Q (see reconciliation in Exhibit 99(b)) solely because of the important role that Consolidated EBITDA plays in respect of covenants contained in the agreement governing the TCEH DIP Facility. We do not intend for Consolidated EBITDA (or EBITDA) to be an alternative to net income as a measure of operating performance or an alternative to cash flows from operating activities as a measure of liquidity or an alternative to any other measure of financial performance presented in accordance with US GAAP. Additionally, we do not intend for Consolidated EBITDA (or EBITDA) to be used as a measure of free cash flow available for management's discretionary use, as the measure excludes certain cash requirements such as adequate assurance payments, interest payments, tax payments and other debt service requirements. Because not all companies use identical calculations, our presentation of Consolidated EBITDA (and EBITDA) may not be comparable to similarly titled measures of other companies.
 
 
 
CSAPR
 
the final Cross-State Air Pollution Rule issued by the EPA in July 2011
 
 
 
DIP Facilities
 
Refers, collectively, to TCEH's debtor-in-possession financing and EFIH's debtor-in-possession financing. See Note 9 to the Financial Statements.
 
 
 
Debtors
 
EFH Corp. and the substantial majority of its direct and indirect subsidiaries, including EFIH, EFCH and TCEH, but excluding the Oncor Ring-Fenced Entities
 
 
 
Disclosure Statement
 
Fifth Amended Disclosure Statement for the Debtors' Fifth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code approved by the Bankruptcy Court in September 2015
 
 
 
D.C. Circuit Court
 
US Court of Appeals for the District of Columbia Circuit
 
 
 
EBITDA
 
earnings (net income) before interest expense, income taxes, depreciation and amortization
 
 
 
EFCH
 
Energy Future Competitive Holdings Company LLC, a direct, wholly owned subsidiary of EFH Corp. and the direct parent of TCEH, and/or its subsidiaries, depending on context
 
 
 
EFH Corp.
 
Energy Future Holdings Corp., a holding company, and/or its subsidiaries, depending on context, whose major subsidiaries include TCEH and Oncor
 
 
 
EFIH
 
Energy Future Intermediate Holding Company LLC, a direct, wholly owned subsidiary of EFH Corp. and the direct parent of Oncor Holdings
 
 
 
EFIH Debtors
 
EFIH and EFIH Finance
 
 
 
EFIH Finance
 
EFIH Finance Inc., a direct, wholly owned subsidiary of EFIH, formed for the sole purpose of serving as co-issuer with EFIH of certain debt securities
 
 
 
EFIH First Lien Notes
 
Refers, collectively, to EFIH's and EFIH Finance's 6.875% Senior Secured First Lien Notes and 10.000% Senior Secured First Lien Notes exchanged or settled in June 2014 as discussed in Note 9.
 
 
 
EFIH PIK Notes
 
EFIH's $1.566 billion principal amount of 11.25%/12.25% Senior Toggle Notes.
 
 
 
EFIH Second Lien Notes
 
Refers, collectively, to EFIH's and EFIH Finance's $322 million principal amount of 11% Senior Secured Second Lien Notes and $1.389 billion principal amount of 11.75% Senior Secured Second Lien Notes.
 
 
 

ii

EPA
 
US Environmental Protection Agency
 
 
 
ERCOT
 
Electric Reliability Council of Texas, Inc., the independent system operator and the regional coordinator of various electricity systems within Texas
 
 
 
ERISA
 
Employee Retirement Income Security Act of 1974, as amended
 
 
 
Federal and State Income Tax Allocation Agreements
 
EFH Corp. and certain of its subsidiaries (including EFCH, EFIH and TCEH, but not including Oncor Holdings and Oncor) are parties to a Federal and State Income Tax Allocation Agreement, executed on May 15, 2012 but effective as of January 1, 2010. EFH Corp., Oncor Holdings, Oncor, Texas Transmission, and Oncor Management Investment LLC are parties to a separate Federal and State Income Tax Allocation Agreement dated November 5, 2008. See Management's Discussion and Analysis, under Financial Condition.
 
 
 
Fifth Circuit Court
 
US Court of Appeals for the Fifth Circuit
 
 
 
GAAP
 
generally accepted accounting principles
 
 
 
GWh
 
gigawatt-hours
 
 
 
ICE
 
the IntercontinentalExchange, an electronic commodity derivative exchange
 
 
 
IRS
 
US Internal Revenue Service
 
 
 
LIBOR
 
London Interbank Offered Rate, an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market
 
 
 
Luminant
 
subsidiaries of TCEH engaged in competitive market activities consisting of electricity generation and wholesale energy sales and purchases as well as commodity risk management and trading activities, all largely in Texas
 
 
 
market heat rate
 
Heat rate is a measure of the efficiency of converting a fuel source to electricity. Market heat rate is the implied relationship between wholesale electricity prices and natural gas prices and is calculated by dividing the wholesale market price of electricity, which is based on the price offer of the marginal supplier in ERCOT (generally natural gas plants), by the market price of natural gas. Forward wholesale electricity market price quotes in ERCOT are generally limited to two or three years; accordingly, forward market heat rates are generally limited to the same time period. Forecasted market heat rates for time periods for which market price quotes are not available are based on fundamental economic factors and forecasts, including electricity supply, demand growth, capital costs associated with new construction of generation supply, transmission development and other factors.
 
 
 
Merger
 
the transaction referred to in the Agreement and Plan of Merger, dated February 25, 2007, under which Texas Holdings agreed to acquire EFH Corp., which was completed on October 10, 2007
 
 
 
MMBtu
 
million British thermal units
 
 
 
MW
 
megawatts
 
 
 
MWh
 
megawatt-hours
 
 
 
NOX
 
nitrogen oxide
 
 
 
NRC
 
US Nuclear Regulatory Commission
 
 
 
NYMEX
 
the New York Mercantile Exchange, a commodity derivatives exchange
 
 
 
Oncor
 
Oncor Electric Delivery Company LLC, a direct, majority-owned subsidiary of Oncor Holdings and an indirect subsidiary of EFH Corp., and/or its consolidated bankruptcy-remote financing subsidiary, Oncor Electric Delivery Transition Bond Company LLC, depending on context, that is engaged in regulated electricity transmission and distribution activities
 
 
 
Oncor Holdings
 
Oncor Electric Delivery Holdings Company LLC, a direct, wholly owned subsidiary of EFIH and the direct majority owner of Oncor, and/or its subsidiaries, depending on context
 
 
 
Oncor Ring-Fenced Entities
 
Oncor Holdings and its direct and indirect subsidiaries, including Oncor
 
 
 
OPEB
 
postretirement employee benefits other than pensions
 
 
 
Petition Date
 
April 29, 2014, the date the Debtors made the Bankruptcy Filing
 
 
 

iii

Plan of Reorganization
 
Fifth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code filed by the Debtors with the Bankruptcy Court in September 2015, as it may be amended, modified or supplemented from time to time

 
 
 
PUCT
 
Public Utility Commission of Texas
 
 
 
purchase accounting
 
The purchase method of accounting for a business combination as prescribed by US GAAP, whereby the cost or "purchase price" of a business combination, including the amount paid for the equity and direct transaction costs are allocated to identifiable assets and liabilities (including intangible assets) based upon their fair values. The excess of the purchase price over the fair values of assets and liabilities is recorded as goodwill.
 
 
 
Regulated Delivery segment
 
the EFH Corp. business segment that consists primarily of our investment in Oncor
 
 
 
REP
 
retail electric provider
 
 
 
RCT
 
Railroad Commission of Texas, which among other things, has oversight of lignite mining activity in Texas
 
 
 
S&P
 
Standard & Poor's Ratings (a credit rating agency)
 
 
 
SEC
 
US Securities and Exchange Commission
 
 
 
Securities Act
 
Securities Act of 1933, as amended
 
 
 
SG&A
 
selling, general and administrative
 
 
 
SO2
 
sulfur dioxide
 
 
 
Sponsor Group
 
Refers, collectively, to certain investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P., TPG Global, LLC (together with its affiliates, TPG) and GS Capital Partners, an affiliate of Goldman, Sachs & Co., that have an ownership interest in Texas Holdings.
 
 
 
TCEH
 
Texas Competitive Electric Holdings Company LLC, a direct, wholly owned subsidiary of EFCH and an indirect subsidiary of EFH Corp., and/or its subsidiaries, depending on context, that are engaged in electricity generation and wholesale and retail energy market activities, and whose major subsidiaries include Luminant and TXU Energy
 
 
 
TCEH Debtors
 
EFCH, TCEH and the subsidiaries of TCEH that are Debtors in the Chapter 11 Cases
 
 
 
TCEH DIP Facility
 
TCEH's $3.375 billion debtor-in-possession financing facility approved by the Bankruptcy Court in June 2014 (see Note 9 to the Financial Statements)

 
 
 
TCEH Finance
 
TCEH Finance, Inc., a direct, wholly owned subsidiary of TCEH, formed for the sole purpose of serving as co-issuer with TCEH of certain debt securities
 
 
 
TCEH Senior Notes
 
Refers, collectively, to TCEH's and TCEH Finance's 10.25% Senior Notes and 10.25% Senior Notes, Series B (collectively, TCEH 10.25% Notes) and TCEH's and TCEH Finance's 10.50%/11.25% Senior Toggle Notes (TCEH Toggle Notes) with a total principal amount of $4.874 billion.
 
 
 
TCEH Senior Secured Facilities
 
Refers, collectively, to the TCEH First Lien Term Loan Facilities, TCEH First Lien Revolving Credit Facility and TCEH First Lien Letter of Credit Facility with a total principal amount of $22.616 billion.
 
 
 
TCEH Senior Secured Notes
 
TCEH's and TCEH Finance's $1.750 billion principal amount of 11.5% First Lien Senior Secured Notes
 
 
 
TCEH Senior Secured Second Lien Notes
 
Refers, collectively, to TCEH's and TCEH Finance's 15% Senior Secured Second Lien Notes and TCEH's and TCEH Finance's 15% Senior Secured Second Lien Notes, Series B with a total principal amount of $1.571 billion.
 
 
 
TCEQ
 
Texas Commission on Environmental Quality
 
 
 
Texas Holdings
 
Texas Energy Future Holdings Limited Partnership, a limited partnership controlled by the Sponsor Group, that owns substantially all of the common stock of EFH Corp.
 
 
 
Texas Holdings Group
 
Texas Holdings and its direct and indirect subsidiaries other than the Oncor Ring-Fenced Entities
 
 
 

iv

Texas Transmission
 
Texas Transmission Investment LLC, a limited liability company that owns a 19.75% equity interest in Oncor and is not affiliated with EFH Corp., any of EFH Corp.'s subsidiaries or any member of the Sponsor Group
 
 
 
TXU Energy
 
TXU Energy Retail Company LLC, a direct, wholly owned subsidiary of TCEH that is a REP in competitive areas of ERCOT and is engaged in the retail sale of electricity to residential and business customers
 
 
 
US
 
United States of America
 
 
 
VIE
 
variable interest entity


v

PART I. FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(millions of dollars)
Operating revenues
$
1,737

 
$
1,807

 
$
4,265

 
$
4,731

Fuel, purchased power costs and delivery fees
(831
)
 
(868
)
 
(2,090
)
 
(2,256
)
Net gain (loss) from commodity hedging and trading activities
103

 
75

 
226

 
(118
)
Operating costs
(189
)
 
(204
)
 
(598
)
 
(660
)
Depreciation and amortization
(203
)
 
(330
)
 
(643
)
 
(993
)
Selling, general and administrative expenses
(192
)
 
(183
)
 
(547
)
 
(594
)
Impairment of goodwill (Note 4)
(700
)
 
—

 
(1,400
)
 
—

Impairment of long-lived assets (Note 6)
(1,295
)
 
(9
)
 
(1,971
)
 
(30
)
Other income (Note 17)
8

 
8

 
27

 
22

Other deductions (Note 17)
(26
)
 
(5
)
 
(86
)
 
(7
)
Interest income
—

 
—

 
—

 
1

Interest expense and related charges (Note 7)
(383
)
 
(382
)
 
(1,375
)
 
(1,816
)
Reorganization items (Note 8)
(68
)
 
(55
)
 
(275
)
 
(720
)
Loss before income taxes and equity in earnings of unconsolidated subsidiaries
(2,039
)
 
(146
)
 
(4,467
)
 
(2,440
)
Income tax benefit (Note 5)
452

 
72

 
990

 
830

Equity in earnings of unconsolidated subsidiaries (net of tax) (Note 3)
127

 
123

 
278

 
276

Net income (loss)
$
(1,460
)
 
$
49

 
$
(3,199
)
 
$
(1,334
)

See Notes to the Financial Statements.

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(millions of dollars)
Net income (loss)
$
(1,460
)
 
$
49

 
$
(3,199
)
 
$
(1,334
)
Other comprehensive income (loss), net of tax effects:
 
 
 
 
 
 
 
Effects related to pension and other retirement benefit obligations (net of tax benefit of $1, $6, $2 and $7)
(1
)
 
(11
)
 
(3
)
 
(14
)
Cash flow hedges derivative value net loss related to hedged transactions recognized during the period (net of tax benefit of $— in all periods)
—

 
—

 
1

 
1

Net effects related to Oncor — reported in equity in earnings of unconsolidated subsidiaries (net of tax expense of $— in all periods)
1

 
(1
)
 
2

 
—

Total other comprehensive income (loss)
—

 
(12
)
 
—

 
(13
)
Comprehensive income (loss)
$
(1,460
)
 
$
37

 
$
(3,199
)
 
$
(1,347
)

See Notes to the Financial Statements.

1


ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2015
 
2014
 
(millions of dollars)
Cash flows — operating activities:
 
 
 
Net loss
$
(3,199
)
 
$
(1,334
)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
757

 
1,118

Deferred income tax benefit, net
(784
)
 
(604
)
Impairment of goodwill (Note 4)
1,400

 
—

Impairment of long-lived assets (Note 6)
1,971

 
30

Contract claims adjustments (Note 8)
26

 
—

Fees paid on EFIH Second Lien Notes repayment (Note 10) (reported as financing activities)
28

 
—

Fees paid for DIP Facilities (Note 9) (reported as financing activities)
—

 
180

Loss on exchange and settlement of EFIH First Lien Notes (Note 9)
—

 
108

Unrealized net (gain) loss from mark-to-market valuations of commodity positions
(107
)
 
502

Unrealized net (gain) from mark-to-market valuations of interest rate swaps (Note 7)
—

 
(1,303
)
Liability adjustment arising from termination of interest rate swaps (Note 14)
—

 
278

Noncash realized loss on termination of interest rate swaps (Note 7)
—

 
1,237

Noncash realized gain on termination of natural gas hedging positions (Note 14)
—

 
(117
)
Interest expense on toggle notes payable in additional principal (Note 7)
—

 
65

Amortization of debt related costs, discounts, fair value discounts and losses on dedesignated cash flow hedges (Note 7)
—

 
72

Equity in earnings of unconsolidated subsidiaries
(278
)
 
(276
)
Distributions of earnings from unconsolidated subsidiaries (Note 3)
206

 
128

Impairment of intangible assets (Note 4)
83

 
—

Other, net
49

 
52

Changes in operating assets and liabilities:
 
 
 
Margin deposits, net
108

 
(270
)
Accrued interest
(1
)
 
512

Payable due to unconsolidated subsidiary
(113
)
 
(32
)
Other operating assets and liabilities, including liabilities subject to compromise
(269
)
 
(79
)
Cash provided by (used in) operating activities
(123
)
 
267

Cash flows — financing activities:
 
 
 
Repayments/repurchases of debt (Notes 9 and 10)
(469
)
 
(2,536
)
Fees paid on EFIH Second Lien Notes repayment (Note 10)
(28
)
 
—

Proceeds from DIP Facilities before fees paid (Note 9)
—

 
4,989

Fees paid for DIP Facilities (Note 9)
—

 
(180
)
Other, net
—

 
1

Cash provided by (used in) financing activities
(497
)
 
2,274


2


ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2015
 
2014
 
(millions of dollars)
Cash flows — investing activities:
 
 
 
Capital expenditures
$
(261
)
 
$
(249
)
Nuclear fuel purchases
(77
)
 
(76
)
Changes in restricted cash
33

 
194

Proceeds from sales of nuclear decommissioning trust fund securities (Note 17)
315

 
250

Investments in nuclear decommissioning trust fund securities (Note 17)
(328
)
 
(263
)
Other, net
11

 
(8
)
Cash used in investing activities
(307
)
 
(152
)
 
 
 
 
Net change in cash and cash equivalents
(927
)
 
2,389

Cash and cash equivalents — beginning balance
3,428

 
1,217

Cash and cash equivalents — ending balance
$
2,501

 
$
3,606


See Notes to the Financial Statements.

3


ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2015
 
December 31,
2014
 
(millions of dollars)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,501

 
$
3,428

Restricted cash (Note 17)
368

 
6

Trade accounts receivable — net (Note 17)
770

 
589

Inventories (Note 17)
388

 
468

Commodity and other derivative contractual assets (Note 14)
393

 
492

Other current assets
88

 
100

Total current assets
4,508

 
5,083

Restricted cash (Note 17)
506

 
901

Receivable from unconsolidated subsidiary (Note 15)
47

 
47

Investment in unconsolidated subsidiary (Note 3)
6,131

 
6,058

Other investments (Note 17)
974

 
995

Property, plant and equipment — net (Note 17)
10,072

 
12,397

Goodwill (Note 4)
952

 
2,352

Identifiable intangible assets — net (Note 4)
1,163

 
1,315

Commodity and other derivative contractual assets (Note 14)
30

 
5

Accumulated deferred income taxes
48

 
—

Other noncurrent assets
97

 
95

Total assets
$
24,528

 
$
29,248

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Borrowings under debtor-in-possession credit facilities (Note 9)
$
6,825

 
$
—

Long-term debt due currently (Note 9)
36

 
39

Trade accounts payable
382

 
406

Net payables due to unconsolidated subsidiary (Note 15)
124

 
237

Commodity and other derivative contractual liabilities (Note 14)
160

 
316

Margin deposits related to commodity contracts
126

 
26

Accumulated deferred income taxes
129

 
135

Accrued taxes
111

 
157

Accrued interest (Notes 7 and 10)
116

 
119

Other current liabilities
327

 
360

Total current liabilities
8,336

 
1,795

Borrowings under debtor-in-possession credit facilities (Note 9)
—

 
6,825

Long-term debt, less amounts due currently (Note 9)
103

 
128

Liabilities subject to compromise (Note 10)
36,924

 
37,432

Commodity and other derivative contractual liabilities (Note 14)
4

 
1

Accumulated deferred income taxes
—

 
713

Other noncurrent liabilities and deferred credits (Note 17)
2,083

 
2,077

Total liabilities
47,450

 
48,971

Commitments and Contingencies (Note 11)


 


Shareholders' equity (Note 12)
(22,922
)
 
(19,723
)
Total liabilities and equity
$
24,528

 
$
29,248


See Notes to the Financial Statements.

4

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

References in this report to "we," "our," "us" and "the Company" are to EFH Corp. and/or its subsidiaries, as apparent in the context. See Glossary for defined terms.

EFH Corp., a Texas corporation, is a Dallas-based holding company that conducts its operations principally through its TCEH and Oncor subsidiaries. EFH Corp. is a subsidiary of Texas Holdings, which is controlled by the Sponsor Group. TCEH is a holding company for subsidiaries engaged in competitive electricity market activities largely in Texas, including electricity generation, wholesale energy sales and purchases, commodity risk management and trading activities, and retail electricity operations. TCEH is a wholly owned subsidiary of EFCH, which is a holding company and a wholly owned subsidiary of EFH Corp. Oncor is engaged in regulated electricity transmission and distribution operations in Texas. Oncor provides distribution services to REPs, including subsidiaries of TCEH, which sell electricity to residential, business and other consumers. Oncor Holdings, a holding company that holds an approximate 80% equity interest in Oncor, is a wholly owned subsidiary of EFIH, which is a holding company and a wholly owned subsidiary of EFH Corp. Oncor Holdings and its subsidiaries (the Oncor Ring-Fenced Entities) are not consolidated in EFH Corp.'s financial statements in accordance with consolidation accounting standards related to variable interest entities (VIEs) (see Note 3).

Various ring-fencing measures have been taken to enhance the credit quality of Oncor. Such measures include, among other things: the sale in November 2008 of a 19.75% equity interest in Oncor to Texas Transmission; maintenance of separate books and records for the Oncor Ring-Fenced Entities; Oncor's board of directors being comprised of a majority of independent directors, and prohibitions on the Oncor Ring-Fenced Entities providing credit support to, or receiving credit support from, any member of the Texas Holdings Group. The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of the Texas Holdings Group, and none of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or contractual obligations of any member of the Texas Holdings Group. Moreover, Oncor's operations are conducted, and its cash flows managed, independently from the Texas Holdings Group.

Consistent with the ring-fencing measures discussed above, the assets and liabilities of the Oncor Ring-Fenced Entities have not been, and are not expected to be, substantively consolidated with the assets and liabilities of the Debtors in the Chapter 11 Cases.

We have two reportable segments: the Competitive Electric segment, consisting largely of TCEH, and the Regulated Delivery segment, consisting largely of our investment in Oncor. See Note 16 for further information concerning reportable business segments.

Bankruptcy Proceeding

On April 29, 2014 (the Petition Date), EFH Corp. and the substantial majority of its direct and indirect subsidiaries, including EFIH, EFCH and TCEH but excluding the Oncor Ring-Fenced Entities (collectively, the Debtors), filed voluntary petitions for relief (the Bankruptcy Filing) under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court). In September 2015, the Debtors filed the Plan of Reorganization and the Disclosure Statement. The Disclosure Statement was approved by the Bankruptcy Court in September 2015. In October 2015, the Debtors filed a plan supplement to the Plan of Reorganization that provides greater detail about the Plan of Reorganization and the Debtors post-emergence structure (the Plan Supplement).

Following the approval of the Disclosure Statement by the Bankruptcy Court, the Debtors solicited the vote of their required creditors for approval of the Plan of Reorganization. In October 2015, the required creditors voted to approve the Plan of Reorganization. The Bankruptcy Court hearing to review the Plan of Reorganization for confirmation is scheduled to begin on November 3, 2015. The Debtors cannot predict the outcome of the confirmation hearing. See Note 2 for further discussion regarding the Chapter 11 Cases and the Plan of Reorganization and the Disclosure Statement.


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Basis of Presentation, Including Application of Bankruptcy Accounting

The condensed consolidated financial statements have been prepared in accordance with US GAAP. The condensed consolidated financial statements have been prepared as if EFH Corp. is a going concern and contemplate the realization of assets and liabilities in the normal course of business. The condensed consolidated financial statements reflect the application of Financial Accounting Standards Board Accounting Standards Codification (ASC) 852, Reorganizations. During the pendency of the Chapter 11 Cases, the Debtors will operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. ASC 852 applies to entities that have filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The guidance requires that transactions and events directly associated with the reorganization be distinguished from the ongoing operations of the business. In addition, the guidance provides for changes in the accounting and presentation of liabilities. See Notes 8 and 10 for discussion of these accounting and reporting changes.

Investments in unconsolidated subsidiaries, which are 50% or less owned and/or do not meet accounting standards criteria for consolidation, are accounted for under the equity method (see Note 3). Adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with US GAAP have been omitted pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and footnotes required by US GAAP, they should be read in conjunction with the audited financial statements and related notes included in our 2014 Form 10-K. The results of operations for an interim period may not give a true indication of results for a full year. All dollar amounts in the financial statements and tables in the notes are stated in millions of US dollars unless otherwise indicated.

Use of Estimates

Preparation of financial statements requires estimates and assumptions about future events that affect the reporting of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense, including fair value measurements and estimates of expected allowed claims. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.

Changes in Accounting Standards

In April 2014, the FASB issued Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the requirements for reporting discontinued operations. The ASU states that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity's operations and financial results when the component of an entity or group of components of an entity meets the criteria to be classified as held for sale, is disposed of by sale, or is disposed of other than by sale. The amendments in this ASU also require additional disclosures about discontinued operations. ASU 2014-08 is effective for the Company for the first quarter of 2015. This new requirement is relevant to our presentation of the equity method investment in Oncor and our presentation of TCEH. The new guidance eliminated a scope exception previously applicable to equity method investments, resulting in the requirement of further analysis of the presentation of the Oncor equity method investment. Based on our analysis, ASU 2014-08 will not materially affect our results of operations, financial position, or cash flows, unless a sale of our Oncor investment and/or a spin-off of TCEH is approved by the Bankruptcy Court (see Note 2), at which time presentation as discontinued operations may be appropriate.

In February 2015, the FASB issued Accounting Standards Update 2015-02 (ASU 2015-02), Amendments to the Consolidation Analysis. The ASU is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. Early adoption is permitted. The new consolidation standard changes the criteria a reporting enterprise uses to evaluate if certain legal entities, such as limited partnerships and similar entities, should be consolidated. We are in the process of assessing the effects of the application of the new guidance on our financial statements.


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In April 2015, the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03), Simplifying Balance Sheet Presentation by Presenting Debt Issuance Costs as a Deduction from Recognized Debt Liability. The ASU is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. Early adoption is permitted. The new standard requires debt issuance costs to be classified as reductions to the face value of the related debt. We do not expect ASU 2015-03 to materially affect our financial position until we issue new debt. During the Chapter 11 Cases, debt issuance costs on prepetition debt subject to compromise will continue to be reported in liabilities subject to compromise. In August 2015, the FASB issued Accounting Standards Update 2015-15 (ASU 2015-15), Interest-Imputation of Interest (Topic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements. ASU 2015-15 provides guidance on the presentation of debt issuance costs associated with line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 allows an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit.

In May 2015, the FASB issued Accounting Standards Update 2015-07 (ASU 2015-07), Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent). The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with retrospective application to all periods presented. Early adoption is permitted. ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. We are currently evaluating the impact of the adoption of this ASU on our financial statements.

In August 2015, the FASB issued Accounting Standards Update 2015-13, Derivatives and Hedging (Topic 815), Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets. The ASU clarified that the use of locational marginal pricing by an independent system operator does not constitute net settlement of a contract for the purchase or sale of electricity if all the criterion of the normal purchase and normal sale scope exception are met, including physical delivery. The ASU was effective upon issuance and did not impact our financial statements.


2.    CHAPTER 11 CASES

On the Petition Date, EFH Corp. and the substantial majority of its direct and indirect subsidiaries, including EFIH, EFCH and TCEH but excluding the Oncor Ring-Fenced Entities, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. During the pendency of the Chapter 11 Cases, the Debtors will operate their businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

The Bankruptcy Filing resulted primarily from the adverse effects on EFH Corp.'s competitive businesses of lower wholesale electricity prices in ERCOT driven by the sustained decline in natural gas prices since mid-2008. Further, the natural gas hedges that TCEH entered into when forward market prices of natural gas were significantly higher than current prices had largely matured before the remaining positions were terminated shortly after the Bankruptcy Filing. These market conditions challenged the profitability and operating cash flows of EFH Corp.'s competitive businesses and resulted in the inability to support their significant interest payments and debt maturities, including the remaining debt obligations due in 2014, and the inability to refinance and/or extend the maturities of their outstanding debt.

Proposed Plan of Reorganization

A Chapter 11 plan of reorganization, among other things, determines the rights and satisfaction of claims of various creditors and security holders of an entity operating under the protection of the Bankruptcy Court and is subject to the ultimate outcome of stakeholder negotiations and Bankruptcy Court decisions ongoing through the date on which the Chapter 11 plan is confirmed. In order for the Debtors to emerge successfully from the Chapter 11 Cases as reorganized companies, they must obtain approval from the Bankruptcy Court and certain of their respective creditors for a Chapter 11 plan of reorganization. In September 2015, the Debtors filed the Plan of Reorganization and the Disclosure Statement. The Disclosure Statement was approved by the Bankruptcy Court in September 2015. In October 2015, the Debtors filed the Plan Supplement. The Debtors have the exclusive right to solicit the appropriate votes for the Plan of Reorganization until December 29, 2015 (the exclusivity period). In October 2015, the Plan of Reorganization was approved by the required creditors.


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In general, the Plan of Reorganization proposes a structure that involves a tax-free deconsolidation or tax-free spin-off of TCEH from EFH Corp. (Reorganized TCEH), immediately followed by the acquisition of reorganized EFH Corp. financed by existing TCEH creditors and third-party investors. Pursuant to the Plan of Reorganization and subject to certain conditions and required regulatory approvals, among other things:

•
TCEH will execute a transaction that will result in a partial step-up in the tax basis of certain TCEH assets;

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the Reorganized TCEH Spin-Off will occur;

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a consortium (collectively, the Investor Group) consisting of certain TCEH creditors, an affiliate of Hunt Consolidated, Inc. (Hunt) and certain other investors designated by Hunt will acquire (the EFH Acquisition) reorganized EFH Corp. (Reorganized EFH);

•
in connection with the EFH Acquisition, (i) the Investor Group will raise up to approximately $12.6 billion of equity and debt financing to invest in Reorganized EFH, (ii) a successor to Reorganized EFH will be converted to a real estate investment trust (REIT) under the Internal Revenue Code and (iii) all allowed claims against the EFH Debtors and the EFIH Debtors will receive treatment rendering them unimpaired (excluding any claims derived from or based upon make-whole, applicable premium, redemption premium or other similar payment provisions, or any other alleged premiums, fees, or claims relating to the repayment of claims and unsecured claims for post-petition interest in excess of the federal judgment rate of interest, each of which will be disallowed under the Plan of Reorganization), and

•
the Debtors, the Sponsor Group, certain settling TCEH first lien creditors, certain settling TCEH second lien creditors, certain settling TCEH unsecured creditors and the official committee of unsecured creditors of the TCEH Debtors (collectively, the Settling Parties) agreed to settle certain disputes, claims and causes of action.

Plan Support Agreement

In August 2015 (as amended in September 2015), each of the Debtors entered into a Plan Support Agreement (Plan Support Agreement) with various of their respective creditors, the Sponsor Group, the official committee of unsecured creditors of the TCEH Debtors and the Investor Group in order to effect an agreed upon restructuring of the Debtors pursuant to the Plan of Reorganization. Pursuant to the Plan Support Agreement, the parties agreed, subject to the terms and conditions contained in the Plan Support Agreement, to support the Debtors' Plan of Reorganization.

Pursuant to the Plan Support Agreement, certain of the parties to the Plan Support Agreement are required to not object to or interfere with an alternative plan of reorganization even if the EFH Acquisition is not completed so long as such plan meets certain minimum conditions. All or part of the Plan Support Agreement may be terminated upon the occurrence of certain events described in the Plan Support Agreement. In addition, under the Plan Support Agreement, the supporting parties have committed to support the inclusion of releases with respect to the claims described in the Settlement Agreement (described below) in the context of an alternative plan (which would become effective when a plan becomes effective).

Settlement Agreement

The Settling Parties entered into a settlement agreement (the Settlement Agreement) in August 2015 (as amended in September 2015) to compromise and settle, among other things (a) intercompany claims among the Debtors, (b) claims and causes of actions against holders of first lien claims against TCEH and the agents and under the TCEH Senior Secured Facilities, (c) claims and causes of action against holders of interests in EFH Corp. and certain related entities and (d) claims and causes of action against each of the Debtors' current and former directors, the Sponsor Group, managers and officers and other related entities. The Settlement Agreement contemplates a release of such claims upon approval of the Settlement Agreement by the Bankruptcy Court, which would remain effective regardless of whether the EFH Acquisition is completed. The Debtors expect to seek Bankruptcy Court approval of the Settlement Agreement at the confirmation hearing for the Plan of Reorganization.

Merger and Purchase Agreement

In August 2015, EFH Corp. and EFIH entered into a Purchase Agreement and Agreement and Plan of Merger (Merger and Purchase Agreement) with two acquisition entities, Ovation Acquisition I, L.L.C. (OV1) and Ovation Acquisition II, L.L.C. (collectively, the Purchasers), which are controlled by the Investor Group. Pursuant to the Merger and Purchase Agreement, at the effective time of the Plan of Reorganization and immediately after consummation of the Reorganized TCEH Spin-Off, the Investor Group will acquire Reorganized EFH.


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The Merger and Purchase Agreement contemplates that funds received by the Purchasers pursuant to the Equity Commitment Letter, the Debt Commitment Letter and the Rights Offering and Backstop (each as defined below) will be used to facilitate the acquisition of Reorganized EFH and, as applicable, repay the allowed claims of holders of claims and interests in EFH Corp. and EFIH in full in cash (or otherwise render such claims unimpaired) pursuant to the Plan of Reorganization and, if applicable, to complete the Texas Transmission Acquisition (as defined below). The Merger and Purchase Agreement includes various conditions precedent to consummation of the transactions contemplated thereby, including a condition that certain approvals and rulings be obtained, including from the PUCT and the IRS, that are necessary to consummate the EFH Acquisition and convert Reorganized EFH into a REIT.

The Merger and Purchase Agreement may be terminated upon certain events, including, among other things, (a) by either party, if certain termination events occur under the Plan Support Agreement, including if the EFH Acquisition is not completed by April 30, 2016, subject to extension to June 30, 2016 or August 31, 2016 under certain conditions, (b) by EFH Corp. or EFIH, if their respective board of directors or managers determines in good faith that proceeding with the transactions contemplated by the Merger and Purchase Agreement would be inconsistent with its applicable fiduciary duties or (c) by the Purchasers, if EFH Corp. or EFIH fails to meet various milestones related to the Debtors' Chapter 11 Cases or otherwise materially breaches the Merger and Purchase Agreement.

EFH Corp.'s and EFIH's respective obligations under the Merger and Purchase Agreement are subject in all respects to the prior approval of the Bankruptcy Court.

Rights Offering

As contemplated by the Plan of Reorganization, OV1 intends to conduct an offering of equity rights (each, a Right, and such offering, the Rights Offering) to holders of unsecured debt claims, second lien debt claims, general unsecured claims and first lien secured claims against TCEH (Rights Offering Participants) enabling the Rights Offering Participants to purchase an aggregate of $5.787 billion of common stock of OV1 (as the successor by merger of Reorganized EFH), of which $5.087 billion of such common stock will be offered to holders of unsecured debt claims, second lien debt claims, and general unsecured claims against TCEH, and $700 million of such common stock will be offered to holders of first lien secured claims against TCEH. In October 2015, OV1 filed a registration statement on Form S-11 with the SEC to register the equity rights under the Securities Act of 1933. This quarterly report on Form 10-Q does not constitute an offer to sell, or a solicitation of an offer to purchase, the Rights.

Pursuant to a Backstop Agreement (Backstop Agreement), among certain investors named therein and their permitted assignees (Backstop Purchasers), EFH Corp., EFIH and OV1, the Backstop Purchasers have agreed to backstop $5.087 billion of Rights offered to certain of the Rights Offering Participants (Backstop).

In connection with the execution of the Merger and Purchase Agreement, each member of the Investor Group (collectively, the Equity Commitment Parties) delivered (a) an equity commitment letter (Equity Commitment Letter) in favor of EFH Corp. (including Reorganized EFH), EFIH and the Purchasers pursuant to which the Equity Commitment Parties committed to invest in one or more of the Purchasers an aggregate amount of approximately $2.013 billion (assuming the Texas Transmission Acquisition (as described below) is completed) and (b) a limited guarantee (Guarantee) in favor of EFH Corp. (including Reorganized EFH) and EFIH pursuant to which each such Equity Commitment Party committed to pay its pro rata share of all fees, costs or expenses payable by the Purchasers under the Merger and Purchase Agreement or under the Plan of Reorganization if such fees, costs or expenses become payable pursuant thereto. The aggregate liability of the Equity Commitment Parties under the Guarantee for fees and expenses is capped at $35 million.

If the Merger and Purchase Agreement, the Backstop Agreement or the Equity Commitment Letter are terminated for any reason, EFH Corp. and EFIH have waived their rights to seek any legal or equitable remedies, except in connection with the reimbursement of certain fees and expenses capped at $35 million, against the Purchasers or the Investor Group, the Backstop Purchasers or the Equity Commitment Parties, respectively.

Debt Funding Arrangements

In August 2015, in connection with the execution of the Merger and Purchase Agreement, the Investor Group entered into a commitment letter (Debt Commitment Letter) with Morgan Stanley Senior Funding, Inc. (Debt Commitment Lender) pursuant to which the Debt Commitment Lender committed to fund up to $5.5 billion under a senior secured term loan facility and $250 million under a senior secured bridge loan facility to reorganized EFIH and its subsidiaries at the closing of the EFH Acquisition.


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Texas Transmission Acquisition

In connection with the EFH Acquisition and the Rights Offering, the Purchasers, EFH Corp. and EFIH have formulated a plan to create and implement an IPO Conversion (as such term is defined in the Investor Rights Agreement (Investor Rights Agreement), dated November 2008 among Oncor and certain of its direct and indirect equity holders, including EFH Corp. and Texas Transmission, pursuant to which one of the Purchasers, as the successor to Reorganized EFH as a result of the EFH Acquisition, would serve as an IPO corporation (as defined in the Investor Rights Agreement). In connection with the execution of the Merger and Purchase Agreement, the Purchasers have delivered to EFH Corp. an offer to purchase substantially all of the outstanding IPO Units (as defined in the Investor Rights Agreement) in the IPO corporation and all of the LLC Units (as defined in the Investor Rights Agreement) in Oncor held by Texas Transmission (the Texas Transmission Acquisition). EFH Corp. has instituted an adversary proceeding in the Bankruptcy Court to enforce certain rights against Texas Transmission under the Investor Rights Agreement (see Note 11).

Other

The Plan of Reorganization is subject to revision in response to creditor and/or stakeholder claims and objections and the requirements of the Bankruptcy Code and/or the Bankruptcy Court. Unless the Plan of Reorganization receives the requisite approval from the Bankruptcy Court, upon expiration of the exclusivity period (which has already been extended to the maximum period permitted by the Bankruptcy Code, but which has been, as described below, contractually extended with certain creditors), any creditor or stakeholder would have the ability to file in the Chapter 11 Cases one or more Chapter 11 plans of reorganization. Under an agreed stipulation approved by the Bankruptcy Court, if the exclusivity period has not been terminated by December 29, 2015, certain creditor constituencies have agreed that they will not file a chapter 11 plan of reorganization (or a disclosure statement) or cause such a filing until the Bankruptcy Court issues a final ruling regarding the confirmation of the Plan of Reorganization and that until the issuance of such a ruling, the Debtors will prosecute the Plan of Reorganization with reasonable diligence.

The Plan of Reorganization and the Disclosure Statement contain or discuss certain projections of certain of the Debtors' financial performance for fiscal years 2015 through 2020. The Debtors do not, as a matter of course, publish their business plans, budgets or strategies, or make external projections or forecasts of their anticipated financial position or results of operations. The projections reflected numerous assumptions concerning our anticipated future performance and prevailing and anticipated market and economic conditions at the time they were prepared that were and continue to be beyond our control and that may not materialize. Projections are inherently subject to uncertainties and to a wide variety of significant business, economic and competitive risks, including those risks discussed in Part I, Item 1A. Risk Factors in our 2014 Form 10-K and our subsequent quarterly reports on Form 10-Q. Our actual results will vary from those contemplated by the projections and the variations may be material.

Nothing contained in this quarterly report on Form 10-Q is intended to be, nor should it be construed as, a solicitation for a vote on the Plan of Reorganization, as filed or as it may be amended. The Plan of Reorganization will become effective only if it is confirmed by the Bankruptcy Court and the conditions to consummation set forth therein are satisfied. There can be no assurance that the Bankruptcy Court will confirm the Plan of Reorganization or that the conditions to consummation of the Plan of Reorganization will be satisfied.

Scheduling Matters

In August 2015, the Bankruptcy Court issued an order establishing November 3, 2015 as the date for the commencement of the hearing to confirm the Plan of Reorganization (the Confirmation Hearing Commencement Date). The Confirmation Hearing Commencement Date could be changed by the Bankruptcy Court (on its own, upon the motion of a party or upon the Debtors' request).

Mediation

In May 2015, the Bankruptcy Court issued an order authorizing and establishing mediation between the Debtors and certain TCEH stakeholders with respect to Plan of Reorganization issues that affect the TCEH Debtors' estates. In October 2015, the parties to the mediation and the mediator agreed to extend mediation to January 15, 2016 unless otherwise extended or terminated by the Bankruptcy Court or the mediator.


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Tax Matters

In June 2014, EFH Corp. filed a request with the IRS for a private letter ruling, which request has been supplemented from time to time in response to requests from the IRS for information or as required by changes in the contemplated transactions (as supplemented, the Private Letter Ruling). It is expected that, among other things, the Private Letter Ruling if obtained will provide (A) for certain rulings regarding the qualification of (i) the transfer of certain assets and ordinary course operating liabilities to a newly-formed entity wholly-owned by TCEH (Reorganized TCEH) and (ii) the distribution of the equity of Reorganized TCEH, the cash proceeds from Reorganized TCEH debt, the cash proceeds from the sale of preferred stock in a newly-formed entity, and the right to receive payments under a tax receivables agreement (if any), to holders of TCEH first lien claims under Sections 368(a)(1)(G), 355 and 356 of the Code and (B) certain rulings regarding the eligibility of EFH Corp. to qualify as a REIT for federal income tax purposes. The Debtors intend to continue to pursue the Private Letter Ruling to support the Plan of Reorganization.

Implications of the Chapter 11 Cases

Our ability to continue as a going concern is contingent upon, among other factors, our ability to comply with the financial and other covenants contained in the DIP Facilities described in Note 9, our ability to obtain new debtor in possession financing in the event the DIP Facilities were to expire during the pendency of the Chapter 11 Cases and our ability to complete a Chapter 11 plan of reorganization in a timely manner, including obtaining creditor and Bankruptcy Court approval of such plan as well as applicable regulatory approvals required for such plan and obtaining any exit financing needed to implement such plan. These circumstances and uncertainties inherent in the bankruptcy proceedings raise substantial doubt about our ability to continue as a going concern.

Operations During the Chapter 11 Cases

In general, the Debtors have received final bankruptcy court orders with respect to first day motions and other operating motions that allow the Debtors to operate their businesses in the ordinary course, including, among others, providing for the payment of certain pre-petition employee and retiree expenses and benefits, the use of the Debtors' existing cash management system, the segregation of certain cash balances which require further order of the Bankruptcy Court for distribution, the continuation of customer contracts and programs at our retail electricity operations, the payment of certain pre-petition amounts to certain critical vendors, the ability to perform under certain pre-petition hedging and trading arrangements and the ability to pay certain pre-petition taxes and regulatory fees. In addition, the Bankruptcy Court has issued orders approving the DIP Facilities discussed in Note 9.

Pursuant to the Bankruptcy Code, the Debtors intend to comply with all applicable regulatory requirements, including all requirements related to environmental and safety law compliance, during the pendency of the Chapter 11 Cases. Further, the Debtors have been complying, and intend to continue to comply, with the various reporting obligations that are required by the Bankruptcy Court during the pendency of the Chapter 11 Cases. Moreover, to the extent the Debtors either maintain insurance policies or self-insure their regulatory compliance obligations, the Debtors intend to continue such insurance policies or self-insurance in the ordinary course of business.

Pre-Petition Claims

Holders of the substantial majority of pre-petition claims were required to file proofs of claims by the bar date established by the Bankruptcy Court. A bar date is the date by which certain claims against the Debtors must be filed if the claimants wish to receive any distribution in the Chapter 11 Cases. The Bankruptcy Court established a bar date of October 27, 2014 for the substantial majority of claims. In addition, in July 2015, the Bankruptcy Court entered an order establishing December 14, 2015 as the bar date for certain asbestos claims that arose or are deemed to have arisen before the Petition Date, except for certain specifically exempt claims.

We have received approximately 13,900 filed claims since the Petition Date. We are in the process of reconciling those claims to the amounts listed in our schedules of assets and liabilities, which includes communications with claimants to acquire additional information required for reconciliation. As of November 3, 2015, approximately 5,000 of those claims have been settled, withdrawn or expunged. To the extent claims are reconciled and resolved, we have recorded them at the expected allowed amount. Claims that remain unresolved or unreconciled through the filing of this report have been estimated based upon management's best estimate of the likely claim amounts that the Bankruptcy Court will ultimately allow.


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Beginning in November 2014, we began the process to request the Bankruptcy Court to disallow claims that we believe are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. Given the substantial number of claims filed, the claims resolution process will take considerable time to complete. Differences between liability amounts recorded by the Debtors as liabilities subject to compromise and claims filed by creditors will be investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claim. Differences between those final allowed claims and the liabilities recorded in the condensed consolidated balance sheets will be recognized as reorganization items in our condensed statements of consolidated income (loss) as they are resolved. The determination of how liabilities will ultimately be resolved cannot be made until the Bankruptcy Court approves a plan of reorganization or approves orders related to settlement of specific liabilities. Accordingly, the ultimate amount or resolution of such liabilities is not determinable at this time. The resolution of such claims could result in material adjustments to our financial statements.

Executory Contracts and Unexpired Leases

Under the Bankruptcy Code, we have the right to assume, assume and assign, or reject certain executory contracts and unexpired leases, subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the assumption of an executory contract or unexpired lease requires a debtor to satisfy pre-petition obligations under contracts, which may include payment of pre-petition liabilities in whole or in part. Rejection of an executory contract or unexpired lease is typically treated as a breach occurring as of the moment immediately preceding the Chapter 11 filing. Subject to certain exceptions, this rejection relieves the debtor from performing its future obligations under the contract but entitles the counterparty to assert a pre-petition general unsecured claim for damages. Parties to executory contracts or unexpired leases rejected by a debtor may file proofs of claim against that debtor's estate for rejection damages.

Since the Petition Date, we have renegotiated or rejected a limited number of executory contracts and unexpired leases. For the three and nine months ended September 30, 2015, this activity has resulted in the recognition of approximately a $2 million benefit and a $26 million expense, respectively, in contract claim adjustments recorded in reorganization items as detailed in Note 8. The Plan Supplement includes a list of contracts that the Debtors intend to either assume or reject pursuant to the Bankruptcy Code.


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3.
VARIABLE INTEREST ENTITIES

A variable interest entity (VIE) is an entity with which we have a relationship or arrangement that indicates some level of control over the entity or results in economic risks to us. Accounting standards require consolidation of a VIE if we have (a) the power to direct the significant activities of the VIE and (b) the right or obligation to absorb profit and loss from the VIE (i.e., we are the primary beneficiary of the VIE). In determining the appropriateness of consolidation of a VIE, we evaluate its purpose, governance structure, decision making processes and risks that are passed on to its interest holders. We also examine the nature of any related party relationships among the interest holders of the VIE and the nature of any special rights granted to the interest holders of the VIE.

Oncor Holdings, an indirect wholly owned subsidiary of EFH Corp. that holds an approximate 80% interest in Oncor, is not consolidated in EFH Corp.'s financial statements, and instead is accounted for as an equity method investment, because the structural and operational ring-fencing measures discussed in Note 1 prevent us from having power to direct the significant activities of Oncor Holdings or Oncor. In accordance with accounting standards, we account for our investment in Oncor Holdings under the equity method, as opposed to the cost method, based on our level of influence over its activities. See below for additional information about our equity method investment in Oncor Holdings. There are no other material investments accounted for under the equity or cost method. The maximum exposure to loss from our interest in Oncor Holdings does not exceed our carrying value.

Non-Consolidation of Oncor and Oncor Holdings

Our investment in unconsolidated subsidiary as presented in the condensed consolidated balance sheets totaled $6.131 billion and $6.058 billion at September 30, 2015 and December 31, 2014, respectively, and consists almost entirely of our interest in Oncor Holdings, which we account for under the equity method as described above. Oncor provides services, principally electricity distribution, to TCEH's retail operations, and the related revenues represented 25% and 26% of Oncor Holdings' consolidated operating revenues for the nine months ended September 30, 2015 and 2014, respectively.

See Note 15 for discussion of Oncor Holdings' and Oncor's transactions with EFH Corp. and its other subsidiaries.

Distributions from Oncor Holdings and Related Considerations — Oncor Holdings' distributions of earnings to us totaled $206 million and $128 million for the nine months ended September 30, 2015 and 2014, respectively. Distributions may not be paid except to the extent Oncor maintains a required regulatory capital structure as discussed below. At September 30, 2015, $111 million was eligible to be distributed to Oncor's members after taking into account the regulatory capital structure limit, of which approximately 80% relates to our ownership interest in Oncor. The boards of directors of each of Oncor and Oncor Holdings can withhold distributions to the extent the applicable board determines in good faith that it is necessary to retain such amounts to meet expected future requirements of Oncor and/or Oncor Holdings.

Oncor's distributions are limited by its regulatory capital structure, which is required to be at or below the assumed debt-to-equity ratio established by the PUCT for ratemaking purposes, which is currently set at 60% debt to 40% equity. At September 30, 2015, Oncor's regulatory capitalization ratio was 59.3% debt and 40.7% equity. For purposes of this ratio, debt is calculated as long-term debt plus unamortized gains on reacquired debt less unamortized issuance expenses, premiums and losses on reacquired debt. The debt calculation excludes bonds issued by Oncor Electric Delivery Transition Bond Company LLC, which were issued in 2003 and 2004 to recover specific generation-related regulatory assets and other qualified costs. Equity is calculated as membership interests determined in accordance with US GAAP, excluding the effects of accounting for the Merger (which included recording the initial goodwill and fair value adjustments and the subsequent related impairments and amortization).

EFH Corp., Oncor Holdings, Oncor and Oncor's minority investor are parties to a Federal and State Income Tax Allocation Agreement. Additional income tax amounts receivable or payable may arise in the normal course under that agreement.


13

Oncor Holdings Financial Statements — Condensed statements of consolidated income of Oncor Holdings and its subsidiaries for the three and nine months ended September 30, 2015 and 2014 are presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Operating revenues
$
1,072

 
$
1,054

 
$
2,957

 
$
2,883

Operation and maintenance expenses
(387
)
 
(376
)
 
(1,134
)
 
(1,074
)
Depreciation and amortization
(217
)
 
(218
)
 
(653
)
 
(638
)
Taxes other than income taxes
(116
)
 
(115
)
 
(336
)
 
(330
)
Other income
1

 
3

 
5

 
10

Other deductions
(9
)
 
(4
)
 
(21
)
 
(11
)
Interest income
(1
)
 
1

 
(1
)
 
3

Interest expense and related charges
(84
)
 
(89
)
 
(250
)
 
(266
)
Income before income taxes
259

 
256

 
567

 
577

Income tax expense
(99
)
 
(101
)
 
(217
)
 
(230
)
Net income
160

 
155

 
350

 
347

Net income attributable to noncontrolling interests
(33
)
 
(32
)
 
(72
)
 
(71
)
Net income attributable to Oncor Holdings
$
127

 
$
123

 
$
278

 
$
276


Assets and liabilities of Oncor Holdings at September 30, 2015 and December 31, 2014 are presented below:
 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
18

 
$
5

Restricted cash
62

 
56

Trade accounts receivable — net
444

 
407

Trade accounts and other receivables from affiliates
156

 
118

Income taxes receivable from EFH Corp.
—

 
144

Inventories
80

 
73

Accumulated deferred income taxes
7

 
10

Prepayments and other current assets
93

 
91

Total current assets
860

 
904

Restricted cash
—

 
16

Other investments
95

 
97

Property, plant and equipment — net
12,908

 
12,463

Goodwill
4,064

 
4,064

Regulatory assets — net
1,177

 
1,429

Other noncurrent assets
71

 
67

Total assets
$
19,175

 
$
19,040

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
708

 
$
711

Long-term debt due currently
86

 
639

Trade accounts payable — nonaffiliates
164

 
202

Income taxes payable to EFH Corp.
31

 
24

Accrued taxes other than income
150

 
174

Accrued interest
67

 
93

Other current liabilities
149

 
156

Total current liabilities
1,355

 
1,999

Accumulated deferred income taxes
1,918

 
1,978

Long-term debt, less amounts due currently
5,681

 
4,997

Other noncurrent liabilities and deferred credits
2,270

 
2,245

Total liabilities
$
11,224

 
$
11,219



14


4.
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

The following table provides information regarding our goodwill balance, all of which relates to the Competitive Electric segment and arose in connection with accounting for the Merger. None of the goodwill is being deducted for tax purposes.
Goodwill before impairment charges
$
18,342

Accumulated noncash impairment charges
(15,990
)
Balance at December 31, 2014
2,352

Additional noncash impairment charges in 2015
(1,400
)
Balance at September 30, 2015 (a)
$
952

____________
(a)
Net of accumulated impairment charges totaling $17.39 billion.

Goodwill Impairments

Goodwill and intangible assets with indefinite useful lives are required to be tested for impairment at least annually (we have selected a December 1 test date) or whenever events or changes in circumstances indicate an impairment may exist.

We perform the following steps in testing goodwill for impairment: first, we estimate the debt-free enterprise value of the business as of the testing date taking into account future estimated cash flows and current securities values of comparable companies; second, we estimate the fair values of the individual assets and liabilities of the business at that date; third, we calculate implied goodwill as the excess of the estimated enterprise value over the estimated value of the net operating assets; and finally, we compare the implied goodwill amount to the carrying value of goodwill and, if the carrying amount exceeds the implied value, we record an impairment charge for the amount the carrying value of goodwill exceeds implied goodwill.

Wholesale electricity prices in the ERCOT market, in which our Competitive Electric segment largely operates, have generally moved with natural gas prices as marginal electricity demand is generally supplied by natural gas fueled generation facilities. Accordingly, the sustained decline in natural gas prices, which we have experienced since mid-2008, negatively impacts our profitability and cash flows and reduces the value of our generation assets, which consist largely of lignite/coal and nuclear fueled facilities. While we had partially mitigated these effects with hedging activities, we are now significantly exposed to this price risk. Because of this market condition, our analyses over the past several years have indicated that the carrying value of the Competitive Electric segment exceeds its estimated fair value (enterprise value). Consequently, we continually monitor trends in electricity prices, natural gas prices, market heat rates, capital spending for environmental and other projects and other operational factors to determine if goodwill impairment testing should be done during the course of a year and not only at the annual December 1 testing date.

During the three months ended September 30, 2015, we experienced an impairment indicator related to decreases in forward wholesale electricity prices when compared to those prices reflected in our March 31, 2015 goodwill impairment testing analysis. As a result, the likelihood of a goodwill impairment had increased, and we initiated further testing of goodwill as of September 30, 2015. We substantially completed our testing of goodwill for impairment during the period and recorded an estimated impairment of $700 million at September 30, 2015, which we reported in the Competitive Electric segment results.

During the three months ended March 31, 2015, we experienced an impairment indicator related to decreases in forward wholesale electricity prices when compared to those prices reflected in our December 1, 2014 goodwill impairment testing analysis. As a result, the likelihood of a goodwill impairment had increased, and we initiated further testing of goodwill as of March 31, 2015. We completed our testing of goodwill for impairment during the period, which resulted in an impairment of $700 million of goodwill at March 31, 2015, which we reported in the Competitive Electric segment results.

There was no change to the goodwill balance for the three and nine months ended September 30, 2014.

Key inputs into our goodwill impairment testing at September 30 and March 31, 2015 and December 1, 2014 were as follows:

•
The carrying value (excluding debt) of the Competitive Electric segment exceeded its estimated enterprise value by approximately 50% at September 30, 2015, 34% at March 31, 2015 and by 17% at December 1, 2014.


15

•
The fair value of the Competitive Electric segment was estimated using a two-thirds weighting of value based on internally developed cash flow projections and a one-third weighting of value using implied cash flow multiples based on current securities values of comparable publicly traded companies. The internally developed cash flow projections reflect annual estimates through a terminal year calculated using a terminal year EBITDA multiple approach.

•
The discount rates applied to internally developed cash flow projections were 6.00%, 6.00% and 6.25% at September 30, 2015, March 31, 2015 and December 1, 2014, respectively. The discount rate represents the weighted average cost of capital consistent with our views of the rate that an expected market participant would utilize for valuation, including the risk inherent in future cash flows, taking into account the capital structure, debt ratings and current debt yields of comparable public companies as well as an estimate of return on equity that reflects historical market returns and current market volatility for the industry.

•
The cash flow projections used in both 2015 and 2014 assume rising wholesale electricity prices, although the forecasted electricity prices are less than those assumed in the cash flow projections used in prior goodwill impairment testing.

The impairment determinations involved significant assumptions and judgments. The calculations supporting the estimates of the fair value of our Competitive Electric segment and the fair values of its assets and liabilities utilized models that take into consideration multiple inputs, including commodity prices, operating parameters, discount rates, capital expenditures, the effects of proposed and final environmental regulations, securities prices of comparable publicly traded companies and other inputs. Assumptions regarding each of these inputs could have a significant effect on the related valuations. In performing these calculations, we also take into consideration assumptions on how current market participants would value the Competitive Electric segment and its operating assets and liabilities. Changes to assumptions that reflect the views of current market participants can also have a significant effect on the related valuations. The fair value measurements resulting from these models are classified as non-recurring Level 3 measurements consistent with accounting standards related to the determination of fair value (see Note 13). Because of the volatility of these factors, we cannot predict the likelihood of any future impairment.

Identifiable Intangible Assets

Identifiable intangible assets, including amounts that arose in connection with accounting for the Merger, are comprised of the following:
 
 
September 30, 2015
 
December 31, 2014
Identifiable Intangible Asset
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Retail customer relationship
 
$
463

 
$
438

 
$
25

 
$
463

 
$
425

 
$
38

Capitalized in-service software
 
356

 
210

 
146

 
362

 
216

 
146

Other identifiable intangible assets (a)
 
58

 
27

 
31

 
460

 
291

 
169

Total identifiable intangible assets subject to amortization
 
$
877

 
$
675

 
202

 
$
1,285

 
$
932

 
353

Retail trade name (not subject to amortization)
 
 
 
 
 
955

 
 
 
 
 
955

Mineral interests (not currently subject to amortization)
 
 
 
 
 
6

 
 
 
 
 
7

Total identifiable intangible assets
 
 
 
 
 
$
1,163

 
 
 
 
 
$
1,315

____________
(a)
See discussion below regarding impairment charges recorded in the three and nine months ended September 30, 2015 related to other identifiable intangible assets.

At September 30, 2015 and December 31, 2014, amounts related to fully amortized assets that are expired, or of no economic value, have been excluded from both the gross carrying and accumulated amortization amounts in the table above.


16

Amortization expense related to finite-lived identifiable intangible assets (including the condensed statements of consolidated income (loss) line item) consisted of:
Identifiable Intangible Asset
 
Condensed Statement of Consolidated Income (Loss) Line
 
Segment
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2015
 
2014
 
2015
 
2014
Retail customer relationship
 
Depreciation and amortization
 
Competitive Electric
 
$
4

 
$
6

 
$
13

 
$
17

Capitalized in-service software
 
Depreciation and amortization
 
Competitive Electric and Corporate and Other
 
13

 
11

 
35

 
34

Other identifiable intangible assets
 
Operating revenues/fuel, purchased power costs and delivery fees/depreciation and amortization
 
Competitive Electric
 
9

 
19

 
21

 
56

Total amortization expense (a)
 
 
 
$
26

 
$
36

 
$
69

 
$
107

____________
(a)
Amounts recorded in depreciation and amortization totaled $21 million and $25 million for the three months ended September 30, 2015 and 2014, respectively, and $54 million and $76 million for the nine months ended September 30, 2015 and 2014, respectively.

Intangible Impairments

The impairments of our generation facilities in March and September 2015 (see Note 6) resulted in the impairment of the SO2 allowances under the Clean Air Act's acid rain cap-and-trade program that are associated with those facilities to the extent they are not projected to be used at other sites. The fair market values of the SO2 allowances were estimated to be de minimis based on Level 3 fair value estimates (see Note 13). We also impaired certain of our SO2 allowances under the Cross-State Air Pollution Rule (CSAPR) related to the impaired generation facilities. Accordingly, in the three and nine months ended September 30, 2015, we recorded noncash impairment charges of $4 million and $55 million, respectively, in our Competitive Electric segment (before deferred income tax benefit) in other deductions related to our existing environmental allowances and credits intangible asset. SO2 emission allowances granted to us under the acid rain cap-and-trade program were recorded as intangible assets at fair value in connection with purchase accounting related to the Merger in 2007. Additionally, the impairments of our generation and related mining facilities in September 2015 resulted in our recording noncash impairment charges of $19 million in our Competitive Electric segment (before deferred income tax benefit) in other deductions related to mine development costs (included in other identifiable intangible assets in the table above) at the facilities.

During the three months ended March 31, 2015, we determined that certain intangible assets related to favorable power purchase contracts should be evaluated for impairment. That conclusion was based on further declines in wholesale electricity prices in ERCOT experienced during the three months ended March 31, 2015. Our fair value measurement was based on a discounted cash flow analysis of the contracts that compared the contractual price and terms of the contract to forecasted wholesale electricity and renewable energy credit prices in ERCOT. As a result of the analysis, we recorded a noncash impairment charge of $8 million in our Competitive Electric segment (before deferred income tax benefit) in other deductions (see Note 17).

Estimated Amortization of Identifiable Intangible Assets

The estimated aggregate amortization expense of identifiable intangible assets for each of the next five fiscal years is as follows:
Year
 
Estimated Amortization Expense
2015
 
$
86

2016
 
$
61

2017
 
$
50

2018
 
$
30

2019
 
$
16



17


5.
INCOME TAXES

EFH Corp. files a US federal income tax return that includes the results of EFCH, EFIH, Oncor Holdings and TCEH. EFH Corp. is the corporate member of the EFH Corp. consolidated group, while each of EFIH, Oncor Holdings, EFCH and TCEH is classified as a disregarded entity for US federal income tax purposes. Oncor is a partnership for US federal income tax purposes and is not a corporate member of the EFH Corp. consolidated group. Pursuant to applicable US Treasury regulations and published guidance of the IRS, corporations that are members of a consolidated group have joint and several liability for the taxes of such group.

EFH Corp. and certain of its subsidiaries (including EFCH, EFIH, and TCEH, but not including Oncor Holdings and Oncor) are parties to a Federal and State Income Tax Allocation Agreement, which provides, among other things, that any corporate member or disregarded entity in the EFH Corp. group is required to make payments to EFH Corp. in an amount calculated to approximate the amount of tax liability such entity would have owed if it filed a separate corporate tax return. EFH Corp., Oncor Holdings, Oncor and Oncor's minority investor are parties to a separate Federal and State Income Tax Allocation Agreement, which governs the computation of federal income tax liability among such parties, and similarly provides, among other things, that each of Oncor Holdings and Oncor will pay EFH Corp. its share of an amount calculated to approximate the amount of tax liability such entity would have owed if it filed a separate corporate tax return.

The calculation of our effective tax rate is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Loss before income taxes and equity in earnings of unconsolidated subsidiaries
$
(2,039
)
 
$
(146
)
 
$
(4,467
)
 
$
(2,440
)
Income tax benefit
$
452

 
$
72

 
$
990

 
$
830

Effective tax rate
22.2
%
 
49.3
%
 
22.2
%
 
34.0
%

For the three months ended September 30, 2015, the effective tax rate of 22.2% related to our income tax benefit was lower than the US Federal statutory rate of 35% due primarily to the nondeductible goodwill impairment charge (see Note 4) and nondeductible legal and other professional services costs related to the Chapter 11 Cases. For the three months ended September 30, 2014, the effective tax rate of 49.3% related to our income tax benefit was higher than the US Federal statutory rate of 35% due primarily to an income tax benefit related to an adjustment of reserves for uncertain tax positions for the 2007 tax year, partially offset by nondeductible legal and other professional services costs related to the Chapter 11 Cases.

For the nine months ended September 30, 2015, the effective tax rate of 22.2% related to our income tax benefit was lower than the US Federal statutory rate of 35% due primarily to nondeductible goodwill impairment charges (see Note 4) and nondeductible legal and other professional services costs related to the Chapter 11 Cases, partially offset by the difference in the forecasted effective tax rate and the statutory rate applied to long-lived and intangible asset impairment charges (see Notes 4 and 6) and the tax benefit recognized due to the Texas margin tax rate reduction in the second quarter of 2015. For the nine months ended September 30, 2014, the effective tax rate of 34.0% related to our income tax benefit was lower than the US Federal statutory rate of 35% due primarily to nondeductible legal and other professional services costs related to the Chapter 11 Cases, offset by an income tax benefit recorded in the third quarter of 2014 related to an adjustment of reserves for uncertain tax positions for the 2007 tax year.

Liability for Uncertain Tax Positions

In June 2015, we signed a final agreed Revenue Agent Report (RAR) with the IRS and associated documentation for the 2008 and 2009 tax years. The Bankruptcy Court approved our signing of the RAR in July 2015. As a result of receiving, agreeing to and signing the final RAR, we reduced the liability for uncertain tax positions by $23 million, resulting in a $20 million reclassification to the accumulated deferred income tax liability and the recording of a $3 million income tax benefit recorded in the Competitive Electric segment results. Total cash payment to be assessed by the IRS for tax years 2008 and 2009, but not paid during the pendency of the Chapter 11 Cases, is approximately $15 million, plus any interest that may be assessed.


18

In September 2014, we signed a final agreed RAR with the IRS and associated documentation for the 2007 tax year. The Bankruptcy Court approved our signing of the RAR in October 2014. As a result of receiving, agreeing to and signing the final RAR, we reduced the liability for uncertain tax positions by $58 million, resulting in a $19 million reclassification to the accumulated deferred income tax liability and the recording of a $39 million income tax benefit reflecting deductions related to lignite depletion and the release of accrued interest on uncertain tax positions. The adjustments did not result in a significant change to the originally filed tax return nor did it result in any cash tax or interest due. The total income tax benefit of $39 million reflected a $24 million income tax benefit recorded in Corporate and Other activities and a $15 million income tax benefit reported in the Competitive Electric segment results.


6.
IMPAIRMENT OF LONG-LIVED ASSETS

Impairment of Lignite/Coal Fueled Generation and Mining Assets

We evaluated our generation assets for impairment during September 2015 as a result of an impairment indicator related to the continued decline in forecasted wholesale electricity prices in ERCOT. Our evaluation concluded that impairments existed at our Martin Lake, Sandow 4 and Sandow 5 generation facilities, and the carrying value for those facilities and related mining facilities were reduced in total by $1.295 billion. Our fair value measurement for these assets was determined based on an income approach that utilized probability-weighted estimates of discounted future cash flows, which were Level 3 fair value measurements (see Note 13). Key inputs into the fair value measurement for these assets included current forecasted wholesale electricity prices in ERCOT, forecasted fuel prices, capital and operating expenditure forecasts and discount rates.

We evaluated our generation assets for impairment during March 2015 as a result of an impairment indicator related to lower forecasted wholesale electricity prices in ERCOT. Our evaluation concluded that an impairment existed at our Big Brown generation facility, and the carrying value for that facility and related mining facility was reduced by $676 million. Our fair value measurement for these assets was determined based on an income approach that utilized probability-weighted estimates of discounted future cash flows, which were Level 3 fair value measurements (see Note 13). Key inputs into the fair value measurement for these assets included current forecasted wholesale electricity prices in ERCOT, forecasted fuel prices, capital and operating expenditure forecasts and discount rates.

In July 2015, we filed notice with ERCOT that we intend to seasonally suspend operations at a second of the three units at our Martin Lake generation facility, with the units returning to service for the peak demand months of summer. In June 2015, we also assessed whether this planned notice constituted an impairment indicator for the Martin Lake generation facility and concluded that since the decision is expected to result in improved cash flows for the plant, it was not an indicator of impairment.

In the three and nine months ended September 30, 2014, we wrote off previously incurred and deferred costs totaling $9 million and $30 million, respectively, for mining projects not expected to be completed due to economic forecasts and regulatory uncertainty. These charges have been recorded in impairment of long-lived assets in the Competitive Electric segment's results.

Additional material impairments may occur in the future with respect to these assets or other of our generation facilities if forward wholesale electricity prices continue to decline or forecasted costs of producing electricity at our generation facilities increase.



19

7.
INTEREST EXPENSE AND RELATED CHARGES

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest paid/accrued on debtor-in-possession financing
$
74

 
$
74

 
$
221

 
$
88

Adequate protection amounts paid/accrued (a)
311

 
308

 
919

 
519

Interest paid/accrued on pre-petition debt (b)
—

 
3

 
243

 
1,152

Interest expense on pre-petition toggle notes payable in additional principal (Note 10)
—

 
—

 
—

 
65

Noncash realized net loss on termination of interest rate swaps (offset in unrealized net gain) (c)
—

 
—

 
—

 
1,237

Unrealized mark-to-market net gain on interest rate swaps
—

 
—

 
—

 
(1,303
)
Amortization of debt issuance, amendment and extension costs and discounts
—

 
—

 
—

 
67

Capitalized interest
(2
)
 
(3
)
 
(8
)
 
(14
)
Other
—

 
—

 
—

 
5

Total interest expense and related charges
$
383

 
$
382

 
$
1,375

 
$
1,816

____________
(a)
Post-petition period only.
(b)
For the nine months ended September 30, 2015, amounts include $235 million in post-petition interest related to the EFIH Second Lien Notes (see Note 10). Includes amounts related to interest rate swaps totaling $194 million for the nine months ended September 30, 2014. Of the $194 million for the nine months ended September 30, 2014, $127 million is included in the liability arising from the termination of TCEH interest rate swaps discussed in Note 14.
(c)
Includes $1.225 billion related to terminated TCEH interest rate swaps (see Note 14) and $12 million related to other interest rate swaps.

Interest expense for the nine months ended September 30, 2015 reflects interest paid and accrued on debtor-in-possession financing (see Note 9), adequate protection amounts paid and accrued, as approved by the Bankruptcy Court in June 2014 for the benefit of secured creditors of (a) $22.616 billion principal amount of outstanding borrowings from the TCEH Senior Secured Facilities, (b) $1.750 billion principal amount of outstanding TCEH Senior Secured Notes and (c) the $1.235 billion net liability related to the TCEH interest rate swaps and natural gas hedging positions terminated shortly after the Bankruptcy Filing (see Note 14), in exchange for their consent to the senior secured, super-priority liens contained in the TCEH DIP Facility and any diminution in value of their interests in the pre-petition collateral from the Petition Date, and interest paid on EFIH's pre-petition 11.00% Second Lien Notes due 2021 and 11.75% Second Lien Notes due 2022 as approved by the Bankruptcy Court in March 2015 (see Note 10). The interest rate applicable to the adequate protection amounts paid/accrued for the nine months ended September 30, 2015 is 4.68% (one-month LIBOR plus 4.50%). In connection with the completion of the Plan of Reorganization, the amount of adequate protection payments may be adjusted to reflect the valuation of the TCEH Debtors determined in connection with confirmation of the Plan of Reorganization by the Bankruptcy Court.


20

The Bankruptcy Code generally restricts payment of interest on pre-petition debt, subject to certain exceptions. However, the Bankruptcy Court ordered the payment of adequate protection amounts as discussed above and post-petition interest payments on EFIH First Lien Notes in connection with the settlement in June 2014 as discussed in Note 9. Additionally, the Bankruptcy Court approved post-petition interest payments on the EFIH Second Lien Notes in March 2015 as discussed in Note 10. Additional payments may also be made upon approval by the Bankruptcy Court, at the federal judgment rate (see Note 11). Other than these amounts ordered or approved by the Bankruptcy Court, effective April 29, 2014, we discontinued recording interest expense on outstanding pre-petition debt classified as liabilities subject to compromise (LSTC). The table below shows contractual interest amounts, which are amounts due under the contractual terms of the outstanding debt, including debt subject to compromise during the Chapter 11 Cases. Interest expense reported in the condensed statements of consolidated income (loss) for the three months ended September 30, 2015 and 2014, the nine months ended September 30, 2015 and the post-petition period ended September 30, 2014 does not include $327 million, $337 million, $943 million and $574 million, respectively, in contractual interest on pre-petition debt classified as LSTC, which has been stayed by the Bankruptcy Court effective on the Petition Date. For the three months ended September 30, 2015 and 2014, the nine months ended September 30, 2015 and the post-petition period ended September 30, 2014, adequate protection paid/accrued presented below excludes $15 million, $15 million, $44 million and $25 million, respectively, related to interest paid/accrued on the TCEH first-lien interest rate and commodity hedge claims (see Note 14), as such amounts are not included in contractual interest amounts below.
 
 
Three Months Ended September 30, 2015
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Approved Interest Paid/Accrued
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
EFH Corp.
 
$
31

 
$
—

 
$
—

 
$
31

EFIH
 
101

 
—

 
—

 
101

EFCH
 
2

 
—

 
—

 
2

TCEH
 
520

 
296

 
—

 
224

Eliminations (b)
 
(31
)
 
—

 
—

 
(31
)
Total
 
$
623

 
$
296

 
$
—

 
$
327


 
 
Three Months Ended September 30, 2014
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Ordered Interest Paid/Accrued
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
EFH Corp.
 
$
31

 
$
—

 
$
—

 
$
31

EFIH
 
114

 
—

 
—

 
114

EFCH
 
2

 
—

 
—

 
2

TCEH
 
514

 
293

 
—

 
221

Eliminations (b)
 
(31
)
 
—

 
—

 
(31
)
Total
 
$
630

 
$
293

 
$
—

 
$
337


 
 
Nine Months Ended September 30, 2015
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Approved Interest Paid/Accrued (a)
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
EFH Corp.
 
$
94

 
$
—

 
$
—

 
$
94

EFIH
 
314

 
—

 
50

 
264

EFCH
 
5

 
—

 
—

 
5

TCEH
 
1,548

 
875

 
—

 
673

Eliminations (b)
 
(93
)
 
—

 
—

 
(93
)
Total
 
$
1,868

 
$
875

 
$
50

 
$
943



21

 
 
Post-Petition Period Ended September 30, 2014
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Ordered Interest Paid/Accrued (a)
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
EFH Corp.
 
$
53

 
$
—

 
$
—

 
$
53

EFIH
 
248

 
—

 
54

 
194

EFCH
 
3

 
—

 
—

 
3

TCEH
 
871

 
494

 
—

 
377

Eliminations (b)
 
(53
)
 
—

 
—

 
(53
)
Total
 
$
1,122

 
$
494

 
$
54

 
$
574

___________
(a)
For the nine months ended September 30, 2015 represents portion of interest related to the EFIH Second Lien Notes that was repaid based on the approval of the Bankruptcy Court; however, excludes $185 million of post-petition interest paid in 2015 that contractually related to 2014 and default interest (see Note 10). For the post-petition period ended September 30, 2014, represents interest on EFIH First Lien Notes exchanged and settled in June 2014 (see Note 9).
(b)
Represents contractual interest on affiliate debt held by EFH Corp. and EFIH that is classified as LSTC.


8.
REORGANIZATION ITEMS

Expenses and income directly associated with the Chapter 11 Cases are reported separately in the condensed statements of consolidated income (loss) as reorganization items as required by ASC 852, Reorganizations. Reorganization items also include adjustments to reflect the carrying value of liabilities subject to compromise (LSTC) at their estimated allowed claim amounts, as such adjustments are determined. The following table presents reorganization items incurred in the three months ended September 30, 2015 and 2014, the nine months ended September 30, 2015 and the post-petition period ended September 30, 2014 as reported in the condensed statements of consolidated income (loss):
 
Three Months Ended
September 30, 2015
 
Three Months Ended
September 30, 2014
 
Nine Months Ended
September 30, 2015
 
Post-Petition Period Ended
September 30, 2014
Expenses related to legal advisory and representation services
$
46

 
$
38

 
$
148

 
$
79

Expenses related to other professional consulting and advisory services
22

 
22

 
69

 
72

Contract claims adjustments
(2
)
 
—

 
26

 
—

Fees associated with repayment of EFIH Second Lien Notes (Note 10)
—

 
—

 
28

 
—

Noncash liability adjustment arising from termination of interest rate swaps (Note 14)
—

 
—

 
—

 
278

Fees associated with completion of TCEH and EFIH DIP Facilities
—

 
(5
)
 
—

 
180

Loss on exchange and settlement of EFIH First Lien Notes (Note 9)
—

 
—

 
—

 
108

Other
2

 
—

 
4

 
3

Total reorganization items
$
68

 
$
55

 
$
275

 
$
720



22


9.
DEBTOR-IN-POSSESSION BORROWING FACILITIES AND LONG-TERM DEBT NOT SUBJECT TO COMPROMISE

TCEH DIP Facility — The Bankruptcy Court approved the TCEH DIP Facility in June 2014. The TCEH DIP Facility currently provides for up to $3.375 billion in senior secured, super-priority financing consisting of a revolving credit facility of up to $1.95 billion and a term loan facility of up to $1.425 billion. The TCEH DIP Facility is a Senior Secured, Super-Priority Credit Agreement by and among the TCEH Debtors, the lenders that are party thereto from time to time and an administrative and collateral agent.

The TCEH DIP Facility and related available capacity at September 30, 2015 are presented below. Borrowings are reported in the condensed consolidated balance sheets as borrowings under debtor-in-possession credit facilities. In the September 30, 2015 condensed consolidated balance sheet the borrowings under the TCEH DIP Facility are reported as current liabilities since the maturity date of the facility was May 2016 as of such date. In October 2015, the TCEH Debtors paid an $8 million extension fee and extended the maturity date of the TCEH DIP Facility to the earlier of (a) November 2016 or (b) the effective date of any reorganization plan of TCEH. The terms of the facility were otherwise unchanged by the extension. In September 2015, the TCEH Debtors extended their use of cash collateral to the earlier of (a) the effective date of a plan of reorganization or (b) 60 days following termination of the Debtors' Plan Support Agreement, provided that the TCEH Debtors do not otherwise cause an event of default under the cash collateral order.
 
 
September 30, 2015
TCEH DIP Facility
 
Facility
Limit
 
Available Cash
Borrowing Capacity
 
Available Letter of Credit Capacity
TCEH DIP Revolving Credit Facility (a)
 
$
1,950

 
$
1,950

 
$
—

TCEH DIP Term Loan Facility (b)
 
1,425

 
—

 
436

Total TCEH DIP Facility
 
$
3,375

 
$
1,950

 
$
436

___________
(a)
Facility used for general corporate purposes. No amounts were borrowed at September 30, 2015. Pursuant to an order of the Bankruptcy Court, the TCEH Debtors may not have more than $1.650 billion of TCEH DIP Revolving Credit Facility cash borrowings outstanding without written consent of the TCEH committee of unsecured creditors and the ad hoc group of TCEH unsecured noteholders or further order of the Bankruptcy Court.
(b)
Facility used for general corporate purposes, including but not limited to, $800 million for issuing letters of credit.

At both September 30, 2015 and December 31, 2014, all $1.425 billion of the TCEH DIP Term Loan Facility has been borrowed. Of this borrowing, $800 million represents amounts that support issuances of letters of credit and have been funded to a collateral account. Of the collateral account amount at September 30, 2015, $436 million is reported as cash and cash equivalents and $364 million is reported as restricted cash, which represents the amount of outstanding letters of credit.

Amounts borrowed under the TCEH DIP Facility bear interest based on applicable LIBOR rates, subject to a 0.75% floor, plus 3%. At both September 30, 2015 and December 31, 2014, the interest rate on outstanding borrowings was 3.75%. The TCEH DIP Facility also provides for certain additional fees payable to the agents and lenders, as well as availability fees payable with respect to any unused portions of the available TCEH DIP Facility.

The TCEH Debtors' obligations under the TCEH DIP Facility are secured by a lien covering substantially all of the TCEH Debtors' assets, rights and properties, subject to certain exceptions set forth in the TCEH DIP Facility. The TCEH DIP Facility provides that all obligations thereunder constitute administrative expenses in the Chapter 11 Cases, with administrative priority and senior secured status under the Bankruptcy Code and, subject to certain exceptions set forth in the TCEH DIP Facility, have priority over any and all administrative expense claims, unsecured claims and costs and expenses in the Chapter 11 Cases. EFCH is a parent guarantor to the agreement governing the TCEH DIP Facility along with substantially all of TCEH’s subsidiaries, including all subsidiaries that are Debtors in the Chapter 11 Cases.

The TCEH DIP Facility also permits certain hedging agreements to be secured on a pari-passu basis with the TCEH DIP Facility in the event those hedging agreements meet certain criteria set forth in the TCEH DIP Facility.

In June 2014, the RCT agreed to accept a collateral bond from TCEH of up to $1.1 billion, as a substitute for its self-bond, to secure mining land reclamation obligations. The collateral bond is a $1.1 billion carve-out from the super-priority liens under the TCEH DIP Facility that will enable the RCT to be paid before the TCEH DIP Facility lenders.


23

The TCEH DIP Facility provides for affirmative and negative covenants applicable to the TCEH Debtors, including affirmative covenants requiring the TCEH Debtors to provide financial information, budgets and other information to the agents under the TCEH DIP Facility, and negative covenants restricting the TCEH Debtors' ability to incur additional indebtedness, grant liens, dispose of assets, make investments, pay dividends or take certain other actions, in each case except as permitted in the TCEH DIP Facility. The TCEH Debtors' ability to borrow under the TCEH DIP Facility is subject to the satisfaction of certain customary conditions precedent set forth therein.

The TCEH DIP Facility provides for certain customary events of default, including events of default resulting from non-payment of principal, interest or other amounts when due, material breaches of representations and warranties, material breaches of covenants in the TCEH DIP Facility or ancillary loan documents, cross-defaults under other agreements or instruments and the entry of material judgments against the TCEH Debtors. The agreement governing the TCEH DIP Facility includes a covenant that requires the Consolidated Superpriority Secured Net Debt to Consolidated EBITDA ratio not exceed 3.50 to 1.00. Consolidated Superpriority Secured Net Debt consists of outstanding term loans and revolving credit exposure under the TCEH DIP Facility less unrestricted cash. Upon the existence of an event of default, the TCEH DIP Facility provides that all principal, interest and other amounts due thereunder will become immediately due and payable, either automatically or at the election of specified lenders.

EFIH DIP Facility, EFIH First Lien Notes Settlement and EFIH Second Lien Notes Repayment — The Bankruptcy Court approved the EFIH DIP Facility in June 2014. The EFIH DIP Facility provides for a $5.4 billion first-lien debtor-in-possession financing facility. Since inception, the facility has been utilized as follows:

•
In June 2014, $1.836 billion of loans issued under the facility were issued as an exchange to holders of $1.673 billion principal amount of EFIH First Lien Notes plus accrued and unpaid interest totaling $78 million. Holders of substantially all of the principal amount exchanged received as payment in full a principal amount of loans under the DIP facility equal to 105% of the principal amount of the notes held plus 101% of the accrued and unpaid interest at the non-default rate on such principal;
•
In June 2014, $2.438 billion of cash borrowings were used to repay all remaining $2.312 billion principal amount of EFIH First Lien Notes (plus accrued and unpaid interest totaling $128 million), and
•
In March 2015, $750 million of cash borrowings were used to repay $445 million principal amount of EFIH Second Lien Notes (including accrued and unpaid pre-petition interest of $55 million and post-petition interest of $235 million) and certain fees (see Note 10).

As of September 30, 2015, remaining cash on hand from borrowings under the EFIH DIP Facility, net of fees, totaled approximately $370 million, which was held as cash and cash equivalents. In the September 30, 2015 condensed consolidated balance sheet, the borrowings under the EFIH DIP Facility are reported as current liabilities since the maturity date of the facility is June 2016.

The principal amounts outstanding under the EFIH DIP Facility bear interest based on applicable LIBOR rates, subject to a 1% floor, plus 3.25%. At both September 30, 2015 and December 31, 2014, outstanding borrowings under the EFIH DIP Facility totaled $5.4 billion at an annual interest rate of 4.25%. The EFIH DIP Facility is a non-amortizing loan that may, subject to certain limitations, be voluntarily prepaid by the EFIH Debtors, in whole or in part, without any premium or penalty.

The EFIH DIP Facility will mature on the earlier of (a) the effective date of any reorganization plan, (b) upon the event of the sale of substantially all of EFIH's assets or (c) June 2016. The maturity date may be extended to no later than December 2016 subject to the satisfaction of certain conditions, including the payment of a 25 basis point extension fee, a requirement that an acceptable plan of reorganization has been filed on or prior to such extension and the availability of certain metrics of liquidity applicable to EFIH and EFIH Finance.

EFIH's obligations under the EFIH DIP Facility are secured by a first lien covering substantially all of EFIH's assets, rights and properties, subject to certain exceptions set forth in the EFIH DIP Facility. The EFIH DIP Facility provides that all obligations thereunder constitute administrative expenses in the Chapter 11 Cases, with administrative priority and senior secured status under the Bankruptcy Code and, subject to certain exceptions set forth in the EFIH DIP Facility, will have priority over any and all administrative expense claims, unsecured claims and costs and expenses in the Chapter 11 Cases.


24

The EFIH DIP Facility provides for affirmative and negative covenants applicable to EFIH and EFIH Finance, including affirmative covenants requiring EFIH and EFIH Finance to provide financial information, budgets and other information to the agents under the EFIH DIP Facility, and negative covenants restricting EFIH's and EFIH Finance's ability to incur additional indebtedness, grant liens, dispose of assets, pay dividends or take certain other actions, in each case except as permitted in the EFIH DIP Facility. The EFIH DIP Facility also includes a minimum liquidity covenant pursuant to which EFIH cannot allow the amount of its unrestricted cash (as defined in the EFIH DIP Facility) to be less than $150 million. As of September 30, 2015, EFIH was in compliance with this minimum liquidity covenant. The Oncor Ring-Fenced Entities are not restricted subsidiaries for purposes of the EFIH DIP Facility.

The EFIH DIP Facility provides for certain customary events of default, including events of default resulting from non-payment of principal, interest or other amounts when due, material breaches of representations and warranties, material breaches of covenants in the EFIH DIP Facility or ancillary loan documents, cross-defaults under other agreements or instruments and the entry of material judgments against EFIH. Upon the existence of an event of default, the EFIH DIP Facility provides that all principal, interest and other amounts due thereunder will become immediately due and payable, either automatically or at the election of specified lenders.

The EFIH DIP Facility permits, subject to certain terms, conditions and limitations set forth in the EFIH DIP Facility, EFIH to incur incremental junior lien subordinated debt in an aggregate amount not to exceed $3 billion.

Long-Term Debt Not Subject to Compromise — Amounts presented in the table below represent pre-petition liabilities that are not subject to compromise due to the debt being fully collateralized or specific orders from the Bankruptcy Court approving repayment of the debt.
 
September 30,
2015
 
December 31,
2014
EFH Corp. (parent entity)
 
 
 
8.82% Non-Debtor Building Financing due semiannually through February 11, 2022
$
35

 
$
40

Unamortized fair value premium (a)
6

 
7

Total EFH Corp.
41

 
47

EFCH
 
 
 
9.58% Fixed Notes due in annual installments through December 4, 2019 (b)
21

 
21

8.254% Fixed Notes due in quarterly installments through December 31, 2021 (b)
25

 
29

Unamortized fair value discount (a)
(2
)
 
(3
)
Total EFCH
44

 
47

TCEH
 
 
 
7.48% Fixed Secured Facility Bonds with amortizing payments through January 2017 (c)
13

 
25

7.46% Fixed Secured Facility Bonds with amortizing payments through January 2015 (c)
—

 
4

Capital lease obligations
40

 
44

Other
2

 
2

Unamortized discount
(1
)
 
(2
)
Total TCEH
54

 
73

Total EFH Corp. consolidated
139

 
167

Less amounts due currently
(36
)
 
(39
)
Total long-term debt not subject to compromise
$
103

 
$
128

____________
(a)
Amount represents unamortized fair value adjustments recorded under purchase accounting.
(b)
Approved by the Bankruptcy Court for repayment.
(c)
Debt issued by trust and secured by assets held by the trust.


25


10.
LIABILITIES SUBJECT TO COMPROMISE

The amounts classified as liabilities subject to compromise (LSTC) reflect the company's estimate of pre-petition liabilities and other expected allowed claims to be addressed in the Chapter 11 Cases and may be subject to future adjustment as the Chapter 11 Cases proceed. Debt amounts include related unamortized deferred financing costs and discounts/premiums. Amounts classified to LSTC do not include pre-petition liabilities that are fully collateralized by letters of credit or cash deposits. The following table presents LSTC as reported in the condensed consolidated balance sheets at September 30, 2015 and December 31, 2014:
 
September 30,
2015
 
December 31,
2014
Notes, loans and other debt per the following table
$
34,679

 
$
35,124

Accrued interest on notes, loans and other debt
749

 
804

Net liability under terminated TCEH interest rate swap and natural gas hedging agreements (Note 14)
1,235

 
1,235

Trade accounts payable and other expected allowed claims
261

 
269

Total liabilities subject to compromise
$
36,924

 
$
37,432


Pre-Petition Notes, Loans and Other Debt Reported as Liabilities Subject to Compromise

Amounts presented below represent principal amounts of pre-petition notes, loans and other debt reported as liabilities subject to compromise.
 
September 30,
2015
 
December 31,
2014
EFH Corp. (parent entity)
 
 
 
9.75% Fixed Senior Notes due October 15, 2019
$
2

 
$
2

10% Fixed Senior Notes due January 15, 2020
3

 
3

10.875% Fixed Senior Notes due November 1, 2017
33

 
33

11.25% / 12.00% Senior Toggle Notes due November 1, 2017
27

 
27

5.55% Fixed Series P Senior Notes due November 15, 2014 (a)
90

 
90

6.50% Fixed Series Q Senior Notes due November 15, 2024 (a)
201

 
201

6.55% Fixed Series R Senior Notes due November 15, 2034 (a)
291

 
291

Unamortized fair value discount (b)
(118
)
 
(118
)
Total EFH Corp.
529

 
529

EFIH
 
 
 
11% Fixed Senior Secured Second Lien Notes due October 1, 2021
322

 
406

11.75% Fixed Senior Secured Second Lien Notes due March 1, 2022
1,389

 
1,750

11.25% / 12.25% Senior Toggle Notes due December 1, 2018
1,566

 
1,566

9.75% Fixed Senior Notes due October 15, 2019
2

 
2

Unamortized premium
243

 
243

Unamortized discount
(121
)
 
(121
)
Total EFIH
3,401

 
3,846

EFCH
 
 
 
Floating Rate Junior Subordinated Debentures, Series D due January 30, 2037
1

 
1

8.175% Fixed Junior Subordinated Debentures, Series E due January 30, 2037
8

 
8

Unamortized fair value discount (b)
(1
)
 
(1
)
Total EFCH
8

 
8

TCEH
 
 
 
Senior Secured Facilities:
 
 
 
TCEH Floating Rate Term Loan Facilities due October 10, 2014
3,809

 
3,809

TCEH Floating Rate Letter of Credit Facility due October 10, 2014
42

 
42

TCEH Floating Rate Revolving Credit Facility due October 10, 2016
2,054

 
2,054

TCEH Floating Rate Term Loan Facilities due October 10, 2017 (a)
$
15,691

 
$
15,691


26

 
September 30,
2015
 
December 31,
2014
TCEH Floating Rate Letter of Credit Facility due October 10, 2017
1,020

 
1,020

11.5% Fixed Senior Secured Notes due October 1, 2020
1,750

 
1,750

15% Fixed Senior Secured Second Lien Notes due April 1, 2021
336

 
336

15% Fixed Senior Secured Second Lien Notes due April 1, 2021, Series B
1,235

 
1,235

10.25% Fixed Senior Notes due November 1, 2015 (a)
1,833

 
1,833

10.25% Fixed Senior Notes due November 1, 2015, Series B (a)
1,292

 
1,292

10.50% / 11.25% Senior Toggle Notes due November 1, 2016
1,749

 
1,749

Pollution Control Revenue Bonds:
 
 
 
Brazos River Authority:
 
 
 
5.40% Fixed Series 1994A due May 1, 2029
39

 
39

7.70% Fixed Series 1999A due April 1, 2033
111

 
111

7.70% Fixed Series 1999C due March 1, 2032
50

 
50

8.25% Fixed Series 2001A due October 1, 2030
71

 
71

8.25% Fixed Series 2001D-1 due May 1, 2033
171

 
171

6.30% Fixed Series 2003B due July 1, 2032
39

 
39

6.75% Fixed Series 2003C due October 1, 2038
52

 
52

5.40% Fixed Series 2003D due October 1, 2029
31

 
31

5.00% Fixed Series 2006 due March 1, 2041
100

 
100

Sabine River Authority of Texas:
 
 
 
6.45% Fixed Series 2000A due June 1, 2021
51

 
51

5.20% Fixed Series 2001C due May 1, 2028
70

 
70

5.80% Fixed Series 2003A due July 1, 2022
12

 
12

6.15% Fixed Series 2003B due August 1, 2022
45

 
45

Trinity River Authority of Texas:
 
 
 
6.25% Fixed Series 2000A due May 1, 2028
14

 
14

Unamortized fair value discount related to pollution control revenue bonds (b)
(103
)
 
(103
)
Other:
 
 
 
Other
1

 
1

Unamortized discount
(91
)
 
(91
)
Total TCEH
31,474

 
31,474

Deferred debt issuance and extension costs
(733
)
 
(733
)
Total EFH Corp. consolidated notes, loans and other debt
$
34,679