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EX-31.B - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2016331xexhibit31b.htm
EX-95.A - MINE SAFETY DISCLOSURES - Energy Future Holdings Corp /TX/efh-2016331xexhibit95a.htm
EX-32.A - CERTIFICATION OF JOHN F. YOUNG - Energy Future Holdings Corp /TX/efh-2016331xexhibit32a.htm
EX-99.A - TWELVE MONTHS ENDED MARCH 31, 2016 STATEMENT OF INCOME - Energy Future Holdings Corp /TX/efh-2016331xexhibit99a.htm
EX-31.A - CERTIFICATION OF JOHN F. YOUNG - Energy Future Holdings Corp /TX/efh-2016331xexhibit31a.htm
EX-99.B - CONSOLIDATED EBITDA RECONCILIATION TEXAS COMPETITIVE ELECTRIC HOLDINGS COMPANY - Energy Future Holdings Corp /TX/efh-2016331xexhibit99b.htm
EX-32.B - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2016331xexhibit32b.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 MARCH 31, 2016

— 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 May 9, 2016, 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 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.
2015 Form 10-K
 
EFH Corp.'s Annual Report on Form 10-K for the year ended December 31, 2015
 
 
 
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 10 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
 
Disclosure Statement for the Debtors' Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code filed by the Debtors with the Bankruptcy Court in May 2016
 
 
 
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
 
 
 
EFH Debtors
 
EFH Corp. and its subsidiaries that are Debtors in the Chapter 11 Cases, excluding the TCEH Debtors
 
 
 
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 DIP Facility
 
EFIH's and EFIH Finance's $5.4 billion debtor-in-possession financing facility. See Note 10 to the Financial Statements.

 
 
 
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
 
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 10 to the Financial Statements, collectively
 
 
 
EFIH Second Lien Notes
 
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, collectively
 
 
 

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 in May 2012 but effective as of January 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 2008. See Note 6 to the Financial Statements and Management's Discussion and Analysis, under Financial Condition.
 
 
 
FERC
 
US Federal Energy Regulatory Commission
 
 
 
Fifth Circuit Court
 
US Court of Appeals for the Fifth Circuit
 
 
 
GAAP
 
generally accepted accounting principles
 
 
 
GHG
 
greenhouse gas
 
 
 
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
 
 
 
LSTC
 
liabilities subject to compromise
 
 
 
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, 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.
 
 
 
MATS
 
the Mercury and Air Toxics Standard established by the EPA
 
 
 
Merger
 
the transaction referred to in the Agreement and Plan of Merger 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
 
 
 

iii


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
 
 
 
Plan of Reorganization
 
Joint Plan of Reorganization filed by the Debtors with the Bankruptcy Court in May 2016

 
 
 
Plan Support Agreement
 
Third Amendment to the Amended and Restated Plan Support Agreement, entered into in December 2015, amending and restating the Plan Support Agreement
 
 
 
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
 
 
 
Settlement Agreement
 
Amended and Restated Settlement Agreement among the Debtors, the Sponsor Group, settling TCEH first lien creditors, settling TCEH second lien creditors, settling TCEH unsecured creditors and the official committee of unsecured creditors of TCEH (collectively, the Settling Parties), approved by the Bankruptcy Court in December 2015. See Note 2 to the Financial Statements.
 
 
 
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. See Note 10 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 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
 
 
 
TCEQ
 
Texas Commission on Environmental Quality
 
 
 

iv


Terminated Plan
 
Sixth Amended Joint Plan of Reorganization filed by the Debtors in November 2015, as amended, confirmed by the Bankruptcy Court in December 2015, which became null and void in May 2016
 
 
 
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
 
 
 
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 LOSS
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(millions of dollars)
Operating revenues
$
1,049

 
$
1,272

Fuel, purchased power costs and delivery fees
(554
)
 
(613
)
Net gain from commodity hedging and trading activities
64

 
103

Operating costs
(219
)
 
(193
)
Depreciation and amortization
(141
)
 
(218
)
Selling, general and administrative expenses
(156
)
 
(179
)
Impairment of goodwill (Note 5)

 
(700
)
Impairment of long-lived assets (Note 7)

 
(676
)
Other income (Note 18)
5

 
8

Other deductions (Note 18)
(21
)
 
(60
)
Interest expense and related charges (Note 8)
(394
)
 
(609
)
Reorganization items (Note 9)
(70
)
 
(138
)
Loss before income taxes and equity in earnings of unconsolidated subsidiaries
(437
)
 
(2,003
)
Income tax benefit (Note 6)
127

 
401

Equity in earnings of unconsolidated subsidiaries (net of tax) (Note 4)
62

 
75

Net loss
$
(248
)
 
$
(1,527
)

See Notes to the Financial Statements.

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE LOSS
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(millions of dollars)
Net loss
$
(248
)
 
$
(1,527
)
Other comprehensive income (loss), net of tax effects:
 
 
 
Effects related to pension and other retirement benefit obligations (net of tax benefit of $1 and $—)
(1
)
 
(2
)
Cash flow hedges derivative value net loss related to hedged transactions recognized during the period (net of tax benefit of $— in all periods)

 
1

Net effects related to Oncor — reported in equity in earnings of unconsolidated subsidiaries (net of tax)

 
1

Total other comprehensive loss
(1
)
 

Comprehensive loss
$
(249
)
 
$
(1,527
)

See Notes to the Financial Statements.

1



ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
(millions of dollars)
Cash flows — operating activities:
 
 
 
Net loss
$
(248
)
 
$
(1,527
)
Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
Depreciation and amortization
170

 
254

Deferred income tax benefit, net
(123
)
 
(339
)
Impairment of goodwill (Note 5)

 
700

Impairment of long-lived assets (Note 7)

 
676

Contract claims adjustments (Note 9)
1

 
32

Fees paid on EFIH Second Lien Notes repayment and EFIH DIP Facility (Notes 10 and 11) (reported as financing activities)
14

 
28

Unrealized net (gain) loss from mark-to-market valuations of commodity positions
41

 
(102
)
Equity in earnings of unconsolidated subsidiaries
(62
)
 
(75
)
Distributions of earnings from unconsolidated subsidiaries (Note 4)
40

 
74

Write-off of intangible and other assets (Note 18)
20

 
59

Other, net
15

 
18

Changes in operating assets and liabilities:
 
 
 
Margin deposits, net
17

 
79

Accrued interest
4

 
(3
)
Payables due to unconsolidated subsidiary
(26
)
 
(59
)
Other operating assets and liabilities, including liabilities subject to compromise
(133
)
 
(222
)
Cash used in operating activities
(270
)
 
(407
)
Cash flows — financing activities:
 
 
 
Repayments/repurchases of debt (Note 10)
(12
)
 
(454
)
Fees paid on EFIH Second Lien Notes repayment and EFIH DIP Facility (Note 10 and 11)
(14
)
 
(28
)
Other, net

 
(1
)
Cash used in financing activities
(26
)
 
(483
)
Cash flows — investing activities:
 
 
 
Capital expenditures
(83
)
 
(121
)
Nuclear fuel purchases
(10
)
 
(5
)
Changes in restricted cash
(142
)
 
28

Proceeds from sales of nuclear decommissioning trust fund securities (Note 18)
67

 
23

Investments in nuclear decommissioning trust fund securities (Note 18)
(71
)
 
(27
)
Other, net
2

 
1

Cash used in investing activities
(237
)
 
(101
)
 
 
 
 
Net change in cash and cash equivalents
(533
)
 
(991
)
Cash and cash equivalents — beginning balance
2,286

 
3,428

Cash and cash equivalents — ending balance
$
1,753

 
$
2,437


See Notes to the Financial Statements.

2



ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2016
 
December 31,
2015
 
(millions of dollars)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
1,753

 
$
2,286

Restricted cash (Note 18)
666

 
524

Trade accounts receivable — net (Note 18)
447

 
533

Inventories (Note 18)
448

 
428

Commodity and other derivative contractual assets (Note 15)
499

 
465

Other current assets
124

 
87

Total current assets
3,937

 
4,323

Restricted cash (Note 18)
507

 
507

Investment in unconsolidated subsidiary (Note 4)
6,086

 
6,064

Other investments (Note 18)
1,005

 
984

Property, plant and equipment — net (Note 18)
9,350

 
9,430

Goodwill (Note 5)
152

 
152

Identifiable intangible assets — net (Note 5)
1,156

 
1,166

Accumulated deferred income taxes
733

 
609

Other noncurrent assets
100

 
95

Total assets
$
23,026

 
$
23,330

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Borrowings under debtor-in-possession credit facilities (Note 10)
$
6,825

 
$
6,825

Long-term debt due currently (Note 10)
33

 
35

Trade accounts payable
367

 
413

Net payables due to unconsolidated subsidiary (Note 16)
178

 
204

Commodity and other derivative contractual liabilities (Note 15)
261

 
203

Margin deposits related to commodity contracts
176

 
152

Accrued taxes
108

 
134

Accrued interest
124

 
121

Other current liabilities
350

 
425

Total current liabilities
8,422

 
8,512

Long-term debt, less amounts due currently (Note 10)
55

 
60

Liabilities subject to compromise (Note 11)
37,786

 
37,786

Other noncurrent liabilities and deferred credits (Note 18)
2,073

 
2,033

Total liabilities
48,336

 
48,391

Commitments and Contingencies (Note 12)


 


Total equity (Note 13)
(25,310
)
 
(25,061
)
Total liabilities and equity
$
23,026

 
$
23,330


See Notes to the Financial Statements.

3


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 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 4).

Various ring-fencing measures have been taken to enhance the credit quality of Oncor. Such measures include, among other things: the ownership of a 19.75% equity interest in Oncor by 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. 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 17 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). See Note 2 for further discussion regarding the Chapter 11 Cases, the Plan of Reorganization and the Disclosure Statement.


4


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 852, Reorganizations (ASC 852). 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 9 and 11 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 4). 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 2015 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 February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-2 (ASU 2016-02), Leases. The ASU amends previous GAAP to require the recognition of lease assets and liabilities for operating leases. The ASU will be effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Retrospective application to comparative periods presented will be required in the year of adoption. We are currently evaluating the impact of this ASU on our financial statements.

In March 2016, the FASB issued Accounting Standards Update 2016-08 (ASU 2016-08), Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance for principal versus agent considerations related to ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides the core principle and key steps in determining the recognition of revenue. The effective date for these updates has been deferred to fiscal years beginning after December 15, 2017. We are currently assessing the impact of these ASUs on our financial statements.


5



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.

Plan of Reorganization

The Terminated Plan was confirmed by the Bankruptcy Court in December 2015. As described below, in May 2016, certain first lien creditors of TCEH delivered a Plan Support Termination Notice (as defined in the Plan Support Agreement) to the Debtors and the other parties to the Plan Support Agreement notifying such parties of the occurrence of a Plan Support Termination Event (as defined in the Plan Support Agreement). The delivery of the Plan Support Termination Notice caused the Terminated Plan to become null and void.

Following the occurrence of the Plan Support Termination Event as described above and termination of the Merger and Purchase Agreement as described below, the Debtors filed the Plan of Reorganization and the Disclosure Statement with the Bankruptcy Court in May 2016.

The Plan of Reorganization provides that the confirmation and effective date of the Plan of Reorganization with respect to the TCEH Debtors may occur separate from, and independent of, the confirmation and effective date of the Plan of Reorganization with respect to the Debtors other than the TCEH Debtors (the EFH Debtors). The Plan of Reorganization, subject to certain conditions and required regulatory approvals, provides for, among other things:

with respect to the TCEH Debtors, either (i) a tax-free spin-off from EFH Corp. (the Reorganized TCEH Spin-Off), including a transaction that will result in a partial step-up in the tax basis of certain TCEH assets, or (ii) a taxable transaction that results in the assets of the TCEH Debtors being distributed to Reorganized TCEH, and

with respect to the EFH Debtors, the reorganization of EFH Corp. and EFIH (Reorganized EFH) either pursuant to (a) an equity investment (which may be from existing creditors or third-party investors) or (b) pursuant to a standalone plan of reorganization, in which creditors receive certain allocated pro rata shares of common stock of Reorganized EFH.

Information contained in the Plan of Reorganization and the Disclosure Statement is subject to change, whether as a result of amendments to the Plan of Reorganization, requirements by the Bankruptcy Court, actions of third parties, or otherwise.

The Bankruptcy Code does not permit solicitation of acceptances of a plan of reorganization until the Bankruptcy Court approves the applicable disclosure statement relating to such plan of reorganization. Accordingly, this quarterly report on Form 10-Q is not intended to be a solicitation for a vote on the Plan of Reorganization. There can be no assurance that the Bankruptcy Court will approve the Disclosure Statement, that the Debtors' stakeholders will vote to accept the Plan of Reorganization, or that the Bankruptcy Court will confirm the Plan of Reorganization. The Debtors will emerge from bankruptcy if and when a plan of reorganization receives the requisite approval from holders of claims, the Bankruptcy Court enters an order confirming such plan of reorganization, and certain conditions to the effectiveness of such plan of reorganization are satisfied.

Plan Support Agreement

In August 2015 (as amended in September 2015 and November 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 TCEH unsecured creditors and the Investor Group in order to effect an agreed upon restructuring of the Debtors pursuant to the Terminated Plan along with, upon certain events, an Alternative Restructuring (as defined in the Plan Support Agreement), which includes the Plan of Reorganization. The Bankruptcy Court approved the Debtors' entry into the Plan Support Agreement in September 2015.


6


In May 2016, certain first lien creditors of TCEH (the Required TCEH First Lien Creditors) delivered a Plan Support Termination Notice to the Debtors and the other parties to the Plan Support Agreement notifying such parties of the occurrence of a Plan Support Termination Event pursuant to Section 11(g) of the Plan Support Agreement. The Plan Support Termination Notice stated that the Plan Support Outside Date can only be extended beyond April 30, 2016 if: (i) all required approvals from the PUCT with respect to the consummation of the Terminated Plan had been obtained before such date, or (ii) the Required Investor Parties (as defined in the Plan Support Agreement) submit a written request, which is received by the Required TCEH First Lien Creditors no later than April 30, 2016, to extend the Plan Support Outside Date for thirty days. The Plan Support Termination Notice stated that neither of the foregoing extensions had been triggered as of the date of the Plan Support Termination Notice. The delivery of the Plan Support Termination Notice caused the Terminated Plan to become null and void. The delivery of the Plan Support Termination Notice does not terminate the obligations of certain of the parties thereto to not object to or interfere with an Alternative Restructuring (including the Plan of Reorganization), subject to certain conditions.

The parties' obligations with respect to such Alternative Restructuring, which remain in effect, 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 of reorganization contemplating an Alternative Restructuring, such as the Plan of Reorganization, 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 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 remains effective, notwithstanding the termination of the Terminated Plan. The Bankruptcy Court approved the Settlement Agreement in December 2015.

Termination of 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. (together with OV1, the Purchasers), which are controlled by a consortium (collectively, the Investor Group) consisting of certain TCEH creditors, an affiliate of Hunt Consolidated, Inc. and certain other investors designated by Hunt Consolidated, Inc., pursuant to which the Purchasers agreed to acquire Reorganized EFH. In May 2016, following receipt of the Plan Support Termination Notice described above, EFH Corp. and EFIH delivered a written notice to the Purchasers terminating the Merger and Purchase Agreement due to the occurrence of a Plan Support Termination Event under the Plan Support Agreement. EFH Corp. and EFIH are entitled to reimbursement by the Purchasers of certain fees and expenses incurred by EFH Corp. and EFIH or paid by EFH Corp. or EFIH to, or on behalf of, the Purchasers prior to, and as a result of, the termination of the Merger Agreement.

As a result of the termination of the Merger and Purchase Agreement, each of the (i) equity commitment letter delivered by each member of the Investor Group in favor of EFH Corp., EFIH and the Purchasers in connection with the execution of the Merger and Purchase Agreement and (ii) Backstop Agreement (Backstop Agreement) between EFH Corp. and EFIH and certain investors named therein and their permitted assignees (Backstop Purchasers) and OV1, pursuant to which the Backstop Purchasers agreed to backstop approximately $5.087 billion of equity rights offered to certain holders of claims against the Debtors, automatically terminated.

Texas Transmission Acquisition

EFH Corp. instituted an adversary proceeding in the Bankruptcy Court to enforce certain rights against Texas Transmission under the Investor Rights Agreement, dated November 2008 among Oncor and certain of its direct and indirect equity holders, including EFH Corp. and Texas Transmission (Investor Rights Agreement), including with respect to Texas Transmission's obligations to participate in a sale of EFH Corp.'s interests in Oncor. In April 2016, the Bankruptcy Court ruled in favor of EFH Corp. in this proceeding (see Note 12).


7


Regulatory Approvals

In May 2016, the TCEH Debtors received approval from the NRC with respect to its change of control application contemplated by the Plan of Reorganization.

Scheduling Matters

The Debtors filed a proposed scheduling order with respect to the Disclosure Statement and the Plan of Reorganization in May 2016. The Bankruptcy Court is scheduled to hold a hearing later in May 2016 to consider the Debtors' scheduling request with respect to the timing of the hearing to consider approval of the Disclosure Statement, confirmation of the Plan of Reorganization and related discovery protocols. The timelines set forth in the proposed scheduling order are subject to revision by the Bankruptcy Court, and may change based on subsequent orders entered by the Bankruptcy Court (on its own, upon the motion of a party, or upon the Debtors' request).

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 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 as a reorganization qualifying for tax-free treatment to the extent of the Reorganized TCEH stock received. 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 10, 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, our ability to complete a Chapter 11 plan of reorganization in a timely manner, including obtaining creditor and Bankruptcy Court approval of such plan, obtaining applicable regulatory approvals required for such plan and our ability to obtain 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.

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.

Since the Petition Date and prior to the applicable bar dates (which have expired), we have received approximately 41,300 filed pre-petition claims, including approximately 30,900 in filed asbestos claims. We have substantially completed the process of reconciling all non-asbestos claims that were filed and have recorded such claims at the expected allowed amount. As of May 9, 2016, approximately 5,700 of those claims have been settled, withdrawn or expunged. We continue to work with creditors regarding certain non-asbestos claims to determine the ultimate amount of the allowed claims. 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 loss as they are resolved. The resolution of such claims could result in material adjustments to our financial statements.

Certain claims filed or reflected in our schedules of assets and liabilities will be resolved on the effective date of the Plan of Reorganization, including certain claims filed by holders of funded debt and contract counterparties. 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.


8


PUCT Approval of Acquisition of Reorganized EFH

In March 2016, the PUCT approved the acquisition of Reorganized EFH contemplated by the Merger and Purchase Agreement. The order approving the acquisition is subject to a number of material conditions and commitments. The PUCT issued the final order related to the acquisition in March 2016. In April 2016, prior to the termination of the Merger and Purchase Agreement, the Investor Group requested a rehearing by the PUCT with respect to certain conditions and commitments set forth in the PUCT's final order. The PUCT will consider the Investor Group's request for a rehearing later in May 2016. We cannot predict the outcome of this request.


3.
PURCHASE OF LA FRONTERA HOLDINGS, LLC

In April 2016, Luminant purchased all of the membership interests in La Frontera Holdings, LLC, the indirect owner of two natural gas fueled generation facilities representing nearly 3,000 MW of capacity located in ERCOT, from La Frontera Ventures, LLC, a subsidiary of NextEra Energy, Inc. The facility in Forney, Texas has a capacity of 1,912 MW and the facility in Paris, Texas has a capacity of 1,076 MW. The aggregate purchase price under the agreement was approximately $1.313 billion, which included the repayment of approximately $950 million of existing project financing indebtedness of La Frontera Holdings, LLC and its subsidiaries at the closing of the transaction, plus approximately $240 million for cash and net working capital subject to final settlement. The purchase price was funded by cash-on-hand and additional borrowings under the TCEH DIP Facility totaling $1.1 billion. The acquired entities are subsidiary guarantors under the TCEH DIP agreement.

We are currently in the process of completing our purchase price allocation for the assets acquired and the liabilities assumed in the acquisition. We will provide the pro forma financial results in our quarterly report on Form 10-Q for the period ending June 30, 2016.


9



4.
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 interests in VIEs 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 $6.086 billion and $6.064 billion at March 31, 2016 and December 31, 2015, 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 23% and 25% of Oncor Holdings' consolidated operating revenues for the three months ended March 31, 2016 and 2015, respectively.

See Note 16 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 $40 million and $74 million for the three months ended March 31, 2016 and 2015, respectively. Distributions may not be paid except to the extent Oncor maintains a required regulatory capital structure as discussed below. At March 31, 2016, $54 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 periodically by the PUCT for ratemaking purposes, which is currently set at 60% debt to 40% equity. At March 31, 2016, Oncor's regulatory capitalization ratio was 59.7% debt to 40.3% 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.


10


Oncor Holdings Financial Statements Condensed statements of consolidated income of Oncor Holdings and its subsidiaries for the three months ended March 31, 2016 and 2015 are presented below:
 
Three Months Ended March 31,
 
2016
 
2015
Operating revenues
$
943

 
$
946

Operation and maintenance expenses
(401
)
 
(380
)
Depreciation and amortization
(211
)
 
(217
)
Taxes other than income taxes
(113
)
 
(111
)
Other income and (deductions) — net
(5
)
 
(1
)
Interest expense and related charges
(84
)
 
(81
)
Income before income taxes
129

 
156

Income tax expense
(51
)
 
(61
)
Net income
78

 
95

Net income attributable to noncontrolling interests
(16
)
 
(20
)
Net income attributable to Oncor Holdings
$
62

 
$
75


Assets and liabilities of Oncor Holdings at March 31, 2016 and December 31, 2015 are presented below:
 
March 31,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
21

 
$
26

Restricted cash
60

 
38

Trade accounts receivable — net
382

 
388

Trade accounts and other receivables from affiliates
101

 
118

Income taxes receivable from EFH Corp.
102

 
107

Inventories
100

 
82

Prepayments and other current assets
100

 
88

Total current assets
866

 
847

Other investments
94

 
97

Property, plant and equipment — net
13,234

 
13,024

Goodwill
4,064

 
4,064

Regulatory assets — net
1,163

 
1,194

Other noncurrent assets
41

 
31

Total assets
$
19,462

 
$
19,257

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
1,054

 
$
840

Long-term debt due currently
41

 
41

Trade accounts payable — nonaffiliates
197

 
150

Income taxes payable to EFH Corp.
24

 
20

Accrued taxes other than income
67

 
181

Accrued interest
67

 
82

Other current liabilities
141

 
144

Total current liabilities
1,591

 
1,458

Accumulated deferred income taxes
2,010

 
1,985

Long-term debt, less amounts due currently
5,648

 
5,646

Other noncurrent liabilities and deferred credits
2,310

 
2,306

Total liabilities
$
11,559

 
$
11,395



11



5.
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
(18,190
)
Balance at March 31, 2016 and December 31, 2015
152


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.

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. Our testing of goodwill for impairment as of March 31, 2015 resulted in an impairment charge totaling $700 million, which we reported in the Competitive Electric segment results.

Identifiable Intangible Assets

Identifiable intangible assets, including amounts that arose in connection with accounting for the Merger, are comprised of the following:
 
 
March 31, 2016
 
December 31, 2015
Identifiable Intangible Asset
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Retail customer relationship
 
$
463

 
$
445

 
$
18

 
$
463

 
$
442

 
$
21

Capitalized in-service software
 
370

 
226

 
144

 
362

 
214

 
148

Other identifiable intangible assets (a)
 
58

 
24

 
34

 
72

 
35

 
37

Total identifiable intangible assets subject to amortization
 
$
891

 
$
695

 
196

 
$
897

 
$
691

 
206

Retail trade name (not subject to amortization)
 
 
 
 
 
955

 
 
 
 
 
955

Mineral interests (not currently subject to amortization)
 
 
 
 
 
5

 
 
 
 
 
5

Total identifiable intangible assets
 
 
 
 
 
$
1,156

 
 
 
 
 
$
1,166

____________
(a)
Includes favorable purchase and sales contracts, environmental allowances and credits and mining development costs. See discussion below regarding impairment charges recorded in the three months ended March 31, 2015 related to other identifiable intangible assets.

At March 31, 2016 and December 31, 2015, 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.


12


Amortization expense related to finite-lived identifiable intangible assets (including the condensed statements of consolidated loss line item) consisted of:
Identifiable Intangible Asset
 
Condensed Statements of Consolidated Loss Line
 
Segment
 
Three Months Ended March 31,
 
 
 
2016
 
2015
Retail customer relationship
 
Depreciation and amortization
 
Competitive Electric
 
$
3

 
$
4

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

 
11

Other identifiable intangible assets
 
Operating revenues/fuel, purchased power costs and delivery fees/depreciation and amortization
 
Competitive Electric
 
3

 
5

Total amortization expense (a)
 
 
 
$
19

 
$
20

____________
(a)
Amounts recorded in depreciation and amortization totaled $18 million and $15 million for the three months ended March 31, 2016 and 2015, respectively.

Intangible Impairments

The impairments of our generation facilities in March 2015 (see Note 7) 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 14). Accordingly, in the three months ended March 31, 2015, we recorded noncash impairment charges of $51 million in our Competitive Electric segment (before deferred income tax benefit) in other deductions (see Note 18) related to our existing environmental allowances and credits intangible asset.

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 (REC) 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 18).

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
2016
 
$
77

2017
 
$
56

2018
 
$
36

2019
 
$
18

2020
 
$
10



13



6.
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. The Plan of Reorganization provides that upon the effective date of the plan the Debtors will reject this agreement. Additionally, under the terms of the Settlement Agreement, no further cash payments among the Debtors will be made in respect of federal income taxes. We have elected to continue to allocate federal income taxes among the entities that are parties to the Federal and State Income Tax Allocation Agreement. The Settlement Agreement did not alter the allocation and payment for state income taxes, which will continue to be settled.

EFH Corp., Oncor Holdings, Oncor and Oncor's minority investors 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 Settlement Agreement had no impact on the tax sharing agreement among EFH, Oncor Holdings and Oncor.

The calculation of our effective tax rate is as follows:
 
Three Months Ended March 31,
 
2016
 
2015
Loss before income taxes and equity in earnings of unconsolidated subsidiaries
$
(437
)
 
$
(2,003
)
Income tax benefit
$
127

 
$
401

Effective tax rate
29.1
%
 
20.0
%

For the three months ended March 31, 2016, the effective tax rate of 29.1% 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.

For the three months ended March 31, 2015, the effective tax rate of 20.0% 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 5) and nondeductible legal and other professional services costs related to the Chapter 11 Cases, 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 5 and 7).


14



7.
IMPAIRMENT OF LONG-LIVED ASSETS

Impairment of Lignite/Coal Fueled Generation and Mining Assets

We evaluated our generation assets for impairment during March 2015 as a result of an impairment indicator related to the continued decline in forecasted wholesale electricity prices in ERCOT. Our evaluation concluded that an impairment existed, and the carrying value at our Big Brown generation 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 14). 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.

Additional material impairments may occur in the future for our other generation facilities if forward wholesale electricity prices continue to decline or forecasted costs of producing electricity at our generation facilities increase, including increased costs of compliance with new and/or proposed environmental regulations.


8.
INTEREST EXPENSE AND RELATED CHARGES

 
Three Months Ended March 31,
 
2016
 
2015
Interest paid/accrued on debtor-in-possession financing
$
74

 
$
73

Adequate protection amounts paid/accrued
322

 
302

Interest paid/accrued on pre-petition debt (a)
1

 
237

Capitalized interest
(3
)
 
(3
)
Total interest expense and related charges
$
394

 
$
609

____________
(a)
For the three months ended March 31, 2015, amount includes $235 million in post-petition interest related to the EFIH Second Lien Notes (see Note 11). For the three months ended March 31, 2016 and 2015, includes interest paid/accrued on long-term debt not subject to compromise.

Interest expense for the three months ended March 31, 2016 and 2015 reflects interest paid and accrued on debtor-in-possession financing (see Note 10), 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 $1.243 billion net liability related to the TCEH first lien interest rate swaps and natural gas hedging positions terminated shortly after the Bankruptcy Filing (see Note 15), 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 the EFIH Second Lien Notes as approved by the Bankruptcy Court in March 2015 (see Note 11). The interest rate applicable to the adequate protection amounts paid/accrued for the three months ended March 31, 2016 was 4.92% (one-month LIBOR plus 4.50%). 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. In addition, upon completion of the Plan of Reorganization, amounts of adequate protection payments may be re-characterized as payments of principal.


15


The Bankruptcy Code generally restricts payment of interest on pre-petition debt, subject to certain exceptions. The Bankruptcy Court approved post-petition interest payments on the EFIH Second Lien Notes in March 2015 as discussed in Note 11. Additional interest payments may also be made upon approval by the Bankruptcy Court (see Note 12). Other than amounts ordered or approved by the Bankruptcy Court, effective on the Petition Date, we discontinued recording interest expense on outstanding pre-petition debt classified as 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 loss for the three months ended March 31, 2016 and 2015 does not include $336 million and $288 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 March 31, 2016 and 2015, adequate protection paid/accrued presented below excludes $15 million and $14 million, respectively, related to interest paid/accrued on the TCEH first-lien interest rate and commodity hedge claims (see Note 15), as such amounts are not included in contractual interest amounts below.
 
 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 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
 
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.
 
$
11

 
$

 
$

 
$
11

 
$
31

 
$

 
$

 
$
31

EFIH
 
101

 

 

 
101

 
111

 

 
50

 
61

EFCH
 

 

 

 

 
2

 

 

 
2

TCEH
 
531

 
307

 

 
224

 
513

 
288

 

 
225

Eliminations (b)
 

 

 

 

 
(31
)
 

 

 
(31
)
Total
 
$
643

 
$
307

 
$

 
$
336

 
$
626

 
$
288

 
$
50

 
$
288

___________
(a)
For the three months ended March 31, 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 11).
(b)
Represents contractual interest on affiliate debt held by EFH Corp. and EFIH that is classified as LSTC.


9.
REORGANIZATION ITEMS

Expenses and income directly associated with the Chapter 11 Cases are reported separately in the condensed statements of consolidated loss as reorganization items as required by ASC 852, Reorganizations. Reorganization items also include adjustments to reflect the carrying value of LSTC at their estimated allowed claim amounts, as such adjustments are determined. The following table presents reorganization items incurred in the three months ended March 31, 2016 and 2015 as reported in the condensed statements of consolidated loss:
 
Three Months Ended March 31,
 
2016
 
2015
Expenses related to legal advisory and representation services
$
31

 
$
50

Expenses related to other professional consulting and advisory services
24

 
28

Contract claims adjustments
1

 
32

Fees associated with extension of EFIH DIP Facility
14

 

Fees associated with repayment of EFIH Second Lien Notes (Note 11)

 
28

Total reorganization items
$
70

 
$
138



16



10.
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 $1.950 billion (TCEH DIP Revolving Credit Facility) and a term loan facility of up to $1.425 billion (TCEH DIP Term Loan Facility). 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 March 31, 2016 are presented below. In the March 31, 2016 condensed consolidated balance sheet, the borrowings under the TCEH DIP Facility are reported as current liabilities. The maturity date of the TCEH DIP Facility is the earlier of (a) November 2016 or (b) the effective date of any plan of reorganization of TCEH. TCEH's cash collateral order expires sixty days after the date of the Plan Support Termination Notice, provided that the TCEH Debtors do not otherwise cause an event of default under the cash collateral order. The TCEH Debtors are currently in discussions with TCEH first lien creditors regarding the terms of an extension of the cash collateral order. The TCEH DIP Facility must be repaid in full prior to the TCEH Debtors emergence from the Chapter 11 Cases.
 
 
March 31, 2016
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

 

 
139

Total TCEH DIP Facility
 
$
3,375

 
$
1,950

 
$
139

___________
(a)
Facility used for general corporate purposes. No amounts were borrowed at March 31, 2016. 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 March 31, 2016 and December 31, 2015, 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 March 31, 2016, $139 million is reported as cash and cash equivalents and $661 million is reported as restricted cash, which represents the amount of outstanding letters of credit. As discussed in Note 3, the acquisition of La Frontera Holdings, LLC in April 2016 was funded by cash-on-hand and $1.1 billion in additional cash borrowings under the TCEH DIP Revolving Credit Facility. After completing the acquisition, we repaid approximately $230 million of borrowings under the TCEH DIP Revolving Credit Facility utilizing cash acquired in the transaction.

Amounts borrowed under the TCEH DIP Term Loan Facility bear interest based on applicable LIBOR rates, subject to a 0.75% floor, plus 3%. At both March 31, 2016 and December 31, 2015, 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 (including the assets acquired in the La Frontera acquisition), 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 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 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.


17


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. As of March 31, 2016, we are in compliance with this financial covenant. 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. 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 11).

As of March 31, 2016, remaining cash on hand from borrowings under the EFIH DIP Facility, net of fees, totaled approximately $300 million, which was held as cash and cash equivalents. In the March 31, 2016 condensed consolidated balance sheet, the borrowings under the EFIH DIP Facility are reported as current liabilities. In January 2016, the EFIH Debtors paid a $14 million extension fee to extend the maturity date of the EFIH DIP Facility to December 2016. The terms of the EFIH DIP Facility were otherwise unchanged. The EFIH DIP Facility must be repaid in full prior to the EFIH Debtors emergence from the Chapter 11 Cases.

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 March 31, 2016 and December 31, 2015, 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 plan of reorganization, (b) upon the event of the sale of substantially all of EFIH's assets or (c) December 2016.

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.

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 March 31, 2016, 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.


18


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.
 
March 31,
2016
 
December 31,
2015
EFH Corp. (parent entity)
 
 
 
8.82% Non-Debtor Building Financing due semiannually through February 11, 2022
$
33

 
$
35

Unamortized fair value premium (a)
5

 
6

Total EFH Corp.
38

 
41

EFCH
 
 
 
9.58% Fixed Notes due in annual installments through December 4, 2019 (b)
13

 
13

8.254% Fixed Notes due in quarterly installments through December 31, 2021 (b)
23

 
24

Unamortized fair value discount (a)
(2
)
 
(2
)
Total EFCH
34

 
35

TCEH
 
 
 
7.48% Fixed Secured Facility Bonds with amortizing payments through January 2017 (c)
10

 
13

Capital lease obligations
4

 
5

Other
2

 
2

Unamortized discount

 
(1
)
Total TCEH
16

 
19

Total EFH Corp. consolidated
88

 
95

Less amounts due currently
(33
)
 
(35
)
Total long-term debt not subject to compromise
$
55

 
$
60

____________
(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.


19



11.
LIABILITIES SUBJECT TO COMPROMISE (LSTC)

The amounts classified as 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. 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 March 31, 2016 and December 31, 2015:
 
March 31,
2016
 
December 31,
2015
Notes, loans and other debt per the following table
$
35,560

 
$
35,560

Accrued interest on notes, loans and other debt
745

 
745

Net liability under terminated TCEH interest rate swap and natural gas hedging agreements (Note 15)
1,243

 
1,243

Trade accounts payable and other expected allowed claims
238

 
238

Total liabilities subject to compromise
$
37,786

 
$
37,786


Pre-Petition Notes, Loans and Other Debt Reported as LSTC

Amounts presented below represent principal amounts of pre-petition notes, loans and other debt reported as LSTC.
 
March 31,
2016
 
December 31,
2015
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
89

 
89

6.50% Fixed Series Q Senior Notes due November 15, 2024
198

 
198

6.55% Fixed Series R Senior Notes due November 15, 2034
288

 
288

Total EFH Corp.
640

 
640

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

 
322

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

 
1,389

11.25% / 12.25% Senior Toggle Notes due December 1, 2018
1,530

 
1,530

9.75% Fixed Senior Notes due October 15, 2019
2

 
2

Total EFIH
3,243

 
3,243

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

Total EFCH
9

 
9

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
15,691

 
15,691

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
$
1,833

 
$
1,833


20


 
March 31,
2016
 
December 31,
2015
10.25% Fixed Senior Notes due November 1, 2015, Series B
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

Other
1

 
1

Total TCEH
31,668

 
31,668

Total EFH Corp. consolidated notes, loans and other debt
$
35,560

 
$
35,560


TCEH Letter of Credit Facility Activity

Borrowings under the TCEH Letter of Credit Facility have been recorded by TCEH as restricted cash that supports issuances of letters of credit. At both March 31, 2016 and December 31, 2015, the restricted cash related to the pre-petition TCEH Letter of Credit Facility totaled $507 million, and there were no outstanding letters of credit related to the pre-petition TCEH Letter of Credit Facility. Due to the default under the pre-petition TCEH Senior Secured Facilities, the letter of credit capacity is no longer available.

Repayment of EFIH Notes

In March 2015, with the approval of the Bankruptcy Court, EFIH used some of its cash to repay (Repayment) $735 million, including interest at contractual rates, in amounts outstanding under EFIH's pre-petition 11.00% Fixed Senior Secured Second Lien Notes due October 1, 2021 (11.00% Notes) and 11.75% Fixed Senior Secured Second Lien Notes due March 1, 2022 (11.75% Notes) and $15 million in certain fees and expenses of the trustee for such notes. The Repayment resulted in an $84 million reduction in the principal amount of the 11.00% Notes, a $361 million reduction in the principal amount of the 11.75% Notes and the payment of $235 million and $55 million of accrued and unpaid post-petition and pre-petition interest, respectively, at contractual rates. The Repayment required the requisite consent of the lenders under EFIH's DIP Facility. EFIH received such consent from approximately 97% of the lenders under the EFIH DIP Facility in consideration of an aggregate consent fee equal to approximately $13 million.

Information Regarding Significant Pre-Petition Debt

See Note 13 to the Financial Statements in our 2015 Form 10-K for information regarding our pre-petition debt. There have been no changes in pre-petition debt since December 31, 2015.


21



12.
COMMITMENTS AND CONTINGENCIES

Guarantees

We have entered into contracts that contain guarantees to unaffiliated parties that could require performance or payment under certain conditions. Material guarantees are discussed below.

See Notes 10 and 11 for discussion of guarantees and security for certain of our post-petition and pre-petition debt.

Letters of Credit

At March 31, 2016, TCEH had outstanding letters of credit under the TCEH DIP Facility totaling $661 million as follows:

$377 million to support commodity risk management and trading margin requirements in the normal course of business, including over-the-counter and exchange-traded hedging transactions and collateral postings with ERCOT;
$66 million to support executory contracts and insurance agreements;
$55 million to support TCEH's REP financial requirements with the PUCT, and
$163 million for other credit support requirements, including $131 million to support our purchase and sale agreement with La Frontera Holdings, LLC.

The automatic stay under the Bankruptcy Code does not apply to letters of credit issued under the pre-petition credit facility and third parties may draw if the terms of a particular letter of credit so provide.

Litigation

Aurelius Derivative Claim — Aurelius Capital Master, Ltd. and ACP Master, Ltd. (Aurelius) filed a lawsuit in March 2013, amended in May 2013, in the US District Court for the Northern District of Texas (Dallas Division) against EFCH as a nominal defendant and each of the current directors and a former director of EFCH. In the lawsuit, Aurelius, as a creditor under the TCEH Senior Secured Facilities and certain TCEH secured bonds, both of which are guaranteed by EFCH, filed a derivative claim against EFCH and its directors. Aurelius alleged that the directors of EFCH breached their fiduciary duties to EFCH and its creditors, including Aurelius, by permitting TCEH to make certain loans "without collecting fair and reasonably equivalent value." The lawsuit sought recovery for the benefit of EFCH. In January 2014, the district court granted EFCH's and the directors' motion to dismiss and in February 2014 dismissed the lawsuit. Aurelius has appealed the district court's judgment to the US Court of Appeals for the Fifth Circuit (Fifth Circuit Court). The appeal was automatically stayed as a result of the Bankruptcy Filing. We cannot predict the outcome of this proceeding, including the financial effects, if any.

Make-whole Claims — In May 2014, the indenture trustee for the EFIH 10% First Lien Notes initiated litigation in the Bankruptcy Court seeking, among other things, a declaratory judgment that EFIH is obligated to pay a make-whole premium in connection with the cash repayment of the EFIH First Lien Notes and that such make-whole premium is an allowed secured claim, or in the alternative, an allowed secured or unsecured claim for breach of contract (EFIH First Lien Make-whole Claims). The indenture trustee has alleged that the EFIH First Lien Make-whole Claims are valued at approximately $432 million plus reimbursement of expenses. In separate rulings in March and July 2015, the Bankruptcy Court found that no make-whole premium is due with respect to the EFIH 10% First Lien Notes. In February 2016, the US District Court for the District of Delaware affirmed the Bankruptcy Court's rulings. In February 2016, the Indenture Trustee appealed the District Court's ruling to the US Court of Appeals for the Third Circuit. The EFIH Debtors intend to vigorously defend against this appeal. We cannot predict the outcome of this appeal.


22


In June 2014, the indenture trustee for the EFIH Second Lien Notes initiated litigation in the Bankruptcy Court seeking similar relief with respect to the EFIH Second Lien Notes, including among other things, that EFIH is obligated to pay a make-whole premium in connection with any repayment of the EFIH Second Lien Notes and that such make-whole premium would be an allowed secured claim, or in the alternative, an allowed secured or unsecured claim for breach of contract (the EFIH Second Lien Make-whole Claims). If, as of March 31, 2016, the EFIH Second Lien Make-whole Claims were allowed, the amount of such claims would have been approximately $356 million plus reimbursement of expenses. In October 2015, the Bankruptcy Court issued a ruling and order in favor of the EFIH Debtors. The order and ruling found that no make-whole premium is due with respect to the EFIH Second Lien Notes. In April 2016, the US District Court for the District of Delaware issued a ruling and order affirming the Bankruptcy Court's decision. The indenture trustee has appealed that decision to the US Court of Appeals for the Third Circuit, and that court has consolidated the appeal with the appeal filed by the indenture trustee for the EFIH 10% First Lien Notes described above for the purposes of oral argument, if any, and final disposition. The EFIH Debtors intend to vigorously defend against this appeal. We cannot predict the outcome of this appeal.

In July 2015, the EFIH Debtors filed a claim objection with the Bankruptcy Court regarding the EFIH PIK noteholders' claims for a redemption or make-whole premium and post-petition interest at the contract rate under the EFIH PIK Notes. In October 2015, the Bankruptcy Court issued opinions in favor of the EFIH Debtors. One opinion found that no make-whole premium is due with respect to the EFIH PIK Notes. The second opinion found that the EFIH PIK noteholders' allowed claim does not, as a matter of law, include post-petition interest whether at the contract rate or the Federal Judgment Rate. This opinion did find, however, that, in connection with the confirmation of a plan of reorganization, the Bankruptcy Court could, at its discretion, grant post-petition interest as part of the EFIH PIK noteholders' allowed claim under general principals of equity and that such grant could be at the contract rate, the Federal Judgment Rate or any other amount that the Bankruptcy Court determines to be equitable. In November 2015, a majority of the EFIH PIK Noteholders settled their claims contingent on the Terminated Plan becoming effective. These settling noteholders have appealed both of the Bankruptcy Court's rulings to the US District Court for the District of Delaware. Those appeals were stayed pending the effective date of the Terminated Plan. Now that the Terminated Plan is null and void, some or all of these appeals may be revived. Some EFIH PIK Noteholders have not settled their claims. They have appealed the Bankruptcy Court's ruling on post-petition interest to the US District Court for the District of Delaware. That appeal has also been stayed pending an equitable proceeding. The non-settling EFIH PIK Noteholders have also sought to be awarded post-petition interest through an equitable proceeding suggested by the Bankruptcy Court’s second opinion. No briefing schedule has been set for that equitable proceeding. The non-settling EFIH PIK Noteholders' appeal may be revived in connection with an equitable proceeding. The EFIH Debtors intend to vigorously defend against the award of post-petition interest at a rate higher than the Federal Judgment Rate. We cannot predict the outcome of either of these appeals or any equitable proceeding seeking the award of post-petition interest.

In October 2015, EFH Corp. filed a claim objection with the Bankruptcy Court with respect to the EFH Corp. Series P, Q and R Senior Notes (collectively, the EFH Legacy Notes) noteholders' claims for, among other things, make-whole premiums and post-petition interest. If, as of March 31, 2016, a make-whole claim and a post-petition interest claim were allowed, such claims would be $235 million and $77 million, respectively. In October 2015, the indenture trustee for the EFH Legacy Notes filed a response to this claim objection. No argument date has been set by the Bankruptcy Court regarding the EFH Legacy Notes claim objection. In November 2015, these claims were settled contingent on the Terminated Plan becoming effective. Now that the Terminated Plan is null and void, the claims related to the EFH Legacy Notes may be revived. In that case, EFH Corp. would vigorously pursue its claim objection. We cannot predict the outcome of this proceeding.

In October 2015, EFH Corp. filed a claim objection with the Bankruptcy Court with respect to the EFH Corp. 10.875% Senior Notes and 11.25%/12% Senior Toggle Notes (collectively, the EFH LBO Notes) noteholders' claims for, among other things, optional redemption payment and post-petition interest. If, as of March 31, 2016, a redemption claim and a post-petition interest claim were allowed, such claims would be zero and $15 million, respectively. The indenture trustee for the EFH LBO Notes has not yet filed a response to this claim objection. No argument date has been set by the Bankruptcy Court regarding the EFH LBO Notes claim objection. In November 2015, these claims were settled contingent on the Terminated Plan becoming effective. Now that the Terminated Plan is null and void, the claims related to the EFH LBO Notes may be revived. In that case, EFH Corp. would vigorously pursue its claim objection. We cannot predict the outcome of this proceeding.

In addition, creditors may make additional claims in the Chapter 11 Cases for make-whole or redemption premiums in connection with repayments or settlement of other pre-petition debt. These claims could be material. There can be no assurance regarding the outcome of any of the litigation regarding the validity or, if deemed valid, the amount of these make-whole or redemption claims.


23


Adversary Complaint against Texas Transmission — In October 2015, EFH Corp. filed with the Bankruptcy Court an adversary complaint against Texas Transmission seeking a judgment from the Bankruptcy Court regarding the obligations of Texas Transmission under the Investor Rights Agreement to participate in a sale of EFH Corp.'s interests in Oncor. In April 2016, the Bankruptcy Court announced it would approve EFH Corp. and the Purchasers' motion for summary judgment in full and denied Texas Transmission's motion for a determination that the court lacks authority to enter a final judgment or order in the proceeding. A written opinion and order regarding these rulings is pending.

Litigation Related to EPA Reviews In June 2008, the EPA issued an initial request for information to TCEH under the EPA's authority under Section 114 of the Clean Air Act (CAA). The stated purpose of the request is to obtain information necessary to determine compliance with the CAA, including New Source Review Standards and air permits issued by the TCEQ for the Big Brown, Monticello and Martin Lake generation facilities. In April 2013, we received an additional information request from the EPA under Section 114 related to the Big Brown, Martin Lake and Monticello facilities as well as an initial information request related to the Sandow 4 generation facility.

In July 2012, the EPA sent us a notice of violation alleging noncompliance with the CAA's New Source Review Standards and the air permits at our Martin Lake and Big Brown generation facilities. In July 2013, the EPA sent us a second notice of violation alleging noncompliance with the CAA's New Source Review Standards at our Martin Lake and Big Brown generation facilities, which the EPA said "superseded" its July 2012 notice. In August 2013, the US Department of Justice, acting as the attorneys for the EPA, filed a civil enforcement lawsuit against Luminant Generation Company LLC and Big Brown Power Company LLC in federal district court in Dallas, alleging violations of the CAA at our Big Brown and Martin Lake generation facilities. In August 2015, the district court issued its ruling on our motion to dismiss and granted the motion as to seven of the nine claims asserted by the EPA in the lawsuit. Two claims remain before the district court, and those are currently scheduled for trial in October 2017. We believe that we have complied with all requirements of the CAA and intend to vigorously defend against the remaining allegations. The lawsuit requests the maximum civil penalties available under the CAA to the government of up to $32,500 to $37,500 per day for each alleged violation, depending on the date of the alleged violation, and injunctive relief, including an order requiring the installation of best available control technology at the affected units. An adverse outcome could require substantial capital expenditures that cannot be determined at this time and could possibly require the payment of substantial penalties. We cannot predict the outcome of these proceedings, including the financial effects, if any.

Greenhouse Gas Emissions

In August 2015, the EPA finalized rules to address greenhouse gas (GHG) emissions from new, modified and reconstructed units, and existing electricity generation plants. The rule for existing facilities would establish state-specific emissions rate goals to reduce nationwide carbon dioxide emissions related to affected electricity generation units by over 30% from 2012 emission levels by 2030. A number of parties, including Luminant, filed petitions for review in the US Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) for the rule for new, modified and reconstructed plants. In addition, a number of petitions for review of the rule for existing plants were filed in the D.C. Circuit Court by various parties and groups, including challenges from twenty-seven different states opposed to the rule as well as those from, among others, certain power generating companies, various business groups and some labor unions. Luminant also filed its own petition for review. In addition, several parties have filed motions to stay the implementation of the rule while the court reviews the legality of the rule for existing units. In January 2016, the D.C. Circuit Court denied the motion to stay and ordered an expedited briefing on the merits. Oral argument is scheduled for June 2016. In January 2016, a coalition of states, industry (including Luminant) and other parties filed applications with the US Supreme Court asking that the court stay the rule. In February 2016, the US Supreme Court stayed the rule pending the conclusion of legal challenges on the rule before the D.C. Circuit Court and until the US Supreme Court disposes of any subsequent petition for review. While we cannot predict the outcome of this rulemaking and legal proceedings on our results of operations, liquidity or financial condition, the impacts could be material.

In August 2015, the EPA proposed model rules and federal plan requirements for states to consider as they develop state plans to comply with the rules for GHG emissions. A federal plan would then be finalized for a state if a state fails to submit a state plan by the deadlines established in the CAA for existing plants or if the EPA disapproves a submitted state plan. We filed comments on the federal plan proposal in January 2016. The EPA is expected to finalize the model rule by the summer of 2016. While we cannot predict the outcome of this rulemaking and legal proceedings on our results of operations, liquidity or financial condition, the impacts could be material.


24


Cross-State Air Pollution Rule (CSAPR)

In July 2011, the EPA issued the CSAPR, compliance with which would have required significant additional reductions of sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions from our fossil fueled generation units. In February 2012, the EPA released a final rule (Final Revisions) and a proposed rule revising certain aspects of the CSAPR, including increases in the emissions budgets for Texas and our generation assets as compared to the July 2011 version of the rule. In June 2012, the EPA finalized the proposed rule (Second Revised Rule). As compared to the proposed revisions to the CSAPR issued by the EPA in October 2011, the Final Revisions and the Second Revised Rule finalize emissions budgets for our generation assets that are approximately 6% lower for SO2, 3% higher for annual NOx and 2% higher for seasonal NOx.

The CSAPR became effective January 1, 2015. In July 2015, following a remand of the case from the US Supreme Court to consider further legal challenges, the D.C. Circuit Court unanimously ruled in favor of us and other petitioners, holding that the CSAPR emissions budgets over-controlled Texas and other states. The D.C. Circuit Court remanded those states' budgets to the EPA for prompt reconsideration. While we planned to participate in the EPA's reconsideration process to develop increased budgets that do not over-control Texas, the EPA instead responded to the remand by updating the NOX ozone season budget for the 2008 ozone standard with a new rulemaking without explicitly addressing the issues of over-control of the 1997 standard. Comments on the EPA's proposal were submitted by Luminant in February 2016. While we cannot predict the outcome of future proceedings related to the CSAPR, including the EPA's reconsideration of the CSAPR annual emissions budgets for affected states, based upon our current operating plans we do not believe that the CSAPR will cause any material operational, financial or compliance issues.

Regional Haze

The Regional Haze Program of the CAA establishes "as a national goal the prevention of any future, and the remedying of any existing, impairment of visibility in mandatory Class I federal areas, like national parks, which impairment results from man-made pollution." There are two components to the Regional Haze Program. First, states must establish goals for reasonable progress for Class I federal areas within the state and establish long-term strategies to reach those goals and to assist Class I federal areas in neighboring states to achieve reasonable progress set by those states towards a goal of natural visibility by 2064. Second, electricity generation units built between 1962 and 1977 are subject to best available retrofit technology (BART) standards designed to improve visibility. BART reductions of SO2 and NOX are required either on a unit-by-unit basis or are deemed satisfied by state participation in an EPA-approved regional trading program such as the CSAPR. In February 2009, the TCEQ submitted a State Implementation Plan (SIP) concerning regional haze (Regional Haze SIP) to the EPA. In December 2011, the EPA proposed a limited disapproval of the Regional Haze SIP due to its reliance on the Clean Air Interstate Rule (CAIR) instead of the EPA's replacement CSAPR program. In August 2012, we filed a petition for review in the Fifth Circuit Court challenging the EPA's limited disapproval of the Regional Haze SIP on the grounds that the CAIR continued in effect pending the D.C. Circuit Court's decision in the CSAPR litigation. In September 2012, we filed a petition to intervene in a case filed by industry groups and other states and private parties in the D.C. Circuit Court challenging the EPA's limited disapproval and issuance of a Federal Implementation Plan (FIP) regarding the regional haze BART program. The Fifth Circuit Court case has since been transferred to the D.C. Circuit Court and consolidated with other pending BART program regional haze appeals. No schedule has been set in the consolidated cases now in the D.C. Circuit Court.

In response to a lawsuit by environmental groups, the D.C. Circuit Court issued a consent decree in March 2012 that required the EPA to propose a decision on the Regional Haze SIP by May 2012 and finalize that decision by November 2012. The consent decree requires a FIP for any provisions that the EPA disapproves. The D.C. Circuit Court has amended the consent decree several times to extend the dates for the EPA to propose and finalize a decision on the Regional Haze SIP. The consent decree was modified in December 2015 to extend the deadline for the EPA to finalize action on the determination and adoption of requirements for BART for electricity generation. Under the amended consent decree the EPA has until December 2016 to finalize a FIP for BART for Texas electricity generation sources, if the EPA determines that BART requirements have not been met.


25


In June 2014, the EPA issued requests for information under Section 114 of the CAA to Luminant and other generators in Texas. After releasing a proposed rule in November 2014 and receiving comments from a number of parties, including Luminant and the State of Texas in April 2015, the EPA released a final rule in January 2016 approving in part and disapproving in part Texas' SIP for Regional Haze and issuing a FIP for Regional Haze. In the rule, the EPA asserts that the Texas SIP does not show reasonable progress in improving visibility for two areas in Texas and that its long-term strategy fails to make emission reductions needed to achieve reasonable progress in improving visibility in the Wichita Mountains of Oklahoma. Unlike the proposed rule and inconsistent with how the EPA has applied Regional Haze rules to other states, the EPA's final rule does not treat Texas's compliance with the CSAPR as satisfying its obligations under the BART portion of the Regional Haze Program. The EPA concluded that it would not be appropriate to finalize that determination at this time given the remand of the CSAPR budgets. In our view, the EPA's proposed FIP for Texas goes beyond the requirements of the CSAPR and sets emission limits on a unit-by-unit basis for 15 electricity generation units in Texas. The EPA's proposed emission limits assume additional control equipment for specific coal fueled generation units across Texas, including new flue gas desulfurization systems (scrubbers) at seven generation units and upgrades to existing scrubbers at seven generation units. Specifically for Luminant, the EPA's emission limitations are based on new scrubbers at Big Brown Units 1 and 2 and Monticello Units 1 and 2 and scrubber upgrades at Martin Lake Units 1, 2 and 3, Monticello Unit 3 and Sandow Unit 4. Luminant is continuing to evaluate the requirements and potential financial and operational impacts of the rule, but new scrubbers at the Big Brown and Monticello units necessary to achieve the emission limits required by the FIP (if those limits are possible to attain), along with the existence of low wholesale power prices in ERCOT, would likely challenge the long-term economic viability of those units. The scrubber upgrades will be required by February 2019, and the new scrubbers will be required by February 2021. In March 2016, Luminant and a number of other parties, including the State of Texas, filed petitions for review in the US Fifth Circuit Court challenging the FIP on Texas. Luminant and other parties also filed motions to stay the FIP while the court reviews the legality of the EPA's action. While we cannot predict the outcome of the rulemaking and legal proceedings, the result may have a material impact on our results of operations, liquidity or financial condition.

State Implementation Plan (SIP)

In February 2013, in response to a petition for rulemaking filed by the Sierra Club, the EPA proposed a rule requiring certain states to replace SIP exemptions for excess emissions during malfunctions with an affirmative defense. Texas was not included in that original proposal since it already had an EPA-approved affirmative defense provision in its SIP. In 2014, as a result of a D.C. Circuit Court decision striking down an affirmative defense in another EPA rule, the EPA revised its 2013 proposal to extend the EPA's proposed findings of inadequacy to states that have affirmative defense provisions, including Texas. The EPA's revised proposal would require Texas to remove or replace its EPA-approved affirmative defense provisions for excess emissions during startup, shutdown and maintenance events. In May 2015, the EPA finalized the proposal. In June 2015, we filed a petition for review in the Fifth Circuit Court challenging certain aspects of the EPA's final rule as they apply to the Texas SIP. The State of Texas and other parties have also filed similar petitions in the Fifth Circuit Court. In August 2015, the Fifth Circuit Court transferred the petitions that Luminant and other parties filed to the D.C. Circuit Court, and in October 2015 the petitions were consolidated with the pending petitions challenging the EPA's action in the D.C. Circuit Court. Briefing in the D.C. Circuit Court on the challenges is scheduled to be completed by October 2016. We cannot predict the timing or outcome of this proceeding.

In June 2014, the Sierra Club filed a petition in the D.C. Circuit Court seeking review of several EPA regulations containing affirmative defenses for malfunctions, including the Mercury and Air Toxics Standard (MATS) rule for power plants. In the petition, the Sierra Club contends this affirmative defense is no longer permissible in light of a D.C. Circuit Court decision regarding similar defenses applicable to the cement industry. Luminant filed a motion to intervene in this case. In July 2014, the D.C. Circuit Court ordered the case stayed pending the EPA's consideration of a petition for administrative reconsideration of the regulations at issue. In December 2014, the EPA signed a proposal to make technical corrections to the MATS rule. We filed comments on this proposal in April 2015. In March 2016, the EPA finalized the MATS technical corrections, including the removal of affirmative defense for malfunctions. Except as set forth above, we cannot predict the timing or outcome of future proceedings related to this petition, the petition for administrative reconsideration that is pending before the EPA or the financial effects of these proceedings, if any.

Other Matters

We are involved in various legal and administrative proceedings in the normal course of business, the ultimate resolutions of which, in the opinion of management, are not anticipated to have a material effect on our results of operations, liquidity or financial condition.


26



13.
EQUITY

EFH Corp. has not declared or paid any dividends since the Merger. The agreement governing the TCEH DIP Facility generally restricts TCEH's ability to make distributions or loans to any of its parent companies or their subsidiaries unless such distributions or loans are expressly permitted under the agreement governing such facility. The agreement governing the EFIH DIP Facility generally restricts EFIH's ability to make distributions or loans to any of its parent companies or their subsidiaries unless such distributions or loans are expressly permitted under the agreement governing such facility.

Under applicable law, we are prohibited from paying any dividend to the extent that immediately following payment of such dividend, there would be no statutory surplus or we would be insolvent. In addition, due to the Chapter 11 Cases, no dividends are eligible to be paid without the approval of the Bankruptcy Court.

Equity

The following table presents the changes to equity for the three months ended March 31, 2016:
 
EFH Corp. Shareholders’ Equity
 
 
 
Common Stock (a)
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated Other Comprehensive Loss
 
Total Equity
Balance at December 31, 2015
$
2

 
$
7,968

 
$
(32,905
)
 
$
(126
)
 
$
(25,061
)
Net loss

 

 
(248
)
 

 
(248
)
Change in unrecognized losses related to pension and OPEB plans

 

 

 
(1
)
 
(1
)
Balance at March 31, 2016
$
2

 
$
7,968

 
$
(33,153
)
 
$
(127
)
 
$
(25,310
)
________________
(a)
Authorized shares totaled 2,000,000,000 at March 31, 2016. Outstanding shares totaled 1,669,861,379 at both March 31, 2016 and December 31, 2015.

The following table presents the changes to equity for the three months ended March 31, 2015:
 
EFH Corp. Shareholders’ Equity
 
 
 
Common Stock (a)
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated Other Comprehensive Loss
 
Total Equity
Balance at December 31, 2014
$
2

 
$
7,968

 
$
(27,563
)
 
$
(130
)
 
$
(19,723
)
Net loss

 

 
(1,527
)
 

 
(1,527
)
Change in unrecognized losses related to pension and OPEB plans

 

 

 
(2
)
 
(2
)
Net effects of cash flow hedges

 

 

 
1

 
1

Net effects related to Oncor

 

 

 
1

 
1

Balance at March 31, 2015
$
2

 
$
7,968

 
$
(29,090
)
 
$
(130
)
 
$
(21,250
)
________________
(a)
Authorized shares totaled 2,000,000,000 at March 31, 2015. Outstanding shares totaled 1,669,861,379 at both March 31, 2015 and December 31, 2014.


27


Accumulated Other Comprehensive Loss

The following table presents the changes to accumulated other comprehensive income (loss) for the three months ended March 31, 2016. There was no other comprehensive income (loss) before reclassification for the period.
 
Dedesignated Cash Flow Hedges – Interest Rate Swaps (Note 15)
 
Pension and Other Postretirement Employee Benefit Liabilities Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2015
$
(50
)
 
$
(76
)
 
$
(126
)
Amounts reclassified from accumulated other comprehensive loss and reported in:
 
 
 
 
 
Operating costs

 
(1
)
 
(1
)
Selling, general and administrative expenses

 
(1
)
 
(1
)
Income tax benefit (expense)

 
1

 
1

Total amount reclassified from accumulated other comprehensive loss during the period

 
(1
)
 
(1
)
Balance at March 31, 2016
$
(50
)
 
$
(77
)
 
$
(127
)

The following table presents the changes to accumulated other comprehensive income (loss) for the three months ended March 31, 2015. There was no other comprehensive income (loss) before reclassification for the period.
 
Dedesignated Cash Flow Hedges – Interest Rate Swaps (Note 15)
 
Pension and Other Postretirement Employee Benefit Liabilities Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014
$
(53
)
 
$
(77
)
 
$
(130
)
Amounts reclassified from accumulated other comprehensive loss and reported in:
 
 
 
 
 
Operating costs

 
(1
)
 
(1
)
Depreciation and amortization
1

 

 
1

Selling, general and administrative expenses

 
(1
)
 
(1
)
Equity in earnings of unconsolidated subsidiaries (net of tax)
1

 

 
1

Total amount reclassified from accumulated other comprehensive loss during the period
2

 
(2
)
 

Balance at March 31, 2015
$
(51
)
 
$
(79
)
 
$
(130
)


14.
FAIR VALUE MEASUREMENTS

Accounting standards related to the determination of fair value define fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants at the measurement date. We use a mid-market valuation convention (the mid-point price between bid and ask prices) as a practical expedient to measure fair value for the majority of our assets and liabilities subject to fair value measurement on a recurring basis. We primarily use the market approach for recurring fair value measurements and use valuation techniques to maximize the use of observable inputs and minimize the use of unobservable inputs.


28


We categorize our assets and liabilities recorded at fair value based upon the following fair value hierarchy:

Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 assets and liabilities include exchange-traded commodity contracts. For example, some of our derivatives are NYMEX or ICE futures and swaps transacted through clearing brokers for which prices are actively quoted.

Level 2 valuations use inputs that, in the absence of actively quoted market prices, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical or similar assets or liabilities in markets that are not active, (c) inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves observable at commonly quoted intervals and (d) inputs that are derived principally from or corroborated by observable market data by correlation or other mathematical means. Our Level 2 valuations utilize over-the-counter broker quotes, quoted prices for similar assets or liabilities that are corroborated by correlations or other mathematical means, and other valuation inputs. For example, our Level 2 assets and liabilities include forward commodity positions at locations for which over-the-counter broker quotes are available.

Level 3 valuations use unobservable inputs for the asset or liability. Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. We use the most meaningful information available from the market combined with internally developed valuation methodologies to develop our best estimate of fair value. For example, our Level 3 assets and liabilities include certain derivatives with values derived from pricing models that utilize multiple inputs to the valuations, including inputs that are not observable or easily corroborated through other means. See further discussion below.

Our valuation policies and procedures are developed, maintained and validated by a centralized risk management group that reports to the Chief Financial Officer, who also functions as the Chief Risk Officer. Risk management functions include commodity price reporting and validation, valuation model validation, risk analytics, risk control, credit risk management and risk reporting.

We utilize several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those items that are measured on a recurring basis. These methods include, among others, the use of broker quotes and statistical relationships between different price curves.

In utilizing broker quotes, we attempt to obtain multiple quotes from brokers (generally non-binding) that are active in the commodity markets in which we participate (and require at least one quote from two brokers to determine a pricing input as observable); however, not all pricing inputs are quoted by brokers. The number of broker quotes received for certain pricing inputs varies depending on the depth of the trading market, each individual broker's publication policy, recent trading volume trends and various other factors.

Probable loss from default by either us or our counterparties is considered in determining the fair value of derivative assets and liabilities. These non-performance risk adjustments take into consideration credit enhancements and the credit risks associated with our credit standing and the credit standing of our counterparties (see Note 15 for additional information regarding credit risk associated with our derivatives). We utilize published credit ratings and default rate factors in calculating these fair value measurement adjustments.

Certain derivatives and financial instruments are valued utilizing option pricing models that take into consideration multiple inputs including, but not limited to, commodity prices, volatility factors, discount rates and other market based factors. Additionally, when there is not a sufficient amount of observable market data, valuation models are developed that incorporate proprietary views of market factors. Significant unobservable inputs used to develop the valuation models include volatility curves, correlation curves, illiquid pricing locations and credit/non-performance risk assumptions. Those valuation models are generally used in developing long-term forward price curves for certain commodities. We believe the development of such curves is consistent with industry practice; however, the fair value measurements resulting from such curves are classified as Level 3.

The significant unobservable inputs and valuation models are developed by employees trained and experienced in market operations and fair value measurements and validated by the company's risk management group, which also further analyzes any significant changes in Level 3 measurements. Significant changes in the unobservable inputs could result in significant upward or downward changes in the fair value measurement.


29


With respect to amounts presented in the following fair value hierarchy tables, the fair value measurement of an asset or liability (e.g., a contract) is required to fall in its entirety in one level, based on the lowest level input that is significant to the fair value measurement. Certain assets and liabilities would be classified in Level 2 instead of Level 3 of the hierarchy except for the effects of credit reserves and non-performance risk adjustments, respectively. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability being measured.

Assets and liabilities measured at fair value on a recurring basis consisted of the following:
March 31, 2016
 
Level 1
 
Level 2
 
Level 3 (a)
 
Reclassification (b)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
407

 
$
51

 
$
55

 
$
4

 
$
517

Nuclear decommissioning trust –
equity securities (c)
385

 

 

 

 
385

Nuclear decommissioning trust –
debt securities (c)

 
332

 

 

 
332

Sub-total
$
792

 
$
383

 
$
55

 
$
4

 
1,234

Assets measured at net asset value (d):
 
 
 
 
 
 
 
 
 
Nuclear decommissioning trust –
equity securities (c)
 
 
 
 
 
 
 
 
223

Total assets
 
 
 
 
 
 
 
 
$
1,457

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
118

 
$
121

 
$
30

 
$
4

 
$
273

Total liabilities
$
118

 
$
121

 
$
30

 
$
4

 
$
273


December 31, 2015
 
Level 1
 
Level 2
 
Level 3 (a)
 
Reclassification (b)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
385

 
$
41

 
$
49

 
$

 
$
475

Nuclear decommissioning trust –
equity securities (c)
380

 
219

 

 

 
599

Nuclear decommissioning trust –
debt securities (c)

 
319

 

 

 
319

Total assets
$
765

 
$
579

 
$
49

 
$

 
$
1,393

Liabilities:
 
 
 
 
 
 
 
 
 
Commodity contracts
$
128

 
$
64

 
$
12

 
$

 
$
204

Total liabilities
$
128

 
$
64

 
$
12

 
$

 
$
204

____________
(a)
See table below for description of Level 3 assets and liabilities.
(b)
Fair values are determined on a contract basis, but certain contracts result in a current asset and a noncurrent liability, or vice versa, as presented in the condensed consolidated balance sheets.
(c)
The nuclear decommissioning trust investment is included in the other investments line in the condensed consolidated balance sheets. See Note 18.
(d)
Certain investments measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. This presentation is only allowed for periods beginning after December 15, 2015. The fair value amounts presented in this line are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets.

Commodity contracts consist primarily of natural gas, electricity, fuel oil, uranium and coal agreements and include financial instruments entered into for hedging purposes as well as physical contracts that have not been designated normal purchases or sales. See Note 15 for further discussion regarding derivative instruments.


30


Nuclear decommissioning trust assets represent securities held for the purpose of funding the future retirement and decommissioning of our nuclear generation facility. These investments include equity, debt and other fixed-income securities consistent with investment rules established by the NRC and the PUCT.

The following tables present the fair value of the Level 3 assets and liabilities by major contract type and the significant unobservable inputs used in the valuations at March 31, 2016 and December 31, 2015:
March 31, 2016
 
 
Fair Value
 
 
 
 
 
 
Contract Type (a)
 
Assets
 
Liabilities
 
Total
 
Valuation Technique
 
Significant Unobservable Input
 
Range (b)
Electricity purchases and sales
 
$
1

 
$
(4
)
 
$
(3
)
 
Valuation Model
 
Hourly price curve shape (d)
 
$0 to $50/ MWh
Electricity spread options
 
13

 
(23
)
 
(10
)
 
Option Pricing Model
 
Gas to power correlation (e)
 
15% to 45%