Attached files

file filename
EX-2.B - FOURTH AMENDED JOINT PLAN OF REORGANIZATION OF EFH CORP., ET AL. - Energy Future Holdings Corp /TX/efh-2016930xexhibit2b.htm
EX-99.A - TWELVE MONTHS ENDED SEPTEMBER 30, 2016 STATEMENT OF INCOME - Energy Future Holdings Corp /TX/efh-2016930xexhibit99a.htm
EX-95.A - MINE SAFETY DISCLOSURES - Energy Future Holdings Corp /TX/efh-2016930xexhibit95a.htm
EX-32.B - CERTIFICATION OF ANTHONY R. HORTON - Energy Future Holdings Corp /TX/efh-2016930xexhibit32b.htm
EX-32.A - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2016930xexhibit32a.htm
EX-31.B - CERTIFICATION OF ANTHONY R. HORTON - Energy Future Holdings Corp /TX/efh-2016930xexhibit31b.htm
EX-31.A - CERFITICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2016930xexhibit31a.htm



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

 


FORM 10-Q


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


FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 1, 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
 
prior to the Effective Date, the EFH Corp. business segment that consisted principally of TCEH
 
 
 
Contributed EFH Debtors
 
certain EFH Debtors that became subsidiaries of Reorganized TCEH on the Effective Date
 
 
 
CSAPR
 
the final Cross-State Air Pollution Rule issued by the EPA in July 2011
 
 
 
DIP Facilities
 
Refers, collectively, to the TCEH DIP Roll Facilities, the TCEH DIP Facility and the EFIH DIP Facility. See Note 10 to the Financial Statements.
 
 
 
Debtors
 
EFH Corp. and the majority of its direct and indirect subsidiaries, including EFIH, EFCH and TCEH but excluding the Oncor Ring-Fenced Entities. Prior to the Effective Date, also included the TCEH Debtors and the Contributed EFH Debtors.
 
 
 
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 August 2016
 
 
 
D.C. Circuit Court
 
US Court of Appeals for the District of Columbia Circuit
 
 
 
Effective Date
 
October 3, 2016, the date the TCEH Debtors and the Contributed EFH Debtors completed their reorganization under the Bankruptcy Code and emerged from the Chapter 11 Cases
 
 
 
EFCH
 
Energy Future Competitive Holdings Company LLC, a direct, wholly owned subsidiary of EFH Corp. and, prior to the Effective Date, the indirect parent of the TCEH Debtors, depending on context
 
 
 
EFH Corp.
 
Energy Future Holdings Corp. and/or its subsidiaries, depending on context, whose major subsidiaries include Oncor and, prior to the Effective Date, included the TCEH Debtors and the Contributed EFH Debtors
 
 
 
EFH Debtors
 
EFH Corp. and its subsidiaries that are Debtors in the Chapter 11 Cases, including the EFIH Debtors, but excluding the TCEH Debtors and the Contributed EFH Debtors
 
 
 
EFH Debtors Plan Support Agreement
 
Agreement to support the reorganization of the EFH Debtors pursuant to the Plan of Reorganization entered into in September 2016 by the EFH Debtors and affiliates of NextEra Energy Inc. and approved by the Bankruptcy Court in September 2016
 
 
 
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 $5.475 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 PIK Notes
 
EFIH's and EFIH Finance's $1.530 billion principal amount of 11.25%/12.25% Senior Toggle Notes
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
 
 
 
EPA
 
US Environmental Protection Agency
 
 
 

ii


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
 
Prior to the Effective Date, EFH Corp. and certain of its subsidiaries (including EFCH, EFIH and TCEH, but not including Oncor Holdings and Oncor) were parties to a Federal and State Income Tax Allocation Agreement, executed in May 2012 but effective as of January 2010. The Agreement was rejected by the TCEH Debtors and the Contributed EFH Debtors on the Effective Date. 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 Reorganized 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., that is engaged in regulated electricity transmission and distribution activities
 
 
 
Oncor Holdings
 
Oncor Electric Delivery Holdings Company LLC, a direct, wholly owned subsidiary of EFIH and the direct majority owner of Oncor, and/or its subsidiaries, depending on context
 
 
 

iii


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
 
Fourth Amended Joint Plan of Reorganization filed by the Debtors with the Bankruptcy Court in September 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.
 
 
 
Reorganized TCEH
 
TCEH Corp., and/or its subsidiaries, depending on context. On the Effective Date, the TCEH Debtors and the Contributed EFH Debtors emerged from Chapter 11 and became subsidiaries of TCEH Corp. Subsequent to the Effective Date, TCEH Corp. continued substantially the same operations as TCEH.
 
 
 
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, prior to the Effective Date, the parent company of the TCEH Debtors, depending on context, that were engaged in electricity generation and wholesale and retail energy market activities, and whose major subsidiaries included Luminant and TXU Energy. Subsequent to the Effective Date, TCEH Corp. continued substantially the same operations as TCEH.
TCEH Debtors
 
the subsidiaries of TCEH that were Debtors in the Chapter 11 Cases
 
 
 
TCEH DIP Facility
 
TCEH's $3.375 billion debtor-in-possession financing facility, which was repaid in August 2016. See Note 10 to the Financial Statements.

 
 
 
TCEH DIP Roll Facilities
 
TCEH's $4.250 billion debtor-in-possession to exit 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 Finance, Inc. was dissolved on the Effective Date.
 
 
 

iv


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. The claims arising under these facilities were discharged in the Chapter 11 Cases on the Effective Date pursuant to the Plan of Reorganization.
 
 
 
TCEH Senior Secured Notes
 
TCEH's and TCEH Finance's $1.750 billion principal amount of 11.5% First Lien Senior Secured Notes. The claims arising under these notes were discharged in the Chapter 11 Cases on the Effective Date pursuant to the Plan of Reorganization.
 
 
 
TCEQ
 
Texas Commission on Environmental Quality
 
 
 
Texas Holdings
 
Texas Energy Future Holdings Limited Partnership, a limited partnership controlled by the Sponsor Group, that owns substantially all of the common stock of EFH Corp.
 
 
 
Texas Holdings Group
 
Texas Holdings and its direct and indirect subsidiaries other than the Oncor Ring-Fenced Entities
 
 
 
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 Reorganized TCEH that is a REP in competitive areas of ERCOT and is engaged in the retail sale of electricity to residential and business customers
 
 
 
US
 
United States of America
 
 
 
VIE
 
variable interest entity


v


PART I. FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(millions of dollars)
Operating revenues
$
1,690

 
$
1,737

 
$
3,973

 
$
4,265

Fuel, purchased power costs and delivery fees
(874
)
 
(831
)
 
(2,082
)
 
(2,090
)
Net gain from commodity hedging and trading activities
336

 
103

 
282

 
226

Operating costs
(190
)
 
(189
)
 
(664
)
 
(598
)
Depreciation and amortization
(159
)
 
(203
)
 
(467
)
 
(643
)
Selling, general and administrative expenses
(169
)
 
(192
)
 
(487
)
 
(547
)
Impairment of goodwill (Note 5)

 
(700
)
 

 
(1,400
)
Impairment of long-lived assets (Note 7)

 
(1,295
)
 

 
(1,971
)
Other income (Note 18)
10

 
8

 
32

 
27

Other deductions (Note 18)
(44
)
 
(26
)
 
(92
)
 
(86
)
Interest expense and related charges (Note 8)
(435
)
 
(383
)
 
(1,232
)
 
(1,375
)
Reorganization items (Note 9)
(84
)
 
(68
)
 
(206
)
 
(275
)
Income (loss) before income taxes and equity in earnings of unconsolidated subsidiaries
81

 
(2,039
)
 
(943
)
 
(4,467
)
Income tax benefit (expense) (Note 6)
(42
)
 
452

 
256

 
990

Equity in earnings of unconsolidated subsidiaries (net of tax) (Note 4)
127

 
127

 
274

 
278

Net income (loss)
$
166

 
$
(1,460
)
 
$
(413
)
 
$
(3,199
)

See Notes to the Financial Statements.

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(millions of dollars)
Net income (loss)
$
166

 
$
(1,460
)
 
$
(413
)
 
$
(3,199
)
Other comprehensive income (loss), net of tax effects:
 
 
 
 
 
 
 
Effects related to pension and other retirement benefit obligations (net of tax benefit of $1, $1, $3 and $2)
(2
)
 
(1
)
 
(5
)
 
(3
)
Cash flow hedges derivative value net loss related to hedged transactions recognized during the period (net of tax benefit of $— in all periods)

 

 
1

 
1

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

 
1

 
2

 
2

Total other comprehensive loss
(1
)
 

 
(2
)
 

Comprehensive income (loss)
$
165

 
$
(1,460
)
 
$
(415
)
 
$
(3,199
)

See Notes to the Financial Statements.

1



ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
 
(millions of dollars)
Cash flows — operating activities:
 
 
 
Net loss
$
(413
)
 
$
(3,199
)
Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
Depreciation and amortization
539

 
757

Deferred income tax benefit, net
(215
)
 
(784
)
Impairment of goodwill (Note 5)

 
1,400

Impairment of long-lived assets (Note 7)

 
1,971

Contract claims adjustments (Note 9)
13

 
26

Adjustment to asbestos liability
23

 

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
36

 
(107
)
Equity in earnings of unconsolidated subsidiaries
(274
)
 
(278
)
Distributions of earnings from unconsolidated subsidiaries (Note 4)
135

 
206

Write-off of intangible and other assets (Note 18)
45

 
83

Other, net
64

 
49

Changes in operating assets and liabilities:
 
 
 
Margin deposits, net
(124
)
 
108

Payables due to unconsolidated subsidiary
6

 
(113
)
Other operating assets and liabilities, including liabilities subject to compromise
(177
)
 
(270
)
Cash used in operating activities
(328
)
 
(123
)
Cash flows — financing activities:
 
 
 
Borrowings under TCEH DIP Roll Facilities and TCEH DIP Facility (Note 10)
4,680

 

Repayments/repurchases of debt (Note 10)
(2,699
)
 
(469
)
TCEH DIP Roll Facilities financing fees
(112
)
 

Fees paid on EFIH Second Lien Notes repayment and EFIH DIP Facility (Notes 10 and 11)
(14
)
 
(28
)
Cash provided by (used in) financing activities
1,855

 
(497
)
Cash flows — investing activities:
 
 
 
Capital expenditures
(230
)
 
(261
)
Nuclear fuel purchases
(33
)
 
(77
)
Lamar and Forney acquisition — net of cash acquired (Note 3)
(1,343
)
 

Changes in restricted cash
365

 
33

Proceeds from sales of nuclear decommissioning trust fund securities (Note 18)
201

 
315

Investments in nuclear decommissioning trust fund securities (Note 18)
(215
)
 
(328
)
Other, net
8

 
11

Cash used in investing activities
(1,247
)
 
(307
)
 
 
 
 
Net change in cash and cash equivalents
280

 
(927
)
Cash and cash equivalents — beginning balance
2,286

 
3,428

Cash and cash equivalents — ending balance
$
2,566

 
$
2,501


See Notes to the Financial Statements.

2



ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2016
 
December 31,
2015
 
(millions of dollars)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,566

 
$
2,286

Restricted cash (Note 18)
16

 
524

Trade accounts receivable — net (Note 18)
751

 
533

Inventories (Note 18)
374

 
428

Commodity and other derivative contractual assets (Note 15)
256

 
465

Margin deposits related to commodity contracts
42

 
6

Other current assets
65

 
81

Total current assets
4,070

 
4,323

Restricted cash (Note 18)
650

 
507

Investment in unconsolidated subsidiary (Note 4)
6,204

 
6,064

Other investments (Note 18)
1,061

 
984

Property, plant and equipment — net (Note 18)
10,427

 
9,430

Goodwill (Note 5)
152

 
152

Identifiable intangible assets — net (Note 5)
1,138

 
1,166

Commodity and other derivative contractual assets (Note 15)
72

 
10

Accumulated deferred income taxes
830

 
609

Other noncurrent assets
96

 
85

Total assets
$
24,700

 
$
23,330

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Borrowings under debtor-in-possession credit facilities (Note 10)
$
5,400

 
$
6,825

Long-term debt due currently (Note 10)
9

 
35

Trade accounts payable
418

 
413

Net payables due to unconsolidated subsidiary (Note 16)
210

 
204

Commodity and other derivative contractual liabilities (Note 15)
125

 
203

Margin deposits related to commodity contracts
64

 
152

Accrued taxes
145

 
134

Accrued interest
111

 
121

Other current liabilities
372

 
425

Total current liabilities
6,854

 
8,512

Borrowings under debtor-in-possession credit facilities (Note 10)
3,387

 

Long-term debt, less amounts due currently (Note 10)
31

 
60

Liabilities subject to compromise (Note 11)
37,815

 
37,786

Commodity and other derivative contractual liabilities (Note 15)
5

 
1

Other noncurrent liabilities and deferred credits (Note 18)
2,084

 
2,032

Total liabilities
50,176

 
48,391

Commitments and Contingencies (Note 12)


 


Total equity (Note 13)
(25,476
)
 
(25,061
)
Total liabilities and equity
$
24,700

 
$
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 Oncor subsidiary and, prior to October 3, 2016 (the Effective Date), its TCEH subsidiaries. EFH Corp. is a subsidiary of Texas Holdings, which is controlled by the Sponsor Group.

Prior to the Effective Date, TCEH was 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. On the Effective Date, subsidiaries of TCEH (the TCEH Debtors) and certain EFH Corp. subsidiaries (the Contributed EFH Debtors) emerged from the Chapter 11 Cases as subsidiaries of a newly-formed company, Reorganized TCEH. On the Effective Date, Reorganized TCEH was spun-off from EFH Corp. in a tax-free transaction to the former first lien creditors of TCEH (see Note 2).

Oncor is engaged in regulated electricity transmission and distribution operations in Texas. Oncor provides distribution services to REPs, including subsidiaries of Reorganized 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.

At September 30, 2016, we had 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). On the Effective Date, the TCEH Debtors and the Contributed EFH Debtors completed their reorganization under the Bankruptcy Code and emerged from the Chapter 11 Cases as subsidiaries of Reorganized TCEH. The EFH Debtors have not yet completed their Chapter 11 Cases. See Note 2 for further discussion regarding the Chapter 11 Cases.


4


Basis of Presentation, Including Application of Bankruptcy Accounting and Discontinued Operations

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 Chapter 11 Cases, the EFH 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.

The results of operations of TCEH are included in continuing operations in the accompanying financial statements. As discussed in Note 2, the spin-off of Reorganized TCEH occurred on October 3, 2016. The results of operations of Reorganized TCEH will be reported as discontinued operations in our statement of consolidated income (loss) for the year ended December 31, 2016.

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.


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 Chapter 11 Cases, the EFH 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

In August 2016, the Debtors filed the Plan of Reorganization and the Disclosure Statement, each as it related to the TCEH Debtors and the Contributed EFH Debtors, with the Bankruptcy Court and the Plan of Reorganization was confirmed. The Plan of Reorganization provides that the confirmation and effective date of the Plan of Reorganization with respect to the TCEH Debtors and the Contributed EFH Debtors may occur separate from, and independent of, the confirmation and effective date of the Plan of Reorganization with respect to the EFH Debtors.

The TCEH Debtors and the Contributed EFH Debtors emerged from the Chapter 11 Cases on the Effective Date in a tax-free spin-off from EFH Corp. The tax-free spin-off generated a taxable gain that will be largely offset with available net operating losses (NOLs), substantially reducing the NOLs that will be available to EFH Corp. after the transaction.

With respect to the EFH Debtors, the Plan of Reorganization, subject to certain conditions and certain regulatory approvals, provides for, among other things, the acquisition by affiliates of NextEra Energy Inc. (NEE) of the EFH Debtors (as reorganized).

The EFH Debtors will emerge from bankruptcy if and when a plan of reorganization (including the Plan of Reorganization) receives the requisite approval from the appropriate 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. There are no assurances that the Bankruptcy Court will confirm the Plan of Reorganization as it relates to the EFH Debtors. If the Bankruptcy Court does enter such a confirmation order, the EFH Debtors cannot emerge from the Chapter 11 Cases until certain conditions precedent (set forth in the Plan of Reorganization) are satisfied (or otherwise waived by the sponsor of the Plan of Reorganization). Such conditions include, among other things, the receipt of all necessary tax opinions and regulatory approvals, all conditions to the completion of the transactions contemplated by the Merger Agreement (defined below) having been satisfied, and the disallowance by the Bankruptcy Court (pursuant to an order that has not been stayed or reversed or remanded on appeal as of the date the EFH Debtors emerge from the Chapter 11 Cases) of all make-whole claims asserted by the EFIH first lien trustee and EFIH second lien trustee. As described in Note 12, certain of the proceedings related to make-whole claims asserted by various constituencies remain ongoing. Additional disclosures regarding the conditions precedent to the consummation of the Plan of Reorganization are set forth in the Disclosure Statement approved by the Bankruptcy Court in September 2016.

EFH Debtors Plan Support Agreement

In July 2016, the EFH Debtors and NEE entered into a plan support agreement (the EFH Debtors Plan Support Agreement) to effect an agreed upon restructuring of the EFH Debtors pursuant to the Plan of Reorganization. In September 2016, certain creditors of EFH Corp. and EFIH became parties to the EFH Debtors Plan Support Agreement. The Bankruptcy Court approved the EFH Debtors Plan Support Agreement in September 2016.

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. Under the terms of the Settlement Agreement, TCEH was granted a $700 million unsecured claim against EFH Corp. This claim remains outstanding and is subject to treatment under the Plan of Reorganization as it relates to the EFH Debtors. The Bankruptcy Court approved the Settlement Agreement in December 2015.


6


Merger Agreements

In July 2016, EFH Corp. and EFIH entered into an Agreement and Plan of Merger (Merger Agreement) with NEE and a wholly-owned subsidiary of NEE (Merger Sub). The Merger Agreement was amended in September 2016. Pursuant to the Merger Agreement, at the effective time of the Plan of Reorganization as it relates to the EFH Debtors, NEE will acquire the EFH Debtors (as reorganized) as a result of a merger (EFH Debtor Merger) between EFH Corp. and Merger Sub in which Merger Sub will survive as a wholly owned subsidiary of NEE. The consideration payable by NEE pursuant to the Merger Agreement consists of cash and NEE common stock paid to certain creditors of the EFH Debtors. The Merger Agreement was approved by the Bankruptcy Court in September 2016.

The Merger Agreement contains representations and warranties and interim operating covenants that are customary for an agreement of this nature. The Merger Agreement also includes various conditions precedent to consummation of the transactions, including a condition that certain approvals and rulings are obtained, including from the PUCT, the FERC and the IRS. NEE will not be required to consummate the EFH Debtor Merger if, among other items, the PUCT approval is obtained but with conditions, commitments or requirements that impose a Burdensome Condition (as defined in the Merger Agreement). In October 2016, NEE and Oncor filed a joint merger approval application with the PUCT. The PUCT has up to 180 days to approve the application. NEE's and Merger Sub's obligations under the Merger Agreement are not subject to any financing condition.

Following the approval of the Merger Agreement by the Bankruptcy Court and until confirmation of the Plan of Reorganization as it relates to the EFH Debtors by the Bankruptcy Court, EFH Corp. and EFIH may continue or have discussions or negotiations with respect to acquisition proposals for the EFH Debtors (a) with persons that were in active negotiation at the time of approval of the Merger Agreement by the Bankruptcy Court and (b) with persons that submit an unsolicited acquisition proposal that is, or is reasonably likely to lead to, a Superior Proposal (as defined in the Merger Agreement). If the Merger Agreement is terminated for certain reasons set forth therein and an alternative transaction is consummated by EFH Corp. or EFIH in which neither NEE nor any of its affiliates obtains direct or indirect ownership of approximately 80% of Oncor, then EFH Corp. and/or EFIH will be required to pay a termination fee of $275 million to NEE (though the allocation between EFH Corp. and EFIH of such fee is subject to a separate order of the Bankruptcy Court).

The Merger Agreement may be terminated upon certain events, including, among other things:

by either party, if the EFH Debtor Merger is not consummated by March 26, 2017, subject to a 90-day extension under certain conditions, or

by EFH Corp. or EFIH, until the entry of the confirmation order of the Plan of Reorganization with respect to the EFH Debtors, if their respective board of directors or managers determines, after consultation with its independent financial advisors and outside legal counsel, and based on advice of such counsel, that the failure to terminate the Merger Agreement is inconsistent with its fiduciary duties; provided that a material breach of EFH Corp.'s or EFIH’s obligations under certain provisions of the Merger Agreement has not provided the basis for such determination.

In October 2016, an affiliate of NEE entered into an Agreement and Plan of Merger (the TTI Merger Agreement) with Texas Transmission and certain of its affiliates to purchase Texas Transmission's 19.75% interest in Oncor for approximately $2.4 billion. The TTI Merger Agreement contains various conditions precedent to consummation of the transactions contemplated thereby. In connection with the TTI Merger Agreement and subject to Bankruptcy Court approval, EFH Corp. waived its rights of first refusal to purchase (as set forth in an Investor Rights Agreement, dated November 5, 2008, by and among Oncor, Oncor Holdings, TTI and EFH Corp.) Texas Transmission's 19.75% interest in Oncor. So long as such waiver is in effect, NEE has agreed not to consummate the transactions contemplated by the TTI Merger Agreement prior to the consummation of the transactions contemplated by the Merger Agreement.

In October 2016, an affiliate of NEE entered into an Interest Purchase Agreement (the Oncor Purchase Agreement) with Oncor and Oncor Management Investment LLC, an entity that owns approximately 0.22% interest in Oncor on behalf of certain members of Oncor's current and former management, for approximately $27 million. The Oncor Purchase Agreement contains various conditions precedent to consummation of the transactions contemplated thereby, including the consummation of the transactions contemplated by the Merger Agreement.


7


Scheduling Matters

In May 2016, the Bankruptcy Court entered an order establishing a timeline for approval of a disclosure statement and a hearing to consider confirmation of the Plan of Reorganization as it applies to the EFH Debtors. In September 2016, the Bankruptcy Court approved the Disclosure Statement as it relates to the EFH Debtors. The Bankruptcy Court has scheduled the confirmation hearing for the Plan of Reorganization as it relates to the EFH Debtors in December 2016. The timelines set forth in the scheduling order are subject to further 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 EFH Debtors' request).

Tax Matters

In July 2016, we received a private letter ruling (the Private Letter Ruling) from the IRS. It provides, among other things, for certain rulings regarding the qualification of (a) the transfer of certain assets and ordinary course operating liabilities to Reorganized TCEH and (b) the distribution of the equity of Reorganized TCEH, the cash proceeds from Reorganized TCEH debt, if any, the cash proceeds from the sale of preferred stock in a newly-formed subsidiary of Reorganized TCEH, and the right to receive payments under a tax receivables agreement, 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 Merger Agreement provides that a closing condition to the EFH Debtor Merger is the receipt of a supplemental private letter ruling (the Supplemental Ruling) from the IRS regarding the impact of the EFH Debtor Merger on certain rulings received in the Private Letter Ruling. We expect to submit a request to the IRS for the Supplemental Ruling in the fourth quarter of 2016.

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 EFIH DIP Facility described in Note 10, our ability to obtain new debtor in possession financing in the event the EFIH DIP Facility 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 against the Debtors 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), the Debtors 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 November 1, 2016, approximately 5,700 of those claims have been settled, withdrawn or expunged. We continue to work with creditors regarding unsettled 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 income (loss) as they are resolved. The resolution of such claims could result in material adjustments to our financial statements.

In September and October 2016, the Debtors filed with the Bankruptcy Court reports developed by independent experts that provide analysis and estimation of potential liabilities associated with asbestos-related claims. In connection with developing those reports, we recorded an adjustment to our estimated liability associated with those claims during the three months ended September 30, 2016 (see Note 18). That estimated liability is subject to revisions, which may be material, as further information arises.


8


Certain claims filed or reflected in our schedules of assets and liabilities will be resolved on the applicable effective dates of the applicable 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.

On the Effective Date, the TCEH Debtors (together with the Contributed EFH Debtors) emerged from the Chapter 11 Cases and discharged approximately $33.7 billion in LSTC. Distributions for the settled claims related to the funded debt TCEH Debtors have commenced subsequent to the Effective Date.

Separation of the EFH Debtors from the TCEH Debtors and the Contributed EFH Debtors

Upon the Effective Date of the Plan of Reorganization as it relates to the TCEH Debtors and the Contributed EFH Debtors, the EFH Debtors and the TCEH Debtors (together with the Contributed EFH Debtors) were separated and are no longer affiliated companies. In addition to the Plan of Reorganization, the separation was effectuated, in part, pursuant to the terms of a separation agreement, a transition services agreement and a tax matters agreement.

Separation Agreement

On the Effective Date, EFH Corp., Reorganized TCEH and a subsidiary of Reorganized TCEH entered into a separation agreement that provides for, among other things, the transfer of certain assets and liabilities by EFH Corp., EFCH and TCEH to Reorganized TCEH. Among other things, EFH Corp., EFCH and/or TCEH, as applicable, (1) transferred the TCEH Debtors and certain contracts and assets (and related liabilities) primarily related to the business of the TCEH Debtors to Reorganized TCEH, (2) transferred sponsorship of certain employee benefit plans (including related assets), programs and policies to a subsidiary of Reorganized TCEH and (3) assigned certain employment agreements from EFH Corp. and certain of the Contributed EFH Debtors to a subsidiary of Reorganized TCEH.

Transition Services Agreement

On the Effective Date, EFH Corp. and a subsidiary of Reorganized TCEH entered into a transition services agreement that provides for, among other things, (1) the applicable subsidiaries of Reorganized TCEH to provide certain services to the EFH Debtors, including business services administration, accounting, corporate secretary, tax, human resources, information technology, internal audit and SOX compliance, physical facilities and corporate security, treasury and legal services and (2) EFH Corp. to pay such subsidiary of Reorganized TCEH all reasonable and documented fees, costs and expenses (including employee-related overhead and general and administrative expenses) incurred by Reorganized TCEH and its subsidiaries related directly to these services.

Tax Matters Agreement

On the Effective Date, Reorganized TCEH and EFH Corp. entered into a tax matters agreement whereby the parties agreed to take certain actions and refrain from taking certain actions to preserve the intended tax treatment of the tax-free spin-off of Reorganized TCEH from EFH Corp. The Tax Matters Agreement includes limitations on certain actions of Reorganized TCEH, EFH Corp. and EFIH in order to preserve the tax-free nature of the TCEH spin-off, as well as certain indemnification obligations in the event the reorganization fails to be treated as a tax-free transaction (a) as a result of the breach of any covenants in the Tax Matters Agreement or (b) under "no-fault" circumstances. In the event any indemnification obligations are triggered, the party owing the obligation would likely be materially and adversely affected. Additionally, the covenants and other limitations with respect to the Tax Matters Agreement may limit the ability of Reorganized TCEH, EFH Corp. and/or EFIH to undertake certain transactions that may otherwise be value-maximizing.


9


Unaudited Condensed Combined Debtor Financial Statements

The condensed combined financial statements presented below represent the financial statements of the Debtors. EFH Corp.'s non-Debtor subsidiaries, excluding the Oncor Ring-Fenced Entities, which are substantively comprised of the recently acquired Lamar and Forney generation assets, are accounted for as non-consolidated subsidiaries in these financial statements, and their net income is included in equity in earnings of non-debtor entities (net of tax) in these condensed statements of combined loss and investment in non-debtor entities in these condensed combined balance sheets. Intercompany items and transactions among the Debtors have been eliminated in consolidation in these financial statements.

Condensed statements of combined income (loss) of the Debtors for the three and nine months ended September 30, 2016 and 2015 are presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues
$
1,690

 
$
1,737

 
$
3,973

 
$
4,265

Fuel, purchased power costs and delivery fees
(913
)
 
(831
)
 
(2,143
)
 
(2,090
)
Net gain from commodity hedging and trading activities
153

 
103

 
101

 
226

Operating costs
(184
)
 
(194
)
 
(646
)
 
(615
)
Depreciation and amortization
(133
)
 
(200
)
 
(407
)
 
(633
)
Selling, general and administrative expenses
(169
)
 
(190
)
 
(481
)
 
(542
)
Impairment of goodwill

 
(700
)
 

 
(1,400
)
Impairment of long-lived assets

 
(1,295
)
 

 
(1,971
)
Other income (deductions) and interest income
(31
)
 
(18
)
 
(61
)
 
(70
)
Interest expense and related charges
(434
)
 
(385
)
 
(1,231
)
 
(1,372
)
Reorganization items
(84
)
 
(68
)
 
(206
)
 
(275
)
Loss before income taxes and equity in earnings of non-debtor entities
(105
)
 
(2,041
)
 
(1,101
)
 
(4,477
)
Income tax benefit
24

 
453

 
312

 
997

Equity in earnings of non-debtor entities (net of tax)
247

 
128

 
376

 
281

Net income (loss)
$
166

 
$
(1,460
)
 
$
(413
)
 
$
(3,199
)

Condensed statements of combined comprehensive income (loss) of the Debtors for the three and nine months ended September 30, 2016 and 2015 are presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
166

 
$
(1,460
)
 
$
(413
)
 
$
(3,199
)
Other comprehensive loss (net of tax)
(1
)
 

 
(2
)
 

Comprehensive income (loss)
$
165

 
$
(1,460
)
 
$
(415
)
 
$
(3,199
)


10


Condensed statements of combined cash flows of the Debtors for the nine months ended September 30, 2016 and 2015 are presented below:
 
Nine Months Ended September 30,
 
2016
 
2015
Cash used in operating activities
$
(482
)
 
$
(137
)
Cash flows — financing activities:
 
 
 
Borrowings under TCEH DIP Roll Facilities and TCEH DIP Revolving Credit Facility
4,680

 

TCEH DIP Roll Facilities financing fees
(112
)
 

Repayments/repurchases of debt
(2,686
)
 
(453
)
Advances from non-debtor affiliates
97

 

Fees paid on EFIH Second Lien Notes repayment and EFIH DIP Facility
(14
)
 
(28
)
Cash provided by (used in) financing activities
1,965

 
(481
)
Cash flows — investing activities:
 
 
 
Advances to non-debtor affiliates
(6
)
 
(8
)
Investment in non-debtor affiliates
(1,325
)
 

Capital expenditures
(189
)
 
(261
)
Nuclear fuel purchases
(33
)
 
(77
)
Proceeds from sales of nuclear decommissioning trust fund securities
201

 
315

Investments in nuclear decommissioning trust fund securities
(215
)
 
(328
)
Changes in restricted cash
365

 
33

Other, net
8

 
2

Cash used in investing activities
(1,194
)
 
(324
)
Net change in cash and cash equivalents
289

 
(942
)
Cash and cash equivalents — beginning balance
2,258

 
3,417

Cash and cash equivalents — ending balance
$
2,547

 
$
2,475



11


Condensed combined balance sheets of the Debtors at September 30, 2016 and December 31, 2015 are presented below:
 
September 30,
2016
 
December 31,
2015
ASSETS
Total current assets
$
4,153

 
$
4,443

Restricted cash
650

 
507

Advances to non-debtor entities
115

 
115

Investment in non-debtor entities
7,720

 
6,147

Other investments
1,061

 
984

Property, plant and equipment — net
8,988

 
9,287

Goodwill
152

 
152

Identifiable intangible assets — net
1,133

 
1,170

Commodity and other derivative contractual assets
29

 
10

Accumulated deferred income taxes
679

 
424

Other noncurrent assets
58

 
39

Total assets
$
24,738

 
$
23,278

LIABILITIES AND EQUITY
Total current liabilities
$
6,923

 
$
8,496

Borrowings under debtor-in-possession credit facility
3,387

 

Long-term debt, less amounts due currently

 
23

Liabilities subject to compromise
37,815

 
37,786

Commodity and other derivative contractual liabilities
4

 
1

Other noncurrent liabilities and deferred credits
2,085

 
2,033

Total liabilities
50,214

 
48,339

Total equity
(25,476
)
 
(25,061
)
Total liabilities and equity
$
24,738

 
$
23,278



3.
LAMAR AND FORNEY ACQUISITION

In April 2016, Luminant purchased all of the membership interests in La Frontera Holdings, LLC (La Frontera), the indirect owner of two combined-cycle gas turbine (CCGT) natural gas fueled generation facilities representing nearly 3,000 MW of capacity located in ERCOT, from a subsidiary of NextEra Energy, Inc. (the Lamar and Forney Acquisition). 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 acquisition diversified TCEH's fuel mix and increased the dispatch flexibility in its fleet. The aggregate purchase price was approximately $1.313 billion, which included the repayment of approximately $950 million of existing project financing indebtedness of La Frontera at closing, plus approximately $236 million for cash and net working capital. The purchase price was funded by cash-on-hand and additional borrowings under the TCEH DIP Facility totaling $1.1 billion. After completing the acquisition, we repaid approximately $230 million of borrowings under the TCEH DIP Revolving Credit Facility primarily utilizing cash acquired in the transaction. La Frontera and its subsidiaries were subsidiary guarantors under the TCEH DIP Roll Facilities and, on the Effective Date, became subsidiary guarantors under the senior secured exit facilities (see Note 10).


12


Purchase Accounting

The Lamar and Forney Acquisition has been accounted for in accordance with ASC 805, Business Combinations (ASC 805), with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the acquisition date.

To fair value the acquired property, plant and equipment, we used a discounted cash flow analysis, classified as Level 3 within the fair value hierarchy levels (see Note 14). This discounted cash flow model was created for each generation facility based on its remaining useful life. The discounted cash flow model included gross margin forecasts for each power generation facility determined using forward commodity market prices obtained from long-term forecasts. We also used management's forecasts of generation output, operations and maintenance expense, SG&A and capital expenditures. The resulting cash flows, estimated based upon the age of the assets, efficiency, location and useful life, were then discounted using plant specific discount rates of approximately 9%.

The following table summarizes the consideration paid and the preliminary allocation of the purchase price to the fair value amounts recognized for the assets acquired and liabilities assumed related to the Lamar and Forney Acquisition as of the acquisition date. During the three months ended September 30, 2016, the working capital adjustment included in the purchase price was finalized between the parties, and the purchase price allocation was completed.
Cash paid to seller at close
 
$
603

Net working capital adjustments
 
(4
)
Consideration paid to seller
 
599

Cash paid to repay project financing at close
 
950

Total cash paid related to acquisition
 
$
1,549

Cash and cash equivalents
 
$
210

Property, plant and equipment — net
 
1,316

Commodity and other derivative contractual assets
 
47

Other assets
 
44

Total assets acquired
 
1,617

Commodity and other derivative contractual liabilities
 
53

Trade accounts payable and other liabilities
 
15

Total liabilities assumed
 
68

Identifiable net assets acquired
 
$
1,549


The Lamar and Forney Acquisition did not result in the recording of goodwill since the purchase price did not exceed the fair value of the net assets acquired.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information for the nine months ended September 30, 2016 and 2015 assumes that the Lamar and Forney Acquisition occurred on January 1, 2015. The unaudited pro forma financial information is provided for information purposes only and is not necessarily indicative of the results of operations that would have occurred had the Lamar and Forney Acquisition been completed on January 1, 2015, nor are they indicative of future results of operations.
 
Nine Months Ended September 30,
 
2016
 
2015
Revenues
$
4,116

 
$
4,942

Net income (loss)
$
(429
)
 
$
(3,141
)

The unaudited pro forma financial information includes adjustments for incremental depreciation as a result of the fair value determination of the net assets acquired and interest expense on borrowings under the TCEH DIP Roll Facilities in lieu of interest expense incurred prior to the acquisition.


13



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 $6.204 billion and $6.064 billion at September 30, 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 24% and 25% of Oncor Holdings' consolidated operating revenues for the nine months ended September 30, 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 $135 million and $206 million for the nine months ended September 30, 2016 and 2015, respectively. Distributions may not be paid except to the extent Oncor maintains a required regulatory capital structure as discussed below. At September 30, 2016, $69 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 September 30, 2016, Oncor's regulatory capitalization ratio was 59.6% debt to 40.4% 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. 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.


14


Oncor Holdings Financial Statements Condensed statements of consolidated income of Oncor Holdings and its subsidiaries for the three and nine months ended September 30, 2016 and 2015 are presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues
$
1,071

 
$
1,072

 
$
2,962

 
$
2,957

Operation and maintenance expenses
(414
)
 
(387
)
 
(1,206
)
 
(1,134
)
Depreciation and amortization
(190
)
 
(217
)
 
(593
)
 
(653
)
Taxes other than income taxes
(118
)
 
(116
)
 
(338
)
 
(336
)
Other income and (deductions) — net
(3
)
 
(9
)
 
(11
)
 
(17
)
Interest expense and related charges
(85
)
 
(84
)
 
(252
)
 
(250
)
Income before income taxes
261

 
259

 
562

 
567

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

 
160

 
345

 
350

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

 
$
127

 
$
274

 
$
278


Assets and liabilities of Oncor Holdings at September 30, 2016 and December 31, 2015 are presented below:
 
September 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
25

 
$
26

Restricted cash

 
38

Trade accounts receivable — net
450

 
388

Trade accounts and other receivables from affiliates
146

 
118

Income taxes receivable from EFH Corp.
79

 
107

Inventories
91

 
82

Prepayments and other current assets
97

 
88

Total current assets
888

 
847

Other investments
102

 
97

Property, plant and equipment — net
13,617

 
13,024

Goodwill
4,064

 
4,064

Regulatory assets — net
1,114

 
1,194

Other noncurrent assets
41

 
31

Total assets
$
19,826

 
$
19,257

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
880

 
$
840

Long-term debt due currently
324

 
41

Trade accounts payable — nonaffiliates
205

 
150

Income taxes payable to EFH Corp.
15

 
20

Accrued taxes other than income
156

 
181

Accrued interest
69

 
82

Other current liabilities
139

 
144

Total current liabilities
1,788

 
1,458

Accumulated deferred income taxes
2,096

 
1,985

Long-term debt, less amounts due currently
5,513

 
5,646

Other noncurrent liabilities and deferred credits
2,338

 
2,306

Total liabilities
$
11,735

 
$
11,395



15



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 September 30, 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 September 30, 2015 and March 31, 2015, we experienced impairment indicators related to decreases in forward wholesale electricity prices when compared to those prices reflected in our goodwill impairment testing analysis as of March 31, 2015 and December 1, 2014, respectively. As a result, the likelihood of goodwill impairments had increased, and we initiated further testing of goodwill. During the three and nine months ended September 30, 2015, our testing of goodwill for impairment resulted in impairment charges totaling $700 million and $1.4 billion, respectively, 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:
 
 
September 30, 2016
 
December 31, 2015
Identifiable Intangible Asset
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Retail customer relationship
 
$
463

 
$
451

 
$
12

 
$
463

 
$
442

 
$
21

Capitalized in-service software
 
384

 
250

 
134

 
362

 
214

 
148

Other identifiable intangible assets (a)
 
53

 
21

 
32

 
72

 
35

 
37

Total identifiable intangible assets subject to amortization (b)
 
$
900

 
$
722

 
178

 
$
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
 
 
 
 
 
$
1,138

 
 
 
 
 
$
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 nine months ended September 30, 2015 related to other identifiable intangible assets.
(b)
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.


16


Amortization expense related to finite-lived identifiable intangible assets (including the condensed statements of consolidated income (loss) line item) consisted of:
Identifiable Intangible Asset
 
Condensed Statements of Consolidated Income (Loss) Line
 
Segment
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2016
 
2015
 
2016
 
2015
Retail customer relationship
 
Depreciation and amortization
 
Competitive Electric
 
$
3

 
$
4

 
$
9

 
$
13

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

 
13

 
38

 
35

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

 
9

 
6

 
21

Total amortization expense (a)
 
 
 
$
19

 
$
26

 
$
53

 
$
69

____________
(a)
Amounts recorded in depreciation and amortization totaled $18 million and $21 million for the three months ended September 30, 2016 and 2015, respectively, and $52 million and $54 million for the nine months ended September 30, 2016 and 2015, respectively.

As of the Effective Date, the substantial majority of identifiable intangible assets were removed from the condensed consolidated balance sheet in conjunction with the separation of the EFH Debtors from the TCEH Debtors and the Contributed EFH Debtors.

Intangible Impairments

The impairments of our generation facilities in March and September 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). We also impaired certain of our SO2 allowances under the Cross-State Air Pollution Rule (CSAPR) related to the impaired generation facilities. Accordingly, in the three and nine months ended September 30, 2015, we recorded noncash impairment charges of $4 million and $55 million, respectively, in our Competitive Electric segment (before deferred income tax benefit) in other deductions (see Note 18) related to our existing environmental allowances and credits intangible asset. SO2 emission allowances granted to us under the acid rain cap-and-trade program were recorded as intangible assets at fair value in connection with purchase accounting related to the Merger in 2007. Additionally, the impairments of our generation and related mining facilities in September 2015 resulted in our recording noncash impairment charges of $19 million in our Competitive Electric segment (before deferred income tax benefit) in other deductions (see Note 18) related to mine development costs (included in other identifiable intangible assets in the table above) at the facilities.

During the three months ended March 31, 2015, we determined that certain intangible assets related to favorable power purchase contracts should be evaluated for impairment. That conclusion was based on further declines in wholesale electricity prices in ERCOT experienced during the three months ended March 31, 2015. Our fair value measurement was based on a discounted cash flow analysis of the contracts that compared the contractual price and terms of the contract to forecasted wholesale electricity and renewable energy credit (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).


17



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. Subsequent to the Effective Date, the TCEH Debtors and the Contributed EFH Debtors will no longer be included in the consolidated income tax return and will be included in an income tax return with Reorganized TCEH.

Prior to the Effective Date, EFH Corp. and certain of its subsidiaries (including EFCH, EFIH, and TCEH, but not including Oncor Holdings and Oncor) were parties to a Federal and State Income Tax Allocation Agreement, which provided, among other things, that any corporate member or disregarded entity in the EFH Corp. group was 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. Pursuant to the Plan of Reorganization, the TCEH Debtors and the Contributed EFH Debtors rejected this agreement on the Effective Date. Additionally, since the date of the Settlement Agreement, no further cash payments among the Debtors were 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 continued to be settled prior to the Effective Date.

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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Income (loss) before income taxes and equity in earnings of unconsolidated subsidiaries
$
81

 
$
(2,039
)
 
$
(943
)
 
$
(4,467
)
Income tax benefit (expense)
$
(42
)
 
$
452

 
$
256

 
$
990

Effective tax rate
51.9
%
 
22.2
%
 
27.1
%
 
22.2
%

For the three months ended September 30, 2016, the effective tax rate of 51.9% related to our income tax expense was higher than the US Federal statutory rate of 35% due primarily to nondeductible legal and other professional services costs related to the Chapter 11 Cases, partially offset by the tax benefit recognized from the settlement agreement with the Texas Comptroller of Public Accounts (Comptroller). For the three months ended September 30, 2015, the effective tax rate of 22.2% related to our income tax benefit was lower than the US Federal statutory rate of 35% due primarily to the nondeductible goodwill impairment charge (see Note 5) and nondeductible legal and other professional services costs related to the Chapter 11 Cases.

For the nine months ended September 30, 2016, the effective tax rate of 27.1% 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 nine months ended September 30, 2015, the effective tax rate of 22.2% related to our income tax benefit was lower than the US Federal statutory rate of 35% due primarily to the nondeductible goodwill impairment charges (see Note 5) and nondeductible legal and other professional services costs related to the Chapter 11 Cases, partially offset by the difference in the forecasted effective tax rate and the statutory rate applied to long-lived and intangible asset impairment charges (see Notes 5 and 7) and the Texas margin tax rate reduction in 2015.


18


Liability for Uncertain Tax Positions

In September 2016, EFH Corp. entered into a settlement agreement with the Texas Comptroller of Public Accounts (Comptroller) whereby the Comptroller agreed to release all claims and liabilities related to the EFH Corp. consolidated group's state taxes, including sales tax, gross receipts utility tax, franchise tax and direct pay tax, through the agreement date, in exchange for a release of all refund claims and a one-time payment of $12 million. This settlement was entered and approved by the Bankruptcy Court in September 2016. As a result of the settlement, we reduced the liability for state uncertain tax positions by $26 million.

In July 2016, we executed a Revenue Agent Report (RAR) with the IRS and associated documentation for the 2010 through 2013 tax years. As a result of the RAR, we reduced our liability for uncertain tax positions by $1 million, resulting in a reclassification to the accumulated deferred income tax liability. Total cash payment to be assessed by the IRS for tax years 2010 through 2013, but not expected to be paid during the pendency of the Chapter 11 Cases of the EFH Debtors, is approximately $15 million, plus any interest that may be assessed.

In March 2016, we signed a RAR with the IRS for the 2014 tax year. No material financial statement impacts resulted from the signing of the 2014 RAR.

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


7.
IMPAIRMENT OF LONG-LIVED ASSETS

Impairment of Lignite/Coal Fueled Generation and Mining Assets

We evaluated our generation assets for impairment during September 2015 as a result of an impairment indicator related to the continued decline in forecasted wholesale electricity prices in ERCOT. Our evaluation concluded that impairments existed at our Martin Lake, Sandow 4 and Sandow 5 generation facilities, and the carrying value for those facilities and related mining facilities were reduced in total by $1.295 billion.

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 Reorganized TCEH's other generation facilities if forward wholesale electricity prices continue to decline or forecasted costs of producing electricity at Reorganized TCEH's generation facilities increase, including increased costs of compliance with proposed environmental regulations.



19


8.
INTEREST EXPENSE AND RELATED CHARGES

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest paid/accrued on debtor-in-possession financing
$
97

 
$
74

 
$
250

 
$
221

Adequate protection amounts paid/accrued
331

 
311

 
977

 
919

Interest paid/accrued on pre-petition debt (a)
4

 

 
8

 
243

Amortization of debt issuance, amendment and extension costs and discounts
5

 

 
6

 

Capitalized interest
(2
)
 
(2
)
 
(9
)
 
(8
)
Total interest expense and related charges
$
435

 
$
383

 
$
1,232

 
$
1,375

____________
(a)
For the nine months ended September 30, 2015, amount includes $235 million in post-petition interest related to the EFIH Second Lien Notes (see Note 11). For the three and nine months ended September 30, 2016 and 2015, includes interest paid/accrued on long-term debt not subject to compromise.

Interest expense for the three and nine months ended September 30, 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 nine months ended September 30, 2016 was 4.95% (one-month LIBOR plus 4.50%). Upon completion of the Plan of Reorganization with respect to the TCEH Debtors, amounts of adequate protection payments were re-characterized as payments of principal.

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 income (loss) does not include contractual interest on pre-petition debt classified as LSTC totaling $325 million and $327 million for the three months ended September 30, 2016 and 2015, respectively, and $978 million and $943 million for the nine months ended September 30, 2016 and 2015, respectively, which has been stayed by the Bankruptcy Court effective on the Petition Date. Adequate protection paid/accrued presented below excludes interest paid/accrued on the TCEH first-lien interest rate and commodity hedge claims (see Note 15) totaling $16 million and $15 million for the three months ended September 30, 2016 and 2015, respectively, and $47 million and $44 million for the nine months ended September 30, 2016 and 2015, respectively, as such amounts are not included in contractual interest amounts below.
 
 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Approved Interest Paid/Accrued
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Approved Interest Paid/Accrued
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
EFH Corp.
 
$
11

 
$

 
$

 
$
11

 
$
31

 
$

 
$

 
$
31

EFIH
 
101

 

 

 
101

 
101

 

 

 
101

EFCH
 

 

 

 

 
2

 

 

 
2

TCEH
 
528

 
315

 

 
213

 
520

 
296

 

 
224

Eliminations (b)
 

 

 

 

 
(31
)
 

 

 
(31
)
Total
 
$
640

 
$
315

 
$

 
$
325

 
$
623

 
$
296

 
$

 
$
327



20


 
 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Approved Interest Paid/Accrued
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
 
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.
 
$
33

 
$

 
$

 
$
33

 
$
94

 
$

 
$

 
$
94

EFIH
 
304

 

 

 
304

 
314

 

 
50

 
264

EFCH
 
1

 

 

 
1

 
5

 

 

 
5

TCEH
 
1,570

 
930

 

 
640

 
1,548

 
875

 

 
673

Eliminations (b)
 

 

 

 

 
(93
)
 

 

 
(93
)
Total
 
$
1,908

 
$
930

 
$

 
$
978

 
$
1,868

 
$
875

 
$
50

 
$
943

___________
(a)
For the nine months ended September 30, 2015 represents portion of interest related to the EFIH Second Lien Notes that was repaid based on the approval of the Bankruptcy Court; however, excludes $185 million of post-petition interest paid in 2015 that contractually related to 2014 and default interest (see Note 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 income (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 and nine months ended September 30, 2016 and 2015 as reported in the condensed statements of consolidated income (loss):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Expenses related to legal advisory and representation services
$
41

 
$
46

 
$
101

 
$
148

Expenses related to other professional consulting and advisory services
26

 
22

 
70

 
69

Contract claims adjustments
10

 
(2
)
 
13

 
26

Fees associated with extension of EFIH DIP Facility

 

 
14

 

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

 

 

 
28

Other
7

 
2

 
8

 
4

Total reorganization items
$
84

 
$
68

 
$
206

 
$
275



21



10.
DEBTOR-IN-POSSESSION BORROWING FACILITIES AND LONG-TERM DEBT NOT SUBJECT TO COMPROMISE

TCEH DIP Roll Facilities — In August 2016, TCEH entered into the TCEH DIP Roll Facilities. The facilities provided for up to $4.250 billion in senior secured, super-priority financing consisting of a revolving credit facility of up to $750 million (TCEH DIP Roll Revolving Credit Facility), a term loan letter of credit facility of up to $650 million (TCEH DIP Roll Term Loan Letter of Credit Facility) and a term loan facility of up to $2.850 billion (TCEH DIP Roll Term Loan Facility). The TCEH DIP Roll Facilities were senior secured, super-priority debtor-in-possession credit agreements by and among the TCEH Debtors, the lenders that are party thereto from time to time and an administrative and collateral agent. The maturity date of the TCEH DIP Roll Facilities was the earlier of (a) October 31, 2017 or (b) the Effective Date. On the Effective Date, the TCEH DIP Roll Facilities converted to senior secured exit facilities with maturity dates of August 2021 for the revolving credit facility and August 2023 for the term loan facilities (see Note 2). The other terms of the exit facilities are substantially the same as the TCEH DIP Roll Facilities.

Net proceeds from the TCEH DIP Roll Facilities totaled $3.465 billion and were used to repay $2.65 billion outstanding under the former TCEH DIP Facility, fund a $650 million collateral account used to backstop the issuances of letters of credit and pay $107 million of issuance costs. The remaining balance was used for general corporate purposes. Additionally, $800 million of cash from collateral accounts under the former TCEH DIP Facility that were used to backstop letters of credit were released to TCEH to be used for general corporate purposes.

The TCEH DIP Roll Facilities and related available capacity at September 30, 2016 are presented below. In the September 30, 2016 condensed consolidated balance sheet, the borrowings under the TCEH DIP Roll Facilities are reported as noncurrent liabilities.
 
 
September 30, 2016
TCEH DIP Roll Facilities
 
Facility
Limit
 
Cash
Borrowings (d)
 
Available Credit Capacity
TCEH DIP Roll Revolving Credit Facility (a)
 
$
750

 
$

 
$
750

TCEH DIP Roll Term Loan Letter of Credit Facility (b)
 
650

 
650

 

TCEH DIP Roll Term Loan Facility (c)
 
2,850

 
2,850

 

Total TCEH DIP Roll Facilities
 
$
4,250

 
$
3,500

 
$
750

___________
(a)
Facility to be used for general corporate purposes.
(b)
Facility used for issuing letters of credit for general corporate purposes. Borrowings under this facility were funded to a collateral account that is reported as restricted cash in the condensed consolidated balance sheet. At September 30, 2016, the restricted cash supports $546 million in letters of credit outstanding (see Note 12), leaving $104 million in available letter of credit capacity.
(c)
Facility used to repay all amounts outstanding under the former TCEH DIP Facility and issuance costs for the TCEH DIP Roll Facilities, with the remaining balance used for general corporate purposes.
(d)
Borrowings under debtor-in-possession credit facilities in the condensed consolidated balance sheets are presented net of debt issuance costs of $79 million and debt discounts of $34 million.

Amounts borrowed under the TCEH DIP Roll Revolving Credit Facility bore interest based on applicable LIBOR rates, plus 3.25%, and there were no outstanding borrowings at September 30, 2016. Amounts borrowed under the TCEH DIP Roll Term Loan Letter of Credit Facility bore interest based on applicable LIBOR rates, subject to a 1% floor, plus 4%, and the rate outstanding on outstanding borrowings was 5.00% at September 30, 2016. Amounts borrowed under the TCEH DIP Roll Term Loan Facility bore interest based on applicable LIBOR rates, subject to a 1% floor, plus 4%, and the interest rate on outstanding borrowings was 5.00% at September 30, 2016. The TCEH DIP Roll Facilities also provided 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 Roll Facilities.


22


TCEH DIP Facility — The TCEH DIP Facility provided 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 was a senior, secured, super-priority credit agreement by and among the TCEH Debtors, the lenders that were party thereto from time to time and an administrative and collateral agent. At December 31, 2015, all $1.425 billion of the TCEH DIP Term Loan Facility were borrowed at an interest rate of 3.75%. Of this amount, $800 million represented amounts that supported issuances of letters of credit that were funded to a collateral account. Of the collateral account at December 31, 2015, $281 million was reported as cash and cash equivalents and $519 million was reported as restricted cash, which represented the amounts of outstanding letters of credit. At December 31, 2015, no amounts were borrowed under the TCEH DIP Revolving Credit Facility. As discussed above, in August 2016, all amounts under the TCEH DIP Facility were repaid using proceeds from the TCEH DIP Roll Facilities.

EFIH DIP Facility and EFIH Second Lien Notes Repayment — As of September 30, 2016, the EFIH DIP Facility provided 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 September 30, 2016, remaining cash on hand from borrowings under the EFIH DIP Facility, net of fees, totaled approximately $256 million, which was held as cash and cash equivalents. In the September 30, 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.

In October 2016, the EFIH DIP Facility was amended, in part, to extend the maturity date of the facility and to increase the borrowings under the facility by $75 million. The EFH Debtors paid fees and expenses of $10 million in connection with the amendment. Further, the EFIH DIP Facility will now mature on the earlier of (a) the effective date of any plan of reorganization as it relates to the EFH Debtors, (b) upon the event of the sale of substantially all of EFIH's assets or (c) June 2017, subject to the right of the EFH Debtors, upon the payment of certain extension fees, to extend the maturity an additional six months.

The principal amounts outstanding under the EFIH DIP Facility bear interest based on applicable LIBOR rates, subject to a 1% floor, plus 3.25%. At both September 30, 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.

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 September 30, 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.

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.


23


Long-Term Debt Not Subject to Compromise — Amounts presented in the table below represent pre-petition liabilities that are not subject to compromise due to the debt being fully collateralized or specific orders from the Bankruptcy Court approving repayment of the debt.
 
September 30,
2016
 
December 31,
2015
EFH Corp. (parent entity)
 
 
 
8.82% Non-Debtor Building Financing due semiannually through February 11, 2022
$
31

 
$
35

Unamortized fair value premium (a)
5

 
6

Total EFH Corp.
36

 
41

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

 
13

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

 
24

Unamortized fair value discount (a)

 
(2
)
Total EFCH

 
35

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

 
13

Capital lease obligations
2

 
5

Other
2

 
2

Unamortized discount

 
(1
)
Total TCEH
4

 
19

Total EFH Corp. consolidated
40

 
95

Less amounts due currently
(9
)
 
(35
)
Total long-term debt not subject to compromise
$
31

 
$
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.

Pursuant to the Plan of Reorganization, in September 2016, we repaid all outstanding EFCH fixed notes, including $3 million in prepayment, legal and other related fees.


24



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 September 30, 2016 and December 31, 2015:
 
September 30,
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
267

 
238

Total liabilities subject to compromise
$
37,815

 
$
37,786


On the Effective Date, the TCEH Debtors (together with the Contributed EFH Debtors) emerged from the Chapter 11 Cases and discharged approximately $33.7 billion in LSTC.

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.
 
September 30,
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