February 14, 2019
Though it took a backseat to the overall oil and gas downturn of a few years ago, the power market has also experienced its share of distress and bankruptcy of late: Illinois Power, ExGen Texas Power, Panda Temple Power, FirstEnergy, Westinghouse, and GenOn are just a few of the power companies that found themselves in a bankruptcy court. Now we can add 1515-Geenergy Holding Co. LLC and BBPC, LLC d/b/a Great Eastern Energy, providers of (i) natural gas and electricity to customers in New York, New Jersey and Massachusetts and (ii) electricity to customers in Connecticut, to the list. (together, the “Debtors”).
What we love about bankruptcy filings is that, unbeknownst to many, they often provide a pithy overview of an industry that is highly informative without getting too into the weeds. Indeed, in the Debtors chapter 11 papers, they provide a solid history of the decades-long process of deregulated power provision. In summary (and per the debtors):
In 1978, Congress passed the Public Utility Regulatory Policies Act (“PURPA”), which laid the groundwork for deregulation and competition by opening wholesale power markets to non-utility producers of electricity.
Following this, in the 80s and 90s, state legislatures passed laws designed to allow competitive retail sale and supply in the nat gas markets.
Congress passed the Energy Policy Act of 1992 which specifically promoted greater competition in the bulk power market. This began to de-monopolize the utility industry by allowing independent power producers equal access to the utilities’ transmission grid.
By 1996, FERC implemented Orders 888 and 889, which were intended to remove impediments to competition in wholesale trade and bring more efficient lower-cost power to the nation’s electricity customers.
President George W. Bush later signed into law the Energy Policy Act of 2005, which decreased limitations on utility companies’ ability to merge or be owned by financial holdings / non-utility companies. This led to a wave of mergers and consolidation within the utility industry.
Today, more than 20 states have at least partially deregulated electricity markets whereby energy customers may choose between their incumbent local utility and an array of independent, competitive suppliers. This is commonly referred to as a “deregulated” or “competitive” power market.
All of this, of course, created opportunity for entrepreneurs looking to take advantage of newly opened markets. That’s where the Debtors come in. BBPC started serving nat gas to customers in 2000, leveraging its relationships with various commodity supply companies, pipelines and local utility companies for the purchase, delivery and distribution of power and natural gas to their customers. The debtors acquire customers via various marketing channels, including, among other things, an indirect sales team, a network of hundreds of independent brokers. The debtors have approximately 49k commercial customers and 5k residential customers.
So, why is the company now in bankruptcy? Per the Company:
The competitive retail electric power industry is characterized by high degrees of both fragmentation, competition, and customer attrition because power providers compete primarily on price and have little else available to differentiate their products and services. Particularly in years with high volatility in weather and energy prices, customers paying high electricity and gas bills will tend to seek out other competitive retail electric providers, resulting in higher attrition rates. Also, larger independent retail energy providers have been active in acquiring customer books of their competitors.
More than that, though, is the fact that customers are no longer f*cking idiots about how they get electric and gas service. Indeed, the company notes that they are “becoming more and more sophisticated.” It’s amazing what competition and the democratization of information that’s attendant thereto can do for consumers. With more options and pricing plans to choose from, the debtors have been feeling the effects of price compression. Moreover, this bankruptcy is Google’s damn fault. Per the company:
Small consumers are also using energy-efficient appliances and devices, adopting green building technologies, and taking other actions that help protect the environment, but also lower demand for energy products.
All of these factors converged to decrease the Debtors’ revenue and cause them to default on certain of their obligations.
We’re serious. Among the PETITION team, we own a number of Nest and other smart energy-efficient devices.
Anyway, all of this led to the debtors defaulting under their ~$60mm prepetition credit agreement with Macquarie Investments US Inc., which, after several months of forbearances meant to give the debtors an opportunity to refi out Macquarie and/or sell the company, expired under their own terms. Needless to say, the debtors weren’t successful and have filed the chapter 11 to prevent Macquarie from exercising remedies and afford themselves an opportunity to pursue a sale of substantially all of their assets.
Jurisdiction: D. of Delaware (Judge Carey)
Capital Structure: ~$60mm secured credit facility (Macquarie Investments US Inc.) + $30.6mm in collateralized LOCs.
Legal: Klehr Harrison Harvey Branzburg LLP (Morton Branzburg, Dominic Pacitti, Michael Yurkewicz) & (local) McLaughlin & Stern LLP (Steven Newburgh)
Financial Advisor: GlassRatner Advisory & Capital Group LLC
Claims Agent: Omni Management Group LLC (*click on the link above for free docket access)