Attached files

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EX-32.B - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2015331xexhibit32b.htm
EX-31.B - CERTIFICATION OF PAUL M. KEGLEVIC - Energy Future Holdings Corp /TX/efh-2015331xexhibit31b.htm
EX-31.A - CERTIFICATION OF JOHN F. YOUNG - Energy Future Holdings Corp /TX/efh-2015331xexhibit31a.htm
EX-99.A - TWELVE MONTHS ENDED MARCH 31, 2015 STATEMENT OF INCOME (LOSS) - Energy Future Holdings Corp /TX/efh-2015331xexhibit99a.htm
EX-32.A - CERTIFICATION OF JOHN F. YOUNG - Energy Future Holdings Corp /TX/efh-2015331xexhibit32a.htm
EX-95.A - MINE SAFETY DISCLOSURES - Energy Future Holdings Corp /TX/efh-2015331xexhibit95a.htm
EXCEL - IDEA: XBRL DOCUMENT - Energy Future Holdings Corp /TX/Financial_Report.xls
EX-99.B - CONSOLIDATED EBITDA RECONCILIATION TEXAS COMPETITIVE ELECTRIC HOLDINGS COMPANY - Energy Future Holdings Corp /TX/efh-2015331xexhibit99b.htm



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

 


FORM 10-Q


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


FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

— OR —

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


Commission File Number 1-12833


Energy Future Holdings Corp.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

At May 7, 2015, there were 1,669,861,379 shares of common stock, without par value, outstanding of Energy Future Holdings Corp. (substantially all of which were owned by Texas Energy Future Holdings Limited Partnership, Energy Future Holdings Corp.’s parent holding company, and none of which is publicly traded).
 



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

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

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


i


GLOSSARY

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.
2014 Form 10-K
 
EFH Corp.'s Annual Report on Form 10-K for the year ended December 31, 2014
 
 
 
CAIR
 
Clean Air Interstate Rule
 
 
 
Chapter 11 Cases
 
Cases being heard in the US Bankruptcy Court for the District of Delaware (Bankruptcy Court) concerning voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code (Bankruptcy Code) filed on April 29, 2014 by the Debtors
 
 
 
Competitive Electric segment
 
the EFH Corp. business segment that consists principally of TCEH
 
 
 
Consolidated EBITDA
 
Consolidated EBITDA means TCEH EBITDA adjusted to exclude noncash items, unusual items and other adjustments allowable under the agreement governing the TCEH DIP Facility. See the definition of EBITDA below. Consolidated EBITDA and EBITDA are not recognized terms under US GAAP and, thus, are non-GAAP financial measures. We are providing Consolidated EBITDA in this Form 10-Q (see reconciliation in Exhibit 99(b)) solely because of the important role that Consolidated EBITDA plays in respect of covenants contained in the agreement governing the TCEH DIP Facility. We do not intend for Consolidated EBITDA (or EBITDA) to be an alternative to net income as a measure of operating performance or an alternative to cash flows from operating activities as a measure of liquidity or an alternative to any other measure of financial performance presented in accordance with US GAAP. Additionally, we do not intend for Consolidated EBITDA (or EBITDA) to be used as a measure of free cash flow available for management's discretionary use, as the measure excludes certain cash requirements such as adequate assurance payments, interest payments, tax payments and other debt service requirements. Because not all companies use identical calculations, our presentation of Consolidated EBITDA (and EBITDA) may not be comparable to similarly titled measures of other companies.
 
 
 
CSAPR
 
the final Cross-State Air Pollution Rule issued by the EPA in July 2011
 
 
 
DIP Facilities
 
Refers, collectively, to TCEH's debtor-in-possession financing and EFIH's debtor-in-possession financing. See Note 9 to the Financial Statements.
 
 
 
Debtors
 
EFH Corp. and the substantial majority of its direct and indirect subsidiaries, including EFIH, EFCH and TCEH, but excluding the Oncor Ring-Fenced Entities
 
 
 
Disclosure Statement
 
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 on April 14, 2015, as it may be amended, modified or supplemented from time to time
 
 
 
D.C. Circuit Court
 
US Court of Appeals for the District of Columbia Circuit
 
 
 
EBITDA
 
earnings (net income) before interest expense, income taxes, depreciation and amortization
 
 
 
EFCH
 
Energy Future Competitive Holdings Company LLC, a direct, wholly owned subsidiary of EFH Corp. and the direct parent of TCEH, and/or its subsidiaries, depending on context
 
 
 
EFH Corp.
 
Energy Future Holdings Corp., a holding company, and/or its subsidiaries, depending on context, whose major subsidiaries include TCEH and Oncor
 
 
 
EFIH
 
Energy Future Intermediate Holding Company LLC, a direct, wholly owned subsidiary of EFH Corp. and the direct parent of Oncor Holdings
 
 
 
EFIH Debtors
 
EFIH and EFIH Finance
 
 
 
EFIH Finance
 
EFIH Finance Inc., a direct, wholly owned subsidiary of EFIH, formed for the sole purpose of serving as co-issuer with EFIH of certain debt securities
 
 
 
EFIH First Lien Notes
 
Refers, collectively, to EFIH's and EFIH Finance's 6.875% Senior Secured First Lien Notes and 10.000% Senior Secured First Lien Notes exchanged or settled in June 2014 as discussed in Note 9.
 
 
 
EFIH PIK Notes
 
EFIH's $1.566 billion principal amount of 11.25%/12.25% Senior Toggle Notes.
 
 
 
EFIH Second Lien Notes
 
Refers, collectively, to EFIH's and EFIH Finance's $322 million principal amount of 11% Senior Secured Second Lien Notes and $1.389 billion principal amount of 11.75% Senior Secured Second Lien Notes.
 
 
 

ii


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

iii


Plan of Reorganization
 
Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code filed by the Debtors with the Bankruptcy Court on April 14, 2015, as it may be amended, modified or supplemented from time to time

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

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

iv


TXU Energy
 
TXU Energy Retail Company LLC, a direct, wholly owned subsidiary of TCEH that is a REP in competitive areas of ERCOT and is engaged in the retail sale of electricity to residential and business customers
 
 
 
US
 
United States of America
 
 
 
VIE
 
variable interest entity


v


PART I. FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
 
(millions of dollars)
Operating revenues
$
1,272

 
$
1,517

Fuel, purchased power costs and delivery fees
(613
)
 
(732
)
Net gain (loss) from commodity hedging and trading activities
103

 
(219
)
Operating costs
(193
)
 
(214
)
Depreciation and amortization
(218
)
 
(330
)
Selling, general and administrative expenses
(179
)
 
(218
)
Impairment of goodwill (Note 4)
(700
)
 

Impairment of long-lived assets (Note 6)
(676
)
 

Other income (Note 17)
8

 
9

Other deductions (Note 17)
(60
)
 

Interest income

 
1

Interest expense and related charges (Note 7)
(609
)
 
(863
)
Reorganization items (Note 8)
(138
)
 

Loss before income taxes and equity in earnings of unconsolidated subsidiaries
(2,003
)
 
(1,049
)
Income tax benefit (Note 5)
401

 
360

Equity in earnings of unconsolidated subsidiaries (net of tax) (Note 3)
75

 
80

Net loss
$
(1,527
)
 
$
(609
)

See Notes to the Financial Statements.

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
 
(millions of dollars)
Net loss
$
(1,527
)
 
$
(609
)
Other comprehensive income (loss), net of tax effects:
 
 
 
Effects related to pension and other retirement benefit obligations (net of tax benefit of $— and $1)
(2
)
 
(1
)
Cash flow hedges derivative value net loss related to hedged transactions recognized during the period (net of tax benefit of $— in all periods)
1

 

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

 

Total other comprehensive income (loss)

 
(1
)
Comprehensive loss
$
(1,527
)
 
$
(610
)

See Notes to the Financial Statements.

1



ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
 
(millions of dollars)
Cash flows — operating activities:
 
 
 
Net loss
$
(1,527
)
 
$
(609
)
Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
Depreciation and amortization
254

 
371

Deferred income tax benefit, net
(339
)
 
(310
)
Impairment of goodwill (Note 4)
700

 

Impairment of long-lived assets (Note 6)
676

 

Contract rejection claims (Note 8)
32

 

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

 

Unrealized net (gain) loss from mark-to-market valuations of commodity positions
(102
)
 
250

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

 
(65
)
Interest expense on toggle notes payable in additional principal (Note 7)

 
49

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

 
55

Equity in earnings of unconsolidated subsidiaries
(75
)
 
(80
)
Distributions of earnings from unconsolidated subsidiaries
74

 
37

Impairment of intangible assets (Note 4)
59

 

Other, net
18

 
16

Changes in operating assets and liabilities:
 
 
 
Margin deposits, net
79

 
(127
)
Accrued interest
(3
)
 
210

Other operating assets and liabilities, including liabilities subject to compromise
(281
)
 
(228
)
Cash used in operating activities
(407
)
 
(431
)
Cash flows — financing activities:
 
 
 
Repayments/repurchases of debt (Notes 9 and 10)
(454
)
 
(191
)
Fees paid on EFIH Second Lien Notes repayment (Note 10)
(28
)
 

Other, net
(1
)
 
1

Cash used in financing activities
(483
)
 
(190
)
Cash flows — investing activities:
 
 
 
Capital expenditures
(121
)
 
(119
)
Nuclear fuel purchases
(5
)
 
(26
)
Changes in restricted cash
28

 
285

Proceeds from sales of nuclear decommissioning trust fund securities
23

 
33

Investments in nuclear decommissioning trust fund securities
(27
)
 
(37
)
Other, net
1

 
1

Cash provided by (used in) investing activities
(101
)
 
137

 
 
 
 
Net change in cash and cash equivalents
(991
)
 
(484
)
Cash and cash equivalents — beginning balance
3,428

 
1,217

Cash and cash equivalents — ending balance
$
2,437

 
$
733


See Notes to the Financial Statements.

2



ENERGY FUTURE HOLDINGS CORP. AND SUBSIDIARIES, A DEBTOR-IN-POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2015
 
December 31,
2014
 
(millions of dollars)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,437

 
$
3,428

Restricted cash (Note 17)
6

 
6

Trade accounts receivable — net (Note 17)
539

 
589

Inventories (Note 17)
470

 
468

Commodity and other derivative contractual assets (Note 14)
466

 
492

Other current assets
88

 
100

Total current assets
4,006

 
5,083

Restricted cash (Note 17)
873

 
901

Receivable from unconsolidated subsidiary (Note 15)
47

 
47

Investment in unconsolidated subsidiary (Note 3)
6,060

 
6,058

Other investments (Note 17)
1,007

 
995

Property, plant and equipment — net (Note 17)
11,590

 
12,397

Goodwill (Note 4)
1,652

 
2,352

Identifiable intangible assets — net (Note 4)
1,199

 
1,315

Commodity and other derivative contractual assets (Note 14)
18

 
5

Other noncurrent assets
96

 
95

Total assets
$
26,548

 
$
29,248

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Long-term debt due currently (Note 9)
$
36

 
$
39

Trade accounts payable
304

 
406

Net payables due to unconsolidated subsidiary (Note 15)
178

 
237

Commodity and other derivative contractual liabilities (Note 14)
202

 
316

Margin deposits related to commodity derivatives
97

 
26

Accumulated deferred income taxes
136

 
135

Accrued taxes
94

 
157

Accrued interest (Notes 7 and 10)
115

 
119

Other current liabilities
292

 
360

Total current liabilities
1,454

 
1,795

Borrowings under debtor-in-possession credit facilities (Note 9)
6,825

 
6,825

Long-term debt, less amounts due currently (Note 9)
121

 
128

Liabilities subject to compromise (Note 10)
36,935

 
37,432

Commodity and other derivative contractual liabilities (Note 14)
2

 
1

Accumulated deferred income taxes
362

 
713

Other noncurrent liabilities and deferred credits (Note 17)
2,099

 
2,077

Total liabilities
47,798

 
48,971

Commitments and Contingencies (Note 11)


 


Shareholders' equity (Note 12)
(21,250
)
 
(19,723
)
Total liabilities and equity
$
26,548

 
$
29,248


See Notes to the Financial Statements.

3


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

1.
BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

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

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

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

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

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

Bankruptcy Filing

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 April 14, 2015, the Debtors filed with the Bankruptcy Court the Plan of Reorganization and the Disclosure Statement. See Note 2 for further discussion regarding the Chapter 11 Cases and our recent filing of the Plan of Reorganization and the Disclosure Statement.


4


Basis of Presentation, Including Application of Bankruptcy Accounting

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

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

Use of Estimates

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

Changes in Accounting Standards

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the requirements for reporting discontinued operations. The ASU states that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity's operations and financial results when the component of an entity or group of components of an entity meets the criteria to be classified as held for sale, is disposed of by sale, or is disposed of other than by sale. The amendments in this ASU also require additional disclosures about discontinued operations. ASU 2014-08 is effective for the Company for the first quarter of 2015. This new requirement is relevant to our presentation of the equity method investment in Oncor, which has been proposed for sale within the Chapter 11 Cases. The new guidance eliminated a scope exception previously applicable to equity method investments, resulting in the requirement of further analysis of the presentation of the Oncor equity method investment. Based on our analysis, ASU 2014-08 will not materially affect our results of operations, financial position, or cash flows, until a plan of sale of the Oncor investment is approved by the Bankruptcy Court, at which time presentation as discontinued operations may be appropriate.

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

In April 2015 the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03) Simplifying Balance Sheet Presentation by Presenting Debt Issuance Costs as a Deduction from Recognized Debt Liability. The ASU is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. Early adoption is permitted. The new standard requires debt issuance costs to be classified as reductions to the face value of the related debt. We do not expect ASU 2015-03 to materially affect our financial position until we issue new debt. During the Chapter 11 Cases, debt issuance costs on prepetition debt subject to compromise will continue to be reported in liabilities subject to compromise.


5



2.    CHAPTER 11 CASES

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

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

Proposed Plan of Reorganization

A Chapter 11 plan of reorganization, among other things, determines the rights and satisfaction of claims of various creditors and security holders of an entity operating under the protection of the Bankruptcy Court and is subject to the ultimate outcome of stakeholder negotiations and Bankruptcy Court decisions ongoing through the date on which the Chapter 11 plan is confirmed. In order for the Debtors to emerge successfully from the Chapter 11 Cases as reorganized companies, they must obtain approval from the Bankruptcy Court and certain of their respective creditors for a Chapter 11 plan of reorganization. The Debtors currently have the exclusive right to file a Chapter 11 plan of reorganization in the Chapter 11 Cases until June 23, 2015 and the exclusive right to solicit the appropriate votes for any such plan it files prior to such date until August 23, 2015 (i.e. collectively, the exclusivity period).

On April 14, 2015, the Debtors filed with the Bankruptcy Court the Plan of Reorganization and the Disclosure Statement. In general, the Plan of Reorganization proposes a structure that involves a tax-free deconsolidation or tax-free spin-off of TCEH from EFH Corp. (Reorganized TCEH) and the reorganization of EFH Corp. and EFIH either (a) as contemplated by the Debtors' previously disclosed Bankruptcy Court approved bidding procedures with respect to the potential sale of EFH Corp.'s indirect economic interest in Oncor, (b) pursuant to a standalone plan of reorganization or (c) pursuant to a creditor back-stopped plan of reorganization. Pursuant to the Plan of Reorganization, among other things, holders of TCEH first lien secured claims would receive 100% of the common stock of Reorganized TCEH and 100% of the proceeds of new debt issued by Reorganized TCEH. Also, pursuant to the Plan of Reorganization, the Debtors would select the highest or otherwise best transaction to maximize value for reorganized EFH Corp. and EFIH.

The Plan of Reorganization is subject to revision in response to creditor and/or stakeholder claims and objections and the requirements of the Bankruptcy Code and/or the Bankruptcy Court. Unless the Plan of Reorganization receives the requisite approval from holders of claims and the Bankruptcy Court, upon expiration of the exclusivity period (unless extended by the Bankruptcy Court), any creditor or stakeholder would have the ability to file in the Chapter 11 Cases one or more Chapter 11 plans of reorganization.

The Disclosure Statement contains, among other things, detailed information about the Plan of Reorganization, a historical profile of our businesses, a description of proposed distributions to creditors under the Plan of Reorganization, and an analysis of the Plan of Reorganization's feasibility, as well as many of the technical matters required for the Debtors to exit from bankruptcy, such as descriptions of who will be eligible to vote on the Plan of Reorganization and the voting process itself. The information contained in the Disclosure Statement is subject to change, for a number of reasons, including amendments to the Plan of Reorganization, actions of third parties, including the Bankruptcy Court, or otherwise.

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


6


Proposed Sale of EFH Corp.'s Indirect Economic Ownership Interest in Oncor

In September 2014, the Debtors filed a motion with the Bankruptcy Court seeking the entry of an order approving bidding procedures with respect to the potential sale of EFH Corp.'s indirect economic ownership interest in Oncor. In January 2015, the Bankruptcy Court approved the Debtors' bidding procedures motion that sets forth the process by which the Debtors are authorized to solicit proposals (i.e., bids) from third parties to acquire (in any form and employing any structure, whether taxable (in whole or in part) or tax-free) EFH Corp.'s indirect economic ownership interest in Oncor in accordance with the Bankruptcy Code. These bidding procedures contemplate that the Debtors select a stalking horse bid after a two-stage closed bidding process, and, after approval by the Bankruptcy Court of such stalking horse bid, the Debtors conduct a round of open bidding culminating in an auction intended to obtain a higher or otherwise best bid for a transaction. Initial bids were received in early March 2015 and second round bids were received in April 2015, and each of the Debtors is currently assessing those submissions. We cannot predict the outcome of this process, including whether we will receive any acceptable bid, whether the Bankruptcy Court will approve any such bid or whether any such transaction will (or when it will) ultimately close because any such transaction would be the subject of customary closing conditions, including receipt of all applicable regulatory approvals.

Scheduling Matters

The Debtors filed a proposed scheduling order with respect to the Disclosure Statement and the Plan of Reorganization on April 14, 2015. On May 4, 2015, the Bankruptcy Court indicated that it would approve (a) the Debtors' request to hold a hearing on the Disclosure Statement on July 20, 2015 (and related discovery protocols) and (b) mediation between the Debtors and certain TCEH stakeholders with respect to Plan of Reorganization issues that affect the TCEH Debtors' estates. The Bankruptcy Court is expected to hold a scheduling conference on June 25, 2015 to address a Plan of Reorganization confirmation timeline (and related confirmation discovery protocols). The Disclosure Statement timeline set forth in the proposed scheduling order is subject to revision by the Bankruptcy Court, and may change based on subsequent orders entered by the Bankruptcy Court (on its own, upon the motion of a party, or upon the Debtors' request). There is no guarantee that mediation will be successful.

Tax Matters

In June 2014, EFH Corp. filed a request with the IRS for a private letter ruling (Private Letter Ruling) that, among other things, will provide (a) that (i) the transfer by TCEH of all of its assets and its ordinary course operating liabilities to reorganized TCEH completed through a tax-free spin (in accordance with the Private Letter Ruling) in connection with TCEH's emergence from bankruptcy (Reorganized TCEH), (ii) the transfer by the Debtors to Reorganized TCEH of certain assets and liabilities that are reasonably necessary to the operation of Reorganized TCEH and (iii) the distribution by TCEH of (A) the equity it holds in Reorganized TCEH and (B) the cash proceeds TCEH receives from Reorganized TCEH to the holders of TCEH first lien claims, will qualify as a reorganization within the meaning of Sections 368(a)(1)(G), 355 and 356 of the Code and (b) for certain other rulings under Sections 368(a)(1)(G) and 355 of the Code. The Debtors intend to continue to pursue the Private Letter Ruling to support the Plan of Reorganization and other potential Chapter 11 plans of reorganization that could ultimately be proposed. In October 2014, the Debtors filed a memorandum with the Bankruptcy Court that described tax related matters regarding restructuring alternatives.

Implications of the Chapter 11 Cases

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


7


Operations During the Chapter 11 Cases

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

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

Pre-Petition Claims

Holders of the substantial majority of pre-petition claims were required to file proofs of claims by the bar date established by the Bankruptcy Court. A bar date is the date by which certain claims against the Debtors must be filed if the claimants wish to receive any distribution in the Chapter 11 Cases. The Bankruptcy Court established a bar date of October 27, 2014 for the substantial majority of claims. We have received approximately 10,000 filed claims since the Petition Date. We are in the process of reconciling those claims to the amounts listed in our schedules of assets and liabilities, which includes communications with claimants to acquire additional information required for reconciliation. As of May 7, 2015, approximately 4,000 of those claims have been settled, withdrawn or expunged. To the extent claims are reconciled and resolved, we have recorded them at the expected allowed amount. Claims that remain unresolved or unreconciled through the filing of this report have been estimated based upon management's best estimate of the likely claim amounts that the Bankruptcy Court will ultimately allow.

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

Executory Contracts and Unexpired Leases

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

Since the Petition Date, we have renegotiated or rejected a limited number of executory contracts and unexpired leases. For the three months ended March 31, 2015, this activity has resulted in the recognition of approximately $32 million in contract claim adjustment charges recorded in reorganization items as detailed in Note 8.



8


3.
VARIABLE INTEREST ENTITIES

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

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

Non-Consolidation of Oncor and Oncor Holdings

Our investment in unconsolidated subsidiary as presented in the condensed consolidated balance sheets totaled $6.060 billion and $6.058 billion at March 31, 2015 and December 31, 2014, respectively, and consists almost entirely of our interest in Oncor Holdings, which we account for under the equity method as described above. Oncor provides services, principally electricity distribution, to TCEH's retail operations, and the related revenues represented 25% and 26% of Oncor Holdings' consolidated operating revenues for the three months ended March 31, 2015 and 2014, respectively.

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

Distributions from Oncor Holdings and Related Considerations Oncor Holdings' distributions of earnings to us totaled $74 million and $37 million for the three months ended March 31, 2015 and 2014, respectively. Distributions may not be paid except to the extent Oncor maintains a required regulatory capital structure as discussed below. At March 31, 2015, $37 million was eligible to be distributed to Oncor's members after taking into account the regulatory capital structure limit, of which approximately 80% relates to our ownership interest in Oncor. The boards of directors of each of Oncor and Oncor Holdings can withhold distributions to the extent the applicable board determines in good faith that it is necessary to retain such amounts to meet expected future requirements of Oncor and/or Oncor Holdings.

Oncor's distributions are limited by its regulatory capital structure, which is required to be at or below the assumed debt-to-equity ratio established periodically by the PUCT for ratemaking purposes, which is currently set at 60% debt to 40% equity. At March 31, 2015, Oncor's regulatory capitalization ratio was 59.8% debt and 40.2% equity. For purposes of this ratio, debt is calculated as long-term debt plus unamortized gains on reacquired debt less unamortized issuance expenses, premiums and losses on reacquired debt. The debt calculation excludes bonds issued by Oncor Electric Delivery Transition Bond Company LLC, which were issued in 2003 and 2004 to recover specific generation-related regulatory assets and other qualified costs. Equity is calculated as membership interests determined in accordance with US GAAP, excluding the effects of accounting for the Merger (which included recording the initial goodwill and fair value adjustments and the subsequent related impairments and amortization).

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


9


Oncor Holdings Financial Statements Condensed statements of consolidated income of Oncor Holdings and its subsidiaries for the three months ended March 31, 2015 and 2014 are presented below:
 
Three Months Ended March 31,
 
2015
 
2014
Operating revenues
$
946

 
$
917

Operation and maintenance expenses
(380
)
 
(345
)
Depreciation and amortization
(217
)
 
(210
)
Taxes other than income taxes
(111
)
 
(108
)
Other income
2

 
4

Other deductions
(4
)
 
(3
)
Interest income
1

 
1

Interest expense and related charges
(81
)
 
(88
)
Income before income taxes
156

 
168

Income tax expense
(61
)
 
(67
)
Net income
95

 
101

Net income attributable to noncontrolling interests
(20
)
 
(21
)
Net income attributable to Oncor Holdings
$
75

 
$
80



10


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

 
$
5

Restricted cash
58

 
56

Trade accounts receivable — net
417

 
407

Trade accounts and other receivables from affiliates
128

 
118

Income taxes receivable from EFH Corp.
80

 
144

Inventories
79

 
73

Accumulated deferred income taxes
10

 
10

Prepayments and other current assets
92

 
91

Total current assets
882

 
904

Restricted cash
16

 
16

Other investments
97

 
97

Property, plant and equipment — net
12,626

 
12,463

Goodwill
4,064

 
4,064

Regulatory assets — net
1,349

 
1,429

Other noncurrent assets
71

 
67

Total assets
$
19,105

 
$
19,040

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
800

 
$
711

Long-term debt due currently
109

 
639

Trade accounts payable — nonaffiliates
158

 
202

Income taxes payable to EFH Corp.
31

 
24

Accrued taxes other than income
66

 
174

Accrued interest
56

 
93

Other current liabilities
117

 
156

Total current liabilities
1,337

 
1,999

Accumulated deferred income taxes
1,949

 
1,978

Long-term debt, less amounts due currently
5,720

 
4,997

Other noncurrent liabilities and deferred credits
2,260

 
2,245

Total liabilities
$
11,266

 
$
11,219



11



4.
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill

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

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

Additional noncash impairment charge in 2015
(700
)
Balance at March 31, 2015 (a)
$
1,652

____________
(a)
Net of accumulated impairment charges totaling $16.69 billion.

Goodwill Impairments

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

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

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

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

There was no change to the goodwill balance for the three months ended March 31, 2014.

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

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

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


12


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

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

Changes in the above and other assumptions could materially affect the calculated amount of implied goodwill and any resulting goodwill impairment charge.

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

Identifiable Intangible Assets

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

 
$
429

 
$
34

 
$
463

 
$
425

 
$
38

Capitalized in-service software
 
346

 
203

 
143

 
362

 
216

 
146

Other identifiable intangible assets (a)
 
68

 
7

 
61

 
460

 
291

 
169

Total identifiable intangible assets subject to amortization
 
$
877

 
$
639

 
238

 
$
1,285

 
$
932

 
353

Retail trade name (not subject to amortization)
 
 
 
 
 
955

 
 
 
 
 
955

Mineral interests (not currently subject to amortization)
 
 
 
 
 
6

 
 
 
 
 
7

Total identifiable intangible assets
 
 
 
 
 
$
1,199

 
 
 
 
 
$
1,315

____________
(a)
See discussion below regarding impairment charges recorded in the three months ended March 31, 2015 related to other identifiable intangible assets.

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


13


Amortization expense related to finite-lived identifiable intangible assets (including the condensed statements of consolidated income (loss) line item) consisted of:
Identifiable Intangible Asset
 
Condensed Statement of Consolidated Income (Loss) Line
 
Segment
 
Three Months Ended March 31,
 
 
 
2015
 
2014
Retail customer relationship
 
Depreciation and amortization
 
Competitive Electric
 
$
4

 
$
6

Capitalized in-service software
 
Depreciation and amortization
 
Competitive Electric and Corporate and Other
 
11

 
11

Other identifiable intangible assets
 
Operating revenues/fuel, purchased power costs and delivery fees/depreciation and amortization
 
Competitive Electric
 
5

 
18

Total amortization expense (a)
 
 
 
 
 
$
20

 
$
35

____________
(a)
Amounts recorded in depreciation and amortization totaled $15 million and $25 million for the three months ended March 31, 2015 and 2014, respectively.

Intangible Impairments

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

The impairment of our Big Brown generation facility (see Note 6) resulted in the impairment of the SO2 allowances under the Clean Air Act's acid rain cap-and-trade program that are associated with that facility to the extent they are not projected to be used at other sites. The fair market values of the SO2 allowances were estimated to be de minimis based on Level 3 fair value estimates (see Note 13). Accordingly, in the three months ended March 31, 2015 we recorded a noncash impairment charge of $51 million in our Competitive Electric segment (before deferred income tax benefit) in other deductions related to our existing environmental allowances and credits intangible asset. SO2 emission allowances granted to us were recorded as intangible assets at fair value in connection with purchase accounting related to the Merger in 2007.

Estimated Amortization of Identifiable Intangible Assets

The estimated aggregate amortization expense of identifiable intangible assets for each of the next five fiscal years is as follows:
Year
 
Estimated Amortization Expense
2015
 
$
73

2016
 
$
59

2017
 
$
46

2018
 
$
26

2019
 
$
12



14



5.
INCOME TAXES

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

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

The calculation of our effective tax rate is as follows:
 
Three Months Ended March 31,
 
2015
 
2014
Loss before income taxes and equity in earnings of unconsolidated subsidiaries
$
(2,003
)
 
$
(1,049
)
Income tax benefit
$
401

 
$
360

Effective tax rate
20.0
%
 
34.3
%

For the three months ended March 31, 2015, the effective tax rate of 20.0% related to our income tax benefit was lower than the US Federal statutory rate of 35% due primarily to the nondeductible goodwill impairment charge (see Note 4) and nondeductible legal and other professional services costs related to the Chapter 11 Cases, offset by the difference in the forecasted effective tax rate and the statutory rate applied to long-lived and intangible asset impairment charges (see Notes 4 and 6). For the three months ended March 31, 2014, the effective tax rate of 34.3% related to our income tax benefit was slightly lower than the US Federal statutory rate of 35% due primarily to nondeductible expenses related to our debt restructuring activities.


6.
IMPAIRMENT OF LONG-LIVED ASSETS

Impairment of Lignite/Coal Fueled Generation and Mining Assets

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

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


15



7.
INTEREST EXPENSE AND RELATED CHARGES

 
Three Months Ended March 31,
 
2015
 
2014
Interest paid/accrued on debtor-in-possession financing
$
73

 
$

Adequate protection amounts paid/accrued (a)
302

 

Interest paid/accrued on pre-petition debt (b)
237

 
831

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

 
49

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

 
(65
)
Amortization of interest rate swap losses at dedesignation of hedge accounting

 
(1
)
Amortization of fair value debt discounts resulting from purchase accounting

 
5

Amortization of debt issuance, amendment and extension costs and discounts

 
51

Capitalized interest
(3
)
 
(7
)
Total interest expense and related charges
$
609

 
$
863

____________
(a)
Post-petition period only.
(b)
For the three months ended March 31, 2015, amounts include $235 million in post-petition interest related to the EFIH Second Lien Notes (see Note 10). Includes amounts related to interest rate swaps totaling zero and $146 million for the three months ended March 31, 2015 and 2014, respectively.

Interest expense for the three months ended March 31, 2015 reflects interest paid and accrued on debtor-in-possession financing (see Note 9), adequate protection amounts paid and accrued, as approved by the Bankruptcy Court in June 2014 for the benefit of secured creditors of (a) $22.616 billion principal amount of outstanding borrowings from the TCEH Senior Secured Facilities, (b) $1.750 billion principal amount of outstanding TCEH Senior Secured Notes and (c) the $1.235 billion net liability related to the TCEH interest rate swaps and natural gas hedging positions terminated shortly after the Bankruptcy Filing (see Note 14), in exchange for their consent to the senior secured, super-priority liens contained in the TCEH DIP Facility and any diminution in value of their interests in the pre-petition collateral from the Petition Date, and interest paid on EFIH's pre-petition 11.00% Second Lien Notes due 2021 and 11.75% Second Lien Notes due 2022 as approved by the Bankruptcy Court in March 2015 (see Note 10). The interest rate applicable to the adequate protection amounts paid/accrued for the three months ended March 31, 2015 is 4.67% (one-month LIBOR plus 4.50%). In connection with the completion of the Plan of Reorganization, the amount of adequate protection payments may be adjusted to reflect the valuation of the TCEH Debtors determined in connection with confirmation of the Plan of Reorganization by the Bankruptcy Court.


16


The Bankruptcy Code generally restricts payment of interest on pre-petition debt, subject to certain exceptions. However, the Bankruptcy Court ordered the payment of adequate protection amounts as discussed above and post-petition interest payments on EFIH First Lien Notes in connection with the settlement in June 2014 as discussed in Note 9. Additionally, the Bankruptcy Court approved post-petition interest payments on the EFIH Second Lien Notes in March 2015 as discussed in Note 10. Additional payments may also be made upon approval by the Bankruptcy Court, at the federal judgment rate (see Note 11). Other than these amounts ordered or approved by the Bankruptcy Court, effective April 29, 2014, we discontinued recording interest expense on outstanding pre-petition debt classified as liabilities subject to compromise (LSTC). The table below shows contractual interest amounts, which are amounts due under the contractual terms of the outstanding debt, including debt subject to compromise during the Chapter 11 Cases. Interest expense reported in the condensed statements of consolidated income (loss) for the three months ended March 31, 2015 does not include $288 million in contractual interest on pre-petition debt classified as LSTC, which has been stayed by the Bankruptcy Court effective on the Petition Date. For the three months ended March 31, 2015, adequate protection paid/accrued presented below excludes $14 million related to interest paid/accrued on the TCEH first-lien interest rate and commodity hedge claims (see Note 14), as such amounts are not included in contractual interest amounts below.
 
 
Three Months Ended March 31, 2015
Entity:
 
Contractual Interest on
Debt Classified as LSTC
 
Adequate Protection
Paid/Accrued
 
Approved Interest Paid/Accrued (a)
 
Contractual Interest on
Debt Classified as LSTC Not
Paid/Accrued
EFH Corp.
 
$
31

 
$

 
$

 
$
31

EFIH
 
111

 

 
50

 
61

EFCH
 
2

 

 

 
2

TCEH
 
513

 
288

 

 
225

Eliminations (b)
 
(31
)
 

 

 
(31
)
Total
 
$
626

 
$
288

 
$
50

 
$
288

___________
(a)
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 the three months ended March 31, 2015 that contractually related to 2014 (see Note 10).
(b)
Represents contractual interest on affiliate debt held by EFH Corp. and EFIH that is classified as liabilities subject to compromise.


8.
REORGANIZATION ITEMS

Expenses and income directly associated with the Chapter 11 Cases are reported separately in the condensed statements of consolidated income (loss) as reorganization items as required by ASC 852, Reorganizations. Reorganization items also include adjustments to reflect the carrying value of liabilities subject to compromise (LSTC) at their estimated allowed claim amounts, as such adjustments are determined. The following table presents reorganization items incurred in the three months ended March 31, 2015 as reported in the condensed statements of consolidated income (loss):
 
Three Months Ended March 31, 2015
Expenses related to legal advisory and representation services
$
50

Expenses related to other professional consulting and advisory services
28

Fees associated with repayment of EFIH Second Lien Notes (Note 10)
28

Contract claims adjustments
32

Total reorganization items
$
138



17



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

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

The TCEH DIP Facility and related available capacity at March 31, 2015 are presented below. Borrowings are reported in the condensed consolidated balance sheets as borrowings under debtor-in-possession credit facilities.
 
 
March 31, 2015
TCEH DIP Facility
 
Facility
Limit
 
Available Cash
Borrowing Capacity
 
Available Letter of Credit Capacity
TCEH DIP Revolving Credit Facility (a)
 
$
1,950

 
$
1,950

 
$

TCEH DIP Term Loan Facility (b)
 
1,425

 

 
433

Total TCEH DIP Facility
 
$
3,375

 
$
1,950

 
$
433

___________
(a)
Facility used for general corporate purposes. No amounts were borrowed at March 31, 2015. Pursuant to an order of the Bankruptcy Court, the TCEH Debtors may not have more than $1.650 billion of TCEH DIP Revolving Credit Facility cash borrowings outstanding without written consent of the TCEH committee of unsecured creditors and the ad hoc group of TCEH unsecured noteholders or further order of the Bankruptcy Court.
(b)
Facility used for general corporate purposes, including but not limited to, $800 million for issuing letters of credit.

At both March 31, 2015 and December 31, 2014, all $1.425 billion of the TCEH DIP Term Loan Facility has been borrowed. Of this borrowing, $800 million represents amounts that support issuances of letters of credit and have been funded to a collateral account. Of the collateral account amount at March 31, 2015, $433 million is reported as cash and cash equivalents and $367 million is reported as restricted cash, which represents the amount of outstanding letters of credit.

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

The TCEH DIP Facility will mature on the earlier of (a) the effective date of any reorganization plan, (b) upon the event of the sale of substantially all of TCEH's assets or (c) May 2016. The maturity date may be extended to no later than November 2016 subject to the satisfaction of certain conditions, including the payment of a 25 basis point extension fee, a requirement that an acceptable plan of reorganization has been filed on or prior to such extension and the availability of certain metrics of liquidity applicable to the TCEH Debtors. In addition, TCEH's existing cash collateral order expires in October 2015. The expiration of the cash collateral order is an event of default under the TCEH DIP Facility. Accordingly, absent an extension of the existing cash collateral order or a new cash collateral order (agreed by the facility's lenders and the Bankruptcy Court), the lenders under the TCEH DIP Facility could accelerate the obligations under the facility.

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

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


18


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

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

The TCEH DIP Facility provides for certain customary events of default, including events of default resulting from non-payment of principal, interest or other amounts when due, material breaches of representations and warranties, material breaches of covenants in the TCEH DIP Facility or ancillary loan documents, cross-defaults under other agreements or instruments and the entry of material judgments against the TCEH Debtors. The agreement governing the TCEH DIP Facility includes a covenant that requires the Consolidated Superpriority Secured Net Debt to Consolidated EBITDA ratio not exceed 3.50 to 1.00 beginning with the test period ending June 30, 2014. Consolidated Superpriority Secured Net Debt consists of outstanding term loans and revolving credit exposure under the TCEH DIP Facility less unrestricted cash. Upon the existence of an event of default, the TCEH DIP Facility provides that all principal, interest and other amounts due thereunder will become immediately due and payable, either automatically or at the election of specified lenders.

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

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

As of March 31, 2015, remaining borrowings under the facility, net of fees, along with existing cash on hand, totaled approximately $392 million, which was held as cash and cash equivalents.

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

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

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


19


The EFIH DIP Facility provides for affirmative and negative covenants applicable to EFIH and EFIH Finance, including affirmative covenants requiring EFIH and EFIH Finance to provide financial information, budgets and other information to the agents under the EFIH DIP Facility, and negative covenants restricting EFIH's and EFIH Finance's ability to incur additional indebtedness, grant liens, dispose of assets, pay dividends or take certain other actions, in each case except as permitted in the EFIH DIP Facility. The EFIH DIP Facility also includes a minimum liquidity covenant pursuant to which EFIH cannot allow the amount of its unrestricted cash (as defined in the EFIH DIP Facility) to be less than $150 million. As of March 31, 2015, EFIH was in compliance with this minimum liquidity covenant. The Oncor Ring-Fenced Entities are not restricted subsidiaries for purposes of the EFIH DIP Facility.

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

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

Long-Term Debt Not Subject to Compromise — Amounts presented in the table below represent pre-petition liabilities that are not subject to compromise due to the debt being fully collateralized or specific orders from the Bankruptcy Court approving repayment of the debt.
 
March 31,
2015
 
December 31,
2014
EFH Corp. (parent entity)
 
 
 
8.82% Non-Debtor Building Financing due semiannually through February 11, 2022
$
38

 
$
40

Unamortized fair value premium (a)
7

 
7

Total EFH Corp.
45

 
47

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

 
21

8.254% Fixed Notes due in quarterly installments through December 31, 2021 (b)
27

 
29

Unamortized fair value discount (a)
(3
)
 
(3
)
Total EFCH
45

 
47

TCEH
 
 
 
7.48% Fixed Secured Facility Bonds with amortizing payments through January 2017 (c)
23

 
25

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

 
4

Capital lease obligations
43

 
44

Other
2

 
2

Unamortized discount
(1
)
 
(2
)
Total TCEH
67

 
73

Total EFH Corp. consolidated
157

 
167

Less amounts due currently
(36
)
 
(39
)
Total long-term debt not subject to compromise
$
121

 
$
128

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


20



10.
LIABILITIES SUBJECT TO COMPROMISE

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

 
$
35,124

Accrued interest on notes, loans and other debt
749

 
804

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

 
1,235

Trade accounts payable and other expected allowed claims
272

 
269

Total liabilities subject to compromise
$
36,935

 
$
37,432


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

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

 
$
2

10% Fixed Senior Notes due January 15, 2020
3

 
3

10.875% Fixed Senior Notes due November 1, 2017
33

 
33

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

 
27

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

 
90

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

 
201

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

 
291

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

 
529

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

 
406

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

 
1,750

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

 
1,566

9.75% Fixed Senior Notes due October 15, 2019
2

 
2

Unamortized premium
243

 
243

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

 
3,846

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

 
1

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

 
8

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

 
8

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

 
3,809

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

 
42

 
 
 
 

21


 
March 31,
2015
 
December 31,
2014
TCEH Floating Rate Revolving Credit Facility due October 10, 2016
$
2,054

 
$
2,054

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

 
15,691

TCEH Floating Rate Letter of Credit Facility due October 10, 2017
1,020

 
1,020

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

 
1,750

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

 
336

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

 
1,235

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

 
1,833

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

 
1,292

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

 
1,749

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

 
39

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

 
111

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

 
50

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

 
71

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

 
171

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

 
39

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

 
52

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

 
31

5.00% Fixed Series 2006 due March 1, 2041
100

 
100

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

 
51

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

 
70

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

 
12

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

 
45

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

 
14

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

 
1

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

 
31,474

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

 
$
35,124

___________
(a)
Excludes the following principal amounts of debt held by EFIH or EFH Corp. (parent entity) and eliminated in consolidation.
 
March 31,
2015
 
December 31,
2014
EFH Corp. 5.55% Fixed Series P Senior Notes due November 15, 2014
$
281

 
$
281

EFH Corp. 6.50% Fixed Series Q Senior Notes due November 15, 2024
545

 
545

EFH Corp. 6.55% Fixed Series R Senior Notes due November 15, 2034
456

 
456

TCEH Floating Rate Term Loan Facilities due October 10, 2017
19

 
19

TCEH 10.25% Fixed Senior Notes due November 1, 2015
213

 
213

TCEH 10.25% Fixed Senior Notes due November 1, 2015, Series B
150

 
150

Total
$
1,664

 
$
1,664


(b)
Amount represents unamortized fair value adjustments recorded under purchase accounting.


22


Repayment of EFIH Second Lien Notes

In March 2015, with the approval of the Bankruptcy Court, EFIH used some of its cash to repay (Repayment) $735 million, including interest at contractual rates, in amounts outstanding under EFIH's pre-petition 11.00% Fixed Senior Secured Second Lien Notes due October 1, 2021 (11.00% Notes) and 11.75% Fixed Senior Secured Second Lien Notes due March 1, 2022 (11.75% Notes) and $15 million in certain fees and expenses of the trustee for such notes. The Repayment resulted in an $84 million reduction in the principal amount of the 11.00% Notes, a $361 million reduction in the principal amount of the 11.75% Notes and the payment of $235 million and $55 million of accrued and unpaid post-petition and pre-petition interest, respectively, at contractual rates. The Repayment required the requisite consent of the lenders under EFIH's DIP Facility. EFIH received such consent from approximately 97% of the lenders under the EFIH DIP Facility in consideration of an aggregate consent fee equal to approximately $13 million. As a result of the Repayment, as of March 31, 2015, the principal amount outstanding on the 11.00% Notes and 11.75% Notes are $322 million and $1.389 billion, respectively.

TCEH Letter of Credit Facility Activity

Borrowings under the TCEH Letter of Credit Facility have been recorded by TCEH as restricted cash that supports issuances of letters of credit. At March 31, 2015, the restricted cash related to the pre-petition TCEH Letter of Credit Facility totaled $506 million and supported $7 million in outstanding letters of credit. Due to the default under the pre-petition TCEH Senior Secured Facilities, the remaining $499 million letter of credit capacity is no longer available. In the first quarter of 2014, TCEH issued a $157 million letter of credit to a subsidiary of EFH Corp. to secure its current and future amounts payable to the subsidiary arising from recurring transactions in the normal course of business, and in 2014, the subsidiary drew on the letter of credit in the amount of $150 million to settle amounts due from TCEH. The remaining $7 million under the letter of credit expired in July 2014. For the year ended December 31, 2014 and the three months ended March 31, 2015, $245 million and $45 million, respectively, of letters of credit have been drawn upon by counterparties to settle amounts due from TCEH. Included in the three months ended March 31, 2015 amount was $20 million drawn by certain executive officers to satisfy payments related to long-term incentive awards.

Information Regarding Significant Pre-Petition Debt

The TCEH pre-petition debt described below is junior in right of priority and payment to the TCEH DIP Facility, and the EFIH pre-petition debt (including EFIH's guarantee of the EFH Corp. debt) described below is junior in right of priority and payment to the EFIH DIP Facility.

TCEH Senior Secured Facilities Borrowings under the TCEH Senior Secured Facilities total $22.616 billion and consist of:

$3.809 billion of TCEH Term Loan Facilities with interest at LIBOR plus 3.50%;
$15.691 billion of TCEH Term Loan Facilities with interest at LIBOR plus 4.50%, excluding $19 million aggregate principal amount held by EFH Corp.;
$42 million of cash borrowed under the TCEH Letter of Credit Facility with interest at LIBOR plus 3.50%;
$1.020 billion of cash borrowed under the TCEH Letter of Credit Facility with interest at LIBOR plus 4.50%, and
Amounts borrowed under the TCEH Revolving Credit Facility, which represent the entire amount of commitments under the facility totaling $2.054 billion.

The TCEH Senior Secured Facilities are fully and unconditionally guaranteed jointly and severally on a senior secured basis by EFCH, and subject to certain exceptions, each existing and future direct or indirect wholly owned US subsidiary of TCEH. The TCEH Senior Secured Facilities, the TCEH Senior Secured Notes and the TCEH first lien hedges (or any termination amounts related thereto), discussed below, are secured on a first priority basis by (i) substantially all of the current and future assets of TCEH and TCEH's subsidiaries who are guarantors of such facilities and (ii) pledges of the capital stock of TCEH and certain current and future direct or indirect subsidiaries of TCEH.

TCEH 11.5% Senior Secured Notes The principal amount of the TCEH 11.5% Senior Secured Notes totals $1.750 billion, with interest payable at a fixed rate of 11.5% per annum. The notes are fully and unconditionally guaranteed on a joint and several basis by EFCH and each subsidiary of TCEH that guarantees the TCEH Senior Secured Facilities (collectively, the Guarantors). The notes are secured, on a first-priority basis, by security interests in all of the assets of TCEH, and the guarantees are secured on a first-priority basis by all of the assets and equity interests held by the Guarantors, in each case, to the extent such assets and equity interests secure obligations under the TCEH Senior Secured Facilities (the TCEH Collateral), subject to certain exceptions and permitted liens.


23


The notes are (i) senior obligations and rank equally in right of payment with all senior indebtedness of TCEH, (ii) senior in right of payment to all existing or future unsecured and second-priority secured debt of TCEH to the extent of the value of the TCEH Collateral and (iii) senior in right of payment to any future subordinated debt of TCEH. These notes are effectively subordinated to all secured obligations of TCEH that are secured by assets other than the TCEH Collateral, to the extent of the value of the assets securing such obligations.

The guarantees of the TCEH Senior Secured Notes by the Guarantors are effectively senior to any unsecured and second-priority debt of the Guarantors to the extent of the value of the TCEH Collateral. The guarantees are effectively subordinated to all debt of the Guarantors secured by assets that are not part of the TCEH Collateral, to the extent of the value of the collateral securing that debt.

TCEH 15% Senior Secured Second Lien Notes (including Series B) — The principal amount of the TCEH 15% Senior Secured Second Lien Notes totals $1.571 billion with interest at a fixed rate of 15% per annum. The notes are fully and unconditionally guaranteed on a joint and several basis by EFCH and, subject to certain exceptions, each subsidiary of TCEH that guarantees the TCEH Senior Secured Facilities. The notes are secured, on a second-priority basis, by security interests in all of the assets of TCEH, and the guarantees (other than the guarantee of EFCH) are secured on a second-priority basis by all of the assets and equity interests of all of the Guarantors other than EFCH (collectively, the Subsidiary Guarantors), in each case, to the extent such assets and security interests secure obligations under the TCEH Senior Secured Facilities on a first-priority basis, subject to certain exceptions (including the elimination of the pledge of equity interests of any Subsidiary Guarantor to the extent that separate financial statements would be required to be filed with the SEC for such Subsidiary Guarantor under Rule 3-16 of Regulation S-X) and permitted liens. The guarantee from EFCH is not secured.

The notes are senior obligations of the issuer and rank equally in right of payment with all senior indebtedness of TCEH, are senior in right of payment to all existing or future unsecured debt of TCEH to the extent of the value of the TCEH Collateral (after taking into account any first-priority liens on the TCEH Collateral) and are senior in right of payment to any future subordinated debt of TCEH. These notes are effectively subordinated to TCEH's obligations under the TCEH Senior Secured Facilities, the TCEH Senior Secured Notes and TCEH's commodity and interest rate hedges that are secured by a first-priority lien on the TCEH Collateral and any future obligations subject to first-priority liens on the TCEH Collateral, to the extent of the value of the TCEH Collateral, and to all secured obligations of TCEH that are secured by assets other than the TCEH Collateral, to the extent of the value of the assets securing such obligations.

The guarantees of the TCEH Senior Secured Second Lien Notes by the Subsidiary Guarantors are effectively senior to any unsecured debt of the Subsidiary Guarantors to the extent of the value of the TCEH Collateral (after taking into account any first-priority liens on the TCEH Collateral). These guarantees are effectively subordinated to all debt of the Subsidiary Guarantors secured by the TCEH Collateral on a first-priority basis or that is secured by assets that are not part of the TCEH Collateral, to the extent of the value of the collateral securing that debt. EFCH's guarantee ranks equally with its unsecured debt (including debt it guarantees on an unsecured basis) and is effectively subordinated to any of its secured debt to the extent of the value of the collateral securing that debt.

TCEH 10.25% Senior Notes (including Series B) and 10.50%/11.25% Senior Toggle Notes (collectively, the TCEH Senior Notes) The principal amount of the TCEH Senior Notes totals $4.874 billion, excluding $363 million aggregate principal amount held by EFH Corp. and EFIH, and the notes are fully and unconditionally guaranteed on a joint and several unsecured basis by TCEH's direct parent, EFCH, and by each subsidiary that guarantees the TCEH Senior Secured Facilities. The TCEH 10.25% Notes bore interest at a fixed rate of 10.25% per annum. The TCEH Toggle Notes bore interest at a fixed rate of 10.50% per annum.

EFIH 6.875% Senior Secured First Lien Notes — There were no principal amounts of the EFIH 6.875% Notes outstanding at March 31, 2015 as the notes were exchanged or settled in June 2014 as discussed in Note 9. The notes bore interest at a fixed rate of 6.875% per annum. The EFIH 6.875% Notes were secured on a first-priority basis by EFIH's pledge of its 100% ownership of the membership interests in Oncor Holdings (the EFIH Collateral) on an equal and ratable basis with the EFIH 10% Notes (discussed below).

EFIH 10% Senior Secured First Lien Notes — There were no principal amounts of the EFIH 10% Notes outstanding at March 31, 2015 as the notes were exchanged or settled in June 2014 as discussed in Note 9. The notes bore interest at a fixed rate of 10% per annum. The notes were secured by the EFIH Collateral on an equal and ratable basis with the EFIH 6.875% Notes.


24


EFIH 11% Senior Secured Second Lien Notes — The principal amount of the EFIH 11% Notes totals $322 million with interest at a fixed rate of 11% per annum. The EFIH 11% Notes are secured on a second-priority basis by the EFIH Collateral on an equal and ratable basis with the EFIH 11.75% Notes. See discussion above related to the Repayment of a portion of these notes in March 2015.

The EFIH 11% Notes are senior obligations of EFIH and EFIH Finance and rank equally in right of payment with all senior indebtedness of EFIH and are effectively senior in right of payment to all existing or future unsecured debt of EFIH to the extent of the value of the EFIH Collateral. The notes have substantially the same terms as the EFIH 11.75% Notes discussed below, and the holders of the EFIH 11% Notes will generally vote as a single class with the holders of the EFIH 11.75% Notes.

EFIH 11.75% Senior Secured Second Lien Notes The principal amount of the EFIH 11.75% Notes totals $1.389 billion with interest at a fixed rate of 11.75% per annum. The EFIH 11.75% Notes are secured on a second-priority basis by the EFIH Collateral on an equal and ratable basis with the EFIH 11% Notes. The EFIH 11.75% Notes have substantially the same covenants as the EFIH 11% Notes, and the holders of the EFIH 11.75% Notes will generally vote as a single class with the holders of the EFIH 11% Notes. See discussion above related to the Repayment of a portion of these notes in March 2015.

The EFIH 11.75% Notes were issued in private placements and are not registered under the Securities Act. EFIH had agreed to use its commercially reasonable efforts to register with the SEC notes having substantially identical terms as the EFIH 11.75% Notes (except for provisions relating to transfer restrictions and payment of additional interest) as part of an offer to exchange freely tradable notes for the EFIH 11.75% Notes. Because the exchange offer was not completed, the annual interest rate on the EFIH 11.75% Notes increased by 25 basis points (to 12.00%) in February 2013 and by an additional 25 basis points (to 12.25%) in May 2013.

EFIH 11.25%/12.25% Senior Toggle Notes — The principal amount of the EFIH Toggle Notes totals $1.566 billion with interest at a fixed rate of 11.25% per annum for cash interest and 12.25% per annum for PIK Interest. The terms of the Toggle Notes include an election by EFIH, for any interest period until June 1, 2016, to pay interest on the Toggle Notes (i) entirely in cash; (ii) by increasing the principal amount of the notes or by issuing new EFIH Toggle Notes (PIK Interest); or (iii) 50% in cash and 50% in PIK Interest. EFIH made its pre-petition interest payments on the EFIH Toggle Notes by using the PIK feature of those notes.

The EFIH Toggle Notes were issued in private placements and are not registered under the Securities Act. EFIH had agreed to use its commercially reasonable efforts to register with the SEC notes having substantially identical terms as the EFIH Toggle Notes (except for provisions relating to transfer restrictions and payment of additional interest) as part of an offer to exchange freely tradable notes for the EFIH Toggle Notes. Because the exchange offer was not completed, the annual interest rate on the EFIH Toggle Notes increased by 25 basis points (to 11.50%) in December 2013 and by an additional 25 basis points (to 11.75%) in March 2014.

EFH Corp. 10.875% Senior Notes and 11.25%/12.00% Senior Toggle Notes — The collective principal amount of these notes totals $60 million. The notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by EFCH and EFIH. The notes bore interest at a fixed rate for the 10.875% Notes of 10.875% per annum and at a fixed rate for the Toggle Notes of 11.25% per annum.

Material Cross Default/Acceleration Provisions — Certain of our pre-petition financing arrangements contain provisions that result in an event of default if there were a failure under other financing arrangements to meet payment terms or to observe other covenants that could or does result in an acceleration of payments due. Such provisions are referred to as "cross default" or "cross acceleration" provisions. The Bankruptcy Filing triggered defaults on our pre-petition debt obligations, but pursuant to the Bankruptcy Code, the creditors are stayed from taking any actions against the Debtors as a result of such defaults.


25



11.
COMMITMENTS AND CONTINGENCIES

Guarantees

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

See Notes 9 and 10 for discussion of guarantees and security for certain of our post-petition and pre-petition debt.

Letters of Credit

At March 31, 2015, TCEH had outstanding letters of credit under credit facilities totaling $374 million as follows:

$200 million to support commodity risk management and trading margin requirements in the normal course of business, including over-the-counter hedging transactions and collateral postings with ERCOT;
$80 million to support executory contracts and insurance agreements;
$62 million to support TCEH's REP financial requirements with the PUCT, and
$32 million for other credit support requirements.

The automatic stay under the Bankruptcy Code does not apply to letters of credit issued under the pre-petition credit facility and third parties may draw if the terms of a particular letter of credit so provide. See Note 10 for discussion of letter of credit draws in 2014 and 2015.

Litigation

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

Make-whole Claims — In May 2014, the indenture trustee for the EFIH 10% First Lien Notes initiated litigation in the Bankruptcy Court seeking, among other things, a declaratory judgment that EFIH is obligated to pay a make-whole premium in connection with the cash repayment of the EFIH First Lien Notes discussed in Note 9 and that such make-whole premium is an allowed secured claim, or in the alternative, an allowed secured or unsecured claim for breach of contract (EFIH First Lien Make-whole Claims). The indenture trustee has alleged that the EFIH First Lien Make-whole Claims are valued at approximately $432 million plus reimbursement of expenses. The indenture trustee also filed a motion in May 2014 asking the Bankruptcy Court to lift the automatic stay for cause in order to allow the trustee's notice purporting to rescind the automatic acceleration of the EFIH First Lien Notes to take effect. Following argument and briefing on cross motions for summary judgment, in March 2015, the Bankruptcy Court issued a ruling and order in favor of the EFIH Debtors on almost all issues, including denying the indenture trustee's motion for summary judgment in full and granting the EFIH Debtors summary judgment on all but the issue of whether to lift the automatic stay. A trial took place in April 2015. The Bankruptcy Court has not yet issued a ruling on these issues.


26


In June 2014, the indenture trustee for the EFIH Second Lien Notes initiated litigation in the Bankruptcy Court seeking similar relief with respect to the EFIH Second Lien Notes, including among other things, that EFIH is obligated to pay a make-whole premium in connection with any repayment of the EFIH Second Lien Notes and that such make-whole premium would be an allowed secured claim, or in the alternative, an allowed secured or unsecured claim for breach of contract (the EFIH Second Lien Make-whole Claims). In the EFIH Second Lien Make-whole Claims, as of March 31, 2015, the amount of such claims alleged would have been equal to approximately $539 million plus reimbursement of expenses. In December 2014, the EFIH Debtors filed counterclaims for relief against the Second Lien indenture trustee, seeking declaratory relief that, among other things, EFIH is not obligated to pay a make-whole premium in connection with any repayment of the EFIH Second Lien Notes and that such make-whole premium, if owing, would not constitute an allowed secured claim (EFIH Second Lien Counterclaims). As a result of EFIH's partial repayment of the EFIH Second Lien Notes, the indenture trustee for the EFIH Second Lien Notes amended its complaint in April 2015. The parties are currently working together on a schedule to propose to the Bankruptcy Court in order to adjudicate this matter.

In December 2014, the EFIH Debtors initiated litigation against the indenture trustee for the EFIH PIK Notes seeking, among other things, a declaratory judgment that EFIH is not obligated to pay a redemption premium in connection with the cash repayment of the EFIH PIK Notes and that any post-petition interest owing on these notes is to be paid at the statutory Federal Judgment Rate of interest. The indenture trustee for the EFIH PIK Notes filed a motion in February 2015 to dismiss the EFIH Debtors' complaint for declaratory relief, and the EFIH Debtors filed a brief in opposition to that motion in February 2015. If a redemption claim was allowed, as of March 31, 2015, such claims would be approximately $100 million. On May 4, 2015, the Bankruptcy Court heard arguments on the motion to dismiss. The Bankruptcy Court has not yet issued a ruling on this issue.

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

Potential Inter/Intra Debtor Claims — In August 2014, the Bankruptcy Court entered an order in the Chapter 11 Cases establishing discovery procedures governing, among other things, certain prepetition transactions among the various Debtors' estates. In February 2015, the ad hoc group of TCEH unsecured creditors; the official committee representing unsecured interests at EFCH and its direct subsidiary, TCEH; and the official committee representing unsecured interests at EFH and EFIH filed motions with the Bankruptcy Court seeking standing to prosecute derivative claims on behalf of TCEH relating to certain of these prepetition transactions. These motions are scheduled to be heard at a later date. In addition to the claims described above, certain of the Debtors (or creditors purporting to act derivatively in the name of a Debtor) may bring inter-Debtor or intra-Debtor claims (including claims under the Federal and State Income Tax Allocation Agreement among EFH Corp. and certain of its subsidiaries under which TCEH and EFH Corp. have previously filed claims in the Chapter 11 Cases) that could be material in amount. Creditors who wish to seek derivative standing to prosecute claims on behalf of a Debtor relating to pre-petition transactions addressed by the discovery protocol governing the Debtors' Chapter 11 Cases are currently required to file motions seeking standing by the later of May 29, 2015 and fifteen days after approval of a disclosure statement. We cannot predict the timing or outcome of future proceedings, if any, related to these transactions. The outcome of any of these claims could be material and could affect the results of operation, liquidity or financial condition of a particular Debtor.

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


27


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

Cross-State Air Pollution Rule (CSAPR)

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

The CSAPR became effective January 1, 2015, but is still subject to further legal challenge before the D.C. Circuit Court on remand from the US Supreme Court. Oral argument took place in February 2015. While we cannot predict the outcome of future proceedings related to the CSAPR, based upon our current operating plans, including Mercury and Air Toxics Standard (MATS) compliance efforts, we do not believe that the CSAPR will cause any material operational, financial or compliance issues.

State Implementation Plan (SIP)

In February 2013, in response to a petition for rulemaking filed by the Sierra Club, the EPA proposed a rule requiring certain states to replace SIP exemptions for excess emissions during malfunctions with an affirmative defense. Texas was not included in that original proposal since it already had an EPA-approved affirmative defense provision in its SIP. In 2014, as a result of a D.C. Circuit Court decision striking down an affirmative defense in another EPA rule, the EPA revised its 2013 proposal to extend the EPA's proposed findings of inadequacy to states that have affirmative defense provisions, including Texas. The EPA's revised proposal would require Texas to remove or replace its EPA-approved affirmative defense provisions for excess emissions during startup, shutdown and maintenance events. We filed comments on the EPA proposal in November 2014, and the EPA is expected to finalize the proposal in May 2015. We cannot predict the timing or outcome of future proceedings related to this rulemaking, including the requirements of any ultimately implemented rule, any compliance timeframe, or the financial effects, if any.

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

Other Matters

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


28



12.
EQUITY

EFH Corp. has not declared or paid any dividends since the Merger.

The agreement governing the TCEH DIP Facility generally restricts TCEH's ability to make distributions or loans to any of its parent companies or their subsidiaries unless such distributions or loans are expressly permitted under the agreement governing such facility.

The agreement governing the EFIH DIP Facility generally restricts EFIH's ability to make distributions or loans to any of its parent companies or their subsidiaries unless such distributions or loans are expressly permitted under the agreement governing such facility.

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

Equity

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

 
$
7,968

 
$
(27,563
)
 
$
(130
)
 
$

 
$
(19,723
)
Net loss

 

 
(1,527
)
 

 

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

 

 

 
(2
)
 

 
(2
)
Net effects of cash flow hedges

 

 

 
1

 

 
1

Net effects related to Oncor

 

 

 
1

 

 
1

Balance at March 31, 2015
$
2

 
$
7,968

 
$
(29,090
)
 
$
(130
)
 
$

 
$
(21,250
)
____________
(a)
Authorized shares totaled 2,000,000,000 at March 31, 2015. Outstanding shares totaled 1,669,861,379 and 1,669,861,379 at March 31, 2015 and December 31, 2014, respectively.

The following table presents the changes to equity for the three months ended March 31, 2014:
 
EFH Corp. Shareholders’ Equity
 
 
 
 
 
Common Stock (a)
 
Additional Paid-in Capital
 
Retained Earnings (Deficit)
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2013
$
2

 
$
7,962

 
$
(21,157
)
 
$
(63
)
 
$
1

 
$
(13,255
)
Net loss

 

 
(609
)
 

 

 
(609
)
Effects of stock-based incentive compensation plans

 
2

 

 

 

 
2

Change in unrecognized losses related to pension and OPEB plans

 

 

 
(1
)
 

 
(1
)
Investment by noncontrolling interests

 

 

 

 
1

 
1

Other

 

 

 

 
(2
)
 
(2
)
Balance at March 31, 2014
$
2

 
$
7,964

 
$
(21,766
)
 
$
(64
)
 
$

 
$
(13,864
)
____________
(a)
Authorized shares totaled 2,000,000,000 at March 31, 2014. Outstanding shares totaled 1,669,861,383 and 1,669,861,383 at March 31, 2014 and December 31, 2013, respectively.


29


Accumulated Other Comprehensive Income (Loss)

The following table presents the changes to accumulated other comprehensive income (loss) for the three months ended March 31, 2015. There was no other comprehensive income (loss) before reclassification for the period.
 
Dedesignated Cash Flow Hedges – Interest Rate Swaps (Note 14)
 
Pension and Other Postretirement Employee Benefit Liabilities Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014
$
(53
)
 
$
(77
)
 
$
(130
)
Amounts reclassified from accumulated other comprehensive income (loss) and reported in:
 
 
 
 
 
Operating costs

 
(1
)
 
(1
)
Depreciation and amortization
1

 

 
1

Selling, general and administrative expenses

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

 

 

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

 

 
1

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

 
(2
)
 

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

The following table presents the changes to accumulated other comprehensive income (loss) for the three months ended March 31, 2014. There was no other comprehensive income (loss) before reclassification for the period.
 
Dedesignated Cash Flow Hedges – Interest Rate Swaps (Note 14)
 
Pension and Other Postretirement Employee Benefit Liabilities Adjustments
 
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2013
$
(56
)
 
$
(7
)
 
$
(63
)
Amounts reclassified from accumulated other comprehensive income (loss) and reported in:
 
 
 
 
 
Operating costs

 
(1
)
 
(1
)
Depreciation and amortization
(1
)
 

 
(1
)
Selling, general and administrative expenses

 
(1
)
 
(1
)
Interest expense and related charges
1

 

 
1

Income tax benefit (expense)

 
1

 
1

Total amount reclassified from accumulated other comprehensive income (loss) during the period

 
(1
)
 
(1
)
Balance at March 31, 2014
$
(56
)
 
$
(8
)
 
$
(64
)


30



13.
FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

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

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

Probable loss from default by either us or our counterparties is considered in determining the fair value of derivative assets and liabilities. These non-performance risk adjustments take into consideration credit enhancements and the credit risks associated with our credit standing and the credit standing of our counterparties (see Note 14 for additional information regarding credit risk associated with our derivatives). We utilize published credit ratings, default rate factors and debt trading values in calculating these fair value measurement adjustments.


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

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

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

Assets and liabilities measured at fair value on a recurring basis consisted of the following:
March 31, 2015
 
Level 1
 
Level 2
 
Level 3 (a)
 
Total
Assets:
 
 
 
 
 
 
 
Commodity contracts
$
361

 
$
54

 
$
69

 
$
484

Nuclear decommissioning trust – equity securities (b)
378

 
219

 

 
597

Nuclear decommissioning trust – debt securities (b)

 
308

 

 
308

Total assets
$
739

 
$
581

 
$
69

 
$
1,389

Liabilities:
 
 
 
 
 
 
 
Commodity contracts
$
173

 
$
22

 
$
9

 
$
204

Total liabilities
$
173

 
$
22

 
$
9

 
$
204


December 31, 2014
 
Level 1
 
Level 2
 
Level 3 (a)
 
Total
Assets:
 
 
 
 
 
 
 
Commodity contracts
$
402

 
$
46

 
$
49

 
$
497

Nuclear decommissioning trust –