The Internal Revenue Service urged an Illinois bankruptcy judge Wednesday to deny Edison Mission Energy's Chapter 11 plan, saying it contained numerous provisions that infringed on the agency's $1.3 billion tax claim against the estate.
Edison Mission's plan, which covers EME and approximately 20 related entities, is defective and cannot be confirmed because it violates the U.S. Bankruptcy Code and other statutes, the IRS said in an objection filed on its behalf by the U.S. Department of Justice.
The plan's alleged defects include its improper grant of releases to one or more debtors, its failure to obligate debtors to pay interest on the IRS claim and its impairment of the rights of offset and recoupment, according to the objection.
The IRS asserts an unsecured priority claim for just over $1.3 billion, seeking payment for 10 years of delinquent taxes dating back to 1984, according to the objection.
Earlier this month, the IRS opposed a motion by EME that seeks to estimate the agency's claim, saying the debtors had not objected to the claim or set forth any valid grounds as to why it should be disallowed.
EME's Chapter 11 plan is built around the $2.635 billion sale of the substantially all its assets to NRG Energy Inc., which will also assume roughly $1.5 billion in prepetition liabilities. The sale proceeds, which consist of $2.285 billion in cash and $350 million in stock, will be distributed to creditors.
NRG will acquire EME's power generation portfolio — which features 8,000 megawatts of generation from both fossil fuel and renewable sources — as well as its proprietary trading and asset management platform. The Federal Trade Commission signed off on the deal in November 2013.
The plan drew a number of other objections Wednesday, from parties including the Illinois Department of Revenue, the California Department of Water Resources and a division of Peabody Energy Inc.
Illinois has asserted tax claims totaling approximately $9.7 million and objected on similar grounds to the IRS, taking aim at the proposed releases and the limitation of offset and recoupment rights.
California, which has a claim against a nondebtor subsidiary as well as $80.8 million claim against EME for affiliate liability and breach of contract, objects to confirmation since the debtors refuse to state whether its claim against the subsidiary is an excluded liability that would be released and enjoined under the plan.
Peabody contends the plan cannot be confirmed because it proposes to assume the company's long-term coal supply agreement without providing a cure for more than $45 million the debtors allegedly owe under the contract.
A confirmation hearing is scheduled for Feb. 19 before U.S. Bankruptcy Judge Jacqueline P. Cox.
California-based EME sought court protection in December 2012, citing plummeting electricity prices due to increased natural gas production and the cost of complying with coal-plant emission requirements imposed by state and federal regulators, according to court documents.
The company listed $5.13 billion in assets against $5.09 billion in liabilities as of the petition date, including $3.7 billion in principal owed to holders of senior unsecured notes.
EME is represented by James H.M. Sprayregen, David R. Seligman, Sarah Hiltz Seewer and Joshua A. Sussberg of Kirkland & Ellis LLP.
Peabody is represented by Lauren Newman and David D. Farrell of Thompson Coburn LLP.
The case is In re: Edison Mission Energy et al., case number 1:12-bk-49219, in the U.S. Bankruptcy Court for the Northern District of Illinois.
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