On February 1, 2011, AES Thames, LLC (“AES” or “Debtor”) filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of AES’s President in Support of First Day Motions (the “Declaration”), AES owns and operates a coal-fired power plant in Montville, Connecticut.  This post will look briefly at AES’s business, why the company filed for bankruptcy and what AES hopes to accomplish while in bankruptcy.

The Company’s Operations

AES is a subsidiary of The AES Corporation (“AES Corporation”).  As parent company to the Debtor, AES Corporation generates and sells electricity in twenty-nine countries.  Declaration at 3.  AES Corporation delivers electricity to over 11 million people worldwide, whereas it’s debtor-subsidiary, AES, is capable of generating electricity for 100,000 homes.  As parent, AES Corporation produces energy from various fuel sources, including coal, gas, fuel oil and certain renewable sources, whereas the Debtor relies on coal for energy production   Declaration at *3-4.

Events Leading to Bankruptcy

In addition to providing electricity, AES provides steam to a paperboard plant owned by Smurfit Stone-Container Corporation (“Smurfit Stone”).  AES contends that its bankruptcy is due, in part, to the “uneconomic and onerous provisions” of its Steam Sale Agreement with Smurfit Stone.  Under the Public Utility Regulatory Policy Act (“PURPA”), Debtor is required to sell steam as a condition to selling electricity.  Although the production of steam represents only a fraction of the Debtor’s overall production, the requirements under PURPA have resulted in the company selling steam at a significant loss.  Declaration at *8.  The company also attributes its bankruptcy filing to the increased cost of energy production.  Declaration at *7.

Objectives in Bankruptcy

AES hopes, while in bankruptcy, to receive a “breathing spell from prepetition litigation.”  Declaration at *9.  Earlier this year, Smurfit Stone commenced a civil action in Connecticut seeking injunctive relief that would require AES to continue providing steam to Smurfit Stone, despite Debtor’s contentions that it provides steam at a significant loss.  Declaration at *9.  While in bankruptcy, the Debtor states that it is considering all options, including rejection of its agreement to sell steam to Smurfit-Stone.

This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court.  Debtor is represented by the law firm Landis Rath and Cobb LLP.