The bankruptcy of a Louisiana electric cooperative spawns a five year fight so contentious that only a federal judge nicknamed “The Ayatollah” can bring it to an end. CRUE aed Fronk Polezola was tired and his back was aching at tly, he would eal the menibe:s of che local press and ask 11:30p.m, on Aug 25. The U.S. Distice Court judge had chen ro astemble ac the courthouse che next morning, The beef in his courtroom in the Russell Long Courthouse: in coops could chen explin eo the media how their desire for Bacon Rouge, La since 9:00 chat morning in an effort & another $1 milion in lagal fees quashed the setement ofa bok desl arnong the many pares inthe Bankruptcy of ate worth more than SI billion aeon Rouge-based Cajun Elccric Power Cooperative, Inc. Siig and LPSC Cornmisioncr Jecle Bloeraan lsc the Aseanent in die Evc-year cate wos tantaliingly close, executives af the eighe exops att ofthe courtroom. As hey Southwestern Fleetic Power Company had agrecd ro walled co another eourroory i che building, cg tell drop its bid for Cajuns thre ena plants in exchange for 2 he asked them, “Which one of you will not sccepe this se. $75 million break-up fee. Louisiana Generating LLC tlement, rise his hand.” No one volunteered. Sieg shep- (LaGen) would buy Cajuns herded the afi back into the courtoom, where every sets for $1.026 billion. one in the exte agreed co the sculement-—and eo.a waver oF ‘TheRusl Fecfcaion the eight co applic creed Service (RUS), Cajal pri- The case's resolution was emirely ising. “'ve oeverbecn mary Kander, had gtd Involved im a case where chene was s0 mitch personal anie | ea wich dhe Loud Public mosiny so much lek of eust in the other tide,” sid bank: | i was Secvce Cornmistion ruptey Inwyer R. Patrick Vinice, a partner at Jones, Walker, (LPSQ) Caja veryaquese Waechees, Poitevent, Carrere & Denegee in New Orcas tive guna sboutboth the who helped represent barge comptay Ameren racezCojun’scuscomers Commercial Terminals which canspores fuel ro Cajun, “es the wort Ive ever s2enet Bur Cajun is more than an example of 3 banleuptey spre berserk le so illurates che conflicts among sare nnd eden regulators, consumers, elecec ulivts and often ing electric couperadves that the industry will face as it slowly deregulecs. ‘Cajun was formed in 1962 by 12 cleric cooperative in Louisiana ro build and rua elecirie generation and wan mission Flite. Ta chat dine, the 12 cooperatives had pur chased power from invesoe-owned utilis. Ten years ae aided by 2 $865 milion load from the Rural | semunce ancas oF couustena’s Elcariftcaion Agency (RRA), 1 felealencuy create dure LELTRIC DISTRIBUTION COOPERATIVES ing the Depression o lelp provide power to rural arcasand | seed dc Rul Ui Servi 195, Caan waa | \ soni pay for powcr and che deposition of $200 million ining ove gfe unics and selling power eo iis member linger thac had been placed in an escrow tecouns dusing coopertives. the haakroptcy. [Noc sstsfed with ies evo plants, Cajun wanted more ‘Nor svezyone was sified, though. Bighc ofthe Tl ccc power The REA serongly encouraged C3jan to invest in tie cuoperaives hae ownsid Cajun and boughe its power, River Bend, a nuclear plane char Beaumont, Texas-basel sought an akfiianal $1 million im legal cs On top of the Gulf States Utilicies Company, Ine. was planning co buld 2¢ $9 millun they were already rceiving eon LaGea und the St, Franelaville, La Even though the accidenc at Three Mile RUS. "In Cajun aechanets,” says C. Dale Sie, one ef the Island Nuclear Planc in Peunsylvanis bappenea dae March, five LU'SC cnmnissionees, “ie did not up." Pulozola agreed. in 1979 Cajun agreed «0 pay $535 million for a 3096 srake °® He cal the eoops that unless they serded dhe ease immedi in Rivee Bend, The plane was buile—with massive cost over | NOVEMBER 1399 5Dec-og-1999 THU_10:5¢ Alt THE DAILY DEAL FAK NO. | 03 rune, Cajun ended up pousing $1.4 billion into ie, all Faded by laweineeret loan fromm the REA. ‘Things got wore when River Bend was Finally able co Bor sen 1986. Louisizns wisn the midst ought about by the fill in oll prices in che 1980s, and the states demtand for power was not whac the REA and other experts he projecce! ic womld be in the 1970s, Nor only wat Cajun deeply in deb, ic also billed far tote for ite powse chan ie potential competitors. Cajun war charging ies membcr cooperatives sbout GO mille (cms of a cene per Kloware-hout) for power. Once the eal cooperatives tacked on their distribution charge of 30, 40 40 mills end customess were paying about 100 mals or power, 258% to SO% move chan eustomets of investor- ‘owned urlites were paying. Huey Long's Ghost Such rates aroused the incerese of te LPSC, which has deep populisc roots, Huey Long, the legendary Louisiana evemor and senatr, launched his earsr fram the LPSC Despite its power, che LPSC did nae rpulace Cajun in the 1970s; rather, dhe REA did, Urged on by is then and sill lawyer, Michael Fonham, 2 parence at Stone, Pignito, ‘Waldus, Wireman ée Hlutchinaon in New Ofians, che LPSC sued in Louisiana sore court eo be able to regulars the enoperatives, The sate supreme coure found forthe LPSC in 1988, Injecting the regulatory agency int the debate over how Csjun wouk! repay ies loans. Foncham eancinually pushed hit tiene taser the power to set Cajris resend se thems 3 low as possible Though the RUS concested the LPSC% sige co regulue Cajun even afer i went inca Baskraptcy in 1994, the Sth Gite found forthe LPSC on thas iss in 1997, Meanwhile, Cajun was Filing 1 snake its incest paymenet and co ing closer ws binlauprey, In 1987, (Cajun ar! the REA began lls about restruciuring Cajuns debe, which was then shou $3 hilfon and would grow twabout $4.2 billion. In 1980, Cejnnt sind the REA resrsetwst the Forers abr in wo noes, one worth $2.15, bili, dhe oder worth $1.04 bilion, The LPSC approved the rstentudng and st 2 es oF 545 nile for Cajun. This was noes permaneac solution to Cajuns woes. The LPSG though the res ware sill coo high, ami Cajun vould still have teouble paying back che debs. Cajuu’s board hoped e pay of che $1.04 billion note and peounde the yovernmers to wees olf the er, say Jimmy Ewing, 3¢ the cime x Cajun board member and the president of Poinee Coupes Elcetie Mermburship Chap enc of the nope which awned Cajun Gokowed by the REA’ insieence that Cejun pays is debra, the LPSC continued co artack Cajuns ras and in June 1994 found char Cajut’s investment in River Benel vas not “used ard usefl” ay the Coramision put i, aad therefore shoulil noe be included in che rates Cajun charged ths coop. ‘The REA understood the LPSC% position and negoti- ated a renetve agreement with ican the rte, aye France “Kern” Toole , an attorney at the Deparomene of Jatice who helped represen che REA in che haskruptey. Cajun's tepayers would pay 52 mils For power. Csjun would pay off Ue $1.04 billion noc, with epaymene ofthe $2.15 bile For note being coneingent on the ele of Cajun’ lait cover River Bend. Bus, Toole says. Fonchzm wat our of town when che agrezment was sruck, When he recurne, he advised che PSC a0 vito che desl, which i did, The commision also cat Cajuns cates from $4.5 mills co 48.81 nals, which amounted t0 $30.23 million a yeas, on Des. 16, 1994, ‘The REA responded by ordering Cajun nar to lower is sacs This wis ne empty thee. fFan entity nce in bake euptcy isin default on 2 fiscal ebligtion tothe Fecal gm the LPSC’s rabid rate-cutting ctoment the ensinis dicceore are personaly Finle for he debe unless the goverminene grants 2 vives, Cajun bad operated under such a waiver for yer. The REA ead Cajun ie would rescind the waiver if ie lowered ies rates Caughe betwosn sea and federal eguleors, Cajun fled for bankrupcey on Dec. 21, 1994, ‘Though the RAs ceder was deadly dhe proximate ennseDEC-09-1999 THU 10:55 AM THE DAILY DEAL FAK NO. | Pod of the bankesptey, people iavoled in the iste disagree sliouc who actually forced Cajun into bankrupeey. Scone, Pignai’s Fonchain says he believes the REA thoughe iz would be able to precmpe the LPSC's authority to ser rates for s bankrupt Csjon even though the 7eh Cirait had riled diffrendy in the banleupicy of another cleric cooperative, Wash Valley Power Asociados in Indiana Pointe Coupee's Ewing say that Fantham was che prob- lem, as he believed he eould negadate a bewer rate were ‘Cajun pushed into bankrapeey than if i merely ceserase tured its debe and pushed che LPSC so cut Cajuns ares, Melanie Cohen, a parenee.se Chicago’ Altheiener & Gray, whe represented svecal coups in che bankzuptay said the government pushed Cajun ineo Casper 11 because ie Iexged the restian af oxhee Financially troubled eoope cae lowe money 1 the REA, Cajun’ unususl ownership scruerie belped make the bankraprey eoncencios from che start. Normally, a debtor sctuins posession of ies asics afer declaing bankruprey. Cajun was not x normal siuation, fs owners, dhe 12 reral conpecstives, were alto Cajun’ exsomers, buying power from ic under tong-cim eonrracis. Moreover, che rail caops “ware sore of a dysfunctional family.” says Brendan Collins, » Deparment of Justice lawyer, who represented the RUS. [Noe sly did the coops fight among chemseivs, but (Cajuns 24 board members, ewo ror each of the 12 coop, siruggled with mangement. “Thearsially, dhe membes controlled manogersne, bue there were year of fighting meng the mvt about whe should ben control and ube big eaope vers the lcd coo.” sys David Kleiman. par neta Tndanapois aw frm Dana Pese Newinan &¢ Kleiman ho represented dhe enopsin the cy years of the xe, Having alteady tangled with the LPSC, the RUS demanded tht che bankruptcy court appoine 2 ruse co replace Cajuns bosrd of licecrors. “The fics shing I did was file fora uses” says Tool. “The basis of auc motion swat tae the cop members had already indested hae they ‘wouldnt encersin bids from Cleco." Pineville, Labased anligy Clso Company wat in the proces of 2 hostile takzover of Teche Electric Cooperative Inc, a move that had mised che ether ca0ps' ire. Moreover, Toole says, the overment was mindfl of Louisiana incestuous and Byzantine arte polities: "We wanted someene with no ‘eonnctiion to the sic.” ‘The eoops chemselves werce' agri thac idea: nk. the inembers ook che postion that a cutee coulit be worse than matugertent,” Kleiman says, Fonthara apposed the appointment of rruste, whom ke believed “would be fone mors hwyer for the RUS." (Over Fonthan’s objections, Judye Polezols appoinced Ralph Mabuy. 2 pence 2c LeBoeuf, Lamb, Greene & MacRae in Sat Lake City and a former Cederal bankropeey jigs, “TFeveechere were a need for 3 asec in a chapret 1 ease,” Polousta wrose in his August 1995 opinion, “this is the ong is role was © maximize Cajuns value dics, the largest of whom was by faethe RUS, whom Cajun owed $4.2 billion, The bese way to de so, he Aecided, would be to auction Celuns cod plants, two of which ir owned ourtight and a thinl in which feheld » 58% stake. This did noe make Mabey populae among tome of the eoops all bur one of whom. Claiborne. bad formed 2 comin to navigne the bankruprey. LPSC eomraisione er Blosunan acrbures the coopy response tele populist nature, The individual coop boards are elected by the oop connuiers “The coops lect people from the come sanity” he says. "“They'e inimidated by all these New Yet lawyers Thay think chee being cheated by corpox sate America” Mabey aliensred some of the coops. Not enly sid he cox Csjunts board our of offic, says John Sharp 2 lawyer a Shacp, Henry, Cernigls, Colvin 8 Weaver in Razor Rouge who represeneed some of the coups, he did not keep them informed of whe hz wat doing. Moreover, says Sharp, “Mabey challenged everhing he could have chile lenged in che bankruprey” ‘The primary issue of dissgrerncne berwezn Mabey and many of the coops was the enforesbility af the eonerety under which the cops Boughe power from Cajun. Mabey sought wo presere chase conersc, aid the high rcs the oops pl under them, i sling Cajurs ase Mabey also has his defenders. Ewing saye i was many of the coops that were obsereperout. Some of the eo0ps didae wane eo sell Cajun, he says "A Joe of eoops werent seculy for that. And none of chie weyers were eeady. They fadnit made aay money” In contrast, Ewing says, “Maley ves an absolutly Ronee guy trying to do the best he could. Berything he Uid was completely above boned ‘The difering views of Mabey sem from kis own cxption of his dury co gee the best deal forthe ereitors. The DOJ’ Collins says thee Mabey war doing whar he ‘ould have been doing: “Ondinarily bankruptcies focut fon the recur to the erdizrs father than taking exe of equity, which is whae che coops were." Mabsy's detracts say that in doing this he ignored che consumers wh i= rately pay Cajun bills, “The truste should be the one co mediate aseromens.” says Klckinan,“Ilee,instezd of pro» posing an offer dhae balanced the interests of the partes, the crustce Becae an advocate of ane group. Thats where the case were to hill” Beaucoup Bidders On The Bayou Mabey liad no difieuly finding biddces. Advised by Wesertcin Perella & Co. 2 general paccnes in che fund that owns Corporate Coneral Akiés paren, American Lawyec Media, Ine, Mabry heard from more than 3 doven companies, four of which submiced plans of ecorgeniax NOVEMBER 1999 7‘DEC-09-1999 THU 10:55 AM THE_DAILY DEAL FAX NO. || P. 05 tin in 1996. Adanebased Southern Company and Hlouscon-baed Eneon Capital ancl Tridiag Resources Inc both bid $1.04 billion, LaGen, 3 joine weneure beoween NRC Energy. Ine aud Zeigler Coal Helsing Company, bid $1.07 billion. Swepen offered $773 million. Since LaGen wes offering the mest money, Mabey filed Ca an oir Canin Ye, Be Ap LA "lp Mate attain, jn a, an Gene ain, visa le . si nt a re aman St Wee i Rae ee ‘Gate ave cop, i, air A 7 aecbmmemeane Ca Bd Dinha Sects Gone. dnc, Baa Nor, LA . wenmtnntena tag EET * Noh Llane Cee Cony ini, Wong LA” . noetecratnoncn mag South Levene Shc Cong Anancton, tra, LA ‘Cewncianegunaneeon ie Sa voretneaee tana Haake gina SL Tarmmacy Flee Com Ing Fan LA pte er cme ct i oi thn fay chop is San tC . t nd Ra a Soa Nia Sione : | ey Sou le Pm Cae, Si tir tine it epee Ses nee aa Cae Soe ae ‘erg ne nr i, St KO, nn . its plan as his own, In September 1996, Southern cancelled its bid and joinee LaGen, raking 240% stake inthe com pany while NRG and Zeigler htt took 30% stakes. Normally te plan of reorginizaon supporeed by & trustee wou] have had a strong upper hand in a b ruptey But once aps, Cajun proved unique. Nec oniy did fou biden subini plins, 20 exeepionaly high munbex says Mabey, br many of the players involved dheghe a bie 21.5% below che highest bid, which wor also the ene supe poried by che wastes, would likely emerge Mabey says thar he ease turned on the fce cae bidders ‘ad ro compete on both the rire they woul offer dhe enops and the money chey would pay for Csjun' ats. The OJ's Tools sys this was a cele serutpy on he part of Fenthatn and the enops. Exely in che hidding, she sys, Mabey proposed thatthe LPSC sees exon whi the bide ders weuld bid. Fonthary and the coops opposed such 4 move in the belief that Sweyea would offer lower rite a lower price chan che other biddees, which would erence ally lad ta lower rate forthe evops and ele consu Swepea, a subsiliney of Dslls-based Central and So ‘West Corp followed that serie, “[ Ehey) tock the position shar you esos a rate and then exablsh 3 vale, They offeced an ammount that gave the enops a competitive cate,” sie! Kidman, While LaGen would have charged Cajun customs 44.9 mils For the power, Sweyeo propnsel 3 Fryon offznal a 40 mill ete. ie was much less acractive 20 the coops chin Swopew. “The coops werere really confdenc dha ihey were going co get the juice fom Enron and the rtes were about even” 78 Fonsham. wep #375 char Swepeo vas areactive to his clients for snothet reason. Like the other bidders, Swepeo propose hac afte rhe bankruptcy the Cajun plaves be regulated by the Feder Energy Regulatory Commision in Washingzon, D.C., which ovescce provider of wholesale power, Bur since Swepes operates geril operations in onic Louisiana, che coops would have some recourse with the LPSC if dhey had a dispure over rates with Swwepeo, Sharp says avid Rubin, a paviner ae Kanteow, Spahe, Wenver 8 Diet in Baton Rouge wh helped represene Mabey, offers anothe explanacion for the coop support of Swepeo: 3 erie might buy then, Coopsare quasi-public evties, but they can be taken over if cele customer agree to sll to 2 bidder, in which case the coop ceases erst andthe ens comers geca check from she buyer. Swepeo had purchased Bousir Cig, La-basel Bosier Ruel Bleccic Membership Cooperative in this way in 1995, and Cleeo wat in the proces of buying Teche, Ruin believes chaz Swepeo had a peace enagy wich the enops, which supported Swepeo' bid in exchange For Swepeo's agreeing wot o launch a bid for any af the coops. Keeping the Coal Coming ‘While he was eying to sell Cajun, Matey sil had ro cun ie and procuce its fuel Cajun buys eal under long-rem conecacts with a fous-merber fuel chain. Zeigler Coal Holding Company mines the cna in Wyoming's Buckskin twine in che Powder River Basin and sll ie ro Wesceen Fuelt Avgoeistion, Burlington Northern and Sunca Fe Company then tcansports 9 or 10 sexx of 108 ess each wort of cal From Wyoming 2 St. Louis where American CCommeecal Marine Serviees loads the coal onco barges 8 CORPORATE CONTROL ALERT“DEC-09-1989 THU 10:58 AM THE DAILY DEAL FAX NO. lz P. 08 aad floas ic down the Misisippi River to Cajuns coal plants in New Roads, La Under bankrupeey kw, Mabey could have eanesiled the fae chain contracts and found new supplice, in which exe the fuel chain members would have become unsecured credioos with daims for damages. Mabey assumed the contracts, cluninatng the problem af having the Fel chain embers claim $1.6 billion in damages had he cancelled the contracts, Buc the Ficl chain merabecs couldnt ret ny. Since they wanted © raisin dheir eonumets with Cajun, they had to negotiate coneraes with dhe bidders For Bah LaGen and Enron came co evens wich the fuel chain, members. Saepeo did ne claiming chat it could sequite ch coal cheaper if c were transported by Omaha, Nebabated Union Pacific Corp. all the way feom Wyoming to New Roads, the «risporexion of the coal being Gr larger componene ofits cose than dh col isl Vance believes thae Swepea’s filure to negadiace with the fuel chain was a misakes If Swepeo hada eas is for With Union Pacific would have won, because it had che oops” he says, "My goal was co cut a deal with everybody Becauke Sweyco didnt cut a deal, we became ics biggest ‘Sharp replica Swept aio ga lowe até an its Fuel was critical to it ably co offer & lower rts tothe oops. Morcaver he says that Mabey sould have set aside the uel chain eonceats, “The swyers for che fue cin did a great job in gsuing Mabey «@ keep chase eonceacs” Sharp sys, pointing © che fe chan member? ehteat cise they would suc Caja for hundreds of millions of dollars— delaying he sale of she asec, any rte cut, and the RUS eventual rscovery of a portion of che laan—iF Swepeo baughe Cajen ‘The Coops Stop Cooperating ‘Though che coops had one commits, chey were ane of ‘ane mind, Towatd the end of 1986, some of che eoops started alking t@ LaGen. In December, three coop Lafiyetrs, La-hased Southwest Louisiana Electric Membecship Coopentive, Jonesville, Labased Concordia Fleerrie Cooperative, and New Reads, La-based Psinee Coupee Electric Membership Corporation, made deals. Players in che bunkrupecy disagree on why the three cenops chose LaGen ever Swepeo, “The group af thee was more open in negotiations chan were the ocher eg” says PSC Blossman, Fontham sys Steen, che ares coop, race benefcs tha LaGen wat noc afering otker oops, Cohen is mare srienr: “Giving the devil heir duc, and Ido believe i isthe devil Slemes may have asumed TaGen woul win” Jues Supple, 2 partner at Franklin, Las Biggs Trowbridge, Supple & Crem, wina epresenred Poinee Coupee, says his cient wos financially exhausted afer spending between $300,000 and $450,000 on legal es, 2 loc of money for coope that for the most par have ewer ten Conia Ta urn, ae eee e pater egebm it somites Sages, ere 2 nif Carr wd Se Mt Ci te atti tm Lt, Pr Rae Nene ae ln Pte en Cammmin, tr i ici ih a St age Fomowen inant! ie en A Stet rn epee ain Peron te Ne Pecan ‘Pa ttn evn a a i rs Be Da te Wg {Cit i Sy cin Fes etn ef prey eM 1 pmotea mec ore i an Congay : si fini Asia” nach, yb en ane “pk oe yr tm War a, aC ‘ASauge Phin Ste : than 40,000 customers, He says Slemco, Pointe Coupes and Concordia fel they had gover 2 good deal, Thre ‘coops may have waned to cut a cal, but their chief bank y counsel did not. Dany Pears Kleiman, who was iginally hired by Slemen aud war leur engrgest ro ropre- cnt che entre inembere commaites vl his sions tha i was to early tw seed. Two years aftce Cajun declared bankruptey, faders! bankrupicy court judge Gerad Seif Finally began enfit= mation hearings in Opelonnas, La, on De. 16, 1996. They NOVEMBER 19599* DEC-09-1999 THU 10:57 att THE_DAILY DEAL FAX NC started wich a bang. After announcing they were support+ ing LG pls the group ofthe moval eo gel ‘Kleiman maintains Slmco should na have been able t0 reinove hiv from the ease, “From a legal standpoine, we belie dice we were wprescading ihe corte a6 whole an] thee we were nly rayne to fallow che will o the rasjoigx” he ys Sci did agree. Hedliqualied Klean ‘0n Jan. 7, 1997 and gave the cight exdps Several months to find new cougrel and bring thent up vo sped in de ze Tescoms lear dat atleast ta legal matter Slemco had every rghe co ask Kleiman to withdraw from he ete, but the practical effec was to pelatae the two sides. Foncham and Shoep believe che thece coops launchd che hosilires, Supple and Bloseman sy the eight cope wets ineranigent Neither side was rlléng ro che other, and dhe eighs chops ‘were naw even more solidly beh! Swepen. Having lost Kleiman, the group of cighe ne lower, At meeting the night Schiff disqualified Kleiman, Swepco offered ta psy the sgt coops $1 million toward the expenses of retaining a new lawyct The ony sipul= tion was chat i che eight eoops recovered che $1 rion From another biden, they had 10 repay the money © Swspeo, says Bobby Gilliam, + parcnes ac Wilkinson, Cacmody & Gilliam in Shreveport. who helped present Swepen. Kiiman suggested Cohen, with whom he had worked in oder cops bankrupicies Swepco did nor dielose the payments to the court Sharp say ha only che debeor muse dsctve the payment of egal aes a court in bankruptcy. Bucy Spee, a bank tapiy hwyee at Houston's Winstead, Sechrest & Minick, dliogees: “Thats noe standanl operating procedure. les 2 hallmark of bsnkruprey thae everything muse be discos “The meking of poyinente was disclosed.” Du shay were discovered. in che spring of 1997, David ‘Shaw the preilene of the board of Feanklinon, Labased Washingron-Se. Tammany Eletrie Cooperative, Ine cold Toince Coupee Presi Ewing aboue the paymene Ewing told his lwyce Supple, who informed Mabey. Mabey fled a merlon on April 18 sccking denial ofthe cnafirnation oF Swepeos plan or disgorgeaene ofthe payments ‘As Schif nots i bit opinion, “To be sur allogaons of voreduying have surfaced wide eject to this payment.” Nensthelse, he fod che payments lepal ands ase Maheysmocinn, weingsbae die paymene was ade wilh ne stting stacask" Mabey appealed the rling ro Judge Polozla Polorola isa foreefl petsonalry, nel on suspicious of anything widh even 2 whiff ofthe uncaward. Nicknamed the Ayscllsh for his Fequene checas 10 throw Iwers in Js, Polozala reverse Sebi Cosel the payments co tals and sid he would refer the whole ching co dhe US aorneypenerls fice for Further review. Polak rele vote biying in che SE million payment, sys Blisbeth SS es SS Warren, a bankruptcy profes Iaeratd Law Schoo! wo helped represencSwepco in es appeal ofthe ease co dhe Sth Cia ‘The Sth Cieuie found fo Swepeo. The partis xapond- ed indferne ways LaGen, iguring hae fe coulda beat ‘Swepeo ie should juin ies compere, ied» mosion eo help pry the legal bills of he thice coups shat supported ie Enron was disgusted enongh that it wichdsw Fron the bide ding, says Mabey. And the eight eoope became even more cntrenched 2gsinst LaGea. “They took a dim view of LaGents saying they took a bribe,” Fonthaun says a eli he and Sharp deny. The frling wes mural. “E aceibuce the elgbe oops supporting Swepco to the money ic was puying thet to pay hele awoeneys foe" ys the DOJ Toole, Ewing calls the fea lock-up, The eight coups slw didnt endear themselves co th commissioners regulating thei, “They wene just tri ‘Swepco,"Blossman says. "I dont belive thay were ne sing in good fich the whole sme. When the elghe coupe had an isue tha eouldae be resolved by either side, they crusted che Swspco folks and did rust ny mil ial pois bac t0 che $1 ai While che parties foughs over te $1 nilion paymenn Maley was dealing wieh another vexing isu: the dispoi tion of Cajurts share ithe nuelea plane that lane i in bankruptcy in the fist place, In 1989, Cajun sued Gulf Sexes in Foderal cour to eesind the compan agreement to operate River Berd and co recover the $1.6 billion Cajun invested i dhe plant. Cajun allegat chat Gulf Scares fad feaudulenly lured i eo invest in River Bend Cajun wae the only entity morally wonadat by River Bend, Gulf Src tld ts ro New Orleanelsved usligy Energy Corp. in 1992, at which point Cajun cffeed co sete che litigation by selling is stoke in River end co Entergy for $900 milion, Entergy refused, and dhe se spueered ene Mabey says he had wo ste che River Ben lcgarion to sel che rest of Cajun, and he didi a serdemenc spproved by none other than Frank Paborla in August of lat ae jun agreed to pay $125 million inca a fund ravard River Bend’ decommissioning cost and ie sca in the ncleae plane went to the RUS, which had a lien om i, The RUS told that se ro Poco Encegy Co.2 Pilsdeiphia wlig Before it forked aver che $50 milion ic lad promised for the plang, PECO bucked out anu! che RUS handed ove its sinke to Entergy and sued PECO. The pts are sil nie igation before Polocala on the fswe LaGen's Checkbook Having alienseed che eighe coops, LuGew tried eo appease them by lowering che ras ic was offering in thei bid to aay Cajun. In che Bll of 1997, LxGen offered the eaops a 40 CORPORATE CONTROL ALERT = “DEC-08-1989 THU 10:57 AM THE DAILY DEAL FAX Nt P. 08 rate of 39.6 mill, down fiom its fs offer of 44 mils, 1aGen sil planned to hold the evops co the original con- cracis they had signed with Cajuny an option che coops rejected. LaGen hoped to pretorve Cajun as a leg shell and co sal it power which ie would then sel «0 de eight ‘oops under thir existing power contre. The echt theee coups would buy power dicetly from LaGen, The cighe c2ope did't come to an agreement with LaGe, or did they seein ro put muck efor ico doing 50. ‘On March 18, 1998, che bidders ied cher inal offers wid Judye Schiff LaGen eased is offer co $1,168 billion, and Srepen upged its bil w $940 rallioa, dhe minimara bid deciied secopeale by che RUS. Having revived che Bide, SchifF held anocer ero month of eanfrmaron hexe- ings adjourning on May 14, 1998, by which sme the hea Jigs hadalready ased a year and shal Hehad reviewal che inne al had heatd 76 days’ worth of eximony. He did rot, however, seem eo wane to make ring nthe sues. “e became eleara¢ some poine cha Jugs Schiff was hoping che partes would sere and he wouldnc have ro take cough decisions," said Janet Webw, x patcne in che [New York office of Gibson, Dunn & Crutchsr who helpel presen LaGee. ‘Alter leaving Opclousst in May 1596, tha patios waite cd for almost nine months for Schiff zo pick s plan. They swaited in vain. On Feb, 11, Sebi wcected both plans, a surpisng ruling "Nobody expected Seif co ay that Dei fhe plan was evafirmable” Blosinan sak. SohUs pric ‘mary objection ro LaGen' plan was that it hound te ght epops «0 the allcaquizemenee courses they bad signe wih Cajun yeacs ago. Le found that Swepeot plan vilne- cd the Les intaests ofthe eredice in che ee, lich muse be misfied Ifa baneruptey eourt LaGers response was to abancin the allerequiremenis condacis aiogehee “le was enpsal dear us char die Judge was no: going co allow (dhera] co be imposed on dhe rmembern" says Gibson, Dunn's Wiss, tncend, LaGsn gave the members a range of options: they auld sign x fong-tecn contrat with LaGen, They could sign a shire term coneract with LaGien, They could leave LaGea ene ly and buy their power From someone ele, LaGen would even agree to provide power o the eoogs under die ne tract Swepeo was oFerng, ‘Ac this point, LPSC Commisionce Sing began en ddoube che nop morives in ruruing dowa a 39.6 sil ree from LaGun. “When LaGen offered {che member ewops) the Swepen plan, then Ehad some serious quetions” Siig says. *1aGen give che eonps the opeion ro go ote onee the ror ad Paysite a1 888 667-DEAT, scsite stemethedalycea com Univorsity of Mami Schoo! of Law Corer ener eet rend Semester Bowel Resort, Key Biscayne, Florida ee en eT Fourth Annual Institute on Mergers & Acquisitions: Corporate, Securities & Related Aspocts February 10-& 11, 2008) Bonus Workshop: Serurlas Febrvery 12.20 Emerging lisesi MRA email: mergerst@hanue.com Suber cecon ‘Third Annual Institute on Tax Issues in Mergers & Acquisitions February 24 & 23, 2000 Bonus Workshop: Wednesday 2000 Antraction ta Ta Testes in BiGA Tremaacrimas ‘mie miergerst@hann em Sibjreis enna Maiti NOVEMBER 1995 11DEO-03-1999 THU 10:58 AM THE DAILY DEAL market The coop submited request For proposal, bur I never tw the ests of those, and investor-owned utiles told me there was no way they eould gc those races on the cops market” Sie waste the only unhappy observer, Carolyn King, the diet judge of Ue 50h Circa, had soon dhe case Fes hha whan she euled in Swupent 2p peal of Polozals ruling in the $1 milion case. Thi time, she didn't wait for an pps. Both Polozela and Schiff in ehir cours ssid chey received cis fom King in which she suggesed chey bring in Seoven Felsen a Federal bankeupecy judge, 0 try medina ewlement auiong dhe partis, “I dont hink Ive ever scen aease wher x creuie judge directed chae a mediation ake place ina bankrupt.” says the DOJ’ Collins, "Tassunne the Sch Circe sad, "Wa have to gor this over with I drink ie was a lide surprised when the Fine play of reorganization were hoch exceed.” Having spene far too long in Judge Schifs coure in Opelousns, which is 25 miles from Lalayee, the lsest town with a hotel, and 154 miles From New Orleans the panies were ao doube Saopier un mece ity Feleenthals coure in Dallas on April 12. Once here, chey watched Felenthal attempe ths impossible: beoker a deal in which Swepco and LiGen would jointly buy Cajun. Noe surprisingly, Felsenthl dl nocatcike such a deal by the sme dhe ation ended ov May 28, Before che tial was reeonvened in Opclousss on June 22, the panies continued w compere. So eager were the tight enopn to do a deal with Swepeo chat che agreed to raise the price of powce they would pay by mils in Jane, which anounced toa present valuc of $35 milion ever the 25 year life of the eoops? contrice with Swepco. The increase helped Swepco ruse tes Bid by $60 million, Alt Hands On Dock Ry chi in, Poloala wane willing ro count on Sehif. On ‘Auy. 18, he ordered everyone in the case, including the LLPSC eontmissiones, to appear in his courtroom in Bacon Rouge seven days henee. Polovals was ealm when address Jing che parce. He wld chen ae one woul ave acl they workel, and worked har, on reaching a scderment One ofthe thorwiee poblems was the more than $200 ruin she LPSC. had put in an escrow account, Once Cajun declared Bankrupecy ie dil not have co pay incerest in its debs, While is inevese was tolled under Lankrupee cy laws, Cajun’ ratepayers were sll paying x portion a its rent a6 part of tiie sleetricigy xe. The LESC though ssunfaie and in 1996 established an eserow accoune into which ic deposied che interest portion of Cajun cates, Furthermore since 1995 Cajun had been allowed tu have aly $35 milion in operating funds during che bankeupe- «Whee ics bank secoune rate saove cha Figite, the eeess went into a cash eollaeral account. 12 CORPORATE CONTROL ALERT onthe had besa fighting telson te ents son for the LPSC, bue the LPSC enmaistioners and the RUS agreed t 2 twortbinds 10 oncthin spl of the money “Thar shue down old Mikey" Poince Coupee lawyer Supple said of Forthan, Evea the LPSC commissioners managed © come to an ayfcemene. Blossman end Sis bad been pushing for seidemens, and they perusded Irma Muse Dison to voce with them and orn a msjoring “ema war able co see the ighe” Blossman sy. "She gut ea see how Fontham manipulated che esse.” With Fontham under contol the eonwnisioners cased Uni acon 10 che cighe coops. “The Cae tae fur of the five LPSC commtsioners wes in che toon and dhe eight coops were forest 10 lovk dei egustos in he eyes mane hy could rake unresonable portions.” mye Spats Instead he coups aged to Gen’ plan, ueder which i pad the Cajun vats $1,026 Billion, Swepce dropped ie pln with prejudice, precling i rom appealing dhe sedemens ‘Ac around § pum. Poloaol told he lawyers chae chey were through geting pid forthe evening. Bue ee lose four billable hours wers a mere bgaclle next eo the huge Fes che puis ngedated. Swepco gota $7.5 tilion breskap fee, Poince Coupee, Slerneo, and Concontin goc $6 milion, The ret ofthe coops divided $9 million fo legal Fes. Nor did Mabey go homme empoy-handed, He received $300,00 every four months from Aug 23, 1995 on, soine $3.8 mile lian, and hie firm bas lled for about $10.7 malin ae of July 31. Subject ro appeevals from the LPSC and FERC, LaGen expect he del to lon in de ise quarter of 2000, ‘The Lessons Learned However much chey may have fought during the bankeupe ey. Fentham, Sharp, and Mabey agree that he proces both naxenved rewens to the RUS and reduced eats, LaGen was able che so generous withthe coope because deregl tion has inerased the value of Cajun harasses. In 1994, Fncm sya, che market value of those assets was betwen {$300 and $400 milion. Most of Csjnns value e hae dine was in che logrterm concrces berween ie and the reel oops. Today, dhe LPSC values che planes a $850 1 Though such an outcome jusifcs dhe efor che paris ot inco the case, wasnt ineviable, “We dida know that ‘we would ead up getting lower rien” Sieg sys. Had Louisiana’ economy been les vibrane recenily and the smues demand for power lest, the value of C: ‘would be much lower cha ie is, meaning bicllers would have heen unwilling te offer rate cuts to consis ‘The Cajun bankrupesy may noc be uniqus. Odie util ites saddled with aucleae ase ar other high-cost genera sion Fciliics ure probably doomed in the currone marker place, "This just the Franc edge,” says Harvard Weer “Uiilgy bankruptcy is & growth intasery until dereguls tion shakes ou” G58