Elizabeth Warren represented large utility seeking to liquidate rural electric cooperative

Elizabeth Warren represented large utility seeking to liquidate rural electric cooperative

This is a GUEST POST by Matt J. Farley, an attorney in New Orleans, LA.

The post was submitted at my request after noticing a comment Matt left in response to my post Elizabeth Warren helped protect Dow Chemical against breast implant claims.  The comment disputed that Elizabeth Warren had accurately described her role in the Cajun Electric Power Coop bankruptcy case disclosed on a list of cases released by Warren minutes prior to the last debate.

Given the controversy over Warren’s role representing large corporate interests, I asked Matt to submit a guest post elaborating on his comment.  The entry below describes how Warren inaccurately described her role as trying to save a rural electric cooperative, when in fact she represented a large electric company seeking to liquidate the cooperative in order to acquire its prime asset, the coal-fired Cajun Electric plant near Baton Rouge.

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Warren Had To Destroy Cajun Electric In Order To Save It?

I’m not from Massachusetts, and I’m perfectly willing to let the good people of Massachusetts decide who their Senators should be without my assistance. But I do think you’re entitled to the facts before you vote, and in at least one respect Professor Warren is not being accurate in her description of one of the cases she handled.

Rather than working to save a rural electric cooperative, Warren represented a large utility which sought to liquidate the cooperative and purchase the cooperative’s main asset, a large coal burning plant north of Baton Rouge.

Background

I’m an attorney. From 1996 to 1999, I had the privilege of living and breathing a large corporate bankruptcy known as Cajun Electric.

The case stands out in my memory because it presented unique and complex issues of law, and involved billions of dollars.  The case was so important a part of my practice for so long, that I wrote a law review article about it for the Loyola Law Review.  You also may find an article, Ragin’ Cajun, of interesting background.

When I read that Professor Warren was running for office, the memory of her participation in Cajun Electric came to mind, and I began following Legal Insurrection in part to see of any reference was made to the case.

That led me to Professor Warren’s description of her role in Cajun Electric, as it appeared on the website for The Boston Globe. The description is:

In re Cajun Electric Power Cooperative, 150 F.3d 503 (5th Cir. 1998), cert. denied sub nom Mabey v. Southwestern Electric Power Co., 119 S.Ct. 2019 (1999). In this case, Elizabeth represented a company that offered a plan to help save a bankrupt rural power cooperative. The company also helped defray litigation costs for some members of the cooperative. Elizabeth sought to preserve the plan to save the company, and the Fifth Circuit ruled in favor of Elizabeth’s position.

I can’t imagine that Warren really believes that she was helping to save a rural power cooperative. Her description is seriously inaccurate both by omission and commission.

What Really Happened

When you think of a rural cooperative, you probably think of an organization composed of your neighbors that buys electricity from a utility, distributes it to the coop members, and give prizes out to the coop members when there’s a surplus. A smalltime, homey kind of organization.

In contrast, Cajun Electric was big business. It was a non-profit corporation like its smaller cousins, but generated and transmitted enough electricity to power well over a million homes. In the jargon, Cajun was a “generation and transmission (G&T) cooperative”; the coop you buy your power from is a “distribution” cooperative. The difference is one of scale and asset-base.

Cajun Electric filed bankruptcy because it had run up a debt of $4 billion to an arm of the federal government, the Rural Utilities Service. To Cajun’s surprise, the Louisiana Public Service Commission ruled that Cajun could not pass a huge chunk of that debt onto its customers, with the result that Cajun was massively insolvent.

The Plan was to Liquidate Not Save Cajun

After some maneuvering including a trip to the US Supreme Court, a federal court sitting in Louisiana court appointed a highly regarded former bankruptcy judge to be Cajun’s trustee. The trustee determined that the only feasible course of action was to sell Cajun’s most valuable asset, distribute the sale proceeds to Cajun’s creditors (mainly the government) and thereafter wind up Cajun’s affairs.

At the time (1996) most people in the electricity business anticipated that the business would be deregulated, with the result that a scramble developed for existing power plants. Fortunately for Cajun’s creditors, Cajun owned a real plum of a power plant, the “Big Cajun” facility located a bit north of Baton Rouge.

Let’s talk about Big Cajun, because Professor Warren doesn’t. It has a monster of a carbon footprint. The plant at the time had three coal-burning units capable of producing 1,620 megawatts of electricity. It used between 5 and 6 million tons of coal a year. (If Professor Warren had visited the plant, she would have found her car lightly covered with ash when she went back to the parking lot.) The coal was mined from the Powder River Basin in Wyoming, shipped by train to a terminal near St. Louis, and then put on Mississippi River barges for the last leg to the power plant.

The trustee’s decision to sell the Big Cajun generated a great deal of interest among possible buyers. By the time of Professor Warren’s participation in the case in the 5th Circuit Court of Appeals, there were three competing bankruptcy plans: one sponsored by the trustee, one sponsored by Enron, and one sponsored primarily by Professor Warren’s client, of whom more in a moment.

Now here’s the thing: none of these plans was intended to “save” Cajun Electric.

Implementation of the plans might have resulted in a “zombie Cajun” that existed as a legal entity but without assets or employees. But the goal of each plan was (in exchange for a $1 billion or so to be paid to Cajun’s creditors) to transfer Big Cajun to a for-profit company whose intent was to run the plant for maximum return on investment, even if that meant laying off a goodly number of Cajun’s 400-plus employees.

Warren’s statement that “Elizabeth represented a company that offered a plan to help save a bankrupt rural power cooperative,”  simply is not the case. The plan was to liquidate Cajun Electric, not to save it.

Warren represented SWEPCO

Now, who was the company that Professor Warren was representing? And why doesn’t Professor Warren mention its name?

Warren’s appeared on behalf of Southwestern Electric Power Company (SWEPCO.)  SWEPCO was then and is now a well-respected company that has been providing reliable electric service to customers in the Shreveport area for over 100 years. You would think Warren would be proud to mention her client’s name.

The trick is that both SWEPCO and its corporate parent were (and to a large extent still are) old-line fossil fuel utilities. They are able to provide electricity reliably because they burn coal, a tried and true technology.

In representing SWEPCO, Warren was representing the interests of a large power company, not the interests of the rural or other electric users.

Warren argued the case for SWEPCO, and was successful in having the lower court case reversed and the case sent back to the bankruptcy court.  Warren’s client was outbid and never ended up purchasing Big Cajun.

Conclusion

So in short: Warren characterizes herself as working to save a rural electric cooperative, when she did no such thing. Her client was a large power company that wanted to liquidate the cooperative, not to save it, in order to acquire its prime asset, a large coal-powered electric plant.

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WAJ adds:  Here is an image of the 5th Circuit docket showing Warren’s entry of appearance.

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