Danskammer HoldCo - Chapter 11 Case Summary

Business Description

Danskammer Energy, LLC ("Danskammer Energy"), together with its affiliated debtors and debtors-in-possession (collectively, the "Debtors" or the "Company"), is headquartered at 590 Madison Avenue, 41st Floor, New York, NY. Danskammer Energy is the direct owner of the Danskammer Generating Station (the "Generating Station"), a 532 MW nameplate natural gas generating facility located in Newburgh, New York.

• The Company generates revenue through the sale of energy, capacity and ancillary services.
• Approximately 95% of the Company's total revenue comes from its sale of capacity on an annual basis.

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Corporate History

The Generating Station was built in stages, unit by unit, by Central Hudson Gas & Electric ("CHGE") between 1954 and 1967, and it originally operated as a coal-fired generating facility before being converted to a dual-fuel facility. Following utility deregulation in New York, an affiliate of Dynegy Inc. ("Dynegy") acquired the Generating Station from CHGE in 2001.

Bankruptcy, Storm Damage, and Change of Ownership

• On November 7, 2011, certain of Dynegy's affiliates, including the entity that owned the Generating Station at the time, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.
• The Generating Station sustained significant damage during Superstorm Sandy in 2012, which rendered the plant inoperable. As part of Dynegy's Chapter 11 proceedings, the Generating Station was sold to Helios Power Capital, LLC ("Helios") in 2013 prior to being repaired.
• Following its purchase, Helios partnered with Mercuria Investments US, Inc. ("MEI") to repair the damage to the Generating Station and bring it back online. The Generating Station returned to operation in stages throughout 2014.
• Danskammer Energy was formed on November 12, 2013, and Helios contributed the assets purchased from Dynegy to this newly formed entity in December 2015. During this interim timeframe, Helios partnered with MEI in connection with the rehabilitation efforts of the facility.
• In June 2017, MEI purchased Helios' interest in Danskammer Energy. The Debtors subsequently acquired the Generating Station in December 2017 through a sale transaction whereby the Debtors purchased the ownership interests in Danskammer Energy from MEI and its affiliate, Mercuria Energy America, Inc. ("MEA").

The Repowering Project

In May 2018, the Company began the process under Article 10 of the New York Public Service Law (the "Article 10 Process") for approval to replace its existing generating facility with a state-of-the-art natural gas-fired, combined cycle power generating facility to improve the competitiveness of the Generating Station (the "Repowering Project").

• The Company proposed to repower its plant through the addition of a new combustion turbine generator and steam turbine generator, often referred to as a combined cycle power plant, with the existing turbines to be retired once the new plant was completed.
• The Repowering Project would have created a modern generating facility with a net baseload capacity of approximately 536 MW and a maximum net generation capacity of 600 MW. Due to its advanced technology, the project would utilize fuel more efficiently and was projected to substantially reduce nitrogen oxide, sulfur dioxide and carbon dioxide emissions.
• While the Article 10 Process is generally intended to be a centralized, comprehensive process for the siting of new or repowered generating facilities, it does not encompass federal and federally-delegated permits, such as the Title V air permits issued by the New York Department of Environmental Conservation ("NYDEC") under authority granted by the Federal Clean Air Act.

The CLCPA and Permit Denial

• In accordance with the Article 10 Process, on or about November 15, 2019, Danskammer Energy applied for a modification (the "Permit Application") of its Title V air permit (the "Air Permit").
• After Danskammer Energy began the Article 10 Process, the New York State Legislature passed the Climate Leadership and Community Protection Act (the "CLCPA"), which was signed into law on July 18, 2019, but did not become effective until January 1, 2020, months after submission of the Permit Application.
  • The CLCPA created a Climate Action Council to develop a plan to achieve New York's goals to reduce emissions to 40% of 1990 levels and to require 70% of the electricity consumed in New York to be generated by renewable resources by 2030, with 100% of the State's electricity supply to be emissions free by 2040, subject to limited exceptions.
• Shortly after the CLCPA became effective, on January 31, 2020, NYDEC issued its First Notice of Incomplete Application ("NOIA"), requesting, among other things, an assessment that modification of the Air Permit would be consistent with the greenhouse emissions limits established by the CLCPA. Throughout early to mid-2020, the Company conferred with NYDEC on the consistency assessment, emissions modeling, and the scope of its response.
• In July 2020, the Company submitted a Supplemental Greenhouse Gas Analysis (the "Supplemental Analysis") to NYDEC, which concluded that the Repowering Project would be among the most efficient generating facilities in New York, would reduce system-wide emissions by displacing less efficient facilities, and would complement intermittent renewable energy sources given its quick ramp rate and dispatchable technology.
  • The Supplemental Analysis further noted that, to meet the CLCPA's goals, some firm dispatchable resources such as natural gas-fired power plants would need to be retained and converted to renewable natural gas or "green" hydrogen, and that the Repowering Project would be a prime candidate for such conversion when those technologies became commercially viable.
• Following additional requests from NYDEC and supplemental submissions, on July 1, 2021, NYDEC issued a notice of complete application (the "NOCA") for the Permit Application and draft Air Permit and issued it for public comment. The NOCA stated, without any supporting information, that the Repowering Project would be inconsistent with or would interfere with attainment of the emission limits established in the CLCPA, in violation of CLCPA Section 7(2).

Withdrawal of the Repowering Project

• The Repowering Project was met with opposition from community and environmental groups. Approximately three years after starting the Article 10 Process, on October 27, 2021, NYDEC issued a notice of denial of the Permit Application. Notably, the denial was among the first based on CLCPA requirements and was otherwise not based on any known standard, given that NYDEC had not yet promulgated substantive and enforceable regulations for compliance with the CLCPA's emission limits at the time of its decision.
• After exhausting available administrative remedies, Danskammer Energy filed an action with the Supreme Court of the State of New York (the "NY Supreme Court") on December 23, 2021, challenging NYDEC's denial. On June 8, 2022, the NY Supreme Court ruled in favor of NYDEC, upholding the denial.
• While the Company disagreed with the denial, Danskammer Energy ultimately decided to withdraw its Permit Application and its Article 10 application in June 2024, pausing its efforts to seek approval of the Repowering Project.

Organizational Structure

• Danskammer HoldCo LLC, a Delaware limited liability company and the lead debtor in these Chapter 11 Cases, is the 100% owner of Danskammer Intermediate Holdings LLC ("Danskammer Intermediate"), a Delaware limited liability company.
• Danskammer Intermediate is the 100% owner of Danskammer Holdings LLC ("Danskammer Holdings"), a Delaware limited liability company, which in turn is the 100% owner of Danskammer Energy.

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Operations Overview

The Debtors own and operate the Generating Station in Newburgh, New York, which generates electricity from four operating natural gas-fired steam turbines with a cumulative nameplate capacity of 532 MW. Because it has a relatively higher heat rate, it only operates as a "peaker" plant that dispatches electricity during high demand periods when operations on the electric grid become more constrained and require higher levels of energy supply.

• The Generating Station is located in the New York Independent System Operator ("NYISO") Zone G, within the G-J Locality capacity market pricing zone, which includes the Lower Hudson Valley (Zones G, H and I) and New York City (Zone J).
• The NYISO is a regional independent system operator that manages the bulk electric grid and oversees the wholesale markets in the State of New York.

Workforce

As of the Petition Date, thirty-seven people work at or otherwise provide services to the Debtors to support operations at the Generating Station. The Debtors' workforce is critical to the safe operation and maintenance of the facility.

• The Debtors have one full-time employee and three independent contractors.
• The remaining thirty-three members of the workforce are not employed by the Debtors; rather, the Debtors contract with a third party that supplies the facility personnel.

Service Agreements

• The Debtors entered into an Operation and Maintenance Agreement with Consolidated Asset Management Services ("CAMS") to provide these personnel and certain services required to operate and maintain the Generating Station (the "O&M Services"). The O&M Services include, among other things, the provision, management and oversight of plant personnel, human resources, and regulatory compliance functions.
• The Debtors also entered into an Asset Management Agreement with CAMS, whereby CAMS provides certain asset management services, such as accounting and treasury functions.
• The Company further entered into an Energy Management Agreement (the "EMA") with Castleton Commodities Energy Services LLC ("CCES"). Pursuant to the EMA, CCES provides certain services including, among other things: (i) bidding and scheduling NYISO day-ahead generation, real-time generation and ancillary services; (ii) procurement and scheduling of gas for generation to respond to energy or reserves schedules; (iii) administration of gas transportation agreements; (iv) submission of capacity offers; and (v) assistance in maintaining regulatory compliance.

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Prepetition Obligations

As of the Petition Date, there is no outstanding funded debt due under the Debtors' credit facility, and the Debtors estimate their unsecured debt at approximately $13,408,870.79, inclusive of the amount outstanding related to the disputed NYISO Penalty (discussed below).

Mercuria Credit Facility

• In connection with the Company's acquisition of the Generating Station, Debtors Danskammer Holdings and Danskammer Intermediate entered into a Credit Agreement dated December 27, 2017 (the "Credit Agreement") with MEI and MEA (collectively, the "Lender Parties") for a secured credit facility to finance the purchase of Danskammer Energy and certain other lines of credit.
• Under the Credit Agreement, the Lender Parties made loans in the aggregate amount of $57,500,000 in consideration of a portion of the purchase price (the "Purchaser Loans"), consisting of:
  • A $50,000,000 advance (the "Tranche A Advance"), which carried a per annum interest rate equal to, prior to January 1, 2024, 8% if the aggregate principal amount was greater than $45,000,000 and 7.5% if the aggregate principal amount was less than $45,000,000, and 10% on and after January 1, 2024.
  • A $7,500,000 advance (the "Tranche B Advance"), which carried an interest rate of 13% per annum and was fully prepaid in January 2018.
  • Both advances were deemed funded upon closing of the sale transaction as consideration for the purchase price.

Tranche C Commitment and Landfill Credit Support

• The Credit Agreement also provided a credit facility not to exceed $7,934,000 (the "Tranche C Commitment") to fund certain obligations owed to NYDEC related to closure of the coal ash landfill located at the Generating Station property (the "Landfill Credit Support Obligations").
• The Debtors also entered into a Reimbursement and Indemnification Agreement dated December 27, 2017 (the "Reimbursement Agreement") with the Lender Parties with respect to the Landfill Credit Support Obligations. As set forth therein, MEA, in its capacity as the NYSDEC Support Provider, provided credit support in the form of a surety bond issued by Liberty Mutual Life Insurance Company in the amount of $7,934,000 (the "Coal Ash Landfill Bond") on behalf of Danskammer Energy in favor of NYDEC for the closure and post-closure care of the coal ash landfill.

Omnibus Amendment

• In April 2025, the Debtors and the Lender Parties entered into the Omnibus Amendment No. 2 to Credit Agreement, Intercreditor Agreement, Reimbursement and Indemnification Agreement and Guaranty and Collateral Agreement dated April 21, 2025 (the "Omnibus Amendment").
  • Pursuant to the Omnibus Amendment, the remaining amounts of the outstanding funded Purchaser Loans were forgiven and, as of the effective date of the amendment, the aggregate outstanding balances of the Tranche A Advance and Tranche B Advance were $0.
  • The Omnibus Amendment also modified the collateral package securing the Debtors' obligations and, with respect to the Tranche C Commitment, established a segregated cash collateral account (the "NYDEC Support Cash Collateral Account") as collateral for the NYDEC Reimbursement Obligations.
• As of the Petition Date, there is $4,148,869 in the NYDEC Support Cash Collateral Account, the Tranche C Commitment is undrawn, and there is no outstanding funded debt due under the Credit Agreement.

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Events Leading to Bankruptcy

Adverse Changes in New York's Capacity Markets

The Debtors face unfavorable market conditions due to recent changes in the composition and market design of New York's capacity markets that were developed in 2025 for implementation in 2026 and that the Debtors anticipated would significantly impact the Company's revenue. With these impending changes, the Company completed a series of market clearing price forecasts and determined that ongoing Generating Station operations were not projected to be economic.

• Pursuant to NYISO capacity market rule changes that went into effect on May 1, 2026, for the first time, conventional generators operating with a technology that does not have duration limitations, such as the Generating Station, are bifurcated into two separate and distinct classifications: a Firm and a Non-Firm Fuel Capacity Accreditation Resource Class ("CARC"). A second set of rule changes effective July 1, 2026 caused the capacity accreditation factor ("CAF") assigned to the Non-Firm Fuel CARC to fall precipitously.
• Under these rule changes, and due to its higher heat rate, which limits its scheduling and dispatch in the NYISO markets in merit order, the Generating Station was required to accept providing service under a Non-Firm Fuel CARC.
  • As a Non-Firm Fuel CARC, the Generating Station will now be allocated a CAF of approximately 55%, compared to the previously assigned 100% CAF that applied until April 30, 2026, translating to a 45% reduction of the Company's potential revenue from the sale of capacity on and after July 1, 2026.
  • Because approximately 95% of the Company's historical revenue comes from the sale of capacity, this significant cut to go-forward capacity revenue has material financial consequences for the Company.
• Further, the recent addition of the Champlain Hudson Power Express ("CHPE"), a high voltage direct current transmission line capable of delivering 1,250 MW that connects the transmission system in Quebec, Canada to New York City, is anticipated to lower both the wholesale market price of energy and capacity prices in the G-J Zone and the overall New York Control Area ("NYCA") market.
  • CHPE entered commercial operation and was qualified to sell energy in May 2026 and will be eligible to participate in the wholesale monthly capacity auction beginning July 1, 2026. Once CHPE enters the NYISO capacity market, the Company projects this additional supply will further depress capacity market pricing and materially reduce the volume of capacity the Company and other Non-Firm Fuel CARCs can offer.

Deactivation Notice and Reliability Review

The addition of CHPE, coupled with the material changes in the NYISO capacity market design, present challenging market conditions that the Company anticipates will make it economically infeasible to continue operating the Generating Station. Under the NYISO's tariffs, a generating facility must complete an application and provide the NYISO with a 365-day notice from the start of the next quarterly reliability study to retire a facility, and is permitted to elect to provide a notice to retire within not less than 90 days if no reliability need is identified.

• Acting in compliance with the NYISO tariff requirements, the Company filed a deactivation notice application (the "DAN Application") with the NYISO on December 17, 2025, identifying a January 14, 2027 retirement date to meet the 365-day period and triggering its right to identify an earlier retirement date of August 1, 2026 in the event the Generating Station is not found needed for reliable system operations.
• On January 12, 2026, the NYISO posted a notification that the DAN Application was deemed complete, and the Company provided notice of the target retirement date to the New York Public Service Commission on January 14, 2026.
• On April 15, 2026, the NYISO issued its Short-Term Assessment of Reliability: 2026 Q1 Report (the "Q1 2026 STAR"), which found reliability needs for the Generating Station, determined it could not deactivate until at least August 1, 2026, and further established it may be required to remain in-service until at least January 15, 2027 if reliability needs persist.
  • The earliest possible retirement date for the Generating Station is therefore August 1, 2026, if the NYISO confirms sufficient solutions exist and are in service as of that time.
  • If the NYISO determines the Generating Station must be retained past August 1, 2026, it will become eligible for short-term regulated service as an Interim Service Provider ("ISP") up to January 15, 2027, with the Company compensated under an ISP rate commencing August 1, 2026.
  • To the extent the identified reliability needs have not been adequately redressed beyond January 15, 2027, the NYISO must enter into a Reliability Must-Run ("RMR") agreement with the Company, under which the Company would be compensated at a level that, at a minimum, adequately covers all of its costs for keeping the Generating Station in-service and provides performance and availability incentive payments.
• As of the date of the Declaration, the NYISO had not advised the Company whether the Generating Station will be required to remain in-service beyond August 1, 2026. The NYISO's next public assessment, the Short-Term Assessment of Reliability: 2026 Q2 Report, will be issued on July 14, 2026 and repeated on a quarterly basis until the identified need is addressed or the Generating Station withdraws its DAN Application and remains in the market on a merchant basis.

The Disputed NYISO Penalty

• On August 19, 2024, the Company was first contacted by the NYISO Market Monitoring and Analysis Group (the "MMA"), at the request of the NYISO's external Market Monitoring Unit, Potomac Economics (the "MMU"), seeking information regarding the Generating Station's operations in response to reserve activations in July 2024 and inquiring about the facility's ability to provide energy commensurate with its reserve obligations.
  • Failed equipment owned and operated by CHGE in the gas yard that serves the Generating Station, specifically a clogged gas strainer, was ultimately identified as the limiting constraint.
• The MMA next issued multiple inquiries alleging potential capacity shortfalls. Danskammer Energy responded and provided evidence to support its position that the allegations had no basis, and by May 2025 many of the allegations had been dropped. At that time, however, the Company was notified that the MMA had officially referred the matter to the NYISO Penalty Review Committee (the "PRC") for possible action.
• Through discussions with the NYISO, the Company confirmed that the matter referred to the PRC involved the one capacity shortfall allegation that remained under discussion, which the MMA alleged transpired from October 2021 through April 2025 (the "Review Period").
  • The Company disputed the bases for this last remaining allegation and, as of the Petition Date, was continuing to amass evidence disproving it, including specific evidence requested by the NYISO. Its position is supported by evidence confirming that the Generating Station could access a sufficient gas supply to accommodate operations and that the equipment in the CHGE gas yard could be configured to provide the necessary inlet pressure to meet facility operations at full load.
• After the DAN Application was confirmed complete but before the Q1 2026 STAR was initiated, the PRC issued a letter on January 13, 2026, notifying the Company that it had calculated a penalty of $13,450,921.50 for alleged capacity shortfalls during the Review Period (the "NYISO Penalty"). On January 23, 2026, the Company initiated the dispute resolution process in accordance with the NYISO's tariff requirements (the "Resolution Process") challenging the NYISO Penalty.

Collection Actions and the Decision to File

• Four months later, on April 27, 2026, the NYISO contacted the Company to schedule the first meeting to attempt to amicably resolve the dispute. The Company and the NYISO held their first in-person meeting on June 1, 2026, which ended with the NYISO expressly identifying the additional evidence it believed was necessary to resolve the matter and the Company committing to proceed expeditiously to secure it.
• With the Resolution Process still underway, on June 2, 2026, the NYISO nevertheless began garnishing the Company's operating revenue account of all sums then due for capacity services to recover the NYISO Penalty, garnishing $744,863.23 related to seven days of the Company's May 2026 capacity revenues, which were fully established in the total amount of $3,298,679.93.
• On June 5, 2026, the NYISO issued an email notice that it had begun invoicing the NYISO Penalty in its full amount and would take all steps necessary to collect it. The Company responded the same day, recounting that the NYISO had identified specific evidence necessary to resolve the matter during the June 1 meeting, had confirmed it would afford the Company a reasonable opportunity to secure it, and that the Company had actively initiated, and was continuing to initiate, all available means to expeditiously obtain such information.
• On June 9, 2026, the NYISO garnished another $744,863.23 of the Company's May 2026 capacity revenue. That same day, while the Company was still engaged in the Resolution Process, the NYISO sent an email notifying the Company of an alleged payment default, asserting that the full balance of the NYISO Penalty was due on June 9, 2026, and advising that the Company must cure the alleged default by 5:00 p.m. (ET) on June 10, 2026 by making a payment of $11,820,879.82 (i.e., the NYISO Penalty less amounts previously garnished).

Chapter 11 Filing and Go-Forward Strategy

As a result of the actions taken by the NYISO in connection with the disputed NYISO Penalty, notwithstanding that the Resolution Process had not concluded, the Company determined, following an evaluation of all available options, that filing for Chapter 11 protection and pursuing an orderly sale of its assets in a controlled, court-supervised environment was the best available option to maximize value for the Company and its stakeholders.

• On June 10, 2026 (the "Petition Date"), the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware, together with various First Day Pleadings.
• The Debtors intend to pursue a sale of substantially all of their assets pursuant to Bankruptcy Code section 363 (the "Sale Process") in order to avoid deterioration of their business and obtain maximum value for the benefit of all stakeholders and creditors.
  • The Debtors believe the Chapter 11 process will result in minimal disruption to their operations and allow them to continue operating the Generating Station, which has maintained strong operational readiness with a proven track record of starts and performance when called, while pursuing the Sale Process.