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EFH judge rejects tax mediation before reorganization plan confirmation

Afederal bankruptcy judge on July 20 rejected a request for mediation on taxissues between the regulated and unregulated sides of

At issuewere provisions in the latest plan for debt refinancing proposed by EFHsubsidiary Texas CompetitiveElectric Holdings Co. LLC. Under EFH's current , TCEH would be spunoff to senior creditors, independent of how the regulated side of EFHeventually reorganizes. TCEH is the corporate parent of , andLuminant Generation Co.LLC.

, TCEH would use$1 billion in net operating losses, or NOLs, owned by EFH to offset a portionof its step-up in tax basis if the IRS rules the spinoff a tax-freetransaction. On July 11, EFH creditor Contrarian Capital Management LLCrequested from the bankruptcy court mediation to resolve tax issues between theregulated, or "E-side," of EFH, and the unregulated, or"T-side."

U.S.Bankruptcy Judge Christopher Sontchi denied the motion. The request formediation had been opposed by a group of TCEH creditors, as well as EFH, whichdescribed mediation on these issues as, "inappropriate, unnecessary, andan inefficient and wasteful expenditure of resources." Hearings on TCEH'sreorganization plan are scheduled to begin Aug. 17.