By Rupert Howell

A federal judge in U.S. Bankruptcy Court in Delaware did not approve “stalking horse” protection for the current favored bidder for the local power-producing plant, LSP Energy, in a hearing held last Thursday.

The ruling could have a great impact on local government bodies as it may level the playing field in an auction and bid date soon to be rescheduled in New York City.

Oxford attorney Andy Phillips with the Mitchell McNutt and Sams firm is a local attorney associated for the bankruptcy case representing Panola County, Panola Partnership and the City of Batesville.

Phillips was cautiously optimistic about the recent ruling, noting that if other than South Mississippi Electric Power Association (SMEPA) were successful bidder,  the bidder may be a for-profit entity that would pay property taxes.

SMEPA, due to its classification as a rural non-profit power distributor, is not liable for county property taxes.

Phillips added that SMEPA had agreed to pay taxes in arrears in its original bid of $249 million, while noting that SMEPA may no longer pursue the acquisition without stalking horse protection. In a recent hearing SMEPA agreed to reduce the “break up” fee from $7.5 to $5.5 million, but the judge did not approve stalking horse protection.

Siemens Energy, Inc., one of the largest debtors in the bankruptcy, filed a response to bidding procedures questioning the “break up” fee offered the stalking horse bidder that amounted to $7.7 million according to court documents.

Siemens’, the largest unsecured creditor, filing states that while that company is not opposing bidding procedures currently in effect, said protections for the favored bidder should be reasonable.

Siemens’ filing names companies affiliated with Tenaska and Quantum, both billion dollar holding companies in the energy business, as interested bidders willing to pay more than the $249 million offered by the stalking horse bidder. Both companies are privately held and may not qualify for the property tax exemption SMEPA is entitled to.

Panola County and South Panola School District budget approximately $3.6 million from those taxes, taxes that are in arrears for 2011 as well as taxes for at least seven months of the current year.

Local officials and tax consultants believe that taxes in arrears will be paid, but are concerned that millage rate on other property will have to be raised considerably to fill the void if the non-taxable entity acquires the facility.

City property taxes are not exempt and the City of Batesville currently receives approximately $800,000 per year in taxes, which is also in arrears. Panola Partnership receives over $30,000 monthly in an agreement made when the power facility, a 30-year agreement arising from the construction of a 10-inch water line from Enid Lake provided by the state— a payable that continues to be kept current.

While noting that SMEPA had agreed to pay taxes in arrears in its original bid, Phillips said it wasn’t certain that would happen if another bidder was successful.

“There is no given in bankruptcy court,” Phillips added.