Case Document 17 Filed in TXSB on 12/05/16 Page 1 of 25

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1 Case Document 17 Filed in TXSB on 12/05/16 Page 1 of 25 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS CORPUS CHRISTI DIVISION IN RE: SHERWIN ALUMINA COMPANY, LLC, et al. Debtors. 1 Chapter 11 Case No (DRJ) (Jointly Administered) GREGORY POWER PARTNERS, LLC AND NRG ENERGY, INC., v. Plaintiffs, Adv. Proc. No SHERWIN ALUMINA COMPANY, LLC, AND CORPUS CHRISTI ALUMINA LLC, Defendants. DEBTORS ANSWER TO GREGORY POWER PARTNERS, LLC AND NRG ENERGY, INC. S COMPLAINT AND COUNTERCLAIM Debtors Sherwin Alumina Company, LLC, and Sherwin Pipeline, Inc. (collectively, the Debtors ), submit their answer to the Gregory Power Partners, LLC ( GPP ) and NRG Energy, Inc. s ( NRG ) adversary complaint. Any allegation Debtors do not specifically admit, they deny. INTRODUCTION 1. GPP s Gregory Power Plant sits on land GPP leases from Sherwin under an unexpired real property lease (the Lease ) contained within an Energy Services Agreement dated as of June 30, 1998 (as amended from time to time, the ESA ) between the parties The Debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number, are: Sherwin Alumina Company, LLC (2376) and Sherwin Pipeline, Inc. (9047). Reynolds Metals Company ( Reynolds ) is the original owner of the Sherwin alumina plant and the original counterparty to the ESA. Reynolds sold its interest in the plant in 2000, but remains bound to perform its obligations under that ESA. Determination of Reynolds s obligations under the ESA is the subject of a separate action, Gregory Power Partners, LLC v Reynolds Metals Company, Adv. Proc. No , and through this action GPP does not waive any claim related to Reynolds s own obligations.

2 Case Document 17 Filed in TXSB on 12/05/16 Page 2 of 25 Sherwin has sought to reject the ESA pursuant to 11 U.S.C. 365(a), ceased all operations at the alumina facility that the Gregory Power Plant services, and indicated its intention to at least in part dismantle that alumina facility. Sherwin intends to transfer ownership of the leased property, the facility, and other assets to CCA pursuant to the Debtors Modified Joint Chapter 11 Plan (the Plan ). ANSWER 1: Debtors deny the allegations of this paragraph except admit that: (a) on June 30, 1998, Reynolds Metal Company and Gregory Power Partners, L.P., executed an ESA, which contained a Lease, and was amended on April 27, 2000, October 19, 2000, July 1, 2001, August 1, 2002, January 1, 2004, January 7, 2005, and August 7, 2013, (b) Debtors filed an Amended Chapter 11 Plan (the Plan ) with this Court on November 10, 2016, and November 22, 2016 (ECF Nos. 906, 937), and (c) the allegations in footnote 1. Debtors further refer to the ESA, 11 U.S.C. 365(a), and the adversary proceeding captioned Gregory Power Partners, LLC v Reynolds Metals Company, Adv. Proc. No , which speak for themselves, for their full and complete contents. 2. Following Sherwin s rejection of the ESA, GPP has the right under 11 U.S.C. 365(h)(1)(A) to elect to retain its leasehold rights under the Lease. These include not only the right to possess the property, but also easement rights, the right of use and quiet enjoyment, and other rights of use and access in and appurtenant to the real property and for the purpose of the leasehold. As a result of Sherwin s wind down and dismantling of the alumina facility, along with related utilities, infrastructure, property, and other systems now connected to the Gregory Power Plant or otherwise necessary for GPP s use of the leased site for the purpose for which it was leased, if GPP is to continue operating the Gregory Power Plant, then Sherwin, CCA, and any other successor in interest must recognize GPP s easements and other rights necessary to possess and quietly enjoy the leased site. The parties have been unable to agree on those rights, making it impossible for GPP to decide whether to elect to retain its right. GPP cannot make an informed election without knowing what it is electing to retain. GPP thus seeks a judgment from this Court declaring those rights. ANSWER 2: Debtors deny the allegations of this paragraph and refer to the Lease, the ESA, and 11 U.S.C. 365(h)(1)(A), which speak for themselves, for their full and accurate provisions. 2

3 Case Document 17 Filed in TXSB on 12/05/16 Page 3 of Should GPP elect to retain its rights pursuant to 11 U.S.C. 365(h)(1)(A)(ii), this would also provide it with the right to offset against its future rent payments the value of the damage caused by Sherwin s breach of the lease. See 11 U.S.C. 365(h)(1)(B). This requires determination of the value of that damage and of the resulting rent payment, which GPP asks the Court to declare by judgment. The amount of its rent payment is also material and necessary to GPP s decision regarding whether or not to elect to retain its lease rights. ANSWER 3: Debtors deny the allegations of this paragraph and refer to the Lease and 11 U.S.C. 365(h)(1)(A)(ii), 365(h)(1)(B), which speak for themselves, for their full and accurate provisions. 4. GPP and NRG also ask the Court to enter a judgment declaring that the lien GPP provided to Sherwin and the guaranty NRG provided to Sherwin as security for GPP s obligations under the ESA should be released, discharged, and cancelled. GPP is excused from performing the obligations those instruments secure. ANSWER 4: Debtors deny the allegations of this paragraph except admit that GPP and NRG seek the relief enumerated in this paragraph and refer to the ESA, which speaks for itself, for its full and accurate provisions. PARTIES 5. Gregory Power Partners, LLC, having been converted from Gregory Power Partners, LP, is a limited liability company organized in the State of Delaware, and its cogeneration power plant is located in Gregory, Texas. ANSWER 5: Debtors are without knowledge or information sufficient to form a belief as to the allegations of this paragraph and deny them on that basis except admit that a cogeneration power plant owned by Gregory Power Partners, LLC, is located in Gregory, Texas. 6. NRG Energy, Inc. is a corporation organized in the State of Delaware and headquartered in Princeton, New Jersey and Houston, Texas. 3

4 Case Document 17 Filed in TXSB on 12/05/16 Page 4 of 25 ANSWER 6: Debtors are without knowledge or information sufficient to form a belief as to the allegations of this paragraph, and deny them on that basis. 7. Sherwin Alumina Company, LLC is Delaware limited liability company with its principal place of business in Gregory, Texas. Sherwin can be served through its registered agent for process CSC, 211 East 7th Street, Suite 620, Austin, Texas ANSWER 7: Debtors admit the allegations of this paragraph. 8. Corpus Christi Alumina LLC is a Delaware limited liability company. CCA is defined as the Buyer under the Plan. CCA can be served through delivery to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process. ANSWER 8: Debtors lack knowledge or information sufficient to form a belief as to the truth or falsity of the allegations of this paragraph and deny them on that basis except admit that Corpus Christi Alumina LLC ( CCA ) is defined as a Buyer pursuant to the Plan, and refer to the Plan, which speaks for itself, for its full and accurate provisions. JURISDICTION AND VENUE 9. Core jurisdiction exists over this adversary proceeding pursuant to 28 U.S.C. 157 and 1334 because (i) it arises in Sherwin s chapter 11 case pending in the United States Bankruptcy Court for the Southern District of Texas, jointly administered under the case of In re Sherwin Alumina Company LLC, Case No (DRJ); or (ii) it arises under the Bankruptcy Code, because GPP seeks declarations concerning an executory contract in which Sherwin is a counterparty and the scope of GPP s rights arising under 11 U.S.C. 365(g) and (h). 4

5 Case Document 17 Filed in TXSB on 12/05/16 Page 5 of 25 ANSWER 9: Debtors deny the allegations of this paragraph. Debtors further refer to 28 U.S.C. 157, 1334, and 11 U.S.C. 365(g), 365(h), which speak for themselves, for their full and accurate provisions. 10. The claims for relief herein are core matters under 28 U.S.C. 157(b)(1). GPP hereby consents to entry of final orders by the Bankruptcy Court with respect to the relief requested in this Complaint. ANSWER 10: The allegations of this paragraph contain legal conclusions and not allegations of fact to which a responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this paragraph and refer to 28 U.S.C. 157(b)(1), which speaks for itself, for its full and accurate provisions. 11. The statutory predicate for relief is 28 U.S.C and sections 105(a) and 365 of the Bankruptcy Code. ANSWER 11: Debtors deny the allegations of this paragraph and refer to 28 U.S.C and 11 U.S.C. 105(a), 365, which speak for themselves, for their full and accurate provisions. 12. Venue of this adversary proceeding in this district is proper pursuant to 28 U.S.C because this adversary proceeding (a) arises under title 11 of the United States Code; or (b) arises in or relates to the above-captioned chapter 11 case pending in this district before this Court. ANSWER 12: Debtors deny the allegations of this paragraph and refer to 28 U.S.C. 1409, which speaks for itself, for its full and accurate provisions. 5

6 Case Document 17 Filed in TXSB on 12/05/16 Page 6 of 25 PROCEDURE FOR ADVERSARY PROCEEDING 13. This matter is governed by Rules 7001, et seq., of the Federal Rules of Bankruptcy Procedure, which generally incorporate the Federal Rules of Civil Procedure, to the extent applicable. ANSWER 13: The allegations of this paragraph contain legal conclusions and not allegations of fact to which a responsive pleading is required or permitted. FACTUAL BACKGROUND The ESA and its Lease, Lien, and Guaranty Provisions 14. Sherwin and GPP are parties to the ESA. 3 The ESA precipitated the construction of a 550 megawatt natural gas powered electric generation plant in Gregory, Texas (the Gregory Power Plant ), on real property owned by Sherwin (all such real property currently owned by Sherwin, the Site ). The Gregory Power Plant is a cogeneration facility. GPP produced steam for the Sherwin facility, and also produced electricity. Some electricity was delivered to Sherwin and the majority to the Electric Reliability Council of Texas ( ERCOT ) power grid. ERCOT operates the electric transmission grid and manages the deregulated market for 75 percent of the state of Texas. ERCOT has indicated that the continued operation of the Gregory Power Plant may be necessary to the reliability of the power system. ANSWER 14: Debtors deny the allegations of this paragraph and footnote 3 except admit that Gregory Power Plant, as defined in this paragraph, is located on real property owned by Sherwin. Debtors further refer to the ESA, which speaks for itself, for its full and accurate provisions. 15. The ESA includes a thirty-five year Site lease in favor of GPP: [Sherwin] hereby leases to GPP, and GPP hereby leases from [Sherwin], on the terms and conditions set forth herein, all of [Sherwin s] right, title and interest in and to the Site. Because GPP s use and quiet enjoyment of the Site requires it to access other property and services from Sherwin, GPP and Sherwin are parties to a Master Easement Agreement (as amended and modified from time to time, the Master Easement Agreement ) that grants GPP 3 As described in note 2, supra, and described in the pleadings in the action referenced within that note, Reynolds is also a party to the ESA. 6

7 Case Document 17 Filed in TXSB on 12/05/16 Page 7 of 25 several easements over and in other Sherwin property, and requires Sherwin to provide certain access and services necessary for GPP to use the Site for the purpose for which it was leased. Sherwin has not rejected the Master Easement Agreement. 4 ANSWER 15: Debtors deny the allegations of this paragraph and footnote 4 except admit that the language quoted in this paragraph is an excerpt from Section of the ESA and that Reynolds Metal Company and Gregory Power Partners, L.P. executed a Master Easement Agreement, dated June 30, Debtors further refer to the ESA and the Master Easement Agreement, which speak for themselves, for their full and accurate provisions. 16. The ESA also obligates GPP to provide certain infrastructure and energy services to Sherwin in connection with Sherwin s power and steam needs at its alumina plant. As security for Sherwin in ensuring that it would be compensated if those needs were not met, GPP granted Sherwin a lien over certain GPP property, including the equipment, goods, and fixtures associated with the Gregory Power Plant (the Lien ): Effective immediately following the Closing..., as collateral security for the payment and performance in full of all of GPP s obligations under the ESA arising prior to the end of the Energy Services Period..., GPP pledges and grants to Sherwin a Lien on all of the right, title and interest of GPP in, to and under the following property.... ANSWER 16: Debtors deny the allegations of this paragraph except admit that the language quoted in this paragraph is an excerpt from paragraph 3(b) of an agreement, titled ENERGY SERVICES AGREEMENT, NINTH AMENDMENT AND CONSENT, which was executed by Sherwin Alumina Company, LLC, and Gregory Power Partners, L.P., and is dated August 7, 2013 (the Lien ), which speaks for itself and to which Debtors refer for its full and accurate provisions. 4 GPP does not admit that the Master Easement Agreement is executory or that the real property conveyances thereunder can otherwise be rejected pursuant to Bankruptcy Code section 365. To the extent Sherwin seeks to reject the Master Easement Agreement, GPP hereby seeks a declaration of its resulting rights, including without limitation under Bankruptcy Code section 365(h), substantially as sought by this Complaint in respect of the ESA. 7

8 Case Document 17 Filed in TXSB on 12/05/16 Page 8 of GPP s indirect owner, NRG, also agreed to a parent guaranty of GPP s performance of its obligations under the ESA (the Guaranty ): [NRG] hereby absolutely and unconditionally guarantees to [Sherwin], its successors and permitted assigns, (a) the due and punctual performance of all of the obligations of GPP under the [ESA]..., and (b) subject to the damage limitations set forth in the [ESA], the payment of all costs, expenses..., losses and other damages suffered or incurred as a result of GPP s failure to perform any of its obligations under the Agreement.... ANSWER 17: Debtors deny the allegations of this paragraph except admit that the language quoted in this paragraph is an excerpt from paragraph 1 of a Guaranty, executed by NRG Energy, Inc., and Sherwin Alumina Company, LLC, and dated August 7, Debtors further refer to the Guaranty, which speaks for itself, for its full and accurate provisions. Sherwin s Shutdown of the Alumina Plant and Rejection of the ESA 18. On January 11, 2016, Sherwin filed a voluntary bankruptcy petition for relief under chapter 11 of the Bankruptcy Code. The Debtors have since informed this Court of their intention to wind down their operations and dismantle their alumina production facility. ANSWER 18: Debtors deny the allegations of this paragraph except admit that they filed a Chapter 11 Voluntary Petition and a Chapter 11 Plan of Reorganization on January 11, See ECF Nos. 1, 27. Debtors further refer to the Chapter 11 Voluntary Petition and the Plan, which speak for themselves, for their full and accurate provisions. 19. On information and belief, the alumina plant has ceased operations, and as a result ceased taking all goods or services GPP provides under the ESA, including steam and electricity. On September 29, Sherwin opened up the electrical breakers disconnecting its site and shut the steam isolation values, thus preventing GPP from performing under the ESA. ANSWER 19: Debtors deny the allegations of this paragraph and refer to the ESA and the Plan, which speak for themselves, for their full and accurate provisions. 8

9 Case Document 17 Filed in TXSB on 12/05/16 Page 9 of Sherwin has informed the Court that it intends to submit an order formally providing for the rejection of the Energy Services Agreement pursuant to 11 U.S.C. 365, effective as of September 29, ANSWER 20: Debtors deny the allegations of this paragraph except admit on November 23, 2016, the Court approved Debtors rejection of the ESA, effective as of September 29, See ECF No. 952, Supplemental Order Approving the Rejection of Certain Executory Contracts and Unexpired Leases, at 1. Debtors further refer to such order, as well as 11 U.S.C. 365, which speak for themselves, for their full and accurate provisions. GPP s 11 U.S.C. 365(h) Election to Retain its Rights 21. Upon rejection of the ESA, GPP has the right, pursuant to 11 U.S.C. 365(h)(1)(A)(ii), to elect to retain its Lease rights for the balance of its term, including any applicable renewal or extension of the Lease. ANSWER 21: Debtors deny the allegations of this paragraph and refer to 11 U.S.C. 365(h)(1)(A)(ii), which speaks for itself, for its full and accurate provisions. 22. By law, the rights included in this election would include all rights that are in or appurtenant to the Site, including all rights related to the use, possession, and quiet enjoyment of the Site. GPP s possessory rights include the right to necessary utilities and easements, including those set forth in the ESA and Master Easement Agreement, those which in practice Sherwin has provided to GPP, those provided for under common law doctrines of necessity or prior use, and those which Sherwin s rejection of the ESA and shut down and dismantling of the alumina plant now make necessary. GPP s rights under the Lease also include all other rights and privileges that are necessary and incident to the Site, including access to any property, infrastructure, or other systems needed for GPP to continue its operations on the Site. ANSWER 22: Debtors deny the allegations of this paragraph and refer to the ESA, the Master Easement Agreement, and the Lease, which speak for themselves, for their full and accurate provisions. 9

10 Case Document 17 Filed in TXSB on 12/05/16 Page 10 of GPP s continuing rights also include access to any related services or infrastructure that Sherwin or any successor will continue to perform or use. To the extent any such services will no longer be performed, GPP has a right to such easements and other access rights necessary to either perform those services itself, contract with another to perform those services, or make alterations necessary to otherwise permit GPP to continue its operations on the Site. ANSWER 23: This paragraph contains legal conclusions to which no responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this paragraph. 24. Many of GPP s continuing rights are the same as those contained in the Lease (or elsewhere in the ESA), and in the Master Easement Agreement. Any election by GPP to retain its rights would require that the rights contained in those documents continue through the balance of the Lease. In other instances, guaranteeing GPP s continuing rights under the Lease requires alterations or additions to specific rights, easements, and benefits GPP has otherwise held, as Sherwin s contract rejection and acts related to the dismantling of its facility result in harms to GPP s contractual and historic rights that must be rectified. For example: a. GPP currently discharges its process water used in the power generation process to a pond owned and maintained by Sherwin that is proximate to the Site. Sherwin has informed GPP that it intends to fill in and discontinue use of that pond, requiring GPP to invest capital in designing and constructing an alternative method of discharging this process water. The most cost effective alternative method would result in this process water being discharged into what is known as the East Ditch of the property, where storm water is currently released, but accomplishing this necessitates either the grant of a new easement to GPP and/or modification of existing easements. Additional easements rights are also required to allow for continued discharge of GPP wastewater. b. Sherwin s rejection of the ESA and dismantling of its facility mean that GPP will now need to find an alternative method of obtaining filtered water from the San Patricio Municipal Water District ( San Pat MUD ), which is required for the operation of the fire protection system, sanitary system, and certain other plumbing at the Site. GPP is entitled to the grant of an easement allowing it to otherwise procure this filtered water from San Pat MUD. GPP is also entitled to assurances that existing easements granted to San Pat MUD to serve the Sherwin property remain in effect, and that both those easements and existing piping infrastructure may be used to serve the Site. 10

11 Case Document 17 Filed in TXSB on 12/05/16 Page 11 of 25 ANSWER 24: c. GPP is entitled to additional easements that will allow GPP to maintain and install facilities associated with its continuing waste water management, treatment, storage, and discharge needs. d. GPP is entitled to access and utilize any existing sanitary sewage infrastructure and systems that remain on the Sherwin property, for as long as such infrastructure and systems exist. e. With the loss of Sherwin s infrastructure, GPP must now rely on its own communications infrastructure to connect to public communications systems which is critically important for the coordinated operation of a power plant connected to ERCOT. GPP needs the ability to access public communication infrastructure and needs a communication corridor easement. The grant of new easements or modification of existing easements is required for GPP to be able to do so. f. In connection with the dismantling of its facility, Sherwin has disconnected the GPP-supplied source of electricity required to operate a GPP steam vent that sits on the property. GPP is thus entitled to the grant of any easement necessary to provide electricity to the steam vent. g. Sherwin s rejection of the ESA and dismantling of its facility also mean a reduction in GPP s access to the natural gas necessary to operate the Gregory Power Plant at full capacity. GPP is entitled to the grant of an easement allowing it to run its own pipeline to Sherwin s natural gas pipeline supplier. GPP also is entitled to use of any existing infrastructure related to GPP s procurement of this natural gas. h. Sherwin previously agreed to GPP s construction of a parking lot on land proximate to the Site, which GPP has constructed. GPP is entitled to any easement necessary to allow its continued use of this parking lot for the purpose for which it was constructed and has been used. Debtors deny the allegations of this paragraph and its subparts and refer to the ESA, the Master Easement Agreement, and the Lease, which speak for themselves, for their full and accurate provisions. 25. Time is of the essence in defining and confirming GPP s continuing rights under the Lease. GPP requires permits to operate the Gregory Power Plant, and needs clarity on its continuing rights before some permits can be prepared and requested. Under the Lease and ESA, Sherwin was previously responsible for some of this necessary permitting, and those permits often covered the entirety of the Sherwin property, including the Site. Treatment of the entirety of the Sherwin property (including the Site) as a single site is important to GPP s ability to 11

12 Case Document 17 Filed in TXSB on 12/05/16 Page 12 of 25 operate on the Site for the purposes for which the Site was leased. Sherwin s (or its successor s) continued securing of permits covering the entirety of the property (including the Site) is thus GPP s right under 11 U.S.C ANSWER 25: Debtors deny the allegations of this paragraph and refer to the Lease, the ESA, and 11 U.S.C. 365, which speak for themselves, for their full and accurate provisions. 26. The parties have not reached agreement on the identification of GPP s rights under the Lease that may be retained pursuant to 11 U.S.C. 365(h). GPP thus asks that the Court enter a judgment declaring the contours and scope of GPP s continuing rights under the Lease. ANSWER 26: Debtors deny the allegations of this paragraph and refer to the Lease and 11 U.S.C. 365(h), which speak for themselves, for their full and accurate provisions. GPP s Right to Rent Offset 27. GPP s election to retain its rights pursuant to 11 U.S.C. 365(h)(1)(A)(ii) also permits GPP, for the balance of the Lease, to offset its rent for the value of all damage caused by Sherwin s nonperformance of the Lease after the date of the rejection. 11 U.S.C. 365(h)(1)(B). ANSWER 27: Debtors deny the allegations of this paragraph and refer to the Lease and 11 U.S.C. 365(h)(1)(A)(ii), 365(h)(1)(B), which speak for themselves, for their full and accurate provisions. 28. The ESA provides that GPP shall pay annual rent of $1.00 every year until the Energy Services Termination Date, which unless extended occurs 20 years after commencement of commercial operations of the Gregory Power Plant. Commercial operations began in July 2000, and thus the Energy Services Termination Date does not happen until July 2020, unless otherwise extended. ANSWER 28: Debtors deny the allegations of this paragraph and refer to the ESA, which speaks for itself, for its full and accurate provisions. 12

13 Case Document 17 Filed in TXSB on 12/05/16 Page 13 of Following the Energy Services Termination Date, and until the end of the Lease, GPP s rent payment shall be an amount mutually agreed upon by two independent appraisers to be a fair market rental value for 10 acres of similar unimproved property in the general vicinity of the Site. ANSWER 29: This paragraph contains legal conclusions to which no responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this paragraph. Debtors further refer to the ESA and the Lease, which speak for themselves, for their full and accurate provisions. 30. In order for GPP to receive the offset rights and benefits it is owed under 11 U.S.C. 365(h), it will be necessary for the Court to determine the value of all damage caused by Sherwin s breach and nonperformance of the Lease, and the resulting rent payment. GPP thus seeks a judgment declaring these rights, the value of this damage, and the resulting rent payment. ANSWER 30: Debtors deny the allegations of this paragraph and refer to the Lease and 11 U.S.C. 365(h), which speak for themselves, for their full and accurate provisions. Release, Discharge, and Cancellation of Lien and Guaranty 31. With shut down of the Sherwin facility and rejection of the ESA, neither Sherwin nor any successor have any claim relating to a breach of GPP s obligations in the ESA that are secured by the Lien or Guaranty. ANSWER 31: Debtors deny the allegations of this paragraph and refer to the ESA, which speaks for itself, for its full and accurate provisions. 32. The Lien is collateral security for the payment and performance in full of all of GPP s obligations under the ESA arising prior to the end of the Energy Services Period. Likewise, the Guaranty guarantees the due and punctual performance of all the obligations of GPP under the [ESA]. As a result of Sherwin s rejection of the ESA and dismantling of the alumina facility, GPP is excused from performing those obligations. The Lien and Guaranty thus 13

14 Case Document 17 Filed in TXSB on 12/05/16 Page 14 of 25 no longer secure anything, and as a result should be released, discharged, and cancelled. Sherwin has refused to do so. GPP thus seeks a judgment so declaring. ANSWER 32: Debtors deny the allegations of this paragraph except admit that the language quoted in the first sentence of this paragraph is an excerpt from the Lien and the language quoted in the second sentence of this paragraph is an excerpt from the Guaranty. Debtors further refer to the ESA, the Lien, and the Guaranty, which speak for themselves, for their full and accurate provisions. CAUSES OF ACTION Declaratory Judgment Under 28 U.S.C GPP and NRG incorporate and adopt by reference each and every allegation in the preceding paragraphs. ANSWER 33: herein. Debtors incorporate by reference their responses to paragraphs 1 32 as if fully set forth 34. A substantial controversy exists between GPP, NRG, Sherwin, and CCA regarding GPP s real property and related rights in the Site following the rejection, the impact of that rejection on GPP s future rent payments for the Site, and the continued effect of the Lien and Guaranty. ANSWER 34: This paragraph contains legal conclusions to which no responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this paragraph. 35. GPP and NRG on the one hand, and Sherwin and CCA on the other hand, have adverse legal interests with respect to this dispute. 14

15 Case Document 17 Filed in TXSB on 12/05/16 Page 15 of 25 ANSWER 35: This paragraph contains legal conclusions to which no responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this paragraph. 36. This dispute is of sufficient immediacy and reality to warrant declaratory relief because Sherwin has provided notice of its rejection of the ESA and of its intent to wind down operations and dismantle the alumina facility and transfer it to CCA, which results in significant uncertainty for GPP s operations on the Site and may result in substantial damage to GPP. This uncertainty also makes it impossible for GPP to make an informed decision regarding whether to elect to retain its Lease and related right. The rejection also results in uncertainty concerning the Lien and Guaranty, which encumber GPP and NRG and as a result may do substantial harm. ANSWER 36: This paragraph contains legal conclusions to which no responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this paragraph. 37. GPP asks the Court to declare that: (a) under applicable law the Lease is a lease of non-residential property as that term is defined and governed by 11 U.S.C. 365 and, as such, is entitled to all relevant statutory protections; (b) the rights GPP retains as a result of any 11 U.S.C. 365(h) election include all rights necessary to its possession and quiet enjoyment of the Site and use of the Site for the purpose for which it was leased, including all easements and access to other facilities, properties, infrastructure, utilities, systems, and services necessary to permit operation of the Site for the purpose for which it was leased, comprised of certain specific rights to be identified, including those identified in paragraph 24 of this Complaint; (c) Sherwin s rejection of the ESA has caused damage to GPP, in an amount which shall be offset against any and all future rent payments, resulting in a new rent payment to be declared by the Court; (d) Sherwin s rejection of the ESA has excused GPP from performing any of its obligations under the ESA; (e) as a result of Sherwin s rejection of the ESA, GPP no longer has obligations to Sherwin to be secured by the Lien and Guaranty, and as a result the Lien and Guaranty shall be released, discharged, and cancelled; and (f) these judgments are binding on CCA and any other successor in interest to Sherwin. ANSWER 37: This paragraph contains legal conclusions to which no responsive pleading is required or permitted. To the extent a response is deemed required, Debtors deny all allegations of this 15

16 Case Document 17 Filed in TXSB on 12/05/16 Page 16 of 25 paragraph and refer to 11 U.S.C. 365, which speaks for itself, for its full and accurate provisions. 38. Pursuant to Federal Rule of Civil Procedure 57, GPP and NRG request a speedy hearing of this declaratory-judgment action. ANSWER 38: Debtors admit that GPP and NRG purport to request a speedy hearing and refer to Federal Rule of Civil Procedure 57, which speaks for itself, for its full and accurate provisions. ANSWER: PRAYER FOR RELIEF GPP and NRG respectfully ask this Court to enter judgment in this matter as follows: a) Declaring that (a) under applicable law the Lease is a lease of non-residential property as that term is defined and governed by 11 U.S.C. 365 and, as such, is entitled to all relevant statutory protections; (b) the rights GPP retains as a result of any 11 U.S.C. 365(h) election include all rights necessary to its possession and quiet enjoyment of the Site and use of the Site for the purpose for which it was leased, including all easements and access to other facilities, properties, infrastructure, utilities, systems, and services necessary to permit operation of the Site for the purpose for which it was leased, comprised of certain specific rights to be identified, including those identified in paragraph 24 of this Complaint; (c) Sherwin s rejection of the ESA has caused damage to GPP, in an amount which shall be offset against any and all future rent payments, resulting in a new rent payment to be declared by the Court; (d) Sherwin s rejection of the ESA has excused GPP from performing any of its obligations under the ESA; (e) as a result of Sherwin s rejection of the ESA GPP no longer has obligations to Sherwin to be secured by the Lien and Guaranty, and as a result the Lien and Guaranty shall be released, discharged, and cancelled; and (f) these judgments are binding on CCA and any other successor in interest to Sherwin. b) Granting GPP and NRG all other equitable and just relief to which they may be entitled. Debtors deny all allegations in the Complaint unless specifically admitted above and deny the allegations in this paragraph except admit that GPP and NRG seek the relief enumerated in the Prayer for Relief. 16

17 Case Document 17 Filed in TXSB on 12/05/16 Page 17 of 25 AFFIRMATIVE DEFENSES Debtors assert the following defenses to the Complaint, without assuming the burden of proof or persuasion where such burden rests on GPP and NRG. Debtors reserve the right to supplement their defenses as discovery progresses. FIRST AFFIRMATIVE DEFENSE The Complaint fails to state a claim upon which relief may be granted, including, without limitation, for failing to assert the claims and causes of action timely under applicable statutes of limitation, statutes of repose and like or otherwise related limitations, and under the doctrine or principle of laches and like or related doctrines and/or principles. SECOND AFFIRMATIVE DEFENSE Any recovery or any alleged claim or cause of action asserted in the Complaint has been satisfied or is otherwise barred under the doctrine or principle of accord and satisfaction, or like or related doctrines and/or principles. THIRD AFFIRMATIVE DEFENSE To the extent that GPP and NRG have suffered any recoverable damages, such damages should be set-off in an amount to be proven. FOURTH AFFIRMATIVE DEFENSE GPP and NRG s purported claim for relief is barred in whole or in part by the doctrine of unclean hands. FIFTH AFFIRMATIVE DEFENSE GPP and NRG s purported claims for relief are barred by the doctrine of equitable estoppel. SIXTH AFFIRMATIVE DEFENSE GPP and NRG have failed to mitigate their damages, if any. 17

18 Case Document 17 Filed in TXSB on 12/05/16 Page 18 of 25 SEVENTH AFFIRMATIVE DEFENSE GPP and NRG s purported claims are barred, in whole or in part, by the doctrine of recoupment. EIGHTH AFFIRMATIVE DEFENSE GPP and NRG s purported claims are barred by the doctrine of waiver. NINTH AFFIRMATIVE DEFENSE If GPP and NRG suffered any recoverable damages, those damages were caused by entities or persons, over whom Debtors had no control and for whom Debtors are not liable. TENTH AFFIRMATIVE DEFENSE Debtors affirmatively raise and reserve all applicable equitable defenses. ELEVENTH AFFIRMATIVE DEFENSE GPP and NRG s purported claims are barred in whole or in part by the doctrine of ripeness. TWELFTH AFFIRMATIVE DEFENSE At this time the Complaint does not describe the claims made against Debtors with sufficient particularity to allow Debtors to determine all of their defenses, and Debtors therefore lack sufficient knowledge to form a basis as to the existence and availability of additional affirmative defenses. Debtors reserve the right to assert additional affirmative defenses as they discover them through discovery or other investigation. WHEREFORE, Debtors respectfully request the Court to enter an order: (a) Dismissing the Complaint in its entirety with prejudice; and (b) Awarding such other relief as the Court deems just and proper. 18

19 Case Document 17 Filed in TXSB on 12/05/16 Page 19 of 25 COUNTERCLAIM OF DEBTORS Debtors, by and through their undersigned counsel, hereby assert the following counterclaims against plaintiffs, with, except as otherwise noted, the parties and the terms identified and defined herein having the same definitions ascribed to them in the Answer. FACTUAL BACKGROUND 1. Debtors are successors in interest to an Energy Services Agreement, Second Amendment and Restatement, executed by Reynolds Metals Company and Gregory Power Partners, L.P., and dated June 30, 1998 (the ESA ). 2. The ESA provides the terms for GPP and NRG to construct [and operate] an approximately 400 megawatt cogeneration Facility which will produce Steam and Electricity for use at the Sherwin Operation and Electricity for sale by GPP to Third Parties. 3. As part of its Plan with this Court, Debtors noticed the rejection of the ESA on September 29, See ECF No This Court approved the rejection of the ESA on November 23, See ECF No. 952, at 1. A. New Easements Demanded by GPP 4. Debtors have undertaken to sell the Site to CCA or a successor landlord to be determined pursuant to the Plan. 5. GPP and NRG have asserted in their Complaint that 11 U.S.C. 365(h)(1)(a)(ii) entitles GPP to certain rights under the ESA (and other putative rights not contained in the ESA) notwithstanding Debtors rejection of the ESA. Namely, GPP asserts that the easements and other affirmative relief enumerated in paragraph 24(a) (h) of the Complaint are appurtenant to the Site and therefore require accommodation from Debtors as lessor and from CCA as the potential buyer of the Site (the Demanded Accommodations ). 6. The Demanded Accommodations, if approved by the Court, would 19

20 Case Document 17 Filed in TXSB on 12/05/16 Page 20 of 25 substantially reduce the value of the Site and materially impact the rights of Debtors and any successor owner of the Site. 7. The parties have not reached an agreement as to GPP s claimed entitlement to the Demanded Accommodations. Debtors thus ask that the Court enter a judgment declaring that GPP has no rights to the Demanded Accommodations. B. Energy Services Termination Date Has Occurred 8. Pursuant to Sections 1.1(ii), 7.4.1(i), and 20.1 of the ESA, GPP shall pay annual rent of $1.00 every year until the Energy Services Termination Date. Following the Energy Services Termination Date, and until the end of the Lease, GPP s rent payment shall be an amount mutually agreed upon by two independent appraisers to be a fair market rental value for ten acres of similar unimproved property in the general vicinity of the Site. If such two independent appraisers cannot agree on a fair market rental value within sixty days of their appointment, they shall in writing immediately appoint a third appraiser, and the average of the three appraisals so obtained shall be deemed the rental rate to be paid by GPP for the remainder of the Lease Term. 9. The Energy Services Termination Date is the date on which the Energy Services Period terminates. The Energy Services Period has terminated because GPP and NRG are no longer providing services to Debtors under the ESA. Accordingly, the rents now due to Debtors or any successor landlord must be determined by independent appraisers, per Sections 7.4.1(ii) and 20.1 of the ESA. 10. The rents due under the Lease substantially impact the value of the Site and materially impact the rights of Debtors and any successor landlord. 11. Debtors thus ask that the Court enter judgment declaring that the Energy Services Termination Date has occurred. 20

21 Case Document 17 Filed in TXSB on 12/05/16 Page 21 of 25 C. Rejection Damages and Offset from Future Rents 12. GPP has taken the position that it is entitled to monetary damages caused by Debtors rejection of the Lease, and that such monetary damages shall be offset from future rental payments owed to Debtors and any successor landlord following the proposed purchase of the Site. GPP has further taken the position that the amount of future annual rent is equal to $1.00 until the Energy Services Termination Date, which GPP avers will not occur until July 2020, at which time the annual rental payment will be an amount mutually agreed upon by two independent appraisers to be a fair market rental value for 10 acres of similar unimproved property in the general vicinity of the Site. If such two independent appraisers cannot agree on a fair market rental value within sixty days of their appointment, they shall in writing immediately appoint a third appraiser, and the average of the three appraisals so obtained shall be deemed the rental rate to be paid to Reynolds for the remainder of the Lease Term. 13. GPP seeks a declaration from the Court now as to what its rent payment should be in 2020 upon the occurrence of the Energy Services Termination Date. Pursuant to Sections 7.4.1(ii) and 20.1 of the ESA, however, the annual rent should be an amount mutually agreed upon by independent appraisers, not by the Court, and only at such time as the Energy Services Termination Date has occurred. If GPP is correct that the Energy Services Termination Date has not yet occurred, then GPP is not entitled to a determination today of what its rent will be in July Therefore, Debtors ask that the Court enter judgment declaring that any rental payment owed by GPP on and after the Energy Services Termination Date is not ripe until such Energy Services Termination Date occurs, at which point the rental payment should be determined by independent appraisers in accordance with the terms of the Lease and Section of the ESA. 21

22 Case Document 17 Filed in TXSB on 12/05/16 Page 22 of 25 D. Lien and Guaranty Remain in Place 15. Plaintiffs have taken the position that the Lien and Guaranty, which secure GPP s obligations under the Lease, should be discharged. However, to the extent GPP elects to continue the Lease, GPP has ongoing, executory monetary and non-monetary obligations under the Lease, including (without limitation) payment of rent, taxes and other obligations under sections 14.2 and 14.4 of the Lease, and observance of covenant obligations under section of the Lease. 16. Debtors or any successor landlord is entitled to retain security with respect to these executory obligations. 17. Dissolving the Liens and Guaranty would substantially reduce the value of the Site and materially impact the rights of Debtors and any successor owner of the Site. 18. Debtors thus ask that the Court enter judgment declaring that the Lien and Guaranty shall remain in place. E. The MEA Has Been Rejected or, In Any Event, Will Be Rejected Upon the Effective Date of the Plan 19. The Master Easement Agreement is an executory contract because there are material unperformed obligations owing by both parties. Pursuant to Article V.A, of the Plan [Docket No. 937], all executory contracts, other than those carved out and scheduled therein, are deemed rejected subject to entry of a Confirmation Order. The Master Easement Agreement is not carved out from that provision of the Plan and therefore will be rejected by the Plan according to its terms. 20. GPP has taken the position that it does not admit that the Master Easement Agreement is executory or that the real property conveyances thereunder can otherwise be rejected pursuant to Bankruptcy Code section 365. GPP further avers that it would 22

23 Case Document 17 Filed in TXSB on 12/05/16 Page 23 of 25 seek a declaration of its resulting rights... to the extent Sherwin seeks to reject the Master Easement Agreement. 21. If the Master Easement Agreement is not rejected, and GPP remains in possession of the premises at the Site, it would affect the rights of Debtors and any successor owner of the property. 22. Debtors thus ask that the Court enter judgment declaring the Master Easement Agreement rejected. forth fully herein COUNTERCLAIM Against All Plaintiffs/Counter-Claim Defendants (Declaratory Judgment Pursuant to 28 U.S.C. 2201) 23. Debtors repeat and reallege Paragraphs 1 through 22, inclusive, as if set 24. This Court has jurisdiction to enter declaratory relief pursuant to 28 U.S.C. 25. An actual controversy exists within the jurisdiction of this Court concerning the effects on the parties rights of Debtors rejection of the ESA. 26. By virtue of the facts alleged in this Counterclaim, Debtors are entitled to a judgment declaring that (a) GPP has no rights to Demanded Accommodations; (b) the Energy Services Termination Date has occurred; (c) a determination of any rental payment that will be owed by GPP after the Energy Services Termination Date is not ripe until such Energy Services Termination Date occurs, at which point the rental payment should be determined by independent appraisers in accordance with the terms of the Lease and Section 7.4.1(ii) of the ESA; (d) the Lien and Guaranty shall remain in place; and (e) the Master Easement Agreement has been rejected or, in any event, will be rejected upon the effective date of the Plan. 23

24 Case Document 17 Filed in TXSB on 12/05/16 Page 24 of 25 RESERVATION OF RIGHTS 27. Debtors specifically reserve any and all other rights to which they are entitled for all purposes, including, without limitation, any additional claims which may be identified in the future. PRAYER FOR RELIEF Debtors respectfully ask the Court to enter judgment in this matter as follows: a) Declaring that (i) GPP has no rights to Demanded Accommodations; (ii) the Energy Services Termination Date has occurred; (iii) a determination of any rental payment owed by GPP after the Energy Services Termination Date is not ripe until such Energy Services Termination Date occurs, at which point the rental payment should be determined by independent appraisers in accordance with the terms of the Lease and Section 7.4.1(ii) of the ESA; (iv) the Lien and Guaranty shall remain in place; and (v) the Master Easement Agreement has been rejected or, in any event, will be rejected upon the effective date of the Plan; and b) Granting Debtors any and all other relief to which they may be entitled. 24

25 Case Document 17 Filed in TXSB on 12/05/16 Page 25 of 25 Dated: December 5, 2016 Respectfully submitted, /s/ Joseph Serino, Jr., P.C. Joseph Serino, Jr., P.C. (admitted pro hac vice) Shireen A. Barday (admitted pro hac vice) Thayne D. Stoddard (admitted pro hac vice) KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, NY Telephone: (212) Facsimile: (212) and - Zack A. Clement (TX Bar No ZACK A. CLEMENT PLLC 3753 Drummond Street Houston, Texas Telephone: (832) zack.clement@icloud.com Counsel for Debtors-Defendants 25