Deal or No Deal?
March 28th, 2007 at 5:24 am
It’s 10:00p.m. - do you know where your legislators are? Some of them are stuck at the House Regulated Industries Committee. They are hearing from a TXU attorney that two bills - SB 896 and HB 3961 - requiring the Public Utility Commission to do a thorough vetting of the TXU sale are unconstitutional and if passed would likely scuttle the deal.
“The proposed legislation materially impairs an existing contract,” warned Harry Reasoner, a Vinson & Elkins attorney. “You have an arguable case of the violation of the contracts clause of both the federal and state constitutions.” Reasoner said that under the current rules of the game, the parties have the right to seal the deal without an “up or down” vote by the PUC, yet the bills would give the commission the power to block the deal “retroactively.”
Rep. Sylvester Turner’s reaction was interesting. What you’re saying, he said to Reasoner, is “Either we leave this transaction alone and allow it to unfold or legislators, let’s see if you have the courage to re-regulate it. Because either you re-regulate it or stand down. To me, that’s almost a challenge.” Or a threat. After all this isn’t the first time the buyers have warned legislators not to meddle in the transaction. KKR and TPG have generously committed to at least five years of majority ownership under the current regulatory system. Change the system and they walk away from the deal. Look it up: it’s in the buyout agreement filed with the SEC.
Tonight was the first hearing for Turner’s HB 3961. It is similar to SB 896, Sen. Troy Fraser’s more specific bill that was unanimously passed by the Senate last week.
The hearing as a whole certainly had a clarifying effect on just what role government now plays in the Texas utility world. “We’re sort of in a new era…in which people that are unknown to our market are going to invest and purchase utilities,” PUC commissioner Julie Parsley told the committee. For her that wasn’t necessarily a bad thing, just a sign of how successfully lucrative the electricity “market” is in Texas.
Of course that begs the whole questions - for the thousandth time - of why private equity firms like KKR and TPG would post $45 billion for a regional utility company. How do they profit? SB 896, for what it’s worth, partially addresses the concern that they profit by jacking consumers by requiring the buyers to identify any potential rate impacts from the buyout and gives the PUC the authority to impose conditions on the transaction. Forty-six states have similar regulatory powers, according to commissioner Paul Hudson, who of the three commissioners seemed most favorable to a beefed-up review.
But it’s not clear whether SB 896, or similar legislation, could pass in time to affect the PUC process. Chairman Phil King pointed out that the legislation, if passed and signed by the Governor, likely wouldn’t go into effect until September 1, deep into the transaction review. King, who controls what bills get out of his committee, hinted that he may be more interested in seeing the PUC do an aggressive review under existing law.
The prospects for SB 896 did not look rosy tonight. In addition to the usual corporate/lobby types testifying against the two bills, conservative activists from the Young Conservatives of Texas, the American Conservative Union, and Americans for Prosperity came out in force to complain that the Lege was tampering with the free market. Also testifying against the bills were Virginia DuPuy, the Mayor of Waco, a vocal critic of TXU’s coal-fired power plant proposal, and even an elementary school teacher from Dallas who praised TXU for its charity.
Chairman King left both bills pending.
