Don’t Let the Sunshine Fool Ya
February 27th, 2007 at 10:12 am
Make no mistake: Beating an arrogant, greedy corporation at their own game is always gratifying. The news that TXU, as part of a $44 billion leveraged buyout, will abandon eight of its 11 proposed coal plants; tackle global warming; invest in conservation; and slash some retail rates by 10 percent is certainly cause for celebration. Yet, the future of Texas’ power sector seems more uncertain than ever.
It’s nice that venture capitalists and business-friendly environmentalists were able to get together and hammer out some (non-binding) environmental concessions as part of the buyout deal, and while we’re not sorry to see TXU shut the hell up about how it’s going to save Texas from rolling blackouts, we’re skeptical that the new boss is better than the old boss.
First off, buyout boys KKR and the Texas Pacific Group are unlikely to be long-term stewards of Texas’ power supply. Private equity firms, which manage enormous pools of capital amassed by institutional investors and the super-rich, rarely hold onto their purchases for long, usually seeking an exit in less than five years. They also look for a return on investment of at least 20 percent, a profit that will ultimately be borne by ratepayers. How long will these two hold onto TXU before they find a willing buyer and cash out? And what will the utility look like after the private equity guys get done with it?
In the short-term TXU will remain in private hands, making public scrutiny a whole lot harder. For all the scorn heaped on TXU, at least its relative transparency as a publicly-traded company made fighting - and regulating - it easier.
Meanwhile, the new owners are promising some TXU ratepayers a paltry 10 percent reduction on rates that some consumer advocates say are inflated 30 percent. That’s gotta sting knowing that TXU CEO John Wilder, who oversaw the rate hikes, stands to reap around $140 million if he leaves TXU.
Of course high rates and an entrenched customer base were keys to TXU’s profitability - and Wilder’s success with Wall Street. Why in the world would KKR and Texas Pacific Group want to change that? Rep. Sylvester Turner (D-Houston), a key critic of TXU and electricity deregulation, is already arguing that things are now worse for consumers with private equity in control of Texas’ major utility. Turner intends to discuss the issue Tuesday in the House Committee on Regulated Industries. In the Senate, Sen. Troy Fraser (R-Horseshoe Bay) has also called the buyout bad for consumers and promised to go forward with legislation to reduce TXU’s market share.
Now, why did we deregulate again?
February 27th, 2007 at 1:44 pm
Thanks for raising these issues. While congratulations are definitely in order for all of the activists who applied the pressure that helped get those permit applications canceled, there’s still plenty more work to do on global warming, clean air, and clean energy in Texas.
August 28th, 2008 at 4:04 pm
[…] coal-fired power plants; sky-high rates; a string of bankruptcies; cockamamie metering schemes; high-risk Wall Street buyouts; confused customers; political turmoil; and now the slow shredding of a universally applicable […]