TXU Power Play Sets off Sparks
Fri April 6, 2007 6:56 pm

Faced with a $210 million fine by the Public Utility Commission for manipulating the wholesale electricity market, TXU responded in typical swashbuckling fashion by threatening to shut down some of its power plants. A Dallas Morning News editorial today got it exactly right:

[F]orgive us, this smacks of blackmail. We can read between the lines: Unless you want sky-high energy prices, back off the penalty.

So let's see if we have this right. Regulators accuse TXU of having its hand in the cookie jar, and the utility's response is to hint that it might just smash the cookie jar unless it gets a pass on the original offense.

We had hoped, with the pending acquisition by Texas Pacific Group and Kohlberg Kravis Roberts, that TXU's culture was becoming less confrontational at the same time it was promising greener energy. Like many in this state, however, we've grown tired of TXU's energy gamesmanship. That tactic is dangerous, destabilizing and not tolerated in world markets. It shouldn't be tolerated in Texas, either.

How dumb was TXU's threat? Let me count the ways:

1. The threat was an empty one. TXU can't shut down power plants unilaterally; they must have the permission of ERCOT (Energy Reliability Council of Texas), a nonprofit company that oversees the operation of the electric grid in Texas for its members (customers, utilities, and other generators).

2. The letter to the PUC came from the "old TXU," and the "new TXU" (Texas Pacific Group and Kohlberg Kravis Roberts") promptly repudiated it. (The statement of the group that is seeking to acquire TXU appears below.)

3. TXU is currently lobbying the Legislature for a billion dollar tax break and the right to maintain a separate holding company, among other goodies, and lawmakers are not likely to take kindly to the notion that the company was contemplating shutting off power to their constituents.

What worries me about this is that the PUC, like many state agencies, is run by a former Rick Perry staffer, and, as we learned from the HPV controversy earlier this session, the governor has been known to involve himself in agency actions and decisions. Perry has also taken six-figure contributions from TXU and its officers. Will he intervene to help TXU again, as he did in trying to fast-track the licensing of their power plants?

Here is the statement by Kohlberg Kravis Roberts & Co. and Texas Pacific Group, investors in the proposed buyout of TXU Corp. by Texas Energy Future Holdings Limited Partnership (TEF):

TXU's April 2nd letter to the Public Utility Commission (PUC) referencing potential power plant shutdowns was not shared with the investor group in advance, and we strongly disagree with it.

TXU is not permitted to unilaterally shut down power plants. Such a step can only be done after a review by ERCOT. There is no intention among the investor group to shut down plants, especially those needed to ensure reliability. We intend to file a letter with the PUC confirming these commitments.

Today, we are asking and strongly advising TXU to settle this issue with the Public Utility Commission and reach an agreement with the PUC in regard to future actions as they pertain to the balancing energy offers to ensure that affordable and reliable power will be available at all times. Once TEF’s acquisition of TXU is completed, TEF will ensure that the company takes these actions.

We don't own the company. The more quickly this transaction can be completed, the sooner that TXU can set a different course and a new direction, one that encourages open and productive dialogue with regulators, elected officials and other stakeholders.

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