TXU Tries Smoothing Waters

Partners involved in the sale of TXU to a private equity firm – Henry Kravis of Kohlberg Kravis Roberts & Co. and David Bonderman of the Texas Pacific Group – were at the House Regulated Industries Committee on Tuesday afternoon to smooth what waters they could and try to turn back the heavy wave of anti-TXU legislation filed this session.

Speaker Pro Tem Rep. Sylvester Turner, D-Houston, among others, is having anxiety about what already is being touted as the biggest private equity deal in history. Kravis and Bonderman addressed the committee and spoke of how the KKR purchase would bring about "a new TXU" that would be more accountable to consumers and lawmakers in Austin. "With the support of customers, public officials, and community and environmental leaders, TXU's new approach will better manage the balance among the energy needs of a growing Texas population and economy, responsibility to the environment, and the cost and reliability concerns of Texas businesses and residents," Kravis said.

Turner was skeptical, saying he had heard all those promises from TXU before, when electric deregulation was passed in Texas in 1999. Bonderman urged patience, saying fully deregulated electric rates were only realized in January.

TXU has a lot of amends to make. Most recently, the Public Utilities Commission released a report that accused TXU of manipulating the wholesale market, selling energy at inflated prices, and causing serious summer rate hikes for consumers. Without addressing the report directly, Bonderman announced that TXU would willingly open the books on its sale to KKR by the end of April, giving lawmakers a chance to review the sale. Kravis also pledged that the "new TXU" would offer 1.3 million residential customers a 10% rate cut, would structurally separate TXU's subordinate companies, would hold the company for at least five years, and would not force TXU Electric Delivery to borrow money to finance the acquisition. "There is no basis for rates at TXU Electric Delivery to increase as a result of this investment, and we will continue to invest heavily in the system to assure continuing reliability and quality of service," Kravis told the committee. "The PUC will maintain regulatory oversight over TXU Electric Delivery, including complete authority over its rates and services."

Plenty of transparency after the fact, yes, but Kravis brushed aside questions from lawmakers about putting the PUC in the role of overseeing the financial transaction. He said it would not be fair to change the rules in the middle of the game.

As has been announced, Kravis reaffirmed that KKR would move ahead with building only three of 11 proposed coal-powered plants, in Sandow and Oak Grove. Kravis also promised KKR would double the company's commitment to $400 million, for conservation and efficiency, and would not require those costs from electric rates.