DATELINE: 19 April 2007
TXU deal could crash
Legislation to limit market share could scare away buyers
By ELIZABETH SOUDER
The Dallas Morning News
A key Texas lawmaker is working on an electricity bill compromise that
could force TXU Corp. and NRG Energy to sell off power plants.
Rep. Phil King, R-Weatherford, said he's working with Rep. Todd Smith,
R-Euless, on an amendment that would limit the amount of market share a
power company could serve to 35 percent in each region of the state.
If the amendment becomes law, it could kill the offer by Kohlberg Kravis
Roberts & Co. and Texas Pacific Group to buy TXU for $45 billion.
The buyers could terminate the deal without penalty if there's a change
in the law that would require TXU to sell off a "material portion" of
its power plants.
TXU serves about 40 percent of the North Texas zone, and has plans to
expand. NRG serves about 86 percent of the Houston zone.
Some lawmakers worry that the state's largest generation companies can
manipulate the wholesale market if they control too much generation,
thus boosting electricity prices for everyone.
Those lawmakers became even more concerned this week, as news surfaced
that two former employees sued TXU for allegedly firing them for
bringing to light TXU's manipulative trading practices. TXU says the
employees were fired for committing such action themselves, not for
ratting out others.
"Frankly the information on TXU just keeps getting - some of it's
anecdotal, some hard evidence - it just keeps getting worse and worse.
Obviously that's going to have an impact on what the Legislature
ultimately does," Mr. King said Wednesday.
The 35 percent proposal is stronger than the bill it would amend. The
bill, also sponsored by Mr. King, tweaks language in the current law,
which allows a company to serve 20 percent of the entire Texas grid.
But the amendment is closer to a Senate bill that would limit power
generators to 25 percent of the market in each region.
Mr. King said the amendment would exclude nuclear power plants from the
35 percent rule. And he said the drafters are considering excluding
ultra clean coal plants as well, such as coal gasification technology.
Those amendments would protect NRG's expansion plans at the South Texas
Project, as well as TXU's plans to build several more nuclear reactors.
Further, it would allow both companies to build their planned coal
gasification projects without penalty.
The House will probably vote on the bill early next week.
If it passes, the House and Senate will negotiate a compromise.
They must also come to terms on other electricity legislation sponsored
by Mr. King and Sen. Troy Fraser, R-Horseshoe Bay, including a Senate
provision to require the TXU deal to get state regulatory approval -
another law that could sink the deal.
As Mr. Fraser tries to convince his colleagues of the merits of his
legislation, he's been gathering information about TXU and sharing it
around the Capitol.
This week, he showed some colleagues documents about the lawsuits of the
former TXU traders against the company.
Last week, it was a letter from Public Utility Commission Chairman Paul
Hudson that described concerns that TXU may have threatened to sue
Sharyland Utilities if the utility, owned by members of the Hunt family,
made a competing bid for the TXU.
(TXU says it never threatened anybody, but simply instructed Sharyland
to go through the proper bidding procedures or risk litigation if
Sharyland's actions damaged TXU's current offer.)
"What I'm finding is that every time I turn over a rock, I find
something else bad that they've done," Mr. Fraser said.
"I'm not trying to kill the transaction," he added.
"But everything I'm trying to do would make this transaction so that
it's probably not viable."
The lawsuits accuse TXU of wrongfully terminating two employees who had
described their concerns about TXU's trading practices to outside
lawyers, who were conducting an audit of the firm.
Kara Sidman, who filed one of the lawsuits on Feb. 8, said she was told
she had been randomly selected to talk to the lawyers on Oct. 30 about
trading practices, due to an investigation by the Public Utility
Commission into allegations of market manipulation.
PUC staff has since concluded that TXU did manipulate the market and
should pay a record fine of $210 million.
Ms. Sidman said in the suit that she asked if her discussions with the
lawyers would get her fired, and was told no.
She says she was fired the next week.
A TXU official said Ms. Sidman's firing had nothing to do with those
discussions.
Instead, on the day after her discussions with the lawyers, a manager
caught Ms. Sidman reporting false information to a state regulator.
The former employees described the following questionable behavior by
TXU traders:
* Omitting available power units from a resource plan submitted to the
Electric Reliability Council of Texas, which operates the power grid.
* Reporting to ERCOT incorrect rates at which the company could rBamp up
power plants to full speed in order to influence market prices.
* Taking trading positions that beefed up their own bonuses but hurt
overall profit for the company.
TXU said in a statement: "This claim is groundless and contrary to the
facts. These individuals' behavior was wrong and counter to the
company's long-standing and clearly articulated policies and standards.
These employees were terminated for valid reasons."
Dan Jones, the independent market monitor for ERCOT, said he will look
into the allegations in the lawsuit, but they don't seem to bring up new
information, since regulators investigated concerns about TXU
manipulating the market.
"Anybody can file a lawsuit," he said, but added: "If some of the
allegations were true, then they're definitely cause for concern."
Mr. King said he plans to invite both plaintiffs to testify before the
House Regulated Industries Committee on Tuesday.
Mr. King chairs the committee, which handles electricity issues.
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