I concur with Mark Williams’ assessment (“A View on the TXU Leveraged Buyout,” April 2007) that the proposed KKR/TPG acquisition of TXU through a leveraged buyout (LBO) may “have negative consequences for Texas customers,” which he indicates as being a consequence of the nature of an LBO. I think it is more likely a consequence of the nature of the restructuring imposed by the Texas Legislature.
I find the Legislature’s reaction to the LBO to be interesting, because it deals with the symptoms, not with the illness (restructuring). I would find the reaction to be even more interesting if I did not live in Texas.
I note that Williams states TXU has “sold most of its higher-cost gas-fired power plants,” which I perceive to be inconsistent with TXU’s 2006 Form 10-K Report to the SEC. The 10-K states that 55 percent of TXU’s generating capacity is gas-fired, of which seven units are mothballed and nine units are operated for an unaffiliated party’s benefit, and so not available in the marketplace. Elimination of these 16 units brings the gas-fired portion of TXU’s capacity down to 49 percent, which TXU describes as serving a peaking function. I have not heard of any recent sale, so I wonder what Williams is referring to.
John S. Ferguson, Richardson, Texas
The sentence referenced to in my article pertained specifically to TXU’s “higher-cost” gas-fired power plants, seven of which have actually not been sold but have been mothballed. This decision has had the same impact, reducing the amount of power supplied by TXU. In addition, in May 2006, TXU put up for sale more than 6,000 MW of capacity, 61 percent of its total gas-fired power plants.
We take it with good humor that Scott Strauss and Jeffrey Schwartz used our report on the 9th Circuit’s recent Mobile-Sierra decisions as a foil to the grand argument that courts should return to the “statutory roots” in their interpretation of Mobile-Sierra (“The Mobile Sierra Doctrine: A Return to Its Statutory Roots,” May 2007). One indeed may plausibly argue that the “public interest” standard has never had any grounding in the text of the Federal Power Act (FPA). What is undisputed, however, is that this is not the conclusion numerous courts of appeals have reached over the past 50 years. The 9th Circuit decisions we discussed represent a striking departure from this established consensus by transmogrifying the hard-to-surmount “public interest” standard into a presumption that quickly collapses into the less rigorous “just-and-reasonable” standard. Unless resolved promptly, the resulting circuit split, if not to say chasm, may seriously undermine the predictability and certainly of FERC-jurisdictional contracts, including many currently effective arrangements.
Strauss and Schwartz also argue that parties to FERC-jurisdictional contracts should not be able to bind FERC and non-parties to any standard of review that is higher than the statutory “just and reasonable” standard set forth section 206 of the FPA. It is true that this issue has been generating controversy for many years. Although we do not dispute that binding FERC and non-parties to the exalted “public interest” standard may be inappropriate in some situations, it nevertheless may be fully justified in others. One such situation involves settlement agreements. The “public interest” protections often are sought by settling parties to protect the integrity of their settlements. Making this standard de facto unavailable or limiting its protections only to the settling parties may reduce their willingness to settle and could interfere with FERC’s policy of encouraging settlements. By contrast, limiting generic rulemaking actions of FERC that can incidentally affect contracts is another question altogether. Hence, while the 9th Circuit may have cleared some of the inappropriate clutter that has attached itself to the Mobile-Sierra doctrine, it has hardly resolved the multitude of issues that surround the doctrine and its application.
In sum, whatever can be said of the historical rationale for the Mobile-Sierra doctrine or the firmness of its grounding in the text of the statute, it has evolved, over more than 5 decades, into an established, albeit complex, body of law. The 9th Circuit has now thrown it into disarray; for the good, the bad, or the ugly.
Stephen L. Teichler and Ilia Levitine