Is power a public good or a private goodie?
Mark T. Williams is an energy risk-management expert and full-time faculty member in the Finance & Economics Dept. at Boston University. Contact him at Williams@bu.edu.
Although TXU’s board recently approved the Kohlberg Kravis Roberts (KKR) and Texas Pacific Group (TPG)-driven leveraged buyout (LBO), this vote does not address the looming and real public-policy issues. Is the public interest best served when the largest utility in Texas, which provides a vital public good—power—is taken private under a risky debt-laden scheme?
This LBO could have negative consequences for Texas consumers. An LBO, by its very nature, is risky because the post-LBO company is strapped with more debt at higher interest rates and then is forced to find ways to pay down this debt quickly.
While power demand in Texas is expanding, concessions made to get this deal done include scrapping eight sizable coal-fired plants, totaling 6,000 MW. If this shortfall in lower-cost generation is not made up quickly, there will be upward pressure on retail electricity rates.
Whether this LBO, potentially the largest in history, is successful will be an important utility-industry litmus test in determining if the floodgates should be thrown open for other private-equity, high-debt-driven deals.