April 29, 2014

Goodbye, #TXU, #Luminant, #EFH, whoever the hell you are

Well, the old TXU, or at least the post-deregulation power-generating portion of it, Energy Future Holdings, or EFH, is officially in bankruptcy.

The Wall Street Journal summarizes why, as most of us know — badly gambling wrong on fracking.

That said, that's not the whole story.

Behind that decision stands the separation of the old TXU, and other old electric utilities, into different arms for generation, transmission and other things as part of Texas' electric deregulation.

Even at the time it was being done, it was being questioned.

And, between that and the wrongly-placed bet, this has been a time bomb waiting to detonate, oh, for about four years.
To a large degree, the prospects of Energy Future Holdings hinge on something it and its owners can’t control: the price of natural gas. While it has insulated itself somewhat, through financial hedges that protect it from price swings, it still needs the prices to rise sharply to have any hope of paying off its staggering debt load. 

Indeed, while the company met its roughly $3.6 billion in interest payments on its debt last year, it still faces a $20 billion balloon payment coming due in 2014.
And, the backstory to that is that greed can be a powerful motivator, even to the point of making even a Saint Warren of Buffett wrong, wrong, wrong, on some decision-making:
Investors who bought $40 billion of TXU’s bonds and loans — including legendary wise men like Warren E. Buffett — have seen huge losses as most of the bonds trade between 70 and 80 cents on the dollar. The other $8 billion used to finance the buyout came from the private equity investors themselves, along with banks like JPMorgan and Citigroup and large institutional investors like the Canadian Pension Plan. Several analysts and energy bankers say that this latter stake currently has little value. 
The whole NYT story linked above is worth a good read.

Next question is: what does this mean? The story at top says the restructuring will take about 11 months. But, especially since Oncor, the transmission arm, isn't involved, there's not a lot of jobs to be slashed, as is often the case in such filings. Per federal safety regulations, you have to have X number of people running your power plants, for example. And, given that your wrong bet on natural gas got you in this pickle, you  can't raise rates. Indeed, EFH/TXU has been peddling longer-term contracts up to the last minutes before bankruptcy, including to my place of work.

As for transmission issues? The Electric Reliability Council of Texas, or ERCOT, the folks that oversee transmission issues, say there should be no problem. But, we're expecting another hotter-than-normal summer here. (Or, maybe I should say, in light of global warming, we're expecting another "new normal" summer here.) Combine that with any questions about power generation, and how much of that can reasonably done from older coal-fired plants given today's Supreme Court ruling (see below) and I hope ERCOT, while being sanguine for public consumption, is nonetheless doing careful planning in private. That's doubly true since, contra GOP legislative and gubernatorial "geniuses" in Austin, deregulation has given Texas residents higher electric rates than before, ones that are, overall, considered to be above the national average.

At the same time, this could be good news for the environment. Luminant, EFH's electric generation arm, had four of the five worst power plants in the country for mercury emissions as of a couple of years ago. If the bankruptcy finally forces it to finish writing off its older power plants, and its use of much of the dirty lignite from here in the state, there's a benefit right there.

And, they'll probably have to do that write-off. Today's Supreme Court ruling on EPA power plant regulation authority is not good for coal-fired power plants in general, and certainly not for older ones, especially if they use dirtier coal. Besides, since that underscores, if indirectly, EPA authority to regulate carbon dioxide emissions, it's another good reason for Luminant to cut its losses. It will hurt some small towns near some of its power plants, but this is a call that needed to be made at some point anyway.

But, the bankruptcy filing didn't stipulate any plans for that, leaving state-level leaders of environmental groups a bit frustrated:
Tom “Smitty” Smith, director of Public Citizen’s Texas office, said trying to retrofit plants like Big Brown would be like spending thousands of dollars to fix up a junk car, and Luminant would be better off investing in wind and natural gas plants.
To me, it's a no-brainer in light of the SCOTUS ruling. That said, will its creditors buy on? There's other issues in the filing, per the link above, that could have environmental ramifications. And, speaking of "Big Brown"?

No wonder, based on the mercury link above, and its shaky bottom line, that TXU/EFH/Luminant was among the corporations suing the EPA. So, too, of course was our "sue Obama" attorney general, Greg Abbott. Guess what, Greg? You lost. Ain't the first time. Remember last October, when you lost two out of three? No wonder you're our state's top money-waster.

(By the way, does anybody also notice how Abbott gets as quiet as a church mouse whenever he loses as the SCOTUS level?)

As for details of that bankruptcy? It's a bit complicated, as the Dallas Morning News explains. Will it work? Spinning off the competitive, deregulated Texas Competitive Electric Holdings, in essence, what most of us saw as TXU before deregulation, isn't likely to thrill all creditors. And, a lot of junior creditors may get bupkis. I somehow am skeptical of the 11-month timeline to emerge from this bankruptcy. Every other financial claim by EFH in three-plus years has been wrong, at least to some degree. Why should we believe it now?

Also, any chance that some of the financial speculators behind EFH ask for some socialistic relief from the state? Stay tuned on that one. So far, Kohlberg Kravis Roberts, Texas Pacific Group and Goldman Sachs, the three speculative buyers, have resisted spending their own money more than absolutely necessary.

After all, it was bribery lobbying in Austin that let this takeover happen in the first place. Again, per that long NYT piece:
To that end (of getting state OK for the takeover), the K.K.R. group spent at least $17 million on lobbying (including 2,400 breakfast tacos on the Legislature’s opening day and San Antonio Spurs tickets for certain state representatives), according to Texans for Public Justice, a watchdog group. According to the group and others, the lobbying money was used to win over opponents in the Texas Legislature and fend off legislation that would have given regulators power to veto the deal.
Don't you sleep on this idea of Round Two of bribery lobbying in Austin being on the 2015 agenda of the Lege. That's especially true since the original round was bipartisan, including Democrats such as then-Dallas Mayor Ron Kirk. Electric issues had already been popping up at the edges of some primary races earlier this year.

That said, the buyout also personified the ugliness of "greenwashing":
Other advisers for the buyout team approached environmentalists, including the Natural Resources Defense Council and James D. Marston and Fred Krupp, two leaders of the Environmental Defense Fund, to support the deal. The buyout team offered to cut the number of proposed coal-fueled plants to 3 from 11.  
And, that's why I loathe "Gang Green" environmental groups.

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