Texas OKs TXU plan to avoid future market abuse

HOUSTON, July 31 (Reuters) - Texas regulators on Tuesday approved a plan that will allow TXU Corp. TXU.N to avoid future charges that its size allows it to manipulate a segment of the Texas power market.

After months of discussion, the Texas Public Utility Commission approved TXU's voluntary market mitigation plan, which defines how the state's largest generator will offer power into the "balancing-energy market" for real-time power used to meet rapidly changing demand.

The plan sets out "clear guidelines" for TXU that will serve as a defense against future market-abuse charges, said TXU spokesman Lisa Singleton. The plan sets out power volume, price formulas and other operational rules for the company, according to the filing.

Dallas-based TXU has agreed to be acquired by a group of private equity firms led by Kohlberg Kravis Roberts & Co. [KKR.UL] and Texas Pacific Group [TPG.UL] for $32 billion.

TXU faces a record penalty of as much as $210 million for violating Texas market-power rules in a separate, ongoing PUC investigation.

In that case, the independent market monitor for the Electric Reliability Council of Texas found that the dominance of TXU's wholesale power subsidiary enabled it to unfairly raise prices by 15.5 percent in 2005, costing wholesale power customers about $70 million.

The market monitor's initial report also said TXU's action to withhold generation from the market boosted its profit by $19.6 million.

Volatile prices in the balancing-energy market have led to financial problems at a small number of retail electric providers that relied too heavily on power purchased from the spot market.

While only a small piece of the state's wholesale market, real-time prices influence the larger bilateral-contract market, according to the market monitor for the Electric Reliability Council of Texas.

TXU has argued that the violations were based on a "fundamentally flawed analysis that is inconsistent with the rules and policies that the commissioners themselves have expressly adopted."

TXU has asked for a hearing.

TXU owns 18,058 megawatts of generation, or 22.4 percent of the generation in ERCOT and 44 percent of all power produced in ERCOT's north zone. (Reporting by Eileen O'Grady)