February 26, 2007 / 9:25 PM / 13 years ago

Texas lawmakers critical of TXU buyout

HOUSTON (Reuters) - Two Texas lawmakers said on Monday the $31.8 billion proposed buyout of TXU Corp. TXU.N by Kohlberg Kravis Roberts & Co. KKR.UL and Texas Pacific GroupTPG.UL. would likely cause Texas consumers to pay higher electricity prices.

Texas Rep. Sylvester Turner of Houston said legislators were worried that the short-term investment strategy of private equity firms would “dramatically” drive up power prices in the state over time.

“Private equity firms are not in the business of running companies for the long-term,” Turner said. “They make an investment, make it attractive, then flip it.”

Turner cited KKR and TPG’s participation in the consortium that purchased Houston-based Texas Genco Holdings, Texas’ second-largest generator, in 2004, then resold the assets for nearly double the price a year later to NRG Energy Inc. (NRG.N).

“When we passed deregulation, we did not envision our Texas companies being sold and the ownership interests to be elsewhere,” said Turner.

Sen. Troy Fraser of Horseshoe Bay said in a statement that the TXU sale “only heightens” his concern the Texas’ competitive market is not working to provide the most affordable consumer rates.

“This transaction does nothing to improve competitive forces throughout the state,” said Fraser, chairman of the Senate Business and Commerce Committee that oversees the electric industry.

Promises by the prospective owners to scale back TXU’s plans to build coal-fired plants and to reduce retail rates by 10 percent in north Texas are not sufficient to make the deal palatable, Turner said.

“That is not persuasive for me,” said Turner, saying power prices for TXU’s Dallas-area customers were 30 percent too high based on current natural gas prices.

The Houston legislator said he wants the Texas Public Utility Commission to reject the TXU transaction as not in the best interests of Texans.

Actions by state utility commissions in New Jersey, Oregon, Arizona and Maryland have been cited as thwarting recent utility mergers and sales.

Unlike many states, however, the Texas Public Utility Commission has limited authority to block large mergers and sales.

The three-member panel can review transactions to determine reasonableness, effect on safety of employees, jobs and customer service levels, spokesman Terry Hadley said.

If the commission rules that a merger is not in the public interest, it can take punitive action after the fact during rate cases, according to Texas law.

In recent years, Texas regulators have allowed many large transactions, including the American Electric Power Co.’s (AEP.N) acquisition of Central and South West Corp., Centrica PLC’s(CNA.L) purchase of parts of AEP’s retail business, the KKR-led purchase of Texas Genco Holdings, and the sale of those assets to NRG.

Editing by Toni Reinhold; eileen.ogrady@reuters.com; Reuters Messaging: eileen.ogrady.reuters.com@reuters.net; +1 713 210 8522

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