Sunday, July 01, 2012

Energy Wholesale Prices to Rise 50% in August

The Standard Times reported:

The Texas Public Utility Commission voted Thursday to raise the wholesale electricity price cap by 50 percent this summer in a move it hopes will spur construction of new power plants.

The vote by the three-member commission, all appointed by Republican Gov. Rick Perry, raises the wholesale rate cap on Aug. 1 from the current $3,000 per megawatt-hour to $4,500. And there could be more to come. Commissioners are already considering tripling the price to $9,000 in 2013.

This move is to stave off bankruptcy for Energy Future Holdings, formerly TXU.  Private equity underwriters KKR, TPG and a smattering of big Wall Street names bought TXU in 2007.  The buyout group made major promises to consummate the deal.  I imagine most are unfinished given Energy Future Holdings precarious financial position.

PEU investors wrote down their equity holdings from $8 billion to $1.6 billion (20%) in early 2011 (source WSJ).  According to Dealbook that fell to $800 million (10%) in early 2012, . Bloomberg recently reported another haircut, with EFH equity down to $400 million or 5%.  The Dallas Observer opined that EFH could soon go belly up, causing a ripple in the financial world.  Thus the need to socialize the losses, which takes "political will" to execute..

EFH has the political connections to influence state policy.  KKR and company loaded the EFH board with heavyweights.

The former US Secretary of State James A Baker, III will serve as advisory chairman to the investment group of new owners. William Reilly, chairman emeritus of the World Wildlife Fund and former EPA Administrator, will join the board of directors and lead their efforts in making climate stewardship central to corporate policies. Donald L Evans, former US Secretary of Commerce; James R Huffines, chairman of the University of Texas Board of Regents; and Lyndon L Olson Jr, former Texas State Representative and former US ambassador to Sweden, will join the board of directors.
A tripling of wholesale energy rates from $3,000 to $9,000, a 200% increase in one year is targeted to save EFH.  KKR raised $4 billion for energy and infrastructure investments.  They won't throw good money after bad.  Thus the state will use its power to make middlemen and consumers pay.  Meanwhile, PEU's love investing in Texas energy.  Privatize the gains, socialize the losses.  It's a familiar refrain.

Update 10-24-12:  The race is on to $9,000 peer kilowatt hour.  Vote is next week.

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