Texas Told You So on TXU Private Equity Rip Off

News_AMerit_Wilder_2005_PrintNew Orleans Less than three years ago in 2007 we were all fighting tooth-and-nail to try to stop the big beef of private equity KKR with Henry Kravis, Texas Pacific with David Bonderman, and Goldman Sachs with most of the western world from doing a crazy $50 billion purchase of TXU, the giant public utility, that we were just couldn’t believe wouldn’t end up ripping off regular customers of gas and electric one day.  ACORN in Texas won some modest changes, but we were waving our hands at a train going through Austin as the deal went down, not the least of all from the cover the wheeler-dealers had bought from environmental groups like the National Resources Defense Council.  All of this is worth remembering and was brought back to mind recently when a couple of New York Times reporters looked at this deal and how shaky it stands now.

This was a bet, like so many at the time, that prices would just keep going up, up, and up, and in this case the bet was on rising gas prices.  People got paid on the bet.  The fork tongued CEO of TXU, C. John Wilder, who played most for the fool, claiming he was going to build a pile of coal fired plants when he could hardly finance lunch, and negotiated with the equity folks out of the other side of his mouth to sell out, managed to clear over $200 million as we walked away.  The equity folks paid themselves more than $300+ million for doing the deal.  Huh?  And, in the meantime the Great Recession has strained a lot of their big buddy investors including Warren Buffet, the so-called Oracle of Omaha, a job which seems to define, not much competition.

Now they are asking such bondholders to allow them to write new paper (and they’ll probably try and charge for that too, but that’s the big whoops own problem) which would discount the value by 25-50% according to the story, without the private equity partners taking such a discount.  The big bills come due in 2014, and by the looks of it, there’s virtually no way they make the bucks they had counted on scoring.

I would like to meet the Texan alive who doesn’t think that they aren’t still going to be asked to help pay for this mess before it’s all said and done with some more rate hikes.  This is all a perfect example of why we call these “public” utilities, and why we should actually be going the other way and taking them fully public, since if “investor owned” means more mess like what KKR, TPG, Goldman, and the big banks like Chase, have brought us, this cannot be the right way to go.

Told you so then and I’m telling you so now.

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