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On the Lege: TXU Meltdown

TXU says FU, then backs down

By Amy Smith, Fri., April 13, 2007

Tom Smitty Smith, head of the Texas office of Public Citizen
Tom "Smitty" Smith, head of the Texas office of Public Citizen
Photo By Jana Birchum

At a time when major energy bills are at a critical make-or-break stage of the legislative process, the "new" TXU had hoped by now to be basking in the glow of a successful image-building ad campaign.

TXU is glowing all right, but a radioactive glow is not what the state's largest and politically influential utility company had in mind when it set out to win big at the Lege this session.

Right now, TXU is sitting in the hot seat after a stunning public-relations meltdown late last week. A quick recap is in order:

First, TXU Wholesale CEO Mike McCall sent a letter to the Public Utility Commission threatening to shut down power plants in response to a PUC-imposed $210 million fine for alleged market manipulation during the long, hot summer of 2005. The Dallas Morning News published a story about the threat. TXU brazenly fired back in an April 5 statement, accusing the daily of running a story "that some [readers] may misinterpret." The paper followed up with an editorial blasting the utility for penning a PUC letter that "smacks of blackmail." Next, TXU asked the PUC to disregard the letter and issued a public apology "for creating any perception of threatening to shut down power plants."

The utility's prospective investors, Kohlberg Kravis Roberts & Co. and Texas Pacific Group, saw an opportunity to play up TXU's stumble and released a statement claiming they never saw the PUC letter and that's not how they intend to do business if their pending $45 billion buyout of the company wins approval at the federal level.

Rep. Phil King, R-Weatherford
Rep. Phil King, R-Weatherford
Photo By Jana Birchum

Late Tuesday night, McCall appeared before the House Committee on Regulated Industries to apologize once again, sort of. The controversial letter, he said, "was written in a fashion that was easily misunderstood by the public." Committee chair and TXU friend Rep. Phil King, R-Weatherford, was willing to let it go at that, but committee member David Swinford, R-Dumas, came down hard on McCall for the utility's sloppy handling of the whole ordeal. Swinford and Houston Democrat Sylvester Turner each grilled McCall on TXU's involvement with an amendment to a utility-related bill that the House is expected to debate today (Thursday).

The House versions of Senate bills 482 and 483 are considerably weaker than the Senate versions, which would, among other things, give consumers stronger protections and grant the PUC more regulatory authority over electric utilities. Another Senate bill also seeks to give the PUC an opportunity to review proposed utility sales, such as the one TXU has on the table. TXU, of course, favors the House bills over the Senate versions, which passed with relative ease. The House bills were temporarily derailed last week on points of order called by Pasadena Republican Robert Talton.

Despite TXU's long-running reputation as an industry bully (helped along by Gov. Rick Perry and the Legislature), some of its biggest critics were taken aback by the company's botched PR work last week. "TXU has always been the biggest and most dominant utility in the state," said Tom "Smitty" Smith, who heads the Texas office of Public Citizen, "but this was way over the edge, even for TXU."

Sen. Troy Fraser, R-Horseshoe Bay, issued a not-so-surprised response to the utility's meltown: "I find it interesting they knew they could not shut down power plants without prior approval, yet they were still willing to issue unwarranted threats," he said. "This type of behavior is only consistent with their track record of ratepayer and market abuse." Fraser, who chairs the Senate Committee on Business & Commerce, is not shy about taking TXU to task, despite the utility's generous contributions to his campaign coffer. Where TXU is concerned, he's the consumer-friendly darling this session. "Chairman Fraser is standing up for consumers," Smith said. "In this particular issue, he is fulfilling the role of the chairman in protecting not only his immediate constituency but also the citizens across the state."

Sen. Troy Fraser, R-Horseshoe Bay
Sen. Troy Fraser, R-Horseshoe Bay
Photo By Jana Birchum

Getting back to the Tuesday night committee meeting, PUC Chairman Paul Hudson appeared before members to disclose another TXU-related wrench. Hudson said that Sharyland Utilities, a company owned by the wealthy Hunt family of Dallas, had claimed to have made inquiries into acquiring the electric delivery division of TXU but backed off after the company threatened litigation – presumably because TXU would prefer to sell its entire company to KKR and TPG without setting off a bidding war. Hudson said he pondered what to do with this information for a few days before sending what he thought would be a private letter, dated April 9, to both Fraser and King. Word of the letter leaked out in no time, however. Hudson said the governor's office called him immediately requesting a copy of the letter.

While Hudson appeared more concerned over the alleged litigation threat, King took issue with the fact that Sharyland would report the matter to the PUC instead of taking its claim to court. "It's inappropriate to use a state agency in any type of free-market negotiation," King said. "It's highly inappropriate."

King ratcheted up his disapproval early Wednesday, announcing he would ask the attorney general to review the latest PUC development. "As I expressed in the hearing last night, no party should attempt to use state regulators to obtain an advantage in a business negotiation," King said in a statement. "If that occurred, it may not be illegal but it certainly is highly inappropriate and cannot be tolerated. This episode underscores why the PUC should not be in the middle of complex business negotiations." For the record, King strongly opposes what consumer advocates say is needed most – greater regulatory authority over the way electric power utilities do business, no matter how complex. end story


Capitol Briefs

• The Texas House passed a two-year moratorium on toll roads with up-front concession payments on Tuesday, a deal aimed at high-stakes, high-profit roads such as the Trans-Texas Corridor. The proposal was attached as an amendment to a bill that bypassed the House Transportation Committee, chaired by Rep. Mike Krusee, R-Taylor. Krusee has shepherded toll-road legislation through the House the last two sessions but was in a distinct minority on Tuesday – one of only five votes in the House to oppose the moratorium. North Texas, which has a number of concession deals in the works, was carved out of the deal. And the moratorium would not apply to most of the Central Texas toll roads, which are backed by bonds issued by the Central Texas Regional Mobility Authority. – Kimberly Reeves

• Legislation that would convert the position of insurance commissioner from a governor-appointed job to an elected one got a boost last week when the 14-year veteran House Insurance Committee chair, Rep. John Smithee, R-Amarillo, signed on in support of the measure. House Bill 3323, filed last month by Rep. Mark Homer, D-Paris, would add the commissioner's job to the list of four-year positions selected by voters during a general election. Homer said an elected commissioner would be more accountable to consumers: "Texans continue to pay more than twice the national average to insure their homes," he said, even though, in 2006, Texas insurers averaged a nearly 46% profit. "That tells us the system is broken. The way the office of the insurance commissioner works today, you have one bureaucracy answering to another bureaucracy while Texas ratepayers' bank accounts are being drained." The solution, he said, "is an open democratic process." Smithee's decision to sign on to the measure, Homer said, sends the signal that "government accountability is a bipartisan priority." – Jordan Smith

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