
Big Texas Utility Files for Bankruptcy - iamsalman
http://dealbook.nytimes.com/2014/04/29/big-texas-utility-files-for-bankruptcy
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endersshadow
What's even more worrisome is that summer is coming, and that usually means
rolling blackouts. I wonder how this will affect all of their customers. I
know companies like Green Mountain and others lease from Oncor, and put their
power back into the grid elsewhere. Does anybody understand the
electricity/utility business enough to explain how this will affect Texans?

I also wonder how Texas's emerging reliance on wind power affected this, too.
It may be a very good thing, as Texas has a very high percentage of power
coming from wind.

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tvjunky
This will certainly have no impact on power generation in TX. TXU transitioned
all of it's generation / distribution to Luminant / Oncor as part of the
buyout. Since TX is deregulated, TXU was a retailer of electricity. I would
imagine this will boost sales for the many competitors that have sprung up in
recent years.

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endersshadow
In the article, it mentioned that Oncor was Energy Future's electricity arm,
and that it would "probably be split" from its power-generation business,
hence my question. Is Oncor not part of Energy Future Holdings?

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tvjunky
To my knowledge Oncor is not part of EFH. Though I could imagine they were
left with some kind of stake after the split. More specifically though, Oncor
is only the delivery side. Basically meaning, meters and maintenance. Retail
providers contact Oncor to have service started. Oncor then send back usage
data which the retail side use to bill the customer. If there is a problem,
say a line down, Oncor will dispatch the technician.

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vonmoltke
EFH has a partial interest in Oncor.

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coldcode
I get my energy from this company. I wonder how that will affect me. This goes
to show you what a colossal ####up leveraged buyouts often are. My employer
was worth 4B and had 1B in debt when it was LBO'd seven years ago. Now it is
worth 4B and has 3.6B in debt. What a waste.

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arbuge
Quite so. It always struck me that bankrupting an otherwise perfectly sound
company (with all the attached negative consequences for customers and
employees) is an inevitable risk of highly leveraged LBOs yet there seems to
be little regulation/oversight in this space. Most people agree that
capitalism and the free market can be taken too far - it's why the government
regulates monopolies and big banks for instance - so why not regulate LBOs?

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hga
I'll add some more to nickff's comments:

LBOs reallocates capital; a liquid capital market is thought to be a good
thing.

Our tax system _massively_ favors capital obtained by debt.

For all forms of capital you pay something. It gets complicated in our
favorite situation where future growth prospects result in a rising stock
price, but stock buybacks are taxed once (they come from profit), dividends
are notoriously taxed twice (they're shareholder income), but the interest
payed on debt is deducted as a cost of doing business.

Before adding another regulatory epicycle to a system that's choking to death
on them, perhaps consider reforming this perverse incentive?

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wehadfun
Well this does not sounds as bad as the last Texas energy company that filed
for bankruptcy.

[http://en.wikipedia.org/wiki/Enron](http://en.wikipedia.org/wiki/Enron)

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Gravityloss
The article wastes a lot of words but fails to explain the mechanism why low
natural gas prices are a problem for this company. It just talks about money
and equity. What an odd way of looking at things.

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antr
Take-or-Pay gas contracts and wrong gas hedges can put you in the red. As an
example, many European energy players during '10-13 struggled financially
because take-or-pay + high agreed gas prices (while 50% cheaper on spot)
coincided with a dip in demand, a double whammy for any utility.

Note how on the Energy Future Holdings situation, it's the trading/generation
business that suffers i.e. EFH. The distribution business (i.e. Oncor), which
was part of the original TXU acquisition was spun off as an independent, more
resilient business (due to the regulated nature of income). Personally,
KKR/TPG/GS is to blame big time for this - the acquisition financing has
killed the company. They over-leveraged a highly volatile business (volatility
in commodity prices + demand volatility), and this acquisition raised many
eyebrows in its day.

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not_paul_graham
Energy Future Holdings pretty much demonstrates what might be wrong with
private equity.

All players, namely Goldman Sachs, KKR and TPG pretty much recouped their
investments in the company so at least they broke even. The suckers might be
the folks losing jobs for these companies to come out of bankruptcy.

Also a lot of times PE firms start buying the debt when the company is doomed
to fail and trading at a discount to actual value and they have another go at
the company post bankruptcy restructuring.

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wsh91
What you contend in paragraph two seems to explicitly contradicted by the
article:

"This is not the ending that the Wall Street private equity firms, including
Kohlberg Kravis Roberts, TPG Capital and the private equity arm of Goldman
Sachs, envisioned in 2007, when they acquired the TXU Corporation in a
colossal $45 billion deal.

Their investments are expected to be all but be wiped out in the bankruptcy."

Did you mean something different?

