The bankruptcy of Texas Competitive Electric Holdings, owner of retail electricity provider TXU Energy and power generator Luminant, is imminent, Moody’s analysts projected in a report this week.
The power company could run out of money before the year’s end, soon followed by the bankruptcy of its parent, Energy Future Holdings, said Moody’s analyst Jim Hempstead.
The staggering debt is a legacy of a massive $45 billion leveraged buyout in 2007 — one of the largest in history — by Kohlberg Kravis Roberts & Co., TPG Capital and Goldman Sachs Capital Partners.
Energy Future Holdings and its subsidiaries currently have more than $40 billion in debt. Of that, subsidiary company Texas Competitive Electric Holdings owes $30 billion and has a value of about $15 billion.
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The bankruptcy should not create any generation issues or power disruption for the grid, Hempstead said.
“Our expectation is that there should be no material impact on the grid,” he said. “We have never seen a bankruptcy that has turned the lights off. All of the Luminant assets are going to get scrutinized as to what is economical and what is not — there may be a plant or two that is shut down or mothballed or otherwise taken out of the stack.”
However, the bankruptcy may cause customers to leave TXU, especially if the bankruptcy proceedings are seen as contentious, Hempstead said.
“We think the other reps would move swiftly to pick off the best customers,” Hempstead said. “That is a risk to the valuation of the business.”
Energy Future Holdings’ transmission company, Oncor, is owned by a separate subsidiary, and is not expected to file for bankruptcy.
If the bankruptcy occurs, it will be one of the largest corporate bankruptcies outside of the financial industry in terms of total debt outstanding.
Telecommunications company WorldCom Inc. had $33.1 billion in debt at the time of its bankruptcy in 2002, while Enron had $10.5 billion in debt when it shuttered its doors in 2001.
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The leverage buyout was negotiated on the belief that natural gas prices would stay high – a forecast that has since proven false.
“The ability to service that debt included an assumption that gas prices would go no lower than $6 per million cubic feet,” Hempstead said. “The other assumption was that if natural gas prices did fall, they were volatile and would not stay low for a long period of time.”
Instead, both natural gas prices and power prices have stabilized at lower prices, making sufficient cash flow a growing problem for Energy Future Holdings.
“This is a story about too much debt,” Hempstead said. “It was an aggressive use of leverage, and it didn’t work.”
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14 ways to slim your power bill this summer
apdk / Flickr
Angle blinds up: TXU Energy says that angling horizontal blinds so sunlight streams up can reduce the heat coming in and provide free natural light. When closed and lowered, highly reflective blinds can reduce heat gain by around 45 percent.
kellen_butler / Flickr
Insulate lights: Canned or recessed lights can be a big source of air leaks. Selecting “IC” (insulation contact) models or installing approved covers over non-IC models can stop that.
fonticiella / Flickr
Use a fan: You can raise your thermostat setting by up to 4 degrees and not feel a difference if you also run a ceiling fan. Fans only make you feel cooler, though, so turn them off when you’re not in the room.
rlhyde / Flickr
Lower humidity: It takes longer to cool a humid home. The ideal humidity level is less than 60 percent in the summer.
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Moderate the thermostat: Lowering your thermostat setting does not cool your home more quickly. Many factors affect how quickly an indoor space cools. Thermostat set points are not among them.
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Check your water heater: Water heaters are factory set at 140 degrees. Lowering that to 120 degrees provides comfortably hot water and less energy consumption.
Green Energy Futures / Flickr
Use a programmable thermostat: Most Americans with programmable thermostats don’t program them. New Energy Star® ratings for programmable thermostats may consider ease of use and online access.
tuxthepenguin84 / Flickr
Seal your windows: If you want to save money this summer, you should start by looking for the places where you are losing money. Gaps between windows and doors are some of the most likely spots for energy loss.
Michael Paulsen / Houston Chronicle
Get the right A/C unit: Air conditioners are designed for specific sizes, and you can waste energy by having one too big or too small. You should make sure your unit is right for your home.
CraftyGoat / Flickr
Switch your light bulbs: You can save money by switching out old incandescent light bulbs for compact fluorescent bulbs. The modern light bulbs, which do have a different glow, can save you money on your electric bill.
wblo / Flickr
Change your air filter: A dirty air filter can make your air conditioner be less efficient, and it can ultimately cost you money on your electric bill.
Fitz Villafuerte / Flickr
Turn off lights: Many people forget to turn off lights and fans after leaving a room. By turning them off, you can save yourself some money on that electric bill.
trekkyandy / Flickr
Buy energy-efficient appliances: They may cost more at the store, but energy-efficient appliances can save you money on your electric bill.
danmachold / Flickr
Unplug unused appliances: You can save money by unplugging phone chargers or other kitchen appliances when they aren't in use.