Before deregulation, one government-controlled provider took care of all the power generation and delivery needs for the state of Texas. Customers had no say in the matter – what they got was what they got and what they paid was what they paid. In 2002, deregulation came into effect so now, with the power to choose, who really wins? On the one hand, consumers now have a choice in the price they choose to pay and how their energy is generated. On the other hand, one unforeseen complication was the destabilization and potential toppling of Texas power giant TXU Energy.
Texas Power then: The beginning of the end for TXU?
In 2007, power giant Energy Future Holdings Corp bought out TXU Energy against the advice of many experts. To acquire the company, Energy Future leveraged itself to the tune of $40 billion dollars. Shareholder misgivings were allayed by the fact that TXU prices were indexed against the price of natural gas. Most power generation, especially in the Houston area, was coal-fired and coal was directly linked to natural gas leaving a healthy profit margin. At that time, fracking (for “fracturing”) of shale beds was not seen as being of any significant contribution to natural gas stores. Unfortunately, the shale beds turned out to have a bit more natural gas than was expected.
A lot more, actually. So much more that it drove the price of natural gas and, thus, the price of electricity down into the basement, dropping 64% between mid-2008 and the end of 2012. With so little profit margin left, with retailers offering mega-short-term contracts of under a year meaning no long-term commitment from customers, and with consumers favoring sustainable resources such as wind energy, there’s no real impetus to build any new power generators that rely on coal or natural gas. Energy Future bled revenue by the bucket, posting a $600 million loss for the first three quarters of 2013, although it did manage to post a $5 million profit for the final quarter. Still, with its crushing debt load, there was no way anybody was going to lend them more money to fix the situation.
Texas Power now: As the situation stands
Energy Future listed its holdings at the end of September, 2013, as somewhere around $2 billion dollars and long-term debt of $38 billion. It has a first debt payment due in October, 2014, of $3.8 billion. Even though Energy Future has such Texas power players as William Reilly, who was the administrator of the Environmental Protection Agency; Lyndon Olson, former ambassador to Sweden; and James Baker III, 61st Secretary of State under President George H W Bush, batting for it, such high-powered influence isn’t enough to pull the company out of the weeds. Even selling the company is a dicey proposition, as new owners face a potential $3.5 billion in environmental liabilities and another $1 billion for mine reclamation. Whichever way the wind blows, the future for TXU looks bleak. David Power, deputy director of the Texas office of Public Citizen, said that even if the market rose up to full capacity, it wouldn’t be enough to save TXU.
So… now what?
Nobody knows yet how the Texas power regulators are going to handle the disposition of TXU. There is still about 1.75 million customers on its books (although that number is far down from what it was in its heyday) and those customers will still require their energy needs to be met. Clearly, however, the deregulation of Texas power needs some tweaking – not unexpected, given that it’s been less than ten years. Alternatives are being considered, such as a capacity market option, which would ensure electric providers get paid regardless if the volume is used or not. What this will do to the price of electricity and associated state taxes is anyone’s guess.
Until the dust settles, visit ComparePower (Power to Choose) for information you can really use to select the best Retail Electric Provider and the best plan to suit your needs.