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Is the governor of Texas going to bail out Energy Future Holdings?

By: Elizabeth Souder |

Is the governor going to bail out Energy Future Holdings?

Environmental and campaign finance watchdog groups are asking the question. Texans for Public Justice published a report on the topic on Tuesday, but their evidence isn’t very convincing.

Dallas power company EFH is $37 billion in debt and its revenue is declining. Many analysts expect the company will end up in bankruptcy, a failed end to the largest leveraged buyout in history.

The company’s revenue is shrinking because the collapse in natural gas markets has caused wholesale power prices to sink, since Texas uses natural gas plants to meet the daily rise and fall in electricity demand. Instead of planning for an initial public offering, the private equity investors have been negotiating with lenders for more time.

The Texas Public Utility Commission, which regulates the electricity industry, is facing a serious deficit in the next few years in electrical power generating capacity. Power generating companies haven’t built enough plants to keep up with growing demand because wholesale prices are too low to turn a profit. So, the PUC has lifted the cap on wholesale prices, allowing market prices to rise as high as $4,500 per megawatt hour.

And, the PUC is considering paying power generators to keep excess capacity on hand to prevent rolling outages.

Texans for Public Justice call these moves bailouts for Energy Future Holdings, the largest power generator in the state.

But so far, the numbers don’t add up. This year, the wholesale market hit the $3,000 price cap for about one-and-a-half hours, and it hit the new $4,500 price cap for about 10 minutes.

EFH owns 15,427 megawatts of power generating capacity. If the company had been able to generate at full capacity during those time periods, and sell all of the electricity on the wholesale spot market at the top price, EFH would have made about $81 million.

Let me repeat: EFH owes about $37 billion. Selling electricity at the price caps this year could have earned the company no more than $81 million.

If that’s a bailout, is won’t happen fast enough to keep EFH out of bankruptcy. The company has $3.8 billion in loans coming due in 2014.

Further, the report says EFH might not use any windfall to build more generating capacity, as the company is deeply in debt. But even if EFH had financing for a new plant, it couldn’t legally increase its total plant capacity. Electric generators may only control up to 20 percent of the Texas market, and EFH has already hit that cap. If EFH were to build, it would also have to sell or shut down an old plant.

“The PUC is addressing a long-term market issue which is separate and apart from any EFH debt issues,” EFH spokesman Allan Koenig said.

The report also points out that EFH owns 80 percent of Oncor, a regulated power line company. And Oncor got a $1.3 billion award to help build transmission lines to bring wind power from West Texas to Dallas and Houston. But the PUC began discussing the renewable transmission line project before private equity companies bought EFH.

Still, EFH does stand to benefit from such changes to the wholesale electricity market. The Texans for Public Justice report points out that EFH has contributed $2.4 million to Texas politicians and political action committees since 2009. Ten energy companies that support wholesale market changes have contributed $3.5 million, the report shows.

And, the report shows, Gov. Rick Perry has been the biggest beneficiary of those contributions, getting $284,025 from those ten companies.