PUC Review of TXU Transactions Protects Jobs

By Tony Bennett, Texas Association of Manufacturers

April 4, 2007

Major financial transactions or buyouts like the bid for TXU are an important part of the free market.  Everyday, companies merge, split or acquire new assets.  It is important to note however that a critical part of TXU -- its utility business -- is still regulated and accountable to the public.  The regulated side of TXU does not operate in the free market and its rates and services are governed by the state of Texas, making a Public Utility Commission review of the regulated utility portion of the transaction appropriate and responsible. 

Let’s be perfectly clear: Calls for a review by the PUC are not driven by an anti-free market agenda.  A review by the PUC before the TXU transaction is complete is important to maintain the health of our state’s economy, the energy marketplace and could very well protect countless Texas jobs.  A PUC review can be – and is - part of the pro-business, pro-job agenda supported by the Texas Association of Manufacturers.

The electricity delivered by TXU is part of an energy mix that is the lifeblood of all Texas commerce.  All facets of the Texas economy are undeniably affected by the availability of reliable and affordable power, making a review by the PUC the only responsible course of action.  A review is necessary to understand how the new TXU buyers plan to maintain electricity reliability and how they plan to handle the sizeable debt associated with this buyout; a debt that may ultimately be borne by Texas ratepayers who already pay higher electric bills than consumers in other states.  When energy consumers – like Texas manufacturers – face increased energy costs, jobs and prosperity are threatened. 

Every Texan should have a keen interest in how the TXU deal is structured so that the reliability of the electric grid remains in tact.  Energy costs and reliability directly impact the ability of our state to prosper, grow jobs and compete in the global marketplace. 

A single interruption of power -- caused by lack of maintenance of the transmission lines – can cost a major manufacturing facility millions in damages and lost profits.  These interruptions can have a dramatic impact on the profitability of a company, thus impacting jobs and economic development for the state. If a utility is in financial difficulty, history shows that cutbacks on maintenance and repairs will soon follow.  It is in the public interest to maintain healthy, reliable utility service because customers have no choice of their transmission and distribution provider.  PUC review will keep this from happening and will support increased business investment in Texas, not less. 

Here's how the TXU buyout could affect the entire ERCOT power grid, which covers approximately 75 percent of the land area in Texas and delivers approximately 85 percent of Texas' overall power usage to 20 million Texans:

The regulated electricity transmission side of TXU delivers electricity to consumers in its service area.  Regulated utilities like TXU invest large sums to build transmission capacity and expend additional resources to keep those lines maintained. Because of the interconnected nature of the grid, how utilities do business affects the reliability of other parts of ERCOT.

Just like reliability doesn't stop at a utility's border, transmission costs are not passed along solely to consumers within a utility's service area. Instead, the costs are accumulated from all the utilities so that all Texans in ERCOT pay for our state's electricity transmission costs equally. So, far beyond the TXU service area, Texans have a very important stake in how transactions such as the TXU buyout affect transmission costs and the reliability of ERCOT's delivery system.

Ultimately, the financial stability of a utility is important to customers.  Even if the eventual buyers of TXU (since bidding for the utility is still open) file paperwork with the PUC to describe how they plan to operate the utility and maintain its facilities, none of those filings are binding.  Meaning, Texans have no assurances about the financial health or reliability of the “new TXU.”  A review by the PUC would provide such assurances. 

The call for a review of the regulated portion of the TXU buyout is in line with the pro-business principles that have long fueled the Texas economy.  All Texans have a stake in our regulated utilities and we depend on the PUC to ensure consumer interests are considered.  To dismiss or resist a review by the PUC threatens jobs and is decidedly anti-business.

Tony Bennett is the chairman of the Texas Association of Manufacturers.

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