TXU Corporation manipulated the Texas electric market in 2005, costing consumers $70 million and giving the utility $20 million in extra profits, according to an outside expert whose report was released by state regulators Monday.
TXU, the largest power generator in Texas, sold power to the market at inflated prices and caused electricity prices to rise 15.5 percent during a four-month summer stretch, the market expert said.
"Since TXU, in fact, raised prices in the market and profited from its activities, TXU's behavior constitutes market power abuse," said
staff of the state Public Utility Commission [PUC].
The PUC released the report by Potomac Economics Ltd., and the findings drew an immediate angry reaction from a key lawmaker who was already critical of TXU's rates.
"I am personally outraged that TXU would intentionally manipulate prices in the wholesale market to create higher profits," state Sen. Troy Fraser, R-Horseshoe Bay, said at a news conference in Austin. "Consumers of this state deserve to be treated fairly, and for a company that delivers an essential service to millions of Texans, this behavior is unacceptable."
The report could further complicate TXU's pending $32 billion sale to a group of private investors. Fraser, chairman of the Senate Business and Commerce Committee, has introduced one bill that would effectively force TXU to sell generating plants, and another to let the PUC review the proposed sale of the utility. The latter measure was approved 9-0 by his committee.
A TXU spokeswoman said the Dallas-based company was "obviously
disappointed" in the findings of the market monitor. The spokeswoman, Lisa Singleton, said TXU has thoroughly reviewed its conduct during the June-September 2005 period of the monitor's report and believes that it followed PUC rules.
"We are eager and open to discussing this matter further with commission staff," Singleton said.
The commission said it will decide on the appropriate penalty, which could include filing a violation notice to recommend administrative penalties. The maximum fine is $25,000 a day per violation, said commission spokesman Terry Hadley. TXU could pay a fine or contest it by seeking a hearing before the State Office of Administrative Hearings or a settlement conference.
TXU serves 2.3 million customers, mostly in the Dallas-Fort Worth area.
Potomac Electric said TXU's actions caused wholesale power prices to spike 657 times. Most of those times TXU was in prime position to benefit from the higher prices because strong demand for electricity couldn't be met without TXU's supply, the consultant said.
In another blow at TXU, an influential congressman urged the utility's customers Monday to switch to other electricity providers. The private firms trying to buy TXU are promising most customers a 10 percent
rate cut. But U.S. Rep. Joe Barton of Ennis, the ranking Republican on the House Energy and Commerce Committee, said TXU could have already lowered its rates. Barton wrote last week to the PUC, the Federal Energy Regulatory Commission and the Electric Reliability Council of Texas, a utility-backed group that operates the power grid in most of Texas, asking the organizations to examine the proposed sale of TXU.
"In this proposed buyout, nobody is looking out for the ratepayer, and I mean nobody," Barton said.
A group of investors led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group agreed last month to buy TXU in the biggest leveraged buyout ever. The buyers would borrow $24.6 billion against TXU to finance the deal. Besides cutting rates, the buyers promised to drop plans for eight of 11 coalburning power plants that TXU had proposed. Environmentalists had opposed the coal-fired plants and are now divided over whether to oppose the three that remain in the plan.
Barton said rate cuts will only be for some customers and are not enough. He also questioned how the new TXU would be able to provide enough power without building the new plants. Jeff Eller, a spokesman for a partnership formed by KKR, Texas Pacific and the other buyers, said TXU expects to build three coal plants, "providing immediate
additional capacity to meet Texas increasing electricity demand." He said the company also is exploring alternative energy sources and will double its wind power purchase.
Barton spoke at the Arlington home of Dan Fernandez, who said his TXU bills have gone up 40 percent the past few years, to $560 last August. He plans to switch to another company.
"We all complain about the rate, and we'd like to get the best rate we can," Fernandez said of his neighbors. "If we get their attention, maybe things will start to change."
