Dallas-Based Energy Future Holdings, Texas's Biggest Power Generator, Had a Rough Year

Categories: Biz

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Energy Future Holdings' end-o'-year popped up on the U.S. Securities and Exchange Commission's website late Tuesday, and, boy, is it ugly. Now, why should you care? Because Energy Future is the parent company of Luminant, Texas's biggest generator of electricity. And TXU Energy, a huge retail supplier. And Oncor, the power line company.

Like every other generator of wholesale electricity, the last few years have been tough. The shale boom drove natural gas prices into the basement. And since natural gas-fired power plants set the marginal electricity price for most of Texas, the margin between the cost of generating power and the price it sells for is razor thin.

Throw in Energy Future's prodigious debt -- the result of the highly leveraged purchase of TXU by private equity barons Kohlberg Kravis Roberts and Goldman Sachs -- and you have a company throwing a huge slice of its shrinking profits at fat interest payments. Like, as much as 60 cents of every dollar.

Gleaned from the company's 10-k, here are a few reasons why 2011 was the year of hemorrhaging for this Dallas-based power company:

Why Bother?: During certain periods in 2011, they shut down power plant units because the wholesale price of electricity was actually less than the cost of making it.

Underwater: The holding company for Energy Future's Luminant has outstanding debts that currently exceed its value.

Less Money, Mo' Problems: Revenues were down to $7.04 billion from $8.235 billion.

Sucks For Them: Investors' held stock is now worth negative $7.8 billion.

That's The Free Market!: TXU Energy, the retail provider, lost 9 percent of its customers in 2011. Each percent is worth roughly $35 million.

Performance Pay?: Don't worry about the guys running the ship. Despite all the red in this 10-K, they're still in the green. Energy Future CEO John Young's total compensation was $15.124 million in 2011, up from $6.862 million in 2010. Luminant CEO David Campbell was paid $1.766 million in 2010. In 2011, he received $7.667 million.


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waterboys
waterboys

KKR and TPG paid $45 billion for TXU and it was always a gamble. The Texas wholesale market was a clone of the UK market in the 1990s. A wholesale market that allowed generators to make lots of money when gas prices were high. It has drawbacks when prices fall. The same thing happened in the UK in 2002 when gas prices fell, resulting in the bankruptcy of TXU Europe. TXU Europe's cash flows could not support the debt levels used to make the original acquisition. It's ironic that the new owners fell into the same trap, given that TXU's management team was replaced following that European failure. What goes around comes around. In the UK they changed the way the wholesale market works to prevent the volatility in wholesale prices, they should do the same in Texas.

However, it's lucky EFH didn't build all those coal fired plants. They obviously did not realize the impact that shale gas would have on natural gas prices. This is surprising give that TPG's HQ is in Fort Worth, the centre of the Barnett Shale. 

The Stig
The Stig

Yes, and these problems are only compounded by the fact the Texas grid is isolated from the rest of the country, cuz we Texuns like r independence, Texas electrons are special.I am sure Rick Perry will find it in his heart to use the "Rainy Day Fund" to bail them out. To tap that big bag of taxpayer money you need a really big crisis. Bigger and more important than say, education. Let the rolling blackouts begin. T. Boone Pickens will be along shortly to pitch you for a power transmission lines project to help him connect his wind generators to the grid.

Mister_Mean
Mister_Mean

Tell us about the executive pay and bonuses if any.

Opps Sorry James provided the info.

Nothing sadder that an executive not getting big bucks for a F--K UP.

Ed D.
Ed D.

Saddling a worthwhile company with massive debt, siphoning off the cash, acting shocked that this debt/drain combo is bad for the company, and selling off the wreckage is the very definition of predatory capitalism. These finance guys produce nothing but cash for themselves and ruin for everybody else.

Fletch
Fletch

It pleases me to no end that TXU lost such a large chunk of its customer base.  Serves them right.  They've been sticking it to people for years and people are starting to wise up to their shenanigans.

I have Startex Power as my electric provider and I've never even entertained going with TXU.  In fact, I've convinced and handful of people that I work with to ditch TXU and they've saved lots of money in the process.

What is happening to TXU is what usually happens to a company that doesn't keep pace with the times.  They're getting undercut on pricing from any number of other providers and they seem to think or hope that people will stay with them out of fear of the unknown (switching).  Looks like that's backfiring in a big way.  In this crappy economy, people are looking for savings wherever they can find them.  Crunching the numbers on your electric bill and shopping around is a good way to do just that.

What a bunch of hucksters (TXU).

james
james

 Energy Future CEO John Young's total compensation was $15.124 million in 2011, up from $6.862 million in 2010. Luminant CEO David Campbell was paid $1.766 million in 2010. In 2011, he received $7.667 million. another example of the 1% filthy rich fuckin' over everyone else. of course they live in mansions with million dollar generators so they don't have to depend on the piss pooor service they sell.

RTGolden
RTGolden

Do you really think Young and Campbell face blackout/brownouts?  The beauty of rolling black/brownouts is that the entity controlling the grid selects which sections of the grid lose power and when.  I'd almost be willing to bet grids containing energy execs' homes are marked in big, fat, red marker.

Guest
Guest

Willing to bet you are talking out of your a$$

Brenda Marks
Brenda Marks

Money quote: "Our substantial indebtedness could adversely affect our ability to fund our operations, limit our ability to react to changes in the economy or our industry (including changes to environmental regulations), limit our ability to raise additional capital and adversely impact our ability to meet obligations under the various debt agreements governing our debt.We are highly leveraged....."

Hold onto your hats folks.  All of the debt created at the time of the buyout (late 2008) comes due by 2015 ($120M owed in 2012-13; $7.6B total in 2014-15).  Reading this year-end, boy are they in trouble. 

Another interesting point:  bitching about depending on Oncor for "a significant amount of its cash flow" yet it has "a very limited ability to control its activities."  And Oncor is controlled by "independent directors" who require a "unanimous or majority" to make decisions.  I predict their Austin lobby force in the next two years to grow exponentially.

I sure hope Tom Perkins and his minions are paying very close attention.

Brantley Hargrove
Brantley Hargrove

 That debt service is killer. Because if a company in this energy market needs to be anything, it's nimble.

Brenda Marks
Brenda Marks

Yep.  And one thing I've learned over the years of reading 8-Ks and 10-Ks, if a company repeats several times on every page its substantial risks related to debt service its long-term future is dicey.  And they have been actively working in their subsidiaries to protect certain operations and assets.  That raises a whole new set of questions.

Paul
Paul

 Two words always to watch out for in any filing: "substantial" and "certain"

IIRC, a year or two ago some of the short term bonds were refinanced for a longer term at higher interest rate for about $0.75 on the $1.

Bloomberg is reporting that the extended loan is trading at $0.82 and the CDS are at a 75% chance of default within 5 years.

Watch out for the implosion on this one.

me
me

f ck em. all of em. txu, oncor, their daddy. their momma. i hate the electric company as much or more than the phone company. they couldn't spell customer service if you spotted them the customer and the serv ... we are gonna see another hotter than hell summer and watch them fail miserably and then we are all gonna just cook and stew in our own juices.

You
You

Your a idiot

Michael
Michael

Can't wait for the predicted rolling blackouts this summer!  I bought UPSs for all my employees over the past year, and we just did some generator upgrades.

Mark Cuban, if you are reading this, how soon until the "Energy Future Holdings, the Smartest Guys in the Room" movie premiere?

Oak Cliff Townie
Oak Cliff Townie

It was a great idea that was trumpeted around the cites and towns as it was happening !

Those who questioned and perhaps even forecast these issues facing the company today were drowned out by others who call them ignorant in the ways of business .

Now it has turned to SH*T

So how much of our TAX CASH do these guys need to cover the note ?

Montemalone
Montemalone

And here I thought Wall St was all about creating value and powering the Marekin economy, floating all boats and showering the world with golden trickles of sweet, wet, wealth.

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