TXU parent company posts $3.3bn loss

Energy Future Holdings has attributed most of the loss to the effect of fair value accounting rules on its fuel-hedging activities. Concessions made by TPG, Kohlberg Kravis Roberts and Goldman Sachs in the $45bn buyout last year also played a part.

Energy Future Holdings (EFH), the parent company of Texas utility TXU, has reported a $3.3 billion (€2.2 billion) loss for the second quarter of 2008.

The loss represents the poorest quarterly earnings total EFH has disclosed since its record $45 billion buyout last October by private equity firms TPG, Kohlberg Kravis Roberts and Goldman Sachs Principal Investment Area. In the second quarter of 2007 the Dallas-based company, then known only as TXU, reported a net profit of $121 million.

EFH could not be reached for comment.

EFH blamed most of the losses on the application of new fair value accounting procedures to its long term fuel-hedging program, where the company purchases future quantities of natural gas at a fixed cost to avoid a rise in commodity prices.

In a statement accompanying the release of the quarterly report, EFH said that the losses reflected roughly $3.1 billion “in unrealized mark-to-market net losses, virtually all related to forward natural gas positions”.  

Excluding the effect of fair value accounting on its balance sheet, EFH reported a net loss of $251 million in adjusted operating earnings. EFH attributed that loss to higher financing expenses related to last year’s buyout, as well as a 15 percent pricing reduction granted for certain TXU residential customers.

That price break was one of several concessions TPG, KKR and Goldman Sachs offered to regulators to complete the deal, which at the time stood as the largest leveraged buyout on record. For eight months following its initial bid, the consortium faced intense opposition from environmental advocacy groups, state legislators, regulatory commissions and labor unions.

Shortly after the buyout, the consortium reorganized TXU into three separate businesses: TXU Energy, an electricity retailer serving 2 million customers across Texas; Luminant, a power generation business which produces 18,200 megawatts of power, including 2,300 megawatts of nuclear power; and Oncor, a distribution and transmission business with more than 115,000 miles of transmission and distribution lines.

Last week, EFH reached its first liquidity event since the buyout, selling a 20 percent stake in Oncor for $1.25 billion. Borealis Infrastructure Management, the infrastructure arm of the Ontario Municipal Employees’ Retirement System, and GIC Special Investments, the infrastructure arm of Singapore’s sovereign wealth fund, purchased the stake.

EFH’s board of directors features several high-profile members of each private equity firm, including TPG founder David Bonderman, KKR Energy and Natural Resources head Frederick Goltz, and Goldman principal investment area managing director Scott Lebovitz.

Also sitting on the board in an advisory role is former Secretary of State James Baker.