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Comments

sw

Enjoy reading your blog occasionally.

Wanted to add my thoughts on this situation. KKR and Texas Pacific Group are buying TXU for one thing, TXU's generation assets. They are going to split TXU into three separate parts: power generation (the huge money maker), the regulated T&D service company, and the retail arm that signs up customers. Selling the T&D and retail arms will generate cash to pay off quite a bit of the debt that are taking on to acquire the generation assets.

The explanation of why the generation assets are huge money makers is an extensive discussion on how ERCOT is currently structured. But in a nutshell, natural gas sets the marginal price of electricity in Texas and TXU owns about 8000MWs of coal generation. That is a huge profit margin on those coal plants. Then if you factor in the upcoming energy crisis Texas will face with the canceling of TXU's planned coal plants, the remaining coal plants will be even bigger money makers.

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