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What Happens To My Electricity If (When!) TXU Declares Bankruptcy?

We have been receiving quite a few questions about what will happen when TXU’s parent company, Energy Futures Holdings, declares bankruptcy.  The issue is actually fairly complex in the case of EFH, but let’s start by addressing what generally happens to your electricity when your electricity provider declares bankruptcy.

If your Retail Electricity Provider (REP) goes out of business, your electricity will be switched over to the “provider of last resort,” which happens to be Green Mountain for most of Texas.  When the switch is made, you will be on a month-to-month contract, meaning you can leave Green Mountain for another provider at any time without having to pay a penalty.

If your REP declares bankruptcy in order to restructure (avoid paying their debts), yet still plans to stay in business, you will not notice any change.  You will still be under contract from your existing REP, and they will continue to provide you with electricity.  This is what will more than likely happen with TXU.

The complex part of the issue is that EFH also owns Luminant (formerly TXU) and Oncor (formerly TXU).  Luminant is the largest energy supplier in Texas, and Oncor owns and operates all of the power lines and meters in the Dallas area, as well as a large portion of North and Central Texas.  If EFH’s subsidiaries were to cease operating, the Texas Public Utility Commission would need to step in to keep the lights on for a large percentage of the state’s population.

Although it is probable that EFH will declare bankruptcy in the near future, it is highly improbable that they will cease operations. More than likely, a third party (or parties) would come in to buy the 3 subsidiaries, and they would probably receive very favorable treatment from the PUC and Texas in regards to fees, expenses and taxes.  This would be along the lines of what happened to the large investment and retail banks over the last several years.

In light of TXU’s severe financial issues, customers of the ailing giant are jumping ship and switching to other providers. Now is the time to be proactive in switching to an electricity provider that offers good rates and has a strong fiscal standing.

Fitch Downgrades the Debt of TXU — Again

The hits just keep on coming for TXU.

Fitch Ratings downgraded the debt of TXU’s parent company, Energy Future Holdings Co. (TXU), from CCC to CC, which “implies very high levels of credit risk such that default of some kind appears probable at some point in the future,” the company said in a statement. Fitch cut its unregulated subsidiaries to eight levels below junk and said a default appears probable.

Energy Future Holdings was taken private in 2007 in the largest buyout in history.

Energy Future Holdings’ electricity retail unit, TXU Energy, also has had “significant” customer losses and increased competition may pressure profit margins at the unit, Fitch said.

The “current highly leveraged capital structure” at Energy Future Holdings’ unregulated unit “is no longer sustainable and some kind of default seems inevitable,”according to the report.