Lobbyists hired to represent investor groups in $45B buyout

The largest private equity deal in history now has its official foothold in Washington. Almost a dozen lobbyists registered last week to represent the investor groups involved in the $45 billion buyout of Texas electric utility TXU Corp.

Cheered by environmentalists, the TXU deal was a watershed moment in the climate-change debate. The new buyers promised to build just three of the 11 coal power plants proposed by the company. Almost overnight, TXU, considered one of the dirtier power companies, became a harbinger of a cleaner energy future.

But nothing is officially signed over yet. Rival bids for TXU have been rumored, and Congress or various federal agencies may throw a wrench in the works.

“One of the reasons they may be muscling up is they want to avoid oversight by Congress and potential changes to federal law,” said Tom “Smitty” Smith, director of the Texas office of Public Citizen, a watchdog group. “The one reason they did the deal here is Texas has far less rigorous regulation than at the federal level.”

And change to the law might come from Rep. Joe Barton (R-Texas), who termed the TXU buyout as “a bad deal for consumers.”

“A dozen lobbyists for a Texas congressman? That seems a fair ratio,” said Barton when told of the lobbyists’ registration. “I sure hope they got their pay in cash.”

The private equity groups involved, Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (registered under TPG Capital LP), hired an experienced, bipartisan lobbying team from Covington & Burling LLP to keep an eye on Barton as well as those federal agencies that might need to sign off on the deal.

The new registrations represent a substantial notch up for KKR’s presence in the nation’s capital. The equity group spent little more than $20,000 on lobbying fees for two lobbyists in the two years prior to the buyout, according to Senate forms. TPG, however, has lobbied much more in the past, spending $900,000 since 1999.

“You don’t want to come into this unprepared,” said Jeff Eller, spokesman for Texas Energy Future Holdings Limited Partnership, the new company created in the buyout package. “So that is why extra resources have been brought in on the team.”

In response to the TXU buyout, Barton has asserted in letters sent to federal and state regulators that the Texas electricity market’s not being subject to federal jurisdiction makes it “a weapon against ratepayers to prevent full review of such a large transaction.”

Barton has pushed for that protection in prior legislation though he now might remove it, thanks to the TXU buyout.
“If it requires that [the Electric Reliability Council of Texas] lose its independence and become subject to regulation by [the Federal Energy Regulatory Commission (FERC)] in order that this transaction receive the scrutiny it deserves, then so be it,” wrote Barton in his one of letters.

Texas’s electricity market, controlled by the Electric Reliability Council of Texas, is isolated from other states, keeping it free of federal jurisdiction.

Though Smith supports the buyout’s “environmental provisions,” the watchdog advocate admits he now has a strange new ally. “It’s very odd for Joe Barton and Public Citizen to be on the same side of an issue, but we share the same concerns about consumer costs,” Smith said.

Some environmentalists, however, attribute Barton’s stance to sour grapes. “He has lost a key ally. They have switched to another team,” said Jim Marston, Environmental Defense’s regional director for Texas. “Another thing that has gotten his ire is he is also somebody who is fighting any action on global warming.”

Environmental Defense was heavily involved in the TXU buyout. A member of TPG’s board, former Environmental Protection Agency (EPA) Administrator William K. Reilly, reached out to the environmental group and helped secure their endorsement of the deal.

Barton has met with TXU officials about the deal, including a would-be member of the company’s new board if the transaction is finalized, and has also visited with state officials. Much of the opposition to the deal so far has been centered in the Texas legislature, where measures to toughen state regulation of its electricity market are pending.

Covington’s team runs deep. Expecting potential reviews from the FERC and the Nuclear Regulatory Commission (NRC) as well as inquiries from Congress, the roster includes past commissioners from both agencies as well as former top Capitol Hill staffers.

William Massey, a former FERC commissioner, and Richard Meserve, a past NRC chairman, can handle the agencies; Bill Wichterman and Martin Gold, former top aides to former Senate Majority Leader Bill Frist (R-Tenn.), are registered as well; and Stuart Eizenstat and David Marchick, once senior State Department officials for President Clinton, are senior Democrats on the account.

“It’s really not surprising that the parties to the TXU deal are putting a full team on the field,” said Scott Segal, a lobbyist who works for several large electric utilities. “The TXU transaction is large, and there is a lot of complicated ground to cover.”

In addition, Kissinger McLarty Associates are providing strategic advice on the buyout to KKR and TPG, as confirmed by an executive at the firm. Former Secretary of State Henry Kissinger and Clinton’s former chief of staff, Mack McLarty, run the consulting group.

At the moment, Barton has planned no legislation in regard to the TXU buyout, said Barton spokeswoman Karen Modlin. “He is awaiting a response from these agencies. That will determine where he will go forward with this.”

As their lobbying campaign begins, KKR and others certainly are not ignoring the Texas lawmaker.

“Congressman Barton has a pretty distinct point of view and we talked with him from the company side and from the investor side,” said Eller. “We are going to keep talking to him.”