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Potential Bid for TXU Wires Unit Disclosed

A company affiliated with the powerful Dallas-based Hunt Oil family emerged as a potential bidder on Tuesday for the electric delivery business of TXU, Texas' largest power company.

TXU agreed last month to be acquired by a group of private equity firms led by Kohlberg Kravis Roberts and Texas Pacific Group for $32 billion.

Paul Hudson, chairman of the Texas Public Utility Commission (PUC), disclosed the existence of a thwarted bid for some TXU assets at a legislative hearing in Austin, citing two meetings and a phone call with officials from Sharyland Utilities, owner of an electric transmission company in South Texas.

Sharyland is one of many Hunt family companies.

Hudson wrote on Monday to two Texas lawmakers, Rep. Phil King, chairman of the Texas House Regulated Industries Committee; and Sen. Troy Fraser, chairman of the Senate Business and Commerce Committee, disclosing contact from Hunter Hunt, Sharyland president.

Hudson said Hunt indicated Sharyland had not made a promised bid for certain TXU assets because of "threatened legal action."

Under the KKR agreement, TXU has the right to solicit rival bids until April 16. Last week, TXU said it had contacted 70 companies and signed confidentiality agreements with nine.

TXU said no formal bids had been submitted and "there is no indication that any of the parties is preparing a proposal that will be superior from either a price or transaction certainty perspective."

Competition Concerns

While Hudson said the PUC had no authority to interfere with negotiations between TXU, KKR and Sharyland, he said he was uncomfortable "sitting" on the information, and decided to share it with King and Fraser in a private letter that has since become public.

The PUC's limited authority to review the TXU buyout in advance of the deal's completion has become an issue for lawmakers in Austin and Washington, D.C.

Citing a rise in electricity prices in Texas's deregulated market, lawmakers fear that additional debt from the leveraged buyout will hurt competition.

Texas's Senate has passed a bill to give the PUC greater powers in approving or rejecting utility mergers and sales,including the TXU deal, and similar language was proposed last week in the Texas House.

KKR officials have told lawmakers the TXU buyout will be jeopardized if the law is changed to give the PUC more power.

King said Sharyland's contact with the PUC added to his concern that the commission's ability to look at sales and mergers should remain limited and not be expanded.

"I want to make it clear to the industry that we don't want the PUC dragged into any negotiations," King said.

Rep. Rene Oliveira likened the situation to "billion-dollar bullies" using a state agency to push each other around.

Following Tuesday's hearing, TXU spokeswoman Lisa Singleton confirmed the company had been approached by Sharyland in connection with a bid to buy only TXU's north Texas transmission unit, which is regulated by the PUC.

"In all our communications, we encouraged them to make a formal proposal that would be a competitive bid," said Singleton. "But that did not happen."

A spokeswoman for Sharyland Utilities declined to comment on Hudson's revelation. "We do not comment on any matter that is the subject of pending or threatened litigation," said Jeanne Phillips.