On the heels of announcing the sale of almost a billion dollars worth of power plants in New York City and the Bush Administration announcing an energy conservation campaign centered around a mascot called the “Energy Hog,” Houston-based Reliant Energy Inc. announced Monday that it would be raising its electricity prices for Houston-area customers by almost 15% as soon as possible and could implement an additional increase of about 10% in January. Those price increases will make Reliant’s price for electricity among the highest in the nation.
Under Texas’ deregulation law, Reliant is required to offer a semiregulated price through 2006 that is tied to natural-gas prices. Reliant’s current electricity rate is based on a price of $7.50 per million BTUs for natural gas, so it is increasing its electricity rates based on a benchmark price of $11.38 per unit for natural gas. Reliant’s two-step increase will result in a price of more than 16 cents a kilowatt-hour from the current 12.88 cents.

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A fair bit of chatter was generated in the locker rooms of many golf clubs over the past weekend by this Wall Street Journal ($) article on Friday that detailed the rather embarrassing use of corporate aircraft as airborne limousines to fly CEOs and other executives to golf dates or to vacation homes where they have golf-club memberships. In the article, Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, calls it “disgusting” for a company to guarantee its CEO numerous hours of free personal flight time in order for the exec to make his tee times:

“A corporate aircraft isn’t supposed to be a shuttle to a vacation home. We pay CEOs enough. They can afford to pay to fly to their vacation homes.”

Is nothing sacred anymore? The hard-earned right to jet off to a golf game has been a savored executive perk for years. In this post-Enron era of demonizing business executives, is not there anyone who will stand up and defend the beleaguered executives in retaining this hallowed perk?
You bet there is. Just call Professor Bainbridge.
I’m betting that the Professor gets some major consulting work out of his work in this area. ;^)

Less than a year after a group of four private equity funds banded together to acquire Texas Genco Holdings, Inc. from CenterPoint Energy for $3.7 billion, the buyers are proposing to sell Texas Genco to NRG Energy Inc. for $5.8 billion in cash and stock in a deal that confirms the red-hot nature of the market for power generation assets.
Under the deal, NRG — which emerged from chapter 11 just two years ago — will pay $4 billion in cash and will give the sellers $1.8 billion in stock in NRG, which amounts to about a 25% stake in NRG. NRG also will assume an additional $2.5 billion in debt. As a result of the acquisition, NRG will become one of the country’s largest independent generators with more than 24,000 megawatts of capacity from plants in California, the Northeast, the Southeast and Texas.

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The Wall Street Journal’s ($) Holman Jenkins addresses the sad state of the airline industry in his Business World column today, and hammers home a point that this previous post made about the ownership stake in the reorganized United Airlines that the debtor-airline is proposing to foist on the federal government under United’s pending reorganization plan:

“Let’s not delude ourselves: Through the bankruptcy and pension insurance systems, Washington is already engaged in a bailout — an incoherent and self-defeating one.”

Read the entire piece, and feel free to peruse this long line of posts over the past couple of years on the sad state of the airline industry.
After the economic shakeout of the early and mid-1980’s — which included the demise of the savings and loan industry — the federal government ended up owning large inventories of foreclosed real estate and related assets in the wake of failed lending institutions. A number of entreprenuers bought those assets from the government for pennies on the dollar and deployed the assets in properly capitalized businesses. It’s beginning to look as if a similar market in government-owned airline securities is developing, and it will be interesting to watch if a government sale of those securities at rock-bottom prices will prompt the type of true reorganization from a capitalization standpoint that the American airline industry desperately needs.

As anticipated here earlier this week, Delta Air Lines commenced its inevitable chapter 11 reorganization case yesterday and was joined by fellow legacy carrier Northwest Airlines. Both chapter 11 cases were filed in New York City, which has become the preferred venue for big reorganization cases (or at least the preferred venue for the debtors’ attorneys).
With the filing of these cases, four of the U.S.’s seven largest airlines (by passenger traffic) are wallowing in Chapter 11 and more than half the capacity of the nation’s top dozen airlines are now under the jurisdiction of the Bankruptcy Courts. Although the liquidation of one or more of these debtor-carriers would likely improve the overall financial health of the airline industry, it’s difficult to put a big airline out of its misery.

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In a move that was widely-anticipated in energy circles, Duke Energy Corporation plan to shut most of its money-losing wholesale power and trading businesses and take a third-quarter pretax charge of about $1.3 billion. Duke is shedding most of its wholesale power business as it expands its traditional utility operations through a planned $8.98 billion acquisition of Cinergy Corp.
Duke started paring its wholesale power business after the bankruptcy of Enron Corp. in December 2001 and the ensuing collapse of the wholesale electricity markets and related trading business. Government investigations into trading practices followed, which resulted in criminal indictments that furthered soured Duke on the trading business. In the meantime, buyout firms, hedge funds and investment banks such as Goldman Sachs and Morgan Stanley have become much more active in buying power plants and trading electricity.

Following on this report from about a month ago, this Wall Street Journal ($) article reports this morning that Delta Airlines will pull the plug this week and file a chapter 11 reorganization case. Let’s hope that this prediction on the timing of the filing of the chapter 11 case is a bit better than this one, and that Delta’s stay in chapter 11 is bit shorter and more pleasant than this one.
Delta is certainly a prime candidate for reorganization. The airline has lost almost $10 billion since 2001, has debt of about $20 billion and expensive pension obligations. As of the end of this year, Delta faces $470 million in maturing debt, $550 million in interest payments, $460 million in operating lease payments and $135 million in pension payments. Not many companies have a spare $2 billion in cash laying around to spread around such obligations.

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Most folks who do not follow business closely are surprised to learn that Michael Dell has not been the chief executive officer of Round Rock, Texas-based Dell, Inc for almost two years now. This NY Times piece profiles Dell’s CEO, Kevin B. Rollins, and, although Mr. Dell is no longer CEO, it sounds as if Mr. Dell is still, might we say, “involved” in the company’s day-to-day operations:

[Messrs. Dell and Rollins] do work closely together, figuratively and literally. Their large wooden desks face one another in adjoining offices separated by a glass wall and a glass door. [EMC CEO Joseph] Tucci says he has visited those offices about 50 times and has never seen the door closed. “The way those two guys get along is not an act,” Mr. Tucci said. “I can start a conversation with Michael, and two weeks later finish it with Kevin. They know what each other is thinking.”