Power Energy USA

Energy Future Holdings Corp., the Texas power company that plans to leave bankruptcy in less than a year, can’t reduce its $50 billion in debt without fighting junior creditors who face losing their investment.

The Dallas-based electricity provider, taken private seven years ago by Henry Kravis and David Bonderman in a record leveraged buyout, filed for bankruptcy today in Wilmington, Delaware, after months of wrangling among creditors, owners and management yielded a restructuring proposal.

Second-lien noteholders owed about $1.6 billion say they were shut out of those talks and want court permission to probe what they call management’s “disabling conflicts of interest.” They also want the case moved to Texas.

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“We are excited to welcome Cirro Energy customers to the NRG family,” Elizabeth Killinger, president of NRG Retail Texas, said in a statement.

NRG Energy Inc. (NYSE: NRG) is expanding its nationwide reach by buying the retail electric business of Virginia-based Dominion Resources Inc. (NYSE: D) and California-based Edison Mission Energy, a subsidiary of Edison International (NYSE: EIX).

NRG, which has dual headquarters in Houston and New Jersey, is gaining a larger Texas presence, while also taking over much of Virginia-based Dominion’s northeastern business. The acquisition of Dominion Resources’ retail electric business includes the Plano-based Cirro Energy brand in Texas.

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The world’s biggest private equity deal is facing rising financial pressure during the next two years with the expiry of contracts that underpinned the takeover of utility TXU.

Investors in the $45bn buyout of the company, now known as Energy Future Holdings, fear a sharp drop in revenue as hedges that protected it from a fall in natural gas prices that are used to determine electricity charges in its home state of Texas progressively expire by 2014.

Since the deal was signed, the US energy industry has been transformed by the application of new drilling techniques to huge deposits of natural gas locked in shale rock formations from Texas to Pennsylvania

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As if we needed another sign that the biggest buyout in history was a colossal flop, even the Oracle of Omaha is eating crow. Warren Buffett, in his annual letter to shareholders of his company, Berkshire Hathaway, warned that weak natural gas prices could “virtually wipe out” the $2 billion worth of bonds he purchased in Energy Futures Holdings.

Berkshire bought the bonds in 2007, after the Dallas-based utility, then known as TXU,  was taken private by KKR and TPG, two private equity firms, in a $43.2 billion deal.

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Residential customers attracted to lower price options are defecting from TXU Energy Retail Co. LLC, but the company says it won’t chase prices and argues that its focus on service and durability will prevail in Texas’ competitive deregulated electricity market.

Irving-based TXU, a subsidiary of Energy Future Holdings Corp., is the biggest retail electricity supplier in Texas with 1.7 million residential customers. The former regulated utility has seen that number decline from nearly 2.5 million since the state opened the market to competition in 2002, including a 6 percent drop this year.

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