14 October, 2002 – In the wake of British Energy’s government bailout and Powergen’s decision to shut a quarter of its UK generating capacity, US utility giant TXU has said it is cutting off its European and UK units’ cash supply and will be looking for a buyer for the loss-making operations.
TXU said it would no longer give its European subsidiaries the $700m it had promised. Last week TXU’s board cut its quarterly dividend by 80 per cent in order maintain the financial strength of the company after rating agencies had raised concerns over the form’s liquidity.
About two thirds of its European operations are in the UK which have suffered from the collapse in wholesale electricity prices. TXU buys electricity from six generators at fixed prices and sells to about 5.5m customers and the market.
TXU needs to find £400m ($624m) a year for the next four tears to fund these contracts. The $700m lifeline from its Texas-based parent would have covered a third of the costs.
TXU will now be looking to renegotiate contracts where possible and seek extra time to meet its obligations from suppliers. If the generators refuse to alter terms TXU could face closure in the UK.
While announcing the dividend cut TXU said that in Europe it would, “continue to aggressively address existing plans to reduce costs, restructure purchase power agreements and otherwise improve and maintain the business as an ongoing operation. TXU Europe, in parallel, is also offering for sale all or portions of its business.”
Powergen, one of its suppliers, is thought to be a possible suitor. Over the weekend, the Mail on Sunday reported that its chairman, Ed Wallis, warned the government that up to ten power plants must be axed to end the turmoil within the sector. Powergen last week mothballed two of its units.
TXU provides electric and natural gas services, merchant energy trading, energy marketing, energy delivery, telecommunications, and energy-related services. With $41 billion in assets, TXU is one of the most influential energy companies in the world. TXU is a leading energy retailer in the US and one of the largest in the world. TXU owns or controls extensive competitive generation around the world.