Blackstone buying Dynegy: Deja Vu to next Energy Crisis
Saturday, August 14, 2010 at 7:46AM I hate when mistakes are so obviously repeated, yet no one seems to care. Yesterday, Blackstone announced it would take-over (i.e. take private) Houston-based energy company, Dynegy, in a $4.7 billion deal in which Blackstone would acquire $4 billion of Dynegy's debt, and Dynegy would sell 4 power plants to NRG, Energy Inc. Because of the sheer inability to look more than no steps in front of it, Congress left open a really important loophole (within a financial reform package comprised of loopholes) for certain private equity firms. They get to keep buying energy companies - they get to take them private, away from the eyes of regulators, and by doing so - they get to screw around with your lights.
About a decade ago, a little company called Enron (aka one of the fastest growing companies in the country in 1999) messed about with everything from unregulated energy derivatives to broadband to power grids. That didn't end well. And it wasn't just Enron - many energy companies participated in the great energy manipulation play at the turn of this century. I list them all and describe the repercussions in the 'Energy, Enron and Entropy' chapter in my first book, Other People's Money. The companies included Williams, El Paso, Reliant and Dynegy. Dynegy was also the hot potato between Enron and Citigroup - after a merger with Enron failed, Enron declared bankruptcy. The whole situation forced Citigroup's favorite former Treasury Secretary, Robert Rubin, to lob a call into the rating agencies to play down Enron's debt problems (no conflict of interest was ever determined, so what if Enron owed money to Citigroup).
At any rate, the Enron situation was caused by a severe lack of energy industry oversight (at the physical power grid and financial derivatives level), despite energy being something upon which each of us relies every day. And now, the non-introspective attitude of New York Times and other, journalists shows the Blackstone-Dynegy deal as just another smart financial play:
"Buyout firms have been seeking to put their billions of dollars in untapped investor capital to use. With banks openly seeking out deals to back once again, private equity firms have sought to step up their core business of acquiring and selling companies.
This type of depiction ignores the growing danger of this trend for the rest of us. Those smart firms - they used to dabble in energy, then moved over to housing, and now they're back to energy. Yet, each decision results in disaster for the rest of us. Plus, running energy companies in the dark, so to speak, is exactly what set us up for the Enron/Worldcom type fraud, disruption, bankruptcy and layoff cycle of 2001-2002. We are being set up again. Dynegy shareholders are getting some cash and some private equity firm will have control over its customers' energy demands and the related billing. Maybe Congress will pretend to do something about this in a few years, once it's over and the blackouts and related job cuts are behind us.
Reader Comments (3)
You must know the story of Cassandra: she was granted the gift of prophecy by Apollo because of her beauty. When she did not requite his love, however, he cursed her by not allowing anyone to believe her predictions.
My guess is you feel a lot like Cassandra, at least insofar as those in power seem not to believe you. I hope you don't get discouraged. My fear is that the enormous wealth that the Wall St. clique has purloined has made them a permanent aristocracy, with the means to pay for lobbyists, politicians, media, making them, well, permanent, and lethal to democracy.
Outstanding points, and how very unusual that in the very same legislation there is supposed to be some new form of "transparency" regarding the payments of oil, gas and mining companies.
From this Oxfam site below:
"Companies will be required to publicly disclose payments for the extraction of oil, gas, and minerals on a country-by-country and project basis as part of financial statements that are already required by the SEC. This not only includes American companies but also many foreign companies, such as Shell and BP, as well as companies from emerging markets such as China, India, Brazil, and Russia."
So, the private equity firms can purchase those companies, or financial funds, entities, etc. related thereof, and such transparency is rendered useless.
Which demonstrates the utmost importance and value of your remarks, Ms. Prins.
Perhaps this is simply the next step in the furthering of the consolidation of the bank-oil cartel?
Yes, I do see this as another step in the consolidation of the bank-oil, or more generally - the Big Finance-Energy cartel. The financial reform bill (at its tail-end) does require some extra information disclosure for oil and gas related issuance - but, this would only apply to public companies which would be under the SEC purview, not to privately raised investments. And, the bill also 'may' require larger private equity companies to register additional information with the SEC (such as amount of assets under management, leverage, counter-party credit risk, type of assets held, etc.). BUT, this still leaves the ability of private firms to actually take energy companies private wide open. In other words, while private equity companies 'may' have to report on how much capital they are using for various endeavors, nowhere is there a suggestion that the very nature and repercussions of their investment strategies be up for questioning or inspection.