Wednesday, April 11, 2007

Texas Property Rights At Risk With PUC Bill

Jim B. Cardle of Texas Citizen Action Network exposes the attack on property rights in the bill to re-review TXU buyout:

"SB 896 should be an affront to all believers in the free market ... Under this bill, the Legislature would retroactively give the PUC the ability to decide-kill-approve the private sector transaction."

TXU has put a media campaign an website and gotten James Baker to defend the buyout against this ex post facto assault on their prospective buyout deal. Texas' energy system, not just a buyout, are under attack, and shareholders and electricity cusomers alike could be the victims, since Texas' competition-oriented electricity system has been a success story:

Robert J. Michaels, professor of economics at Cal State-Fullerton, concluded that "Texas is competitive electricity's greatest success story in the United States, if not the world."

"Furthermore," wrote Michaels, "competition has brought substantial benefits to Texas in only a few years, both in absolute terms and relative to other states. Innovations planned for 2009 will further improve investment choices and power pricing, and institutions put in place by the Texas Public Utility Commission can sustain competitive markets into the future."

Dan Clifton, American Shareholders Association:

"When the Texas State Senate passed SB 896, retroactively changing the rules for an agreed upon purchase and sale between two private parties, Senators threatened to derail a significant investment opportunity for the state of Texas, took a swipe at the Texas Constitution, and initiated the first step towards lowering the value of your stock holdings in your 401(k) and pension holdings.

Article I, Section 16 of the Texas Constitution explicitly protects property rights from ex post facto laws impairing the obligation of contracts. But, that didn't stop the Senators, many of whom are Republicans, from trying to leverage their authority where it doesn't belong. Even if you haven't been following the proposed purchase of TXU by Kohlberg Kravis Roberts & Company and their partner Texas Pacific Group, the attempts by Senators to change the rules should concern you. Changing the rules in the middle of the game will slow future investments from being made and as a result the shares of potential stocks in future deals will immediately be reduced.

While the American Shareholders Association has a longstanding principle of not weighing in on company to company decisions, in this case we believe the consequences of interference proposed in SB 896 are so great the proposed legislation threatens all shareholders, not just TXU's and the private equity consortium. ASA makes no recommendation to TXU shareholders on the takeover itself, but we strongly oppose efforts of the state legislature to retroactively stop a private business transaction initiated in good faith.

Texas has a long, proud history of protecting the rights of property owners and the Senate thumbed its nose at both those rights, and at the private enterprise system which is the basis of our economy.

Passage of SB 896 or similar legislation will not just have the effect of killing this proposed buyout. This legislation has the potential for substantially slowing private equity throughout the country. Since private equity pays a huge premium to shareholders holding the stock of companies that means you will have less money for your savings. And with that come slower economic growth and a lower standard of living for all Americans. Over-regulation is not the answer to growing the state economy. Before big government politicians attempt to add SB 896 or similar legislation as an amendment to bills...I urge you to contact your lawmakers and tell him or her that the spirit of that measure does not fit with the spirit of Texas."

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