The Time's Right for TXU

In Texas, electricity rates are pegged to natural gas prices. When commodity prices were high in 2005, TXU locked its rates to $11.30 per million BTU of natural gas. Prices then plunged, raising the chance that TXU will be forced to drop its rates.

"Even if TXU was clever at hedging its natural gas prices, it has become highly likely that customers and the state of Texas will demand that it lower its rates," said Seitz. Such a move will decrease TXU's earnings in the short term.

Additionally, TXU's stock price had come under pressure from increased attacks by environmental groups. The company had been betting that a program to build 11 coal-based power plants would ultimately spur growth, but the proposal drew enormous criticism from environmentalists, forcing TXU to extend the program's completion date.

TXU's buyers say they plan to cut the number of plants to three. The watchdog group Environmental Defense has been a major opponent to TXU's power-plant construction plan, and The New York Times said the move was meant to reach a truce with the group.

Regardless of any short-term difficulties, TXU remains well-positioned to enjoy future growth, according to Seitz. Ever-increasing demand for energy requires that the U.S. build new power plants. Ignoring near-term swings in the commodities markets, energy prices are growing steadily because of a general shortage of power in the U.S.