Whether it is called venture or ‘vulture’ capitalism is a matter of perspective -- and a central point of discussion in this year’s presidential race. With the Republican primaries underway and with hard-hit South Carolina up next, the issue is center stage as Mitt Romney’s foes try to bring him down a notch.

American energy companies have had a close up look at what the general electorate is now seeing. In the spotlight is the private equity firm Bain Capital, which Romney founded and ran in the 1980s and 1990s. Such businesses seek to increase the value of their takeover targets. To do so, they don’t just provide money but they also streamline those companies -- a process that can cost jobs.

Attracting capital is no small task. As such, utilities have to consider all options --including those beyond the traditional debt and equity markets. Private equity firms are good prospects: They have the cash and they seek productive assets. Utilities, meantime, are short infrastructure and need solid partners.

Managers of private capital firms say that they make the necessary investments to sustain companies. The Private Equity Growth Council says that its members invested $148 billion in more than 1,200 enterprises in 2010. “While the business model has evolved over time, the fact of the matter is private equity provides capital and operational expertise to companies that are often underperforming or on the brink of failure,” says Steve Judge, interim head of the equity council.

Critics, however, are questioning their level of dedication. They argue that workers get fired to help pay for the purchases while assets are flipped before promises are fulfilled. Studies are conflicted as to whether private equity firms tend to lay off more people than base-case businesses, although many economists would argue that the long-term benefit of restructuring creates stronger enterprises.

Cutting Jobs

Private equity is now active in the utility sphere. KKR and TPG paid $45 billion in 2007 for Dallas-based TXU in what has been the largest private transaction to date. Another private consortium that included Goldman Sachs, meantime, bought Kinder Morgan for $22 billion in 2006. In 2011, Kinder went public again, raising $2.9 billion.

Also, Warren Buffett's Berkshire Hathaway acquired PacifiCorp in 2005 from ScottishPower for $9.4 billion. The same group in 2000 purchased MidAmerican Energy Holdings, in what was at the time an anomaly. Meantime, a consortium led by Macquarie Infrastructure Partners acquired in 2007 Washington State-based Puget Energy for $3.5 billion. Macquarie, Australia’s largest investment bank, also bought Pittsburgh-based Duquesne Light Holdings in 2007 for $1.6 billion.

Those private firms have been able to get favorable financing to allow for the expansion and the construction of infrastructure. Consider KKR's acquisition of ITC Holdings, an electric transmission company in Michigan. When KKR bought the company in 2002, ITC had a budget of $10 million and employed 38 people. Now, though, ITC has a budget of $400 million and employs 230 people, and millions have been invested in upgrading the transmission system.

Skepticism, however, still abounds. The Saguaro Utility Group consisting of JP Morgan Partners and KKR offered in 2003 nearly $3 billion for Tucson-based UniSource, while also promising to make $1.5 billion in upgrades. But regulators were unconvinced that customers would benefit. They were furthermore concerned that the new directors lacked utility experience and that the owners would milk the business before selling it after a few years.

In cases where the buy-out firm has taken on lots of debt, pressure exists to cut jobs, which is counter-intuitive to the notion of building long-term value. The Service Employees International Union says private equity execs are putting millions in their own pockets to the detriment of the rank-and-file. It points to Bain Capital's purchase of KB Toys, which eventually went bankrupt after Bain had collected huge fees.

Romney “has a long history of looking out for the interests of rich corporate executives at the expense of working people,” says Mary Kay Henry, president of the union.

Most businesses need access to the capital markets where they can obtain the funds to do research and development, buy equipment and hire workers. But the pressures associated with quarterly reporting as well as the rules tied to accounting and corporate governance are often intense. Enter private equity, which is not always welcome and which is now certainly under the microscope.

EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

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