In buyout, Texas utility would limit coal plants
 
Feb 26, 2007 - International Herald Tribune
Author(s): Felicity Barringer And Andrew Ross Sorkin

Matthew L. Wald contributed reporting from Washington.

 

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A team of private-equity firms has proposed a $45 billion buyout of TXU on condition that the company, a Texas utility, abandon plans to build 8 of 11 coal plants and commit to a broad menu of environmental measures, according to people involved in the negotiations.

 

The roster of commitments came through an unusual process in which the equity firms asked two prominent environmental groups what measures could be taken to win their support. The result is an about- face from the company's earlier approach to climate-change issues, and includes a goal of returning the carbon dioxide emissions of TXU, long a bane of environmental groups, to 1990 levels by 2020.

 

Environmental groups said Saturday that they had never known of a financial deal with such an ambitious built-in environmental component.

 

Two private equity firms, Kohlberg Kravis Roberts and Texas Pacific Group, have proposed to buy TXU in what would become the largest leveraged buyout ever. The transaction was scheduled to be put to the TXU board for a vote on Sunday. People involved in the negotiations said that Goldman Sachs, an adviser and lender to the buyers, helped broker peace with environmental groups and sought their support for the transaction. Goldman Sachs has been one of the most aggressive firms on Wall Street in taking action on climate change; the company sends its bankers home at night in hybrid limousines.

 

For the investor groups, the effort was as much about making a sound business decision to ensure the deal's completion as it was about any environmental concerns. By bringing the environmental groups into the process, the buyers may have helped avert years of costly litigation over emissions from their plants.

 

But they might also have raised new questions about how they would meet the energy needs that TXU intended to address by building all 11 plants.

 

Environmentalists said that they hoped that the TXU deal would represent a turning point in the attitude of energy businesses as they adjusted to what many anticipated would be a new regulatory and public relations landscape in an era of climate change.

 

"We have history's largest purchase of a power company, with the new owners wanting to move the company in a direction that is consistent with a world that takes global warming seriously," said David Hawkins of the Natural Resources Defense Council, one of the two environmental groups invited to the negotiations. That group, and the other participant, Environmental Defense, which often use the courts to confront businesses, have been persistent critics of TXU. The commitments highlight the uncertainty for utilities that are considering building coal-fired plants. They do not know if such plants will be protected by the Congress and excluded from future restrictions on carbon-dioxide emissions, or whether anything they build now will have to operate in a starkly different regulatory environment.

 

 

Under the plan, TXU would discard the plans for eight of 11 proposed new coal plants, which would have been major new sources of emissions. Those plants, which would have added more than 9,000 megawatts of new capacity, the equivalent of 3.5 percent of current U.S. coal-fired power, had been part of a planned $10 billion expansion of coal-fired electricity.

 

TXU, based in Dallas, also intended to expand the renewable energy portion of its portfolio and reduce or offset its emissions significantly, said people who were familiar with the plans. Less than a week ago, according to Fred Krupp, president of Environmental Defense, the two environmental groups were approached by representatives of the private-equity buyers. He said he had received a call from William Reilly, a former Environmental Protection Agency administrator, who is advising Texas Pacific Group.

 

Hawkins, who runs the climate-change program for the Natural Resources Defense Council, said that the investment team was essentially asking "what would it take" to gain environmentalists' support.

 

James Marston, who runs the Texas energy program for Environmental Defense, called TXU's plans "a turning point in the fight against global warming." Marston had led an intense advertising campaign painting TXU as an environmental outlaw. But people familiar with the investors' thinking took pains to say that the investors brought the measures to the environmental groups, and were not acting out of any fear of the groups' potential to wage a legal and public relations campaign against them.

 

 


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