Record-setting TXU Buyout Includes Environmental Commitments

On Feb. 26, TXU Corp., Texas' largest electricity producer, announced it agreed to be sold to a group of private-equity firms for about $32 billion in what would be the largest private buyout in U.S. corporate history should shareholders and regulators approve the sale.

The agreement also includes a commitment to slash emissions of ozone-forming pollutants and carbon dioxide (CO2). While some environmentalists hailed the deal, others remain concerned that the new owners are still planning to build three generating units considered the dirtiest plants in its proposal.

The investors, led by Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (TPG), agreed to environmental commitments, including:

Planned Coal Units Reduced from 11 to Three: This scale-back represents a 75 percent reduction in new coal capacity. In addition, the company is committed to continuing its efforts to meaningfully reduce existing carbon dioxide emissions and seeks to join the United States Climate Action Partnership (USCAP). USCAP is a broad-based group of businesses and leading environmental groups organized to work with the president, Congress and all other stakeholders to enact an environmentally effective, economically sustainable and fair climate change program.

$400 Million Investment in Demand Side Management Initiatives: TXU will implement an aggressive demand reduction program through a $400 million investment in conservation and energy efficiency activities over the next five years.

Increased Commitment to Exploring Renewable Energy Sources and Investing in Alternative Energy Technologies: TXU will more than doubling its purchase of wind power to more than 1,500 mega watts (MW), maintaining its status as the largest buyer of wind power in Texas. TXU will also promote solar power through solar/photovoltaic rebates.

The company also intends to join the FutureGen Alliance, a non-profit consortium of companies supporting FutureGen, the U.S. Department of Energy project intended to create the world's first near-zero-emissions fossil-fuel power plant.

The transaction has been endorsed by Environmental Defense and Natural Resources Defense Council (NRDC).

Fred Krupp, president of Environmental Defense, said, "This is one of the most significant developments in America's fight against global warming. Environmental Defense commends KKR and TPG for not only dropping TXU's applications for eight proposed coal plants in Texas, but also for the many other commitments they have made to reduce air pollution and global warming emissions, including their support for a mandatory federal cap and trade program to regulate carbon emissions, doubling TXU's expenditures on efficiency measures and their overall desire to rebuild TXU as a leader in the clean energy economy."

The record-setting buyout sets a new benchmark in energy business strategy that will reverberate across the industry and throughout the corridors of Washington, D.C., according to NRDC experts from the Natural Resources Defense Council.

"This is the new standard by which new energy investments in this country are going to be measured," said David Hawkins, a former top EPA official and head of NRDC's climate program. "The smart money is now on clean energy and lower emissions. This is a breakthrough that will have lasting implications for future energy investments in this country and for the policymakers who set the rules of the road."

However, Tom "Smitty" Smith, director of Public Citizen's Texas Office, said that concerns remain about the deal, including whether the company will move forward on its six proposed nuclear plants.

For more information, contact TXU Corp. at http://www.txucorp.com.

This article originally appeared in the 02/01/2007 issue of Environmental Protection.

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