Bought-out TXU scraps plans for 8 coal plants, but environmental concerns remain

In what some environmentalists are hailing as a big victory in the fight to curb global warming pollution, the board of TXU Corp. this week accepted an offer to sell the Dallas-based energy giant to private investors and cancel plans to build eight of 11 proposed coal-fired power plants across Texas.

The company yesterday announced a merger agreement in which an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group, two of the nation's leading private equity firms, will acquire TXU in a transaction valued at $45 billion -- the biggest-ever leveraged buyout, Bloomberg News reports. Said TXU in a press statement:

As a result of this transaction, the newly privatized company will deliver price cuts and price protection benefits to electric customers, strengthen environmental policies, make significant investments in alternative energy and institute corporate policies tied to climate stewardship.

Environmental Defense and the Natural Resources Defense Council -- influential, well-heeled nonprofits that opposed TXU's coal-burning expansion plans -- helped negotiate environmental concessions as part of the buyout deal. They were approached about two weeks ago by William Reilly, former administrator of the Environmental Protection Agency under President George H.W. Bush, who asked for the groups' support in exchange for the concessions, the New York Times reports.

Besides terminating plans for eight of the 11 coal-fired power plants TXU proposed for Texas, those concessions include halting the company's plans to expand coal operations in other states; endorsing the U.S. Climate Action Partnership platform, including the call for a mandatory federal cap on carbon emissions; and reducing the company's carbon dioxide emissions to 1990 levels by 2020.

TXU also pledged to promote demand-side management programs to reduce energy consumption, double the company's expenditures on energy efficiency measures and wind power purchases, honor TXU's agreements to cut emissions of criteria air pollutants in Texas by 20 percent, and establish a Sustainable Energy Advisory Board. In exchange, the organizations will settle lawsuits blocking TXU's plans.

Environmental Defense President Fred Krupp issued a statement calling the deal "a watershed moment in America's fight against global warming," while NRDC President Frances Beinecke said in a press release:

This turnaround marks the beginning of a new, competitive focus on clean, efficient, renewable energy strategies to deliver the power we need while cutting global warming emissions. It is a big step forward for the State of Texas and for the American energy economy as a whole.

But other environmental advocates and TXU expansion-plan foes view the deal more skeptically. According to a statement from Tom "Smitty" Smith, the head of Public Citizen's Texas office:

TXU's ... decision not to build eight new plants and to help work toward global warming emissions caps is a huge victory, but the company is still planning to build the Oak Grove and Sandow plants, the three dirtiest plants in its proposal.

In addition, eight other plants have been proposed by other companies. We predict that they will now move their applications into the hearing stage, and the coal wars will continue.

Others involved in the fight against TXU's coal-fired plants were also angered by the agreement brokered by the two environmental giants, the Associated Press reports:

...[S]ome of TXU's critics were unhappy because the two groups agreed to a nonbinding deal that would let the new owners build three other coal plants, including two units called Oak Grove that could emit more mercury than the proposed plants that will be scrapped.

"Environmental Defense blessed those two stacks when they don't have the authority to do that," said Dallas Mayor Laura Miller. She leads a coalition of cities, including Houston, that opposes TXU's coal plants.

Public Citizen also raised a number of concerns about what the buyout deal might mean for consumers:

* Will this mean that the company will move forward on its six proposed nuclear plants?

* What will the deal mean to consumer prices? While the company promises a 10 percent reduction in prices, we think that the prices they are charging are about 30 percent above the prices charged by the neighboring co-ops and municipal utilities that buy the same energy.

* If the company buys TXU at the proposed price and then flips it in several years, the increased costs will have to be passed on to consumers. Regulators in Oregon and Arizona have recently blocked these types of leveraged buyouts because of these concerns.

Given those concerns, Public Citizen is calling on the Texas Legislature to authorize the state's Public Utility Commission to review the buyout and ensure that it will truly benefit consumers.