Coal-Fired Plants Scrapped as Part of Utility Deal

  • Playlist
  • Download
  • Embed
    Embed <iframe src="http://www.npr.org/player/embed/7615613/7615614" width="100%" height="290" frameborder="0" scrolling="no">
  • Transcript

The largest electric utility in Texas, TXU Corp., has agreed to be sold for $32 billion to a group of private-equity firms. In a nod to environmentalists, the utility's new owners would drop plans to build 8 of 11 proposed new coal-burning power plants and make other environmental concessions.

RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep.

Some states are moving ahead of the federal government in attacking global climate change. The governors of five Western states agreed to act on their own. The governors represent Arizona, California, New Mexico, Oregon and Washington State. They've agreed to develop a regional target to lower gases like carbon dioxide that are linked to global warming. This issue has taken on political urgency in Western states. The region has suffered from drought and severe fire seasons. And whether those particular events are linked to global warming or not, they have heightened people's sensitivity to the issue.

MONTAGNE: The last several days have been very rewarding for people who want the country to take climate change more seriously. In addition to the governors' pact, the documentary featuring Al Gore's global warming warning won an Oscar on Sunday.

And as NPR's Elizabeth Shogren reports, the sale of a huge Texas power company is perhaps the biggest signal that the momentum is building for action on climate change.

ELIZABETH SHOGREN: For environmentalists, TXU Corporation - the largest electricity producer in Texas - has symbolized the country's refusal to face up to the challenge of climate change. The company wanted to build 11 new coal-fired power plants, which would have caused a major increase in greenhouse gas emissions. Now TXU's owners want to sell the company to investors with very different ideas.

David Hawkins, from the Natural Resources Defense Council, says the sale will turn a foe into an ally.

Mr. DAVID HAWKINS (Natural Resources Defense Council): We have the largest power company in Texas doing a u-turn on global warming policy. TXU in the past has been one of the vocal opponents of doing anything about global warming, and now they are going to become a company that is going to be arguing that Congress needs to act on global warming.

SHOGREN: When the investors were cooking up the deal, they asked Hawkins and a representative of the environmental group to help craft a new strategy for the company. One of the key players was William Reilly, who headed the Environmental Protection Agency under the first President Bush. He's a senior advisor to Texas Pacific Group, one of the investment companies that's agreed to buy TXU.

Mr. WILLIAM REILLEY (Senior Advisor, Texas Pacific Group; Former Director, EPA): We chose to bring them in and committed very early that without their cooperation and support, we would not do this investment.

SHOGREN: Reilley worked out the deal with environmentalists through a 13-hour negotiation. The buyers agreed to build three new coal-fired power plants instead of 11. They'll double their investment in wind power. They'll reduce the company's greenhouse gas emissions to 1990 levels by 2020, and they'll work to get Congress to approve legislation requiring nationwide emission cuts.

Some utility industry observers were skeptical. They say the only green in this deal is money.

James Lucier is an analyst for Prudential Equity Group.

Mr. JAMES LUCIER (Analyst, Prudential Equity Group): I think the environmental groups are being used as window dressing for a deal that's really driven by the strong economic fundamentals.

SHOGREN: Lucier says it was never clear that TXU would be allowed to build most of the 11 plants, and the three that are left are the ones the company really wanted. He says together with the company's other coal-fired power plants, they will make a lot of money.

Still, David Hawkins of NRDC says the role that environmentalists played was unique and significant.

Mr. HAWKINS: So this is a first, and not only is this perhaps the largest leveraged buyout, but it's probably the first and largest leveraged environmental deal in history.

SHOGREN: Hawkins says the deal reflects the changing attitudes about climate change. He says California is requiring greenhouse gas reductions across the board. Several northeastern states are working to reduce emissions from power plants, and just yesterday, four more Western governors pledged to join in.

Mr. HAWKINS: It's almost like the Reformation. There has been a shift that's very sudden. We are seeing the political system recognize that the time has come to deal with global warming, and we're seeing the business community realize that the time has come to take action. And once that realization takes place, then change can happen quite quickly. And that's what we're seeing.

SHOGREN: TXU's buyers say they want to be part of this trend. But first the deal will have to be approved by the company's shareholders and Texas regulators.

Elizabeth Shogren, NPR News, Washington.

Copyright © 2007 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.

At a Glance: The TXU Deal

Dallas-based TXU has agreed to be acquired by an investment group led by private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts.

Some news sources say the deal is valued at $45 billion, others say $32 billion. The higher value includes the amount of TXU debt that the buyers would take on. Subtract the debt and you arrive at a still-significant $32 billion payment, making the TXU deal the largest-ever private-equity deal — even with the debt excluded.

Joining the private-equity firms in the acquisition of TXU are Goldman Sachs Group, Morgan Stanley, Citigroup Inc. and Lehman Brothers Holdings Inc.

The investors will pay TXU shareholders $69.25 a share. That's a 15 percent premium to TXU's closing price on Friday.

In order to win regulatory approval, TXU's new ownership has promised to scrap eight of the 11 coal-fired electric power plants that the utility had planned to build. The private-equity firms worked with the Environmental Defense Fund and the Natural Resources Defense Council in order to gain their endorsements.

The cancellation of eight coal-fired power plants will prevent additional annual carbon emissions of 56 million tons, according to TXU's statement.

TXU is also pledging to support a mandatory cap and trade program aimed at regulating carbon emissions.

The new owners have promised to cut electricity rates by 10 percent. That adds up to $300 million of annual savings for residential consumers, according to a statement on TXU's Web site. This "price protection," as the company calls it, is good only through September 2008.

The proposed buyout still has to be approved by state regulatory officials and by TXU shareholders. Either one could prevent the deal from happening.

TXU will have 50 days to see rival bids. A bidding war could develop as other private-equity firms eye the opportunity.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.