How Did Environmentalists Affect the TXU Deal?

A deal has been reached to sell TXU Corp., the Texas electrical utility, in a $32 billion buyout by private equity investors. The sale is dependent on the utility's scrapping plans for several coal-fired generating stations, a condition negotiated by environmental advocates.

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IRA FLATOW, host:

This is TALK OF THE NATION: SCIENCE FRIDAY. I'm Ira Flatow.

A little bit later in the hour, we'll be talking about the International Polar Year. But first we'll take a look at a landmark energy deal that's in the works in Texas. And if it goes through, it will be the largest leveraged buyout in U.S. history. But that's not what has most people talking - it's the decidedly green nature of the deal.

The utility company, TXU Corporation, will be taken over by a group of private investors. And the terms of the agreement include dropping plans to build eight of 11 so-called dirty coal-fired power plants, and instead reducing greenhouse gas emissions with increased investment in renewable energy, including Texas wind power. Texas leads the country and installed wind-powered generation. So how did this about-face happen? Does it signal a change for the future of coal-burning power plants not only in Texas, but around the country?

Joining us now to talk about the TXU deal is Wade Goodwin. He's a national correspondent for NPR in Dallas. Welcome to the program, Wade.

WADE GOODWIN: Well, thank you very much.

FLATOW: It's interesting that the Dallas is - the Mayor of Dallas has been on the forefront of having this occur, hasn't she?

GOODWIN: Yes, she's been leading the fight against the coal-burning plants. Dallas like Houston, is out of compliance with EPA regulations. Quality of life issues here are kind of moving increasingly to the political forefront. We're getting a lot of upper middle class and well-to-do families who are moving back into the city, and these are the people who are breathing the dirtiest air.

And so we already have 18 coal-burning plants in Texas. There was a proposal to put 19 more over the next five years, and this would have a significant impact on Dallas, Houston, Austin and Waco's air quality.

FLATOW: So what happened? How come there was an about-face and why - I understand that environmentalists were called in to help make the deal?

GOODWIN: Yeah, the environmentalists are enormously relieved. I mean they were staring down the barrel of these new coal plants. There was precious little they we're going to be able to do about it - the governor's office and state legislature in the hands of pro-business Republicans who are not sympathetic to the environmentalist and trees, whatsoever.

The key Texas regulators are appointed by the governor, so the environmentalists' only strategic recourse was going to be the courts. Maybe they could have reduced the number of the proposed plants by a little bit, but maybe not. And then like a bolt from the blue, here comes Kohlberg, Kravis and Robert and Texas Pacific Group who decided to by TXU.

And before they even do the deal, they fly the Texas environmentalists to San Francisco, let them sit down at the negotiating table, and have a say about what the energy future in Texas is going to look like. So you can imagine that in Austin, among the public interest groups, they have some pretty big smiles on their faces.

FLATOW: Yeah, even on the TXU Web page, they talk about, you know, dropping those power plants, $400 million investment in demand-side management initiatives, the endorsements of the environmental defense and Natural Resources Defense Council. Texas being, as I said before, a leader in wind power for the country, overcoming the lead California held for so many years. Are they going to get their energy they need that would have come from these coal-powered plants? Are they going to be investing on alternative energies?

GOODWIN: Well, I think they are. I mean I think, you know, David Bonderman, who heads Texas Pacific Group, is cut from a very different cloth than those who are currently running TXU. Bill Reilly, also with Texas Pacific, is a former administrator for the Environmental Protection Agency. I think they're bringing environmental sensibilities to bear and trying to be a role model. I think they're trying to have their vision for what responsible energy production - to be out there, this is the way you do it.

FLATOW: Could this deal have further reach than just Texas?

GOODWIN: Well, I think that's probably the question of the day. I mean first of all, what's going to happen as a result of this? They've taken eight coal plants off the table, but that still leaves 11 more coming to Texas, possibly. I mean this states still needs energy. Coal is plentiful. Coal is cheap.

And other companies can come in and begin building coal plants even if TXU is not. So what the end result of this is going to be is still very much in the air. But I think as far as being a role model, that's what KKR and Texas Pacific are trying to do.

FLATOW: And still some people, including your mayor in Dallas, think this deal didn't go far enough.

GOODWIN: Well, that's because there's no stopping other coal plants from coming in. And even if TXU isn't going to build them - and there's a lot of utility companies out there - Texas is a deregulated market. Since 1999, the customers' bills have gone up between 80 and 110 percent, and there's a lot of people. TXU made $2.5 billion in profits last year.

So, you know, the governor wanted to make sure that people understand that Texas is still very much open for business when it comes to having utilities companies come in and build coal-burning plants. And so we'll see what happens.

FLATOW: Well, how will we know? I mean is the deal done? What's going to take to wrap, you know, to dot the I's and put the - cross the T's on this?

GOODWIN: Well, I don't think we're done yet. I think that this could be the beginning of a bidding war. We'll have to see exactly. I mean, we're in the process right now. I talked to some of the players involved and this deal is not completely done yet.

I think it's moving toward being done, but I think it's still very much up -and the shareholders could be the biggest beneficiaries of all. If they get into a bidding war about this, the shareholders are going to be very happy.

FLATOW: I guess to make this work and to make the shareholders happy, there must have been assurances that this is going to be profitable. Even though it's going to be, you know, it's broken up and it's going to be green, it's going to be profitable.

GOODWIN: The deal on the table is 15 percent over the stock closing price. I believe it was February 23, and that's kind of - that's the jumping-off point. So I think shareholders are - I think that's the beginning point. Who knows where the end point will be? But maybe that would be the end point, but still there's going to be a lot of people making quite a bit of money.

FLATOW: All right. I want to thank you very much for taking time to talk with us, Wade.

GOODWIN: It's my pleasure.

FLATOW: And we'll keep an eye on this and see what kind of repercussions and maybe get back to you.

GOODWIN: Yes, it's something that's still unfolding, I believe.

(Soundbite of laughter)

FLATOW: You bet ya'. Wade Goodwin, national correspondent for NPR News in Dallas, Texas.

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