Critics line up against TXU deal

Pundits are questioning the merits of the $45bn proposed buyout of Dallas, Texas-based utility company TXU by KKR, TPG, and Goldman Sachs.

As US environmental organisations clamour to praise the largest-ever proposed buyout and highlight their roles in brokering the related environmental concessions, public doubt has surfaced over the deal’s merits.

Following weeks of negotiations with environmental advocacy groups Natural Resource Defense Center and Environmental Defense, both longtime critics of the Dallas, Texas-based utility company TXU, the proposed $45 billion (€34.3 billion) buyout from KKR, TPG and Goldman Sachs includes an assortment of green-conscious initiatives.

The private equity firms said they would stop development plans on eight of 11 coal-fired power plants in TXU’s pipeline, reduce the company’s carbon emissions to 1990 levels by 2020 and endorse a federal carbon cap. Furthermore, their promises include the exploration of new coal generating technologies, devotion of $400 million to demand-side management initiatives and creation of a sustainable energy advisory board.

While environmental groups are claiming victory, detractors – notably members of the US financial and independent press – have questioned the transaction’s virtues.

In an editorial Tuesday, The Wall Street Journal noted many of the eight coal-fired power plants KKR and TPG have promised not to build would actually have replaced older, less efficient plants.

Additionally, some of the same environmental groups involved in negotiations for the deal noted at a Monday teleconference that the three plants TXU’s proposed new owners would build are some of the “dirtiest” of the 11 plants for which the utility company had announced plans in April. (Despite that, the groups said during the conference call that abandoning development plans for eight plants, coupled with a turnaround of TXU policies toward global warming, warrants their support.)

Skeptics have also alleged that the implementation of more environmentally conscious practices and a reduction in the number of planned plants could eventually lead to price increases, despite KKR and TPG’s initial promise to drop prices by 10 percent, and double investment in wind energy and energy efficiency.

And, The Wall Street Journal pointed out in its editorial, as Texas’ power demands catch up to capacity in the next couple of years, and electricity prices subsequently rise, the current push for greener energy and business practices may very well shift to a focus on increasing supply. At which point, those same power plant plans could theoretically come into play once again.

The Journal also drew attention to the ways in which the environmental groups have uniquely helped the private equity firms involved, both in making the buyout attractive and in selling it to the public. In the scenario laid out by the financial newspaper, campaigns led against TXU by groups like Environmental Defense effectively caused the firm’s stock prices to drop, and then later endorsed the buyout prior to the deal’s announcement, and launched their own PR campaigns proclaiming victory.

“There may even be a trend in the making here,” the Journal noted. “Environmental protesters bringing down a stock, making a private-equity transaction look more attractive, and in return, the equity firm and its management partners buy off the greens with this or that environmental promise.”

In a Tuesday morning interview with National Public Radio, Fred Krupp, president of Environmental Defense, denied having been co-opted or bought off by the private equity firms.

“Any time we deal with any company, we want to make sure that we are getting a substantial good result for the environment,” Krupp said. “We think this is a watershed and that this will help us get to the day where the nation enacts a cap on carbon pollution.”

In order to get some of the environmental concessions included in the buyout agreement, Krupp said, his organization agreed to settle a federal lawsuit they’d filed against TXU and its plans to develop the 11 coal-fired power plants.

“We also agreed to be positive about this transaction, which is easy for us to do given its environmental features,” he said. “And, finally, we agreed to introduce our new friends at the Texas Pacific Group and KKR to our old friends at Public Citizen and in Robertson County who are litigating the construction of two units that the new company is going to want to continue to construct.”