Green Groups give surprise green thumbs-up to TXU deal

TXU bidders get acquisition buy-in from environmental groups
by Monica Perin - Houston Business Journal - March 2, 2007

Two of the nation's biggest private equity firms were hammering out a multibillion-dollar deal to buy Dallas-based utility TXU Corp. when they took an unusual step.

They invited a couple of high-profile environmental groups to join them at the negotiating table.

And then they agreed to most of what Environmental Defense and the Natural Resources Defense Council wanted them to do in order for those "green" groups to support the acquisition.

"This is a watershed moment in America's fight against global warming," Fred Krupp, president of Environmental Defense, said of the terms of the $45 billion buyout of TXU by New York-based Kohlberg Kravis Roberts & Co. and Fort Worth-based Texas Pacific Group, announced Feb. 25.

And in a media conference call this week, David Hawkins, director of the Natural Resources Defense Council's Climate Change Center, said: "The decision by the buyers to reach out to our organization reflects a conclusion by the business community that they simply cannot ignore global warming and come up with sound business strategies."

He termed the buyout deal and the "turnaround" in TXU's position "an earthquake in Texas with shockwaves that will be felt from Wall Street to Washington, D.C."

"This company was opposing global warming controls and is now supporting them," Hawkins said. "It was proposing to build thousands of megawatts of coal plants and has now cut 75 percent of them. It's a company that was lukewarm about energy efficiency and renewable energy and is now embracing those resources as a core strategy."

The buyers first called the two environmental groups on Feb. 19.

Jim Marston, the Texas-based regional director of Environmental Defense, was the sole environmental player present in California on Feb. 21 when the first meeting between the buyers and environmentalists took place. The other environmentalists participated by phone.

"They (the buyers) had reached a point where they were going to make the deal public and they wanted to be a 'green' company and they didn't want to be dealing with a bunch of lawsuits. So they brought us in at that point," says Jennifer Dickson, an Environmental Defense staffer in Austin. "We had launched a big advertising campaign against (TXU) and this was becoming very visible. It was definitely damaging the brand of TXU. They were spending millions on lawyers and advertising."

But in the end it wasn't TXU's current management -- which the environmental groups had previously tried unsuccessfully to engage -- that called them in. It was the new owners, who turned out to have some solid "green" credentials in their backgrounds.

David Bonderman, a founding partner of Texas Pacific Group, is a longtime board member of the World Wildlife Federation, while William Reilly, former Environmental Protection Agency administrator and chief negotiator for the buyers, is the federation's chairman emeritus.

Reilly, says Dickson, has had a long relationship with Marston and Hawkins. Under the agreement, Reilly will join TXU's board of directors and will lead the company's efforts toward making climate stewardship a central issue.

"We were surprised" when the buyers called, Dickson says, although the organization's leaders fully expected TXU eventually would have to deal with the growing opposition to its proposed coal plants.

Green business group says its work not done

by Margaret Allen - Special to Houston Business Journal - March 2, 2007

Texas Business for Clean Air was formed by three Dallas businessmen in December to fight for clean air in North Texas. The 200-member group advocates for energy efficiency and protests construction of new coal plants using old technology -- particularly the 11 proposed by TXU Corp., now trimmed to three.

New York-based Kohlberg Kravis Roberts & Co. and Fort Worth-based Texas Pacific Group announced this week that they will pay $45 billion to acquire TXU and take the electricity giant private.

Days after the announcement, the Dallas Business Journal, a sister paper of Houston Business Journal, interviewed the co-chairmen of the clean-air group, David Litman, Internet business guru and founder of www.consumerclub.com, and Garrett Boone, co-chairman and founder of Dallas-based The Container Store.

DBJ: What's your reaction to TXU's possible acquisition and its plan to slash the number of coal plants it will build?

DAVID LITMAN: We're thrilled that eight coal-fired power plants have been taken off the table. We're also pleased the projected new owners seem to be sensitive to business and environmental concerns, especially concerning clean air. But we have to look at the plants that are being constructed, and we have to examine the details of those. There are many unanswered questions.

DBJ: TXU argued the coal plants are needed to meet future demand. Do you agree?

LITMAN: Texas was facing a shortfall of peak-load capacity, according to the Electric Reliability Council of Texas, starting in the years 2008 and 2009. Let's just take the old TXU plan: It didn't address those years. The plants weren't scheduled to be built and online until 2010. We had thoughts on how to deal with that.

DBJ: How?

LITMAN: First, 3,000 megawatts of capacity in brand new gas-fired power plants near Houston have been mothballed. Those could be used to generate peak load because they can be fired up quickly and brought down quickly. That's not the case with base-load generation like coal and nuclear.

Secondly, there are a number of efficiency measures we can undertake with regard to electric use. There are many examples. Two include interruptible load, in which industrial concerns allow their electric supply to be interrupted in exchange for a lower electricity rate during the year. Texas already has 1,100 megawatts of that. Before deregulation, we had over 3,000 megawatts. We think it would not be difficult to increase that capacity during peak periods.

Also, we could install intelligent metering in homes and businesses so consumers know every 15 minutes what the cost of their power is. During peak times, they reduce usage. That reduces peak demand, which is the most expensive, because right now we're building plants to run literally just a handful of days a year.

DBJ: Would that require the Texas Legislature to act?

GARRETT BOONE: I'm not sure it needs to be mandated so much as facilitated. Also, we're not anti-coal, but we want to minimize coal and maximize energy efficiency. It's possible it could be done by developing technology that could be exported to India and China and the rest of the world, where they're opening a new coal plant a week.

DBJ: The Texas Association of Business favored TXU's plan. Are you at odds with them?

Big guns used to kill electric utility reform

Lobby group that opposed the legislation
included many with friends in high places

By R.G. RATCLIFFE - Copyright 2007 Houston Chronicle Austin Bureau - June 1, 2007

AUSTIN — The lobbying that weakened and ultimately killed electric utility reform, clean-air legislation and regulation of the $45 billion buyout of TXU
Corp. during the recent legislative session was a friend and family affair.

The public focus of the legislation has been on high electric rates and the
multibillion-dollar buyout of TXU Corp. in Dallas. Lawmakers wanted to rein in high electric bills while the state's utilities fought anything that resembled renewed government control of a market that was deregulated in 1999.

The utility lobby groups, with 90 registered lobbyists, included a former business adviser to Lt. Gov. David Dewhurst, the brother of Dewhurst's chief of staff, the son of Speaker Tom Craddick's next-door neighbor and a pair of
political consultants who have helped at least a third of the Legislature win
office.

And that does not mention the fact the teams also included eight former
legislators, former Dallas Mayor Ron Kirk, a former Texas secretary of state and
former Texas Railroad Commission Chairman Barry Williamson.

The board of directors for the proposed new TXU also has influence in Austin:

•Former U.S. Secretary of Commerce Don Evans is from Midland and is a longtime Craddick friend.
•Plains National Bank Chairman James Huffines was finance chairman of Gov. Rick Perry's 2006 re-election campaign.
•And former Ambassador to Sweden Lyndon Olson is a prominent Waco Democrat who has helped finance a political committee run by House Democratic Caucus Chairman Jim Dunnam.
"Where things fell apart is where they often do: in the dark rooms and back
halls of the Capitol," said Tom "Smitty" Smith of Public Citizen, one of the
groups pushing for reform. "We don't know whose fingerprints are on the razor."

Effect of buyout move
The legislative session opened in January with lawmakers taking aim at high
electric rates. Environmental groups were fighting plans for a major expansion
of coal-fired electricity-generating plants in Texas, including 11 units proposed by TXU.
Everything suddenly changed in February with the announcement that TXU was being
bought out by an investor group led by Kolberg Kravis Roberts & Co. of New York and Fort Worth-based The Texas Pacific Group.

To get environmentalists on board, the investor group agreed to withdraw permit
requests for eight of the coal-fired generating units.

The buyout also upset plans by Sen. Troy Fraser, R-Horseshoe Bay, and Rep. Phil King, R-Weatherford, to take control of rising electric rates because their legislation was based on a TXU business structure that would be altered by the buyout.

In new legislation, Fraser wanted to force the TXU buyers to sell off the
generating and transmission companies so they would be separate from the retail
provider. He also wanted restrictions so no company could generate more than 30
percent of the power in any area of the state. The Public Utility Commission
would have authority to review the TXU buyout.

A series of bills was designed to meet these goals.

The TXU buyers opposed any legislation that would force them to break the
company up, Fraser and King said.

The legislative package seemed to be on track until it reached a House-Senate
conference committee about three weeks before the end of the session. Suddenly, Sens. Chris Harris, R-Arlington, and Kim Brimer, R-Fort Worth, took up the cause of the TXU buyers opposing the forced sale of company assets.

King and Rep. Sylvester Turner, D-Houston, said Dewhurst then stepped in to save
whatever legislation was going to pass. However, the lobby teams also appeared
to have an inside track with Dewhurst, who had made his fortune in the electric cogeneration business.
Dewhurst's former chief of staff, Bruce Gibson, had gone to work for TXU as a
policy adviser.

Dewhurst denies influence
Dewhurst's one-time business adviser, former PUC Chairman Dennis Thomas, was on
the TXU lobby team. His current chief of staff, Rob Johnson, had a brother on
the lobby team of NRG Energy Inc., a generating company with interests in the
bill.
Dewhurst said he was completely unmoved by any outside influences.

King said negotiators heard that Perry would veto any bill that required TXU to
sell off divisions.

The compromise, Senate Bill 482, dropped PUC review of the buyout, the market-production limits and the requirements that TXU break up the company.

But TXU would have to operate its divisions separately with "firewall" protections. A new standard of $1-million-a-day fines for market manipulation would have been established, with company executives facing possible felony charges for violations.

And consumers would be given a 10 percent rate cut if they were still on the
most expensive electric rate plans.

The compromise did not include a 15 percent rate cut sought by Democrats or
additional air-quality requirements for coal plants.


The bill's final moments
On the Saturday before the session ended, TXU and the buyers pulled their
lobbyists from the Capitol and assured Dewhurst and Craddick that they were not
going to try to kill the bill. A perception exists, however, that that was for
show.
"That's when they (TXU and the buyers) decided to kill the bill Sunday or
Monday," King said. "They're the only ones that benefited by there not being a
bill."

House Democratic Chairman Dunnam began working to kill the bill on parliamentary points of order and succeeded in the Legislature's final minutes. Dunnam said he opposed the legislation because it did not provide "meaningful" rate cuts and did nothing to lower emissions at the proposed coal plants.

Read more