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Utility sale is boon for green activists

The largest such buyout ever, of Texas' TXU giant, includes benefits for consumers too.

February 26, 2007|Janet Wilson and Peter Pae | Times Staff Writers

Directors of the biggest utility in Texas, TXU Corp., agreed Sunday to a $45-billion buyout, with sweeping concessions for environmentalists and consumers, people involved in the deal said. It would be the largest such buyout by private investors.

The agreement calls for TXU to scrap highly controversial plans for eight new coal power plants in Texas, a promise not to build them in any other state, and a vow to double investments in wind and other alternative energy sources.

"The environmental commitments are unprecedented for a major supplier of electricity," said William K. Reilly, a former administrator of the Environmental Protection Agency and a senior advisor to one of the buyers, Texas Pacific Group.

Reilly confirmed the agreement. The company was expected to provide details of the deal today, including the final per-share price.

"The cooperation between the environmentalists and the investors has led us to expect a future that will be collaborative and history-making," said Reilly, who expects to serve on the new board of TXU.

An investment consortium consisting of Texas Pacific Group, Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. offered about $33 billion for TXU, plus the assumption of $12 billion in debt. The deal would surpass Blackstone Group's record-breaking buyout of Equity Office Properties Trust for $39 billion this month.

The buyout must be approved by shareholders and utility regulators, which is far from certain, experts said.

The deal includes a carrot aimed at winning regulatory approval: Consumers would receive an immediate 6% drop in electricity bills, with an additional 4% possible after the sale is completed, according to two sources close to the negotiations.

The new company would support a mandatory cap on carbon dioxide emissions. Coal-fired power plants are responsible for about a third of U.S. greenhouse gas emissions.

"To say TXU is just another company is like saying Muhammad Ali was just another boxer," said David Hawkins, director of the climate center at the Natural Resources Defense Council, who was recruited by Reilly two weeks ago to help hammer out a deal.

Jim Marston, a lawyer in the Texas office of Environmental Defense, a national environmental group that sued TXU to stop several coal-fired plants, met with Reilly and other investors for 17 hours Wednesday to reach an agreement.

"It's one thing for companies in California to take the lead in reducing pollution," Marston said.

"But this is Texas."

The buyout could face resistance from the Public Utility Commission of Texas, said Mark Williams of Boston University, an expert on the energy industry.

"I think this is going to be dead on arrival for them," Williams said.

"While the deal might be good for shareholders, it may not be good for customers."

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