In a way, the same Wall Street leverage-buyout magnate that exceedingly overpaid for RJR Nabisco almost 20 years ago can be viewed as a savior with its even larger takeover bid for TXU Corporation (NYSE: TXU). Kohlberg Kravis Roberts & Co. (KKR) has teamed up with another private equity firm, Texas Pacific Group, to be the lead investors in a $32-billion deal for TXU, plus an assumed $13 billion in debt. In the process, the deal will prevent eight of the 11 proposed coal-fired power plants in TXU’s expansion plan from coming online. This translates into the prevention of 56 million tons of CO2 from being emitted into the atmosphere each year. Additionally, TXU indicated it will invest $400 million in conservation and energy efficiency over the next five years.
The environmental implications of this transaction are tremendous. TXU was facing increasing backlash from environmental organizations, yet seemed to be concerned more about scheduled delays and rising construction costs. It is not yet clear how KKR and the restplan to restructure TXU (as is usually done in large-scale LBO deals), but the precedent has now been set. Says Peter Altman, Coal Campaign Director of the National Environmental Trust, “The TXU deal shatters the aura of invincibility many coal plant developers have assumed, by showing that the growing extent and diversity of opposition can stop plants that will make global warming worse."
But is this deal really a sign of progress….or just a prevention of regress? Plans for eleven new coal-fired plants are quite unusual, even for such a large utility. Scaling it down to three plants just puts the same plan onto a more common ground. These three new plants are not suddenly going to emit less carbon than before.
Let’s take a look at the most recent list of proposed coal-fired plants from U.S. utilities. There are still 94 gigawatts of power generated from coal to be installed. As the dirtiest form of power generation, these projects will only accelerate damage that has already been done…should they be approved.
It is with great hope that this landmark deal in the private equity world will also translate into being a landmark deal for our planet. Hopefully similar expansion plans in the future will now face increased legislative roadblocks. A positive sign is the denial by the Texas state legislature of Governor Rick Perry’s requests to fast-track the permitting process (from eighteen months to six) for these plants.
We salute the KKR team for filibustering these plans, but we must realize that we have a ways to go before tangible progress is made. Michael Brune, executive director of Rainforest Action Network said, "As far as TXU goes, we think they haven't gone far enough. If you are really serious about climate change, you would not consider building new coal plants."
A tangible step forward would be when proposals for wind farms or other means of alternative generation outnumber those for coal-powered plants. FPL Group (NYSE: FPL), the parent company of utility Florida Power & Light, is among the U.S. leaders in the wind industry. Other utilities have since gotten on board too. In the meantime, let’s keep from building excessive amounts of coal-powered generation. It’s for the good of all of us.
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