The record-setting $45 billion deal to sell a Texas utility carries lessons that power companies around the country would do well to heed.
Monday, investors formally announced an agreement to buy TXU, the largest power producer in Texas. The planned transaction was notable not only because it will be the largest leveraged buyout in history, but for its “green” elements as well.
The buyers made heads turn when they announced that as part of the sale, they promised environmentalists they’d scale back plans to build 11 controversial conventional coal plants, which spew greenhouse gases. In return, the interest groups pledged not to oppose the sale.
The private equity investors – Kohlberg Kravis Roberts & Company, Texas Pacific and others – surely were trying to avoid turbulence that could stall or jettison the deal. But they also were reacting to market concerns about coal-fired plant plans and acknowledging the likelihood that Congress will pass carbon-limiting legislation.
Federal lawmakers are lining up to propose laws this year to regulate carbon emissions that contribute to global warming and climate change. Coal-fired power plants, which emit 40 percent of U.S. carbon dioxide pollution, are likely to be a target of restrictions.
Sens. Jeff Bingaman, a New Mexico Democrat who chairs the Senate Committee on Energy and Natural Resources, and Barbara Boxer, a California Democrat who chairs the Senate Committee on Environment and Public Works, have publicly warned utilities against rushing to get coal-fired plants off the drawing board in advance of legislation.
By getting out in front of congressional action and backing away from TXU’s philosophy of looking to coal-fired plants for future power needs, the prospective buyers are fostering an environmentally conscious image as well as doing the right thing.
It is a savvy move that other utilities, including those in Colorado, might look to for inspiration. Last week, Denver Post writer Steve Raabe reported that several rural electric co-ops and government officials were objecting to Tri-State Generation and Transmission’s plans to build three coal- fired generation plants. The Westminster- based wholesale electric supplier, which delivers electricity to member systems in Colorado, Nebraska, New Mexico and Wyoming, plans to spend $5 billion on new coal- fired plants, two in Kansas and one in Colorado.
At least one Colorado co-op had refused to sign a power delivery contract extension in protest of the plans. Opponents say Tri-State ought to focus on renewables and conservation. Tri-State officials said the coal-fired plant plans are a backstop in case renewables and other measures don’t pan out. (Xcel Energy, which provides electricity to 1.3 million customers in Colorado, recently announced plans to build an environmentally friendly coal gasification plant. But the company also faces environmental opposition for the construction of the Comanche 3 plant, a conventional coal-fired plant near Pueblo to be finished in 2009).
It’s clear the problems posed by climate change are going to require a host of difficult choices. Taking steps to limit the building of new coal-fired power plants is an important part of the puzzle.
