Bridge Builders Award
TPG Capital, Kohlberg Kravis Roberts & Co., Environmental Defense Fund and Natural Resources Defense Council for collaborating during the $45 billion buyout of TXU Corp on an environmentally-conscious pact, which will reposition the embattled power company, now Energy Future Holdings, Corp., as the new model for environmental responsibility.In the fall of 2006, Henry Kravis of Kohlberg Kravis Roberts & Co. (KKR) and David Bonderman of TPG Capital, LP (TPG) proposed to John Wilder, the chairman of Texas Utilities (TXU), that the investment firms acquire and take private TXU, the largest electricity-generating company in Texas. TXU had been a star performer for its shareholders, but was the object of anger by ratepayers and environmentalists, especially in regards to its plans to build fourteen new coal-fired power plants. The investors, joined by Goldman Sachs, concluded that they would not proceed without the active support of the environmental community.
TPG Senior Advisor and former Administrator of the U.S. Environmental Protection Agency, William K. Reilly, oversaw the negotiations with the environmentalists in what was to be the largest private equity deal in history at that time, at $45 billion. Reilly contacted the Natural Resources Defense Council (NRDC) and Environmental Defense Fund (EDF), both of whom had strong public positions critical of TXU. Through lengthy and strenuous deliberations between the financiers and environmental organizations, the finance groups, among other actions, agreed to scrap eleven of the coal-fired power plants in return for environmentalists’ agreement to support build-out of the remaining three; promised a significant reduction of SO2, NOX and mercury in all 18 existing TXU facilities and to apply for membership in the United States Climate Action Partnership; and committed to spend $400 million on energy efficiency to bring down the CO2 growth rate and energy use over the next five years and to make TXU the largest purchaser of wind power in Texas.
Ultimately, what this deal signifies is that utility companies and environmentalists will now be able not only to continue to meet energy demands of consumers, but do so in a moderate and responsible way. As the public sector struggles to enact widespread climate policy, deals such as this one between major utilities and large private equity financiers that engage on the climate issue in such a significant and innovative way show that key sectors of energy, financial and environmental NGOs are prepared to enter a new and promising era.