The Big Deal Goes Green

By Cathy Booth Thomas

Al Gore, take another bow. Hollywood is not the only place concerned about global warming. Now Wall Street is worried too. On Feb. 25, the Texas utility TXU Corp. agreed to a proposed $45 billion buyout--the biggest deal ever to take a public company private--with major environmental initiatives attached.

Turns out the barbarians at the gate--Henry Kravis of Kohlberg Kravis Roberts & Co. and David Bonderman of Texas Pacific Group (TPG)--have a little tree hugger in them. Even before the deal with TXU was sealed, the buyout shops called up environmentalists and, in a 17-hr. meeting at San Francisco's Mandarin Oriental Hotel, agreed to roll back carbon emissions from all TXU power plants to 1990 levels by 2020. Four days later, the company's board accepted the buyout offer, agreeing to drop controversial plans for eight of 11 new coal-fired power plants and to support a federal cap on carbon emissions.

TPG's man in the negotiations, William Reilly, who was Environmental Protection Agency chief under the first President Bush, tells TIME the pre-deal deal with Environmental Defense and the Natural Resources Defense Council was not just a nicety. "Although this might have been doable without an environmental commitment, it would not have been done with us," says Reilly. "If you're going to do an energy investment today, you have to take into account the concerns people have about climate change." The motive is one part caring about the planet and one part turning around the p.r. nightmare that was threatening TXU's future projects.

The deal has implications far beyond Texas. The Lone Star State is No. 7 in the world for greenhouse gases (emitting more CO2 than Britain), and TXU is the state's biggest corporate contributor. Those 11 coal-fired plants would have thrown off 78 tons of carbon dioxide a year--double the savings expected from California's Clean Cars legislation, passed last year. The buyout firms promised not only to halt eight of the Texas plants but also to terminate plans for coal-fired operations in New Jersey, Virginia and Maryland--a recognition that momentum is growing in Washington for legislation to mandate caps on carbon emissions. On Feb. 26, California and four other states agreed to establish within 18 months a market to trade emission credits. TXU, as part of its agreement, plans to join DuPont, Alcoa, General Electric and seven other firms in pushing Congress for a national cap-and-trade program, that would give companies "credits" for carbon emissions to use--or sell at a profit. It's a win for the environment, notes Reilly, and not bad for the bottom line either.