Energy giant agrees to $45 billion buyout

TXU, the largest energy provider in Texas, agreed Sunday night to a $45 billion buyout that would not only be the largest private-equity deal in history but would also feature an unusual twist:

The buyers have promised environmental groups they would cancel a slew of coal-fired power plants on the firm's drawing boards.

The buyout firms' deal with environmental groups, which could become a landmark in the battle over climate-change policy, would force an abrupt turnaround in the strategy of TXU, which has defied environmentalists' and congressional criticism to expand coal use and carbon-dioxide emissions.

The environmental agreement was the idea of the private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts, which made it a condition of the acquisition, according to several sources involved in the negotiations, who gave details of the deal .

Texas Pacific's head, David Bonderman, sits on the boards of the World Wildlife Fund and the Grand Canyon Trust, and was a key figure in negotiating with power plants in Arizona to reduce air pollution over the Grand Canyon.

In the TXU case, he asked William Reilly, who had led the Environmental Protection Agency under President George H.W. Bush, to reach out and negotiate with environmental groups.

If shareholders approve the acquisition, TXU would back federal legislation that would require reductions in carbon-dioxide emissions through a cap-and-trade system.

It would shelve plans for eight of 11 coal-fired plants that current TXU executives had proposed for Texas and would drop plans to build new coal plants in Pennsylvania and Virginia.

The company would also double its spending to promote energy efficiency, to $80 million a year, for five years.

"We think this is really a big deal, a watershed moment in America's fight against global warming," said Jim Marston, regional director of Environmental Defense in Austin, Texas.

He said it would reshape the electricity sector in Texas and alter the attitudes of Texas congressmen toward climate-change legislation.

The buyout firms also promised to cut TXU's emissions of carbon dioxide to 1990 levels by 2020.

In return, Environmental Defense, which has been leading the fight against TXU's coal-expansion plans, would drop its objections to three large new units in Texas.

The TXU board met Sunday night to vote on the leveraged buyout. The deal could be officially announced today.

There are financial advantages to the environmental agreement. When they buy companies, private-equity firms typically try to cut costs rather than expand operations. TXU had estimated that the ambitious coal-plant expansion would cost at least $10 billion; others suggested the ultimate price tag could be much higher.

A turnaround at TXU would represent a reproach to C. John Wilder, TXU's chief executive, who in the past has criticized new technology that burns coal with fewer greenhouse gases as too expensive or technologically unsound.