SocraticGadfly: More details on how KKR took Environmental Defense for a ride over its TXU purchase

July 20, 2007

More details on how KKR took Environmental Defense for a ride over its TXU purchase

Will ED fess up to being played like a cheap violin? It will if it wants any more of my green money for its green causes

The Dallas Morning News has an excellent three-part series documenting how TXU would have had the same cutback in building coal-fired power plants as KKR has proposed, how the bought-out TXU could be made the cornerstone of a national utility company, an area where thee is no federal regulation to speak of, plus potential to challenge existing state regulations; and will almost certainly lead to higher electric prices starting in 2009.
In short, any “green” intention of KKR was already in the works, for the sake of the green of higher profits, without an ED “greenwash.”

The bottom line comes from the first story, from a private report commissioned by the News:
Our conclusion is that the buyout of TXU provides no inherent benefits to the customer. All of the commitments being made by the buyers could be offered by TXU today — if it had the incentive to do so. …

The buyers are offering the customer what TXU may have been forced to offer by regulators due to concerns over market manipulation and global warming or compelled to offer by the business imperative of stemming customer attrition and repairing reputation. Therefore, there is no net gain for the customer as the deal is currently described. …

The buyer commitment to terminate eight of the 11 planned TXU coal-fired plants was the public relations angle used to launch the buyout. …

There is reason to believe that TXU's high retail customer electricity prices, alleged price manipulation, poor handling of its proposed coal projects, negative environmental positions, flagging reputation, retail customer attrition and apparent CEO excesses would have forced the company to offer most of the same 'concessions' as the buyers are touting.

The complete report is available here, by going to the “see the complete report” link under the DigitalEXTRA header, which will download it as a Word document. It goes on to fault Texas laws and the Texas Legislature:
With a legislature that seems to have stalled in creating the laws that would have tuned-up deregulation and provided further protection against global warming, against high rates and against market power abuses, Texas customers must now rely upon the good faith of the buyers, a belief in market forces, and the ability of the PUCT to monitor and enforce existing laws.

In the third story, on the rate issue, the report said to watch out for bait-and-switch tactics:
TXU has the opportunity in the near term to price low enough to win new customers or, at a minimum, stanch the bleeding of existing customers. Then, in December 2008, when TXU is no longer committed to keeping rates low, they can raise prices again.

And, if you live in North Texas and this deal goes through, you might have more power outages that take longer to be fixed:
Reliability might be affected by the new owner's reticence to make capital expenditures. Private equity funds' principal objectives of providing returns to their owners and investors can pose an inherent conflict with utilities' needs for long-term capital investment as well as innovation to ensure long term resource adequacy.

I have felt for some time that ED got snookered, and that perhaps deal-leader William Riley was trading a bit too much on his name and Bush 41 presidential connections. This confirms it.

Now, the $64,000 question: Will ED own up to being played for KKR’s PR, and repudiate its greenwashing of the deal? I’m not holding my breath, but I am holding future contributions to ED until it fesses up.

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