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TRX: Yes or No: A Public Utility Gets Bought Out with Environmental Input and Roles Are Reversed

The Environmental Group CERES says "Yes":

This week’s announcement that two private equity groups are buying TXU and scaling back its plans to build 11 new coal-fired power plants is a remarkable breakthrough in managing the risks associated with climate change. It’s an unprecedented demonstration that the financial world is recognizing the risks involved with the proliferation of new coal-fired power plants in the US and a validation of Ceres long-held position that all investors and companies should be evaluating and mitigating the financial risks from climate change .

As part of the proposed $45 billion buy-out, the equity firms agreed to build only three of the 11 coal-fired power plants that TXU planned for Texas. They also agreed to boost the company’s investments in energy efficiency and renewable energy and to support mandatory federal climate change regulations.

Over the last year, Ceres has worked with some of the largest institutional investors in the U.S. to encourage not only TXU itself, but also the financial community to evaluate how climate change will affect their investments. In light of growing momentum for federal climate change regulations, which would impose high costs on carbon dioxide emissions, investments in high-emitting coal-fired power plants demand increased scrutiny. Improvements in energy efficiency have the potential to substantially reduce demand for power, even eliminating the need for new power plants completely.

After TXU announced its plan to build 11 new power plants in April 2006, Ceres quickly organized some of TXU’s largest shareholders, including CalPERS, CalSTRS, and the New York City Comptroller’s Office. The shareholders sent a letter to TXU’s CEO addressing their concerns about the plan’s risk. Then, Ceres helped organize three shareholder resolutions, requesting that TXU adopt energy efficiency strategies, greenhouse gas reduction goals for the proposed plants, and overall carbon dioxide reductions goals set below 2004 levels. Throughout, Ceres’ message is that investors and companies must recognize the financial risks of climate change.

In partnership with the Natural Resources Defense Council (NRDC) and an energy efficiency consultant Optimal Energy, Ceres issued a report last month on TXU’s proposal. The report concluded that comprehensive energy efficiency strategies and cost-saving demand reduction measures can reduce Texas’ energy requirements more reliably, less costly, and at a tremendous net economic benefit compare to building 11 new power plants. This report, available for download here.

A second report was released by Ceres over the weekend. This report concluded that TXU’s investors, public or private, will face numerous financial risks if the company proceeds with its plan to build all 11 of the pulverized coal-fired power plants – an expansion that would add more new coal-plant capacity than has been built in the entire US in the past 10 years. The second report can be downloaded here.

Even in its substantially reduced form, TXU’s proposal for new power plants presents real financial and environmental risks. Not only will imminent federal climate change regulations impose a cost on carbon dioxide emissions, energy efficiency measures are likely to reduce consumer demand for new power. While the outcome of the proposed buy-out is still unclear, we are encouraged to see that the financial and business communities are beginning to incorporate climate change into their decisions.