The TXU sale promises 'unprecedented' cost savings for consumers, but will cut its new coal capacity by 75 percent.

The coal industry appears to be left out in the cold in a proposed transaction that will bring Dallas-based utility TXU Corp. under private ownership. Ratepayers, on the other hand, were touted as big beneficiaries of the announced $45 billion acquisition by Kohlberg Kravis Roberts & Co. and Texas Pacific Group.

“As a result of this transaction, the newly privatized company will deliver price cuts and price protection benefits to electric customers, strengthen environmental policies, make significant investments in alternative energy and institute corporate policies tied to climate stewardship,” TXU said in a statement on Feb. 26.

The deal calls for TXU to scale back on its plans to build new coal-burning plants from a previously announced 11 to only three. The utility said this will prevent 56 million tons of additional annual carbon emissions.

“To meet the state's increasing electricity demand, TXU expects to build two coal units at the Oak Grove site and one coal unit at the Sandow site,” it said. Both sites are in Texas. “TXU will immediately seek to suspend the permit-application process for the other eight units and withdraw them once the transaction closes. TXU does not intend to apply or reapply for permits to build additional coal units utilizing current pulverized coal-fueled technology.”

Instead, the utility said it will launch an “aggressive demand-reduction program through a $400 million investment in conservation and energy efficiency activities over the next five years.” It plans to more than double its purchase of wind power to more than 1,500 MW and “promote solar power through solar/photovoltaic rebates.”

Some charged that the merger does not reflect real-world energy needs. “Power prices could spiral out of control in Texas because there aren't enough suppliers for the need and the state is so poorly connected to other states,” warned Action Fund Management LLC. The Alexandria, Va.-based organization said the “deal highlights a growing and worrisome alliance of greens with the financial services industry.”

Indeed, Environmental Defense and the Natural Resources Defense Council were involved in the negotiations that led to the deal. Goldman Sachs & Co., Lehman Brothers, Citigroup and Morgan Stanley are expected to be equity investors.

Despite some criticisms, the acquisition is likely to be well received by many of TXU's customers. TXU announced it will provide a 10 percent price reduction for its residential customers, resulting in more than $300 million in annual savings.

“Customers will begin receiving a 6 percent reduction in approximately 30 days and an additional 4 percent reduction at the close of the transaction,” the utility said. “This will strengthen TXU Energy's position as having the lowest prices among the major providers in their traditional markets. An unprecedented level of price protection will be in place through September 2008, ensuring that these customers receive the benefits of these savings through two summer seasons of peak energy usage.”