Episode 10 | TXU @ 10





In a multi-part series, I explore the events surrounding the 2006 coal expansion and subsequent buyout of TXU Corporation. Ten years later, this remains the largest leveraged buyout in the history of finance.

In April 2006, following a rolling blackout, TXU Corporation announced plans to build 11 new coal-fired power units in the state of Texas. The Lone Star State has its own electrical grid, and estimates from the organization that manages that grid, also predicted that Texas could run dangerously close to experiencing rolling blackouts in the near future.

The expansion was met with criticism from several sides. Dallas Mayor Laura Miller and Houston mayor Bill White fought the expansion, even outside their own communities. Local Dallas businesses united, and even large energy companies such as NRG Energy and Chesapeake Energy were critical of the expansion, with Chesapeake even creating a "Coal is Filthy" media campaign.

On February 23, 2007, CNBC broke the story that private equity firms KKR and TPG were close to a deal to buy TXU for $45B, making this the largest leveraged buyout ever. It was soon revealed that the environmental community had helped craft terms of the deal, which included the cancellation of 8 of the 11 planned coal-fired units.

The deal was ultimately approved by shareholders September 7, 2007, and TXU was officially sold to the buyers, now known as Energy Future Holdings, on October 10.

On April 28, 2014, EFH filed for Chapter 11 bankruptcy. It was $40B in debt and was making $4B in annual interest payments. Part of the problem was that TXU and EFH had bet that natural gas prices would stay high. By producing power with coal and charging electric prices based on power generated by natural gas, they thought, margins would be huge.

However, the shale revolution quickly dropped prices to 1/3 of their high in 2008, and this strategy was no longer viable.

I believe this story is important for the following reasons:


Below are summaries of the interviewees:

Interview 1: Tom Kleckner, former Media Relations Advisor, TXU


I first met Tom Kleckner during my time as Account Executive for Public Strategies in Austin. PSI was one of several consultants hired to supplement the TXU communications team at that time. In December 2006, I visited TXU's corporate headquarters for the first time and met everyone one the senior communications team, including Tom.

The strongest impression I had after interviewing Tom was that sense of confusion with so many consultants working for the company--as many as 3 for communications alone--and no clear figure to lead them all. One consultant, under tremendous pressure, suffered a heart attack on site.

Tom also blames some of the local representatives of the company for trouble during the coal expansion phase. One representative got into a heated discussion at a public hearing where Eagles frontman Don Henley spoke in opposition to the plants.

Immediately after news of the buyout, the communications team was forbidden from speaking to the media from Fri-Mon. A Reuters reporter, Eileen O'Grady, gave them trophies for not answering their phones.



Interview 2: Tom Stewart, former Managing Director, Public Strategies Inc.



Tom Stewart was one of my half-dozen supervisors at Public Strategies Inc., a public affairs company based in Austin, Texas. To say PSI is a public relations firm is an oversimplification. It is an operation that works with corporate clients to handle their challenges, and their strategy for doing so was born in political campaigns.

To walk through the halls of PSI was to spot a who’s who of top tier political talent…from both sides. You saw veterans of the Clinton ’92 campaign, the Bush 2000 race. I never got a chance to meet her, but former Texas Governor Ann Richards had a corner office on my floor. She passed away a few months after I joined the company in 2006.

Like most PSI talent, Tom began his career on the political side, he was press secretary for a U.S. Senate race in ’96, and served as manager of Communications for Entergy. He joined PSI in 2000 and was there for about 13 years. Today he serves as a media consultant and is Executive Director of Texas Charity Advocates in Austin.

I approached Tom about this series back in February, before the podcast premiered. We quickly jogged each other's memories and knew we had something to discuss.

During the interview, we discuss the challenges of fighting the "David vs. Goliath" dynamic in the media, what happens when "fuels attach fuels," Blue Mayors vs. Red Governors, and the lasting legacy this story has on energy.



Interview 3: Jim Marston, Texas Regional Director & VP-Clean Energy, Environmental Defense Fund



I had not met Jim Marston until this interview, though we moved in similar circles for several years.

During the TXU coal expansion, Jim played a lead role in the fight against these plants. Opposition came from all sides, and support for his cause came from the unlikeliest of places. In fact, a fellow dad on his daughter's volleyball team cut him a check for $10,000.

Jim's most important role came just days before the buyout. He was summoned to San Francisco by Bill Reilly of World Wildlife Fund to meet with KKR & TPG. Over a 17-hour meeting in the TPG boardroom, Marston and other associates negotiated terms that would become a foundation of the buyout. These included the cancellation of 8 coal-fired units, commitments to green energy, and even a compensation program for the utility's Chief Executive tied directly to greenhouse gas reduction - a first in the industry.



Interview 4: Eileen O'Grady, former Reporter, Reuters



Eileen O'Grady had been covering grid issues for years.. She joined the service in 2006, just before the expansion was announced.

Eileen says she had always counted on TXU's communications team to respond quickly to news inquiries, so it was strange when the did not respond following news of the largest leveraged buyout in history. It was Eileen who sent Tom Kleckner an "Oscar" for "Best performance for a PR person" when he did not answer her calls.

Eileen says she was on the verge of uncovering that the expansion was off-track in February 2007, when she was informed that TXU was canceling its order for 8 coal-fired boilers. She was still corroborating the story when news of the buyout broke and the buyers announced that the 8 units would no longer be built.

I asked her about the news coverage's tendency to favor the environmental argument over grid and electric reliability. We also discussed reporters' tendencies to not be skeptical enough on both sides of an issue. She believes that all reporters should take time to learn the issue they are covering, and she hopes all company PR representatives answer their phones when called.

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