Is the Man Behind the TXU Deal a Hero or a Villain? Depends.
In the new issue of The New Republic, there's a lengthy (subscription-only) profile of Fred Krupp -- president of Environmental Defense and the man behind TXU's $45-billion sale to Kohlberg Kravis Roberts & Co. and Fort Worth-based TPG. In fact, much of the story's devoted to Krupp's involvement in the deal -- from his asking TXU chairman John Wilder for a meeting to his filing a federal lawsuit against the Dallas-based energy provider to, finally, telling banks to stop investing in TXU altogether. In the end, Krupp got the company to sell to the private investors.
The story asks, "Is Fred Krupp an environmental savior or a corporate stooge?" And while there are plenty of folks who think he's the former, ex-Dallas mayor Laura Miller sticks with her position that he's the latter ... and then some. According to The New Republic's James Verini, Miller "calls Krupp's agreement feckless and unenforceable and claims that Krupp allowed the buyers to leave [TXU's] three worst-polluting plants in place." After the jump, some more details from the TXU deal. --Robert Wilonsky
No deal better embodies Krupp's beautifully choreographed platinum activism than TXU. In April 2006, the Texas-based electric company announced plans to invest $11 billion building eleven new coal-fired plants. Public anxiety about fossil fuels and their role in global warming tends to focus on oil, but coal--especially in states like Texas with lax regulations--can put a lot more pollutants into the air. The utility had already inflamed environmental groups because it had some of the dirtiest plants in the country, and, in response to this latest outrage, local groups had launched protests. A coalition of Texas mayors formed to combat the new plants.
Krupp took a different approach--at first, in typically polite Krupp style, he contacted TXU chairman John Wilder and requested a meeting. When Wilder refused, however, Krupp launched a "Stop TXU" campaign that involved a federal lawsuit and TV ads. But his most effective maneuver was going to Wall Street to explain to banks and investors why they shouldn't finance TXU's expansion. The company's stock began to sink. Wilder started to panic. He knew that Krupp could make a stink not only on Wall Street but in Washington, threatening TXU's ability to get operating licenses.
However, a c-span-style fight over licenses was not what Krupp wanted either. He wanted TXU to atone and preach the environmental gospel. Most of all, he wanted a deal. Several months later, in February 2007, he got his chance. Henry Kravis's Kohlberg Kravis Roberts (KKR) and its partners, private equity firm Texas Pacific Group and investment bank Goldman Sachs, announced plans to buy the Texas utility. William Reilly, EPA chief in the first Bush administration and a long-time friend of Krupp's, was leading negotiations for Texas Pacific. He called Krupp and another environmental nonprofit, the Natural Resources Defense Council (nrdc), and asked them to sit down with the buyers. Reilly then convinced them that Krupp could be trusted. "I said, look, this is a guy who can keep secrets," Reilly says, "and he'll do deals."
During a 17-hour negotiation in a San Francisco hotel room in late February, KKR and Texas Pacific agreed to scrap eight of the eleven new plants. Krupp's lieutenant in the negotiations, Jim Marston, whom Krupp advised by phone, also got the buyers to sign on to Krupp's Climate Action Partnership and to make future executive pay at TXU contingent on cleaning up. Finally, Krupp gave the deal his blessing, and the buyers, for their part, got to flaunt it. "Goldman Sachs decided they didn't want to get in this war, they didn't want people picketing them," Marston says. "They wanted to use us, so our job was to figure out how to use them."
The TXU deal was generally touted as a triumph for the environment as well as evidence of the green movement's newfound sway in the boardroom. It was also a highly public victory for Krupp and his style of negotiation. Most executives and politicians I spoke to cited his patience and discretion, making it clear that other environmentalists they have encountered don't share these traits. "He's thoughtful and careful, and he's nuanced," Duke Energy CEO Jim Rogers says. "That gives him the credibility to be effective."
But not everyone was pleased with the deal, including a number of environmentalists and their allies, who felt it didn't go far enough, as well as smaller advocacy organizations, who felt big-footed by Krupp. "We couldn't have stood up and said that building three coal-fired plants is the way to move forward on global warming," Chris Williams, director of Greenpeace's global-warming operations in the United States, says. Tim Hermach, Executive Director of the Native Forest Council, is blunter. E.D. and nrdc "should be hung for what they've done," he told The Wall Street Journal.
Then-Dallas Mayor Laura Miller, who led the coalition of Texas mayors, calls Krupp's agreement feckless and unenforceable and claims that Krupp allowed the buyers to leave the three worst-polluting plants in place. "The shocking thing to me was this supposedly great deal was not a big deal at all," Miller says. "KKR and Texas Pacific are not stupid--they're going to bring the guys in the room most likely to do a deal."
But, in Krupp's book, that is precisely the point. Doing a deal is how things get done in business and politics. Kravis and his partners were under no obligation to play ball and, faced with any other environmentalist, probably wouldn't have. Krupp convinced them to. "We're all about winning," he says. "If we can't win everything, we work to win as much as we can."