Law and the Environment

Recent Appellate Court May Expose Companies for Disclosures in Title V Deviation Reports

The U.S. Fifth Circuit Court of Appeals recently (May 27, 2016) reversed a federal district court in a citizen’s suit that sough hundreds of millions of dollars in civil penalties under the federal Clean Air Act for alleged thousand of violations.  In the case Environment Texas Citizen Lobby, Inc. v. ExxonMobil Corp., the district court had ruled that only 94 of the allegations were actually violations, and that no penalty was in order.  In reversing this decision, the Fifth Circuit may have opened the door to civil penalties for all of the statements in Title V Deviation Reports that indicate a violation of the Title V permit or regulations have occurred.  This raises significant issues as companies are required to make deviation reports every year, and in most, cases, it is difficult to avoid any deviations in such reports.

 

Debris and Contaminated Soil from Construction Site Can Lead to Major Problems and Expense

A few years ago, I received a call from a bankruptcy trustee, who said he had a environmental problem he was struggling to resolve.  It seems a company had developed a “mulch business” that had ultimately led to bankruptcy, and liquidation at that.  What may be surprising to some is the waste involved seems so innocuous at first thought.

The problem related largely to construction debris.

Construction debris and wood waste (including trees and branches) had been collected by the mulching company and placed over several acres.  The owner ultimately took the money to receive the material, but then abandoned the site and never mulched or did anything else with the material.  The city was very concerned about the growth of vermin and a substantial potential fire hazard.  Home and business owners nearby were very concerned. 

I was engaged by the trustee and the city to attempt to identify potentially liable parties who had brought the waste to the site or whose waste was brought there.  The owner had left all of the records for everyone who brought material, and we were preparing to file suit against all of those parties to try to recover the costs of addressing the acres of waste.

The city was able to get the Texas legislature to appropriate several million dollars, and the lawsuit was never filed--all those developers, building owners, contractors, and subcontractors lucked out. But they are not and will always be so lucky.

In another case, I represented a landowner whose land had become the dumping ground without their permission.  One trucker illegally dumped on it, and then within a short time, the word got out, and several acres were covered with wood, shingles, bricks, and soil.  What other wastes may have been mingled in or what contaminants were in soil was unknown.

The lesson is that construction waste can become a significant potential liability for the owner of the project or the contractors and subcontractors.  

Other cases have involved disposal of contaminated soil on an unknowing person’s land, who is looking for fill, or who, like my client, may not have wanted any material placed on their land.   

Recently, one my clients had a subcontracting trucking firm dump soil excavated from an area where contamination from a former underground storage tank had been located.  The soil had to be excavated for construction of a building.  The soil was supposed to go to a landfill, but the environmental consultant engaged to monitor the contractor and subcontractors noted several waste manifests did not come back from the designated landfill with signatures or any weight tickets. 

The issue of who is liable for this misplacement of affected soil, and what damages will arise for remediation costs and any property damages arises.  What about liability if the material is placed into wetlands, if there were fish kills?  Could it become a criminal matter?

The liability risks can grow, particularly if the state or federal government holds the owner liable and the construction contractor or sub contractors are unable or unwilling to cover the loss or address the issue.

 Solutions:

In representing clients preparing for and engaging in clearing, demolition, grading, and construction, I have found there are ways to try to avoid these risks and be prepared to manage them.  Some steps that can be taken to reduce the risk of incurring environmental liability for construction debris or soils management during a construction project:

•  Establish contractual provisions to address construction debris and soil management;
•  Ensure environmental laws and regulations are met;
•  Deal with safety issues for construction workers;
•  Consider environmental insurance for the project, negotiated to cover these risks;
•  Obtain indemnities from the contractor;
•  Understand what the state will allow for managing debris and affected soil on-site and off-site;
•  Develop a waste management or soil management plan, and have the state environmental agency review and, if they will, approve it;
•  Have a tracking process for hazardous and non-hazardous waste, that which must go to a landfill and to a site for unrestricted fill;
•  Engage an in-house person or outside environmental consultant to review and oversee the process to determine if waste manifests or trip tickets area coming back and are properly filled out.

Best practices in this area may save your company or entity a significant amount of money in avoiding some of the horror stories that can arise when construction debris or soil ends up in the wrong place. Trucking companies hauling debris or soil from construction sites are renowned for looking for the cheapest and easiest way of getting rid of the material.   A little preventative medicine may go a long way.

Texas Moving Closer to Issuing Vapor Intrusion/Indoor Air Guidance

In recent advising and representation of clients on vapor intrusion/indoor air issues from soil and/or groundwater plumes containing chlorinated solvents or other volatile chemicals, a representative of the Texas Commission on Environmental Quality (TCEQ) advised us that the agency is moving forward with issuing guidance on vapor intrusion in the coming months.  How that comes out will have potential impact not only on industrial facilities, but on real estate transactions where light industry, gas stations, dry cleaners, and other current or historical uses may affect groundwater on-site or off-site.

In transactions I have been involved in, buyers often look to address potential vaport intrusion in terms of remediation, insurance, indemnities, and other provisions in sales contracts.  Lenders consider these issues and have to be convinced it will not cause liability to the borrower or cause issues with tenants and payments on leases.  Lenders are concerned with payment of loans and protectin of collateral value.  Vapor intrusion/indoor air has spawned lawsuits in some states.

In Texas, currently, the Texas Risk Reduction Program (TRRP) rules required notification of the TCEQ and persons exposed or who may be exposed, as soon as possible or within 60 days.  The rules do allow the use of Occupational Health and Safety Administration (OSHA) or the American Conference of Governmental Industrial Hygienists (ACGIH) levels for occupational exposure.  To use these levels a health and safety plan must be submitted and a certification it is being followed must be submitted to the TCEQ.  Currently, these levels rather than the very low Risk Based Exposure Levels for commercial and industrial sites may be used.

In other parts of the country, EPA regional offices and some states have adopted very low levels at least as screening levels that may be below the method detection limit for testing protocols for indoor air.  This makes management of indoor air and vapor intrusion difficult for some chemicals, particularly trichloroethylene.  These low levels are orders of magnitude below the OSHA and ACGIH levels, and appear to be below what is necessary to protect workers.

Fortunately, it appears the TCEQ is going to continue to allow worker standards developed by an agency or organisation with a long history of developing safe levels for workers.  This will allow a more rational approach to vapor intrusion and indoor air issues.  The need to follow and comment on TCEQ policy and guidance on vapor intrusion/indoor air is critical to a sound policy on worker protection under environmental remediation regulations in Texas.

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EPA Issues Finding That Lays Foundation for Regulating Greenhouse Gas Emissions under the Federal Clean Air Act

In a long expected finding, the U.S. Environmental Protection Agency (EPA) issued a regulatory decision that lays the foundation for EPA to regulate greenhouse gas emissions under the federal Clean Air Act (CAA).  The decision announced on Friday, April 17, 2009 is entitled Proposed Endangerment Finding and Cause or Contribute Findings for Greenhouse Gases  and was published in the Federal Register.  This is a major step by the Obama Administration to attempt to force Congress to pass a climate change bill regulating greenhouse gases.  Time magazine may have said it best in an article entitle EPA's CO2 Finding: Putting a Gun to Congress's Head.  Whilee it was known that EPA was working on and would announce the finding, the actual announcement has gained enormous coverage in the media and serves as the Administration's opening salvo in its ultimate work to try to convince enough senators to vote for a bill to get beyond the 60 votes need to bypass a filibuster.

The EPA regulatory decision follows a U.S. Supreme Court decision two years ago that concluded the EPA under the Bush Administration had failed to articulate why greenhouse gases should not be regulated as emissions from automobiles.  In so doing, the Court indicated that greenhouse gases were pollutants under the Clean Air Act.  Now that EPA is going to issue a final regulatory decision after 60 days of public comment and several public hearings, it is clear that EPA can, and will, take action absent Congressional action.

Regulation under the Clean Air Act is messy and may not include a cap and trade program, but simple command and control in the form of emission reductions without the ability to trade for other facility allowances or domestic or international offsets.  This would not be good for industry.

Certain industry groups have already begun to work to promote their version of a cap and trade program.  The group USCAP, which stands for United States Climate Action Partnership, has issued a document entitled A Blueprint for Legislative Action, providing a general outline of a climate change program based on cap and trade.

The one question that will likely play out is how the world will look if Congress does not pass a bill or passes late next year or even later.  Permits for coal=fired power plants and other greenhouse gas-emitting facilities are already being challenged, and environmental groups and other plaintiffs are challenging the permits in court as not meeting CAA requirements to address all pollutants including greenhouse gases.  If EPA issues a final decision that greenhouse gases are an air pollutant, do these cases then have a much greater change of success?  Will EPA and the states be required to address greenhouse gas emissions in federal Title V permits?  These are the types of questions that will come to the fore relatively quickly.

What about cement kilns, lime plants, refineries, natural gas processing plants, manufacturing plants, will they be challenged as well?  Coal-fired power plants may not be the only plants whose permits are challenged.

One need not look beyond the administrative case of In re Deseret Power Cooperative.  This was a case in which the permit for a power plant in Utah that was challenged because the plant permit did not address CO2 emissions under the Prevention of Significant Deterioration program under the CAA. the challengers argued the plant should implement the Best Available Control Technology or "BACT" to achieve greenhouse gas, largely CO2 emissions. 

The EPA Appeals Board remanded the issue back to the EPA, then under the Bush Administration, not to require such technology or reductions as the Appeals Board concluded that the decision was not supported by the administrative record.  The Appeals Board called on EPA to address the issue of CO2 and other greenhouse gases being pollutants governed by the CAA.

Other cases have been brought against various sources and several petitions have been filed with the EPA to regulate mobile sources and stationary sources.

With the finding by EPA, all such permits, petitions, and proceedings could be affected.  Could this be a snowball effect with EPA and states finding themselves forced to regulate greenhouse gas emissions before Congress makes any final decisions whether to regulate greenhouse gas emissions?  The next year promises to be a challenging time for industry as they face a great deal of uncertainty as to how greenhouse gases will be regulated and how individual facilities and companies will be affected.  It appears more likely that some form of greenhouse gas regulation will be required.  For those companies that may be affected, it is time to develop a corporate strategy to address the risks and any opportunities that greenhouse gas regulation may bring.

Guest Column on EnergyLaw360

I recently published a guest column on EnergyLaw360 entitled Laws Set Stage for Carbon Trading Opportunities.  The article discusses the new federal greenhouse gas emissions reporting law that was enacted and how EPA must publish final rules by September 2009.  These rules will serve as the foundation for coming climate change legislation that will create a cap-and-trade system for regulating greenhouse gas emissions, and create significant opportunities in developing greenhouse gas emission reductions that can be monetized in the form of carbon credits.

Will New ASTM Standard for Assessing Vapor Intrustion Wreak Havoc on Phase I Environmental Site Assessment Process?

Sitting at a Starbucks at in Dallas, Texas, I'm looking North at a Chevron-branded station owned by TETCO.  This is clearly noted on the sign with regular gasoline at $3.19 per gallon.  Clearly I am sitting downhill from the station, and if my client were buying the shopping center, my first suggestion would be testing the groundwater to see if the underground storage tanks containing various grades of gasoline or diesel below the gas station/convenience store have leaked and contaminated the property--under the Starbucks.  When I visit this site after dropping my daughter at school, I see the capped groundwater monitoring wells.  I would venture a guess that the hundreds of people who walk over or park on top of them have no idea what they are?  The two charming elderly women sitting outside the women in front of me have no idea that their may be gasoline and diesel 10 or 20 feet below their feet.  In reality, they probably have no reason for concern.  But a new standard for assessing risk from vapors from soil and groundwater may create havoc for real estate developers and banks.

Thinking about these issues is no different from any day in the office as an environmental lawyer.  (The "office" having grown with laptops, Blackberries, and cell phones to be about anywhere I am, ergo sitting in Starbucks with my T-Mobile connection blogging about an environmental issue--the mobile environmental lawyer.) Tanks leak.  Piping leaks.  People drive off and pull of the hose dispenses or otherwise spill fuels.  This is nothing new and has been going on for decades.  What is new is an ASTM standard for assessing the risk that those chemicals in the soil and groundwater are turning into vapor and getting into a building?  Could this new standard wreak havoc on the Phase I environmental site assessment process?  Could it be that I'm breathing benzene as I sit here typing this message?

It's actually unlikely.  My toxicologist friends working who work with me to assist clients in advising clients who remediate contaminated sights say it is highly unlikely in most instances.  In fact, they tell me it is when you fill up your car that you get your biggest shot of benzene--a known human carcinogen. 

So why the ASTM standard for assessing these risks if in fact they are so unlikely?  In the environmental regulatory world I live in as a corporate environmental lawyer since I graduated from Harvard Law School over 20 years ago, the regulatory agencies have begun to focus on these issues.  Yes, primarily in California, where all environmental regulatory programs tend to start (California has enacted and will be implementing a climate change greenhouse gas program before the Congress passes a bill), and the Texas environmental agency has not really tackled this issue and does not necessarily require that it be assessed.  Reportedly, the California agency is going back to sites closed under old rules that did not require vapor intrusion analysis and requiring that the sites be re-examined.  EPA has issued guidance documents on the subject of vapor intrusions and how to test for it.

As regulatory agencies and scientists begin to look at vapor intrusion into buildings, these issues have come up in real estate transactions in many parts of the country.  Real estate developers, real estate investment trusts, and banks then start to ask questions and the environmental lawyers and environmental consultants that work for them in their transactions start to ask questions.  Is vapor intrusion a problem?  What are the concentrations of chemicals in buildings that may arise from human sources in the ground (in soil and groundwater)?  Do such concentrations present a risk to people who work, live, visit these buildings?

The new ASTM standard is titled "Standard Practice for the Assessment of Vapor Intrusion into Structures on Property Involved in Real Estate Transactions" (E-2600-08). Roger Smith of Weston in Dallas provided this summary of the Standard.

The standard provides for a tiered approach to assessing and mitigating vapor intrusion conditions (VICs):

Tier 1

– Screening Level Assessment conducted with information typically gathered for a Phase I ESA (current and previous property use, location relative to potential sources, etc.) to decide if a potential vapor intrusion condition (pVIC) is present. It would make sense to include a request for a E 2600-8 Tier 1 VI screening level assessment along with the standard ASTM E1527 Phase I ESA. Since the assessment is based to a large degree on information gathered for the Phase I, there should be little additional cost associated with the screening levels assessment.

Tier 2

– Screening Level Assessment conducted by comparing information typically gathered in a Phase II ESA (soil and groundwater analytical data) to risk-based concentrations (look-up values) to decide if a pVIC is present. The Tier 2 VI assessments will mostly likely be requested whenever a standard Phase II ESA is requested. Since this is comparison to look-up values, there should be little additional cost associated with the Tier 2 screening level assessment.

Tier 3

– Vapor Intrusion Condition Assessment using modeling, soil gas samples, sub-slab vapor samples (from within buildings), and/or indoor air samples to decide if a VIC is present. This would be conducted when it has been determined that a pVIC is present that could affect current or future development on the property. The least expensive approach is likely to be modeling using existing data. This is typically a very conservative approach that may overestimate the risk of a VIC. If additional sampling is needed, the cost for conducting a VI assessment would typically be less than the cost for a Phase II assessment of the property.

Tier 4

– Vapor Intrusion Mitigation by building design, institutional controls, or engineering controls (removal of source, barriers, or mitigation systems). The scope and cost would be highly variable for Tier 4. For new construction, all three options are available. For existing construction, you are typically looking at the options for engineering controls.

The Standard is dense and may cause insomnia for even an environmental lawyer or consultant, but it does have potential implications for real estate transactions.  While it is not a part of the Phase I Site Assessment Standard which is used on almost all commercial real estate transactions, it is an add on to this standard.  It may in time become a standard practice to evaluate soil vapor intrusion.

If this happens, it may raise new issues and confusion in the commercial real estate market.  Banks will be unfamiliar with it and may be skiddish about chemical vapors and buildings.  What we need is to try to educate the real estate and banking industry about these issues.  While it will take time, it may be important not to scare off buyers and banks over vapor intrusions.

First, real risks may be rarely found.  The concentrations necessary to create a risk to workers in office buildings and industrial or warehouse settings are probably going to be rare.  People may need to work in buildings for 20 or 30 years, which is rare these days.  For residences, the concentrations are probably rarely going to raise a concern.  Second, for new buildings a vapor barrier can be constructed to prevent vapors from entering structures.  For old buildings, steps can be taken to vent the vapors.

Environmental assessments have become a standard practice in the real estate industry.  If vapor intrusion assessments become more commonly a part of those assessments, we need to be sure they don't become a source of undue alarm.  As commercial real estate faces the collateral damage of the subprime mortgage debacle, we need to take care that a new environmental concern and potential risk does not hamper transactions and the health of the market.  Understanding the scientific realities and real risk analysis is the first step in this process. 

More CFOs Taking on Responsibility for Managing Non-Financial Risk

A report published by IBM Business Services entitled "Thinking Through Uncertainty:  CFOs Scrutinized Non-Financial Risk," a trend is identified showing that CFOs are taking on more and more responsibility to evaluate company non-financial risk.

The report concludes as follows:

"At the large U.S. companies interviewed for this research, the traditional wall between financial and non-financial risk is breaking down. These companies have begun to take a broader view of risk, and are creating an ongoing, unified internal discourse about all forms of risk, both financial and non-financial.

In the process, the finance function is often tasked with finding new ways to assess the impact of events in non-financial areas on business performance. The finance function typically has the best resources with which to view and assess the entire company, and so is naturally positioned to orchestrate if not lead these enterprise-wide efforts. CFOs are adding risk assessment and management responsibilities to their already expanding portfolio of strategic tools they contribute to successful business performance."

As environmental risk management and environmental disclosure converge as related risks companies must address, the CFO may become increasingly involved in managing or evaluating environmental risks companies face and, thus, may have a better understanding of the need to account more completely for and disclose environmental risks and liabilities.  Climate change risks and potential disclosure obligations raise complex risk issues CFOs may be required to manage.

Corporate Directors and Environmental Corporate Governance Part IV: Evaluation of Financial Disclosure by the Target in an M&A Transaction May Avoid Risk and Yield Benefits in the Negotiation of the Deal

In mergers and acquisitions, I have found that when one can show the target company has a week environmental financial disclosure process and week internal controls, a significant potential advantage may arise for the acquiring entity.  On the other hand, failure to identify these weaknesses can prove problematic for the acquirer after closing the deal.  As a result, for the appropriate M&A transaction, a review of the environmental disclosure policies, processes, and internal controls can yield valuable information for the acquiring entity and protect it from future risks and liabilities.

In the context of what I’ve been discussing in the Environmental Corporate Governance area, it is important for directors and management to ensure that the company considers environmental disclosure issues in each acquisition with potential material environmental risks and liabilities, both to manage risk and to consider the opportunity to identify the true value of the target company. 

A.  Review for Understanding and Negotiating Value or Other Concessions

The first issue is the extent to which the target has properly accounted for loss contingencies under Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.”  One should review lawsuits, demands, and other potential claims to attempt to assess whether the financial statements have adequately reserved for such claims.  Moreover, the policies and processes, if any, the company has in place for identifying, valuing, adjusting, and reporting FAS 5 claims can be reviewed to better understand if the internal controls are adequate.  After the SEC enforcement case against Ashland (discussed in another post on this blog), it is critical that the review and adjustment of the reserve estimates received from the environmental manager or staff be rigorous and documented.

As for asset retirement obligations (AROs) and conditional AROs under Statement of Financial Accounting Standards No. 143 “Accounting for Asset Retirement Obligations” and Financial Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, again a careful review of what has been accounted for and the policies and procedures that have been established and how they have been implemented can shine significant light on the value of the company and its potential liabilities, as well as its FAS 143/FIN 47 internal controls.

The other key is to try to do this early.  Deals are somewhat like basketball games, the ability to obtain and process information has to conclude within a period of time, often a very short period of time.  The other side may hold out in terms of providing information or making documents available or allowing access to sites that need to be assessed.  The “four corners” or “stall game” can “run the clock out.”  Pressure builds to close the deal as one approaches the closing date.  For environmental lawyers armed with financial disclosure expertise, time is one of our many challenges.

Another point to keep in mind is that the due diligence process has to be tailored to the deal in terms of what is the nature of the buyer’s goal in making the acquisition, how will environmental issues play into this acquisition strategy,  what type of company or asset is being acquired, what is the market in terms of how many other potential buyers are out there, and is it a buyer’s or seller’s market.

There are a variety of tools that can be used in the deal, and some or all of these may be helpful in certain transactions, but not in all of them.  The point being one must chose the weapons for each deal to fulfill the goals of the buyer.  One advantage to this approach  is that the environmental due diligence plan and process will hopefully match the business strategy of the client in making the acquisition, pricing the acquisition, and then dealing with environmental compliance, management and disclosure issues after closing.  What liabilities or costs will the acquiring entity have to address post closing?  Will this arise two years after acquisition as the new assets or company is reviewed in the acquirers environmental audit process or through review of these issues in the context of the financial disclosure review?  What if the financial auditor determines the new assets or company does not have adequate internal controls or accounting for environmental?  Will a situation arise where the acquiring entity must restate its financials as a result of the acquisition?

It is important to begin with traditional environmental due diligence—identify risks, costs, liabilities, then use this information and more advanced environmental due diligence to identify potential AROS/ CAROs or loss contingencies.  The traditional due diligence will lead to discussions with the other side and then to internal control/lack of knowledge of environmental disclosure requirements with the seller’s environmental manager and then the accounting staff. 

In some deals, the target and its financial accounting people often do not have a good understanding of the environmental accounting issues, so knowledge can become power if the other side seems uneducated and unprepared to deal with a close review of their reserves for FAS 5 and accounting for FAS 143/FIN 47.  Of course this will vary with the size of the seller.  Smaller companies are often like shooting fish in a barrel—they have little expertise in accounting for environmental liabilities and few controls in place to address the issues.  Bigger companies may be more sophisticated, but it is likely you may be able to poke holes in their accounting, reserves, internal controls, etc. 

This is true with respect to both FAS 5 and FAS 143. Do not underestimate how the other side underestimates their loss contingencies just because FAS 5 has been around awhile.  Accounting for FAS 143 and FIN 47 may be practically non-existent or poorly documented and justified. 

Typical purchase and sale agreement contain representations regarding compliance with Generally Accepted Accounting Standards (GAAP).  Some agreements call for price adjustments for liabilities not properly addressed in the financial statements under GAAP.  These GAAP provisions may provide useful tools both for rooting out failure to account for costs, liabilities, and retirement obligations, and for arguments for adjusting values in the transaction.

Whether a price reduction or other advantage can be gained in a transaction, depends on the acquirer representatives and how bad they want the deal.  Issues may have to be considered “material” either in the SEC sense or the deal sense.  With a party wishing to take a strong stand on negotiating price, the value of the environmental financial review can often greatly support price negotiations.  The overall sense of the deal drives environmental negotiations—that is, if the buyer is looking for a price reduction, then environmental issues can be a mechanism to attempt to achieve that end. 

What is important is to go into the deal with an education of the corporate or transactional lawyers and client that this is potentially a useful tool.  In my experience, it arises after the fact through the environmental lawyer educated about financial disclosure issues raising concerns and failure to account or account accurately for environmental issues. 

B.                 Environmental Due Diligence to Protect the Acquiring Entity

The other side of the coin is the need to protect the acquiring entity.  US Liquids (discussed in another post on this blog) and its directors found the company in a criminal enforcement case after acquiring waste management companies that were accused of criminal violations of environmental statutes.  The drop in the stock price found the not only the company, but the directors as well in a shareholder lawsuit.  To add further injury, the Fifth Circuit Court of Appeals ruled the directors were not covered by the director and officer insurance.

The Ashland case reveals issues the SEC identified that caused them concern in an enforcement action over environmental reserves and disclosure.  Taking care to understand the target’s practices at the environmental estimation level and the review by management could avoid future problems and identify accounting changes that need to be implemented after closing.

Thus, the value of conducting due diligence into the environmental financial disclosure practices of target companies in M&A deals provides a potential two-fold advantage:  (1) further vetting of the value and environmental practices of the target company, and (2) protecting the acquirer from potential problems if the target’s practices are far less robust then the acquirer and avoiding future restatements or identified weaknesses in future financial disclosure and auditing.  Corporate boards and management should ensure that their acquisition teams are conducting environmental disclosure due diligence in the appropriate cases where environmental risks and liabilities may be significant.

Corporate Boards and Environmental Corporate Governance Part III: Acquisitions and Environmental Compliance, Management, and Disclosure Due Diligence and Integrating the Acquired Entity or Asset Into the Corporate EMS System

As a continuation of this series on the Environmental Corporate Governance, it is important to consider the governance issues arising from mergers and acquisitions.  Environmental, health, and safety due diligence is vital in acquisitions.  A critical issue identified is the need to integrate the new employees and company or asset (plant, facility, etc.) into the EHS management system and integrity system of the acquiring company.  Failure to do so may have significant consequences.

The first step is to ensure that the appropriate due diligence is conducted.  This must be a message from the board and management on down to those involved in the acquisition.  Due diligence now consists of three parts:  (1) review of the company’s and its assets and facilities compliance with laws and regulations, (2) review of the environmental management system of the company, and (3) review of the policies, processes, and internal controls (where appropriate) for accounting for and disclosing environmental liabilities and asset retirement obligations.

Review of the target’s compliance with environmental laws and regulations and potential environmental liabilities is fairly standard.  More and more consideration of the systems in place to ensure compliance and risk reduction is occurring.  What is now becoming more clear is that the evaluation of the target’s environmental financial accounting and disclosure may be a critical issue for the acquiring entity.

The US Liquids case discussed in another post, shows that the acquisition of entities that not only have poor compliance histories, but also the failure to account for the risks and liabilities by the target and then the new owner can have significant consequences on the acquiring entity and its board of directors.  The stock price fell and trading was stopped when a criminal investigation was announced of the facilities that had been acquired.  The directors were sued and the insurance company successfully argued that the environmental exclusions in the director and officer insurance policies excluded the claims and no coverage was available for either defense costs or liability.

The details of these issues will be addressed in a future post, but areas like asset retirement obligations under the Financial Accounting Standards Board’s (FASB) Financial Accounting Standard (FAS) No. 143, Accounting for Asset Retirement Obligations, and its subsequent interpretation of this standard, Interpretation No. 47 (FIN 47), Accounting for Conditional Asset Retirement Obligations, have created opportunities, but also pitfalls for acquiring companies.  Care should be given in evaluating the AROs as well as the more traditional reserves for claims and loss contingencies under Financial Accounting Standard No. 5, Accounting for Contingencies, or AICPA Statement of Position 96-1, Environmental Remediation Liabilities (“SOP 96 1”). 

An interrelated issue with the review of policies, processes, and practices is the need to ensure that the target company understands how these three “Ps” compare with its own.  Management, directors, and environmental VPs and managers must understand the importance of integrating the new employees and facilities immediately into the acquirer’s EHS management system and to ensure that no tolerance was provided for deviation.  Some employees would not be able to survive the transition—they simply would refuse to comply with the new system and would quit or be terminated.

Immediate imposition of the new system and review of performance and deviations was seen as critical.  Failure to do so immediately was viewed as likely to result in a very difficult process of trying to integrate the new people and facilities in the future.

Management and boards of directors should consider that the integration of new companies or assets through mergers or acquisitions requires a process-based approach.  The compliance status and environmental liabilities is just one part of this process.  Understanding the environmental management systems is critical, particularly after the Baker Panel Report regarding the explosion that killed and injured so many people a the BP refinery in Texas City, Texas.  The third leg of due diligence is the review of environmental accounting and disclosure in financial statements and any reports filed with the SEC if the target is a public company. 

The key point is understanding that the rigor of the related processes of the acquiring company must be compared with and harmonized with the target before and then after closing.  Otherwise, the buyer may find not only existing conditions that lead to environmental liabilities after closing, but potentially practices that lead to lawsuits and enforcement actions and even financial restatements months or even years after the deal is done.

TXU Issues Press Release Regarding Takeover Bid

Full Text of TXU Press Release

On Firm Being Taken Private

February 26, 2007 9:38 a.m.

Following is the full text of a press release issued by TXU Corp. on Monday, Feb. 26 on its deal to be acquired for nearly $32 billion, plus the assumption of nearly $13 billion in debt, by a group led by two of the nation's biggest private-equity firms, Kohlberg Kravis Roberts & Co. and Texas Pacific Group.

TXU to Set New Direction As Private Company; Public Benefits Include Price Cuts, Price Protection, Investments in Alternative Energy and Stronger Environmental Policies

DALLAS, TX -- TXU Corp., a Dallas-based energy company, together with Kohlberg Kravis Roberts & Co. and Texas Pacific Group, two of the nation's leading private-equity firms, and Goldman Sachs & Co., a leading global investment bank, announced today the execution of a definitive merger agreement under which an investor group led by KKR and TPG will acquire TXU in a transaction valued at $45 billion. GS Capital Partners, Lehman Brothers, Citigroup and Morgan Stanley intend to be equity investors at closing. Under the terms of the merger agreement, shareholders will be offered $69.25 per share at closing, which represents a 25 percent premium to the average closing share price over the 20 days ending February 22, 2007.

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.

Price Cuts and Price Protection

• 10 percent price decrease resulting in more than $300 million of annual savings for residential customers

• Price protection through September 2008

Stronger Environmental Policies and New Investments in Alternative Energy

• Planned coal-fueled generation units reduced from eleven to three, preventing 56 million tons of annual carbon emissions

• $400 million investment in demand side management initiatives

• Transaction endorsed by Environmental Defense and Natural Resources Defense Council

• Increased commitment to exploring renewable energy sources and investing in alternative energy technologies

Corporate Leadership and Climate Stewardship

• Former U.S. Secretary of State James A. Baker, III will serve as Advisory Chairman to the investment group of new owners

• William Reilly, Chairman Emeritus of the World Wildlife Fund and former EPA Administrator, will join board of directors and lead effort in making climate stewardship central to corporate policies

• Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, Chairman of the University of Texas Board of Regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S. Ambassador to Sweden, will join the board of directors

• TXU will create an independent Sustainable Energy Advisory Board comprised of individuals who represent the following interests: the environment, customers, Texas economic development and ERCOT reliability standards

Reorganization into Three Independently Operated Businesses

• Three separate and distinct businesses: generation, transmission and distribution, and retail

• Headquarters will remain in the Dallas/Fort Worth area

The acquisition of TXU by the investor group will be accompanied by an environmental focus that will make TXU a leader in conservation and energy efficiency, creating a fundamental change in the Texas electric market. In addition, the company's new strategic direction will seek to achieve top environmental performance in the industry and greater involvement and dialogue with environmental, government and community leaders.

The private investor group's long-term investment horizon allows TXU's board, management and the investor group to formulate a long-term strategy to meet TXU customers' needs and to respond to the significant energy challenges in Texas.

C. John Wilder, chairman and chief executive officer of TXU Corp., said, "This is a momentous event for our company in our long journey to transform TXU from a former integrated monopoly to high performance businesses. The new ownership and business structure will enable us to better meet the growing energy needs of Texans. The long-term capital, expertise and resources of the investor group will allow us to increase our focus on reliability, lower prices, outstanding customer service and innovative products, and investments in long-term environmentally sound technology. TXU is a proud Texas corporate citizen, and the company will continue to operate with the same commitment and dedication to serving Texas.

"KKR, TPG and the rest of the investor group are all world-class investors who bring valuable experience in the industry. With these long-term and very informed investors, we can execute a new strategy that will allow us to reshape TXU's program to build new electric-generation units," Wilder continued. "Our new strategy will meet two important objectives: addressing Texas' immediate and future energy and reliability needs; and doing so in a manner that responds to the desires of policy makers and other key stakeholders to incorporate new technology advancements and conservation."

Henry Kravis, founding partner of KKR, said, "TXU has outstanding employees dedicated to meeting the increasing long-term energy needs of Texas. We have listened to the various TXU constituencies, including customers, Governor Perry, Lt. Governor Dewhurst, Speaker Craddick, members of the Texas Legislature and those expressing environmental concerns. As a result, we have developed a new vision with management of how we can turn TXU into a more innovative, customer-centric, environmentally friendly company, and we plan to work with management to implement it. Our experienced energy team looks forward to providing strong support for this transformation, including making substantial, long-term capital investments in new innovation across each business -- from customer product and service offerings including demand side management, to generation and grid technologies, and superior risk-management strategies. We intend to hold this as a long-term asset, and we recognize the need to balance growth with environmental considerations."

David Bonderman, founding partner of TPG said, "With the support of the government and environmental leaders, TXU's new approach will better manage the delicate balance between the energy needs of a growing Texas population, responsibility to the environment and the cost concerns of Texas businesses and residents. We believe we've designed an innovative plan that meets the needs of all constituencies and reflects TXU's enhanced commitment to the shared goal of making Texas the most responsible, state-of-the-art electric market in the nation. We look forward to working with TXU's experienced management team and talented employees in the years ahead to make this exciting vision a reality."

Rich Friedman, Global Head of Goldman Sachs' Merchant Banking Division, said, "This transaction serves as a model for long-term environmental stewardship. By investing in new technologies, encouraging conservation and reducing carbon emissions and pollutants, TXU is on the path to being a 21st century power company. We, together with KKR and TPG, are proud to have been able to play a constructive role in the development of the significant environmental elements that help set this transaction apart."

Price Cuts and Price Protection

As a result of this transaction, TXU Energy will provide more than $300 million in annual savings through a 10% price reduction for residential customers in its traditional service area who have not already selected one of TXU Energy's other lower-priced offers. Customers will begin receiving a 6% reduction in approximately 30 days and an additional 4% reduction at the close of the transaction. 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. Furthermore, TXU Energy expects to aggressively compete state-wide to deliver benefits across all customer segments.

Stronger Environmental Policies and New Investments in Alternative Energy

Planned Coal Units Reduced from Eleven to Three, Preventing 56 Million Tons of Annual Carbon Emissions

This scale-back represents a 75% reduction in new coal capacity. In addition, the company is committed to continuing its efforts to meaningfully reduce existing carbon emissions and seeks to join the United States Climate Action Partnership (USCAP). USCAP is a broad-based group of businesses and leading environmental groups organized to work with the President, the Congress and all other stakeholders to enact an environmentally effective, economically sustainable and fair climate change program. As part of the company's support for USCAP, TXU is also pledging to support the mandatory cap and trade program to regulate carbon emissions.

To satisfy ERCOT's requirement for immediate additional capacity to meet the state's increasing electricity demand, TXU expects to build two coal units at the Oak Grovesite and one coal unit at the Sandow site. 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.

$400 Million Investment in Demand Side Management Initiatives

TXU will implement an aggressive demand reduction program through a $400 million investment in conservation and energy efficiency activities over the next five years.

Transaction Endorsed by Environmental Defense and Natural Resources Defense Council

KKR, TPG and the investor group are committed to addressing TXU's environmental issues through substantial new investments in research and demand side management initiatives and a 75% reduction in planned new coal capacity. Recognizing this, key environmental groups are supporting the transaction.

Fred Krupp, President of Environmental Defense, said, "This is one of the most significant developments in America's fight against global warming. Environmental Defense commends KKR and TPG for not only dropping TXU's applications for eight proposed coal plants in Texas, but also for the many other commitments they have made to reduce air pollution and global warming emissions, including their support for a mandatory federal cap and trade program to regulate carbon emissions, doubling TXU's expenditures on efficiency measures and their overall desire to rebuild TXU as a leader in the clean energy economy.

"The debate over this issue has been a top priority for Environmental Defense and we plan to work just as hard with the new TXU to implement this agreement. We also look forward to working closely with TXU as a member of its planned Sustainable Energy Advisory Committee and to settling our federal lawsuit against TXU," concluded Krupp.

"The NRDC fully supports this transaction and the new company's support for mandatory global warming legislation. This turnaround marks the beginning of a new, competitive focus on clean, efficient, renewable energy strategies to deliver the power we need while cutting global warming emissions," said Frances Beinecke, President of the Natural Resources Defense Council (NRDC). "It is a big step forward for the State of Texas and for the American energy economy as a whole."

Increased Commitment to Exploring Renewable Energy Sources and Investing in Alternative Energy Technologies

As a private company, free from the short-term financial pressures affecting all public companies, TXU will be able to accomplish important goals for customer service innovation and new generation technology development on a scale and schedule that would otherwise not be possible.

The investor group is grateful for Governor Perry's commitment to a long-term reliable supply of energy for Texas and his advocacy for investment in clean energy alternatives, such as IGCC. TXU is committed to the development and deployment of advanced technologies with a commitment to exploring IGCC's potential to meet Texas' reliability requirements. With the support of the Governor, the company is evaluating the dedication of an attractive site for the exploration of clean coal technologies and partnership with technology leaders.

TXU will reduce mercury (Hg) emissions, sulfur dioxide (SO2) and nitrogen oxides (NOx) by 20 percent from 2005 levels, as previously committed, through reductions at existing units and installation of emission controls on the new Oak Grove and Sandow units.

TXU will reduce its own carbon emissions by increasing efficiency of its generating facilities by up to 2%.

TXU will become a leader in providing electricity from renewable sources by more than doubling its purchase of wind power to more than 1,500 MW, maintaining its status as the largest buyer of wind power in Texas. TXU will also promote solar power through solar/photovoltaic rebates.

The company also intends to join the FutureGen Alliance, a non-profit consortium of companies supporting FutureGen, the U.S. Department of Energy project intended to create the world's first near-zero-emissions fossil-fuel power plant.

Corporate Leadership and Climate Stewardship

Former U.S. Secretary of State James A. Baker, III Will Serve as Advisory Chairman to the Investment Group of New Owners

Secretary Baker brings an enormous amount of business experience, legal and political acumen, and leadership.

"One very important reason for my participation in this transaction is the serious and substantial commitment to a new direction for TXU that takes into account my concerns about the environment," Baker said. "Two years ago in my hometown of Houston, I said publicly that we need to pay more attention to ways to protect our environment and that we needed to begin an orderly transition to cleaner energy. TXU's new approach on these issues is a critical and responsible step in reducing Texas' contribution to climate change. I look forward to advising the new owners of TXU in their efforts to foster a sustainable environmental model that will permit responsible economic development and that will serve our state and nation well."

William Reilly, Chairman Emeritus of the World Wildlife Fund and Former EPA Administrator, Will Join Board of Directors and Lead Effort Making Climate Stewardship Central to Corporate Policies

To guide the adoption of corporate governance policies that tie the company's operations and goals to environmental stewardship, former Environmental Protection Agency Administrator William Reilly will join the board of directors.

Three Prominent Texans Will Join the Board of Directors

Donald L. Evans, former U.S. Secretary of Commerce; James R. Huffines, Chairman of the University of Texas Board of Regents; and Lyndon L. Olson Jr., former Texas State Representative and former U.S. Ambassador to Sweden will join the board of directors.

TXU Will Create an Independent Sustainable Energy Advisory Board Comprised of Individuals Who Represent the Following Interests: The Environment, Customers, Texas Economic Development and ERCOT Reliability Standards

"To enable American energy independence and energy security, it is important to develop technologies that utilize America's vast energy resources with technologies acceptable to the public. We look forward to working with the new Sustainable Energy Advisory Board to develop energy solutions that meet the needs of Texas," said Mike McCall, CEO of TXU Wholesale.

Reorganization into Three Independently Operated Businesses

Three Separate and Distinct Businesses: Generation, Transmission and Distribution, and Retail

With the long-term focus and investment enabled by these world-class investors and private ownership, TXU can transform its operations into three independently managed businesses. This will better position each business to focus on the unique customers that it serves. Consequently, these businesses will have distinct names and separate management teams, headquarters and boards of directors.

• Generation: Luminant Energy will be the new company name, reflecting its new direction and encompassing TXU's power, wholesale, development and construction businesses

• Transmission and Distribution: TXU Electric Delivery will be renamed Oncor Electric Delivery

• Retail: TXU Energy will retain use of its name for the retail business

Headquarters for each of the three businesses will remain in the Dallas/Fort Worth area.

About the Transaction

Based upon the unanimous recommendation of the Strategic Transactions Committee comprised of TXU independent directors, the TXU board of directors has approved the merger agreement and has recommended that TXU's shareholders adopt the agreement.

Under the terms of the agreement, TXU shareholders will be offered $69.25 in cash for each share of TXU common stock held. This represents a premium of 20 percent to the closing price of TXU shares on February 22, 2007, the last trading day before press speculation about the transaction, and a 25 percent premium to the average closing share price over the 20 days ending on February 22, 2007.

The funding of the transaction will not result in new debt incurred at the regulated utility business.

After the transaction, the company's electric utility, generation, wholesale and retail electric activities will remain under the same jurisdiction of the Public Utility Commission of Texas, Nuclear Regulatory Commission and Federal Energy Regulatory Commission.

To avoid any future concerns regarding bidding in the wholesale market, the company intends to negotiate a "safe harbor" agreement with regulators.

Under the merger agreement, TXU may solicit proposals from third parties through April 16, 2007. TXU's board of directors, with the assistance of its independent advisors, intends to solicit proposals during this period. There can be no assurances that the solicitation of proposals will result in an alternative transaction. TXU does not intend to disclose developments with respect to this solicitation process unless and until its board of directors has made a decision regarding any alternative proposals.

TXU, KKR, TPG and the rest of the investor group expect to close the transaction in the second half of 2007, subject to receipt of shareholder approval and required federal regulatory approvals, as well as satisfaction of other customary closing conditions. There is no financing contingency to the transaction.

The consortium of investment banks providing committed financing to the investor group in support of the transaction includes Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers and Morgan Stanley.

Credit Suisse Securities and Lazard acted as financial advisors to TXU in connection with the transaction. Sullivan & Cromwell LLP and Cravath, Swaine and Moore LLP acted as outside legal advisors to TXU and the Strategic Transactions Committee, respectively, in connection with the transaction.

Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers and Morgan Stanley acted as financial advisors to the investor group. Simpson Thacher & Bartlett LLP, Vinson & Elkins LLP, Covington & Burling LLP, Hunton & Williams LLP and Stroock & Stroock & Lavan LLP acted as legal advisors to KKR, TPG and the investor group.

About TXU

TXU Corp., a Dallas-based energy company, manages a portfolio of competitive and regulated energy businesses primarily in Texas. In the competitive TXU Energy Holdings segment (electricity generation, wholesale marketing and retailing), TXU Energy provides electricity and related services to more than 2.1 million competitive electricity customers in Texas. TXU Power has over 18,100 MW of generation in Texas, including 2,300 MW of nuclear and 5,800 MW of coal-fired generation capacity. TXU Wholesale optimizes the purchases and sales of energy for TXU Energy and TXU Power and provides related services to other market participants. TXU Wholesale and its affiliate, TXU Renew, are the largest purchasers of wind-generated electricity in Texas and fifth largest in the United States. TXU Corp.'s regulated segment, TXU Electric Delivery, is an electric distribution and transmission business that uses superior asset management skills to provide reliable electricity delivery to consumers. TXU Electric Delivery operates the largest distribution and transmission system in Texas, providing power to three million electric delivery points over more than 100,000 miles of distribution and 14,300 miles of transmission lines. Visit www.txucorp.com for more information about TXU Corp.

TXU will release its fourth quarter earnings tomorrow, February 27, 2007. In light of today's announcement, management is not planning to host a conference call to discuss the results.

About KKR

KKR is one of the world's oldest and most experienced private equity firms specializing in management buyouts, with offices in New York, Menlo Park, California, London, Paris, Hong Kong and Tokyo. Over the past 30 years, KKR has invested in approximately 150 transactions with a total value of over $260 billion. KKR has extensive experience investing in the energy sector. Prior investments include ITC Holdings, DPL Inc., Texas Genco and Union Texas Petroleum. For more information, visit www.kkr.com.

About Texas Pacific Group

Texas Pacific Group (TPG) is a private investment partnership that was founded in 1992 and currently has more than $30 billion of assets under management. Headquartered in Fort Worth, with offices in San Francisco, London, Hong Kong, New York, Minneapolis, Melbourne, Menlo Park, Mumbai, Shanghai, Singapore and Tokyo, TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, joint ventures and restructurings. TPG seeks to invest in world-class franchises across a range of industries. Prior investments include Aleris International, Altivity Packaging, British Vita, Burger King, Continental, Denbury Resources, Grohe, Kraton Polymers, MEMC, MGM, Neiman Marcus, Petco, Seagate and Texas Genco. Visit www.tpg.com.

About Goldman Sachs & Co.

Goldman Sachs is a global investment banking, securities and investment management firm. We provide a wide range of services to a substantial and diversified client base, which includes corporations, institutional investors, governments, non-profit organizations and individuals. Our headquarters is in New York and we maintain significant offices in London, Frankfurt, Tokyo, Hong Kong and other financial centers around the world.

Forward Looking Statements

This release contains forward-looking statements, which are subject to various risks and uncertainties. Discussion of risks and uncertainties that could cause actual results to differ materially from management's current projections, forecasts, estimates and expectations is contained in the TXU Corp.'s filings with the Securities and Exchange Commission (SEC). Specifically, TXU Corp. makes reference to the section entitled "Risk Factors" in its annual and quarterly reports. In addition to the risks and uncertainties set forth in the TXU Corp.'s SEC reports or periodic reports, the proposed transactions described in this release could be affected by, among other things, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal proceedings that may be instituted against TXU Corp. and others related to the merger agreement; failure to obtain shareholder approval or any other failure to satisfy other conditions required to complete the merger, including required regulatory approvals; risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger; the amount of the costs, fees, expenses and charges related to the merger and the execution of certain financings that will be obtained to consummate the merger; and the impact of the substantial indebtedness incurred to finance the consummation of the merger.

Furthermore, the proposed transaction (other than the merger) described in this release could be affected by, among other things, the ability to profitably serve TXU Corp. customers given the announced price protection and price cuts; the ability to fund the investments for the activities described in this release; delays in approval of, or failure to obtain, air and other environmental permits for the Oak Grove units; the ability of TXU Corp. subsidiaries to resolve the consent decree issue regarding the proposed Sandow 5 unit; the ability of TXU Corp.'s subsidiaries and their contractors to attract and retain skilled labor, at projected rates, for planning and building the Oak Grove and Sandow 5 units; the ability of TXU Corp.'s subsidiaries to manage the construction program for Oak Grove and Sandow 5 to a timely conclusion with limited cost overruns; the challenges in increasing the efficiencies of TXU Corp.'s generation facilities; the commercial viability of alternative energy sources (including clean coal technologies); the ability of TXU Corp. to satisfy its commitments to successfully reduce emissions in a commercially reasonable manner; the availability of electricity from renewable energy sources for purchase by TXU Corp.'s subsidiaries; and the commercial viability of any future climate change program pursued by TXU Corp. Many of the factors that will determine the outcome of the subject matter of this press release are beyond TXU Corp.'s ability to control or predict.

Additional Information and Where to Find It

In connection with the proposed merger of TXU Corp. with Texas Energy Future Merger Sub Corp., a wholly-owned subsidiary of Texas Energy Future Holdings Limited Partnership (the "Merger"), TXU Corp. will prepare a proxy statement to be filed with the SEC. When completed, a definitive proxy statement and a form of proxy will be mailed to the shareholders of TXU Corp. BEFORE MAKING ANY VOTING DECISION, TXU CORP.'s SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT REGARDING THE MERGER CAREFULLY AND IN ITS ENTIRETY BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. TXU Corp.'s shareholders will be able to obtain, without charge, a copy of the proxy statement (when available) and other relevant documents filed with the SEC from the SEC's website at http://www.sec.gov. TXU Corp.'s shareholders will also be able to obtain, without charge, a copy of the proxy statement and other relevant documents (when available) by directing a request by mail or telephone to Corporate Secretary, TXU Corp., Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201, telephone: (214) 812-4600, or from TXU Corp.'s website, http://www.txucorp.com.

Participants in the Solicitation

TXU Corp. and its directors and officers may be deemed to be participants in the solicitation of proxies from TXU Corp.'s shareholders with respect to the Merger. Information about TXU Corp.'s directors and executive officers and their ownership of TXU Corp.'s common stock is set forth in the proxy statement for TXU Corp.'s 2006 Annual Meeting of Shareholders, which was filed with the SEC on April 5, 2006. Shareholders may obtain additional information regarding the interests of TXU Corp. and its directors and executive officers in the merger, which may be different than those of TXU Corp.'s shareholders generally, by reading the proxy statement and other relevant documents regarding the Merger, when filed with the SEC.