The New Carbon Cycle

McKinsey Article Concludes Good News for Emissions: US and EU Emissions Down, Economies UP

McKinsey and Company director Scott Nyquist authored on article entitled Great News on Emissions. Really.  He concludes that the US and EU have cut emissions while growing their economies. 

His article provides an upbeat view.

So it’s very important that in both 2014 and 2015 the global economy grew—and energy-related emissions didn’t.  In the 40 years that the International Energy Agency has been tracking emissions, this is the first two times that year-on-year energy-related emissions have been flat or less, without an economic downturn.  And in 2013, emissions grew less than the global economy.  For perspective, energy accounts for more than two-thirds (68 percent) of global GHG emissions, and energy use increased more than 150 percent from 1971 to 2013.

So all that sounds pretty wonky.  Why does it matter?  Because it means that it is not only possible, but a reality that the link between emissions and growth can, in fact, be cut.  Indeed, in a number of developed countries, that is already happening.  In 2014, for example, the EU grew modestly—and cut emissions by more than 5 percent.  The United States saw power-related carbon emissions decline 10 percent from 2005 to 2014, due to greater efficiency—in effect, like Europe, it is creating more wealth using less energy—and  the displacement of coal with cleaner natural gas.

China and India have room to approve as most of us know.

But here, too, there are encouraging trends.  The rate of growth of emissions in China is slowing, as its economy becomes less energy intensive—services now account for more than half of GDP, the highest ever.  China has also begun to get serious about growing less filthily. In part because of pressure from a public literally sick of living in smog-choked cities, the country is investing in more efficient and cleaner energy use.  In 2014, Chinese emissions increased less than 1 percent compared to the previous year, even as it grew 7.3 percent.  In the previous decade, China’s emissions had grown an average of 6.7 percent a year.  So that’s a big change.  The big reason: China is depending less on coal, which accounts for more than 80 percent of its energy-related emissions.

 

The author concludes, and I agree, that technological innovation is the key to solving greenhouse gas emissions issues. While the emissions issues are far from solved, great steps have been made.  The investment in new technology, renewables, innovations in business models and financing approaches present one of the great business opportunities the world has ever seen.  Trillions of dollars will be invested over the next 10 years and beyond to address these issues as more energy is demanded, but more efficient use and alternative ways of generation energy and controlling emissions from traditional sources opens up an economic boom.

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How Disruptive Technology Can Provide Money-Making Emissions Reductions

I recently published an article entitled How Disruptive Technology Can Provide Money-Making Emissions Reductions.  This article explores the disruptive technologies that are changing the way companies purchase power, or reduce their power consumption or both.  With renewable energy, LED lighting, Cloud-based, Internet of Things energy management, and now batteries, the technologies are getting cheaper and the money that can be saved is signifiant. 

These new technologies also reduce emissions as they reduce the amount of fossil fuel that needs to be burned to produce electricity.   With new business and financing models, the customer may not have to put up any capital, but through a shared savings model, start making money the first or second month.

Thus, emissions go down, and the customer makes money from lower electricity prices or reduced electricity use.  The company providing the power, LED lights, and energy management make money. 

It is a win all the way around.  The new technologies and financial models are bringing clean, cheap energy to corporate America.

Client Receives Greenhouse Gas Permit for $1.2 Billion Natural Gas Power Plant in West Texas

EPA Region 6 just issued the following press release for a permit granted to our client governing green house gas emissions.

 

Permit allows construction of $1.2 billion natural-gas fired plant; will add hundreds of construction jobs and over 30 permanent jobs                                     

DALLAS – (April 29, 2014) This week, the U.S. Environmental Protection Agency (EPA) issued a final greenhouse gas (GHG) Prevention of Significant Deterioration (PSD) construction permit to FGE Power for the FGE Texas project near Westbrook, Texas. The permit allows the company to build a new natural-gas fired combined-cycle electric generation plant.   

“This facility will bring clean-burning electricity to the people of Texas,” said EPA Regional Administrator Ron Curry. “The FGE plant is an example of how electricity providers can meet customer demand while reducing harmful greenhouse gas emissions.”

“We look forward to putting people to work and helping to power Texas’ economic future,” said FGE Power’s CEO, Emerson G. Farrell. “EPA’s thorough review and thoughtful findings demonstrate that new technology, combined with a fresh approach to developing clean energy and sustainable infrastructure, can make a positive difference on our economy and the environment.”

The facility, in West Texas between Midland and Abilene, will generate 1,620 megawatts of gross electric power. The facility will operate almost entirely on clean-burning natural gas, with some emergency equipment using diesel fuel.

In June 2010, EPA finalized national GHG regulations, which specify that beginning on January 2, 2011, projects that increase GHG emissions substantially will require an air permit.

EPA believes states are best equipped to run GHG air permitting programs. Texas is working to replace a federal implementation plan with its own state program, which will eliminate the need for businesses to seek air permits from EPA. This action will increase efficiency and allow for industry to continue to grow in Texas.

This permit is the 36^th GHG permit EPA has issued in Texas. The agency has proposed an additional five permits and has 19 more in development.

Arrogant or Accurate?: ExxonMobil’s Reports on Climate Change and Oil and Gas Reserves

Recently, ExxonMobil issued two reports Energy and Carbon--Managing the Risks and Energy and Climate  in response to a request by certain shareholders to disclose information related to climate change and potential constraints on the ability to produce its oil reserves.  In an editorial in The Guardian ExxonMobil’s response was called “consummate arrogance.”  But if we consider the predictions of fossil fuel use by the U.S. Energy Information Agency (EIA), the use of fossil fuel will continue apace through 2040.  So the question is, based on the EIA predictions, is ExxonMobil’s reporting arrogant, or is it accurate based on current information and regulatory regimes?

I am teaching a climate change law course this year at the University of Texas Law School, and one of the reports I discussed with my class is the Energy Outlook published annually by the U.S. Energy Information Administration.  The EIA in the  AEO 2014 Early Release Overview  predicts the use of large amounts of petroleum in the United States through 2040.

"Total U.S. consumption of petroleum and other liquids, which was 35.9 quadrillion Btu (18.5 MMbbl/d) in 2012, increases to 36.9 quadrillion Btu (19.5 MMbbl/d) in 2018, then declines to 35.4 quadrillion Btu (18.7 MMbbl/d) in 2034 and remains at that level through 2040."

The following graph shows primary energy consumption through 2040, based on current facts and circumstances.

Based on the projections of the well-respected EIA, there is no expected curtailment of the ability to produce oil and gas from existing reserves, but a continued use of fossil fuels in the United States at around current levels through 2040.  Prohibition of the use of fossil fuels does not appear likely at this time.

While this may not bode well for greenhouse gas emissions from the United States, not to mention China, India and other countries, it appears to be what is expected based on current information, at least as evaluated by the EIA. 

This of course is what the parties who requested the reports from ExxonMobl would like to avoid.  Ceres and As You Sow, among others, sought disclosures from the company.  However, disclosure does not affect change in current energy sources, infrastructure, and technology, or existing or reasonably likely restrictions on oil and gas use or on production of these resources.

As an attorney who has advised clients on environmental and climate risk disclosures, it would be difficult to expect a public company, based on current circumstances or reasonably foreseeable circumstances, to conclude in reports to shareholders that oil and gas reserves are likely to be restricted, and that the value of those reserves or the company shares are likely to be devalued. 

Much of this has to do with the current need for fossil fuels to power transportation and electricity generation.  Without replacements, fossil fuels will be used.

Key questions are:  What replacement do we have for transportation fuels?  What technology do we have to provide low cost and dispatchable electricity without use of fossil fuel?  What would be the impact if we ceased using fossil fuels today? In five years? Ten?  The reality has to be faced.

In discussing these issues with my class,  I provided the conclusions of the Berkley National Laboratory in California reviewed the capability of the State of California to reduce greenhouse gas emissions by 85% by 2050. 

 

California is on track to meet its state-mandated targets for reducing greenhouse gas emissions for 2020, but it will not be able to meet its 2050 target without bold new technologies and policies. This is the conclusion of the California Greenhouse Gas Inventory Spreadsheet (GHGIS), a new model developed by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) to look at how far existing policies and technologies can get us in emissions reductions.

 

"Bold new technologies" are necessary, in my view, to use fossil fuels in ways that reduce emissions. 

To provide an insight to new technologies under development, in another class, I invited the leader of the UT Clean Energy Incubator and he brought four of the companies in the incubator to discuss their developing technologies that if adopted would reduce greenhouse gas emissions.  One has developed a new piston for interanal combustion engines that reduces fuel use by as much as 50 percent.  The company is working with the U.S. Department of Defense to test the technology to see if the Army could replace  the pistons in their transportation trucks, and significantly reduce fuel use--a critical issue issue in warfare as seen in Iraq and Afghanistan.  

Another company I invited is able to reduce electricity use in small office buildings by 10 or 20 percent with energy management software in the cloud and smart thermostats.  I have a friend who is selling a fuel additive that can cut diesel use in large trucks from 10 to 30 percent.  Yet another local company is installing technology to capture CO2 from a cement plant near San Antonio and use it to make a product that can be sold in well established markets.  If it works, it could be used on other sources of CO2 emissions like power plants.

These and hundreds if not thousands of other companies, professors, or inventors are developing, testing, or seeking capital to try to commercialize numerous other potentially promising low carbon technologies in the United States and in other countries. 

This is where the real work has to be done.  Accurate disclosure is critical by public companies.  However, mandatory disclosure or voluntary disclosure may not be the best focus to resolving the climate challenges at hand. 

Climate change, greenhouse gas reductions, and fossil fuel use are very complex issues. Simple arguments or attempts to deal with them will not lead to solutions.

Private and governmental investment in research and development and new companies and technologies may be a better approach to reducing greenhouse gas emissions, particularly if the EIA and ExxonMobil are right about future use of fossil fuels.

Brattle Report Concludes Solar Power Would Save on Texas Electricity Rates

The Texas electricity market within the Electric Reliabibilty Council of Texas or ERCOT, which covers 80 percent of Texas, is suffering from a deficit of peak power.  Concerns are rising that the state will be short on power during the summer months.  The Brattle Group was engaged to prepare a report for ERCOT on how to manage or address the power shortage issue.  The Brattle Group also prepared a report entitled, The Impact on Solar PV on Electricity Markets in Texas, which discusses electricity cost savings Texas could produce if it built more solar farms--the price of solar power would be less than peak power plant prices.

The irony is that many believe that solar power is always more expensive than traditional power plants like natural gas plants.  But electricity markets are complicated.  Base load power is very inexpensive in Texas because of abundant natural gas that has arisen through the technology of horizontal drilling and hydraulic fracturing in the gas shales--which has unleashed a tremendous resource of cleaner burning fossil fuel.

However, peak power prices can be very expensive.  In Texas, ERCOT raised the cap price from $3000 per MW to $4500 per MW, and the cap is going to rise to $9000.  The hope is this will encourage more natural gas power plants to be built.

Solar can be one of the answers.  With rapidly declining prices for solar PV panels and the short time to build solar farms, 90 or 120 days in some instances, solar is much less than $3000 per MW.  A natural gas plant can take a couple of years to permit, finance, and build.  We still need these plants, but solar can be a contributing factor to managing peak power--the sun shines most when peak power is needed to cool homes and businesses in the hot summers in Texas.

Solar PV can contribute to energy savings, if applied in the right way, in the right market, and at the right price.  The Brattle Report shows how solar could contribute to enhancing the Texas electricity market.  Unfortunately, the politics in the Texas legislature is likely to prevent any renewable bills from passing.

While Texas has the largest installed wind power base, it is unfortunate that we could not work to be the leader in solar, so that Texas is the all-of-the-above leader--wind, solar, and oil and gas.  It would appear to all be good for the economy and good for the environment.  Creative and empirical thinking is at a disadvantage if politics gets in the way--Democrats and Republicans both need to realize that we need at this time fossil fuels and alternative energy.  Each has their own necessary role in today's economy and with today's technology.

NRG Negotiates Deal with Environmental Groups on Carbon Offsets to Move Forward with Coal-Fired Power Plant in Texas

NRG Texas LLC, a subsidiary of NRG Energy has negotiated an agreement with environmental groups regarding expansion of the NRG coal-fired power plant near Houston Texas.  The two environmental groups were Texas Clean Air Cities Coalition and the Environmental Defense Fund.  While there no specific climate change statutes have been adopted in Washington or in Texas, the environmental groups had threatened to oppose the expansion.

Last year environmental groups were successful in convincing TXU to take 8 of 11 coal-fired power plants off the planning stages in Texas.  This year Kansas denied a permit application for a coal-fired plant because of the lack of any management plan for carbon dioxide (CO2) emissions.  Coal has been under attack by environmental groups and certain state governments.  However, coal is a very inexpensive source of fuel for producing electricity, if the greenhouse gas emisisons can be reduced or offset, or both.

Under the agreement with the two environmental groups, the plant will offset or sequester underground half of its CO2 emissions until a federal climate change program is adopted and implemented.  In addition, the company will build or support the development of a utility scale solar power project in Texas, or contribute to a trust that would fund Texas energy efficiency projects.

Could Thin Film Solar Make Solar Electricity Cheaper Than Coal Produced Power?

New technology breakthroughs have been the hope of governments and the public for everything from climate change and global warming, energy security, domestic versus foreign production and jobs, to distributed power production that need not be purchased from large utilities.  Solar energy one of the hoped for solutions has been hampered by manufacturing costs.  The solar panels we have all seen are large and costly to produce because they rely on silicon that is also used for computer chips.

With the development of thin film solar, the ability to reduce the cost may be solved.  A story from Celsias describes how a company called Nanosolar is producing a solar film that is printed much like documents on your inkjet printer at home.  The new technology may reduce solar electricity costs from $3 a wat to 33  cents a watt--competitive with electricity from coal-fired power plants. The Nanosolar plant in San Jose, once in full production in 2008, will be capable of producing 430 megawatts per year. This is more than the combined total of every other solar manufacturer in the U.S.

This breakthrough technology has the ability to revolutionize power production. Keep an eye on Nanosolar and other companies in the thin film space.

New Carbon Finance Study Predicts One Trillion Dollar US Carbon Market

Various stories have arisen on the Internet regarding a study released on February 14, 2008 by New Carbon Finance, a division of New Energy Finance, a provider of information and analysis on renewable energy and low-carbon industries.  The study reportedly predicts that the USlegislation now being considered that limits carbon trading to the US market, would create a $1 trillion US carbon market by 2020. However, the exact nature of such market is not clear.  It is not clear whether the study predicts an annual market, which would seem overstated, or a cumulative market over 10 years, or on average $100 billion per year, which seems very possible.  The study predicts the US market would be twice the size of the EU market.

Major investments in the US would occur in clean technology, accoding to the study. These projects would include renewable energy, energy efficiency, and greenhouse gas mitigation projects.

At present there are about thirteen bills that have been filed in the Congress, in both the House of Representatives and the Senate.  Almost all are based on a cap-and-trade program.  Thus, it appears if any bill is actually passed, a market-based program to cap greenhouse gas emissions and to allow the selling of carbon allowances and offsets will be the system that is implemented in the US to reduce greenhouse gas emissions and to address climate change.

The study by New Carbon Finance reportedly concludes that an economy-wide cap-and-trade system will be implemented within four to five years.  An economy-wide greenhouse gas emissions reporting system has already been passed in the December Omnibus Spending bill and the President has signed it into law.  The US Environmental Protection Agency is already working on the implementing regulations.  The law requires EPA to propose draft reporting regulations by September 2008 and final regulations by September 2009.  The reporting regulations form the foundation of any future greenhouse gas emission law.

The three currently viable presidential candidates from both parties have committed to controlling greenhouse gases and to passing climate change legislation.  John McCain, the Republican candidate, co-authored a bill with Joe Lieberman restricting greenhouse gas emissions and creating a cap-and-trade system.

"Even if the current Bush administration rejects all of these bills, the next president will be less inclined to use a veto. All leading 2008 presidential candidates have endorsed the need for action and some have already supported significant emissions reductions," said Michael Liebreich, CEO of New Energy Finance.

The US legislation that has made it the farthest in the legislative process, the Lieberman-Warner Climate Security Act, which was passed out of the Senate Environment and Public Works Committee, would impose restrictions on the use of international credits under any post-Kyoto agreement, such as the Certified Emission Reductions generated through the Clean Development Mechanism.  The CDM program allows the use of cheaper offset credits generated through less expensive greenhouse gas reduction projects in developing countries.

"This will have two important consequences. For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessarily high levels. It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries," said Milo Sjardin, who heads the North American division of New Carbon Finance.

The press release on New Carbon Finance’s website also states that the study predicts that, if US legislation does not allow domestic companies to purchase cheaper international carbon credits from projects in developing countries, the price of carbon will rise to $35 to $40 per metric tonne of carbon dioxide equivalent by 2015. At this price for carbon, the study predicts that the prices of electricity would rise by 20%, gasoline by 12%, and natural gas by 10%.  Other prices for goods in the economy would also increase as a result of power and fuel price increases. 

On the other hand, if the legislation allows the purchase of offsets from projects in the developing world, the price of carbon would be around $15 to $20.  At a $15 per ton of CO2 equivalent, the effect on the economy would be reduced.  The study predicts the price of electricity would rise by 7%, the price of gasoline 4% or about 13 cents a gallon, and natural gas would rise by 5%.  The resulting economy-wide price increases would be less as well.

The real focus of the study appears to be on the differential in the price of carbon and the impact on the economy if greenhouse gas emitters are not allowed to purchase international carbon credits to offset their emissions. Under this analysis, any US legislation should permit international carbon trading to offset US greenhouse emissions to lessen the impact of greenhouse gas limitations on the US economy.

Oregon Sets Goal of 25 Percent Renewable Energy by 2025

From Green Wire.

An essential part of Oregon Gov. Ted Kulongoski's (D) green future for the state, a bill mandating that renewable energy account for a quarter of Oregon's electric utilities' retail sales by 2025, passed the state Senate yesterday.

Calling the bill a "landmark effort," state senators passed SB 838, which would mandate that renewable power sources like wind, solar and geothermal account for 5 percent of the state's power sales in 2011, climbing gradually to 25 percent by 2025.

"This bill is one of the strongest actions this body can take to do our share to curb global warming and protect ... our increasingly fragile planet," said state Sen. Ben Westlund (D). "It helps brand us as the environmentally clean state that we are ... this has huge implications not only for today but for our future."

The bill is the centerpiece of Kulongoski's efforts for a more environmentally friendly Oregon. Other efforts include an increase in alternative energy tax credits and incentives for growing biodiesel and ethanol crops (Greenwire, Feb. 13).

The bill easily passed the state Senate thanks to the Democratic majority, but Democrats in the state House hold a slimmer majority. Republican opponents to the bill said forcing utilities to spend more on energy would mean higher costs for consumers.

The bill would allow utilities to recover the cost of their renewable energy investments through higher rates, but it includes a provision that could release them from the mandate if their costs increase by more than 4 percent of their revenue in one year (Aaron Clark, AP/Salem [Ore.] Statesman Journal).

Pacific Power and Portland General Electric, which together account for 70 percent of the electricity sold in the state, said that while the target would be difficult to reach they still support the bill.

"We think we can get to 15 percent by 2015 and have it be cost-effective," said Scott Bolton, a Pacific Power lobbyist. "Twenty-five percent? That seems hard" (Gail Kinsey Hill, Portland Oregonian, April 11). -- EB

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.