Hot Politics Web site reports by the Center for Investigative Reporting, Inc.

Perhaps it was inevitable that TXU Energy, the largest power provider in the state of Texas, would wind up at the center of a major skirmish with environmentalists.

Texas, after all, has an outsized pollution problem. Each year some 694 million metric tons of heat-trapping carbon dioxide waft into the sky from tailpipes and smokestacks in the state, nearly double the CO2 emissions of California and more than any other state. The coal-burning power plants of TXU, a Dallas-based firm which last year posted $2.5 billion in profits, are a major source of those fumes.

Conflict between green activists and TXU erupted in 2006, when the company announced plans to build 11 new coal-fired power plants in the coming years to meet the state's growing appetite for electricity. Texas Gov. Rick Perry promised to fast-track the permits for the plants, despite growing concerns about the massive amounts of CO2 belched skyward by the facilities.

For Philip Clapp, president of National Environmental Trust, fighting the proposed plants was an issue of national significance. "We can't let all these plants come online," Clapp told FRONTLINE at the time. "At least, not with old, 1970s technology, which is what the TXU plants are. These are the cheapest and dirtiest of all kinds of electric generation technology."

National environmental groups like the Natural Resources Defense Council and Environmental Defense led the fight against TXU and pulled together an unusual coalition of city mayors, ranchers and Texas consumers to oppose the proposed plants. A bitter public dispute -- and lawsuit -- were well underway when a surprise financial deal was made public in February 2007.

A consortium of private equity firms, including Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group, announced a $45 billion takeover bid for TXU, the largest takeover bid on record. The group of financiers and advisors involved in the deal included some famous Republican names; former Secretary of State James Baker is chairman of the Advisory Board for the buyout group, and former EPA Administrator William Reilly and former Commerce Secretary Donald Evans are both likely to serve on the TXU board post-takeover.

The buyout scheme, which was promoted with much fanfare, had the backing of a surprising constituency: the national green groups. In a series of secret meetings, Natural Resources Defense Council (NRDC) and Environmental Defense had negotiated with the private equity firms to hammer out the terms of an eco-friendly deal. The consortium pledged to scrap all but three of the proposed coal plants; expand TXU's renewable energy portfolio and invest in wind power; improve energy efficiency in the company's operations; and support legislation for national caps on CO2. A promise to slash electricity bills by 10 percent also made Texas consumers happy. As a result of the negotiations, Environmental Defense agreed to drop its lawsuit against the company, and many prominent environmental outfits praised the pact.

"This investment that we're doing is going to be green in both senses of the word," former EPA Administrator Reilly told FRONTLINE. "We wouldn't be doing it if we didn't believe it was going to be good for our own investors. But it's also a good green investment from the point of view of the climate and the environment, and that's the ideal win-win."

But now, as further details about the deal are emerging, some environmentalists are questioning whether the deal is really as "green" as promised. A loophole in the proposed deal would allow TXU to build more coal plants in the near future. And although the private equity firms promised to look into building any additional coal plants with cleaner gasification technology, there are no hard guarantees in the deal.

The news, in early April 2007, that TXU and the buyout firms intended to build two to five new nuclear power plants in Texas further raised concerns among environmentalists and Texas citizens. And when all is said and done the "new" TXU will still be building three old-style coal plants.

Wall Street skeptics have suggested that the real motive behind the deal may be profit. By canceling the proposed coal plants, TXU will be cutting sharply the number of new electric plants feeding into the grid, which could mean higher electricity prices -- and bigger profits for the new owners of TXU. In addition, the deal would turn a publicly traded company into a privately owned firm whose new owners have an incentive to slash costs so they can flip the company for a profit down the road.

To confront that complaint, the Texas Pacific-KKR consortium has promised to hold onto the utility for at least five years. Again, however, there are no guarantees the consortium will live up to its word.

In April 2007, the TXU skirmish made its way to the Texas Legislature, where lawmakers pushed competing bills concerning the deal. Some legislators hoped to pass a law giving them the power to regulate or at least examine the TXU transaction, but on April 19, the Texas House approved a bill which exempts the deal from state scrutiny, though future buyouts must be approved by state regulators.

The 50-day deadline for TXU to accept competing bids passed on April 16, 2007, making it likely the Texas Pacific-KKR consortium deal will move forward in the very near future.

Oriana Zill de Granados is the productions director of the Center for Investigative Reporting. She also served as a senior producer on Hot Politics.