M&A

TXU Reveals the Cost of Powering Down

Utility halts development of eight power plants and takes a $713 million charge.
Stephen TaubMay 8, 2007

TXU disclosed that it took a $713 million charge ($463 million after taxes) in the first quarter for suspending the development of eight coal-fueled power plants.

The utility agreed to halt the projects as a condition of its $32 billion sale to an investor group led by Kohlberg Kravis Roberts, Texas Pacific Group, and Goldman Sachs.

In a regulatory filing, TXU explained that the bulk of the $713 billion was accounted for by $702 million of impairment charges, comprising $673 million for the impairment of construction work-in-process asset balances and $29 million for the write-off of deferred financing costs, including commitment fees and costs for professional services.

The company also warned that it expects to record additional charges regarding suppliers’ costs incurred as a result of the terminations.

Last month the company negotiated the termination of certain equipment orders, expected to result in a pretax charge of about $79 million to be reported in the second quarter. TXU added that it is exposed to additional liabilities of up to $150 million for termination and suspension costs under other equipment purchase orders and construction agreements related to the development program.

“The ultimate loss to be realized related to the construction work-in-process assets may differ materially from the estimate recorded in the first quarter of 2007 as amounts due to suppliers for actual work completed are resolved and salvage and resale actions are finalized,” TXU warned in its filing.

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