Clean Air In the News

By Michael Erman

NEW YORK, April 20 (Reuters) - Power generator TXU Corp. (TXU.N: Quote, Profile, Research) said on Thursday it would spend $10 billion to build 11 new coal power plants in Texas in a bid to capitalize on wide margins the plants earn in the state's deregulated power market.

It said the plants would add about 10 percent to the energy supply of the Electric Reliability Council of Texas (ERCOT) market, which is responsible for about 85 percent of the state's electric load.

A surge in natural gas prices beginning in late 2002 forced TXU and others to shut aging gas-fired plants that became too expensive to operate. However, ERCOT requirements provide that the market should have the capacity to generate 12.5 percent more power than it needs on the hottest summer day.

Generation in the market is currently projected to fall below those levels between 2007 and 2010.

"TXU is trying to maximize its future earnings through a massive construction program so that eventually when it gets to 2010 it will have a fleet of coal plants pretty unique relative to the other fleets in the state," said Dahlman Rose analyst Daniele Seitz, who believes the company will have to finance about half of the investment.

Mike McCall, president of TXU's wholesale unit, said TXU is talking to municipal utilities, electric cooperatives and large industrial customers about becoming equity owners in the new plants as a way to lower TXU's capital outlay and to comply with state law that limits generation owners to 20 percent market share. TXU is the largest generator in Texas with 20 percent.

The company said by using coal it would cut wholesale power costs by $1.7 billion a year. Because 72 percent of Texas' power generation is fueled by relatively expensive natural gas, coal plants have very attractive margins in the state's deregulated electricity market.

POLLUTION CONCERNS

However, coal plants emit more pollution than their natural gas or nuclear counterparts and roughly twice as much carbon dioxide, a greenhouse gas believed by scientists to cause global warming, as gas-fired plants.

To that end the company said its $10 billion includes up to $2 billion to install control technology to minimize sulfur dioxide, nitrogen oxide and mercury emissions at the plant.

Its plan also includes up to $500 million in spending for voluntary emissions reductions through fuel switching and adding emissions controls at existing plants.

It said the combination of the two investments would reduce emissions over the entire expanded power fleet by 20 percent from current levels.

TXU also said it would launch a new company, TXU Renew, to double its investment in renewable power. It also plans to spend up to $2 billion on the development and commercialization of cleaner plant technology.

Still, Luke Metzger, an advocate with environmental group Environment Texas, was skeptical about claims of reduced pollution.

"Already the three that they've proposed are going to cause serious air pollution problems for Texas. Eight more is breaking the bank for air quality," Metzger said. "It is a major step in the wrong direction."

He also suggested that the plants could become weighed down by unforeseen costs related to possible regulation of carbon dioxide.

McCall said Texas needs additional power resources soon. "The only viable carbon-free option is nuclear. You'd be hard-pressed to build a nuclear plant in less than 10 years."

While TXU's coal-plant construction plan may face opposition from environmentalists, McCall said, "We hope the public will recognize that we are taking steps to protect the environment."

The 11 units would have a total generating capacity of 8,600 megawatts. The company filed air permit applications with regulators for eight of the plants on Thursday. If approved, they are expected to be online by 2010.

The other three plants had been previously announced and the company has already started the permitting process for them.

TXU said it would work with two contractors on the new units, Bechtel and Fluor Corp. (FLR.N: Quote, Profile, Research). The projects are expected to create 40,000 construction and other temporary jobs as well as 21,000 permanent jobs. (Additional reporting by Ben Berkowitz in New York and Eileen O'Grady in Houston)