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Committing Itself to Coal: New Plants Will Help Power Shortage, TXU Says

Posted on: Saturday, 20 May 2006, 06:02 CDT

By Dan Piller, Fort Worth Star-Telegram, Texas

May 20--DALLAS -- TXU Corp.'s plan to build 11 coal-fired electric plants isn't a perfect solution to Texas' looming electricity shortage, but it's the best of the available alternatives, Chairman John Wilder said Friday.

"There's nothing we'd like more than to find the perfect solution to the need for more electricity, but it doesn't exist," Wilder said at a news briefing after the company's annual shareholders meeting Friday at the Morton Meyerson Symphony Center in Dallas.

During the meeting, almost two dozen people carried signs protesting high electricity costs.

The group had been organized by ACORN, an advocacy organization for low-income residents.

Electricity prices have risen more than 35 percent in the past year, mostly because of the rising price of natural gas.

Wilder's plan to build 11 plants on existing TXU coal-generating locations in Central and East Texas is also being criticized by environmental activists, who say TXU should further investigate new technologies that turn coal into gas. TXU hopes to get state permits for the plants by April, Wilder said.

"Coal-gasification plants are a gleam in someone's eye," Wilder told a questioner at the meeting.

He said the types of coal to be used in TXU's plants, East Texas lignite and low-sulfur Wyoming coal, don't lend themselves well to gasification.

Wilder said that his preference for new generating capacity would be nuclear, to complement TXU's nuclear plant at Glen Rose, serving Dallas-Fort Worth, but that the necessary state and federal permit processes would preclude any nuclear construction before 2015.

"We'll be in the soup then," said Wilder, referring to forecasts by the Texas electric-grid operators that because of growth and rising demand for electricity, the state's reserve margin is expected to dwindle to single digits by 2010. Such a margin would leave Texas vulnerable to blackouts and brownouts during peak demand periods.

So committed is TXU to moving away from gas-fired generation that Wilder said the company is selling its 17 gas-fired generating plants.

Texas began the 21st century with a statewide electricity reserve margin of more than 20 percent.

The question about gasification plants came from Tom Smith of Austin, director of the Ralph Nader-organized Public Citizen, who attended the meeting as owner of five shares of TXU stock. Smith has led the fight so far against state permits for the new TXU plants.

"Why are you risking the health of our people and the environment with new fossil-fuel plants when gasification technology exists now?" Smith asked Wilder at the meeting.

Wilder said coal gasification hasn't advanced beyond the experimental stage, not far enough for the 8,000 megawatts of new capacity that TXU says it will need after 2010.

TXU now generates about 18,500 megawatts of electricity daily. Of that, 5,837 megawatts are generated by four major coal-fired plants in East and Central Texas and 2,300 megawatts by the nuclear plant at Glen Rose. The rest is generated by natural gas, an expensive proposition after the fourfold rise in natural gas prices this decade.

"We simply can't let our electricity rates be held captive by a volatile commodity such as natural gas," Wilder said.

He noted that although natural gas prices have dropped from $12 per thousand cubic feet before the end of last year to around $6 per thousand cubic feet this month, futures contract prices indicate $6-$8 per thousand cubic feet the foreseeable future.

"You can't cut your rates every time the natural gas price drops," Wilder said, noting that TXU will earn a profit margin of 5 percent to 10 percent on sales of gas-fired electricity and that its profits will disappear once gas prices again reach $8 per thousand cubic feet.

He suggested that some of TXU's rivals in the retail electricity market might want to buy generating capacity, noting that in periods of short electricity supply such as last month during an unexpected heat wave, "the small electricity providers get killed when they have to pay $600 per megawatt hour for wholesale electricity."

Wilder said TXU won't offer wholesale electricity on the market at more than $200 per megawatt hour simply because it doesn't want to face criticism for using its size to control prices in the wholesale market.

"We are a big target with a bull's-eye on our back," Wilder said.

www.txu.com

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Dan Piller, (817) 390-7719 danpil@star-telegram.com

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Copyright (c) 2006, Fort Worth Star-Telegram, Texas

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Source: Fort Worth Star-Telegram (Fort Worth, Texas)

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