THE WALL STREET JOURNAL - drunfried.wikispaces.com

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TXU says it has already reduced carbon-dioxide emissions per unit of electricity produced by adding wind turbines and nuclear power to its mix.
THE WALL STREET JOURNAL

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| | |[pic] | |[pic] | |[pic] | | | | | | | | | | | |Burning Debate | |As Emission Restrictions Loom, | |Texas Utility Bets Big on Coal | |Planned TXU Plants Raise | |Global-Warming Concerns; | |Rivals Try New Technology | |Mr. Wilder Cites Demand | |By REBECCA SMITH | |July 21, 2006; Page A1 | |Top executives at many utility companies have reluctantly accepted | |that coal-fired power plants contribute to global warming, and they| |have begun planning for a more restrictive future. | |Then there is C. John Wilder, chief executive of TXU Corp. The | |Dallas-based utility company is racing to build 11 big power plants| |in Texas that will burn pulverized coal. That process releases | |substantial amounts of carbon dioxide, the most worrisome of | |several heat-trapping gases widely blamed for global warming. | |TXU contends Texas needs a lot more power, and it wants to be the | |company to provide it. Critics of its $11 billion construction | |program see another motivation: The federal government may slap | |limits on carbon-dioxide emissions. If it does, plants completed | |sooner may have a distinct advantage. That's because the government| |may dole out "allowances" to release carbon dioxide, and plants up | |and running when regulations go into effect may qualify for more of| |them than those built at a later date. | |TXU opposes such regulations, which could force power companies to | |build more complicated and expensive plants. Other big utility | |companies, including American Electric Power Co., Xcel Energy Inc. | |and Duke Energy, have proposed newer-style plants that release | |fewer pollutants and make it easier to control carbon-dioxide | |emissions. | |The 11 new plants TXU plans to build over the next four years would| |double its electricity output -- and more than double its | |carbon-dioxide emissions. The Environmental Defense Fund, an | |advocacy group, estimates that TXU's annual carbon-dioxide | |emissions would jump to as much as 133 million tons in 2011 when | |its new plants are completed, from 55 million tons in 2004, numbers| |that the company confirms. The increase would make TXU the | |third-largest emitter of carbon dioxide among U.S. power companies,| |up from No. 10 today. | |TXU says it has already reduced carbon-dioxide emissions per unit | |of electricity produced by adding wind turbines and nuclear power | |to its mix. Without such efforts, its carbon dioxide output would | |be 45% greater, the company says. | |Carbon dioxide is produced naturally when animals breathe and | |plants decompose. It is a small but essential component of the | |earth's atmosphere. The burning of fossil fuels such as coal and | |gasoline also produces the gas. Carbon dioxide is building up in | |the atmosphere, trapping heat and warming the globe. Currently, the| |federal government doesn't classify carbon dioxide as a pollutant | |and doesn't regulate emissions of it. | |The U.S. produces nearly one-quarter of the world's man-made carbon| |dioxide. It would be difficult for the U.S. to make meaningful | |reductions without cooperation from the power industry. Power | |plants produce 39% of U.S. carbon-dioxide emissions, and | |four-fifths of that amount comes from coal-fired power plants. | |Texas is responsible for 10% of the nation's total, more than any | |other state. | |J. Wayne Leonard, chief executive officer of Entergy Corp., a New | |Orleans-based utility holding company where Mr. Wilder once worked | |as chief financial officer, says the science behind global warming | |is persuasive and carbon-dioxide regulation is inevitable and | |necessary. He calls it "unacceptable" for power companies to build | |lots of new plants heedless of the environmental effect of carbon | |dioxide. Unless proof emerges that the scientific data are flawed, | |says Mr. Leonard, "you stop doing what you're doing because you're | |putting all mankind at risk." | |Entergy runs some coal-fired plants, but makes most of its | |electricity from nuclear fuel and from burning natural gas, which | |produces less carbon dioxide than coal. It intends to develop more | |nuclear facilities, which it bills as "zero-emission." Other | |utility companies are investing in new coal-burning technology that| |is capable of significantly reducing carbon-dioxide emissions. | |"There's no question we're planning to meet energy needs | |differently today than 20 years ago," says Peter Sheffield, a | |spokesman for Duke Energy Corp. of Charlotte, N.C., which has | |invested in an alternative coal technology designed to reduce | |atmospheric pollution. "Carbon dioxide is a big game-changer." | |TXU's Mr. Wilder declined to be interviewed. When he unveiled his | |plant-building plan in May, he dubbed it a "clean coal initiative."| |He said it was voluntary and would reduce by 20% TXU's emission of | |regulated pollutants including sulfur dioxide, nitrogen oxides and | |mercury, due to the installation of more pollution-control | |equipment on older plants. | |Environmentalists say "clean coal" is a misleading label. The | |reductions, they say, aren't as voluntary as the company claims. | |TXU is required to reduce its emissions of certain pollutants by | |2015, and its plan moves up the timetable to 2010. "I think we | |should be applauded for it," says Mike McCall, chief executive of | |TXU Wholesale, the unit that runs TXU's generation business. | |Critics fault TXU for simultaneously building so many coal-burning | |plants, each with a 50-year life expectancy. A more responsible | |approach, some say, would be to build only a few plants now, | |delaying the rest to take advantage of improving carbon-dioxide | |reduction technology. TXU says building all 11 plants at once will | |reduce the cost of each one. | |In his public appearances, Mr. Wilder maintains that more power | |generation is urgently needed. At TXU's annual meeting on May 19, | |he displayed a chart on infant mortality, arguing that countries | |with high per-capita electricity usage have a lower incidence of | |early death than countries with little electricity. He argued that | |Texas' electricity surplus is "literally melting away" and that the| |state needs TXU's new plants to buttress its standard of living. | |"We know what we do is a valuable thing to society," he told | |shareholders. "And part of the debate of this new build program | |that we have...with some of our opponents...is [that] you have to | |look at the whole system of benefits and cost to society. There's | |not a form of electricity today that can be generated without some | |society harm." | |Mr. Wilder's stance fits his image as an iconoclast who is | |determined to transform TXU from a stodgy utility company into a | |highly profitable one. During his first two years on the job, he | |sold noncore businesses, nearly doubled utility rates and even | |outsourced customer service to take advantage to the 1999 | |deregulation of Texas' electricity industry. | |For TXU, the planned coal-fired plants hold considerable upside. | |TXU mines its own coal in Texas and is the nation's No. 10 coal | |producer. Mr. Wilder projects that the new plants eventually will | |add $1 billion or more to the company's annual profits. TXU is | |attempting to raise $11 billion to fund their construction, and has| |approached banks, investment funds and industrial customers for | |loans and equity investments. Mr. Wilder recently told analysts | |that TXU is the only company that can build so many plants in so | |short a period of time. | |It is unclear whether the federal government will move to limit | |carbon-dioxide emissions. President Bush favors voluntary | |reductions, as does TXU. But support for mandatory reductions is | |growing in Congress. Earlier this year, two senators from New | |Mexico -- Pete Domenici, a Republican who heads the Energy and | |Natural Resources committee, and Jeff Bingaman, the committee's | |ranking Democrat -- issued a white paper saying the threat of | |global warming is real and action must be taken. The paper said a | |program for regulating carbon-dioxide emissions was needed, and it | |solicited suggestions from the power industry. | |In its written response, TXU said it opposes regulation because it | |would "stunt economic growth" and because "there would not be any | |real environmental benefits." The U.S. should take no action on | |mandatory carbon-dioxide reductions, TXU wrote, "unless all nations| |adopt similar programs." | |TXU executives contend that the current Congress is unlikely to | |act. "It's easier to stop a bill than pass a bill," says TXU's Mr. | |McCall. "It will only take 40 senators to block carbon regulation."| |There are ways to make electricity with coal that make it possible | |to separate out the carbon dioxide. A process called gasification | |is one way. Coal is first converted into a combustible gas, then | |that gas is burned to make electricity. Gasification offers two | |advantages over traditional coal incineration. When the coal is | |converted to a gas, many pollutants are left behind and don't go up| |the smokestack. And it is easier to capture carbon dioxide, which | |can then be injected into the ground or used in some other | |industrial process. | |Two gasification power plants have been operating near Tampa, Fla.,| |and in Wabash, Ind., for more than a decade, built with big federal| |subsidies. A new generation of gasification plants that are twice | |as big is on the horizon. There are proposals to build about two | |dozen such plants in the U.S. in coming years, perhaps one-quarter | |of the planned new coal-fired plants. | |Duke Energy, which produces more than half its power from coal, | |owns the Wabash gasification plant and is considering building a | |larger one nearby, as well as a nuclear plant in South Carolina. | |Although it is also planning a new pulverized-coal-burning plant in| |North Carolina, the company says it favors federal greenhouse-gas | |regulation. | |One concern about gasification is that it can add $200 million or | |more to the cost of a $1 billion coal power plant. But the | |Department of Energy reported that installing carbon-dioxide | |controls at pulverized-coal-burning plants could be so costly it | |would wipe out the cost differential between the two technologies. | |Bechtel Corp. and General Electric Co. are working together to | |design a gasification power plant that would cost about as much to | |build as the type of plant that TXU intends to build. "We think the| |technology is proven," says Bruce Morton, head of the project for | |Bechtel, a global engineering firm based in San Francisco. | |During a recent meeting with analysts, Mr. Wilder said TXU examined| |gasification and concluded that the technology wasn't sufficiently | |proven. "It's a gleam in someone's eye," he said. He said it would | |be financially risky for the company to rely on the technology in | |its current building program. | |Other TXU executives say they are interested in gasification down | |the road, but they want to own the technology. Mr. McCall, who runs| |the generation unit, says the firm is in talks with an unidentified| |vendor about a possible gasification design. "We're trying to do it| |in a proprietary way," he says. | |For now, gasification plants are being planned mostly in states | |that are trying to limit carbon-dioxide emissions, and in those | |where utility-rate regulations make it feasible for builders to | |recoup their costs. Such plants aren't going to Texas, which | |deregulated its electricity market more extensively than many other| |states. | |TXU's decision to build pulverized-coal plants -- and to build them| |quickly -- may stem in part from the way the federal government has| |instituted pollution regulations in the past. A 1990 federal | |program to reduce emissions of sulfur dioxide, a contributor to | |acid rain, employed a "cap and trade" system. Existing polluters | |were given "allowances" -- essentially, rights to pollute -- which | |they could use themselves or sell to others. | |The allowances were intended to soften the blow for companies that | |had made investment decisions without knowing they would later face| |antipollution measures -- to "grandfather" them. Over time, the | |number of annual allowances handed out was reduced. That drove up | |their resale value and provided companies with an incentive to | |install pollution-control equipment. | |Many believe the government eventually will adopt a similar system | |to control carbon-dioxide emissions. In late 2004, TXU consultants | |advised the company against trying to cut such emissions in | |anticipation of federal action. In a written report, the | |consultants said that such "early actions" could reduce the | |allowances that TXU receives in the future. | |"The argument in support of grandfathering breaks down when you're | |talking about plants being built to squeeze in under the wire," | |says Bruce Biewald, president of Synapse Energy Economics Inc., a | |Cambridge, Mass., consulting firm that often works for state | |utility commissions. "It's not intended for guys that are adding to| |the problem because they've got their heads in the sand." | |Some companies think allowances should be doled out in a way that | |rewards companies for early, voluntary reductions. In 2002 the | |state of California created an organization called the California | |Climate Action Registry to document and verify reductions of | |several greenhouse gases by companies and public agencies. The | |group's goal is to secure credit for companies that take early | |action. Energy producers such as PG&E Corp., Mirant Corp., BP PLC | |and the Los Angeles Department of Water and Power are participants.| |Some states, including Washington, Oregon, California, and Vermont,| |are factoring in the environmental aspects of proposed new plants | |when deciding what to authorize. Colorado and Wyoming, big | |coal-producing states, are pushing gasification projects. Seven | |Northeastern and Midwestern states agreed last year to create their| |own regional greenhouse-gas reduction program. | |Texas gives no special consideration to gasification plants. Late | |last year, Gov. Rick Perry signed an executive order instructing | |state agencies to expedite applications for new plants, especially | |those burning locally mined coal. | |Write to Rebecca Smith at [email protected] |

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