A Charred Life 
Three Generations of Texas Wind Men 
Coal Hard Facts
Climate change, shrinking ice caps, rising seas, air pollution, asthma at epidemic levels: GOOD THING Texas hasn’t built any soot-belching coal plants in the past FIFTEEN years. But with our population booming, and an energy crisis looming, The black rock is back. Let’s take a deep breath—while we still can.
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In the days before competition, TXU, like other regulated electric monopolies, was never really at risk when it built a plant. It would simply secure guarantees from the public utility commission that it would be able to charge its customers enough to recoup its capital costs. But as of January 1, 2007, the Texas electricity market is, for all practical purposes, fully price competitive, which means that any losses incurred by TXU are its own problem. TXU must be able to match or beat its competitors’ prices, so unless the state or federal government mandates radically lower emissions for everyone, Wilder is going to take the lowest cost option available. During our interview, he proposed, quite seriously, to build an IGCC plant in the Dallas—Fort Worth area today. But only if the cities take the risk. In a free market, he says, he can’t afford to take it himself. “If we were a regulated monopoly, we would probably be arguing for IGCC,” Wilder told me. “The customer eats the expense. But that is not the world we compete in.”
The world he competes in does, however, contain a number of powerful politicians who support taxes on carbon emissions (including potential presidential candidates Hillary Clinton and John McCain). Since its new plants will pump 78 million tons of carbon dioxide into the atmosphere annually—in addition to the 55 million tons it currently emits—this poses a significant commercial risk to TXU’s business plan. California recently initiated laws mandating carbon dioxide reduction that take effect in 2020. When asked if he expects to have to deal with such legislation, Wilder acknowledged that the future would likely be a “carbon-constrained world” but added, “We think we have a good view of how those rules might unfold.”
TXU is clearly betting that improved and cheaper carbon-removal technologies will become available in the next fifteen years, enabling it to retrofit its plants less expensively. Such advances would have great environmental benefits too, since the only way to really reduce carbon dioxide in great amounts is to retrofit the aging fleet of three hundred to four hundred plants that are now responsible for most of it. But carbon capture faces many of the same uncertainties as IGCC. No power plant anywhere is currently capturing carbon. That is because the large-scale removal of carbon from fossil-fuel plants is still a developing technology. It is one thing to take 100 million tons of carbon dioxide out of a fleet of coal plants; it is quite another to find someplace to put it. Most schemes involve injecting the gas underground, but no one is actually able to do this yet in any volume, and even if they could, it remains cost prohibitive to commercial power companies. Still, some form of carbon capture will likely be required in the future.
Considering all this, even if Wilder does get the permits to build pulverized-coal plants—and he’ll be challenged every step of the way by his opponents—deregulation means that he will be as much at risk as any normal business and far more exposed than any other utility in America. The entire Texas project will take four years, involve some 50,000 workers, and when finished account for about 3 percent of all U.S. coal-fired power. It will also cost TXU at least $10 billion, and the full amount will be in play. If Wilder chooses the wrong technology, spends too much on his plants, or mismanages his company’s assets, TXU could go bankrupt, and no one is likely to come to its rescue. That has happened to many companies in other industries that have been deregulated, including air travel, telecommunications, and trucking. “We are betting with our own money” is how Wilder puts it. “We are not betting with the public’s money. And [this] is what separates us from every opponent.”
THE MAN BEHIND TXU’s plan is a restless, ambitious 48-year-old who took over as chairman and CEO three years ago after a career with Shell Oil and later with the Louisiana-based utility Entergy. At Shell, John Wilder’s main job was managing risk—billion-dollar risk—and he is clearly a man who is comfortable taking chances. When he joined TXU, it was an old-line monopoly, a patchwork of merged and acquired companies that started with the Dallas Electric Lighting Company in 1882. Until consumer competition began in the industry, in 2002, TXU held an outright monopoly on power in more than 600 cities and 122 counties stretching across North Texas from Tyler to Midland.
But when Wilder arrived, TXU was in deep trouble, reeling from a $4.2 billion loss on its overseas operations. Over the next eighteen months, he deconstructed and rebuilt the company from the ground up. He sold off $15 billion worth of assets, including domestic gas operations, some gas transmission lines, and all of the company’s foreign holdings in Europe and Australia, which were the source of most of its losses. He outsourced TXU’s customer service, installed Japanese-style “lean manufacturing” methods in all his plants, and focused the company’s vision squarely on the burgeoning Texas market, where TXU owns four coal plants, eighteen gas plants, a nuclear plant, and the largest wind operation of any power company in the state.
TXU quickly turned profitable again. Its stock price tripled in 2004 and finished the year as the number one gainer on the S&P 500. By October 2006 its share price had risen 404 percent. That same month it reported a 77 percent increase in quarterly profits, to $1 billion. Two years into the Wilder era, TXU is starting to look like what deregulators as far back as the Carter administration had in mind when they advocated competition in the electricity business: a nimble competitor that can capture market share by winning new customers and underselling competitors and then bump its return to shareholders. Wilder has been richly rewarded for his efforts, having made more money than any head of any American utility in history. His total compensation in 2004 was $55.9 million. In 2005 Institutional Investor magazine named him one of the top ten CEOs in America.
In October I traveled to TXU’s headquarters in Dallas to interview some company executives. I had been told in advance that Wilder would not be present. He only rarely makes himself available to reporters and had recently turned down interview requests from the New York Times and the Wall Street Journal, among others. But ten minutes into my interview with the executives, Wilder showed up, saying he could stay for only a few minutes. He stayed for more than an hour.
He wears rimless glasses, and his otherwise youthful face is offset by graying hair and a receding hairline. He is a man with big plans and big visions, and you know this within the first few minutes of talking to him. He is clearly impatient to move ahead—and impatient with people who do not see the benefits of his grand plan. He told me that his new gambit—which if it works could bring a billion dollars or more to TXU’s bottom line—is rooted in his belief that the main problem with the power-generation business is its outdated technology, a view that oddly mirrors that of the environmentalists who favor IGCC.
“Broadly, across America, we continue to run this old, inefficient coal and old, inefficient gas,” he said. “The do-nothing case is so sad for Texas. Doing nothing leads to higher prices, less reliable electricity, and more pollution. Quantifiably, it leads to those three outcomes.” Wilder speaks quickly and passionately, framing every point he makes in terms of the great sweep of economic history that has brought TXU to this pivotal moment in its 125-year history. “We all want to have free electricity with no emissions,” he said. “Maybe someday it will be too cheap to meter, but right now there are trade-offs, and we feel very confident that informed decision makers, the people with experts on their staffs, will understand that these things have trade-offs.”
Wilder says that if he can build enough new plants to achieve an economy of scale, he can then use the savings to fund $500 million of retrofits he could not otherwise afford. “We have spent a lot of time on this, and we believe we can do it for eleven hundred dollars per kilowatt, and there is no one anywhere getting close to that. Policy makers ask me why we couldn’t have done just two or three plants. If we want to get that price, we can’t just do a few. It doesn’t work.”
Those retrofits are critical to Wilder’s plan. They allow him to promise that, even with the addition of eleven new plants, the pollution from all of TXU’s plants of key regulated substances will drop by 20 percent. How can TXU do that? By reducing emissions at its four existing coal plants, which currently rank near the top of all American plants in sheer volume of pollutants. These plants are so dirty that by slapping new environmental controls on them—half a billion dollars’ worth—and changing the fuel from Texas lignite to Powder River Basin coal, TXU can achieve reductions in emissions that will more than offset the new pollution caused by the eleven proposed plants.
TXU says that by doing all this, its smog-producing emissions will come into compliance with federal clean-air rules slated for 2015 a full five years in advance. Wilder is offering another sweetener as well: the promise that those plants will lower electricity prices to consumers by $1.7 billion a year—the result of a huge increase on the supply side of the wholesale electrical market. “We’d like to lower prices by four billion dollars a year instead of two billion,” said Wilder. “But that is still two billion better than the next best proposal on the table because the next best proposal on the table is going to raise electricity prices. So that is not a good option. We are going to walk away with cleaner air than before we started. Who else has got a voluntary offset program? No one.”
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