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.
When you turn on your television set, air conditioner, or dishwasher, you are doing something that is at once mechanical and moral. The mechanical part stems from your rudimentary demand for electrons: You push a button, and somewhere in Texas a huge turbine throttles up, spins a magnet inside a coil, and initiates a massive electron-bumping chain reaction that travels in light-speed waves through miles of transmission lines to reach the circuits in your house. The moral complexity lies in the choices implicit in that action. In order to power your appliances, you must summon electricity from a vast sea of energy, a largely sealed electrical grid that stops at the Texas border. Generating plants across the state, powered variously by coal, gas, nuclear fission, wind, and water, dump electrical current into this grid, and by throwing a switch you engage them all. No matter what your politics are, how much of an environmentalist or conservationist you might be, or whether you actually give a damn where your electricity comes from, you’re complicit in every energy policy decision the state of Texas has made for the past fifty years.
And there are no inconsequential energy decisions. Coal and gas are relatively cheap but pollute the air and contribute to global warming; nuclear power does not pollute the air but creates radioactive waste that will be simmering in containment pits for thousands of years; hydropower is clean but requires the damming of rivers and the destruction of habitat; wind and solar are gentle but expensive, and electrical expense is a leading cause of eviction for poor people in America. In Texas’s grid, 91 percent of the power comes from coal and gas. That means that when you goose your air conditioner a few degrees, you are electing, de facto, to hasten global warming and add to the air you will breathe small but ineradicable amounts of sulfur dioxide, nitrogen oxide, and mercury.
If this seems a bit dramatic, it is nonetheless empirically true, and it may explain the loud, organized protest that has erupted in the past few months over proposals to build seventeen giant new coal-fired power plants in Texas. The key word there is “coal.” Historically the dirtiest energy source, coal has been completely out of fashion for 25 years. When ground to dust and burned, it emits harmful chemicals, including fine particulate matter that causes asthma. Facilities that use it also burp forth large volumes of carbon dioxide, which is harmless to humans (it’s the fizz in Coke), but is the leading cause of global warming. Together, the seventeen proposed plants would more than double Texas’s reliance on this problematic fossil fuel.
The push to build the plants is being led by the Dallas-based former monopoly TXU, which last April announced a five-year plan to put eleven of them on line at a cost of $10 billion, the most ambitious such project anywhere in the country (the remaining six Texas plants are being proposed by other companies). Opposition came quickly from advocacy groups like Environmental Defense, Public Citizen, the Sierra Club, and several ad hoc business organizations, allied with a coalition of mayors and officials in 24 cities and counties organized by Dallas mayor Laura Miller. Lawsuits to block construction of the plants were filed at the state and federal levels. Web sites like stoptxu.com and stopthecoalplant.org sprang up. Since July, Miller has been tirelessly crisscrossing the state, raising money to challenge TXU’s permits for every one of its plants and trying to persuade the small towns where the facilities will be located to resist TXU’s plan in spite of the jobs that it offers. The controversy’s profile was raised during the gubernatorial campaign, when candidates Chris Bell, Carole Keeton Strayhorn, and Kinky Friedman all inveighed strongly against the plants to distinguish themselves from Governor Rick Perry, who had appeared at a TXU press conference to vow that “bureaucrats won’t be allowed to hold up approval,” a remarkable intervention for a governor to make in a regulatory process. And indeed, Perry later fast-tracked that process, cutting in half the amount of time needed for hearings and review. Approval for the coal plants will almost certainly become an issue in the 2007 legislative session.
At first glance, the fight over the new coal plants has the look of a classic conflict between the public good and the profit motive, and environmental groups have done their best to frame it that way: Multibillion-dollar utilities, abetted by corrupt politicians, want to put up smoke-belching power plants that will destroy our environment and sacrifice our health in the name of their bottom lines. The truth is much less simple, or obvious, or easy. Due to the decline of nuclear power, the rising cost of natural gas, the failure of government to promote energy conservation, and the state’s status as the most deregulated energy market in the country, Texas faces a severely limited set of choices when it comes to energy. And with a looming shortage of electricity, we have to make a decision.
Texas’s population will increase by six million in the next decade—the population of the state of Tennessee. Demand for power, already greater than in any other state, will grow by around two gigawatts per year, which is equivalent to the annual output of two large power plants. If we don’t add new capacity, we may experience brownouts and blackouts as early as 2011, and since it takes at least four years to build a plant, the future is now. Texas is the eleventh-largest energy market on earth (ahead of many nations, including Spain and South Korea). What we decide to do with TXU’s plan—and with the six other plant proposals—will have global significance, sending a powerful signal about how electric power is procured in the next decade and beyond.
THE REEMERGENCE of coal is, in the history of electricity generation, an astounding turn of events. After a quarter-century slumber, during which it had clear status as yesterday’s technology, coal is once again the fuel of choice for electric power. One hundred fifty-four coal-fired power plants are currently on drawing boards in the United States. Three years ago there were none. Globally, some one thousand new coal plants have been proposed. That this is taking place just as global warming is gaining popular acceptance is one of the great environmental ironies of the twenty-first century. Coal is by far the most carbon-intensive fuel—emitting twice the carbon dioxide per unit of energy that natural gas does. The weird climatic changes you’ve read about—the melting polar ice cap, the retreating glaciers in China, islands vanishing in the Pacific, droughts in Africa, killer hurricanes in the Gulf of Mexico—are all directly related to how much carbon dioxide we put into the atmosphere. In their working lifetimes, about 35 years, those one thousand proposed plants would spew more carbon dioxide than was emitted by man-made sources on the entire planet from 1750 to 2000.
Throughout most of the twentieth century, coal was America’s fuel of choice. Nuclear power, which now accounts for 20 percent of our electricity, bid briefly to replace it as the dominant technology in the sixties and seventies but ran into a political wall after the 1979 partial core meltdown at Three Mile Island, in Pennsylvania. Nuke plants are also grotesquely difficult to get permitted and freakishly expensive to build, and there is still no long-term solution to the problem of how and where to store the radioactive waste they generate. Even if a solution is found, it will likely be 2020 before we see any new nuclear plants in operation. What moved America away from coal was the arrival of cheap natural gas. Starting in the Reagan era, gas was so inexpensive, and so much cleaner to burn than coal, that the choice was obvious. From 1980 to the present, almost all the power-generating plants that were built in Texas and in the United States were fired by natural gas.
Those days are over. Gas is up 300 percent since 1999. It is now three times as expensive as coal and projected to stay costly well into the twenty-first century. In a country that is rapidly deregulating its electric utilities—23 states plus the District of Columbia now let energy companies compete for consumers’ business—holding down the cost of power is the key to success. Add a White House that is coal friendly, the technology to cut emissions of pollutants (but not carbon dioxide) by 90 percent, a nuclear industry still paralyzed by its inability to dispose of its waste, the impracticality of wind and solar in handling bulk demand for power, and a virtual moratorium on new plant construction for the past ten years, and you have the sort of economic and regulatory perfect storm that produces 154 new coal plants.
In the United States, there are also strategic, geopolitical reasons for recommitting to coal. If you think the Middle East has a lot of oil, consider this: There is more energy under Illinois than in all of the proven and potential oil reserves of Saudi Arabia. We own 25 percent of the world’s recoverable coal. That amounts to 250 years of energy security. If the rest of the world were to shut us off from its oil and gas, we could run almost everything in our gigantic economy on domestic coal. We could convert our coal to diesel fuel for our cars and trucks, as the Third Reich did, and it would still take more than two centuries for us to run through it. Coal is immediately available, easy to extract, and not subject to the whims of foreign markets or foreign dictators. In a post—September 11 world, these things matter.
Today, coal accounts for 52 percent of our power, almost all of which comes from technological dinosaurs built in the fifties, sixties, and seventies. They produce the overwhelming majority of the power-plant pollution in this country. A new generation of coal plants is coming. The only question is what it will look like.
THERE IS SOMETHING ANCIENT and primitive about the hulking steam boilers that rise from the pasturelands near Fairfield, about ninety miles southeast of Dallas. Though they were built in 1971, they seem to have more kinship with an older era of coal-powered locomotives and coal-stoked home furnaces. They stand 22 stories high, cloaked in intricate tangles of conveyors, grinding mills, and piping, flanked by twin four-hundred-foot-tall smokestacks, and ringed by a small mountain range of ink-black coal, some 400,000 tons of it. The boilers are the guts of a TXU power plant known as Big Brown, but “big” doesn’t even begin to describe it. Just beyond the plant is the strip mine, a five-mile-long furrow in the earth that represents the last clawings and scrapings of a 35-year dig that has moved enough dirt to excavate five Panama Canals. The plant consumes a ton of coal every four seconds—20,000 tons a day.
Big Brown is a typical American coal plant of its era in that it runs on pulverized coal—a technology that represents everything that is environmentally harmful about how we get our electricity. At a pulverized-coal plant, the rock is ground to a fine talcum-like powder, then blown under high pressure into a furnace and ignited in order to make steam in a giant boiler, which turns a turbine, which creates electricity. It also creates loads of unwanted by-products. Every year Big Brown emits 82,000 tons of sulfur dioxide (think: acid rain), 6,700 tons of nitrogen oxide (smog), and 1,200 pounds of mercury (toxins in fish). Big Brown ranks third among all power plants in the country in its rate of mercury emissions, largely because it burns Texas lignite, one of the dirtiest coals to combust. Lignite is also inefficient, which means you have to burn more of it than of other fuels to get similar power, thus creating more carbon dioxide. Each year the plant spews forth 10.6 million tons of it. Though Big Brown has had a few environmental upgrades in its 36 years of operation—the addition of some nitrogen oxide controls and a “baghouse” to trap particulate emissions—it is fundamentally the same old pulverized-coal soot belcher it was when it was built.
And so environmentalists were predictably outraged when TXU announced that all eleven of its proposed plants would use this same pulverized-coal technology (though only one would run on lignite). This fact, more than anything else, is what has been motivating the opposition to TXU’s plan. It’s not that its plants won’t be cleaner than Big Brown. They will—90 percent or more cleaner, in terms of emissions of regulated pollutants. The objection is that, by using this older technology, the plants will not be as clean as they could be. Of course, environmentalists would prefer to find a solution that involves no new coal plants at all, but since Republican, business-friendly, free-market Texas is not about to usher in a utopian era of conservation and alternative power anytime soon, they have arrived, along with the dissident mayors, at a fallback argument: If we are going to build new coal plants, let’s build the cleanest coal plants we can, even if they’re more expensive. “We are burning dirty fuel with nineteenth-century technology,” says Laura Miller. “It is going up a smokestack and into the air that we breathe, and the whole state needs to find a better way to do this.”
That better way goes by the name of integrated gasification combined cycle. Get used to the term, and its acronym, IGCC. You are going to be hearing it a lot in years to come. For environmentalists, it has become something of a mantra. Any new coal-fueled plants, they say, should be built with IGCC. And a number of power companies agree. Despite the considerably greater expense of building with IGCC—some $200 million or more per plant—6.5 percent of the coal plants now being proposed in America will use that technology. Several major utilities, including American Electric Power, the largest utility in the country, with the largest fleet of coal plants, have stated that IGCC is now their future technology of choice for burning coal.
The advantage of gasified coal comes in the sequence of emissions controls. Unlike pulverized coal, which requires a chemical plant on the back end of the factory to remove pollutants, gasified coal allows acidic and particulate components to be removed before they are burned, thus keeping them out of the stack and reducing the cost and difficulty of their removal. After that, the process is in many ways the same. The synthetic gas feeds a combustion turbine, whose exhaust heat is then reused to drive a steam turbine. IGCC is indeed a cleaner way to burn coal, though advancements in pulverized-coal technology have rendered the IGCC advantage modest in terms of local air pollution. According to numbers from the Environmental Protection Agency, a new and improved pulverized plant burning Powder River Basin coal (a fairly clean coal mined in Wyoming that TXU plans to use in all but one of its new facilities) would achieve a 90 percent reduction in sulfur dioxide emissions compared with an average U.S. coal plant, such as Big Brown, in 2004; IGCC does only a little bit better, achieving a 93 percent reduction. Both achieve the same 83 percent decrease in nitrogen oxide. The major difference between IGCC and pulverized-coal systems is that the former provides a much easier and cheaper way of taking carbon dioxide out of the stack.
But IGCC is an expensive, commercially unproven technology, and according to TXU, it does not perform well with the Western coal used in Texas. Eastern coal, from West Virginia, Ohio, and other states, has a higher BTU value and more moisture and performs better with the gasification process. “We cannot make it work with the coal that is available here,” says Michael McCall, the chairman and CEO of TXU’s wholesale division. Why can’t the plants use Eastern coal? That’s logistically impossible, TXU maintains. Since each plant consumes 140 train cars of coal per day, 1,400 such cars would have to make the trip from West Virginia to Texas every 24 hours.
“We have spent a tremendous amount of engineering time on this, and we know that technology, I think, better than anyone in the industry,” John Wilder, the chairman and CEO of TXU, told me. “We know how it performs. We know when it is economically viable. It isn’t right now. We are not going to put our customers at risk by experimenting around with an unproven technology that doesn’t run off of our coal and is high cost. We will not do it.”
Though Wilder’s concern may sound misplaced to some, the fact is that IGCC’s ability to deliver the environmentalists’ claims is far from guaranteed. It is still a developing technology with few working models anywhere in the world. There are only two IGCC plants in the United States (in Florida and Indiana), both set up as demonstration facilities by the U.S. Department of Energy and partly subsidized by the government. Plagued by technical troubles, they have had a mixed record of success. Like TXU, most power companies regard these results with skepticism. Seventy-nine percent of the coal plants currently being proposed in America will use pulverized coal (another 15 percent will use a coal-burning technology called circulating fluidized bed). The first private IGCC plant will likely belong to AEP, which has contracted with GE Energy and Bechtel to produce two big, 630-megawatt gasification facilities in Ohio and West Virginia. Construction on the two has not yet begun. They are years from operation.
Even officials at GE Energy and AEP acknowledge that there are several significant barriers to building an IGCC plant in Texas. “In Texas there is mostly lignite and PRB [Powder River Basin] coal, and the GE/IGCC technology does not work well with those coals,” says AEP spokesperson Melissa McHenry. Thus, despite the company’s public commitment to IGCC, a proposed new AEP plant in Texarkana, Arkansas, will be designed for pulverized coal. “We would prefer to do IGCC, but this would be operated with PRB coal, and we have not been able to get a performance guarantee for that kind of coal.” By that she means that Shell Oil, which has developed an IGCC technology specifically for Western coal, will not in effect share the risk that the technology may not perform—something that GE and Bechtel have agreed to do with AEP’s Eastern coal—fueled IGCC plants. There are also two proposals in Minnesota and Washington for IGCC plants that would use Conoco-Phillips technology to burn Western coal, but they face similar problems. According to TXU spokesperson Kim Morgan, “Neither of these plants have the necessary performance guarantees that TXU would require.” As for building IGCC plants in Texas that would run on Eastern coal, AEP’s supply problem is the same as TXU’s: the difficulty of shipping massive amounts of Eastern coal here on a daily basis.
Supply problems, unproven technologies, astronomical construction costs—it all adds up to a tremendous amount of risk for a private company to take. It is no surprise, then, that most of the serious proposals for IGCC plants are in regulated markets, meaning that the companies that are investing a billion-plus dollars in them are guaranteed not to lose money. “In Ohio AEP wants a guarantee from regulators affirming that we recover the costs of the plant,” says McHenry. “And in West Virginia we want the same regulatory guarantee before we go forward.” In Texas, however, TXU’s investment would be entirely exposed. “We could get the technology choice wrong,” Wilder acknowledged. “If we do and someone else gets it right, what just happened to us? We just blew eleven billion dollars.”
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.”
To many people, including Rick Perry, this sounds like a good deal: loads of new power accompanied by a net drop in pollution, compliance with federal and state clean-air standards five years ahead of schedule, and lower wholesale prices for electricity. But the governor’s tacit endorsement of the plan has struck some as corporate favoritism. They point to the fact that Perry has received $128,000 in political contributions from former TXU chairman Erle Nye and that the path to approval for the coal plants goes through the Texas Commission on Environmental Quality (TCEQ), which was established as a watchdog for the public interest but has, according to its critics, become a rubber stamp for industry. In 2000 a bipartisan panel of legislators criticized the TCEQ (then called the Texas Natural Resource Conservation Commission) in a blistering review for failing to “comprehensively assess the performance of regulated entities and ultimately its own performance.” Yet an independent study released in August appeared to side with the TCEQ, confirming a TXU claim of a net reduction in pollution in Dallas—Fort Worth. “The DFW-average impact showed ozone reductions, albeit small, in all four episodes and scenarios when including offsets,” said the report by the Texas Environmental Research Consortium (TERC). “The TXU proposed offsets more than mitigated the ozone contributions from these proposed EGUs [electric generating units].”
For his part, Wilder is so confident that the plan represents the best emissions offsets anywhere in the country that he is offering it on a take-it-or-leave-it basis. “We are going to give it our best shot,” he said. “But if the decision makers don’t like our proposal, it’s the only one we’ve got. We don’t have alternatives. This isn’t a negotiation.” If that sounds like hardball, in a memo laying out the proposal, TXU management goes even further, warning that “delay will be extremely costly for both TXU and its customers, forcing TXU to consider other options to redeploy its generation in other markets.” In the absence of approval for the new plants, “TXU will not have the ability to voluntarily retrofit its existing generation.” Meaning that Big Brown and its three other old lignite-burning plants won’t get anywhere near the $500 million of retrofits and thus will see far less radical reductions in their emissions. Instead of cleaning them up, TXU will trade emission credits with other companies under the current “cap and trade” system, which allows companies that pollute to buy credits from companies whose plants meet regulations—and keep on polluting.
IN SPITE OF ALL THE talk about carbon dioxide, the bedrock issue here is still entirely local: air quality in Texas cities, especially smog-causing chemicals that may make it difficult for Houston, Dallas—Fort Worth, and other cities to meet increasingly strict federal clean-air standards. Though TXU’s plan represents a 20 percent reduction in average pollution across the entire region, on certain days and with certain wind conditions, individual areas may be worse off. “People don’t breathe average air,” says Jim Marston, the executive director of Environmental Defense. “They breathe the air that they breathe.” Adds his colleague Ramon Alvarez: “There are more offsets from old plants in northeast Texas, more new emissions in south central Texas, so that in certain areas, improving the average isn’t going to mean anything.”
Perhaps the best example of this is TXU’s mammoth new two-boiler plant proposed at Oak Grove, near the town of Franklin, just north of College Station. Unlike the rest of the TXU plants, which will run on Powder River Basin coal, Oak Grove will burn lignite. The plant will run through 2.5 million pounds of it each hour, emitting vast amounts of pollutants that were not in this area before: 1,446 pounds of mercury and as much nitrogen oxide as from the exhaust of 470,000 automobiles. On its first day of operation, the plant will be the fourth-largest emitter of mercury in the country; however, when averaged with TXU’s proposed coal fleet, it is part of the 20 percent overall reduction in pollutants.
The local residents don’t see it that way. Some have banded together to form Our Land, Our Lives, a group whose goal is to stop the Oak Grove plant. They have signed petitions and taken out ads in newspapers and filed a federal lawsuit claiming that TXU’s permit application violates the federal Clean Air Act. They have also had a stunning bit of recent success. After they contested TXU’s permit application, an administrative law judge in Austin ruled in August that the Oak Grove plant “failed to prove by a preponderance of the evidence that its proposed source would not cause or contribute to a condition of air pollution.” Such a ruling does not carry the force of law; it constitutes merely a “recommendation” to the TCEQ. Virtually no one interviewed for this story, on either side, believed that the TCEQ would deny the application, and in fact, following the ruling, TCEQ executive director Glenn Shankle wrote a detailed response arguing on TXU’s behalf. Still, it showed that there may be legal obstacles ahead for TXU in its quest for approval.
This same notion of “local” versus “average” pollution can be applied to Dallas—Fort Worth and other cities in the region. While the TERC study did state that, based on average air quality, TXU’s proposed plants would reduce the overall pollution in Dallas—Fort Worth, the report also said, partly in contradiction to itself: “The ozone impacts of the proposed new EGUs tend to be geographically separated from the benefits of TXU’s offset strategy. This is because many of the new EGUs are in Central Texas whereas many of TXU’s offset emissions reductions occur in Northeast Texas… . The net impact on DFW … depends upon the relative frequency of high ozone days with southeast winds (from Central Texas) versus east winds (from Northeast Texas).”
The point may be a technical one, but on it hangs a good deal of the case against TXU’s plan. At issue is whether Dallas—Fort Worth is in compliance with federal clean-air standards. Right now it is not, and unless it improves, it will soon face penalties—denial of industrial permits and road building funds, difficulty in attracting new industries, and so forth. Compliance is measured by air quality on four selected days. On some days, certain spots will be much more polluted than others. “It’s the difference between meeting the rule or not being subject to sanctions and having to do a bunch of offsets,” says Marston. “We think this will make it almost impossible for Dallas—Fort Worth to reach attainment.” That could mean hundreds of millions of dollars in lost annual revenues and resources, according to Laura Miller and the Texas Clean Air Cities Coalition. “We have only eighteen plants now, which have helped Dallas—Fort Worth and Houston fall out of compliance with federal environmental laws,” Miller wrote in an August 21 opinion column in the Dallas Morning News. “What’s the point of cities screwing in low-wattage bulbs and buying natural gas—fueled police cars if you’ve got soot from seventeen new coal plants billowing your way?”
WITH LAWSUITS FLYING, challenges likely to be made to all of TXU’s permit applications, and a legislative session starting this month, the question looms: Can anyone really force TXU to use IGCC instead of pulverized coal? Or to reduce the number of plants it wants to build? According to Wilder, the question is moot. He is not negotiating because the key to profitability is the scale of the build. And he will not experiment with IGCC. If it comes to that, he says he will seek investments elsewhere. Nor is it likely that the TCEQ, packed with Perry and Bush appointees, will deny TXU its air permits, even in cases like Oak Grove where administrative law judges have recommended doing just that. But all will be challenged: As of the end of October Miller had raised $500,000 to pay for air modeling in the Dallas—Fort Worth area.
Wilder contends that in a deregulated world all he has to do is secure air permits from the TCEQ. If he complies with federal and state air-quality laws, he is free to go after as many customers as he can get. Unlike the old days, when legislators were often heavily involved with public utility commissions, in the new process, Wilder firmly believes that lawmakers “do not have a seat at the table.” That may anger plenty of people at the Legislature, but his point is that the Texas House and Senate voted to deregulate the industry, encouraging private competition and allowing companies to make their own decisions, set their own prices, and take their own risks. To a great extent, the proposed seventeen plants are a direct result of that vote. We are getting exactly what our legislators said we wanted.
What the fight over these coal plants suggests, however, is that some people may very well decide that they prefer the good old days when the public utility commissions told companies like TXU how much they would charge and the types of plants they would build. California, Arizona, and other states have deregulated only to decide later that they wanted to “reregulate.” Texas is thus far the most radical national experiment in free-market competition in the electric power business. It is possible that legislators may try to rein it back in. And it is entirely possible, too, that some of the anti-TXU lawsuits may bear fruit. One of them, filed by Environmental Defense, claims that the state is breaking its own laws by refusing to make TXU and other companies consider IGCC technology.
In the meantime, there is little reason to expect that TXU is going to behave differently than it does today. Blaming TXU for proposing its plants is a lot like blaming General Motors for building Suburbans. The two companies are acting fully in accordance with who they are and with what their goals are. They are both obeying government rules and selling products in a free marketplace. Like the environmental lobby, their behavior is virtually encoded at this point. In a deregulated world, sweeping changes like carbon limits or pollution controls or rules governing the uses of power-plant technology can come only from government intervention, from intense regulation. And that was what Texas legislators worked for most of the nineties to get rid of. We will soon see if they have second thoughts.