Utility to expand its Texas generation up to 50% by using coal

11:24 AM CST on Thursday, March 16, 2006

By ELIZABETH SOUDER / The Dallas Morning News

TXU Corp. chief executive John Wilder plans to increase the amount of power the company generates in Texas by as much as 50 percent by using coal.

So far, TXU has announced plans for two coal projects, amounting to about 25 percent more power, Mr. Wilder said in a presentation to Wall Street analysts on Wednesday.

Next, TXU wants to expand existing coal-fired plants or convert natural gas plants to coal.

"Here's where I like to spend the majority of my time: our new build strategy," he said.

Now that TXU has finished repairing its balance sheet and cutting costs to become profitable, the company has entered a growth phase, and growth for Mr. Wilder means coal.

FILE 2004/Staff photo

TXU chief executive John Wilder is focused on coal because it is cheaper than natural gas, so coal generation plants offer a wider profit margin than natural gas plants.

He also expects TXU's operational earnings per share to rise this year, as the growth phase begins, to a range of $5.50 to $5.75 from $3.33 last year.

Mr. Wilder considered three strategies: boosting production at existing facilities, creating a standard design to expand and renovate TXU facilities, or building new plants from scratch.

He said he's rejected the idea of new plants because of the expense and difficulty of finding good sites for them. So Mr. Wilder is studying each of TXU's 19 existing power plants to find ways to expand.

Electricity generation expansion may be critical for Texas because experts say demand for power will push supply to the limit by 2009, unless more generators are built.

Mr. Wilder is focused on coal because it is cheaper than natural gas and offers a wider profit margin than natural gas plants. Half of the electricity in Texas comes from natural gas power plants, and power prices tend to track natural gas prices.

Also, TXU owns coal mines in Texas, which is the fifth-largest coal-producing state in the country.

Already the utility is developing a new coal plant called Oak Grove, as well as capacity at its Sandow facility.

Next, Mr. Wilder said, he'll consider which of TXU's three other coal plants could be expanded, and which of the 14 natural gas plants could be converted to coal.

"We've just done a full inventory of all our sites, and we think we have projects – again, they don't look quite as good as our Oak Grove project, but they look about as good," he said.

He named three examples of gas plants that could be converted to coal: Valley in Fannin County, Tradinghouse in McLennan County, and Stryker Creek in Cherokee County. Those plants are relatively close to TXU's coal mines.

As TXU considers those projects during the next year, Mr. Wilder wants to develop a standard design and process for coal plant expansions. By applying the standard to multiple facilities, TXU can grow more cheaply and efficiently.

Meanwhile, Mr. Wilder said, the company will continue to consider selling some of its natural gas generation capacity if the price is right.

And he said TXU Electric Delivery, the transmission and delivery arm, is for sale for the right price, though he didn't indicate whether a sale is imminent.

In the past, Mr. Wilder has said he would make a decision on selling TXU Electric Delivery in 2007, and there have been recent news reports that two companies are bidding.

But Mr. Wilder didn't confirm the timeline or bidders on Wednesday.

"It's all going to be capital-market-dependent," he said. "It just has to do with: Is there a capital provider willing to accept a lower return than what we think it embedded in that business today?"

TXU shares rose 2.1 percent Wednesday to close at $49.73.

E-mail esouder@dallasnews.com