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TXU Puts up 'For Sale' Sign on Gas-Fired Plants

TXU Corp. is "engaged with a variety of potential buyers" to sell most of its natural gas-fired power plants in Texas, the CEO said Friday. TXU has a total of about 10 GW of gas-fired generation in the state, but the plants have become too expensive to run, CEO C. John Wilder told shareholders in the utility's annual meeting.

Concerned with the volatility of natural gas prices, the Dallas-based utility in April announced plans to build 8,600 MW of traditional coal-fired capacity in the state (see NGI, April 24). Natural gas now fuels more than 70% of all power plants in Texas, and TXU holds a 20% share of the entire state power market. By switching to coal, TXU estimates it will save an estimated $1.7 billion a year in costs, Wilder told shareholders.

TXU wants to sell the gas plants as a package, but the CEO said it is likelier the sales will be plant-by-plant. TXU's gas plants now produce power for about $200/MWh; prices during peak hours in Texas this year have reached an estimated $600/MWh.

TXU may keep one or two gas-fired plants to support high-demand days, Wilder said. And a few other gas facility sites also may be kept to retool to coal. But the "lion's share" of the gas plants will be sold, he said. Wilder did not offer an financial estimates.

"Something is going to happen with that, we hope, in the short-term," Wilder said.

Wilder on Friday also fired back at some protesters at the shareholder meeting who complained during a question-and-answer session about higher environmental risks to running traditional coal plants versus gas-burning plants. Several shareholders asked Wilder why TXU would not consider using more expensive, though still experimental, coal gasification processes, which are being considered by other utilities, including American Electric Power of Ohio.

"We have to solve the problems today," Wilder said. Current gasification processes would not work on the type of coal TXU has in Texas."Our customers need lower prices today. We're examining the problem closely. And we will be a big investor...in new technology...But right now, this is the best technology. As a shareholder, your capital is being placed in the best technology."

To assuage environmental concerns, the CEO noted that TXU voluntarily will spend $2 billion in "next horizon technology" to reduce plant emissions and improve its renewable resources such as wind power. It also has pledged to cut its total plant emissions 20% from current levels.

"Here's problem we're trying to solve," said Wilder. In the United States, "gas prices are increasing 5% a year...demand is increasing 5% a year, but supply is only increasing 1% [a year]...When you look at America, there are very few indigenous resources. We have to depend on other countries...and some of these countries may not be ones we want to depend on for gas...for liquefied natural gas. We don't think that's a good set up. It's not a good time to put our customers at risk and hope some of these countries let us get some of their gas reserves."

Wilder said he had "heard the skepticism" from some of TXU's largest investors. "There are a lot of critics to this strategy. A lot don't want to believe you can pull this off," he said of the switch to traditional coal. "They say the environmental hurdles are impossible. We're going to try and prove everyone wrong."

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