Old plant closings a good sign

United Press International (March 29, 2004)

DALLAS, Mar 29, 2004 (United Press International via COMTEX) -- The decision of a major Texas energy company to close eight electric power plants and mothball four others is being viewed as a sign the state's deregulated market is working.

TXU Energy officials said Monday they were reacting to a robust, competitive wholesale market in Texas, and the closure of the older plants would not impact the reliability of service going into the heavy-usage summer months.

"In a competitive, changing market, we are constantly evaluating our fleet's position in the market place," said Richard Wistrand, TXU Energy senior vice president of fossil production. "Texas has a sufficient supply of power, and idling these plants will have no impact on reliability of service for TXU Energy customers or any other Texan."

TXU will permanently close eight plants and mothball four more for evaluation and possible retirement in the future. They represent a total of 1,471 megawatts, or more than 13 percent of the Dallas company's gas-fired generation capacity in Texas.

Most of the 12 units were so-called peaking units that operated only during the summer and were used only sparingly during the last few years. Most of them were built in the 1950s, and only one of them generated more than 600 megawatts.

In a statement, Wistrand described the action as a "prudent business decision" based on the abundant power supply in Texas, the high cost of operating older plants and the ability to buy less-expensive power in the marketplace. He said it would not materially affect 2004 earnings for the company.

A Texas economist viewed the decision as a cost-cutting move and one that the giant energy company probably could not avoid in today's competitive marketplace.

"I don't know that TXU really had a choice in this brave new world of competitive power generation," said Dr. Bernard Weinstein, director of the Center for Economic Development and Research at the University of North Texas.

TXU can buy power in addition to generating it itself, and faced with a very competitive Texas market the energy company probably decided that operation of the older power plants was no longer justified, he said.

The deregulation of electric power in Texas more than two years ago was preceded by the construction of more than 30 new power plants, which was unprecedented in the nation at the time. Most of the plants were modern gas-fired units.

Weinstein said the new construction was one of the reasons Texas avoided the problems California faced in meeting electricity demand a few years ago; now there is a surplus of power generation capacity in the Lone Star state.

TXU Energy said the closure of the plants would have no impact on the reliability of the Texas grid going into the summer months, but they will meet with the Electric Reliability Council of Texas to ensure the state's power demands are met.

Bill Bojorquez, ERCOT's director of transmission services, said it will take about 60 days for the staff to review the plant closures. ERCOT can request that any of the units continue operating under contract to ERCOT if needed to assure an adequate supply of electricity to Texas.

Shutdowns are not new to ERCOT since the arrival of a competitive market, and they are not a surprise to officials at the Austin agency, which monitors more than 500 power plants. They see retirements as a sign that the new market is working.

"When markets such as the electric market in Texas develop, there will be new, more efficient units participating and there will be some units that are no longer competitive, so the retirements are a good sign of the success of our market," he said.