TXU eyes Mid-Atlantic for new coal-fired generation

TXU eyes Mid-Atlantic for new coal-fired generation

Washington (Platts)--4May2006

TXU, which said it would spend $10 billion to build eight new coal-fired power
plants in Texas last month, said Tuesday it would expand that program outside
of its home state.

"We are currently developing a [business model] that will enable profitable
expansion in markets outside of Texas. Our review of these markets indicate
economics that could be even more attractive than ERCOT's," Chairman and CEO
John Wilder said during an earnings conference call.

The company plans to build 5,000 MW to 8,000 MW of coal-fired generation
outside of Texas' ERCOT electricity market. These plants would be in addition
to the 1,600-MW Oak Grove 1 and 2 lignite-fired plants in Robertson County and
the 600-MW Sandow 5 lignite plant in Milam County that are already under
construction and the 6,400 MW of coal power plants that the company said it
would build in Texas in April.

"We want to take this show on the road, and we have actually had a substantial
amount of interest, specifically in PJM," Wilder said. PJM is the electricity
market in the Mid-Atlantic region that runs from Illinois to New Jersey and
south to Virginia.

"We would generally look to ... kind of the middle of the fairway of PJM, so
we wouldn't head west, we wouldn't head deep east, we'd just run through the
Pennsylvania, Virginia, perhaps even West Virginia corridor, in terms of a
targeted zone," Wilder said.

But locations and coal sources have not been decided yet, TXU spokeswoman
Kimberly Morgan told Platts Wednesday. "We're just at the beginning stages of
going out and visiting states and talking with officials."

Wilder plans to announce the new plants by the end of 2006.

TXU says it can build cheaper

Wilder believes TXU can develop new coal-fired capacity at an average of
$1,100/kW ? or 80% the cost/kW of other developers ? and complete them 30%
more quickly. Every month saved in plant development adds about $20/kW of
value, he said.

The company's review of new markets indicates that the economics of building
the plants "could be even more attractive" than in Texas, where coal-fired
generation has attractive margins because most of the region relies on
relatively expensive natural gas, Wilder said.

Currently, about 5,837 MW of TXU's 18,300 MW of capacity is lignite-fired from
four plants, and an expansion of 13,600 MW to 16,600 MW would quadruple its
coal- and lignite-fired generation.

Wilder, seeking to position TXU favorably in an era of rising natural gas
prices, first indicated last November that he planned to more than double
TXU's 5,837 MW of existing solid-fuel-fired capacity over the next five years,
in part by building new plants and in part by acquiring, leasing or otherwise
gaining control over existing plants.

In February, Wilder, citing soaring prices for existing solid-fuel-fired
plants, revised that strategy somewhat to focus almost exclusively on building
new coal- and lignite-fired plants.

-- Mark E. Heckathorn, mark_heckathorn@platts.com

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