Coal Companies Take a Hit on TXU Buyout

Feb 27 - St. Louis Post-Dispatch

Ripples from the $32 billion buyout of TXU Corp. reverberated from Dallas to Wall Street -- even St. Louis -- after an announcement that the utility would scrap plans for most of the 11 coal-fired power plants that it planned to build in Texas.

Just as Peabody Energy Corp. and Arch Coal Inc. got a boost when TXU announced the controversial projects last spring, they saw their shares drop on Monday as millions of tons of potential new coal demand evaporated. The announcement raises new questions about the fuel's role in a nation concerned about climate change.

The canceled TXU plants represented about 6,400 megawatts of generating capacity and 25 million tons of annual demand for coal that was to come from northeast Wyoming, where Peabody and Arch are large producers, said Ann Kohler, an energy analyst at Caris & Co. in New York.

St. Louis-based Peabody fell $1.53, or 3.4 percent, to $42.91. Arch, based in Creve Coeur, fell 80 cents, or 2.4 percent, to $32.78.

Environmentalists said the decision goes beyond being a savvy strategic maneuver to win approval of the largest leveraged buyout in U.S. history. It symbolizes a sea change within corporate America, where more companies are becoming concerned about their emissions and the effect on their public image.

Last month, companies including General Electric Corp. and Caterpillar Inc. recommended a limit on emissions of carbon dioxide, a greenhouse gas linked to global warming. Legislation has been proposed in Congress and in some states to do the same.

Coal-fueled power plants, along with cars, are two of the biggest sources of carbon dioxide.

The announcement by TXU "sends a message that we are moving to a carbon-constrained world and major financial players understand this," Fred Krupp, president of the Washington, D.C.-based Environmental Defense Fund, said Monday in a conference call.

Coal producers said TXU's move doesn't change the nation's growing appetite for electricity. And even with big gains in efficiency and renewable energy, the need for low-cost power requires increased reliance on the nation's vast coal reserves.

"We still believe coal is part of the answer," said Arch spokesman Deck Slone, who added that the company expects a federal law passed within the next four years to regulate carbon emissions.

Peabody spokesman Vic Svec noted that TXU, as part of its plans to abandon some of the coal-fired plants and embrace alternative energy, intends to join an alliance of utilities and coal producers. Peabody is among those partnering with the Energy Department to build a near-zero emissions power plant that would also store carbon dioxide underground.

"The cure for (climate change) concerns is technology, versus putting into place limits or taxes before the tech is ripe," Svec said.

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