Electricity is so cheap right now that for some generators it doesn't even pay to make it. At the end of August, Dallas-based Energy Future Holdings, the former TXU, announced it would mothball two units at its Monticello coal-fired plant for six to seven months. ERCOT, the state's grid manager, gave Energy Future its blessing Tuesday, concluding that the lost megawatts would not threaten the reliability of the grid. We will get by.
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These are hard times in the electricity business. The price of a kilowatt-hour is pretty cheap, and ERCOT says that's just the problem. Not so long ago, it was the conceit behind the deregulation of Texas electricity: Competition drives prices down. Instead, those prices are eroding power reserve margins because generators say they aren't making enough money to build new power plants. Meanwhile, Texas consumes more and more electricity.
Regulators doubled the price cap for electricity again last week, but it won't go into effect soon enough for beleaguered generator Energy Future. For now, we can get along without its power plant, but it wasn't long ago that we thought we'd lose it anyway. The company drew a line in the sand over EPA regs intended to reduce the emission of pollutants like nitrogen oxide, sulfur dioxide and fine particulate matter -- compounds that are harmful to your lungs and heart. The rule would have fallen hard on Energy Future's aging coal-fired fleet, requiring costly retrofits.
It all came at a bad time for Energy Future. The company has logged big net losses almost every quarter since a couple of private equity firms and financiers bought it in the biggest leveraged buyout in history. It was basically a gamble on the high price of electricity because, you know, like housing it can go nowhere but up. Now analysts believe Energy Future is "technically insolvent." In the quarterly report released yesterday, it announced a $407 million third-quarter loss.
Its generating arm, Luminant, and Texas Attorney General Greg Abbott took the EPA to court and won a split decision from a three-judge panel, staving off new regulations. It may be a temporary victory, though, because EPA is requesting a rehearing from the entire federal appeals court. Which is to say, if Energy Future isn't bluffing, it may still mothball those units permanently.