The shock headlines blaming EPA for wrecking the economy are not to be believed. Rare, when a business columnist jumps to the defense of the regulatory agency. We are being treated to a GOP slug-fest against the US EPA on multiple fronts, and it is refreshing when a breath of fresh air blows out the demagoguery. This one is from Houston. One of the points raised by Loren Steffy that is often buried in the hot air: the role of private equity firms who took on massive debt at high interest rates to buy up utilities in the last decade, and consequently don't have the cash flow to meet regulations curbing carbon dioxide that clearly were on the horizon. Read on:
Loren Steffy: Don't blame EPA for deregulation failure
By LOREN STEFFY, HOUSTON CHRONICLE
Updated 11:32 a.m., Thursday, September 15, 2011
Loren Steffy
Make no mistake, the 500 Luminant employees who will lose their jobs later this year are victims, but not of federal over-regulation.
They are pawns in the ongoing charade of Texas' deregulated electricity market, which already has left generators financially weakened and consumers worrying about blackouts.
Luminant, Texas' largest power plant operator, said it will fire the workers and close two large coal-fired power units to comply with stricter air quality standards mandated by the U.S. Environmental Protection Agency.
Dallas-based Luminant is asking a court to delay the EPA rules, issued in June, so it will have more time to comply.
Luminant joins a chorus that includes Gov. Rick Perry and that loving lapdog of polluters, the Texas Commission on Environmental Quality, in lambasting the EPA rule changes.
Meanwhile, NRG, the second-biggest generator in the state, said it expects to comply with the EPA regulations without any jobs cuts, plants closing or material financial impact.
Funny how much difference good financing and a little planning can make. After all, power generators knew that, sooner or later, stricter air standards were coming. While it does seem that six months is a short time to enact the sort of pollution controls the EPA is requiring, it's a moot point.
Buyout debt
It's unlikely Luminant has the cash to make the sort of investments it needs to reduce its coal-fired pollution. Its parent company, Energy Future Holdings, is struggling with mountains of high-priced debt from its ill-timed $43 billion buyout by two private equity firms in 2007.
That deal resulted from an unintended consequence of deregulation that made coal a profit machine. Electricity rates are tied to natural gas, and for most of the past decade, coal enabled companies to generate more cheaply, fattening their margins.
That's why we have 19 coal-fired generating units already operating and nine more than have been granted permits by the Texas Commission on Environmental Quality.
Now, with an abundance of shale gas, prices have fallen below $4 per million British thermal units, making coal a less profitable generating source.
But don't expect generators to switch fuels.
"They couldn't afford to switch," said Ed Hirs, a professor of energy economics at the University of Houston. "A coal plant is a sunk cost."
Hirs and a group of researchers affiliated with Yale University recently studied whether stricter pollution standards would cause generators to change from coal to natural gas. At most, the study found, 20 percent of the coal-generating capacity in the U.S. might convert.
"You're not going to see a big change over time," he said. "Clearly, there's an issue of inertia in the market."
That will disappoint environmentalists, and it will disappoint natural gas proponents, who have argued that gas is a cleaner, more economical generating fuel.
More of the same
In Texas, though, it means more of the same. Having created a system of misplaced incentives, deregulation has left us with higher prices, lower reliability and, now, more expensive and dirtier coal generation.
It's easy - and politically feasible - to blame the EPA, but the 500 jobs Luminant is cutting aren't being lost to higher air quality standards. They're simply the latest victims of deregulation's failed legacy.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy. Follow him on Twitter at twitter.com/lsteffy.
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