Posts Tagged ‘energy future holdings’

Between legislative sessions, the Texas Lieutenant Governor and Speaker of the House of Representatives appoint Interim Committees to study important issues that help guide the Texas Legislature’s decisions in the future. These interim committees hold hearings and take public testimony. Their findings will affect actions taken during the next regular session.  Public Citizen will be closely following several interim charges during the coming year.  After each charge, we have included a brief explanation about why we consider these important charges about which you should be concerned.  The interim charges include, but are not limited to:

House Committee on Environmental Regulation Interim Charges
# 1.  Study the environmental permitting processes at the Texas Commission on Environmental Quality (TCEQ), specifically the contested case hearing process at the State Office of Administrative Hearings (SOAH) and the timelines associated with the process. Study the economic impact that the state’s permitting processes have on Texas manufacturing sectors and how neighboring states’ and the federal permitting processes and timelines compare to those in Texas.
(Why are contested case hearings important for Texas citizens?  This is the only opportunity that neighbors of proposed facilities have to contest an air or water quality permit before a license is approved.  Once approved, any contentions must go through the Texas court system, which can cost a citizen or group of citizens thousands of dollars to litigate and the likelihood of getting a license revoked is extremely minimal.  You will note that the only concerns voice about this process has to do with economic impact and the impact on industry – NOT on how it would impact you and your family if you ended up with a facility next door that had to be permitted because it impacts on air and water quality.) 
# 2.  Study the rules, laws, and regulations pertaining to the disposal of high-level radioactive waste in Texas and determine the potential economic impact of permitting a facility in Texas. Make specific recommendations on the state and federal actions necessary to permit a high-level radioactive waste disposal or interim storage facility in Texas
(Can you say Yucca Mountain?  Yucca Mountain, a ridge of volcanic rock about 100 miles northwest of Las Vegas, has been the leading candidate site for a high-level radioactive repository since the 1980s, but Nevada has fought the project bitterly in court and in Congress. The spent fuel that emerges from nuclear power plants has been accumulating for decades in steel-lined pools or giant steel-and-concrete casks near the reactors.  A final decision to abandon the repository would leave the nation with no solution to a problem it has struggled with for half a century, but some in Texas seem determined to take on the task of making west Texas the new home for this nuclear waste.  While you may not be concerned about all that radioactivity sitting on land near Big Spring, TX, halfway between Midland and Sweetwater, you may want to consider the impact of all that waste being transported across the state on our highways, possibly through your neighborhood.  We will be following this charge and will post when we know about hearings.)

Consider this story that broke as I was writing this post. The Waste Isolation Pilot Plant (WIPP), an underground radioactive waste disposal site that began operations in 1999 and is the nation’s first repository for the permanent disposal of defense-generated transuranic radioactive waste left from research and production of nuclear weapons, was evacuated this morning when an underground salt truck used to haul mining debris caught fire.  Two WIPP rescue teams were activated and an unconfirmed number of WIPP employees were transported to a hospital for potential smoke inhalation. Operations at WIPP have been suspended until further notice.  According to WIPP, none of the nuclear waste was disrupted during the incident, but emergency crews were still battling the fire at this writing.

House Committee on State Affairs Interim Charge

# 3. Study the different financial assurance options used by state agencies to ensure compliance with environmental clean-up or remediation costs. Determine whether the methods utilized by state agencies are appropriate to ensure sufficient funds will be available when called upon.
(An example of how this can affect you – Currently, mines associated with a coal-fired plant can disposed of toxic coal ash waste from the burning of that coal in the depleted mines – click here to read more about coal ash waste .  Federal law requires those facility to post a bond for cleanup and remediation of the land where coal ash waste is disposed of.  In Texas, we allow a financially solvent company to pledge existing assets against future reclamation claims related to mine operations and seem to have no recourse to require changes if the company no longer meets financial health benchmarks. This is a practice that leaves Texas tax payers at risk of having to bail failing companies out from this obligation if those companies are unable to meet it.)

Click here to see all the Texas House Interim Charges.  We will keep you updated as hearings for these charges are announced.  Your input can have significant impact on what our legislature does regarding these issues.

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Energy Future Holdings $1 Billion Bonding for Texas Mines Doesn’t Pass the Smell Test

An exclusive report from Public Citizen and Sierra Club reveals that Energy Future Holdings (EFH) and its subsidiaries have not set aside cash or real assets to cover the $1.01 billion cost of cleaning up its strip mines in Texas.  Click here to get a copy of the full report entitled “Energy Future Holdings and Mining Reclamation Bonds in Texas“.

As a result, taxpayers could end up with the bill if mines are abandoned by EFH, which is expected to file for bankruptcy by year’s end.

“The report shows that Energy Future Holdings has been playing fast and loose with its obligations to Texans,” said Tom “Smitty” Smith, director of Public Citizen’s Texas office.  “The law is clear, and Texas regulators should take immediate action to demand a cash bond so taxpayers and the environment are protected.”

The Public Citizen and Sierra Club report, titled “Energy Future Holdings and Mining Reclamation Bonds in Texas,” was authored by Tom Sanzillo, Director of Finance for the Institute for Energy Economics and Financial Analysis. (Sanzillo previously served as first deputy comptroller of New York State and has thirty years of experience in public and private finance.)

Under federal law, mining companies are required to set aside money for clean-up of mines so resources will be available even if the mines are abandoned. The law was created because many mines were abandoned across the United States when companies went bankrupt, leading to contamination of surface water and groundwater.

In Texas, EFH’s subsidiary, Luminant Mining, is responsible for the operation and clean-up of its eleven active strip mines. The reclamation is estimated to cost as much as $1.01 billion.

In many states, Luminant Mining would be required to put up a $1.01 billion cash bond or other financial assets equal to that amount. But Texas’s Railroad Commission, which administers state mining law, has allowed Luminant to “self-bond,” which means it is relying on a “guarantee” without having real cash bonds set aside that the state can readily access.

Sanzillo’s analysis shows that the Luminant Generation assets that are used to pass the Railroad Commission’s financial tests for the $1.01 billion “self-bond” are already committed to secure other debt incurred by EFH.

“Luminant Generation’s revenue-generating assets, its power plants, are pledged as security for Energy Future Holdings debt,” said Sanzillo. “That means there may not be liquid assets available for the cost of reclamation. The fundamental problem is that there does not appear to be any unencumbered capital obligated to the state.”  Sanzillo added, “EFH has been playing a shell-game, and state regulators have allowed it, Sanzillo said. “If EFH is just now trying to come up with money for reclamation, that confirms it wasn’t there before. Any new financing mechanism that EFH comes up with must be reviewed rigorously. EFH has to segregate the money – set cash aside or post a third-party bond specifically for clean-up of the mines.”

Al Armendariz, senior representative in Texas for Sierra Club’s Beyond Coal Campaign, said, “This billion-dollar bonding should be a wake-up call for future buyers of EFH’s oldest coal plants. It may be that these old EFH coal plants are just too expensive to operate. They’re the subject of enforcement actions by the U.S. Justice Department, and EFH may be required to add  hundreds of millions of dollars in additional pollution controls to meet new ozone, mercury, and  carbon standards.”

Smith pointed out that how Texas handles the EFH financing for clean-up of mines could set national precedent.

“One hundred and fifty coal generating units in the United States have announced they plan to retire, and as a result many of the mines that supply them may end up in financial trouble,” Smith said. “This problem is bigger than Texas and regulators across the nation should take steps to protect consumers and the environment in their states.”

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NPR’s State Impact reported this morning that Energy Future Holdings (formerly TXU) has “self-bonded” approximately $1 billion for future mining restoration in Texas in lieu of real cash bonds. Click here to hear the entire story.

In the transcript of the story it discusses the main concerns of Public Citizen and Sierra Club who have been investigating this issue for the past six months.

At the heart of the two groups’ (Public Citizen and Sierra Club) concern is what’s called “self-bonding.” Under federal law, mining companies must post bonds as a form of insurance to cover the cost of reclamation in case the companies run into financial trouble. Instead of using an outside company to provide the bonds, mining operators in Texas are allowed to self-bond. Some coal states don’t accept self-bonding.

Texas has approved Luminant Mining’s self-bonding. The self-bond’s “third party guarantor” is a sister company, Luminant Generation. It’s the power plant company that burns the coal from Luminant Mining.

The environmentalists say they’re worried that those power plant assets might also be claimed by other creditors, jeopardizing the funds Texas might recover to pay for reclamation.

Luminant’s parent company, Energy Future Holdings, has explained in annual reports to the United States Securities and Exchange Commission that the company faces creditworthiness requirements for different regulators in Texas, among them the Railroad Commission. For years,  the reports said that “we believe we will have adequate liquidity to satisfy such requirements” or “we believe we would have adequate liquidity capacity and/or financing capacity to satisfy such requirements.”

But then, in a 2012 report, that line disappeared.

“It was the smoking gun,” said Public Citizen’s Smitty Smith.

On page 100 of EFH’s 2008 10K filing, page 100 of EFH’s 2009 10K filing, page 98 of EFH’s 2010 10K filing, and page 93 of EFH’s 2011 10K filing, the following appears

The RRC has rules in place to assure that parties can meet their mining reclamation obligations, including through self-bonding when appropriate. If Luminant Generation Company LLC (a subsidiary of TCEH) does not continue to meet the self-bonding requirements as applied by the RRC, TCEH may be required to post cash, letter of credit or other tangible assets as collateral support in an amount currently estimated to be approximately $xxx (from a low of $600 million in 2008 to a high of 990 million in 2011) million. The actual amount (if required) could vary depending upon numerous factors, including the amount of Luminant Generation Company LLC’s self-bond accepted by the RRC and the level of mining reclamation obligations. . . .

In the event that any or all of the additional collateral requirements discussed above are triggered, we believe we would have adequate liquidity and/or financing capacity to satisfy such requirements.

On page 85 of EFH’s 2012 10K filing, only

The RRC has rules in place to assure that parties can meet their mining reclamation obligations, including through self-bonding when appropriate. If Luminant Generation Company LLC (a subsidiary of TCEH) does not continue to meet the self-bonding requirements as applied by the RRC, TCEH may be required to post cash, letter of credit or other tangible assets as collateral support in an amount currently estimated to be approximately $850 million to $1.1 billion. The actual amount (if required) could vary depending upon numerous factors, including the amount of Luminant Generation Company LLC’s self-bond accepted by the RRC and the level of mining reclamation obligations. . . .

appears, the followup statement, found in the previous 4 years 10K filings is conspicuously missing.

In the event that any or all of the additional collateral requirements discussed above are triggered, we believe we would have adequate liquidity and/or financing capacity to satisfy such requirements.

NPR’s story goes on to say “a media liaison for Energy Future Holdings, Allan Koenig, would not comment specifically about the line that disappeared.”  But that was followed up by an email from the company saying, “We fully satisfy the bonding requirements of the Railroad Commission of Texas for our coal mines, which means that our reclamation obligations are guaranteed.”

Well, yes they do satisfy the bonding requirements allowed by the RRC and their obligations are guaranteed by Luminant Generation, but it is all the same company and still at risk if the assets of the company, should a reorganization occur, be found insufficient to meet the bond amount currently estimated at $850 million to $1.1 billion.  EFH is telling the Railroad Commission ‘Trust us, we’re good for it’ even though the company debt is rated as junk status by the financial ratings agencies like Standard and Poor’s. What EFH is doing is like a family getting a second mortgage on a house and losing their jobs.  How can Texas regulators have any confidence that the assets of Luminant Generation will be protected from the bankruptcy process and available to cover future mining reclamation costs?

In a memo from the Railroad Commission (RRC) to Luminant Mining Company regarding Docket No C12-0006-SC-46-E, on the Oak Hill Mine application for replacement bond, it appears Luminant reassured the RRC that in their 2012 3rd quarter filing EFH’s liquidity amount (at that time) was $3.8B and that amount would be sufficient to cover all obligations including Luminant Minings reclamation needs.  However, we don’t know that this will still be the case 3 to 12 months from now should EFH file for bankruptcy.

We believe the RRC and Texas would be best served by requiring a more secure form of bonding for reclamation needs.

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No Bailout for Energy Future HoldingsEnergy Future Holdings, formerly TXU, of Dallas might be looking for a handout – from you.

Back in January, Moody’s changed Energy Future Holdings Corp’s rating outlook to negative and made it impossible to ignore what anyone who had been paying attention to the company’s quarterly reports already knew: Energy Future Holdings is on a path heading towards bankruptcy.  Now there are rumors floating around that the company may ask the Texas Legislature to approve a public or ratepayer-funded bailout.

Neither option would benefit majority of Texas citizens and we urge everyone to sign our petition in opposition to any bailout proposal for Energy Future Holdings

You might wonder how the profitable TXU end up as the failing Energy Future Holdings.  The answer is twofold.

First, in Texas, electricity prices are set based on the price of natural gas.  When natural gas prices were high, this meant that coal-fired power plants could reap additional profit.  This made TXU an attractive acquisition because the company owned many coal-fired power plants.  But now, natural gas prices have plummeted and those same coal-fired power plants, especially the oldest and most inefficient, are dragging Energy Future Holdings down.  The private equity investors made a big bet on the wrong energy source.

The second problem is that Energy Future Holdings was acquired in a leveraged buyout.  What that means is that instead of the investors paying the full amount to buy TXU, they financed the deal partially through loans to the company.  While the company has done a good job of staving off the day of reckoning by refinancing many of those loans, many are approaching maturity and additional refinancing options are limited by the negative prospects for the company.

So, while TXU was a profitable company with relatively low debt, Energy Future Holdings is an unprofitable company (because of low natural gas prices) with massive debt (because of the leveraged buyout) that is approaching maturity.  This isn’t a good combination and some people are going to lose money on the deal (many already have).  However, those losses shouldn’t be placed on Texas taxpayers or ratepayers.

Tell your state representatives and senators that you oppose bailing out failed corporations.

Most of us have to live with the consequences of our bad decisions.  Help us make sure that Wall Street and private equity firms must do the same.

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Here’s some great news! With EPA tightening the standards for coal plant emissions, Energy Future Holdings, the parent company of Luminant (formerly TXU) and the major electric power provider for much of North and West Texas, is considering how to respond to new federal clean-air regulations.  Yesterday they announced they will mothball 3 coal plants in Northeast Texas.

In a filing with the U.S. Securities and Exchange Commission, the company said it was looking at all options including other shutdowns or slowdowns, as well as seasonal or temporary shutdowns, and the option of installing scrubbers to remove sulfur dioxide from plant emissions, or even switching fuels to fire the furnaces that generate the steam used to generate electric power.

This will significantly improve air quality and the health of people that live near the plants and downwind.  The company is concerned about the expense of controls that would be needed for these old and dirty plants.

CPS Energy in San Antonio is already planning to mothball and then retire Deely 1 & 2 coal plants for the same reasons.

Blue skies smiling at me,
Nothing but blue skies do I see

Ozone days, all of them gone
Nothing but blue skies from now on

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Great joint op-ed by our friend McCall Johnson over at Environment Texas and State Rep. Rafael Anchia, winner of Public Citizen’s Legislator of the Year award.  Following on the heels of TXU’s announcement last week that it will offer customers an affordable solar leasing program, the gist of it is that we can’t let the momentum for solar wane whenever the program’s money runs out.  Sounds like Rep. Anchia may have some ideas for a legislative fix, check it out… (more…)

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Power companies’ plans to pursue new nuclear projects are damaging their credit ratings, which may mean higher costs will be shifted onto ratepayers. In a new report by Moody’s Investors Service titled “New Nuclear Generation: Ratings Pressure Increasing”, the firm raises concerns about investing in new nuclear plants with great risks and capitol costs at a time when national energy policy is uncertain.

Of the 17 proposed reactor projects Moody’s analyzed, two already have obligations rated as speculative or “junk”, and both are in Texas: NRG’s South Texas Project (“questionable credit quality”) and Energy Future Holding’s Comanche Peak (“generally poor credit quality”).

Exelon’s proposed two unit reactor in Victoria was rated as one step above junk status (between Baa1 and Baa3).

“If these guys are already having trouble with their credit ratings, why should Texans mortgage their future building new plants that even the builders can’t finance?,” asks Tom “Smitty” Smith, director of Public Citizen’s Texas Office.

Good question.

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