WACO (MCT) -- The bankruptcy of Energy Future Holdings, owner of TXU Energy and Luminant, is expected to have no immediate impact on the state energy grid, but it clouds the future of Central Texas' coal-fired power plants.
Environmental groups are watching closely to see whether the bankruptcy and split-up of Texas' largest power company will lead future owners to shed the company's aging coal plants, such as Big Brown in Fairfield. They're also trying to make sure that the future owners will be forced to reclaim the company's coal mines.
The Chapter 11 bankruptcy filing Tuesday in a Delaware court has been expected for months as a measure to cut EFG's $40 billion debt load in half. A group of private-equity firms created the company in 2007, buying TXU in the biggest leveraged buyout in history, but a sharp decline in natural gas prices has disrupted the company's business model.
"Our existing capital structure has become unsustainable," EFH president-CEO John Young said in a statement. "We expect that, with the support of our financial stakeholders, our restructuring can proceed expeditiously as we seek to strengthen our balance sheet and position the company for the future."
The company's generation subsidiary, Luminant, is expected to continue operating without interruption, said the state's grid operator, the Electric Reliability Council of Texas. Oncor, an EFH subsidiary that is the state's largest electric distribution company, will not be affected by the bankruptcy.
In 2007, Waco community leaders and environmentalists who had opposed TXU's aggressive plans to build coal-fired power plants in the region in cheered the new company's promise to scale back those plans.
Two gas-powered plants in eastern McLennan County that would have been rebuilt as coal plants have instead been retired, though Luminant has applied for air permits to rebuild a new gas-fired plant at Tradinghouse Creek Lake.
But EFH continues to operate several decades-old coal plants, such as Big Brown, that lack the most modern pollution-control equipment. A U.S. Supreme Court decision handed down Tuesday upheld the Environmental Protection Agency's Cross-State Air Pollution rule, which will require Texas power plants to reduce their emissions. Luminant and the state of Texas had fought the rules in federal court.
State officials with Public Citizen and the Sierra Club said Tuesday they were disappointed that the bankruptcy filing made no mention of shutting down the older plants.
"The company is ignoring billions in environmental costs that it will incur by continuing to operate the oldest and dirtiest coal plants in its fleet," said Tom "Smitty" Smith, director of Public Citizen's Texas office.
Smith said trying to retrofit plants like Big Brown would be like spending thousands of dollars to fix up a junk car, and Luminant would be better off investing in wind and natural gas plants.
EFH has said that its existing coal plants will continue to operate, and Moody's senior vice president and analyst James Hempstead notes that, for now, they are profitable.
Hempstead told the Associated Press that the future of EFH facilities won't be clear until the restructuring is complete in about 11 months. He said a new buyer could decide to either diminish the company's reliance on coal in the face of new clean-air mandates or even shutter old facilities.
Sierra Club and Public Citizen officials have also raised questions about the reclamation of mines such as the Turlington lignite mine that supplies Big Brown.
As part of the bankruptcy, Luminant Mining Co. will have to put up a $1.1 billion collateral bond to ensure that the land is reclaimed. Environmentalists say that's better than the "self-bonding" that the state had allowed Luminant in the past. But Smith said he fears state regulators will allow the company to count existing coal-fired power plants toward that collateral.
"That would be stupid," he said. "These old, inefficient plants are being pushed off the grid by lower-cost wind energy. As the years go by, they're worth less and less. By the time they're retired, the value of the plant would not be adequate to pay for reclamation."
The energy landscape has changed greatly since 2006 and 2007, when environmental groups made common cause with the city of Waco and the Greater Waco Chamber of Commerce in fighting against more TXU coal-fired plants east of Waco.
The Waco chamber won affected party status in a state regulatory hearing about the coal plants, but the hearing was canceled when EFH announced that it would scrap eight of the 11 planned units.
"We had a concern that coal plants would affect our ability to attract other businesses and perhaps put us out of compliance with air pollution laws," said Jim Vaughan, who then served as the Waco chamber president.
He said the chamber's involvement hammered home the message that the new plants lacked public support.
"I'm glad it happened the way it did," he said. "They're probably glad they didn't build them."
The Associated Press contributed to this report.