Will the TXU buyout put Texas on a California energy diet?
In the weekend Wall Street Journal, Rebecca Smith reports that,
As shareholders of TXU Corp. approved a $32 billion buyout, the private-equity buyers’ pledge in February to stop developing a slew of coal-burning power plants looks likely to deliver windfall profits to TXU in a few years.
Why? Because without the new plants, Texas faces severe electricity shortages and therefore skyrocketing rates. Smith also reports that faced with rapidly increasing electricity demand, utilities are likely to bring older plants out of mothballs to try to meet demand. These mostly gas-fired plants are on average much less efficient and somewhat more polluting than the new coal-fired plants TXU had ordered. They will also be burning higher-priced natural gas.
There are three ways out of this impending train wreck for Texas’s economy. The first would be for other companies to step forward and build new coal-fired plants. New nuclear plants can help in the long run, but take too long to build to produce the power Texas needs in the next few years.
The second would be a national economic recession, which would slow or stop Texas’s booming economy. That, of course, is a possibility, especially considering many of the policies being pursued by the Congress. But I don’t think Texans are going to pray for a recession as a way out of their energy crunch.
The third would be to go on California’s energy diet plan. Force conservation by raising energy prices, and build lots of windmills that don’t produce much power.
I hope policy makers in Texas are noticing that high energy prices have deindustrialized California’s economy and that the failure to build new electricity generating capacity has recently led to blackouts during southern California’s heatwave. The threat of blackouts can only get worse in the future because the state government’s policies do not allow significant new generating capacity to be built, while the population in southern California (mostly immigrants from Mexico) is increasing rapidly.
The same policies applied in Texas would have even worse consequences because electricity demand peaks during the hot summer months when there is very little wind on the northern Texas plains. According to TXU, their windmills operate at around 23 percent capacity for the whole year, which is quite good, but at only around 2 percent during the summer. (Subscription required for Wall Street Journal link.)