Three major Wall Street banks said Monday that they will more closely scrutinize investments in power plants that emit greenhouse gases because federal regulation of carbon dioxide could make such investments more risky.

Citi Group, J.P. Morgan Chase and Morgan Stanley have developed principles to assess the risk of investing in plants that emit greenhouse gases, particularly coal-fired power plants. Several power companies, including one that is building a coal plant in Texas, advised the banks on the principles, along with the groups Environmental Defense and Natural Resources Defense Council. “The development plan will need to account for the added risks due to the uncertainties around future emissions limits,” the banks state in their so-called Carbon Principles. The principles, meant to become industrywide practice, could slow investment in coal plants and other major emitters, as banks require power companies to offer plans to deal with greenhouse gas emissions.

But most of Texas’ eight proposed coal plants already have financing and wouldn’t have to go through the more rigorous process. If Congress limits the carbon dioxide that power companies may puff into the air, coal plants would probably have to add expensive equipment to control the emissions. Some coal plants may be able to pass that cost to consumers; others may have to eat it

Power company NRG Energy, which advised the banks on the principles, plans to build a coal-fired power plant in Limestone County in Central Texas. The plant doesn’t yet have an environmental permit or financing.

But NRG executives say they always consider the risk of greenhouse gas limits when they plan a project. The company aims to create a balanced portfolio of plants, using different types of fuel, including nuclear plants, which don’t emit carbon dioxide when they’re operating, and windmills. Energy Future Holdings, formerly called TXU Corp., was absent from the list of seven power companies that advised the banks on the principles.

Two years ago, the company proposed building 11 coal-fired power plants in Texas but didn’t offer a specific plan to address the carbon dioxide emissions. The proposal met with such public resistance that when private equity investors bought TXU last year, they agreed to build only three plants. A spokeswoman said those plants have financing and are under construction. The company said it agrees with the banks.

principles, which include encouraging customers to be more efficient and investing in renewable energy. “The company had already adopted and begun implementing the three basic principles laid out today,” Energy Future chief executive John Young said.

Other coal-fired power plants planned in Texas already have financing as well. LS Power has the loans and money necessary to build a plant near Waco, according to assistant vice president Michael Vogt. CPS Energy of San Antonio is building a coal plant that it expects to be operational by 2010. Two other plants don’t yet have complete financing: PNM Resources’ expansion of a plant in Robertson County and a plant in South Texas proposed by International Power PLC and South Texas Electric Cooperative. A spokeswoman for South Texas Electric said the plant isn’t fully financed, and executives aren’t sure how the carbon principles might affect the project.

She said part of the funding could come from issuing public bonds.

Knight Ridder Tribune Business News
Author(s): Elizabeth Souder