Texas cities should look former TXU gift horse in mouth

Guaranteed low electric rates for 24 years? Sounds too good to be true, doesn't it?

Well, electric power generator Luminant is presenting what claims to be the real deal, and Cedar Hill, Duncanville and Grand Prairie are among cities that have signed up.

But, the hidden costs of these and other cities getting a minimum of 60 percent of their electricity from coal-burning power plants - hidden costs that could include increased carbon dioxide and mercury emissions - say that maybe this is too good to be true, or at least is a gift horse that needs further examining.

First, the trader of that gift horse needs a closer look. Luminant is what were the electric power plants of the old TXU. That's before leveraged buyout artist Kohlberg Kravis Roberts, profiled in the movie “Barbarians at the Gate,” along with Texas Pacific Group and Goldman Sachs, acquired TXU about two years ago.

Now, TXU wasn't exactly in the charity business even before the leveraged buyout. KKR never has been charitable, as the movie I mentioned documents. And, anybody watching current Treasury Secretary and Goldman Sachs alumnus Henry Paulson in the past month or two knows that he (and his company) are not known for befriending the little guy or paying attention to Main Street instead of Wall Street.

The three cities above, and others, have joined Cities Aggregation Power Project. If enough cities join the deal, CAPP cuts Luminant a check for $465 million. In exchange, they get 60 percent of their electricity at a fixed rate, on a 24-year contract, starting at a cheap $7 a kilowatt-hour.

Luminant needs the money. It has leveraged buyout debt, and anybody who's watched Crazy Uncle Henry Paulson's roller coaster knows that, these days, an antsy debtor can get an itchy trigger finger to call in debt.

In addition, Luminant has three new coal plants coming on line, and debt from them to pay off too.

Luminant gets well more than half of its electric generation from natural-gas plants. But, it's offering cheap (not allowing for any loopholes) power to cities that don't have a problem getting the majority of their electricity from relatively dirty coal.

The rates are cheap enough that it looks almost like bribery-level offerings to get CAPP cities to help Luminant pay off its leveraged buyout debt before some creditor in today's credit-tight world starts calling in notes.

Also on the financial side, the leveraged buyout trio promised to keep rates low through Š wait for it Š the end of 2008. I'm sure Luminant is going to be beating the bushes hard for new city customers for the next four weeks.

If enough cities sign up to launch CAPP, who knows what the price will be down the road on the 40 percent of power that's sold at floating rates?

Beyond that, there's the issues of air quality and global warming.

First, global warming. Coal emits a lot more carbon dioxide, the most common human-generated greenhouse gas, than does natural gas. Many inside-Washington environmental analysts expect some sort of national carbon dioxide emissions cap-and-trade program to come out of the Obama Administration, and relatively soon.

How much that will affect coal-fired electric costs, and how much of that cost Luminant would try to shuffle over to the 40 percent of the electricity it will provide CAPP cities at floating rates, is unknown. But, the fact that this thumb could potentially come down on the price scale means the CAPP deal may not be quite so cheap as billed.

Meanwhile, Luminant's four dirtiest power plants are estimated to be responsible for 5 percent of all mercury pollution in the United States. Luminant says it's working to clean up its plants, but didn't we hear that from the old TXU years ago? Just as pre-buyout TXU wasn't a charity, it wasn't exactly the “greenest” electric power generator.

As far as Metroplex air quality, those three new plants are near Waco, just to the southeast. At least on some days, prevailing winds come here from the south-southeast, and the more electricity from that plant, the more problematic the air quality in or area, already under Environmental Protection Agency non-attainment citation.

Over a 24-year period, stepping up conservation efforts would likely save CAPP cities as much money as TXU's coal-black smokestacks will pump out, and with the benefit of saving electricity in general.