Banks Set Guides For Power Plants

THREE BIG FINANCIAL institutions have established a set of guidelines for lending money to utilities considering new electric power plants. Because the guidelines emphasize the regulatory risks of coal-fired facilities, they could steer utilities to rely more on plants based on natural gas, a critical feedstock for the chemical industry.

Called "The Carbon Principles," the guidelines were released last week by Citigroup, JPMorgan Chase, and Morgan Stanley after consultation with leading power companies and two environmental groups, Environmental Defense and the Natural Resources Defense Council. The banks say the principles reflect the risk that carbon dioxide emissions from power plants may in the future be regulated by states or the federal government.

Although all fossil-fuel-based power plants would be affected by such regulations, plants that burn coal would suffer disproportionately because they emit more CO₂ than do natural-gas-fired plants. "Leading utilities and financial institutions understand that the rules of the road have changed for coal," says Mark Brownstein, managing director of business partnerships for Environmental Defense.

The banks say they won't prescribe how power companies should respond to the growing electricity needs of consumers. But if high-CO₂-emitting technologies are selected, the banks will follow what they call an "enhanced diligence" process and factor the accompanying risks into the final financing decision.

Even without the new guidelines, coal-fired power plants have been under scrutiny. Mike Gettings, managing director of the consulting firm Pace Global Energy Services, says coal-based plants are regularly being denied permits across the nation. Nuclear plants, which don't emit CO₂, are an alternative, but they take 10 or more years to build.

"So natural gas is again emerging as the preferred, if not the only viable, alternative for new power generation in the near term," Gettings says. This is true, he adds, even though natural gas prices have quadrupled in recent years.

Utilities' growing preference for gas is a problem for chemical makers, according to Thomas J. Gibson, senior vice president for advocacy at the American Chemistry Council. "We simply can't compete with an entity that can pass on its costs to its captive consumers when we operate in a world market," he says.

ACC estimates that high natural gas prices have put 114,000 U.S. chemical industry employees out of work since the beginning of the decade as plants shut down or moved offshore.

ACC is calling on Congress to link any future climate policy to energy policy. Specifically, Gibson says legislators should permit drilling for natural gas on the outer continental shelf. He says lawmakers should also provide incentives for coal-based power generation technologies that capture and sequester CO₂.

"The utilities and the financial community are anticipating we will be in a regime that will control carbon," Gibson says. "That's why it's vital that Congress look to the supply side of the equation."