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December 20, 2006
Rainforest Action Network Seeks to Stem Flow of Financing to TXU Coal Project
    by Bill Baue

Part two of this two-part articles addresses how RAN sent a letter to 54 banks urging them to withhold funding from a TXU plan to build 11 pulverized coal-burning power plants in Texas.


While shareowners represent one set of investors concerned over the environmental impacts of a plan by TXU (ticker: TXU) to build 11 new pulverized coal-burning plants in Texas (see part one of this article), banks that would finance the project represent another key set of investors. Rainforest Action Network (RAN), an environmental nongovernmental organization (NGO) that campaigns for sustainable banking, is trying to tie a tourniquet around the lifeblood of the project by sending a letter to 54 financial institutions urging them to withhold financing from TXU.

"A recent issue of Business Week Online quotes three different experts who say, respectively, that 'Nobody in their right minds should be building a coal power plant;' that 'It is the definition of financial insanity to invest in a new coal plant;' and that 'Itís very likely that the investment decisions many are making, to invest in long-lived, high-carbon dioxide-emitting-power plants, are decisions we'll all live to regret,'" wrote Michael Brune, RAN's executive director. "Our strong preference is to support your company's decision to get more proactive on climate change and to decline to be associated with this proposal by TXU, rather than oppose your company's actions with a public campaign."

The Investor Briefing that accompanied the RAN letter notes that TXU named Morgan Stanley (MS) and Citigroup (C) as financial advisors to the project, with Merrill Lynch (MER) reportedly set to play a significant advisory role and many other banks as potential financiers of the project.

"It's ironic that Citigroup is a lead arranger, seeing as they were considered a leader on sustainable banking when they created their environmental policy back in 2004," said Dana Clark, a global finance campaigner for RAN. RAN was credited with prompting Citigroup to create its policy, which set precedent at the time, as well as sign the Equator Principles (EPs), a set of voluntary environmental guidelines established in 2003 that cover project finance, or lending to infrastructure projects such as power plants. "We've been talking with Citigroup about the TXU project since September, and when we met with them, I was disappointed with their attitude that, if the project gets its permits and is legal, they don't have a problem with it."

"Regarding our relationship with TXU, we do not comment on client matters, but of course we only do business with clients who fully comply with all applicable laws, regulations, and policies, including the Equator Principles," Citigroup Spokeswoman Danielle Romero-Apsilos told SocialFunds.com.

While the July 2006 revision of the Equator Principles (or EP2) extended them to explicitly cover advisory roles such as Citigroup is playing in this instance, Citigroup's response exemplifies why critics of the EPs are frustrated.

"It proves to be next to impossible to talk with banks about specific EP projects and whether they comply, since they cite client confidentiality, and we have no way of verifying their claims apart from visiting the sites," BankTrack Coordinator Johan Frijns told SocialFunds.com. BankTrack, a coalition of NGOs that promote sustainable finance, has added the TXU project to the list of "dodgy deals" it tracks. "What this says about the EPs--when its signatories support the TXU project--is that in the real world, they make so little difference that we get pretty fed up with them."

SocialFunds.com sought commentary from potential financiers of the TXU project. None of the EP banks was able to supply commentary on the TXU deal. Nhan Chiem, manager of corporate communications at EP bank HSBC (HBC) that has reportedly been approached by TXU, claimed client confidentiality. Amy Davidsen, director of environmental affairs at JPMorgan Chase (JPM), was unavailable. And Jim Mahoney, director of public policy at Bank of America (BAC), did not respond. As for non-EP banks, Christopher Williams, vice president of media relations for Goldman Sachs (GS), confirmed that the bank is not involved with TXU, and Selena Morris of Merrill Lynch media relations did not provide commentary.

"We don't comment on client relations, however I can tell you we are in the process of revising our environmental policy statement, we're in conversations with some of the environmental agencies, and we expect to have a new statement out early next year," Mark Lake of Morgan Stanley media relations told SocialFunds.com. It therefore remains to be seen whether the new policy would preclude financing a project such as the TXU's.

"We've spoken with some of the other banks besides Citigroup, such as Morgan Stanley, and they consider this a political question," Ms. Clark of RAN told SocialFunds.com. "We say, no, it's an economic question, it's a reputational risk question, it's an environmental question."

Of course politics play a significant role in the progress of state approval for the project, and may serve to overshadow the importance of the economic and environmental impacts of the coal plants and their impact on the reputations of companies associated with the project. In late October Texas Governor Rick Perry issued an executive order requiring the Texas Commission on Environmental Quality (TCEQ) to prioritize TXU's permit applications.

"It's all quite suspect--TXU and others made over $85,000 in political contributions to Gov. Perry, and he in turn issued the order fast-tracking the permitting process and limiting the period of public opposition," Ms. Clark explained.

TXU takes exception with this explanation.

"TXU did not seek to fast-track, rather the governor of Texas saw an urgent need for power in this state and he shortened the administrative process for permitting from somewhere between 12 to 18 months to six months," TXU Spokeswoman Lisa Singleton told SocialFunds.com. "Nothing else about the permitting process has changed."

Regardless of the validity of the fast-tracking process, its results carry significant implications.

"One thing that would be a crying shame is if this old-school, Chinese-style pulverized coal technology with massive greenhouse gas implications gets locked in now, with a lifespan of 50 years, when there's so much interest in wind and solar and demand-side management conservation and energy efficiency, so the problem with the fast-tracking is that consideration of those alternatives is getting squelched in the process," Ms. Clark stated.


Part one of this two-part article examines how shareowners are raising environmental and regulatory concerns over the TXU coal expansion plan, as well as environmentally preferable alternatives to coal such as energy efficiency.

 

 
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