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By Eileen O'Grady
HOUSTON (Reuters) - Environmental group leaders on Wednesday urged Texas regulators to ensure that financially strapped Energy Future Holdings can cover the cost of cleaning up its coal mine operations in the state in the future.
Dallas-based Energy Future Holdings (EFH), the state's largest generator of electricity, is working to restructure about $40 billion in debt in the next few weeks.
Environmental interests, Public Citizen and the Sierra Club, question whether EFH and its subsidiaries have set aside cash or assets with sufficient value to cover a potential $1 billion tab to clean up its mining operations as required by law should the company declare bankruptcy and plants are shuttered by new owners.
The Texas Railroad Commission, which oversees mining activity in the state, has allowed Luminant Mining to "self-bond," or pledge company assets to meet the agency's financial requirements rather than put up a cash bond.
Luminant operates mines in 11 Texas counties that supply the lignite, a low-quality coal, that is burned at five Luminant power plants and can generate more than 8,000 megawatts of electricity, enough to serve 4 million Texas homes on an average day.
The environmental groups are worried that some of Luminant's aging coal-fired plants will no longer be economical to run and that costs to clean up mines that supply those facilities could fall to Texas taxpayers in the event of a bankruptcy.
In its last annual filing, EFH estimated its coal reclamation cost could fall between $850 million and $1.1 billion.
"No responsible regulator reading those filings and using good judgment could sit on his hands and not take action," said Tom "Smitty" Smith, Texas director of Public Citizen. "It's time for the Railroad Commission of Texas to get tough and get to the bargaining table to assure that Texas is protected from abandoned mines."
A spokeswoman for the Texas Railroad Commission said EFH's Luminant Mining unit "currently meets the financial requirements of the Texas Coal Mining Regulations, and therefore no additional bonding is required."
Last year, however, the commission began requiring Luminant to submit quarterly financial statements to show that the company and its third-party guarantor continue to meet the agency's self-bond requirement.
An EFH spokesman said the company has "no plans to shut down plants or mines in the event of a financial restructuring."
"Any restructuring would be a financial, not an operational, restructuring," said spokesman Allan Koenig.
Luminant has taken action to suspend operation at three coal units over the winter, citing low wholesale power prices in Texas.
Creditors are aware of the mine reclamation issue and one legal expert said the obligation could be met through letters of credit or other credit lines as part of bankruptcy financing.
EFH, formerly TXU Corp, was taken private in 2007 in a $45 billion buyout. The deal saddled the company with debt just before a sharp drop in natural gas prices that pared profits Luminant could earn from its large coal-fired fleet.
The buyout consortium included private equity firms KKR & Co LP, TPG Capital Management LP and Goldman Sachs Group Inc's private equity arm.
(Additional reporting by Billy Cheung in New York; Editing by Bob Burgdorfer)