Blackstone's coal problem
Environmentalists and politicians are turning up the heat on coal plants proposed by the investment giant.
NEW YORK (Fortune) -- Throughout the West - in Colorado, Montana, Nevada, New Mexico, Utah and Wyoming - battles are raging over proposed coal plants. Caught up in two big ones is The Blackstone Group, the global asset manager than went public last year.
Blackstone (BX) owns 80 percent of Sithe Global Power, an independent power producer. Sithe wants to build a 1,500-megawatt plant, known as Desert Rock, on land governed by the Navajo Nation in New Mexico. It also wants to build a 750-megawatt plant called Toquop in southeast Nevada.
If the plants are built - which is no sure thing - they would provide electricity to some of the nation's fastest-growing areas, including Las Vegas and Phoenix. The Desert Rock plant would also deliver a much-needed economic injection into the Navajo Nation, America's largest Indian reservation, many of whose 200,00 residents are poor.
But both projects face powerful opponents. Governor Bill Richardson of New Mexico opposes the Desert Rock plant, although there's not a lot he can do to stop it because of the sovereignty granted to the Navajo tribe. In Nevada, U.S. Senator Harry Reid, the Democratic majority leader, vows to do all he can to block Toquop and two other coal plants.
Environmentalists including the Sierra Club, the Natural Resources Defense Council and Environmental Defense also want to stop the plants, and that could be a problem for Blackstone. So far, the groups have not targeted Blackstone or its high-profile chairman and CEO, Stephen A. Schwarzman, but it's only a matter of time before Schwarzman is brought into the fray, according to insiders. Blackstone, which managed nearly $100 billion in assets as of last Sept. 30, did not respond to a phone call and e-mail seeking comment.
Blackstone will likely face pointed questions about the coal plants from institutional shareholders, who have lobbied other public companies to disclose their climate-related risks. Coal-fired plants are the single biggest source of greenhouse gases that cause global warming.
"Every ton of global warming pollution that we release today has measurable, real impacts that will last for decades," says Vickie Patton, a Colorado-based lawyer for Environmental Defense and an author of a report called "Climate Alert" that argues against new conventional coal plants in the west.
The $3 billion Desert Rock project has proven particularly controversial. It was endorsed by a 66-7 vote of the Navajo tribal council, and the tribe's leaders say it will create jobs and generate $50 million in annual revenues for the Navajos. Just as poor countries like China and India have argued that they should not be subject to mandatory controls on their carbon emissions, the Navajos say they are entitled to exploit their energy resources to raise their standard of living. Coal for the plant will be mined on nearby Navajo land.
"The Navajos want to tap their natural resources for the benefit of the nation," says Frank Maisano, a Washington, D.C.-based spokesman for Sithe Global. "They have a lot of coal. They can generate a lot of revenue. And they can provide affordable and reliable power for the region."
The Desert Rock plant, he says, will be far more efficient and less polluting than existing coal plants in the region because it uses newer technologies. The U.S. EPA and the Bureau of Indian Affairs have recommended granting the plant the permits it needs to proceed.
Dissident Navajos, however, have been protesting at the plant's site for more than a year. They commissioned a 160-page report that argues that the Desert Rock plant violates Dine laws and traditions (Dine is another word for Navajo).
"Mother Earth and Father Sky is part of us as the Dine, and the Dine is part of Mother Earth and Father Sky," the report says. It also argues, as others have, that solar power, wind power and energy efficiency efforts will do more for the tribe's economic development,and provide cheaper electricity over time, than will the coal plant.
Others in New Mexico worry that Desert Rock's mercury emissions will aggravate the state's existing mercury problem, and they complain that the electricity generated by Desert Rock will go to neighboring Arizona. "We get all of the pollution and none of the power," says Gregory Green, an organizer with a New Mexico group called Coalition for Clean and Affordable Energy.
Similar debates are unfolding throughout the Rocky Mountain region, where more than two dozen coal plants have been proposed. Opponents say the costs of building coal plants are rising fast, and that regulation of carbon emissions by the federal government will eventually further increase the cost of coal-generated electricity. Meanwhile, the costs of solar, wind and geothermal power are all declining.
"It's not cheap anymore to build coal plants, no matter what people say," argues Jennifer Coken, director of the Western Clean Energy Campaign, which works with local groups to oppose the plants.
Recently PacifiCorp, a utility that is a subsidiary of MidAmerican Energy Holdings Co., which is a 88 percent owned by Berkshire Hathaway, cited the uncertain regulatory and political environment in dropping plans for coal plants in Oregon and Wyoming. "The energy landscape is changing," Coken said. Various tallies indicate that proposals for between 20 and 31 coal plants have been scrapped in the last 18 months, most because of rising costs, the risk of greenhouse-gas regulation and opposition from environmental groups and state governments.
That's a real problem, counters the coal industry, utility companies and the North American Electric Reliability Corp., or NERC, which assesses future needs for power. They warn that much of the U.S. could face electricity capacity shortages if more power plants are cancelled or delayed.