New lending rules push power companies to go green

Power companies just got another big reason to go green.

Three of the nation's biggest investment banks have introduced an unprecedented set of lending guidelines that could make it harder for energy companies to get financing for coal-fired power plants, while encouraging lending for renewable energy plants.

Environmental groups applauded the adoption of the "carbon principles" this week by Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley, saying they could spur other lenders into similar action and put a new type of pressure on power generators to find cleaner sources of energy.

"What you've got is Wall Street now saying there are risks involved with investing in new coal plants," said Dale Bryk, senior attorney at the Natural Resources Defense Council, who worked with the banks to draft the principles.

Along with environmental groups, some of the nation's biggest operators of coal-fired plants, including Atlanta-based Southern Co., participated in drafting the guidelines.

The new guidelines won't end funding for power plants that run on coal, oil or other fossil fuels. But they do call for the three big financial firms to go through a rigorous "due diligence" process before lending money for such plants.

As part of the process, borrowers would have to submit details on how they plan to offset their carbon emissions from the plants, account for future costs from expected new greenhouse gas emission regulations, and implement energy efficiency and renewable energy programs.

While small steps like eliminating inefficient light bulbs can help a little to reduce greenhouse gas, the NRDC's Bryk said, eliminating a coal-fired power plant can be huge.

Power companies downplayed the potential tightening of financing, saying it still leaves room for coal-fired power plants, which are typically the cheapest and most profitable plants to build and operate.

"Southern Company strongly believes that coal will continue to play a role in the nation's energy mix," said spokesman Mike Tyndall. "If anything, what you see here is a framework that allows (that) to happen."

Columbus, Ohio-based American Electric Power also acknowledged that there was a need for guidelines from lenders.

"A rational set of carbon principles to help guide energy investment strategy is vital to our nation's energy and economic future," AEP Chairman and CEO Michael Morris said in a statement.

Whether other lenders will sign on to the principles, or develop their own, is unclear.

At Winston-Salem, N.C.-based BB&T Co., company spokeswoman A.C. McGraw said in an e-mail that its environment-related lending plans were "under review internally."

A spokeswoman for Charlotte, N.C.-based Bank of America did not provide a response to questions about its plans.

The new lending guidelines got their start last year during a well-publicized battle in Texas between environmental groups and investors who were buying the mega-utility TXU Corp.

Under pressure from environmental groups and state regulators, the investment group led by private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group agreed to shelve plans for eight coal-fired plants in favor of cleaner plants.

"We didn't want any banks financing the TXU coal plants," said Bryk. "But when those plans became moot, we decided a lot of our proposals out there were still good ones."

Involving both environmental groups and utilities in developing the new lending guidelines made for some contentious meetings.

"There was full and frank dialogue around the table," Matt Arnold, co-founder of consulting Sustainable Finance, which helped coordinate the discussions, said in a statement. "The dialogue resulted in a rigorous analysis of the carbon risks in power investments."