Texas coal key to TXU's pursuit of 2 plants - CEO

HOUSTON, March 1 (Reuters) - Access to Texas' lignite coal was key to TXU Corp.'s TXU.N decision to pursue construction of two coal-fired plants in Texas, TXU chief executive C. John Wilder said on Thursday.

Dallas-based TXU, which has agreed to be taken over in a $32 billion deal with private equity buyers, wants to build just two of nine coal plants it had proposed last year under a $10 billion expansion plan in Texas.

In all, TXU will build power plants that can generate 2,300 megawatts at its Sandow and Oak Grove sites, down from 9,100 MW at nine sites in the state.

Wilder said TXU decided to focus on Sandow and Oak Grove because they will burn Texas lignite, a plentiful, but low-quality coal that emits more mercury and other pollutants than other coal grades.

"Our confidence around the Texas-based fuel started becoming a more important part of our thinking" as TXU refined its generation plan, Wilder told Reuters.

TXU's other proposed plants were all designed to burn Powder River Basin coal from Wyoming.

With lignite mined not far from the generating stations, "we know we have the fuel; we know it's there for 25 to 30 years, at a minimum," Wilder said. With western coal, "for 40 years, you are counting on 1,500-mile rails trips, 4,000 continuously running rail cars," Wilder said.

TXU will invest in new technology to try to boost lignite's heat content and to reduce the level of emissions, he said.

Earlier on Thursday, TXU said a ruling by a state judge approving an amended consent decree for an existing air permit will allow construction to begin on the 581-MW Sandow 5 unit in Milam County.

Sandow 5 is the first coal plant TXU hopes to have in operation before the summer of 2009, about three months later than the company's earlier projections.

TXU also hopes to complete the two-unit, 1,700-MW Oak Grove coal plant in adjacent Robertson County later in 2009.

Two major environmental groups supported the buyout of TXU by Kohlberg Kravis Roberts & Co. [KKR.UL] and Texas Pacific Group [TPG.UL] when the buyers offered to scale back TXU's massive coal-building program.

Some local groups, however, remain opposed the the Oak Grove plant and want TXU to agree to further reduce its emissions. The Oak Grove air permit is subject to approval from the Texas Commission for Environmental Quality.

Separately, TXU said it suspended efforts on Thursday to obtain permits for seven coal plants, totaling 6,800 MW.

TXU's effort to permit six of those plants was delayed until June, about the time TXU has planned to begin construction. The surprise delay occurred just a few days before the buyout offer was disclosed, scrapping the plants.