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EUB says ERCOT power proposal could save LP&L $20 million per year

Updated: Dec. 24, 2015 at 2:25 AM CST
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LUBBOCK, TX (KCBD) - With EUB members and council using phrases like “historic meeting” and “huge for Lubbock” the Lubbock City Council and Lubbock Power & Light’s Electric Utility Board met Thursday afternoon to announce Lubbock’s strategy for providing power for 2019 and after.

Lubbock is the third largest municipally owned electric company in the state, after San Antonio and Austin.

LP&L Director of Electric Utilities David McCalla presented a plan that calls for the city of Lubbock to largely abandon its participation in the Southwest Power Pool and to join the Electric Reliability Council of Texas, or ERCOT. McCalla says that ERCOT, which serves over 24 million customers in Texas, has been called the "most competitive electric market in the world."

McCalla presented a time line which called for Lubbock to join ERCOT on June 1, 2019. The Director of Electric Utilities explained that significant transmission infrastructure is required to interconnect. Approval, certification and construction will likely take four years.

The entire process is subject to approval by PUC and ERCOT. That approval is not guaranteed. McCalla said that LP&L's proposal includes contingency plans in the event Lubbock's bid fails. He did not elaborate on what those plans are.

The Council lauded the leadership of LP&L's management team, led by McCalla and assisted by CFO Andy Burcham and General Counsel Richard Casner.

A previous proposal from former CEO Gary Zheng and his staff would have had the city taking on three quarters of a billion dollars in debt and the obligation to operate a power generation facility.

Instead, McCalla and his team proposed that Lubbock join ERCOT and opt for, what EUB Chairman Greg Taylor called, a "market solution" by buying power on the ERCOT grid and taking on no new debt.

That proposal, according to CFO Burcham, could save the LP&L $20 million annually over what it currently spends with Xcel. While McCalla noted that future councils would determine what would be done with that savings he added, "I will recommend the savings be passed to the ratepayer."

That is not to say that the city of Lubbock would no longer purchase power from Xcel after 2019. The proposal outlined by McCalla included honoring the contract in place that extends through 2044 with Xcel. That contract provides that Xcel will sell 170mw of power per year to LP&L after June 1, 2019.

Lubbock's load forecast in 2019 is 626 megawatts.Thursday's proposal calls for Xcel, aka Southwestern Public Service, to continue after 2019 to provide 170mw of that power as called for by contract. Lubbock-owned generation plans will provide 114mw. Wind energy contracts with West Texas Municipal Power Authority will provide 100mw, leaving 242mw that the city of Lubbock must find beginning June 1, 2019.

Xcel has previously told the city of Lubbock that it is no longer interested in providing power in excess of the 170mw called for by contract.

The Request for Proposal issued by LP&L in July 2014, saw 20 different vendors respond with 40 different proposals.

After considering those proposals, LP&L staff concluded that pursuing power on the ERCOT grid, even after building the additional transmission lines necessary to integrate with the statewide power grid, would be significantly less expensive than building its own unit.

In addition to the cost savings, building a power generation would require the city of Lubbock incurring as much as $750 million in debt. McCalla said that the electric utility was unwilling to bear that cost.

Remaining exclusively with the Southwest Power Pool was not a viable solution because it was more costly and it has significant congestion issues in its transmission.

The RFP was terminated in August because no proposal completely satisfied what the utility needed and wanted.

And while LP&L desires to become a member of ERCOT, it will remain interconnected with SPP for a portion of its electric load (170mw from SPS).

McCalla outlined three advantages to joining ERCOT: Affordable power, diversified energy portfolio from Texas based plants, and a simplified regulatory environment.

He said ERCOT is affordable because joining the power grid that serves 90 percent of the state eliminates the need for Lubbock to build a power plant and allows it to seek a market based solution. Lubbock can buy from the most competitive provider on the grid.

The ability of Lubbock to have full access to a mix of conventional and renewable electric generation including wind, natural gas, thermal, coal and nuclear provides it with a diverse energy portfolio.

By joining ERCOT, Lubbock avoids regulation by the Federal Energy Regulatory Commission, which governs interstate providers like the Southwest Power Pool, because ERCOT is a Texas-only provider. As an intrastate power grid, ERCOT is regulated by the Texas Public Utility Commission and the Texas Legislature.

McCalla acknowledged that ERCOT had experienced issues with reliability several years ago but expressed the opinion that those problems had been overblown by the media and said that the power grid had made sizable investments in infrastructure to prevent future issues.

The first step, which has already begun, is a feasibility study which was approved by the Public Utility Commission on Thursday morning.Without a vote, the city council expressed unanimous approval for the proposal. Councilmen Victor Hernandez and Jim Gerlt were not present at the meeting.

Xcel/Southwestern Public Service, a Southwest Power Pool provider and erstwhile bidder for Lubbock's future power needs, expressed its disappointment in a press release, claiming that Lubbock's proposal will increase the cost to other SPP members and ERCOT members alike.

The Xcel statement also contained a statement which LP&L officials acknowledged may be a veiled threat concerning Lubbock's current contract with Xcel Energy, saying, "Xcel Energy has a long-term power supply agreement with Lubbock for a portion of Lubbock's power needs through 2044, and a move to ERCOT could impact this agreement."

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