2019 Solution Frequently Asked Questions
Where is the technical assessment that shows this is the right solution?
The 2019 Solution included a review of 19 different studies conducted by expert consultants and LP&L staff. We intend to submit a full transmission study to ERCOT for approval in the coming weeks. Over the coming year, additional studies by the PUC, ERCOT and LP&L are planned, but for now, we’re confident we’re headed in the right direction.
Would it be cheaper in the long run to build a power plant – why wouldn’t we just build a plant?
We are eliminating the need to build an expensive power plant with estimated costs ranging from $350 to $700 million. We are also saving millions of dollars on future operation and maintenance costs of a new power plant.
Finally, the dramatic changes occurring in power generation, including the uncertainty of federal environmental regulations and rapidly declining costs for wind and solar are good reason for us to avoid major financial commitments that lock us into a specific generation technology.
Is ERCOT going to impose any unique financial burden on LP&L?
The ERCOT solution displaces the need to build a $350 to $700 million generation unit. The net effect is a reduction in depreciation and maintenance costs.
LP&L expects to construct a portion of the transmission interconnection lines however, those final decisions will be made by the Public Utility Commission. The PUC approves a network transmission service rate that would provide a new revenue stream for LP&L that not only would recover the cost of any new transmission line construction but would also provide a rate of return for those new assets that could be used in the future to support lower customer rates. Therefore, the new revenue stream would cover the debt service incurred by any bonds issued to pay for needed transmission lines.
An additional financial benefit of joining ERCOT would be savings of millions of dollars per year for wholesale power costs. Currently, a healthy portion of our wholesale power costs are related to capacity charges that are not required in ERCOT. The absence of a capacity charge is a driver of our decision to seek entry to the ERCOT market.
Reliability of service is important. In a state like Texas with high swings in temperature, the electric grid must be able to handle the cold winters and extremely hot summers. With a move to ERCOT, is reliability a concern for Lubbock? What is ERCOT doing to ensure a high level of reliability?
ERCOT puts a strong emphasis on reliability, and as their market has strengthened in recent years, large investments have been made in the state of the power grid to meet the electric load growth.
In 2014 alone there were over $200 million of transmission lines added and much more is on the way with $6.2 billion under development over the next five years.
16,189 MW of generation is committed for the future and 61,718 MW of active generation requests are currently under review, including dispatchable thermal generation in the near term and more than 24,500 MW of wind generation which is positioned on all sides of our service territory…as far as the eye can see.
To put this level of future development into context, 1 MW has the capability of powering 200 residential homes on a hot summer afternoon.
What investment and overall cost will LP&L incur to enter ERCOT?
New transmission lines will be the primary investment. These lines will connect Lubbock to the ERCOT grid, allowing LP&L to access power from all 550 generation units throughout the state. The citizens of Lubbock will not be burdened with these costs. Even though the City will issue bonds to pay for the transmission lines, the PUC is expected to approve a network transmission service right to assist in recovering the costs associated with new transmission lines.
What are the advantages to moving to the ERCOT system?
There are many advantages to joining ERCOT:
- By joining ERCOT, LP&L would be able to provide savings to our customers by accessing affordable power through an open and accessible market; provide a safeguard against rising wholesale energy prices; and cut wholesale power costs by eliminating expensive capacity charges.
- Also, it assures a diversified energy portfolio from Texas-based power plants with access to West Texas wind and natural gas, solar and coal from across the state. We avoid the need to build an expensive power plant with estimated costs ranging from $350 to 700 million while providing stability through having access to 550 generating units across Texas.
- Lastly, it would simplify the regulatory environment. The Public Utility Commission of Texas is the sole regulator of ERCOT. This is a stark change from SPP, which is beholden to federal regulations. This solution would unite Lubbock with the State of Texas though the statewide transmission system and ensure Texas leaders have input into our long-term prosperity.
How does this solution compare to LP&L’s current power supply structure?
Currently all power we need comes from Xcel. At the expiration of the Xcel contract, LP&L will produce a portion of our load with generating units that we already own, we will continue to buy a portion of power from SPS (related to a contract that begins with them in 2019), and we will purchase the remaining power from generators in the Texas wholesale electric market.
How would the move to ERCOT help to mitigate the risk of fluctuating wholesale power costs?
We would have access to a flexible market that facilitates ways to safeguard against rising wholesale energy prices and takes advantage of low-cost energy available in the market. Though electricity is mostly purchased through long-term contracts, demand fluctuates daily, and to manage that fluctuation, ERCOT puts buyers and sellers of electricity together in the wholesale market. ERCOT acts similar to an air traffic controller by directing electricity “traffic” around the state from generators to customers like LP&L.
How does a market solution versus a self-build or third party-build solution compare?
By entering into a market solution in ERCOT, we would eliminate the need to build an expensive power plant with estimated costs ranging from $350 to $700 million. We would also save millions of dollars on future operation and maintenance costs of a new power plant. Lastly, this solution would allow us a diverse generation portfolio to hedge against market forces in the future.
Will the decision affect the City of Lubbock or LP&L’s debt burden?
We would eliminate the need to build an expensive power plant with estimated costs ranging from $350 to $700 million. This capital expenditure would have been debt funded, and those costs would have been passed to LP&L customers. Alternatively, while there will be a need to build new transmission lines to connect with the ERCOT power grid and bonds would be issued to pay for the transmission lines, a new revenue stream from the Texas network transmission service rate will cover the annual debt service on those bonds and provide an additional return on those assets.
What is the overall cost of the process to determine a 2019 solution?
The entire 2019 power supply decision process cost $1.5 million. This included retaining expert consultants with expertise in engineering, regulatory planning, financial advisory services, legal counsel, and transmission design.
Will this raise my rates?
No, in fact the solution was chosen due to its long-term rate stabilization effect, providing predictable and stable pricing for our customer.