As everyone who reads this blog knows, LP&L must find a new source of electrical power by June 1, 2019. There are three options available to the Electric Utility Board, the designated city entity tasked with making this decision. The first option is to enter into a purchase power agreement with a commercial power provider such as Xcel Energy. This is the option chosen by most cities including Amarillo and is how power is currently furnished to the City of Lubbock.
The second option is for LP&L to build its own power plant to provide power to the city. The third option is to enter into a contract with private investors who will build the plant and lease it back to the city over a long period of time such as 40-50 years. At the end of the lease term, the city will own the plant. Because there has been almost no discussion of option one by the EUB or the City Council, I will discuss the remaining two options and the EUB efforts at providing information to the citizens of Lubbock regarding our future power needs.
The main purpose for writing this article was to determine the amount of information currently available to the citizens of Lubbock as it relates to this issue. One section of the LP&L website contains the information that the EUB makes publically available to the citizens of Lubbock dealing with the 2019 decision. The section I am referring to is the link “Power for Lubbock-2019 and Beyond.”
The first portion of the link deals with a September 8, 2013 update provided by Gail Kring, EUB Chairman, to the Lubbock City Council which is a brief 1:37 minute video of Mr. Kring presenting a timeline regarding the new power source decision. The video contains nothing new and the timeline slide is a general outline of the deadlines that need to be met in order for LP&L to have a power source available on June 1, 2019. To summarize, the EUB issued an RFP on April 24, 2013 and it closed on June 6, 2013. RFP stands for “Request for Proposal” which is basically a sealed bid process. Interested parties respond to the RFP and the bids are presented to the EUB for action. The timeline provides for a six month communication “blackout” period until January 1, 2014 when it is anticipated that the contract will be awarded. Apparently, the purpose of the blackout period is to allow for the selection of a contractor and the negotiation of a final contract. The interesting thing about the timeline is that it provides a deadline of January 2014 for when the “capacity and energy supply agreement” will be awarded. There is no explanation as to what is meant by that term. Does that mean that the decision has been made to build our own plant or does that mean the decision has been made to lease a plant from investors? No one on the EUB is explaining what that term means and I guess we as citizens will find out in January when the contract is signed.
The next portion of the link is a blank form of the RFP that was sent out on April 24, 2014. It is not very useful in providing information to the public.
The last link is a briefing done to the West Texas Municipal Power Authority on March 19, 2013 by the consulting firm of Black and Veatch. This link contains a lot of helpful information regarding the cost and operating requirements for a new power plant. In general, the study estimates that there are two choices for a new power plant. The first choice is a “simple cycle” plant that is less energy efficient but will be cheaper to build and more expensive (because of fuel costs) to operate. It will cost 420 million to build a simple cycle plant. The second choice is a “combined cycle” plant. It is more expensive to build but cheaper to operate. It would cost 735 million to build a combined cycle plant. The most important information is the “capital cost” of operating the plants. This is an accounting term that means the cost each year to pay the principal and interest on the bonds required to finance the power plants. For a simple cycle plant, the cost is 21.5 million per year plus 4.5 million for natural gas improvements for a total of 26 million per year. For a combined cycle plant the cost is a whopping 42.3 million per year. To that total you must also add the cost of maintaining the plants which is approximately 1% of the value of the plant per year. For obvious reasons the consultants recommended that LP&L either build a simple cycle plant or enter into a lease agreement with private investors who will build a plant for LP&L and lease it to us. Building a combined cycle plant is too expensive for a city of this size.
An interesting portion of the Black and Veatch study is the comparison between the current yearly costs for Xcel to provide power to LP&L verses the capital cost for LP&L to operate its own power plant. The capital costs for operating a simple cycle plant, which is our only viable option other than leasing, is 26 million a year, as stated above. The cost currently charged by Xcel to provide power is 36.5 million per year. On paper at least, there appears to be an opportunity for LP&L to save 10.5 million a year in power costs by building its own plant. However, certain variables need to be added to the equation for the real cost of power to be determined. One of those variables is whether or not LP&L can purchase natural gas at the same cost or lower than Xcel. Currently Xcel is charging 140 million a year for pass through “fuel costs” in addition to the 36.5 million to provide the power for a total charge to LP&L of 176.5 million. Can LP&L significantly reduce our cost of fuel? If so, how will they do it? The problem is that we don’t have answers to that question or many others. No information is available to the public which answers these issues and if a study has been prepared, it has not been released to the public.
If you depend upon LP&L for answers, you will find that there is very little information available to the public regarding this very important decision as to how we obtain power in the future. I would urge everyone who reads this blog to contact each member of the city council and EUB to urge them to put more information regarding the process of choosing power for 2019 and beyond on its website so that it is available to the media and the public. LP&L has no competitor. Information regarding individual bids, bidders, and all written communication between staff, board members, city council members, and private contractors is important information that should be available to the public to preserve the integrity of the selection process. For the public to have access to this information would not endanger or jeopardize LP&L’s competitive position in the marketplace. By continuing to withhold this information from the public and by excluding the city council members from EUB executive sessions, the EUB only fuels the fire of conspiracy theorists who believe all government is evil and up to no good. LP&L can quiet its critics by using common sense and releasing this information to the public.