WEST TEXAS MUNICIPAL POWER ASSOCIATION REJECTS POWER AGREEMENT WITH HIGH PLAINS

Last week Scott Collier, President of High Plains Diversified Energy, called a meeting of the board of West Texas Municipal Power Association to convince the WTMPA to purchase power from the HDEC/ Republic partnership. High Plains has insisted upon keeping the details of the proposed power agreement secret so all discussions occurred completely behind closed doors. However, it is clear from media reports that the terms of the power agreement that Collier presented to the WTMPA board were not acceptable to the board. We know this because WTMPA board members voted to hire an attorney to draft a new power agreement with terms more favorable to the WTMPA. Whether or not the new power agreement will be acceptable to the HDEC/Republic partnership remains to be seen.

The reluctance of the WTMPA board appears to be centered upon the business plan of the HDEC/Republic partnership. Dr. Michael Giberson, instructor at the Center for Energy and Commerce at Texas Tech, has calculated that the two Odessa plants owned by the partnership will provide 1,500 MW of power. This is three times the amount of power the WTMPA will need for the next 20 years, even factoring in a 20% demand growth rate. So where will the rest of the power be sold? We know from the legal filings in Judge Medina’s court that the partnership does not want to be regulated by either the Texas Public Utility Commission or the Federal Energy Commission. The reason for this is that the partnership wants to be able to provide unregulated rates to the LP&L monopoly in order to ensure large returns to the private investors of Republic. However, we know that the proposed bonds, which will be sold to finance the purchase of the plants, are revenue bonds. The repayment of the bonds depends upon the revenue stream generated by the sale of power from the plants. No tax dollars will be available to meet the bond repayment obligations. Because the plants are being financed 100% by bonds, it is necessary to sell all of the power available to generate the revenue needed to meet the debt service on the bonds. Unless all 1,500 MW of power is sold, the partnership will default on the bond repayment.

The partnership cannot sell the excess power to the ERCOT grid because that would subject them to state regulation. The partnership cannot sell the excess power across state lines because that would subject them to federal regulation. The solution, according to the proposal presented by Collier to the WTMPA board, is that private “resellers” have agreed to take up to 750 MW of the excess power. Apparently, there is a loophole in the law which allows electricity (which is traded like a commodity) to be sold to private resellers who will then mark up the price and sell it across state lines or into ERCOT. These sales would not be regulated and the resale of the power would not affect the status of the partnership as an unregulated utility. A request under the Texas Public Information Act for copies of the agreements that have been entered into by the partnership to sell the excess power has been made. The contracts will be posted to this website if they are furnished.

The questions raised by the business plan of the partnership are obvious. If the resellers are private entities, what creditworthiness do they possess? What remedies are available if the resellers default on the purchase agreements? How much risk is the partnership taking with the excess power sales? How do they plan to minimize that risk? Will the partnership be able to make the debt service on the bonds without selling the excess power? All of these questions need to be answered in a public forum prior to any action by the board of WTMPA to agree to buy power from the partnership.

One single comment

  1. Dear Ladies and Gentlemen: Who is protecting the Public’s Interest ?
    If it’s a good deal for the Public, someone needs to explain it.
    Nothing wrong with the deal, as long as we know where everything stands
    and everyone is showing all the cards on the Table.

    We already know this deal will make a few indiviuals very wealthy in the
    coming years; but , why is the ‘ Population’, that will have to Ultimatly
    pay for all of this kept in the dark?