COLLIER TO ASK FOR A CONTRACT EXTENSION TO TRY TO SALVAGE POWER PURCHASE

The Lubbock Avalanche Journal reported today that Scott Collier, board chairman of High Plains Diversified Energy, will travel to Baltimore in an attempt to get an extension on the April deadline to purchase a 550 MW generator from Constellation Energy. Collier and High Plains cannot meet the contractual deadline to close the purchase, prompting Collier to ask for an extension until July. “We’re not going to get that done,” Collier said. “As a result, we’ve been working with Constellation to request an extension of the contract, and it looks like they’re going to extend that for us.”

The deadline to purchase an additional 1000MW generator in Odessa is set for July as well. Collier wants to delay the April closing with Constellation because of resistance from the WTMPA regarding the partnership business plan. Without a commitment from the WTMPA, the partnership will not be able to purchase the plants. The purchase would not be feasible because the plants are being financed not by private investors but by municipal bonds issued by High Plains. High Plains will put up all the money in the form of municipal bonds backed by Lubbock and other WTMPA Cities, but will receive only 60% of the revenue. The rest of the revenue will go to Republic Power, even though Republic Power will not put up any of the purchase money for the plants.

As reported in this blog, the financial plan for the High Plains-Republic Partnership is fatally flawed. The purchase of the two power plants will result in the generation of 2/3 more electricity than will be needed by WTMPA member cities. Because the cost of purchasing the plants will be paid for by revenue bonds backed by the taxpayers of Lubbock, the partnership needs the cash flow from the sale of excess electricity to payoff the bonds. At the present time, no contracts exist with anyone to purchase the excess power from the partnership. In response to an open records request, the attorney for High Plains acknowledged that no contracts have been finalized. See the letter from Bradford L. Moore here.

In the AJ story, for the first time, Collier concedes that the partnership business plan is not workable without contracts to purchase the excess power. “We’ve maintained from the get-go that these are not going to be merchant plants, as they are today,” Collier said. “We are going to have firm power purchase agreements for all 1,500 megawatts, or we’re not going to purchase the plants.” To the contrary, Collier and the partnership never before n1entioned the excess power when announcing the purchase contracts. It was only after questions by this blog and board members of WTMPA that the partnership acknowledged that to sell this deal to the WTMPA it will have to come up with a business plan that works. Even if it manages to finalize contracts for the excess power before the new July deadline, the big question still remains. Why should the taxpayers of Lubbock and the WTMPA finance 100% of the plants but receive only 40% of the revenue? Until Collier satisfactorily explains how that split is fair to the citizens, I will remain a critic of this deal.