Michael Giberson
Some regional power business developments have a few people in the area scratching their heads and wondering what is going on. An excellent article in Sunday’s Lubbock Avalanche-Journal explores the issue, yet still leaves local readers wondering what a quasi-public company is up to on our behalf.
In brief, High Plains Diversified Energy Company is a municipal utility company created as a public-private partnership between the West Texas Municipal Power Agency and Republic Power Partners, LP. WTMPA is a generation and transmission collaboration among Lubbock Power & Light and three other smaller city power companies in the area. The point of HPDEC was and is to help foster development of area power supplies in advance of the loss of access by WTMPA to relatively low cost wholesale power from Xcel when contracts expire in 2019. Nothing particularly usual in any of this.
In the past few weeks HPDEC announced the purchase of two large natural gas power plants near Odessa, Texas. (Details from the HPDEC webite.) The deals are surprising in two ways: First, the power plants are in the ERCOT power system while Lubbock and the other WTMPA members are in the Southwest Power Pool. There is no way to get the power from there to here without spending several million dollars on transmission. Second, the two plants total about 1,500 MW in capacity, which by my rough guess is about three times the peak demand of WTMPA members. WTMPA members already have some generation capacity. Even assuming future load growth, the two plants may provide 1,000 MW more that current WTMPA members will need for at least two decades.
HPEDC’s business plans have always included the expectation that they would sell excess power elsewhere in Texas, but it is beginning to look like excess power is the tail that will wag the dog of supplying WTMPA members. As the newspaper story explains, WTMPA members are not yet sure they will want HPEDC’s power once WTMPA’s existing supply contracts run out in 2019.
Still, none of this would be particularly interesting except that it begins to look like HPDEC is not much more than a device used by a handful of private investors to leverage their money by using municipal bonds. And maybe that isn’t what is happening. As I understand it, so far, all the planning and development efforts have been funded entirely by the private investors. Maybe potential long term high returns are reasonable given the up front risks. But before WTMPA and local cities decide to support the municipal bond issuance that HPEDC needs to complete these two transactions, they should convince themselves that the long term value to WTMPA’s ultimate customers are worth the risks involved.
NOTES:
- A local attorney, concerned about these developments, has established a website “Lubbock Power Grab: Electricity at What Cost?“
- The HPEDC website provides additional background.
- I’d be less worried if municipal utility LP&L hadn’t recently become the monopoly retail power company in Lubbock. Up until about three months ago, power consumers in the city had a choice between LP&L and Xcel. If LP&L rates blew up because HPDEC investments go bad, consumers could have just jumped to Xcel. Now consumers in Lubbock will be stuck with whatever the LP&L and WTMPA and HPDEC leadership gets us into.