Bid to expand Texas power grid fuels angst among big electric users


Large manufacturers and industrial companies across the state are warily monitoring a utility plan in West Texas that could increase their electricity bills but potentially result in a more robust power grid.

Lubbock, famous as the birthplace of Buddy Holly and home to Texas Tech University, wants to transfer most customers of its municipal electric utility from the transmission grid currently serving the city to the Electric Reliability Council of Texas, known as ERCOT — the state’s main grid that manages the flow of about 90 percent of power in Texas.

If state regulators approve, Lubbock — with a population of about 250,000 — would become the largest city to join ERCOT since Texas lawmakers restructured the electric market in 1999. El Paso, Amarillo and Beaumont would be the biggest Texas cities remaining outside its boundaries.

But a price tag potentially in the hundreds of millions of dollars to move the bulk of Lubbock’s electricity demand from its existing grid, called the Southwest Power Pool, and connect it to ERCOT through new transmission lines is raising concerns because those costs could be spread among existing customers of both grids.

The change would likely take place in 2021 if given a green light by the Public Utility Commission of Texas, which oversees ERCOT and has scheduled a Jan. 17-18 public hearing on the issue.

“Our major member companies pay electric bills sometimes in the millions of dollars a month, so even small changes in rates have to be watched very closely,” said Tony Bennett, president of the Texas Association of Manufacturers. “Even pennies added to (electric) rates can dramatically change affordability for their power.”

A partner organization of Bennett’s group, called Texas Industrial Energy Consumers, has formally weighed in on Lubbock’s bid, saying it doesn’t oppose the move as long as Lubbock agrees to a “hold harmless” provision guaranteeing for a period of five years that Texas electricity customers won’t foot the bill for higher transmission costs resulting from it.

The price of such a guarantee could be steep, however.

Xcel Energy, a member of the Southwest Power Pool and the current supplier of much of Lubbock’s electricity, wants the city to pay $165 million to offset the cost of transmission investments it has made to serve Lubbock customers. Otherwise, Xcel contends it will be forced to pass those costs on to remaining customers in Texas and New Mexico served by its Southwestern Public Service subsidiary if Lubbock leaves.

“These are costs that can be directly tied to serving Lubbock,” said Wes Reeves, an Xcel spokesman. “All our transmission planning for a number of years has been made with Lubbock in mind.”

ERCOT, meanwhile, has pegged the price of building new transmission lines to connect Lubbock at about $364 million, although it has noted that the figure could be lower if completed as part of an unrelated transmission improvement project that’s under review but hasn’t been approved.

Lubbock officials dispute Xcel’s contention that it should pay an “exit fee” to leave its existing grid, saying the remaining customers actually will benefit through reduced costs for power generation, lower transmission congestion and other factors. In addition, Lubbock has submitted a study to the Public Utility Commission indicating that the increase ERCOT customers would see on their monthly bills if its entry is approved would amount to no more than about two-tenths of a percentage point in most cases.

Regardless, the city’s bid recently picked up a significant endorsement when Pat Wood III — a former chairman of the Federal Energy Regulatory Commission as well as the state’s Public Utility Commission — came out in favor of it. In written testimony submitted to the commission, Wood noted that costs of expanding ERCOT’s transmission grid have traditionally been spread throughout the system in order to lower barriers to entry for new power plants and other forms of economic development.

“The success of the ERCOT wholesale market should be expanded to as many Texans as possible,” Wood said in his testimony. “That success is a key part of the state’s economic development, and the (Public Utility Commission) has always been a key driver in economic development.”

In an interview with the American-Statesman, Wood said he considers “the pay-to-join-the-club approach” to transmission expansion counter productive.

“If you pursue that policy over time, you will have a more and more congested grid, because you won’t have expanded it to add generation and meet needs,” said Wood, who is chairman of Houston-based Dynegy but noted he was speaking for himself and not the power company. “So it’s a pretty short-horizon concern.”

He and some other utility experts have said the inclusion of Lubbock in ERCOT would lead to increased efficiency for the grid overall, partly because it would result in a big pocket of demand close to the burgeoning West Texas wind farms that currently transmit power over long distances. It also could be another “bullish” signal to power providers weighing whether to build new generation plants to serve ERCOT’s deregulated market, they say.

Lubbock’s municipally owned utility is aiming to transfer about three-quarters of its electricity demand to ERCOT, totaling about 470 megawatts. The amount constitutes less than 1 percent of ERCOT’s estimated peak demand of about 73,000 megawatts for 2018.

Lubbock Mayor Dan Pope said he anticipated opposition to the city’s plan by some large manufacturers but has been “a little taken aback” by the resistance.

“We didn’t really know what to expect completely,” Pope said. “We feel like we’re to some degree plowing new ground” as the largest municipality to attempt the move.

Admission to ERCOT would eliminate the need for Lubbock’s municipally owned utility to build its own new power plant, the city has said, as well as provide it with access to ERCOT’s competitive wholesale electricity market and simplify its regulatory environment by putting it solely under the authority of the Public Utility Commission.

In addition, Pope recently told the commission that he plans to advocate that Lubbock opt in to ERCOT’s competitive retail market — which enables customers to shop among electric providers — if its application to join the grid is approved.

Austin’s municipal electric utility, Austin Energy, is an ERCOT member, as is Pedernales Electric Cooperative, although neither has opted in to ERCOT’s competitive retail market.



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