Moving LP&L to ERCOT grid was right choice for Lubbock

I served on the Electric Utility Board of LP&L during the critical time when the board made the decision to move LP&L into the ERCOT (Electric Reliability Council of Texas) grid. The decision was made to purchase power from producers in ERCOT rather than build our own power plant and stay in the SPP       (Southwest Power Pool).

It was the right decision then and it is the right decision now, even in light of the recent failure and near crash of the ERCOT system. In order to understand why the board made its decision, it’s important to understand how electricity is provided to our homes.

The electric system consists of three parts: production, transmission and distribution.

  • Producers own the power plants which generate the electricity.
  • Electricity is then transported by high voltage power lines.
  • Retail distributors transform the energy into low voltage and distribute it to our homes.

The United States has three grids which manage this system. The Eastern Grid, which stops at the Rocky Mountains, the Western grid, which runs from the Rockies to the Pacific, and the ERCOT grid which serves 90 percent of Texas. Electricity markets in the Eastern and Western grids cross state lines and are regulated by the Federal Energy Commission (FERC) and by each state.

The ERCOT grid exists only in Texas and is not regulated by FERC. The Eastern and Western grids consist of various “power pools” which interconnect and can provide power to each other when demand peaks. ERCOT does not interconnect with other pools and cannot get power outside of its grid when demand peaks.

In the Eastern and Western grids, power is provided to homes by large for-profit companies which control all aspects of the electric business. They produce the power, transmit the power and distribute the power. Because utilities in this system are monopolies, they are highly regulated.

The ERCOT grid is diversified so power companies may only produce the power and sell it at wholesale prices to retail providers. Retail providers pay for the transmission of the power and distribute it to customers. Transmission companies can only transmit power and retail providers may only distribute power.

The business model of LP&L, when I joined the EUB, was one of a distributor of power only. The transmission and production of the power distributed by LP&L was purchased from the monopoly electric service company for our area, Xcel Energy. The contract with Xcel was set to expire in 2019 and LP&L was notified that the contract for wholesale power would not be renewed after that date. Our job was to determine how LP&L would obtain and distribute power after that date.

It quickly became apparent we had two choices. Build our own power plant or find another provider to sell power to us.

At first, the overwhelming majority of board members wanted to build our own plant. We hired a consultant to spec out the plant and to prepare a request for proposal for construction of the plant. We solved the pipeline issues to get gas to the plant, we solved the massive water issues needed to run the plant and we had a location picked out for the plant.

Financing was not a problem as LP&L had the capability to issue bonds to amortize the purchase over the 50-year life of the plant. Interest rates were at historic lows, making the purchase of the plant financially feasible. The problem we couldn’t solve was how to operate our plant in the SPP grid.

In order to build the plant and produce power, it would be necessary for the plant to be connected to the SPP grid. This is necessary because its not possible to run a power plant 24-7, 365 days a year. Plants have maintenance issues that require temporary shutdowns. In addition, every plant is taken offline every year for at least a month for routine repairs and maintenance. This is usually done in March or April when demand is the lowest. Because LP&L would have to have power during those times when its plant was offline, reliability demanded we be part of the SPP.

As a member of the SPP our new plant would sell power into the pool’s “next-day market.” Each day the SPP sets a demand expectation for the pool for the next day. Each producer in the pool then bids to provide that power. The SPP accepts the lowest bids at the end of each day.

Because LP&L would be competing for price against very large integrated electric companies, our plant would end up being a “peaking” plant. In other words, it would operate only a limited number of days, mostly when demand peaks during very hot or cold weather. Our power on most days would be provided by Xcel at market rates. Paying market rate for power to Xcel was what we were trying to avoid, so the board began looking for purchase power agreements.

At first, we contacted other large providers in the SPP grid to gauge their interest in providing our roughly 600-megawatt-a-day power demand. Once again, Xcel stood in the way. Because Lubbock is located at the very bottom of the SPP grid, there are very few high-voltage transmission lines needed to get the power to Lubbock from the producers in Kansas or Oklahoma. Xcel owns all of those lines.

Because we would be using Xcel’s lines, Xcel would charge us a tariff for their use. In addition, because of the high use and limited number of lines, they would be able to tack on a “congestion” charge. This charge made it financially impactable for us to purchase power in the SPP grid.

In the end our only choice was to join the other 90 percent of Texas and enter the ERCOT grid. Joining ERCOT meant that long-needed, high-voltage lines would connect Lubbock to the rest of the state. It meant LP&L could spend money upgrading its distribution lines, meters, and billing and software systems to meet the electric needs of the 21st century. It meant Lubbock citizens would have a choice of providers and plans to meet their needs.

While ERCOT’s reliability issues were exposed during the recent winter storm, its issues are those that can and will be fixed. We must demand from our elected leaders they mandate changes to the current ERCOT structure so that when we flip the switch, the lights come on. Anything less is unacceptable.

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