Lubbock Electric Utility Board puts finishing touches on switch to ERCOT

The Big Switch to ERCOT

(Photo provided by the City of Lubbock)

LUBBOCK, Texas — The City of Lubbock Electric Utility Board held a special meeting Thursday at noon.

The EUB is the city’s governmental body over Lubbock Power & Light.

On a vote of 9-0, the EUB authorized LP&L Director David McCullough to put the finishing touches on agreements to switch over to ERCOT or the Electric Reliability Council of Texas. That switch will happen on May 29 and 30. It will involve temporary electric outages all over town.

The board also voted 9-0 to approve a settlement with Southwest Public Service Company (Xcel). That settlement was related to LP&L’s switch to ERCOT.

Click Here and check out our coverage of the Big Switch. The page includes instructions for finding out when your home or business will temporarily lose power.

The following is a news release from Lubbock Power & Light.

Today, the Lubbock City Council and the Electric Utility Board approved an agreement for early termination of Lubbock Power & Light’s (LP&L) partial requirements power contract with Southwestern Public Service (SPS).  This action clears a major hurdle in LP&L’s goal to fully connect its system to the Electric Reliability Council of Texas (ERCOT) and provides the opportunity to pursue retail electric competition.  With the agreement, the contract is scheduled to end in May 2023.

The contract with SPS would have cost LP&L over $17 million per year through 2044, whereas the annual impact of terminating the contract is just over $4 million per year, a reduction of roughly $13 million per year. The result is substantial cost savings to LP&L customers. 

“Today marks an important milestone in the history of Lubbock and LP&L,” said Lubbock Mayor Dan Pope. “With the signing of this agreement, Lubbock can now fully pursue its stated goal of migrating 100 percent of customers to ERCOT and look to be the first municipally owned utility in Texas to voluntarily opt-in to the retail competitive market since its creation in 1999.”

LP&L currently resides in the Southwest Power Pool, which does not have retail electric competition within its participating markets. In contrast, within the ERCOT market, cities such as Dallas, Houston, Midland/Odessa and Abilene already allow electricity customers the option to shop for and choose their electric provider.

A Tale of Two Systems

Lubbock residents once had a version of retail electric competition that allowed customers to choose between two electric providers – LP&L and SPS. In 2010, the City of Lubbock purchased distribution assets from SPS to become the sole electric provider for the majority of Lubbock residents.

“The two systems are evenly distributed throughout the city since both companies served customers in nearly every neighborhood, referred to as alley-by-alley competition,” said LP&L Executive Director David McCalla. “Since the time of the sale, LP&L managed both systems, but they were never combined and remain today as two separate sets of wires.”

Also at the time of the sale in 2010, LP&L signed a 25-year future power contract to purchase power from SPS, covering approximately one-third of LP&L’s annual power needs. That contract, which also included other set costs, went into effect June 1, 2019.

Returning to Electric Competition

In January 2018, the Lubbock City Council and LP&L Electric Utility Board both signed resolutions of intent to bring back competitive retail electricity to Lubbock once the ERCOT migration is complete.

“If LP&L were to opt-in to the competitive market in ERCOT before all customers are migrated, you could have people who have the ability to choose their electric provider next door to people who don’t,” said Pope. “After much research and consideration, it is clear the fair and equitable thing to do is pursue opt-in once all customers have access to competition, at the same time.” 

The move to ERCOT will take place in two phases, the first of which will take place this coming weekend, May 29-30, connecting 70 percent of LP&L’s system to ERCOT (approximately 83,000 customers).

With the early termination of the SPS agreement, scheduled for May 31, 2023, the Electric Utility Board and the City Council can soon consider whether to opt in to retail competition and the City can now seek approval from the Public Utility Commission of Texas for the second phase, connecting the remaining 30 percent of LP&L’s system (about 24,000 customers).

LP&L hopes to complete the second phase of migration in May 2023, finally combining the two sets of wires into a single, unified system.

The following is a contract agreement from Lubbock Power & Light.

LP&L/SPS Contract Agreement

  • For decades, Lubbock had a version of retail electric competition that allowed customers to choose between two electric providers.  This version of competition was referred to as alley-by-alley competition and meant that both Lubbock Power & Light (LP&L) and Southwestern Public Service (SPS) built their own electrical infrastructure down each side of the alley. 
  • In 2010, Lubbock purchased the Lubbock electrical assets from SPS and LP&L became the sole provider of electric service for the vast majority of Lubbock ratepayers.  At the time of sale, a future power contract was signed between the two parties.  The contract term was for 25 years and started on June 1, 2019. 
  • Through this contract, LP&L can purchase electricity from SPS and it includes several other set costs, which LP&L would be required to pay each year of the 25-year contract.  The size of the power contract covers approximately 1/3 of the annual need for LP&L’s system.
  • In September 2015, LP&L announced it would seek approval to migrate its system from the Southwest Power Pool (SPP) to the ERCOT market.  In March 2018, the Public Utility Commission granted LP&L’s request to migrate 70 percent of the system to ERCOT by June 1, 2021. The approval of 70 percent was for the legacy LP&L lines.  The remaining 30% is the former SPS system that was purchased in 2010. 
  • Since the time of the sale in 2010, LP&L has managed both systems, but at no point in time were the systems combined.  They remain today as two separate sets of wires.  The two systems are evenly distributed throughout the city since both companies formally served customers in nearly every neighborhood. 
  • The migration to ERCOT will take place in two phases.  Phase 1 will take place on May 29-30, 2021 and will transfer 70 percent of the system (approximately 83,000 customers) over to ERCOT.  Once regulatory approval is received, Phase 2 is slated to take place in May 2023 and will transfer the remaining 30 percent of the system (approximately 24,000 customers) over to ERCOT.  Phase 1 will carry over the legacy LP&L system and Phase 2 will carry over the former SPS system, now managed by LP&L. 
  • In January 2018, the Lubbock City Council and LP&L Electric Utility Board both signed resolutions of intent to bring back competitive retail electricity to Lubbock once the ERCOT migration is complete.  Competition as it exists in many cities in ERCOT such as

Dallas, Houston, Midland/Odessa and Abilene, does not exist in the SPP, where LP&L currently resides. 

  • After closely studying the path to competition, it was clear that the only reasonable and responsible way to perform this historic task was to move 100 percent of customers into the ERCOT market.  Because the system is evenly distributed throughout many neighborhoods in Lubbock, neighbors may be on different sets of wires today.  If LP&L were to opt-in to the competitive market in ERCOT after Phase 1 but before Phase 2, you could have next-door neighbors who do and do not have access to the competitive market.  Making the move to competition after Phase 2 means that all customers can be provided with the same access to competition at the same time.  It is the only fair and equitable way to proceed. 
  • Today marks an important milestone in the history of LP&L.  With the signing of this agreement, Lubbock can now fully pursue its stated goal of migrating 100 percent of customers to ERCOT and look to be the first city to voluntarily opt-in to the retail competitive market since its creation in 1999, subject to a resolution opting into competition by both the Electric Utility Board and the City Council.  Lubbock ratepayers had a version of competition for many years and today’s action is the first step toward bringing competition back to Lubbock. 
  • In order for a municipally owned utility like LP&L to opt-in to the retail competitive market, they must first clear a series of hurdles.  With the approval of this agreement, Lubbock removes one of the last remaining challenges which was to find resolution to a 25-year contract with SPS that was signed over ten years ago and which began in 2019, which tied Lubbock to SPP, where competition is unavailable.  This contract had an expiration date of 2044 and obligated LP&L to pay over $17 million per year in set costs.   
  • LP&L and SPS have come to an agreement on the termination of this contract. LP&L will pay $77.5 million in order to early terminate the contract and move forward with Phase 2 of the ERCOT migration. 
  • The result is substantial cost savings to LP&L customers, as LP&L will use long-term financing to lessen any financial impacts to the utility and therefore LP&L’s customers.  The annual impact under the contract exceeds $17 million per year.  The annual impact of financing the termination payment is just over $4 million per year, reducing customer costs by roughly $13 million per year through 2044.
  • Most importantly, this agreement allows Lubbock to fully integrate into the ERCOT market and, subject to a vote by both governing bodies, and become the first municipally owned utility to voluntarily opt-in to competition.
  • Lubbock will need to seek approval from the Public Utility Commission for the Phase 2 migration of customers to ERCOT.  The remaining 30 percent of LP&L’s system will need to be connected to the LP&L lines that were migrated to ERCOT in Phase 1.  Work is underway on both of these items. 
  • The reasons for seeking integration to the ERCOT market publicly stated in September 2015 when this process began.  They were:
  1. Provides Affordable Power
    1. Eliminates the need to build an expensive power plant with estimated debt costs ranging from $350 to $700 million. 
    1. Cuts our wholesale power costs by eliminating expensive fixed capacity charges.
    1. Creates a revenue stream for Lubbock ratepayers through new transmission lines connecting Lubbock to the ERCOT system.
  2. Assures a Diversified Energy Portfolio
    1. Provides full access to West Texas wind and a mix of conventional and renewable electric generation such as natural gas, solar and coal.
    1. Provides stability through access to 570 Texas-based generation units, avoiding dependence on one unit.
  • Simplifies the Regulatory Environment
  • Avoids primary regulation by the Federal Government (Federal Energy Regulatory Commission or “FERC”).
  • Involves regulation by the Public Utility Commission of Texas and our Texas Legislature.
  • Unites Lubbock with the State of Texas
  • Provides access to Texas power plants and over 1,800 active market participants that generate, sell, or transmit wholesale electricity.
  • Opens the door to retail electric competition in Lubbock.

By signing this agreement, the City of Lubbock is able to have the opportunity to pursue competitive retail electricity once again in Lubbock. 

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