LCRA gets termination notice from an eighth power customer

The Lower Colorado River Authority, faced with a number of power customers trying to head for the door, said Sept. 26 it has received a notice of breach from the Guadalupe Valley Electric Cooperative, which alleges LCRA broke its contract with GVEC by offering a lower price to some other long-term customers.

In the letter, GVEC said it would give notice of termination of the contract and assert other possible claims against LCRA in 30 days if the alleged breach is not cured, LCRA said. LCRA said it will respond to the notice and reaffirm its position that no breach has occurred, and that GVEC has no right to unilaterally terminate the contract. LCRA said it charges the same rate to all its customers and will defend the contract in court, if necessary.

A cooperative spokesperson wasn’t available for comment the morning of Sept. 27.

“A contract is a contract, and that means something in Texas,” LCRA General Manager Becky Motal said in the Sept. 26 statement. “We are ready to honor the contracts, and we are hopeful all our customers will do the same.”

Motal added: “This is not unexpected, but it was still disappointing. LCRA has been proud to serve GVEC and our other customers for many years. We’re a local provider with a stake in our communities. With LCRA, residents and businesses have known they would have a steady supply of affordable power.

LCRA’s generation portfolio is diverse and balanced to protect customers from market fluctuations, Motal said. “Without LCRA, these customers will be on the volatile open market,” she added. “In effect, they are gambling with their customers’ money.”

Motal said the customers who want to end their contracts early not only face uncertain rates on the open power market, but also are adding to that with the legal costs associated with their actions. Those customers also run the risk of having to pay LCRA for costs under the current LCRA contracts and other costs incurred on their behalf due to their default under the contracts.

The GVEC notice follows similar notices from seven other LCRA wholesale power customers in June. They are the cities of Boerne, Seguin and Georgetown, plus the Kerrville Public Utility Board, Central Texas Electric Cooperative, Fayette Electric Cooperative, and San Bernard Electric Cooperative. LCRA has asked a judge to rule that those contracts should be honored. Those disputes are now pending in state district courts. The cases could take months, if not years, to resolve, LCRA pointed out.

Last year, 33 utilities extended their long-term power contracts with LCRA until 2041. However, 10 wholesale power customers – including the eight who contend breach of contract – did not renew their contracts with LCRA beyond June 2016. In the renewed contracts, the long-term customers were granted the option to purchase a portion of their load from other power providers. LCRA said it offered all of its customers the option to reduce their load requirements over time as part of the negotiations to extend those contracts until 2041. The customers who are making this claim did not take that opportunity.

“This breach claim has come up before, but it is not a claim that has merit,” Motal said. “The customers who chose to terminate their contracts in 2016 had the same opportunity as the 33 utilities that chose to stay with LCRA. They seem to want the benefits of a contract they rejected. Now they want to walk away from their earlier commitment.”

LCRA offers competitively priced power and said it stands ready to become even more competitive in the wholesale power marketplace. The 2012-2013 LCRA Business Plan has a $40m reduction in costs and a freeze in wholesale power rates until 2017. All customers – including those who sent the notice of breach of contract – will benefit from that freeze in nonfuel rates, LCRA added.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.