Energy Future seeks to reject water lease associated with Martin Lake coal plant

Since it has no plans to expand the coal-fired Martin Lake power plant, the plant runs relatively little now anyway, and a water rights lease has gotten too expensive, Energy Future Holdings on Sept. 22 asked its bankruptcy to let it reject a water rights lease dating back to 1974.

Robert Frenzel, the Senior Vice President and Chief Financial Officer of Luminant Generation Co. LLC, an indirect subsidiary of Energy Future Holdings, said in supporting testimony that in 1974, Texas Utilities Generating, the predecessor to Luminant, and the Sabine River Authority of Texas (SRA) entered into a water supply facilities agreement whereby SRA would construct, own, and operate the Lake Fork Reservoir and Texas Utilities would pay SRA amounts to help cover the construction bonds.

That contractual arrangement went through several changes and additions over the years. Texas Utilities at one point entered into a Water Rights Option Agreement, which allowed it to reserve an option to obtain, for a period running through the end of 2013, the right to use up to 17,000 acre-feet of water out of the so-called Dallas Junior Water Rights, based on potential long-term plans, including possible expansion of the Martin Lake Steam Electric Station (MLSES), located in Tatum, Texas.

Energy Future said it is required to pay for this water, regardless of whether it actually uses any of it. While the rates have increased, the debtors’ usage of water under the Water Rights Lease has decreased, with zero acre-feet being used in 2014 and 2015, compared to over 12,000 acre-feet in 2011 and over 18,000 acre-feet in 2012.

“A number of reasons have contributed to the decrease in water usage under the Water Rights Lease,” Frenzel noted. “Most importantly, Martin Lake and most of east Texas’ reservoirs have fully recovered from the 2011 drought. Further, the MLSES is currently in seasonal operations and requires substantially less water to maintain operations than previously required. Furthermore, the longer-term forecast generation profile for MLSES is diminished due to expected market conditions. Finally, the Debtors are not currently considering an expansion of the MLSES that would require use of the Luminant Water. As such, the Debtors are paying for an asset that is not utilized, is not expected to be utilized, has gotten more expensive each year, and is forecast to become increasingly more expensive in the future.”

The Energy Future debtor companies previously assumed through the bankruptcy court the Water Rights Lease as a nonresidential real property leases in October 2014. But they have since determined that it is no longer economically feasible or operationally justifiable to continue the Water Rights Lease given that the debtors have not used this water since prior to the bankruptcy petition date and the price for the water has increased substantially since the inception of the Water Rights Lease and the date of the assumption. The Water Rights Lease is not necessary for the debtors’ business operations, and the debtors do not expect to need the water provided under the Water Rights Lease for the future operations of the MLSES.

Energy Future Holdings has taken one 750-MW coal unit at the Martin Lake plant off of regular, year-round duty, and pushed it over into the seasonal operations category. Buried in a July 23 disclosure statement that Energy Future Holdings filed with its bankruptcy court is a section describing the company’s coal-fired capacity. There are changes made in this version from an initial disclosure statement filed with the court this past April 14.

Luminant’s lignite/coal-fueled operations include twelve units at five plant sites, with total nameplate capacity of 8,017 MW. These include:

  • two units at Big Brown with total nameplate capacity of 1,150 MW;
  • three units at Monticello with total nameplate capacity of 1,880 MW;
  • three units at Martin Lake with total nameplate capacity of 2,250 MW;
  • two units at Oak Grove with total nameplate capacity of 1,600 MW; and
  • two units at Sandow with total nameplate capacity of 1,137 MW.

In recent years, Luminant has reduced electricity generation from selected lignite/coal units during times when the demand for electricity and wholesale electricity prices in the Electric Reliability Council of Texas (ERCOT) market are comparatively low. These reductions are achieved through short-term reductions of operations in response to low wholesale electricity prices or longer-term seasonal shutdowns in response to sustained periods of relatively low wholesale electricity prices and demand for electricity.

Two units at Monticello and two units at Martin Lake are currently subject to seasonal operations, said the July 23 filing. In the April version, there was only one unit at Martin Lake in the seasonal category.

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.