Strategic Wholesale Power Decision Made
Comments by General Manager, Darren Schauer
January 2011
If you’ll recall from my November comments, we were in the midst of exploring our options in driving wholesale power diversity for our future. After careful consideration and authorization from the Board of Directors, on November 16 at LCRA Headquarters in Austin, GVEC Board President Lewis Borgfeld and I officially notified LCRA of GVEC’s intent not to renew our contract and terminate the all-requirements relationship as of 2016. This decision results from a five-year extensive evaluation of various options to meet future power demand at the most affordable prices possible for you, our member-owners.
GVEC is currently in an all-requirements contract with LCRA, meaning we must purchase 100% of our wholesale power from LCRA. This agreement went into effect in 1974. It officially comes due for renewal in 2016, however, the contract required us to notify LCRA of our intensions to renew or not to renew by June 2011.
Significant changes have taken place in the wholesale power market since 1974. The market has transitioned from being highly regulated by the Public Utility Commission to a deregulated market, creating a more competitive market with greater options than ever before. LCRA offered a contract extension, which would allow GVEC to purchase a portion of our requirements, up to 35%, from other suppliers. While this type of contract gives us increased flexibility over what is in place today, the extension would require a 25-year commitment, leaving the majority of our energy requirements up for renewal at one time. With the mid-2011 deadline approaching, the Board and staff conducted an exhaustive study over the past year with a formal Request-for-Proposal sent to a select group of financially sound and reputable industry participants. Responses ranged from private brokers to large-scale power generators and included options such as all-requirements and partial-requirements contracts, ownership in power plants, and renewable opportunities.
Our wholesale power plan moving forward will increase the Cooperative’s flexibility to adapt to potential political, economic, and technological factors affecting the electric utility industry. It will include multiple suppliers, diversified fuel sources, and staggered terms so as not to be forced to renew our entire supply at one time, or to be locked into one supplier for a long period of time for a majority of our needs. Two contracts have already been signed with two suppliers for a significant portion of our baseload requirements and we are very close to coming to terms on a third contract.
LCRA has been a reliable and competitively priced wholesale power provider for many years. We have maintained a successful relationship during this time and it is the hope of the Board of Directors, as well as my hope, that there will be opportunities for the two organizations to work together in the future. Ultimately, the decision to change our wholesale power strategy is in the best long-term interest of GVEC members.
The contract changes will officially take effect June 2016 and will be a seamless process in terms of power availability for GVEC members. Between now and this date, we will continue to be an all-requirements customer of LCRA. As always, I will continue to keep you informed.
