The Lower Colorado River Authority on Wednesday continued to stand by its wholesale power agreements with customers and said it would aggressively defend them in court.
“A contract is a contract, and that means something in Texas,” LCRA General Manager Becky Motal said. “We are ready to honor the contracts, and we are hopeful all our customers will do the same.”
On Wednesday, LCRA 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 so-called breach is not cured. LCRA will respond to the notice and reaffirm its position that no breach has occurred. GVEC has no right to unilaterally terminate the contract.
LCRA charges the same rate to all its customers and will defend the contract in court, if necessary.
“This is not unexpected, but it was still disappointing,” Motal said of the notice from GVEC. “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. 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 this action. 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 notice from GVEC follows similar notices from seven other LCRA wholesale power customers in June. Those customers are the cities of Boerne, Seguin and Georgetown, 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 the contracts should be honored. Those disputes are now pending in state district courts. The cases could take months, if not years, to resolve.
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 take the opportunity to 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 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 stands ready to become even more competitive in the wholesale power marketplace. The 2012-2013 LCRA Business Plan has a $40 million 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.