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LCRA Asks Judge to Uphold Power Contracts, Block Seven Customers from Unilaterally Breaking Them
Wednesday, July 25, 2012 • Posted July 25, 2012

LCRA’s request, filed in state district court in Travis County, comes less than three weeks after the seven customers notified LCRA that they believed the organization was in breach of the contracts – a claim LCRA adamantly denies.

“LCRA has honored these contracts since 1974 and intends to continue honoring them until they expire in 2016. We are asking these seven customers to do the same,” LCRA General Manager Becky Motal said. “There is no breach and we are confident a judge will agree with us. If these customers are allowed to end their contracts four years early, rates for the other customers likely will go up. There’s no joy in heading to the courthouse to resolve these differences, but these seven customers have left us with few options. We have a responsibility to protect the interests of everyone we serve.”

The suit asks for a judge to review the contracts and to rule that LCRA continues to adhere to their terms. The suit also asks for a temporary restraining order keeping the seven customers from severing the contracts until the court rules on the issues tied to the breach accusation.

“These seven customers signed contracts with LCRA and we have honored them for more than 30 years,” Motal said. “We’re asking a judge to keep them from breaking them now.”

Thirty three utilities signed long-term contracts with LCRA that continue until 2041. However, 10 wholesale power customers – including the seven who contend breach of contract – did not opt to renew their contracts and will leave LCRA in 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. The 2016 customers have asked for the ability to buy a portion of their power from another provider and, more recently, asked for early termination of their contracts. 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 option.

The seven customers are: the City of Georgetown; the City of Boerne; the City of Seguin; the Kerrville Public Utility Board; Central Texas Electric Cooperative, Inc.; Fayette Electric Cooperative; and San Bernard Electric Cooperative. On June 28, they sent LCRA letters claiming that LCRA breached their contracts. LCRA had 30 days to respond. The claim came after years of discussion and about four years before the contracts actually end.

“This filing serves as our response,” Motal said.

The petition filed with the court says “there is probable, imminent, and irreparable injury” to LCRA if the seven utilities are allowed to terminate their contracts early and with short notice. “LCRA’s financial planning for its current fiscal year and beyond, and the viability of bonds issued to purchase assets used to service the loads of all 43 of its wholesale power customers (including the Defendants), are based upon the existence of these long term contracts and the Defendant’s proposed actions are not in the public interest. LCRA provides energy services to 36 other municipalities and cooperatives in Central Texas, who, in turn, provide retail service to hundreds of thousands of customers.”

Significant costs associated with the seven customers’ early termination of their contracts would have to be passed on to the other customers in the form of rate increases.

All of LCRA’s customers, regardless of when their contracts expire, are charged the same rate. Motal said LCRA is proud of its competitive pricing and intends to become even more competitive in providing wholesale power. She pointed to the recent Business Plan approved by LCRA’s Board of Directors. It includes a $40 million reduction in costs and a freeze in nonfuel 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, she said.

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