PEC board signs historic contract with LCRA

The contract, which is the product of more than a year of negotiations, commits the cooperative to buy at least 65 percent of its power from LCRA.

Officials also say it could end decades of tumultuous relations between the two utility giants.

The vote came at Monday’s board meeting in Johnson City. The contract was approved with a 7-0 vote, and could gain final approval at an LCRA board meeting Wednesday.

“This is probably the biggest vote that any of us will encounter in our history with PEC,” board President R.B. Felps said prior to the vote. 

Meanwhile, the authority will be required to work more closely with PEC and its other wholesale customers before setting power rates, officials said.

The contract lasts through 2041, and is subject to an automatic 25-year renewal if both parties agree, PEC Deputy General Manager Paul Hilgers said. 

Under the contract, the authority will set its wholesale power rates based on the generating cost, along with an agreed-upon overhead and public service fees. PEC, along with other wholesale customers, will have input during LCRA’s rate-setting process.

“This contract obligates the LCRA to work with us, and obligates us to participate with them,” Advisory Director James Spellman said. “We are changing our position from just a passive participant in our contract (with LCRA) to an active role.”

The agreement is the first of its kind between LCRA and its largest customer. PEC, which boasts 220,000 members, is the largest power-distribution cooperative in the United States. The co-op buys the lion’s share of its electricity from LCRA, which was formed in the 1930s to provide power to Central Texas residents.

PEC’s previous contract with LCRA, which was approved in 1987, was written in the days before the Legislature de-regulated the power industry.

Since then, Hilgers said changes in the industry have created a situation where both LCRA and PEC can benefit from the long-term contract.

“This will provide us a cost-based contract,” Hilgers said. “We will only pay direct costs for the power-generation system, plus reasonable and necessary overhead costs.”

Meanwhile, the contract will ensure PEC’s continued business with LCRA for the next two decades, strengthening the authority’s bottom line, Hilgers said.

Director Patrick Cox said the contract marks a new era of cooperation between PEC and LCRA following more than 30 years of strained relations.

“It’s no secret that we’ve had a contentious relationship with LCRA in the past,” Cox said. “This contract really is a change in relations for us. I am very glad to cast an affirmative vote for this contract.”

LCRA General Manager Thomas Mason thanked the PEC board for their work that led to approval of the agreement.

“You have set the model for the future of the way public power should operate in the future,” Mason told the board. “Our two organizations are about public power and service. I view your action today as a vote of confidence in LCRA and in the future.”

Not everyone spoke out in favor of the new contract, however. Attorney Earnest Altgelt of Lakeway reiterated his stance that the contract’s approval should have waited until a legislative review.

“Some of us feel this board has so dropped the ball, we need regulation,” he said. “This contract allows LCRA to have exhorbitant salaries or overhead and then put it in the rate numbers. You should wait until the Legislature decides how to regulate this entity, then make a decision.”

LCRA board members could approve the new contract at their meeting Wednesday in Austin.

chris@thepicayune.com