Power Generation Project

The Public Utility Commission of Texas (PUCT) oversees the administration of all TEF programs. For more information on PUCT and the TEF programs, please visit the PUCT website here.

Texans voted to create the Texas Energy Fund through a constitutional election on November 7, 2023. The Public Utility Commission of Texas (PUCT) was directed by the Texas Legislature through Senate Bill 2627, the Powering Texas Forward Act, to administer the Texas Energy Fund (TEF) programs. The TEF will provide grants and loans to finance the construction, maintenance, modernization, and operation of electric facilities in Texas. The Texas Legislature appropriated $5 billion to fund the TEF for fiscal years 2025 and 2026.

The Texas Energy Fund (TEF) will provide funding opportunities for electric generation projects through four programs based on an application process and award system developed by the Public Utility Commission of Texas.

The In-ERCOT Generation Loan Program (one of the TEF’s four programs) will provide low-interest loans to qualifying companies for the construction of new dispatchable electric generating facilities in the ERCOT power region or the expansion of existing facilities providing power to the ERCOT power region. Qualifying projects must add at least 100 MW of new dispatchable generation capacity to the ERCOT grid.

While this power generation project would not remove us from the ERCOT market, in combination with a revised hedging program, it would provide our customers with additional—but not complete—financial protection from volatile market rate prices during extreme weather events, such as the February 2021 Winter Storm Uri. This project would better position KPUB to maintain stable rates for decades to come.

It also supports Texas’ plan to improve grid reliability by adding new dispatchabble power generation to the market. Given that ERCOT is forecasting energy demand to nearly double between 2024 and 2030, this project supports Texas’ plan to improve grid reliability by adding new dispatchable power generation to the market. Additionally, this project would allow KPUB to offer more innovative service offerings to our customers through advanced technology.

KPUB already has some of the lowest rates in our region, Texas and even the United States. This project should help us ensure that our rates remain competitive.

KPUB has worked with multiple external experts to develop financial modeling for this project. Acknowledging that the energy market is volatile and unpredictable, our modeling consistently shows that this project supports rates that are lower than the alternative of continuing to purchase power from wholesale suppliers.

The proposed project would be a natural gas-fired reciprocating internal combustion engine (RICE) generation plant. This type of plant is dispatchable, meaning it can be turned on anytime and is not dependent on a source like the wind or sun. RICE plants are highly efficient and can continue operating at full capacity during extremely hot or cold weather.

RICE generation plants are equipped with a closed-loop cooling system with water-to-air radiators, which means water consumption is almost zero.

Yes—KPUB’s planned generation technology is highly reliable and proven in real-world conditions.

The facility will feature 122 megawatts of dispatchable generation, powered by six natural gas-fired reciprocating internal combustion engines (RICE). These advanced engines are designed for fast-start capability, high efficiency, and consistent performance across a wide range of operating conditions.

As a benchmark of reliability, the plant will be located next door to Sky Global Power One, a 50-megawatt RICE facility developed by Sky Global to serve San Bernard Electric Cooperative. That facility has become a model for operational excellence. During Winter Storm Uri in 2021, when many generation plants across Texas went offline due to freezing conditions or fuel shortages, Sky Global Power One achieved 99.6% availability.

Building on that success, KPUB’s facility will use larger, more advanced engines from a different manufacturer, offering increased capacity and improved performance while benefiting from the proven reliability of this technology type.

Qualifying projects must add at least 100 MW of new dispatchable generation capacity to the ERCOT grid. The proposed project would generate up to 122 MW at peak.

The facility will be located in Colorado County, approximately 10 miles south of Columbus, Texas. The site was selected for its excellent infrastructure and proximity to four major natural gas pipelines.

Importantly, the plant will be built next door to an existing generation facility—Sky Global Power One—which is built, owned, and operated by Sky Global Partners. This proven site allows KPUB to leverage existing infrastructure and local expertise while ensuring a highly reliable and efficient operational environment.

Aerial view of KPUB’s future power plant site in Colorado County, which neighbors Sky Global Power One

KPUB has assembled a highly experienced team for this project:

• Leading the effort is Sky Global Partners, a small and highly experienced power plant developer and operator. They won’t just build our plant — they’ll operate it long-term as KPUB’s generation department. Learn more about Sky Global Partners online here.

• MAN Energy Solutions, our engine supplier, has been manufacturing engines for over 120 years, and they built the first functioning diesel engine. Learn more about MAN Energy Solutions online here.

• Summit Industrial Construction, a Texas-based construction firm with deep experience in energy and industrial infrastructure, will serve as the general contractor. Learn more about Summit Industrial Construction online here.

• Longtime KPUB partner SEnergy will oversee engineering and design, drawing on more than 25 years of experience working with the utility. Learn more about SEnergy online here.

• Kinder Morgan will provide the natural gas supply under a firm, no-notice agreement. Learn more about Kinger Morgan here.

The facility will interconnect to a recently upgraded South Texas Electric Cooperative (STEC) 138kV transmission line at the STEC Rock Island Substation, which is located immediately adjacent to the project site.

STEC has confirmed that all necessary interconnection equipment is available and that the system can be operational by January 2027.

The transmission line also connects with the Lower Colorado River Authority (LCRA) system within 8 miles, enhancing grid reliability and flexibility.

Additionally, an ERCOT market study has identified this location as offering premium pricing advantages, which could benefit KPUB and its customers in the long term.

While the new power plant will be located in Colorado County, the electricity it generates will be delivered to the Texas power grid—managed by ERCOT. Once on the grid, it becomes part of the statewide pool of electricity that KPUB and other utilities draw from.

That means the plant’s electrons won’t flow directly into homes in Kerrville, but KPUB will purchase the power generated there specifically for our customers. This is the same model from which we already buy power today—from multiple sources and projects all across Texas.

The power that KPUB buys currently is not generated locally either. 

KPUB currently pays and will continue to pay transmission costs, whether we build a plant in Colorado County or continue to buy power from outside suppliers.

KPUB is experienced with managing these costs, including using financial tools available through ERCOT to manage congestion costs on transmission lines. 

Construction of KPUB’s natural gas-fired generation facility is expected to begin in fall 2025, with commercial operations targeted for June 2027.

KPUB will still be mandated to implement load-shedding procedures (rotating outages for customers) if Texas experiences power supply issues during periods of high demand.

ERCOT manages the flow of electric power to over 26 million Texas customers (90% of Texans), including KPUB customers, and is responsible for ensuring the supply of electricity is enough to meet customer demand (load). When the electric supply provided by all power generation is not enough, ERCOT begins emergency operations. During an energy emergency, the demand for power must be decreased to avoid uncontrolled blackouts.

If ERCOT goes into emergency operations due to a lack of power supply, all electric utilities in the ERCOT market are obligated to immediately implement load shed procedures when directed by ERCOT.

While this project would not take us out of the ERCOT market, it would provide our customers with financial protection during Winter Storm Uri-type events on the rate side. It also supports Texas’ plan to improve grid reliability by adding new natural gas-fired power generation to the market.

The plans call for a 122MW power generation facility with an estimated project cost of up to $175 million. The proposed funding plan is a combination of a low-interest loan from the Texas Energy Fund (60%) and tax-exempt revenue bonds (40%).

The project is in the final stages of due diligence for the Texas Energy Fund’s In-ERCOT Generation Loan Program. In addition, the project has applied for the Texas Energy Fund’s Completion Bonus Grant Program.

In March 2025, the Kerrville City Council unanimously approved this financing plan, including the issuance of tax-exempt revenue bonds.

It is important to note that this facility will replace a power supply contract that has averaged almost $21M annually over the last four years.  Because of the increasing load and scarcity in the ERCOT market, we expect the cost of power supply contracts to increase significantly. We feel this investment will better position KPUB to maintain stable rates for our customers for decades to come.

While the impact of tariffs on KPUB’s power plant project remains uncertain due to evolving market and policy conditions, we are well-positioned to manage any potential tariff-related cost increases. A contingency is already built into the project’s overall $175 million budget specifically to cover unforeseen expenses, including possible tariff-related costs.

Unlike generation within a vertically integrated utility, this plant will not run continuously or strictly follow load. Instead, it will stand down when real-time market prices are low—allowing KPUB to take advantage of cheaper market energy—and ramp up only when market prices exceed its marginal cost to operate. While it is technically a “peaker,” its operational profile is more nuanced: it will operate to provide peaking energy or ancillary services in response to market price spikes, not necessarily to follow KPUB’s hourly load shape.

KPUB expects this operating philosophy to mitigate two critical risks. First, this plant offsets the potential for rising power rates by replacing the need to buy power under contracts from third parties at higher and higher costs in a market that is already short of capacity and predicted to be increasingly so in the future. Second, a plant with this technology insulates KPUB’s customers from wholesale power market volatility.

We plan to run the plant when market prices are high, thereby providing power at cost during those times. When market prices are below the plant’s cost to operate, KPUB plans to realize the price advantage by easily turning the plant off and buying power at the low market price. In both cases, we expect the financial benefits of the plant to reduce KPUB’s overall cost to purchase power, thereby facilitating stable rates and cash flows.

The energy needed to serve KPUB’s customers varies greatly depending on the time of day, time of year, weather, etc. This plant produces less than is needed for KPUB’s annual peak, but more than KPUB needs for the vast majority of the year. However, the plant will run based on market price signals from ERCOT rather than based on demand signals from KPUB customers.

Natural gas sets the price of electricity in the ERCOT market whenever the load on the grid is moderate or high (when the grid’s load is low, renewables tend to set the price and those prices tend to be low).  This means that no matter what we do, our cost of electricity will be heavily influenced by natural gas prices. 

Because of this, KPUB already has a natural gas hedging program that helps moderate our electricity costs.  A similar, but updated program, will be needed for a power generation plant. We have begun working on the new program and will have it fully implemented when the plant is operational.

At this point, our best options are either building a power plant or continuing to purchase power from wholesale providers.

When new nuclear plants are built, they will be done using a new technology called small modular reactors (SMR).  Unlike traditional nuclear plants that are very large and built on-site, these will be built in a factory and transported to the site where they are needed.

NuScale is a company that was founded in 2007 that’s been leading the effort to develop SMR plants in the United States. NuScale had been working on a power plant for the Utah Associated Municipal Power Systems (UAMPS). The US Nuclear Regulatory Commission approved NuScale’s design in January 2023, but in late 2023, NuScale and UAMPS decided to cancel the project because of rising cost increases (the costs nearly tripled from their original budget).

SMRs are not commercially available in the U.S., and they are simply too expensive at this point.

KPUB needs a new power supply source in 2027, so nuclear is not an option at this time. We expect nuclear to be a promising option for KPUB in the mid-to-late 2030s once the technology is commercially available and has been deployed in sufficient quantities to be proven reliable and cost-effective.

Learn more here:

https://www.energy.gov/ne/advanced-small-modular-reactors-smrs

https://en.wikipedia.org/wiki/NuScale_Power

At this point, our best options are either building a power plant or continuing to purchase power from wholesale providers.

KPUB has explored the viability of installing energy storage. The biggest problem with it is that the systems currently being installed can only provide power for two to four hours. KPUB needs a supply that will be available from dawn to dark on hot summer days and for days at a time during winter events.

Energy storage does an excellent job of helping to integrate renewable sources into the grid, but it is not the right piece for the puzzle we are working on now.  It will likely be something for us to consider again in the future.

KPUB’s focus has been on helping educate customers about energy efficiency improvements before they consider solar energy. The idea is to reduce energy usage first and then consider solar if the customer wants to go further. The payback for residential solar is also relatively long.

Our current supply contracts do not incentivize KPUB to reduce load during peak times—this type of savings is what would typically be used to fund a solar rebate program.

In the future, we will evaluate the possibility of solar rebate programs, but it is important that rates and costs are fair (a solar rebate program would need to be funded by savings provided by the solar systems and not by other customers).

Building the plant will actually put KPUB in a better position to offer these types of programs to interested customers. If we have a power plant providing our power, KPUB will be directly incurring spot electricity prices and will be able to design programs and time-of-use rates that respond to the spot market.

Our current wholesale power agreements do not provide incentives for KPUB to reduce load during peak energy usage times.  We could, of course, negotiate new agreements that do, but even then, those agreements would tend to be shorter term (three to five years), and it would be more difficult to design long-term energy efficiency and load control and response programs.

These types of programs are good for reducing peak loading, and KPUB looks forward to implementing them in the future. Even with these types of programs, KPUB will still have a need for a power plant or power supply contract.

The proposed 122MW plant will have six separate engine-generator sets, so this configuration provides high reliability because a failure or breakdown will normally only take 1/6 of the plant out of service.

In addition, we will establish a fund to gradually save for large expenditures like major maintenance or replacement power during a plant outage. When the large expenditure occurs, we can pay for it without a significant rate impact by using the funds saved over multiple years.

We expect to be able to build this fund while maintaining stable, competitive rates for our customers.

 Yes, there would be safeguards in place to prevent cyber attacks.

The North American Electric Reliability Council (NERC) publishes standards to ensure grid security.  KPUB already has a regulatory compliance program to meet these standards and the new plant would also be required to meet the standards.

KPUB is a component unit of the City of Kerrville that is overseen by a separate five-member board of trustees. KPUB Board of Trustees members are appointed by the Kerrville City Council and serve without compensation. They are responsible to the City of Kerrville for managing and controlling the system and are empowered with all the city’s authority concerning electricity distribution to consumers.

KPUB was acquired by the City of Kerrville in 1987 to bring the electric utility serving the community back under local control. For 62 years, electric power was generated and sold by companies headquartered outside of Kerr County. In the mid-1980s, the City of Kerrville and LCRA began exploring the possibility of transferring ownership of the system.

At the time, Kerrville had planned to buy the system and designate it as a department of the municipality. After a failed first vote, the Kerrville City Council revised the resolution to have the electric system operated by an independent board and the measure passed.

KPUB was formed after a vote by the citizens of Kerrville and the issuance of $29.5 million in bonds to purchase the system in 1987. This move returned the providership of electric power to the local citizens, bringing the control of the electric system full circle back to Kerrville.

Today, KPUB is a community-owned, not-for-profit utility that serves approximately 24,000 customers throughout a 146 square mile service area, including Kerrville, Center Point, Ingram, Hunt and surrounding areas in Kerr County.

The initiative has had significant public outreach, such as a customer power supply survey in the summer/fall 2024 (with close to 1,000 customer responses), a dedicated project webpage with FAQs, social media campaigns, project videos, numerous press releases and local media coverage, as well as over 20 presentations to local community groups to gather input and foster transparency.