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.

The Texas Energy Fund (TEF) was created by the Texas Legislature through Senate Bill 2627, The Powering Texas Forward Act, to 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 2025-2026.

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 dispatchable power generation to the market. ERCOT has estimated that the state’s main power grid would have to provide nearly double the amount of power it currently supplies by 2030. Additionally, this project would allow KPUB to offer more innovative service offerings to our customers through advanced technology.

We are still working on a detailed financial analysis for the proposed project and need to review all details thoroughly before we can publish rate projections (this answer will be updated once we can).

The initial indications are that this project would support lower rates for our customers than the alternative of continuing to purchase power from wholesale suppliers.

KPUB already has some of the lowest rates in our region and this project should help us ensure that our rates remain competitive.

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.

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.

This project will operate in the competitive ERCOT market, so certain project details must remain confidential for now. Although we can’t reveal the exact location of the facility at this time, we can confirm that it will be built outside of KPUB’s service area due to our area’s insufficient natural gas pipeline infrastructure.

There will be transmission costs, but we expect them to be reasonable.  ERCOT has financial tools that we already use to mitigate transmission costs and congestion.  Even if the plant were built locally, these tools would still be needed to manage transmission costs.

We are still in the early stages of exploring the possibility of owning generation.

On May 30, 2024, KPUB filed a notice of intent with the Public Utility Commission of Texas (PUCT). This non-binding notice positions KPUB as a potential applicant for the five-billion-dollar Texas Energy Fund’s (TEF) In-ERCOT Generation Loan Program and Completion Bonus Grant Program.

We are filing our application now during the application submission period, which runs from June 1 to July 27, 2024.

The overall process is very long and this potential project requires many additional approvals from many parties (i.e., KPUB being selected as a finalist for the PUC/TEF funds, KPUB and KPUB PFC approval of development contracts, Kerrville City Council approval of revenue bonds).

We will continue to engage with our customers as we explore options and plan for our utility’s future power sources, and we would like to hear your thoughts and feedback on this project.

If KPUB chooses to proceed with the project after much research, public input, additional steps, and required approvals occur, then it could potentially come online as early as 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 Kerrville Public Utility Board (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 there are periods in the summer or winter when ERCOT needs to go into emergency operations due to a lack of power supply, all electric utilities in the ERCOT market are obligated to implement load shed procedures when directed by ERCOT immediately.

While this would not take us out of the ERCOT market, it would provide our customers with financial protection during 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 (if we proceed with this potential generation facility).

The current project plans are for a 124MW power generation facility with an estimated investment of $150M.  It is important to note that this facility will replace a power supply contract that cost approximately $17M in fiscal year 2023. KPUB’s investment in building and operating this plant would be roughly equivalent to the existing power supply contract that it will replace. 

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.

When the plant has a generation capacity above what is required by KPUB’s energy demands, it will be run. The excess energy would be sold to help pay for the plant investment and reduce costs for our 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.  The same type of hedging program that we use today will be used in the future if we end up building a power plant. 

Additionally, in our search for sites for the plant, we will have a strong preference for one that has a firm supply of natural gas, meaning our gas supply will be available even during events like winter storm Uri in 2021.

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 124MW 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.

We will also need to establish a rate stabilization fund to cover the cost of purchasing replacement power in case of a plant outage.

We are still working on the proposed plant’s financial models and cannot release the anticipated amount of the rate stabilization fund. However, we expect to be able to build the 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.