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Austin Energy to prepare impact study of possible Fayette plant sale

Friday, December 2, 2011 by Bill McCann

As pressure builds for the City of Austin to end its participation in the coal-fired Fayette Power Project, Austin Energy is looking for answers to what such a major change would mean to the utility’s operations and to its ratepayers.

 

To help get those answers, Austin Energy has begun preliminary data gathering for a comprehensive report that it will prepare over the next nine months. Work on the report will begin in earnest in January and Austin Energy plans to report its findings next September to the advisory Electric Utility Commission, then to the City Council.

 

The report, when completed, could have considerable political, technical and financial implications for the City of Austin and the city-owned electric utility. The Fayette plant, which is jointly owned by the city and the Lower Colorado River Authority (LCRA), currently provides almost one-third of Austin Energy’s reliable base-load power at the low end of the cost scale. Removing the plant from the utility’s power mix and replacing it, for example, with natural gas, which has a history of price volatility, or wind, which is not always available, could be controversial – especially if it would result in another jump in electric bills.

 

“The Fayette plant has been an important part of our (electric) generation mix and has helped keep our rates low over the years,” said Austin Energy’s Chief Operating Officer Cheryl Mele. “But we also need to look to the future, and the alternatives to the plant.”

 

The report, Mele said, will help the city determine that future.

 

“The report will be an operational and financial analysis that will answer a lot of questions such as what it would mean for ratepayers if we sold our share of the (Fayette) plant and what are the options to replace it,” Mele said. “The LCRA has the right of first refusal if the city decides to sell its share. So we will be discussing (the issue) extensively with them during the study period.”   

 

The initial work will be done in-house, but the utility could bring in outside consultants to help, if needed, Mele said.

 

The City Council ordered the report in October in part as a follow-up to the Austin Energy Resource Generation and Climate Protection Plan adopted by the Council in April 2010. That plan includes a proposed 25 percent reduction in the amount of energy that Austin Energy would get from the Fayette plant by 2020 – with the eventual goal of modifying, closing or selling off Austin’s share of the plant.

 

Environmental groups have been urging the city to end its participation in the Fayette coal plant as part of a national “Beyond Coal” campaign that the Sierra Club is leading. They see Austin as setting an example for the rest of the country, if it got out of the plant. Environmentalists have gotten backing from Mayor Lee Leffingwell, who told supporters at his re-election announcement in mid-November that moving the city toward selling its share of the Fayette plant would be a key goal of his next term.

 

Ultimately, environmentalists want more than Austin selling its share of the plant, however. They want the plant shut down altogether, arguing that it spews mercury and other air pollutants including greenhouses gases that contribute to global warming. They believe the plant’s operational costs will rise significantly in the future, in part to comply with environmental requirements.  

 

Area environmentalists, led by the Sierra Club, hope to heat up their campaign with a Beyond Coal town hall meeting on Sunday from 3 to 5pm at the Texas State Employees Union office, 1700 South First St. Campaign leaders say they intend to present new information that shows the Fayette plant can be phased out in a cost-effective way over the next few years.

 

Even if the environmentalists are able to hold sway with Austin, they are not expected to get anywhere with the LCRA, which is the operating manager and major owner of the three-unit power plant in Fayette County, about 60 miles east of Austin near La Grange. The Electric Reliability Council of Texas, or ERCOT, which manages the state power grid, also would have a say.

 

Over the decades the Fayette plant has been one of the most reliably operated coal plants in the state, helping to keep down electricity costs for both LCRA and Austin customers, according to the two utilities. The LCRA and Austin have invested hundreds of millions of dollars in improving the plant’s operations and reducing pollutant emissions in recent years, receiving accolades from industry, state and federal officials. The LCRA earlier this year completed a $400 million installation of sulfur dioxide-scrubbing equipment at units 1 and 2, with Austin Energy paying half that cost. Unit 3 already has sulfur-removing equipment.

 

The three Fayette units have a net generating capacity of 1,625 megawatts of power. Austin and LCRA each own half of units 1 and 2 (590 megawatts each), and the LCRA owns Unit 3 outright. Units 1 and 2 went into operation in 1979 and 1980 respectively. Unit 3 went into operation in 1988.

 

Initially Unit 3 was to have burned lignite, a low-quality but plentiful coal strip-mined from Central Texas. Austin was to have been a partner in Unit 3 but opted out amid a heated environmental fight over lignite. Later, the LCRA dropped its plans for lignite, and decided to fuel the unit with low-sulfur coal from the Powder River Basin in Wyoming – the source of coal for units 1 and 2.

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