Lubbock All Set for Electricity Deregulation

Why did Lubbock vote to deregulate the LP&L service territory?

Lubbock, Texas, the 11th most populous city in the state and birthplace of rock ‘n roll legend Buddy Holly, is becoming a deregulated electric territory. On February 22, 2022, the Lubbock City Council cast a unanimous vote in favor of electric deregulation, the final hurdle to transition Lubbock Power and Light (LP&L) to competitive retail electric service. LP&L hopes to fully transition service by mid to late 2023. Lubbock residents and businesses will now join over 7 million Texas electric consumers in deregulated energy markets with the right to choose their own retail provider for residential and commercial electricity.

Making History

LP&L’s deregulation will go down in history as the first municipally-owned utility that voluntarily adopted a competitive retail structure since Texas Senate Bill 7 (SB 7) first became law in 1999. SB 7 aimed at using retail competition as a vehicle to lower electric rates across Texas and eliminate the monopolistic nature of electric utilities. The city of Lubbock has already begun the process, as LP&L connected 70% of customers to the ERCOT grid in May 2021. The remaining 30% are estimated to be connected by 2023. Once complete, Lubbock adds an additional 670 MW of load to the Oncor service territory. See Figure 1 for Lubbock’s transition timeline:

Figure 1: Lubbock’s Transition Timeline from lpandl.com.

Who's Who of Deregulation

Here is an overview of the different entities in a deregulated market.

PUCT: The Public Utilities Commission of Texas regulates and implements legislation of the state’s utilities, including electricity, and has ultimate oversight of the competitive market. The PUCT has oversight and enforcement authority over ERCOT.

ERCOT: The Electricity Reliability Council of Texas is the Independent System Operator (ISO) that manages the flow of electricity across approximately 90% of Texas. ERCOT’s primary responsibility is ensuring reliability of the electric grid by continuously balancing the supply of generation resources with the demand of homes and businesses.

LP&L: Lubbock Power & Light will act solely as the utility that owns and operates the physical electricity distribution system. After the transition to a competitive energy market, LP&L will no longer sell or send electric bills to homes and businesses. LP&L will continue to serve as the primary point of contact for power outages.

REP: Retail Electric Providers are also referred to as competitive retail electric suppliers. These electric companies will enter into contracts to sell electricity to homes and businesses and invoice them in place of LP&L. These include NRG, TXU, Shell, Gexa, Constellation, and many others.

Default Provider: After competition is implemented LP&L will no longer be an electricity provider to any customers. Therefore, any home or business that has not chosen a Retail Electric Provider for an electricity plan will be automatically assigned to a Default Provider. REPs will submit their interest to become a Default Provider via an RFP process and will be chosen by LP&L and the City Council. Customers will be able to transition from their Default Provider to a new REP.

POLR: REPs will volunteer or be assigned to serve as a Provider of Last Resort. If a REP goes out of business or leaves the ERCOT market, their customers are transitioned to a POLR supplier. This backstop function ensures the customer’s electric service is transferred to a new REP without interruption of service. Customers can transition from their POLR to a new REP.

ABCs: Advisors, Aggregators, Brokers, and Consultants serve as intermediaries between home or business customers and REPs. ABCs work for customers to help them navigate the competitive retail electric market. ABCs are required to register with the PUCT but are not regulated by the PUCT or ERCOT. Companies of all sizes and types operate as ABCs, and have varying degrees of experience, expertise, and service capabilities.

Why Now?

The electricity price was one of the many reasons Lubbock decided to take this step and join ERCOT. In a recent study by LP&L, the utility found that electric costs could drop an estimated $148.9 million annually for the city of Lubbock. Additionally, due to overall electric demand, if Lubbock remained disconnected from the ERCOT grid, the city would require a new power plant with an estimated cost of more than $700 million.

LP&L will continue to own and maintain all transmission and distribution infrastructure, in addition to being the sole provider of metering services. However, they will no longer bill customers for electricity. Instead, under the competition model, customers can shop multiple retail electric providers (REP) for plans, pricing, and contract terms, and the REPs will be responsible for billing once fully transitioned.

Is Lubbock pathing the way for other regulated territories in TX?

When SB 7 passed in 1999, deregulating the Lone Star state, 72 municipal power companies and 75 electric cooperatives were given the option to remain regulated. LP&L became the first of these companies to deregulate by choice. Policymakers reviewed the facts and determined that deregulation was the best path forward for their citizens. The city council’s resolution states that “the City Council of the City of Lubbock believes that customer choice and retail electric competition will benefit the citizens of Lubbock and enhance growth and development in Lubbock.”

In addition to providing more competitive rates for consumers, a representative of LP&L also noted that by moving to a deregulated electricity market, the utility faced less risk from not having to supply power and exposure to spot prices in reference to the extreme volatility the ERCOT market faced during Winter Storm Uri. By connecting to ERCOT’s grid, LP&L can shift focus back to its delivery operations. Lubbock could be used as a positive example of the benefits of retail choice, leading other power companies and electric cooperatives to take similar steps toward deregulation.

5 Digital Energy is actively advising clients in the LP&L territory as they prepare for the procurement and operational opportunities ahead. Our experts can help you find the best energy plan for your business from multiple energy providers and help you to avoid confusion and pain.

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