El Paso Electric’s new, controversial natural gas-fired power plant is set to cost the utility – and El Paso ratepayers – tens of millions of dollars more than expected, a cost overrun that Texas’ utility consumer advocate called an “extraordinary and unreasonable overage.”
EPE now is seeking to pass on the additional cost to El Paso households and businesses through an added fee on customers’ monthly electric bills of about $3 on average for residential customers.
In a statement to El Paso Matters, El Paso Electric said, “the cost differences are the result of higher costs for construction materials and services, as well as extended construction timelines stemming from supply chain issues and from the COVID 19 pandemic.
“These economic factors are impacting construction projects throughout the United States, they are not unique to EPE.”
The utility is building the new unit, called Newman 6, at its Newman Power Station in the far Northeast El Paso near Chaparral, New Mexico. The unit was scheduled to start producing electricity in June, but its startup has been delayed. Newman 6 still wasn’t operating as of July 6, according to filings with the Public Utility Commission of Texas.
When El Paso Electric in 2020 initially got approval from the PUC to build the Newman 6 unit, the utility estimated it would spend $141.2 million on its construction. The utility said at the time it would raise the average El Paso household’s electric bill by $1.77 per month.
But in recent filings with the PUC, the utility says it will actually spend more than $178.7 million to construct the unit – $37 million above the initial cost, or a 26% overrun. For ratepayers, paying off the Newman 6 plant will bring the average residential bill to $97 per month, up from $94, according to EPE.
“That is a very substantial cost estimate error,” Evan D. Evans, a consultant for the Office of Public Utility Counsel, said in filings he submitted to the PUC that were critical of EPE for the cost overrun. The Office of Public Utility Counsel is a state agency that advocates for Texas households and small businesses in cases before the PUC.
Evans added that EPE’s initial $141 million cost estimate included $5.1 million in contingency cash in case the construction cost went over budget.
“Despite the fact that the current final cash construction cost for Newman Unit 6 is over 26% more than” EPE’s estimate, the OPUC wrote in filings, “EPE never communicated to the Commission, or to other parties, that Newman Unit 6 was expected to cost dramatically more than EPE had indicated.”
Evans, a former assistant vice president at El Paso Electric where he worked from 2006 to 2013, could not be reached for comment.
The cost to construct Newman 6 ballooned as a result of “factors including the global COVID-19 pandemic, supply chain disruptions and delays, and inflation,” J. Kyle Olson, EPE’s director of power generation, wrote to the PUC.
“Since the cost of the Newman Unit 6 construction was estimated by EPE’s Power Generation in 2019, there have been increases in commodity and material prices,” Olson wrote. “Prices for steel, aluminum, copper and nickel, which are materials used for much of the small wiring and piping that are part of the Newman Unit 6 construction, have increased significantly.”
The PUC, which regulates EPE’s service territory in Texas, in 2020 gave El Paso Electric the OK to build the new “quick start” power plant unit, which can be fired up and start producing electricity within 12 minutes. The idea behind Newman 6 is that it will bolster EPE’s energy supplies as the utility shutters some of its aging 50- and 60-year-old power plant units in the coming years and adds more solar farms.
Establishing the plant was a contentious process, however. EPE was only able to move forward with the project after it settled with a group of community organizers in Chaparral who sued to prevent the plant from getting a necessary air permit.
In EPE’s settlement with the Chaparral group, the utility agreed to limit pollution from Newman 6 and to not build another fossil fuel-based power plant unit at the site. EPE also gave $400,000 to the community group, which used some of that money to fund the unsuccessful campaign in favor of Proposition K, a climate-focused measure that failed in a citywide election in early May. EPE is seeking to bill ratepayers for that $400,000 settlement.
The Newman 6 plant is permitted to emit 790,000 tons of carbon dioxide into the El Paso region’s air each year. El Paso Electric has said it still needs fossil fuel-based generation that it can reliably switch on when there’s a big demand for electricity across the Borderland, like during summer afternoons when El Pasoans are cranking their air conditioners.
Ideally, the gas plant would pair with new solar farms that EPE is adding to produce power whenever the sun isn’t shining. And for the long-term, EPE has said it will explore converting the Newman 6 power plant turbines to run on hydrogen, which doesn’t produce greenhouse gas pollution when burned like natural gas does. EPE, however, has said in recent filings that it has “not performed any of the formal analyses or engineering to estimate” a potential timeline or cost of converting the plant to hydrogen.
El Paso Electric in 2017 first began soliciting proposals for new energy projects – with a range of options on the table, such as a power plant, solar farm, wind farm, battery storage array or some other resource. It selected the Newman 6 plant as the most economical option for the utility.
But when EPE was comparing the cost of Newman 6 against other generation options, like a new solar farm, it used its estimate that the plant would cost about $141 million to build – not the higher $179 million cost.
El Paso Electric’s estimated cost to build Newman 6 “was compared to the (cost estimates) for other, similar generation resource proposals,” Evans wrote in testimony to the PUC. “This estimate was relied on by EPE and its consultants to evaluate and compare the (costs) for all proposals, rank those options, and determine which proposals were the most economical or best.”
In filings, EPE said Evans’ testimony should be struck from the record and that his concerns should be addressed sometime in the future, whenever EPE next goes through the process to raise customers’ rates.
The next time that El Paso Electric asks the PUC if it can raise customers’ rates, likely in a couple of years, the state’s utility regulators will investigate whether the amount EPE spent on Newman 6 is reasonable. If they determine EPE overspent on Newman 6 – and overcharged customers for the plant – El Paso Electric could have to refund customers the overage.
Still, the PUC said El Paso Electric is the first Texas utility to get approval from regulators to build a plant at one price, and then later to seek to charge customers through a so-called “rider” fee for the plant at a higher price.
Evans recommended that the PUC only let EPE recover the initial $141.2 million cost from customers to pay off the plant. Capping the money EPE can collect would mean customers would see a smaller increase on their bills.
“The amount that EPE is requesting is an extraordinary and unreasonable overage from the” original cost estimate for the plant, lawyers with the OPUC wrote last week.
The case will proceed later this month after the PUC scheduled a July 25 hearing on the issue.
Disclosure: El Paso Electric Co. is a financial supporter of El Paso Matters. Financial supporters play no role in El Paso Matters’ journalism.