The international border between the United States and Mexico can seem porous as people, commerce, and services regularly trek back and forth, especially in the Rio Grande Valley given its history of cross-border trade.
Last year, permits for a new natural gas pipeline from Nueces County through Starr County and destined for Mexico were approved, and a direct current electricity tie of 300 megawatts connects the two nations allowing for some import and export of power since 2007.
But for the first time, a natural gas generation plant on Texas soil is planning to pump electricity into Mexico’s power grid as of Jan. 1.
“The previous owners just decided not to sell into Mexico. I think it was something that it was neglected in the past,” said Sean Klimczak, senior managing director for the Blackstone group, a venture capital investment firm based in New York that purchased the Frontera Generation plant here from Direct Energy in 2013.
In the fine print of the transaction were a $685 million cash transfer and an agreement that Direct Energy would continue to receive the monetary equivalent of all the electricity generated from the Mission plant and two others inBastrop and Paris, which produce a combined 1,295 megawatts, for an undisclosed amount for three years.
Direct Energy, an electricity corporation based in Houston, declined an interview for this story and only provided a news release on the sale of the power plants.
Klimczak likened the process to sending excess natural gas reserves.
“We can export power to Mexico just like we are exporting natural gas,” he said.
Blackstone officials said they plan to export 170 megawatts of electricity to the Mexican market starting next year and anticipate that the entire plant capacity of 524 megawatts will be removed from the Electricity Reliability Council of Texas, or ERCOT, grid as of 2016 and until December 2023.
Blackstone maintains they reserve the right to sell in either the U.S. or Mexico at any time, and deny a contract was signed holding them to a deal over the border until 2023.
“If electricity is very tight in South Texas, then we are going to be incentivized to sell into South Texas,” Klimczak said.
The reason for the decisions, Blackstone officials said, directly correlated to the price per kilowatt for commercial power in Mexico. It was 19.8 cents/kWh and 11.4 cents/kWh for industrial in 2011, according to the last report conducted by Secretaria de Energia de Mexico (SENER), the policy arm for the Mexican government when it comes to electricity reliability. Multiply that by 3.5 million commercial customers and 31.3 million residential consumers and that’s a big chunk of change. In Texas, the price per kilowatt for commercial power barely hits 10 cents.
Furthermore, as Mexico continues to develop their own resources, Blackstone questioned market shifts.
“If we don’t export power to Mexico, what is going to happen?” asked Klimczak. “Mexico is going to build power plants to satisfy their needs and that isn’t a net good thing for our country,” he said of taxes and jobs in the U.S.
BUILT FOR EXPORT
Frontera Generation, a combined cycle natural gas facility on Goodwin Road, was built in 1999 alongside a 138-kilovolt single circuit electric transmission line that runs into the Cumbres substation in Reynosa and intersects with the Comision Federal de Electricidad (CFE) system, the power grid run by the Mexican government. The project was approved via presidential permit and stamped by the Department of Energy.
At the time, wholesale electricity providers were prohibited from selling retail electricity, which means directly to customers or businesses without using a broker. So, a series of subsidiary corporations were formed and joined by then Florida-based TECO Power Services Corporation and reapplied for the permit. When TECO dropped out of the energy market, permit rights were reverted back to Frontera.
In 2004, Centrica North American Companies, a Direct Energy subsidiary, owned the Mission power plant for a decade until its sale to Blackstone in a larger deal of the three natural gas facilities.
The current permits also allow for a transmission line of up to 230 kilovolts from 138 kilovolts.
Blackstone submitted an application to the Department of Energy to give a wholesale electricity provider access into Mexico’s market in May, but retracted their submission after Mexican President Enrique Pena Nieto announced congressional reforms that allowed wholesale providers to participate in the retail market.
Blackstone officials had said in its application to the Department of Energy that Lonestar Power Marketing LLC, a subsidiary company created by Blackstone, did not have “native load obligations” and itsloss would not impact Texas’ electricity reliability.
The Federal Power Act and Department of Energy regulations require that exports are only permitted if it would not “impair the sufficiency of electric power supply in the United States” or interfere with the power supply network.
Local leaders in the Texas Legislature said the balance between encouraging industry while maintaining public integrity is difficult and that energy generation investors are reluctant to put out money for new power plants due to leaner margins.
“While I have concerns about the proposal and have expressed those concerns to ERCOT, I will be watching carefully how ERCOT evaluates the proposal and determines the impact,” said state Rep. Rene O. Oliveira, D-Brownsville, who sits on the regulated industries committee that oversees the state’s electric grid. “Any action that might negatively impact the availability, reliability, or affordability of electricity in the Valley is going to receive serious scrutiny by regulators and the Legislature.”
But others call the project an economic boon to the Valley.
“We definitely need the investment; natural gas is worth almost nothing in the U.S.,” said state Rep. Terry Canales, D-Edinburg, who co-hosted a public hearing in Edinburg on natural resources and the impact of Mexico’s reforms on the Texas economy on Friday.
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