New Louisiana G&T Co-op Set To Deliver Power to Members

Early next year, a new generation and transmission (G&T) cooperative will begin delivering power to its five distribution cooperative members in Louisiana. Seven years in the making, the story of 1803 Electric Cooperative (1803) is not just one of opportunity in seeking ways to control power costs, but also one that marks the return to cooperative control of optionality in securing power—30 years after the bankruptcy of G&T Cajun Electric Power Cooperative.

The idea to create the new G&T germinated in 2018, when five distribution cooperatives serving 120,000 members—Beauregard Electric Cooperative, Claiborne Electric Cooperative, Northeast Louisiana Power Cooperative, South Louisiana Electric Cooperative Association and Washington-St. Tammany Electric Cooperative—got together to discuss future power supply options based on the fact their existing supply contracts would be ending in 2025. Those all-requirements contracts with Cleco Cajun, a subsidiary of investor-owned utility (IOU) Cleco Corporate Holdings—and before that, with Louisiana Generating Company, a subsidiary of IOU NRG Energy—had been in place since 2000.

“The cooperatives felt that perhaps those supply contracts had not always served them well, and that rather than just signing up to extend those contracts, it would be prudent and in the best interests of their end-use member-consumers to identify and explore other power supply solutions,” 1803 CEO Brian Hobbs explained. “The overarching driver was not being captive to an entity that did not have the interests of the cooperatives and their members as a priority. The cooperatives had a strong desire to take control of their future and take control of their power supply.”

Louisiana electric cooperatives have not had their own G&T since Cajun Electric filed for bankruptcy in 1994 amid financial problems related to its investment in the River Bend Nuclear Power Plant. In 2000, NRG purchased most of the power-generating assets and supply contracts of Cajun Electric. The launch of 1803 represents a milestone in the return of power supply control to Louisiana cooperatives.

Even the new G&T’s name is symbolic. “The United States consummated the Louisiana Purchase from France in 1803, which, of course, included the state of Louisiana in its geography,” Hobbs said. “The Louisiana Purchase doubled the size of the U.S., gave the country control of the banks on both sides of the Mississippi River, gave it control of the critically important port of New Orleans and the mouth of the Mississippi River, facilitated the formation of 15 new states, paved the way for future expansion and, overall, strengthened the nation. The five member cooperatives appreciated the analogies and thought it appropriate to honor that history of Louisiana and the United States.”

Scoping Out Options

Before deciding to create 1803, the group also considered its options and contacted ACES Power Marketing to help with the analysis. 

“The cooperatives engaged ACES early in the process to identify, evaluate and model various approaches,” Hobbs said. “ACES’ role in gathering information, modeling scenarios and modeling financial impacts was integral to helping the cooperatives understand and evaluate options and inform decisions.”

The G&T model has worked for more than 80 years and became an early contender.

“The cooperatives also were aware that other suppliers would likely serve their power supply requirements,” Hobbs said. “The cooperatives had the option of extending the current power supply contracts. Ultimately, after understanding what was available, the cooperatives took the bold step to direct their own future and create a G&T that would serve their needs, pursuant to their governance.”

A wide-scale request for proposals (RFP) was undertaken to identify power supply options. The RFP did not restrict the types of proposals, and resulted in dozens of responses, which were then evaluated. From that evaluation came nine finalist scenarios, each of which included a combination of the individual RFPs, including offers from the incumbent supplier. From those nine finalists, 1803 selected the portfolio it felt best fit its criteria and needs.

In January 2022, the Louisiana Public Service Commission approved 1803’s proposed power purchase agreements and application for cost recovery in an order that could open the door for other electric cooperatives in the state to formulate their own power supply options. IOUs Cleco and Entergy both opposed the order.

“It was certainly a momentous occasion, and the first time in decades that the electric cooperatives in Louisiana—and not just the 1803 member cooperatives, but others as well—stood up and said we are no longer just rate-base, but rather we want to make our own power supply decisions that best fit our needs,” Hobbs said. 

Initial Supply Portfolio

The initial supply portfolio will include 245 MWs of solar power; 58% of the output of a new 700 MW combined-cycle natural gas plant being constructed by Kindle Energy (~409 MW); a U.S. government hydro allocation through the Southwest Power Administration (36 MW); a five-year load-following, fixed-price power purchase agreement with Constellation Energy for 27% of 1803’s load (~270 MW); and dual supply contracts with Calpine: a 10-year agreement for 175 MW of capacity and a five-year energy contract (up to 185 MWh).

“Power supply planning is a never-ending process with constant change in the regulatory environment, the organized markets and respective rules, energy policy, environmental regulation, volatility and other outside factors constantly reshaping the landscape we operate in,” Hobbs said. “Our load is all in the Midcontinent Independent System Operator, which has moved to seasonal capacity requirements and accreditation of capacity. This has, in our view, reduced the value of solar generation, which provides very little capacity during the winter season. As a result, we are carefully evaluating and monitoring the cost and value of solar in our portfolio. Initially, the supply portfolio included 345 MW of solar, but that has been reduced to 245 MW today, which we are still monitoring.” 

Kindle Energy’s Magnolia plant is well under construction and is expected to be one of the most efficient natural gas combined-cycle plants in the nation when it comes on-line next year. “An added benefit: The plant can burn up to a 50% hydrogen/natural gas blend right out of the box,” Hobbs said. “Although no hydrogen fuel delivery infrastructure will be in place, it could be added in the future as economics dictate.” 

Additionally, 1803 recently has contracted for other short-term capacity supplies and is actively pursuing additional capacity. “Winter capacity is our greatest need,” Hobbs said.

Expected Benefits to Members

There are numerous short- and long-term benefits to the G&T’s member cooperatives, Hobbs said, including:

• Direct control of decisions impacting the cooperatives and their end-use members, including an increased focus on the clear mission of the cooperatives—reliability and affordability.
• Cost of service-based wholesale supply, which is expected to be lower cost than the legacy supply contracts.
• More flexibility in long-term power supply. 

“Our initial power supply portfolio consists of long-term, mid-term and shorter-term supply solutions.” Hobbs said. “This approach provides the G&T opportunities to evaluate new technologies, new supply options and new resources over time. This is compared to locking in long-term, generally increasing costs, at least on the demand side of the cost equation. Think of it as dollar-cost-averaging by entering the market at different points of time.”

Financing Needs

While much of the hard work in terms of standing up the new G&T has been accomplished, there are still important financing needs to address. CFC is proud to have been able to help. 

“CFC has been very supportive and helpful to 1803. When I first got involved, one of my immediate challenges was to provide adequate capital,” Hobbs said. “CFC stepped up with a revolving line of credit that has facilitated the start-up of 1803 in numerous ways.”

Looking ahead, 1803 has identified three areas where additional help will be needed. 

“First, 1803 needs to develop and implement a comprehensive plan to improve our balance sheet,” Hobbs said. “To date, we have been very cognizant of the fact that all the costs incurred by our members to start up 1803 are in addition to the cost of wholesale power from the legacy provider. As such, we have been very diligent in managing those costs. As we move to being the wholesale power supplier to our member cooperatives, we can generate a reasonable margin to begin strengthening our balance sheet to meet challenges ahead.”

The G&T plans to acquire high-voltage transmission and other assets to better manage the delivery of power to its members. That will require funding, not only for the acquisition of the assets, but also for ongoing capital replacement, operation and maintenance activities, and any storm restoration.

“Finally, 1803 does still have some capacity needs and may consider owning generation assets in the future due to regulatory changes at the state level and economics,” Hobbs added. “After all, we are in a capital-intensive industry.”

Hobbs concluded, “The launch of 1803 is very exciting for us, and the support from CFC, RUS and other cooperatives has been much needed and very much appreciated as 1803 attempts to validate and support the bold decision of our member cooperatives to take this leap of faith and once again prove the value of the cooperative business model.”