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Kerrville utility board wins council approval to finance 22 MW gas plant to stabilize rates
Summary
Kerrville City Council approved the city-sponsored KPUB Public Facility Corporation financing package authorizing KPUB to pursue a 22-megawatt natural‑gas generation project with a parameters cap of $175 million; council approved the sponsor resolution supporting the bond issuance and power sale arrangement.
Kerrville City Council on March 11 authorized the KPUB Public Facility Corporation to move forward with financing for a locally owned, 22‑megawatt natural‑gas reciprocating engine power plant intended to reduce KPUB customers’ exposure to wholesale market volatility.
The council approved a parameters resolution that lets the Public Facility Corporation seek up to $175 million in project funding, with an expected construction cost estimate of $160–$165 million. KPUB staff said the financing plan anticipates roughly 60% of the project funded through the Texas Energy Fund (a Public Utility Commission of Texas program) at a 3% fixed interest rate and the remaining 40% with tax‑exempt revenue bonds sold on the open market. Staff and bond counsel said those bonds were priced in the market near 4.6% at the time of presentation and that the parameters resolution sets an upper bound interest rate of 6.5% and a maximum maturity of 25 years to preserve flexibility.
KPUB General Manager Mike Whitler told council the plant would provide a hedge against shorter, higher‑priced power purchase agreements in the ERCOT market and is expected to reach commercial operation in June 2027. Whitler and KPUB staff described the plant as highly efficient, able to operate in extreme weather, and having minimal long‑term water demand (an initial fill of about 6,000 gallons; ongoing usage comparable to a household).
Bond counsel and KPUB staff outlined the legal and financing structure: the KPUB Public Facility Corporation will own the plant, the corporation will borrow and the city utility (KPUB) will buy the plant’s output under a power sales agreement that secures the debt. Norton Rose Fulbright counsel Arthur Kimball Stanley explained that Chapter 303 of the Texas Local Government Code requires sponsor approval prior to the corporation issuing debt; the city council’s action provides that authorization.
KPUB said the plant addresses the approaching expiration of a load‑following contract with CPS Energy at the end of 2026. Staff ran financial stress tests showing ownership would likely yield steadier retail rates over time compared with relying solely on short‑term market purchases; staff estimated a roughly 15% rate advantage in modeled scenarios. KPUB noted the project was selected for an advance spot in the Texas Energy Fund process and that the utility is one of the smaller municipal projects chosen for the program.
Councilmembers asked about public outreach, operational reliability in cold weather, timeline, and the gap between the existing contract’s end and the plant’s start date; KPUB said bridge supply arrangements and conservative modeling had been incorporated into its financial plans. KPUB staff described an extensive outreach campaign of presentations, a customer survey with nearly 1,000 responses (76% of respondents prioritized stable rates), and multiple local news and social media briefings.
After discussion the council voted to adopt the sponsor/resolution package authorizing the Public Facility Corporation financing and KPUB’s participation in the bond marketing and power sales documents. The vote passed unanimously.
