AGENDA CAPTION:
Title
Consider approval of Ordinance 2026-50, on the first of two readings, approving an Asset Purchase Agreement for the sale of certain substation assets to the LCRA Transmission Services Corporation for a price of $16,119,263.00, subject to related closing costs and adjustments; authorizing the City Manager, or her designee, to execute said agreement on behalf of the city; including procedural provisions; and declaring an effective date.
Body
Meeting date: October 7, 2026
Department: Utilities, Ekaterina Fitos, Director - Utilities
Amount & Source of Funding
Funds Required: N/A
Account or Project Number (C = CIP funds): N/A
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Background Information:
City of San Marcos Utilities (COSM Utilities) operates a distribution electric system serving approximately 29,000 meters and maintaining more than 425 miles of distribution lines. These lines deliver low-voltage power from substations to homes, businesses, schools, churches, and other end users. Substations connect the high-voltage transmission network to the distribution system and contain transformers, relays, breakers, switches, feeders, and monitoring equipment. Transformers serve to adjust the high voltage provided through the transmission lines to match the low-voltage requirements of distribution lines.
Electric service providers in Texas are classified as Distribution Service Providers (DSPs), which own and operate facilities below 60 kV and own distribution assets only, and Transmission Service Providers (TSPs), which own and operate facilities above 60 kV and follow stricter regulatory and testing requirements. COSM Utilities functions as a DSP; the Lower Colorado River Authority (LCRA) generates power for COSM Utilities and serves as the TSP. However, because COSM Utilities owns certain high-voltage assets inside several substations, it is currently designated as both a DSP and a TSP-an uncommon arrangement.
Standard practice in Texas is for the TSP, in this case LCRA, to own and operate all high-voltage infrastructure. COSM Utilities and LCRA currently share ownership across City substations, with City-owned land or equipment at some sites and LCRA owning the remaining components. This mixed ownership creates ambiguity during maintenance, outages, and emergency response. To clarify responsibilities and ensure COSM Utilities’ sole designation as a DSP, staff recommends selling City-owned high-voltage substation assets currently operated by LCRA.
The sale of substation assets and City-owned land includes:
Strahan Substation - property
Redwood Substation - infrastructure
San Marcos Substation - infrastructure
Rattler Substation - property and infrastructure
Ranch Road 12 Substation - property and infrastructure
Hilltop Substation - property and infrastructure
LCRA is willing to purchase these assets at a mutually agreed appraised land value and value for equipment.
This transaction will not impact the City’s distribution system, retail electric service, or local control of its utility. COSM Utilities will continue to own and operate all distribution assets that deliver electricity to customers. The substations involved represent only the high voltage components used to step down transmission power to distribution levels; the City is not selling its electric utility.
Hilltop Substation Project
LCRA’s process allows the City to complete the ongoing Hilltop substation project and receive reimbursement through the “Construction Work in Progress (CWIP)” ensuring full cost recovery and faster project completion. This project will improve reliability for Downtown, provide the opportunity to convert Downtown to underground, and provide backup for the southwest side of the City.
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Recommendation:
Staff recommends approving the sale of City-owned high voltage substation equipment and related substation land to LCRA TSC for $16,119,263.00.