HomeMy WebLinkAbout1977
r _ Gilbert Managoment ConsultantsedivisronoIGilbedAssociates, nch
0 tancaaer Avenue, Reading, PenneYlranie/ P.O. boe 1498, Reading, PennsYNania 19tP>f13
Telephone 215.135.26001 Cable Gilasocllelez 836.431
October 31 , 1977
City of Denton
Denton, Texas 76201
Honorahle Mayor, City Council, and
Members of the Public Utilities Board:
At your request, and with the cooperation and assistanca of Denton Electric
Utility personnel, Gilbert Management Consultants, A Division of Gilbert/
Commonwealth, has conducted a Management Review of the City of Denton's
Electric System. We are pleased to present herewith our findings.
In a Management Renew, it is essential that the Consultant maintain the
perspective of problem identification rather than problem solution.
Accordingly, our Report has een organized to set forth the responsibilities
andjrovide
and duties various functions,
invthe electricdations
activities r carried findingst
resulting from our review of the
utility organization.
As you are aware► Gilbert consultants met with members of the City Council,
the Public Utilities Board, and key utility managers. inese meetings were
held on an individual basis to discuss specific aspects of various functions
and to solicit comments and viewpoints on particclar problems. It should
be noted and emphasized that we have operated in a completely independent
fashion. No questions went unanswered and all information requested was
provided,
I should like to express our appreciation for the time and interest of the
many emplo,/ees of the City of Denton devoted to this effort. We particularly
appreciate the candor with which City Council, the Public Utilities Board,
.and
service questions. to customers is within obvious your serviceion
There providing n the responded
best d possible our
to p
area,
We are especially indebted to Mr, Robert Nelson, Director of utilities, who
servci most effectively as liaison with our organization, and to the several
citizens of Denton who took the time to provide us with invaluable comments.
10 ho uttgt Nn Ywi. NY N 4217111
r ONbart Mamosmant Can*Ot City of Qet ton
October 31, 1977
Page 2
Please feel free to call upon us should you believe we can amplify or clarify
any information presented in this Report.
Respectfully submitted,
GILBERT MANAGEMENT CONSULTANTS
/ r; J,; ;
A. A. Herman, Jr., ProJec.t Manager
Consulting Economist
AM,Jr:wbc
TABLE OF CONTENTS
Pace
LETTER OF TRANSMITTAL
PREFACE
SUMMARY
SECTION I - INTRODUCTION
Authorization I-1
Scope of Services I-1
Approach and Methodology I-2
SECTION II - MANAGEMENT/ADMINISTRATION
Introduction 'I-1
11 -6
Findings
Recommendations II-12
SECTION III - OPERATIONS
Introduction III-1
Findings III-3
Recomnendations II1-14
SECTION IV - FINANCE/ACCOUNTING
Introduction IV-1
Findings IV-3
Recommendations IV-14
SECTION V - SYSTEM PLANNING
Introduction V-1
Generation Plinning V-2
Recommendations V-10
SECTION VI - TEXAS MUNICIPAL POWER AGENCY
Introduction VI-1
Recommendations VI-8
SECTION VII - POWER SUPPLY ALTERNATIVES
Introduction VII-1
Findings VII-13
Recommendations VII-15
TABLE OF CONTENTS Cont'd
Page
APPENDICES
Appendix A - Contract A-1
Appendix 8 - Generating Station Procedure for 8-1
Plant Switching and Tagging
Appendix C - City of Denton Correspondence C-1
Appendix D - Texas Power b tight Correspondence D-1
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PREFACE
The City of Denton's Electric Utility System has reached an important stage
in its growth. Like most small munic'pal systems, the need for additional
power during a period of rising costs has created a number of situations
never before addressed. In order to properly manage the situation and
guide the utility system, Denton will require the close cooperation of its
citizens, employees, and organizations within the community.
As an organization, the Electric Utility is responsible for providing the
citizens of Denton with reliable and economical power. This Management
Review of the Denton Electric Utility System, conducted by Gilbert Management
Consultants, has concentrated its efforts not so much on past performances,
but rather on the organization, policies, and procedures needed for the
fu_,tur4k However, an indication of future performance begins with an
assessment of the past, and we have used the past as a starting point for
this evaluation,
This Management Review encompasses the organizational functions :)f Management,
operations, planning and finance. Inherent in most management reviews is
in emphasis on those areas found to be below generally accepted utility
standards. We have, however, tried to accent the positive as well as the
negative in order to identify functions or operations achieving a high
level of efficiency.
SUMMARY
Stu~t,rpose
in My, 1477 the City of Denton engaged Gilbert Management Consultants to
perform a Management Review. The study was to be broad based and cover the
principal areas of management, operations, and finance. The Project Team,
comprised of four people with varied backgrounds and fields of expertise,
conducted field investigations over a six week period. Interviews were held
with Electric Utility System Management and supervisory personnel.
She study revealed a number of areas found to be deficient, both in specific
methods and procedures and in broader organization and management approaches.
Many of the problems were initially identified by Denton's electric supervisors
as needing attention. The study presents recommendations for improving tLe
existing electric utility operation in achieving its objective of providing
reliable and relatively economical power.
Re kort Organization
The snecific findings of the full report have been summarized into seve..a1
segments to separate those that involved findings which concern the Electric
Utility System as a whole and those findings primarily concerned with functional
or departmental matters. Included also are comments concerning the
relationship with T.M.P.A. and power supply alternatives. This breakdowr, orings
into focus those majs.r conclusions of the investigation which affected all or
many of the departments of the City's electric system. The body of the Report
provides the detailed findings and conclusions that support the recommendations
made as well as the offectivrness of Management and operations.
The Project Team reviewed the adequacy of manpower and, where necessary,
suggested the need for additional personnel. As a matter of interest, tW e
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reemmmendations covered only two positions (one in the production area and one
in engineering). Both positions are of the assistant type, freeing supervisors
from redundant day-to-day operations.
Findings of a Comprehensive Nature
A. plannin
Recognizing its critical importance to a utility, planning was given special
emphasis during the study. An overall conclusion is that many of the
planning activities have been assigned low priorities considering the
importance these have on strategic decisions. The key findings are as
follows:
1, Many of the planning functions are presently being conducted by
T.M,P.A. personnel with little input by Denton. This has resulted
in what we believe to be an over reliance on this outside agency for
the development of system plans affecting Denton's electric utility
operations. An example of this is the load forecast prepared by the
T X N A. staff which was subsequently changed to more accurately reflect
the growth being experienced by Denton.
We have recommended that more of the planning activities be
perfoimed by Denton personnel for purposes of comparison with the
plans presented by T.M.P,A. We believe this will result in
better estimates of the impact these plans have on the City of
Denton and will give Management more information upon which
decisions can be made,
2, A formal five year construction program is required by the City
Charter, At present, such a plan does not exist in the prescribed
format. This format requires that a list of capital improvements
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shall be arranged in order of preferenr.e, with recommendations as
to which projects should be constructed in each year. The
formalization of a constructjon plan would be of invaluable use
to the electric utility as well as other City departments. The
utilization of a capital improvements program in preparing the
budget, manpower requirements, and financing plans could ►asult
in significant cost savings.
B. Rates and Cost Comparisons
1. Denton ranked sixth in electric rates per lev,il of consumption of
the eleven municipal and private utilities compared, Two of the
municipals were lower (Garland and Lower Colorado River Authority)
and one private utility company was higher (Central Vower and
Light).
On an average residential basis (assuming 1000 KWIi per month)
Denton's monthly charge of $36.96 compares with a low of $22.79
for Texas Electric Service Company and a high of $43.96 for the
City of Austin. The average for all eleven systems was $30.87.
Detailed tabulation follows in Exhibit I of Section IV.
2, Analyses were conducted comparing Denton's revenue dollar and
cost per 1000 KWH in 1976 with the private utilities used in o+or
rate comparisons, The results indicate that the fuel cost for
Denton is the overriding reasn behind the higher rates. As a
percent of the revenue dollar, Denton's electric utility is
paying 55% while Texas Electric Service Company is ;paying 25%.
Texas Power and Light's fuel cost per revenue dollar is 38%,
Fuel cost per 1000 KWH ranges from $16,75 for Denton to $9.92 for
TP&L, down to a low of $4.93 for Texas Electric Service Company.
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On a total average cost per 1000 KWH, which includes other operation
and maintenance, depreciation, taxes Vo r the private utilities),
and interest/debt service/return, Denton's co•t is $28.53 compared
to TPdL's of $26.33 and TESCO's $20.22. Because of the fuel
situation, it is unlikely that Denton will experience any reduction
in its rates for the future.
Findings of a Functional Nature
A. Production
While we have found the power plant facility to be well-run, there are
several specifi: items of concern:
1. In our investigations of Denton's electric operations we found .
little documentation for safety blocking and tagging at the plant
and in the electric distribution system. Since safety is always
a maJor concern of any electric utility we have recommended that
immediate steps be taken to correct this situation. Appendix B
Is provided as an example of a safety procedure for plant switching
and tagging.
2, Evaluations of incremental unit costs and heat rates for economic
dispatch and spinning reserve have not been conducted since the
generating units were installed. With the high fuel costs presently
being experienced, efficiencies gained from a more economical
utilization of Denton's generating units might offset increased
maintenance costs resulting from frequent shutdown and startups.
There is a lack of a formal train+^; progra,n for production
personnel. Training is conducted as time permits and does not
follow a definite, scheduled program.
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B. Distribution
Our major finding in the distribution area is the apparent lack of
up-to-date system maps showing geographical and electrical details of
all distribution circuits. Maps showing transformer location, size,
primary phase connection and number and classes of secondaries and/or
services connected to the transformer provide the data base for circuit
lead management, This lack of Information-usually results in an
expensive overdesign of the distribution system. Often unnecessary
transformers are added to serve new customers wiere existing transformer
capacity would have been sufficie,it to handle the additional load. We
have recommended that load management studies be conducted based on
updated system maps. Additionally an updated and expanded distribution
mapping system would prove to be an invaluable tool for use in system
restoration during conditions resulting in the interruption of service.
C. Engineerin
Of the several Electric Utility Departments, the Engineering Department
has suffered most due to the absence of a Director of Utilities for an
extended period. The Engineering Department was attempting to perform
too many duties without the guidelines and supervision from a Director
of Utilities. It is also understaffed f.;r the assigned number of
functions and this has contributed to the disjointed efforts )f the
Department in fulfilling its planning responsibilities.
0. finance/Accounting
I. The major finding in the financial area is the matter of ur er-
funding of the Extension and Improvement Fund. It is our
understanding that steps are being taken to alleviate the situation.
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2. It is our opinion that the electric utility does not have an
adequate asset accounting or work order system for maintaining
the property records of its plant-in-service. The significance
of this deficiency is that as the electric s;stem grows and
becomes more intricate, an inventory of plant and equipment is
required to insure proper planning for replacements and retirements.
3, we hay% found that meter reading has not met schedules as established.
Primarily this is caused by either low productivity, poorly
designed routes, or insufficient manpower. Due to the rate
differentials between the summer and winter seasons and attendent
changing fuel adjustmentss customers could be over-charged or the
utility might not be recouping its actual Nall ei-nenditures.
Findings Related to Texas Municipal Power Agency
The impact of TMPA on Denton's Electric Utility operations is obvioubly of
major concern to the Citizens of Denton. Our examination of the relationship
between Denton and TMPA finds that information for review and analysis has
been provided by TMPA on a somewhat limited basis. The follo0 ng are our
major findings regarding this problem:
1. The decision by Denton to participate in TMPA was apparently made
without Denton investigating and analyzing all the alternatives available
to the City at that time, Recommendations have been made to review
other alternatives such as purchased power prior before commiting to
future TMPA generation plans.
2, The potential liabilities of TMPA participation assumed by the City of
Denton r,ave never been delineated to measure the extent of financial
risks. Contingency plans in the event of breakdown or schedule slippage
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have not been formalized or the costs developed to indicate the
magnitude of this venture. It must be continually recognized that
participation in TMPA is a major undertaking for the four municipal
--stems of this size.
3. The agenda for TMPA Board Meetings was not provided to Denton's
representatives in sufficient time to allow review and discussion with
City Council and ,he Public Utilities Board.
Findings of Power Supply Alternatives
Revenue requirements and corresponding unit electric power costs (mills/kwh)
have been determined for three mutually exclusive power supply alternatives.
In essence, the study is intended to test the reasonableness of costs that
can be expected from Denton's decision in July 1976 to participate in TMPA.
These alternatives are:
o Base Case - Continued Independent system expansion of the City's
generation facilities,
o Case 1 - Participation in the Texas Municipal Power Agency (TMPA).
o Case 2 - Purchase of wholesale power for resale from the Texas Power b
Light Company (TP&L).
For the ten year period 1976-1987, revenues and expenses were forecast to
analyze each study alternative based on certain major assumptions for fuel
costs and load growth. For comparison purposes, it was assumed that the
City of Denton had the choice of pursuing either of three independent plans
listed above without regard to the City's commlited participation in TMPA.
{~Ih,rtltamnan.a~N
We have summarized our results to illustrate the major cost differences
between the three study cases. We cmnclude that:
1. Conticued independent exparsion of the Denton generation system is not
economically practical with respect to the magnitude of the City's
added capacity requirements. Escalating plant and fuel costs do not
allow the achievement of economies of scale necessary for today's
electric systems.
6ben continued independent expansion is compared to the TMPA (Case 1)
alternative, leveiized system costs favor the TMPA Alternative by 8
mills/kwh. This confirms previous studies conducted by R. W. Beck and
Westinghouse.
2. For the TMPA alternative, we have forecast a unit cost of 45 mills/kwh
Writ) which is 15% higher than previously published data (3.9t) by
TMPA in thEir September 1976 Bond Report. This increcse 13 due mainly
to higher plant and facilities costs. We find the costs of TMPA
participation to be reasonable when compared with future costs being
experienced by other utilities. TMPA is prudently shifting to lignite
and purchased portions of nuclear plants whict offer economies Denton
could not experience through independent action.
3. Based on 1981 projections for TP&L wholesale power rates (Case 2), it
is apparent that this may be a more attractive alternative to the
citizens of Denton. Case 2 results are somewhat hampered in that they
do not contain a like degree of accuracy or confidence level as in the
data for the other cases. The case should at best be considereO
speculative at present pending further definition and obtainment of
additional data from TP&L.
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Our studies indicated the TMPA alternative to be a reasonable and acceptable
route for Denton to pursue under present economic conditions. Our economic
comparisons resulted in a 10 year levelized Customer Unit Cost in mills/KWH
as follows:
Base Case Case 1 Case 2
53.3 45.0 41.5
However, we recommend that Denton continue to monitor TMPA cost projections
and project schedules to insure that costs remain comparable to those
estimated for purchrse power, As noted in Section V19 our judgement is
that Gibbons Creek #1 will not be available until 1983. This delay nay
necessitate emergency purchases and most certainly will result in additional
costs due to the purchased power and the financing of increased capital
costs associated with Interest During Cunstruction and added escalation.
Prior to future commitments for generation projects, we recommend that
Denton require TMPA to study all reasonably available alternatives. Our
studies show that wholesale power (Case 2) may be attractive for Denton in
the future and should be studied as both a TMPA and Denton alternative,
SECTION 1
INTRODUCTION
AUTHORIZATION
This assignment was authorized by the City of Denton by Contract dated
July 12, 1971, thereby accepting Gilbert/Commonwealth, Engineers and
Consultants, Company Proposal for a Management Review of the Electric
Utility.
SCOPE OF SERVICES
As provided by the Home Rule Charter of the City of Denton (Article XII,
Section 12.08(f)), a Consultant is required to conduct a general management
study of the Electric Utility owned and operated by the City of Denton. In
addition to the Management Review, Gilbert proposed to identify and compare
various alternatives legally available to the City of Denton for future
power requirements,
Our services included a review of the organization, policies, and procedures
presently existing and in operation. The review assessed how Denton has
fulfilled its Charter of providing power to its citizens in the past and
whether the organisation can continue to meet its obligations for the
future.
Included in the review was a determination of the efficiency of the Management
Group which consists of City Council, the Utility Board, the City Manager,
and the Directors of Utility and Finance. From an operations viewpoint,
the electric production, distrit,ution, and engineering functions were
I-1
evaluated based on generally accepted industry standards. Those services
maintained under the Director of finance (consisting of Accounting, Customer
Service, Data Processing, urchasing and Warehouse) were likewise evaluated.
In addition to the organizational evaluations, we reviewed the adequacy of
personnel, training and experience, employee benefits/salary structure, and
the physical facilities of the Denton Electric Utility. Particular emphasis
was placed on the organizational controls available to the City of Denton
regarding its participation in the Texas Municipal Power Agency.
A►i integral part of the Management Review centers on those functions
related to future planning for both energy production and financing.
Therefore, load forecasting, power supply planning, capital expenditures
and financial management were evaluated from a functional rather than an
organizational basis.
Finally, for those areas which have been found to be below s%'andard or less
efficient under the present organization, recommendations were made for
improvement based primarily on the Consultants' experience and judgement.
APPROACH AND METHODOLOGY
In order to accomplish the aforementioned services, Gilbert Management
Consultants conducted an extensive number of interviews with members of the
Management organization and with supervisory personnel. The purpose of the
interviews was to determine how each views his respective functions and to
ascertain the working relationships arong those managing the Electri:
Utility System, As a result of the interviews, particular areas of concern
were identified and investigated in greater depth,
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For each principal utility function (production, distribution, engineering
and finance) we evaluated policies and procedures and compared these with
accepted industry standards.
In case of the Management Group, we initially determined responsibilities
for particular areas of the utility operation according to the City Charter
and those Ordinances related to utility functions. The Consultants then
assessed whether those responsibilities were being conducted in an efficient
manner. This area of review was highly subjective in iature due to
interpretations of duties not specifically delineated within the Charter
itself. Each individual had his own interpretation of how certain l
relationships should be carried out. In this regard, our staff has correctly
chosen to ignore personalities, keeping in mind the objectives.
Having established how the utility operates within the present organizational
structure, we then analyzed the data in a completely independent environment
to determine those areas of concern and those presently operating in an
efficient manner. Finally, recommendations have been made which in our
opinion, if implemented, would lead to greater efficiencies and/or improvement
of the electric utility system.
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SECTION It
MANAGEMENT/ADMINISTRATION
INTRODUCTION
As set forth in the City Charter adopted in 1959, the Electric Utility is
administrated anew operated under an organizational framework having built-in
checks and balances. While operations are the responsibility of the Director
of Utilities, many functions associated with the electric operation were
placed in other areas of the City Government. In addition to functional
responsibilities managed by appointed personnel under elected representatives,
there exists the Public Utilities Board which acts as an advisory board to
the electric utility. From an organizational standpoint, the administration
of the electric utility is as follows:
CITY COUNCIL
F-= PUBLIC UTILITIES BOARD
CITY MANAGER
DIRECTOR DIRECTOR
OF FINANCE OF UTILITIES
II-!
In this Section of the Report, descriptions are developed for the functional
responsibilities, authority, and relationships associated with the
administration of the electric utility organization as now constituted.
At preasent, the Management of the electric utility is comprised of five
entities or individuals:
1. City Council - Ultimate responsibility for the administration and
operation of the.electric utility rests with the five elected
representatives of City Council which are elected for a two year term,
Due to the political nature of the position, continuity cannot be
assumed, and as a result, City Council must rely on the advice and
recommendations of the Utility Board, the City Manager and the Director
of Utilities and Director of Finance.
The basic responsibilities of City Cuuncii include the establishment
of policies and guidelines for the operation of the electric utility,
the setting of rates, the approval of expenditures and budgets, and,
most importantly, the appointment and selection of qualified Individuals
to the Public Utilities Board and to the position of City Manager.
City Council must have complete confidence in both the Board and the
City Manager since for the most part, actions taken by Council involving
utility matters are based on their recommendations. Council must be
provided with timely and appropriate information for decision-making
purposes so they can properly fulfill their role in the administration
of the electric utility affairs,
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2. Public Utilities 9oard - The P.U.B. has no stated authority except to
expend funds for information and advertising. Yet, it does occupy a
position of assumed authority given by consent of City Council. The
Board's five members are appointed by City Council for a four-year
term. In addition, the City Manager and the Director of Utilities are
ex-offico members of the Board and are required to attend meetings but
they have no vote on any proceedings.
In general, the P.U.B. does not participate in the day-to-day operations
of the electric utility, but concerns itself more with the long-range
planning for the utility. The City Charter specifically addresses
this as follows; "All actions recomriending expansion of the system
:nd making of additions and betterments thereto or extensions thereof,
the incurring of indebtedness, the issuance of bonds, and the fixing
of rates and charges for utility service shall be submitted to the
Board for review and approval." A further function of the Board is to
review the budget, make changes as appropriate, and submit it to the
City Manager, who must incorporate this into the,general budget,
without change, for approval by City Council.
Two specific responsibilities of the Board are: (1) the review and
approval of a five year capital expenditure program, and (2) the
initiation of a general minagement survey of the utilities.
The Public Utilities Board, much like City Council, consists of dedicated
citizens acting in an advisory capacity. Of the five members, two
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11-3
have been members since the Board was formed and two others have been
members for more than seven years. The remaining member was appointed
more than a year ago. The members meet on a monthly basis, with
special meetings called as required.
3. City Manager - By far the most sensitive City position is the one held
by the City Manager. As Chief Executive Officer of the City, his
authority extends to all areas of City government. , Appointed by City
Council, he must implement the policies set forth by Council in a
professional manner, recognizing the realities of conducting the
affairs of the City with a minimum amount of political influence.
Thi basic responsibility of the City Manager is that he provide the
leadership necessary for the successful administration and operation
of the electric utility. Both the Director of Utilities and the
Director of Finance report to the City Manager. The degree of
deligations to these positions depends to a large degrea on the
experience and interest of the City Manager. He could take a very
active role in the actual operation of the utility or rely heavily on
the Directors of Finance and Utilities. Either approach is appropriate
depending on the circumstances.
The City Manager provides pertinent information to the Council and the
Board for decision-making purposes, kLaping in mind that open channels
of communications are a necessity in municipal operations. Although
responsible for the preparation and administration of the overall City
budget,, the City Charter excludes the City Manager in the preparation
final lcoe+reoew,n7~
11-4 ti
of the budget for utility operations. In reality, he does have some
influence on the utility budget through the Director of Utilities and
the Public Utilities Board.
4, Director of Utilities - The Director of Utilities reports to the City
Manager and is selected by him with the ap,:roval of the- Public Utilities
Board. The Electric Superintendent and Utility Engineer report directly
to the Director of Utilities.
In addition to the stated duties (City Charter) for maintaining and
operating the electric utility, the Director of Utilities has a number
of implied obligations and assigned responsibilities. These include
providing much of the information required by the City Manager and the
Public Utilities Board, maintaining close working relationships with
other departments of City government which provide the electric utility
with support services, and planning public relattions aspects to promote
better understanding by the citizens of the problems of the utilities.
In addition to administrating the needs of Denton's own utility
functions, the Director of Utilities also serves on the Board of
Directors of the Texas Municipal Power Agency. In this capacity, he
represents the interests of Denton in the development of the Agency.
5. Director of Finance - The Director of Finance is responsible for the
administration of the financial affairs of the City as well as the
Electric Utility. Under the Director of Finance are five utility-
related functions. These are accounting, customer service, data
processing, purchasing, and warehousing.
II-5
The Director's responsibilities include the supervision of the
disbursement of funds, the collection of revenues, the purchasing,
storage, and distribution of supplies, materials, and equipment, and
the approval of all expenditures. He prepares estimates of revenues
and expenditures as directed by the City Manager, issues monthly
statements of all receipts and disbursements, prepares a complete
financial statement and report at the end of each fiscal year and
oversees all investments.
FINDINGS
Overall, the electric utility is managed in a relatively informal manner without
strict control and documentation.
The City Council has the major responsibility for decisions affecting the
electric utility. The members of Council as the elected representatives of
the citizens, are in the best position to do what is best for the majority
of the people. Council necessarily has relied heavily on recommendations
presented to them by the Public Utilities Board, the City Manager, and the
Director of Utilities for their decisions.
However, over the last few years, it has become appa,Nent that electric
utility operations and costs are at the forefront of concern of the citizens
of Denton. This is a common concern shared by all investor-owned and
municipal utilities. This requires that City Council be more informed on
utility affairs since all decisions are closely scrutinized by the public.
Therefore, the entire decision making process needs to be reviewed to
ensure that the best interests of the citizens is being followed.
Specifically, the following are areas of concern.
Cart IcimmWesith
II-6
City Council - In reviewing the process by which decisions are made,
emphasis must be placed upon the planning function which requires
input from the electric utility staff, the Directors of Utilities and
Finance, the City Manager, and outside consultants.
In that regard, our findings indicate that while Council must be
deeply concerned over the electric op?ration, they rightfully must
delegate the technical aspects to others, Council is not, and possibly
never will be, made up of individuals with the necessary education and
experience in electric utility operations to make decisions witijut
significant input from the Board, the City Manager and the Directors.
Although City Council has ultimate responsibility, detailed operations
and planning needs to be conducted by a professional staff within the
overall guidelines set by Council.
We find that City Council members have been conducting their duties in
a responsible manner reflecting the desires and wishes of the citizens.
The .'ouncil members are dedicated and responsible people and have
generally followed the intent of the Charter regarding the electric
operation. One difficulty with City Council is its inexperience in
utility affairs and resultant dependence on others. This-, however, is
to be expected and Is of some benefit in that there are no preconceived
ideas regarding the electric operation. At the same time, the concerns
of individual council members has led to more thorough investigations
and a better understanding of the Plectric utility operation. Several
areas where City Council should focus their attention are as follows:
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11.7
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1. For several years there has existed a deficiency in the electric
utility operation due to insufficient monies for the Extension
and Improvement Fund as required under Bond Covenants. Council
has been aware of this conditic;n for some time and has allowed it
to continue. Further discussion on this matter will be covered
in the financial portion of this Report.
2. City Council needs to address staffing requirements periodically.
The'previous City'Manager operated without a Director of Utilities
for a period of approximately 18 months. This occurred during a
time when maJor decisions for Oenton's future were decided, and
as such, Denton did not have the benefit of input by a Director
of Utilities.
3. Particular concern by Council has already been directed toward
the length of service of those on the Public Utilities Board. It
is our op7nion that no benefit can be obtained by limitiig the
terms cf Board members. We feel that City Council can best
fulfill its duties by a careful review of each Board Meober 7.s
his term expires. Of paramount importance is the competence of
those appointed. As previously mentioned Council must have
confidence in their ability to provide timely and well thought-
out recommendations.
Public Utilities Board - As :,n advisory board to City Council,
responsible for reviewing and overseeing the electric operation, we
find that the Board could be more aggressive in conducting its duties
as required under the City Charter. These findings are brought about
by the lack of future plans, and the disregard of certain specific
items as set forth in the City Charter. We believe that the Board
must reaffirm its position in determining the long-range plans of the
electric utility.
We have found the general working relationships between the Board and
the management team to be excellent and we would expect this to continue
into the future.
Several specific areas where the Board could A mprove its efforts are
as follows;
1. The City Charter requires that a formal five year plan be prepared
for future construction. This plan, developed b; the Board and
submitted to the Planning and Zoning Commission, has been done on
a perfunctory basis in the past. We feel this should be conducted
with special diligencor since it provides the Board and the Utility 1
with an opportunity to develop a program from which an orderly
schedule of construction can be prepared.
2. The City Charter requires explicitly that a Management Review be
conducted at "not less than ten year intervals". It has been
almost fifteen years since the last survey was performed by an
independent consulting firm. We concur with the authors of the
Charter that this is an appropriate duty for the Board and shruld
be authorized at the earliest opportunity to be dictated by tie
Charter.
3. The creation of the Texas Municipal Power Agency has to some
extent supplanted the Utility Board as part of the planning
function for the City of Denton. An apparent over-reliance on
Gibvt I Gommaow,U -
11-9
the staff of Texas Municipal Power Agency was developed in regard
to future plans. A more active role in the preparation of future
plans is necessary to ensure the best for Denton's future power
needs.
4. The Director kf Finance is seldom in attendance at Board meetings
to provide his experience and knowledge in utility financing even
though he has the responsibility of approving rates, expenditures,
and borrowings. This we believe should be remedied since many of
the questions and discussions before the Board deal with the
financial aspects of the utility operation.
City Manager - From an administrative point of view, the City Manager
is the chief executive officer of the City, and he has responsibilities
in all departments and operations. The previous City Manager chose to
become intimately involved in the administration of the electric
utility, mainly because a Director of Utilities was not appointed for
an extended period of time. The previous City Manager resigned in
August and a new City Manager was hired effective September 19.
The experience of the new City Manager, coming from a City which is a
member of Texas Municipal Power Agency, and a complete management team
composed of the Director of Utilities, Director of finance, and the
related sapport positions should ensure strong leadership at all
levels.
Director of Utilities - As previously stated, the City of Denton's
electric utility was operated for a period cf approximately 18 months
without a Director of Utilities, Since this study was initiated, a
Director of Utilities was appointed by the City Manager effective
July, 1977.
The Director is in the process of familiarizing himself with the
operation of Denton's electric utility system and the personnel under
him, and appears to be developing the working relationships required.
At this point indications are that the City Council and the Public
Utilities Board are pleased ?1th his performance.
Director of Finance - Our investigations show little indication that
the Director of Finance has actively participated in the management of
the electric system. In our opinion, this is a result of the strong
financial role assumed by the previous City Manager, This resulted in
the Director of Finance concentrating more on the other financial
operations of the city than the electric system. We believe that the
Director of Finance should get more active in the utility phases of
his responsibility. We have found that he is more than willing to
assume this responsibility and authority ns allowed under the City
Charter.
Personnel Department - The Personnel Department provides support
services necessary for the continued operation of the electric utility.
The activities of the Personnel Department include advertising for new
employees, selection of a number of Wividuals for a particular Job
classification, development of basic wage and salary programs, and the
admirrstration of employee benefits. We 1iave found that the department
is well organized and is providing the proper staff support to the
individual departments while retaining the necessary control over
policies and guidelines (1,e, salary structure) for all the City's
employees.
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AML
Of some concern was the turnover rate in the Electric Production and
Distribution departments attributable to assumed wage differentials.
A rtiu:nt wage survey conducted by the Personnel Department of neighboring
citNs and private utilities in the area indicates that the wage and
benefit programs of the City of Denton are comparable. Anew salary
structure devised by the Director of Personnel should provide the
operating departments with the flexibility needed to keep good people
working for the City and reduce turnovers.
RECOMMENDATIONS r
In the area of Management/Administration we offer the following
recommendations:
1. The Planning role of the Public Utilities Board should be emphasized
in that there were indications that the decision to participate in
T.M.P,A. was made without the benefit of knowing the Impact of all the
alternatives available to Denton. We have not been privy to the
reasons why purchased power or an outright sale of the electric system
were not evaluated as alternatives at the time the decision was reached.
We can only conclude that this is a result of relying entirely on the
staff of T.M,P.A. and their consultants to provide the Board with
information. We believe that an independent analysis should be carried
dut by the Board for any decisions having a mayor impact on the operation
of the electric utility. While such an analysis may be redundant to,
some degree, the risks of making a decision without independent or
complete information will be minimized.
2. It is strongly recommended that the Director of Finance be made an ex-
officio member of the Public Utilities Board, serving in the same
dibrtlfnrtxnon+,r,IN
1[ 1 7
manner as the City Manager and Director of Utilities. His experience
and knowledge of the financial areas of the electric utility would
certainly add to the planning efforts of the Board. We believe this
to be an oversight on the part of the authors of the City Charter and
his inclusion can only provide more complete coverage of the financial
considerations required in the planning function.
3. If and when the positions of City Manager, Director of Utilities, and
Director of Finance become vacant, a concerted effort should be made
to fill that position as early as is practical. We do not feel that
any conditions exist which would prohibit the selection of qualified
individuals for those positions. Since Denton's management organization
relies heavily on input from these three posts, the potential for
ineffective operations is increased with delays in finding individuals.
4. In vie+i of the attention focused by the citizens on increasing electric
bills, we believe the Director of Utilities should continue in his
efforts to inform the ratepayers w_X the cost of electricity is
increasing. Educational and informational statements about the utility
should be provided on a regular basis either through the local newspapers
or bill enclosures describing the reasons behind cost increases and
more importantly, what the electric utility is doing to O nimize tha
impact. We believe this should be treated as a continuous program,
centering on keeping the citizens aware of developments.
5, To insure continuity on the Texas Municipal Power Agency Board, we
recommend, as a matter of policy, that the Director of Utilities and
one member of Council be appointed to the Board at all times. This
. Gbe~slConnww~rN
will provide Denton with technical expertise, while at the same time
providing a direct line on the happenings of T.M.P.A. to the elected
representatives.
6. As a result of a number of inquiries on the length of service for
members of the Public Utilities Board, we have specifically addressed
that question in our review. We conclude that there is no need to
14mit the terms of P.U.B. members. In our opinion, a careful review
of each member as his term expires is required due to the importance
of these positions to the electric utility. It is City Council's
responsibility to appoint well-qualified individuals who will serve in
the best interests of all the citizens of Denton.
1. We suggest that a periodic wage survey be conducted for the electric
utility as initiated by the Personnel Director. The technical
capabilities of electric employees require salaries commensurate with
those i.n private industry. In order to keep qualified personnel,
inappropriate wage differentials must be minimized to the degree
possible. Turnover has not been a major problem to date, but the
potential ey1scs if Management is slow to react to outside wage/salary
pressures.
SECTION III
OPERATIONS
INTRODUCV ON
The physical aspects of running the electric utility fall under the Director
of Utilities. The daily operations are executed by an Electrical Superintendent
who has a production and distribution supervisor responsible for those
activities. In addition to the actual operation and maintenance of the
utility, engineering and planning is performed by the Utility Engineer.
The present organization associated with operations is as follows:
DIRECTOR
OF UTILITIES
UTILITY ]=---_FE~
LECTRICAL
ENGINEER E
RINTENOENT
PRODUCTION DISTRIBUTION
SUPERINTENDENT SUPERINTENDENT
GOWKICOWRO W
III-I
Ask
1. Electric Production - The City of Denton presently generates the
ma~ority of its electrical needs from its power plant located on the
outskirts of the City. The plant consists of five 1250 psig steam
turbine generators fueled by natural gas with standby N2 oil for
periods of gas curtailment. The production of electricity is carried
out under the direction of the Production Supervisor. He is responsible
for operating and maintaining the power facilities, as well as for the
training and administration of the production personnel, the submission
of the necessary reports, and the operation of Denton's generators as
required under the interchange agreements.
2. Electric Distribution The Electric Distribution Superintendent has
the responsibility for installation, repair, and maintenance of the
City's distribution system. His basic goal is to see that the system's
integrity is maintained in a reliable fashion. He directs the training
of personnel, the upkeep of the city's distribution maps, and the
administration of his staff. In addition, the distribution supervisor
works closely with the Utility Engineer regarding the expansion and
replacement of distribution lines.
3. Electric Engineering - Under the Utility Engineer, who reports directly
to the Director of Utilities, the planning and engineering for Denton's
system takes place. He presently has an assistant engineer, several
draftsmen and a secretary. The engineering section is responsible for
laying out the expansion plans, preparing specifications, ordering
equipment through the purchasing department, and the preparation of
system plans.
In addition, the Engineer must work closely with the Electrical
v Superintendent in securing fuel supplies and the interfacing of Denton's
system with the Texas !Municipal Power Agency.
FINDINGS
Under the Director of Utilities are the operational functions of the Denton
Electric System. As part of the overall Management Audit of the electric
system, studies were conducted of the administration and operation of the
municipal power production system, its distribution system, and the engineering
aspects associated with the electric utility. The purpose of our evaluation
was to determine the current efficiency, economy, and reliability of the
electric system. As a result of our interviews and discussions with key
personnel in both production and distribution, together with inspections of
the municipal utility plant, we present the following findings:
Administration - Of immediate concern to efficient operation of the
City's electrical system is the apparent lack of coordinated efforts
between the Electric Superintendent and the Utility Engineer. These
positions are comple+aentary and it is imperative that they act in
support of one another. Our findings indicate that the Electric.
Superintendent concentrates on the administration and management of
the distribution and production areas of the electric utility taut does
not participate in the planning function as required for that position.
His ability to work well with the supervisors is not in question.
However, a closer involvement with technical considerations is required.
The Utility Engineer likewise, suffers from this disjointed approach
to planning within the electric utility. Due to the nature of the
Colbert lUmwwts[0
Utility Engineer's responsibilities and duties, he must work in all
areas of the electric utility operation and requires input from the
Electric Operations. This cooperation is presently lacking.
Production - The power plant facility appears to be well-managed by
highly competent personnel. The equipment is well maintained ,end the
operating areas of the plant are -nuaculately clean. The operating
knowledge of the plant supervisors is considered excellent.
Presently, 38 full time employees are at the plant, including supervisors.
From an inspection of the plant and operating records, it is apparent
that this group is doing an excellent job. The supervisors are to be
commended for their administration and supervision of the plant facility.
However, we are concerned that the two supervisors are too thinly
sp+!ead over the various facets of the plant's operation. They are
ue;-sonally responsible for such activities as compiling and maintaining
operating records, control of the spare parts program, purchase and
receipt of new material, administration of the training and safety
programs, and general clerical duties, all of which are in addition to
normal administrative and supervisory e-ities.
In the monitoring of plant performance, a great deal of data is compiled
monthly and annually. However two basic calculated values, which
provide Management with a quick indicator of plant efficiency and
reliability are not calculated. These values are: heat rate for each
unit (total heat provided to the unit divided by total gross generation),
and availability factor for each unit (total hours in which unit was
or could be in service divided by total hours in the period under
.r (ICMlfcmmomit,M -
consideration). These values should be calculated on a monthly basis
u for each generating unit, and they should be plotted on a chart to
serve as an indicator of gradual change in unit performance and
reliability. These should then be made available to both Management
and plant supervisory personnel.
Another item related to plant operation is the amount of spinning
reserve maintained by Denton's electric system. The City is a member
of the Texas Municipal Power Agency (TMPA), which, in turn, is a
member of a large, interconnected electric grid designated as the
Texas Interconnected Systems (TIS). This grid operates to interchange
power between members and to provide service reliability in the event
one of the members does not have sufficient generating capacity on
line to cover its own native load. Operation of the grid requires
u that excess generating capacity (15S) be on line, but not filly loaded,
so that immediate spare generation is available in the event that
loaded generation becomes suddenly unavailable. At any given moment,
the difference between ac+:ual generating load and the sum of actual
generation load plus spare available generation on line! (or capable of
"quick start") is referred to as "spinning reserve". Each member of
TIS is required to maintain a portion of this total spinning reserve
for the interconnected grid so as to protect the grid against unexpected
losses in generating capacity. For the City of Oee,ton, the required
spinning reserve is 10.1 megawatts, and is based on the electric load
of the City's system relative to the rest of the grid. Quite simply,
this means that the generating units which are in service at the
municipal utilities plant at any time should be able to produce at
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least 10,1 additional megawatts above existing 'loads in order to
supply the allocated portion of TIS spinning reserve,
On the day of our plant inspection, the spinning reserve appeared to
vary between 30 and 60 megawatts, depending on the electric load at
any one time. Units 3, 4, and 5 were in service and it was obvious
that the spinning reserve requirements could have been met with only
units 4 and 5 in service. Operation of three units instead of two to
meet system load and spinning reserve is certainly an increased
expense. From a strictly economic standpoint, it appears that unit 3
should be more frequently shutdown. At times of very low system
loads, unit 4 or 5 should also be shutdown.
However, the decision to shutdown generating units must be tempered by
several other factors, some of which are unquantifiable at present.
Boiler and turbine maintenance are likely to increase due to stresses
imposed by frequent startups. The plant superintendent stated that
the power plant has never experienced a boiler tube leak or had any
need for boiler chemical cleaning. This is significant in that frequent
shutdowns and startups could require additional operating manpower.
From a personne3 standpoint, two areas of importance which were included
in our review are operator training and plant safety programs. The
plant supervisory personnel stated that new personnel participate in
training programs to qualify for operation and maintenance positions.
We have examined one of the qualification tests for operators and
found it to be thorough and comprehensive. The chief question which
we raise with the training program is with its degree of informality.
Training is conducted as time permits, and does not follow t definite,
scheduled program,
GNrt CarmonWUiN
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.7-7777
of a safety program for protection of utility personnel
Frmnoraleandi sions were held with the plant supervisors on the
rk on electrical or mechanical apparatus. A good safety
olutely essential both for the worker's well being and
the acceptance and confidence imparted to lie utility
by th e general public. One of the major portions of a safety program
is often referred to in utility practice as "procedures for the safety
isolation" or for the "blocking and tagging" of equipment. Such a
program features the following:
a. A short, generic written procedure describing the steps required
to isolate and remove from service any electrical or mechcanical
equipment, the energization of which could pose a safety hazard.
b. A document sometimes referred to as a switching order or a clearance,
which is written and i.!-.)d by a person trained and authorized to
grant clearance to another person performing the maintenance
work.
A separate ovLi is prepared for each jobs listing detailed steps
necessary to properly isolate the equipment to be worked on prior
to beginning such work.
c. A system of danger tags or locks which are placed on equipment
placed out of service for maintenance to properly identify such
equipment and prevent its inadvertent operation by someone else.
d. A requirement for conformation or verification by the person
appointed the maintenance work such that the equipment has beet,
properly isolated and 1s safe prior to his beginning work,
{'r~bert ! Coy ron. unA ~
In our inspection and discussions at the plant we have determined that
the intent of a safety blocking and tagging program is being met, but
with little formalization and almost no documentation. Safety tags
are placed on equipment for isolation and logged in a book, but this
is the extent of a formal program. Apparently the plant supervisors
personnally verify that safety blocking and tagging is properly
accomplished.
This practice, although informal, has generally been satisfactory; a;
the plant safety record is good. However, this procedure %*urthpr
illust;•ates reliance on a few key supervisors, and we strongly recommend
that the safety blocking and tagging program be improved upon. Detailed
instructions should be prepared and issued to each worker, and should
be a part of each man's training program. Personnel should become
qualified to request and to perform safety isolation of equipment
through the use of documented tests. Detailed switching crders should
be filled out and verified for each separate isolation.
We are concerned with the lack of a documented safety program in view
of the turnover rate, with the resultant influx of younger, inexperienced
personnel into the plant. Of serious concern is the lack of formalization
when isolating main circuit breakers in distribution substations away
from the plant. In such cases, two separate groups are involved: the
distribution crew which performs the maintenance, and the plant operators
who operate the circuit breaker supervisory controls from the plant
control roan. With tg4o separate groups, the lack of formal controls
increases the potential for a serious accident. This lack of a formal
documented safety block and tagging program in the electric distribution
system is one of our most important findings, and we believe immediate
steps should be taken by the City to improve thi-, situation.
Our final comment with regard to production relates to the economic EE
loading of the municipal utility's generatioy units. Fn analysis was t
made to determine if generation was being economically dispatched
among the municipal plant generating units. Economic dispatch refers
to the incremental loading of system generation to meet demands in the
most economic manner. The monetary savings possible by utilizing
economic dispatch techniques are impressive, even for a relatively
small electric system such as the City of Denton, and they will become
significant when the Texas Municipal Power Pool begins to utilize this
method for control of generation, as is now planned for the spring of
1978.
u
Economic dispatch of electric generation can be implemented by either
manual methods or through use of an on-line control computer with the
computer allowing more rapid and accurate control of incremental unit
loading. Whichever method is utilized, the basic parameter which
dictates the apportioning of the total load among the units on line is
defined as incremental cost. Incremental cost is usually expressed in
mils or cents per kilowatthour, and is defined as the actual*crst to
generate the next higher increment of energy on an electric system, if
system load is increasing. Conversely, if system load is decreasing,
the incremental cost is defined as the savings to be gained by eliminating
the next lower increment of energy on the system, Thus, for best
economy of operation, load increases should be assigned to the generating
unit which can produce the next block of power at the lowest possible
- ~i~9M f ConmorrfaU -
Now
r
cost. Load decreases should be assigned to the generating unit which
can achieve the greatest savings in dropping oft the next block of
power.
In our study of economic loading of the municipal utility's plant, we
determined that generating units are not being loaded in accordance
with incremental costs as described above simply because such costs
have never been developed and applied. At present, load changes can
be taken automatically on one generating unit at a time. The unit
which takes these changes is switched rnanually into a simple controller,
and it will then take all load changes until another unit is switched
into the controller. Switching of the units is done without any
consideration of incremental cost. The present method of apportioning
load among the City's generating units is adequate from a production
viewpoint, but not optionally economic. Hf lever, for implementation
of economic dispatch of the Texas Municipal Power Agency as proposed
for 1978, it is totally inadequate and will result in a monetary loss
to the City.
Distribution - The City of Denton's electric distribution function is
carried out by a distribution supervisor who has four foremen and work
crews under him. The construction and maintenance of the distribution
system appears to be conducted in an efficient although informal
manner. The administration and management of the distribution function
is carried out by competent personnel who, as with the production
function, are dedicated to providing outstanding service to the
citizens of Denton.
1.LL
,
The Electric Distribution Department consists of 47 personnel at the
u present time. There is a good mix of journeymen, electricians, and
apprentices on all of the distribution rre-os. Three out of the four
crews are overhead crews, the other is an underground crew. The
Distribution Department continues to experience a relatively high
turnover rate as evidenced by the number of new employees at the lower
levels of job classifications. In essence, this group serves somewhat
as a training ground for electrician qualifications. This condition
results in the distribution superintendent spending a considerable
amount of time on the training function. Further discussions on
turnover situations have been covered in cur personnel review.
i
From an operational standpoint, the expansion and the maintenance of
the distribution system appears to be carried out in an efficient
manner, Relatively few complaints have been registered through the
Customer Service Department regarding breakdown of service or low-
voltage situations throughout the system, One situation which has
come to light (which is really a function of records keeping) relates
to a seemingly overabundance of installed transformers on the distribution
system. From a reliability viewpoint, the installation of transformers
whenever a new line is added or upgraded does insure adequate voltage
requirements. However, this overdesigning of the distribution system
is an expensive luxury in lieu of a well engineered distribution
plant. We recognize that this has been the result of poor record
keeping in the past and we would recommend that a survey be conducted
and the distribution maps be brought up to date.
Gun1UMM"ulV
•y
The distribution superintendent, as previously mentionea, does conduct
`woo training programs throughout the year for various Job classifications.
In addition to the training program there are saf,•ty meetings conducted
monthly with all of the employees in the Distributio. Department. On
an annual basis, selected employees are given the opportunity to
attend training and safety programs spun;ored by the American Public
Power Association and various university programs.
Investigations of the quality of service conducted by the Distribution
Department indicate that the public is extremely complementary regarding
the reliability of electric service during period; of emergency
situations.
Engineering - The engineering function for Denton's electric utility
system is basically responsible for the design and implementation of
expansion/upgrading plans in the distribution area. As such, the
Engineer works closely with the Director of Utilities in discussions
with developers and new businesses concerning the maSnitude of additional
loads to be imposed on the City's distribution system. In addition,
the Engineer continually reviews the existing system for reliability
and adequacy. In this regard, the Engineer has designed the distribution
system in such a manner so as to assure continued reliability of the
system.
Our findings indicate that the engineering function has been
overloaded. This situation should be taken care of in the future
due to the involvement of the present Director of Utilities in
assessing the planning and engineering functions.
' QPoat IWrtimanWUIU
Physical Facilities - Part of the operational review of Denton`s
electric system is an evaluation of the physical facilities associated ii
with the electric utility. We have found the physical structures i
housing the electrical generating facilities at the plant site to be
in good condition. The maintenance and cleanliness of structures are,
in our opinion, outstanding. With regard to securitS, tre plant
entrance is protected by a motorized gate remotely operated from the
plant control room. Persons desiring to enter the plant identify
themselves to the control room by means of a private phone at the
gate, which is opened remotely.
In addition to the steam plant, the City maintains an older diesel
generating station in the center of town. It contains a total of five
units with a capacity of ten megawatts. It is started up and synchronized
to the system (for test purpises) each week, but apparently is not
otherwise used. Two personnel are assigned to the plant on the day
shift (five days per week) to perform maintenance and building service.
A question the value of this facility to the city, and suggest
consideration be given to its retirement and dismantlement. The total
capacity is insignificant to the pool, and apparently its best claimed
advantage is its use as a cranking source to restart the steam plant
if the total electric system goes down. It is doubtful that the
diesel plant could function in this capacity, due to its limited
output and the high value of in--rush current needed to start large
motors at the steam plant. Unless the City is credited with the spare
capacity of the diesel plant at a significant value to off-set the
cost of maintaining it, we suggest it be retired.
J
Glom roan an "I
'WF
The warehouse facilities are, for the most part, utilized by the
u utilities in Denton and do not seem to be maintained in the same
manner as the plant site. It should be noted that during the day we
visited the warehouse facility, the security at the warehouse appeared
to be lax and should be studied for means of improvement.
As far as office ;pace is concerned, it appeared that a general condition
of over-crowding exists. This is especially true cf the engineering
section which is located at the diesel plant. We are cognizant of the
fact that insufficient space exists for all City departments. In
general, the scattered nature associated with providing space for the
electric utility has led to some inefficiencies which can only be
rectified by providing centralized locations.
The vehicles, equipment, and tools supplied to the electric utility
Nftwo
appear to be in excellent operating condition and sufficient to carry
out responsibilities. One basic concern expressed by those in the
utility operation is the charges they must assume and the lack of
control that the; have over the mntor.pnnl operation. This should be
worked out through discussions between the City Manager and the Director
of Utilities.
RECOMMENDATIONS
From a production and distribution standpoint, it is our opinion that the
following recommendations will lead to a more efficient and safe operation
of the electric utility:
I. As previously discussed in our findings of this section, the lack of a
formal documented safety block and tagging program in the plant and in
Gdtat JWmmorMerV+
the electric distribution system was our most serious finding. We
recommend that immediate steps be taken to initiate such a progrsm.
2. We recommend that the City of Denton take immediate action to implement
economic dispatch of system generation. This will initailly require
that accurate heat-rate tests be conducted on all fenerating units.
From tno results of these tests, incrementO costs can be calculated
and utilized t.s a basis for economic loading.
Neat rate testing and calculation of incremental costs should be
performed for all TMPA generating units which will be under load
control -not just tie Denton units. We recommend that testing be
conducted by a single competent group for the entire pool, so as to
assure uniformity of results.
"%MOO 3. As a supplement to economic dispatch, we recommend that load flow
studies be performed to determine transmission losses from various
generating units in the pool to theoretical load centers. With this
information, incremental costs can be accurately applied to schedule
generation most economically for the City of Denton and the entire
pool.
4. To eliminate as much as possible the apparent lack of coordination
between the Electric Superintendent and the Utility Engineer, we would
suggest a clear delineation of duties for each individual. The Director
of Utilities must ,issume the responsibility of seeing that the two
activities share information and resolve mutual problems without
impinging on each other's authority.
Got in 1Commw%mo
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5. In our opinion, an in-depth analysis should be performed on the
distribution systFi to properly identify load requirements. Potential
cost savings can be realized if an overdesign of the distribution
system exists. In any event, the distribution maps should be brought
up to date identifying the equipment installed to facilitate future
expansion and extension plans.
b. We suggest that short written programs be prepared which outline the
purposes of the training program and describe the details and schedules
for conducting training. In addition, each employee should have a
personal checklist which would be signed off, indicating that various
portions of the training program had been completed, with the results
of qualifications tests entered, These results should form a permanent
part of each a^ployee`s personnel file. This simple formalizing of
the training program would make it easier for the supervisory staff to
administer, and would assure more uniform application of training to
all personnel.
7. We recommend that the City consider a more economical program for
scheduling generating units realizing that operating savings will be
accompanied by increased maintenance and possible increased operating
costs. Likewise, changes to the generating units such as full-arc
turbine steam admission to reduce wear frcm frequent starts, should be
considered. A complete evaluation of the costs and benefits, which is
beyond the scope of this audit, should be made before deciding to more
closely control spinning reserve.
8. Since the Utility Engineer must provide much of the information required
for system plann-;ng, we would suggest that consideration be given to
GP*1Ica" wealto
the hiring of an additional distribution engineer to assist the Utility
Engineer in his day-to-day design responsibilities. This should allow
the Utility Engineer to concentrate efforts on the more important
function of planning.
9. We recommend that an additional supervisor be added to he staff of
the utilities plant. This would relieve the present two supervisory
personnel from more routine duties such as training, spare parts
control, and records management, and would provide backup for these
men. The new supervisor should be highly experienced'in operations
and plant maintenance.
10. We would suggest that plant security could be significantly improved
by the addition of a closed circuit television camera to survey the
gate area, with a receiver located in the control room to assist the
operators in making positive identification of all those who request
entry.
11. A study should be conducted to evaluate whether the diesel plant
should be retired. This is not as important. as our other recommendations
and can be conducted when deemed necessary.
SECTION IV
FINANCE/ACCOUNTING
INTRODUCTION
As set forth by the City Charter, all matters of finance and monies are the
responsibilities of the Director of Finance and the City Manager. Although
none of the areas under the Director of Finance are entirely utility functions,
the majority of his work is for the utilities. This includes accounting,
customer services, data processing, purchasing, and warehousing. The
organizW on of the Finance Department is as follows:
u
DIRECTOR
OF FINANCE
CUSTOMER DATA
ACCOUNTING SERVICE PROCESSING
PURCHASING WAREHOUSING
U
G,aKrt IGommr+euu
IV-1
1. Accounting - The Accounting Department Is responsible for keeping the
utility's records. All revenu., expense and plant accounts are kept
for electric operations. The basic duty is to maintain 3 general
accounting system, exercise budgetary control, and prepare reports of
all receipts and disbursements. In addition, the accounting function
must inspect and audit accounts and records of financial transactions
maintained by the utility.
2. Customer .arvice - In order to provide the citizens of Denton with a
sounding board for problems related to the utility operations, a
Customer Service Departmeot is provided to answer questions and to
follow up and satisfy whatever problems are brought forth.
3. Data Processing - The data processing grout is organized to provide
support services which are conducive to computer applications to the
u
other functions of City government and the electric utility. Customer
billing and some accounting functions are examples of these services.
4. Purchasing - The Purchasing Department purchases, stores, and distributes
all supplies and materials used 'y the Electric Department, Written
requisitions for materials are given by the department head requesting
such supplies. The Director of Finance must then certify that money
has been appropriationed to pay for the materials from that department.
The Cit., Manager can approve expenditures under $3,000, while any
amount in excess of $3,000, must be approved by City Council in advance.
5. Warehousing - All materials and supplies are disbursed through the
warehouse by the Purchasing Department. Actual physical distribution
- GAen iean~onwuiv-
111-2
is carried out by the work crews in most cases. Minimum and maximum
amounts have been established over the years for those items needed on
a recurring basis.
FINDINGS
In line with the overall objectives of this Management Review, the
effectiveness of the City's system of accounting and reporting controls are
considered to be of importance to the citizens of Denton. Our review of
the finance administration was to ensure that accepted accounting methods
are being employed and that such methods are effective under the provisions
of the City Charter as related to the financial management of the electric
utility. This review was not of a financial audit nature, but rather was
an overall survey of Management policies and implementation. Personal
interviews, examinations of records, and analyses of activities and operati^ns
were conducted and covered the five major areas falling under the Finance
Department,
Our rev°.ew of the electric utility accounting policies and practices has
resulted in the general finding that sound accounting practices exist and
are being utilized which assure proper financial administration and control
under the provisions of the City Charter. This is an ov,irall finding and
does not mean that there are no areas which are need of improvement.
he following discussion wall focus on those areas vie found which we belieoe
should be biuuy1hL iu the at.tentioo 010 City Council. They concern m•.tters
of varying degrees of importance but do not detract from our overall finding.
Of particular concern is the matter of funding for the Extension and
Improvement Fund. Under Section 12.03 of the City Charter, excess revenues
C441 IUmffiwwf NO
Iv-3
are defined to be any money remaining in the "System fund" after all necessary
expenses of operation and maintenance have been paid and after all payments
t.ave been made into the several funds required by ordinances authorizing
the issuance of any revenue bonds. Excess revenues, so defined, can then
be utilized to pay to the city a return of not more than Sa on the "net
investment" of the electric utility system. The existing ordinances
authorizing electric utility revenue bonds covenant, among other things,
that rates will be sufficient to pay for the operation, maintenance,
depreciation and other costs, and also to provide sufficient amounts for
the interest and Redemption Fund and the Extension and Improvement Fund.
The payments to the Extension and Improvement Fund are to be equal to
12-1/2% of the gross revenu^s of the electric system and are to be used for
the purpose of paying the cost of extensions and improvements to the system
or to retire, prior to maturity, revenue bonds outstanding against the
U electric system.
We have found that for at least the past two years the transfer to the
general fund of the City has been made while the net revenues of electric
system have not been sufficient to pi-ov ide for the Vaymviii Lo toc Ew4,terra Ga
and Improvement Fund. This indicates that present rates are insufficient
to comply with the fund requirements under the revenue bond ordinance and
to provide a return to the city on its net investment. This situation, if
allowed to continue, will have a detrimental effect on the ability of the
City of issue additional revenue bonds, if at ail, and also will increase
the cost of additional borrowing. It is our understanding that this situation
is currently under study and that steps are being taken to alleviate the
situation. However, until such time as the City has the authority to
WWI lfpmrron+I+h1i
Iv-4
I
I
eliminate that feature of the bond convenants concerted and serious attempts
~ I
should be made to comply with the existing convenant.
Accounting - At the present time, it is our opinion that the electric
utility system does not have an adequate asset accounting or work order
system. This does not mean that r.here are inadequate controls on the
expenditure of funds, but rather that the accounting for the single largest
asset on the books of the electric system namely, Utility Plant-In-Service,
is deficient to the extent of being capable of readily indentifying exactly
what the $27,736,636 of Plant-In-Service actually represents in terms of
specifically owned property.
The current procedure consists of a manual work order system whereby dollars
expended for labor, equipment changes, and material on system additions and
replacements are accumulated under a work order and charged to the appropriate
FPC account. Each project is broken down into categories which match the
FPC account which ultimately will be charged. They are closed to Plai+t-In-
Service upon notification to accounting by the supervisors on the fob that
tho inh is rmmnlota Wo hgvo fniim4 nn evirlanra of written ,^.r.,redures; the
system currently in effect has apparently evolved over the years. Consequently,
these procedures are not followed in all instances and procedures
relating to the retirements or replacement of plant in service are sketchy.
The significance of this deficiency is that as the electric system grows
and becomes more intricate, the importance of maintaining adequate property
records increases. Accounting should know the status of the plant in
service for depreciation and insurance purposes, while operations need
detailed information regarding the existing plant. Of greater importance
CAgn1CJm %%nrm
IV-5
is that efficient planning requires sufficient detail as to wh7ead
exists on the system. A gcod asset accounting system should nrecord-keeping function to account for funds spent on construcshouIG also provide property information
(cost, age, status) fand reporting support to non-accounting applications as well as information
necessary for the support of planning and Management needs. Typically, a.
property record system should:
Substantiate the original book value of the property;
Provide a quantitative basis for the retirem~,;~ of property;
Permit the determination of service life to distribute capital
investment costs;
Permit identification of original investment costs, current value and
depreciation by location, department, account code, jr other
classification;
Permit allocation of costs for rate or cost of service studies;
, Reflect revised property values for insurance coverages,
The present accounting system does not have these capabilities and
consequently efficiency is lost when necessary information of this type is
not available.
Other areas of tl+e Accounting Department related to revsnues and expenses
are being carried out with adequate controls a{nd reporting procedures. The ,
working relationship between Accounting the other areas of the Finance
C,Un Kan W*2810
Department and the electric utility are adequate and have been providing
the citizens with a proper accounting operation.
Data Processing - Re data processing function is a soundly-managed group
that provides quality work with the resources and data available.
Approximately seventy to eighty percent of work being performed is related
to utility customer billing with the balance comprised of tax rolls, payroll,
general ledger, accounts payable and other City operations. The facility
is presently being upgraded to handle a new library system and a mark-sense
capabi';ity for meter reading purposes.
We found no long range data processing plan which sets forth objectives for
meeting information requirements of the various departments of the City. `
White it may not be economically feasible to satisfy all needs simultaneously
or even to computerize some systems, a plan should be adopted whereby all
needs for information are identified, documented and translated into a
City-wide plan for utilization of the computer to support the operations of
tie City. The plan should include not only the information needs, but,
more importantly, the benefits and costs of needed systems or system
improvements. A computer is an expensive piece of equipment which can be
of great benefit to the operations and management of the Electric Department
as well as to other City functions. To minimize the cost and to achieve
the greatest benefit from such an investment, the facility should be utilized
to the greatest extent possible. This requires that all operations be
analyzed, requirements identified, costs and benefits enumerated and then
translated into a workable formal long-range plan which clearly sets forth
the objectives of the City.
111-7
Our review made no attempt to evaluate or identify specific areas or to
ascertain the extent to which the use of the computer could improve the
efficiency of the Electric Department.
customer evice - A basic utility function falling under the Finance
Department is the customer service (or public relations a pects) -f the
electric utility system. We found that all customer questions or complaints
related to billing and personnel are the responsibility of the Customer
Service Department. With the substantial increases in electric costs in
recent years, numerous and increasing inquiries from customers are being
handled.
As a result of our analysis, it is our opinion that all customer complaints
and questions are handled in a highly efficient winner. As questions come
in, they are entered into a log and actions initiated. In most cases, the
question is about the previous month's billing, at which time that customer's
bill is reviewed for possible errors. If there is any question as to the
validity of the reading, meter readers are sent out to re-read that customer's
meter. In the majority of the cases, customer satisfaction is achieved.
It is a matter of policy, however, that before any b'.ll is sent to the
customer, they are reviewed by the Customer Service Department for apparent
inequities compared to previous months and against the same month from the
proceeding year, This review has served to minimize inaccurate billing
information.
Questions related to quality of service and/or emergencies are immediately
referred to the Director of Utilities for his action,
u
Gun~fommom.~~nA
tV-8
Our investigations into the meter reading activities seem to indicate a
problem with the routes presently established. This 1s especially critics
to customers due to the rate differential between winter and summer. As a
result of not getting the billing routes read in time, there are, in some
cases, additional days added to the billing period for some customers.
Depending upon the time and the fuel adjustment for a particular month,
customers could be paying slightly more than required due to this extension
of time. It is imperative that billing routes be maintained on their
schedule tc prevent this type of overbilling.
In -.ddition, a considerable amount of overtime is allocated to the Meter-
Reading Department to fulfill its function. This could mean that the
billing ro+ates are poorly designed or that the overtime is due to a lack of
manpower. In either case this problem should be addressed and eliminated.
u
Allocation of City Services - Each of the utilities is assessed a proportion
of the total expenditures math by several departments performing services
for the utilities. These departments include General Government, Legal,
Community Development, finance, Purchasing, Data Processing, Customer
Services and Accounting. The prozedure used in !esjinq the expenditures
is based upon an estimate of the services performed by the above City
departments in favor of utility operations. This estimate is then split
among these utilities on the basis of revenues generated by each utility.
The fact that the estimates of percentages have not been changed for the '
past five years has been pointed out to the Council by the independent
auditors in their audit report dated December 17, 1976. Our re+iew indicated
G+A1 'Cd ftftW 1A -
11.9
that the procedure has not changed and the percentages have not been updated.
It is our feeling that the estimate of percentages should be updated based
upon annual studies. The studies should be in sufficient depth to allocate
the charges to each of the utilities directly rather than by allocation on
the basis of revenues. Electric Department revenues have escalated
dramatically in recent years due to fuel cost increases (which are recovered
through the fuel adjustment clause) and those expenditures allocated on a
revenue basis have no relationship to such revenues. The result of continuing
this current practice is to incorrectly cause the electric utility to
subsidize expenses appropriately chargeable to the water and sewer department,
Warehousing - We did not perform an in depth analysis of the warehousing
function, however, in our review of the work order procedures, we did
consider tlie procedures for the cha,,e out of materials tnd supplies from
the warehouse and made a brief tour of the warehouse itself. It appears
that the procedures currently in effect are insufficient to ensure that
projects are being charged with the materials actually used on the job. In
many instances, the job foreman obtains and checks out material for a
specific job himself. This procedure, because it relies solely on the
accuracy of the job foreman to account i'or material used and returned, and
whose primary function it is to get the work done, can produce inaccurate
charges to specific projects and can defeat procedures instituted to maintain
minimum and maximum levels of inventory items. The procedure whereby
warehouse costs, which include inventory overages or shortages, are loaded
to materials issued tends to downplay the importance of properly and
accurately accounting for material as actually used.
1V-10
i •
We also noted that there are few, if any, controls on the return to the
warehouse of scrap materials. There appears to be no procedure established
to ensure that items, such as valuable copper wire, actually removed from
service for scrap are returned to the warehouse. Reliance is again placed
upon the performance of the job foreman.
Security at the warehouse appears lax. (luring our brief tour, it was noted
that the gates were open and no one was in evidence at the warehouse itself;
easy access to the bins was observed.
Rates and Cost Comparisons - to have compared Denton's electric rates, at
different levels of usage, to other public municipal and private electric
utilities in the State of Texas. Exhibit 1 presented at the end of this
section, shows the results of our comparison. The residential rates were
calculated on the basis of an all-electric customer during the winter
u
period. The fuel u;#ustment clauses were based on the June 1977 rates
published by the Ffd,sral Power Commission. The commercial and industrial
rates utilized in our comparisons were based on the lowest possible cost
available to a customer using the Kwh consumption shown, We have tried to
be consistent in our comparisons, but it roust be recognized that character
of service clauses differ between utilities and could have some impact on
the results.
The results of our electric rate bill comparisons indicated tha. except for
Garland and Lower Colorado River Authority, Denton's rates are lower than
the other municipalities used in our analysis. When compared against the
private utilities, Denton oas higher rate,, except for Central Power b Light.
By far the lowest rates of the electric utilities used in this comparison
are those of Texas Electric Service Comrany.
Gilbert 1 Larnmo~vreNt~
1Y-11
4
For purposes of our analysis, we have compared Denton to Texas Power 6 Light
at the 1000 Kwh/month level for residential customers. This is the
approximate average use per ,•esidential customer for the two utilities. On
an annual basis, a Denton customer would pay $80.16 or M more than the
corresponding TPaL customer. With a population in Denton estimated to be
about 47,000 in 1976, and riiLh slightij more than 11,000 residential customers,
the difference in the electric bills amounts to about $20.00 per person.
The electric utility in Denton transferred $811,607 to the General Fund
last year or $17.34 pet, person. On an average basis, we can only conclude
that while Denton's rates are higher, the difference results in benefits
from other areas of City Government.
We are cognizant of the fact that if a private utility operated within
Denton, property taxes or ad valorem taxets would certainly be levied against
that property of the private utility. While not part of our analysis,
information supplied by Texas Power and light to Denton in 1976 indicated
that taxes on private utility property approaches the amount transferred to
the General Fund. ,
Further analyses between Denton and the private utilities used in our
comparison are presented in Exhibits 2 and 3. Exhibit 2 shows the breakdown
of the revenue dollar. For all items except fuel, Denton compares favorably
to the private electric companies. Further evidence of this is shown in
Exhibit 3 where the cost items are broken down on a per 1000 Kwh basis.
Here again, Denton's costs in all items except fuel are equivalent to the
private utilities. Our conclusion is that the fuel situation is the
overriding reason for Denton's higher rates fuel costs comprise approximately
60% of total costs for Oenton.
Stem 1CWM0M*2dM
IV-12
'
1
At present, we do not foresee any change in the fuel situation which would
alleviate the problem in Denton. The fact that Denton relies 100 percent
on natural gas as a fuel for its generating station, and the fact that
Denton's two sources of fuel supplies are increasing their price of natural
gas on an almost monthly basis, offer no hope for improvement. We do
believe, however, that the percentage increase in electric rates in Denton
will be less than that experienced in the past. At the same time, the rate
differential between Denton and the private utilities could rissibly diminish
as the favorable gas contracts of private uW ides expire.
Other Fi s - We noted that in the past it ha:; been the practice to
change the independent public accounting firm rather frequently. We feel
that this practice is unnecessary and is orobably mare expensive to the
City than if a firm was retained for a longer period of time. An auditing
firm spends a considerable amount of time in the first year it has been
engaged becoming familiar with the City's accounting policies and practices
and system. If auditing firms are changed frequently, this learning period
is duplicated, at the City's expense, more often than is required and the
benefits, if any, of changing auditing firms are probably not justified by
this additional cost.
Budgetary practises are adequate air, are effective in the control of
expenditures. It is our opinion that consideration should be given to a
"zero-based" method of budgeting. The traditional budget process assumes
that projects and on-going activities making up the historical budget base
are (1) es;ential to the mission of the utility and must be continued
during the budget year; (2) are being performed in an opti-rzl, cost-efficient
IV-13
~ s
manner; and (3) are projected to be cost-effective in the budget year,
requiring budget dollar increases only for uncontrollables such as pay
increases and materials cost. Certain projects and activities do meet
these criteria, but it is unrealistic to assume that all do. A "zero-
based" budgeting method basically starts from "ground zero" in each year's
budgeting process, as opposed to starting from current budgets, and prompts
managers to assess their operation from the "ground up" to justify every
dollar spent.
Aside from the oroblem arising out of the deficiency in the Extension and
Improvement Fund, the financ W condition of the Electric Utility operation
appears adequate as evidenced by revenue bond coverages. They are as
follows:
Year Ended September 30, 11976 975 2.2176 Times
u 1974 1.83
1973 1.63
1972 1.73
Required by Revenue Bond Convenant 1.50 Times
RECOMMENDATIONS
As a result of our investigations of the financial operations of the Denton
Electric Utility, the following recommendations are made:
1. We recommend that the situation regarding the deficiency in meeting
current revenue bond convenants be resolved and upon such resolution
and in depth review should be performed regarding the adequacy of
rates.
G4bM/C*MRW*11I17 -
IV-?4
Sftw 2. Our review disclosed that residential customers do not have the
opportunity to participate in a levelized payment plan (Budget Plan).
We feel that this option should be available for those customers who
feel they would benefit by such a plan and accordingly we recommend
that a study be undertaken 0-o develop such a plan.
3. We recommend that the function of meter reading be tightened to ensure
that scheduled meter reading dates are met.
4. A study should be initiated to improve inventory control procedures
and strengthen security at the warehouse facility.
5. We recommend that early attention be given to the installation of an
asset accounting system.
6. We recommend that a long-range plan for the utilization of the Data
Processing facilities be prepared and formalized.
7. We recommend that the allocation of charges for services performed by
various City dep4rtments in favor of the utilities be updated, on an
annual basis, and tnat the split between the utilities be made on an
actual itudied basis as opposed to a revenue basis.
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SECTION V
SYSTEM PLANNING
INTRODUCTION
In the section which follows, we have addressed ourselves in detail to the
important function of system planning. Included will be comments regarding
Denton's participation in the Texas Municipal Power Authority.
Generation requirements to reliably meet future system demands must be
planned many years in advance due to the lead times required for the
construction of facilities. As an example, a lignite plant currently
requires approximately 6 years from plant design to start-up, while a
nuclear plant requires a period of 8 to 10 years. Basic to the generation
planning process is the consideration of such variable factors as existing
and future capacity requirements, fuel availability and associated costs
for neeting fueling needs, and necessary engineering/economic analyses of
available energy generation/supply alternatives which may be utilized to
l minimize power generation costs.
The City of Denton's planning and development activities for supplying
electric energy in its service area were analyzed » determine the adequacy
of such efforts, included in this analysis was a review of the following
considerations:
. Demand/energy forecast;
. Fuel supply;
V-1
t WWI
~ ~ ~ Irv
Generation plan; ,
The effects of the above on reserve capacity and present gas fired
generating units, including plant retirements;
Purchase, interchange and pooling arrangements.
The effect of Denton's generation plan on its reserve capacity is of distinct
importance to the residents of the City. Denton's reserve capacity
requirements are affected by total capacity and energy reeds in the fuel
supply situation. There is a complex interaction of the above factors and
changes in these variables and their effects on the overall generation plan
must therefore be continually assessed.' Our evaluation primarily involved
an assessment of the practices and policies utilized in the system planning
function.
GENERATION PLANNING
The determination of capacity requirements is primarily predicated on
combinations of four fundamental items: total capacity versus system
demand requirements; unit sizes and planned usage; the effects of interchange,
purchase and pooling agreements; and, fuel availability and cost, The
appropriateness of.Denton's planned long range capacity was evaluated with
respect to the consideration of the above factors,
The approach to the capacity question involved the analysis :ind review of
system documents and studies and plans which directly impac+, on reserve
capacity. In our interviews with personnel of Denton and the Texas Municipal
Power Agency to gain insight into general operating practices and policies,
V-2
Adlikk _
the reasonableness of projections and the means by which the City takes
these into cunsideration in its long-range plans were examined. These
areas are examined individualiy in the discussion which follows.
DemandJj9ergy Forecast - The initial step in the estimation of capacity and
fuel requirements is the preparation of the demand/energy forecast; from
this is derived rapacity requirements, fuel requirements, revenues, expenses,
capital requirements, and financial plans, The credibility of subsequent
derivations ind comparisons of alternatives as a basis for generation
planning are highly leveraged by the accuracy of the forecast.
Denton's demand/energy forecast is prepared by the Utility Engineer in
conjunction with other members of the Management group. The most recent
forecast is dated June 1, 1977 and includes the period 1977 through 1987.
Denton uses ghat is sometime!, referred to as the "load factor" method to
forecast load; ih~i is; -thy 9 Lcr#oxtn, of that maximum load which may
reasonably be expected at a given time period as a function of historic
load factors applied to energy sales. It is to Ois peak that the system's
overall net generation capability must be addressO, in 1976, Denton
experienced its peak of 117 megawatts at 4:00 p,m, on August 9. Denton is
considered a summer-peaking system in that the annual peak normally occurs
during September.
Denton uses a "traditional" approach to demand/energy forecasting which
fundamentally involves the extrapolation of past trends. This basic approach
extrapolates past trends of customer number and average Kwh ,se per customer
and applies the system load factor (historical) to a sales figure which has
G"I1C&rR*V"
V-3
been adjusted for system losses, yielding peak load. Kwh sal,:s projections
are performed Individually for the residential, commercial, and industrial
classes.
However, inherent in this approach are ce-taire shortcomings which have
evolved as a result of recent economic occurrences and resultant customer
reaction to these in relation to electric energy consumption patterns.
These shortcomings are as follows:
The forecast relies almost entirely on internal data, especially in
terms of customer number and average Kwh use per customer;
Historical usage patterns indicate only past events, the implicit
assumption being that whatever happened in the past will continue to
be the case in the future;
Causal relationships between energy use and economic/demographic
;'actors which may have substantial impact on the energy use are not
considered;
Changes in growth factors, e.g „ changing family formation growth and
appliance saturation rates are not taken into account explicitly;
Considerable use of experience and subjectivity in preceding from the
short term energy forecast to the long term situation is used to
adju3t the trended growth to accor~modate ex`ected changes$
While factors external to Denton are likely to affect the electric energy
use of all classes of customers, the prctent forecast methodology relies
primarily on internal da+:a. The approach cannot take into accot,nt the
Gbrt rton+monr+.nA
V-4
external effects of smaller population increase, a differing home/aparbaent
mix, and availability of alternative fuels, especially with respect to
industrial usage.
The accuracy of Denton's demand/energy forecast was not determined as a
part of the study and for the purposes of this review forecast amounts are
used throughout as the basis for evaluation. However, Denton should make
r;, effort to improve its present demand/energy forecasting methodology with
respect to the following:
Take into account those factors which tend to effect the energy use of
each class of customers and the usage patterns of various sub-groups
withlim each class;
. To the extent possible, and assuming data is available, disaggregate
to the lowest possible level, e.g., projections by rate class rather
than by customer class;
Define and relate causal factors of energy consumption so that'expected
changes to economic/demographic growth factors can be incorporated
into the forecast.
Interchange - Many generating and transmission systems coordinate their
planning and operations through ilterconnectcd systems which operate
facilities in parallel, benefiting from the diversity of large scale
operations. Denton's electric utility system is connected to the following
other systemsi
. Texas Power & Light - 2 - 138,000 volt Circuits (future)
, Brazos Electric Power Cooperative - 1 - 138,000 volt circuit
V-5
i
Denton is presently a member of the Texas Interconnected System, an
intra-state network of six major investor-owned and four public systems,
a-d of the Electric Reliability Council of Texas (ERCOT), the regional
Reliability Coordinating Organization for Electric Power Systems in Texas.
In 1969, Denton Joined the Texas Municipal Power Pool (TMPP). The cities
of Bryan, Garland, Greenville and Brazos Electric Power Cooperative were I
already members. The interchange agreement (6/16/69) requires the maintenance
of a 15% reserve margin for each system (spinning reserve) and allows for
sales and purchases of supplemental, emergency or maintenance energy from
the pool or outside sources. The intent of the agreement is to affect
operating economies and to strengthen the system reliability.
We.hAye, gxalr~l.ned the.aforementioned agreement and it is the intent of this
contract that each Company plan its generating requirements to be self
sufficient. The energy transactions confirm this 'philosophy. Denton has
and must continue to maintain its self-sufficiency in generating capability
either by itself or through Texas Municipal Power Authority. The joint
venture under the Texas Municipal Power Authority should reduce the
probability of unit outages in the future, and thereby reduce total reserve
capacity requirements.
Reserve Capaclry - Generally, reserve capacity, or the dit,"4rence betvraen
dependable net capacity of the system and the actual anticipated peak load
in a specific period, is required to cover the following contingencies;
Generating - unit outages, both forced and planned, and capacity
red,wtion;
c+e«,rca~+~...nr,
Y-6
t 0
Load-forecast error, including abnormally hot or cold weather;
Delay in completion of new generating capabilities to meet forecasted
load;
Operational Flexibility to meet unexpected contingencies. _
The required amount of reserve capacity is normally a function of the
probability of simultaneous outages and capacity reductions, the probability
of experiencing various load levels, the probability of experiencing losses
and generating unit availability, and the ability to obtain and deliver
fuels for energy units.
For Denton, thg reserve margin was 44% in 1976 and it is expected to decline
to 8% by 1980. Reserve margin will be larjely a function of fuel supply
related to reliability of service, availability of generation units, and {
tht availability of power from Texas.Municipal Power Authority. Since '•.ng I
term supplies of gas are expected to be in short supply at exhorbitant
prices, Denton will, in effect, have to selectively limit the use of iL.
gas plants to accommodate these limiting factors. "Old" gas units will be
gradually shifted to peak shaving use in the future.
Table VI-1 illustrates Denton's reserve situation, It is apparent that the
critical period for Denton, in terms of both fuel supply and reserve margin,
is the period 1979 through 1983,
Were lCaemenwdu
v-7
TABLE Y-1
CITY OF DENTON
ELECTRIC UTILITIES DIVISION
GROSS HISTORICAL
MW MW % LOAD SYSTEM CAPACITY RESEW MARGIN SYSTEM SALES
CALENDAR PEAK
YEAR
1963 36,0 41 129
1964 40.7 41 143
1965 44,0 41 160
1966 50,8 41 178
1967 53.0 104 194
1968 58.1 104 222
1969 69,2 10,1 3263
01
1970 76,5 104 325
1971 82.0 104 388
1972 91.0 104 396
1973 93.0 169
1974 10500 169 434
1975 106,0 169
1976 117,0 169 44 439
PROJECTED
1977 126,0 169 34 467
1978 136,0 169 24 502
1979 145.0 169 16 538
1980 157,0 169 8 $75
1981 169.0 2670) 58 625
1982 183,0 267 46 677
1983 19910 267 34 737
1984 216.0 267 24 8798
62
.1985 233.0 N.A. 931
1986 252.0 N,A, 1007
1987 273,0 K.A.
NOTES: (1) Reflects participmo on in GibGtr,; ~qa'r• ;75 Mw and Commanche Peak
23 Mw).
N.A. Not Available since power supply plans have not identified
capacity for 1985-1995,
Y-8
Although net capability and reserves rise after 19819 availability of
sufficient supplies of natural gas for existing gas units plays a significant
role in generating unit availability and energy (Kwh) production. As
discussed previously, deficits in gas/oil supplies must be rectified by
either burning additional quantities of gas, reverting to oil generation,
or some combination thereof. The remaining gas/oil units, however, although
capable of burning oil, are not designed for continuous oil burning and a
switch to this fuel reluces the net available capacity of each of these
units.
The period 1979-1961 will be a critical period for Denton depending upon
load growth, fuel supply, and the progress of Texas Municipal Power
Authority's generating plans. Careful planning will be necessary to arrange
for emergency purchases to insure the adequate system margins and reliability
that Denton customers have enjoyed in the past.
Generation Mix - Specific loaq range generation plans are formulated after
consideration of many factors, among which are cost, fuel supply, and
projected load, As discussed previously, Denton's present generation plan
is primarily a direct function of natural gas availability and cost and
participation in.Texas Municipal Power Authority.
In a given year, in addition to meeting the eyoected peak load, consideration
must also be given to the characteristics of the annjnl load duration
curve, which indicates the fraction of time that the lpAd is equal to or
greater than various output levels, In 1976, the minimum load was about
50 Mw; the peak load was 116 N. Due to this extreme variation in load,
generation economics must consider generation costs at different levels of
G4w%1C %"ftso"
Y-9
load, The guiding principal in planned operation is to use the least
costly rilant as much as possible, that is, for base load, and conversely,
the highest cost plant as little as possible (peak load).
Until a few years ago, Denton utilized gas fired generation for all its
load and energy requirements. In participation with the Texas Municipal
Power Authority, the City is switching to lignite/coal and nuclear plants
for future base load operation due to the high cost and supply problems
associated with natural gas. L1gW tl (and eventually coal and nuclear)
plants will be base loaded, and gas fired generation units optimized for
peaking on the basis of fuel costs and unit efficiency (heat rate). The
installation of a new load dispatching system among the Texas Municipal
Power Authority members will allow for the most efficient use of existing
facilities.
Due to past and projected gas curtailments, Denton has ,.onverted several
units to operate on a 02 distillate oil. This flexibility allows Denton to
operate during extended periods of curtailment without interruption of
power supply. Existing fuel oil tankage is sufficient to operato for
approximately 30 days of gas curtailment.
RECOMMENDATION
Our recommendation regarding the System Planning activities conducted by
Denton center on an independent evaluation of future plans. Since T.M.P.A.
staff members are performinj many of the Ounctions associated with System
Planning, we believe that the PAM Utilities Board, the City Manager and
V-10
the Director of Utilities, should concentrate on evaluating the data provided
by T A P.A. F90 is the responsibility of those in Denton to conduct their
own investigations-if differences are apparent, and to properly measure the
Impact future actions have on Denton's utility operations,
i
G.~.n 1Con+~a+wnRA
V-11
7MIN
SECTION V1
TEXAS MUNICIPAL POWER AGENCY
I NTRODI ICT I ON
In 1975, the Denton City Council elected to become a member of the Texts
Municipal Power Agency (TMPA) which consists of the cities of Garland,
Greenville, and Bryan. The purpose of the new power agency is to supply
reliable economic electric power to the member cities. Participation in
this Agency has resulted in a number of questions regarding costs and
benefits to the citizens of Denton.
The Management Review of Denton's electric system does not include a review
and evaluation of Texas Municipal Power Agency, however, we would be remiss
in our responsibilities if we did not comment on particular areas of the
Texas.Municipal Power Agency which affect Denton. Our comments are
informational in nature and are a result of cursory examination of the
Texas Municipal Power Agency organization and its relationship to Denton.
Legislation enacted by the State of Texas in 1975 allowed the cities of
Bryan, Denton, Garland and Greenville to form the Texas Municipal Power
Agency (TMPA) which can issue revenue bonds and own facilities. The formation
of 'iexas Municipal Power Agency is an outgrowth of an earlier affiliation
of some of the cities dating back to 1963.
The basic objective in forming Texas Municipal Power Agency was to provide
power supply resources through joint venture efforts which would be more
economically attractiva and electrically reliable than if the cities had
acted independently.
YI-I
From an organizational standpoint, T.M.P.A. Is governed by an eight member
Board, made up of representatives from each participating city. Since the
beginning of Texas Municipal Power Agency, Denton has had as members of the
Board Its City Manager, Utility Engineer, and several members of Council.
At the present time, the new Director of Utilities and one Council r1ember
are members of the T.M.P.A. Board of Directors. This mix of Denton's board
members is one which we believe provides good coverage of Denton's interests.
The technical expertise provided by the Director of ii:ilities together with
the interest of the citizens through its elect?d representative is one
which we think sensible.
Most of the information concerning the plans and activities of Texas Municipal
Power Agency are provided through these two member!,. Particular concern
has been expressed by both Council and the Public Utilities Board that the
information provided is "after the fact" knowledge. In that regard, City
board members have indicated that the agenda for the Texas Municipal Power
Agency Board meetings is provided by the staff of Texas Municipal Power
Agency only several days before the actual meetings. In our opinion, this
i
lack of sufficient lead time for review and discussion between the City
Public Utiiities Board and City Council is a major drawback to an adequate
evaluation of the performance of Texas Municipal Power Agency.
Texas Municipal Power Agency System Planning - The basic objective of
forming Texas Municipal Power Agency and its affiliation with Brazos was to
secure power supply resources through joint efforts which would be more
economically attractive and electrically reliable tht,rs if the cities and
Brazos had each acted independently. The organization of Texas Municipal
04" 1COWM"Ip"
.
M"
AOL
r~
Power Agency provides the foundation for the expansion of joint efforts of
the cities and Brazos. Coordination of existing and future facilities are
to be accomplished under the 1963 interchange agreement and project agreement
which allows the joint ownership of facilities by Texas Municipal Power
Agency.
The first step in the development of such a program was the preparation by
R. W. Beck and Associates of a March, 1975, report entitled
Preliminary Power Supply Study. The study was an examination of the pool's
long range generation and transmission requirements through 1995. The
study considered basic elements and criteria in the categories of load
growth, fuel, fuel transportation, cooling water, generation expansion
alternatives, transmission, financial requirements, interim power supply,
and economic dispatch and environmental Implications of the generation and ~
transmission expansion plans. The study showed an exceptionally high load
growth of 11-12% a year.
Ten basic generation expansion plans were studied using a Westinghouse
computer program. Based on the results of this screening process and
sensitivity studies, Plan 9 appeared to offer a basis for development
considering economics, timing and fl,:ribility. Eleven variations of Plan 9
were studied resulting in Plan 9-7 being the most attractive. The addition
of generating units as scheduled in Plan 9-7 is shown in Table VI-1 below;
YI-3
TABLE VI-1
TEXAS MUNICIPAL POWER AGENCY("
GENERATION EXPANSION PLANS
Pool
Demand Capacity-MW Reserve
Year MW Addition New Total Ratio
1978 1365 Combustion Turbine 80 1582 1.16
1979 1524 Combustion Turbine 160 1742 1.14
1980 1701 Atascosa Lignite (San 200 - -
Miguel)
Comanche Peak Nuclear 115 2057 1.21
1981 1898 Atascosa Lignite 200 2257 1.19
1982 2119 Comanche Peak Nuclear 115 - -
Bryan Lignite 400 2772 1.31 I
1983 2365 Bryan Lignite 400 3172 1.34
1984 2639 Bryan (or other) Lignite 400 3572 1.35
1985 290
- 3572 1.21
1986 32L8 Nuclear Participation 400 3972 1.21
1987 3670 Ringold Coal 600 4572 1.25
1988 4096 Village Bend Pumped 800 5372 1.31
1989 4572 Storage - 5372 1.17
1990 5102 Village Send Nuclear 1200 6572 1.29
1991 5694 Combustion Turbine 350 5922 1.22
1992 6354 -Village Bend Nuclear 1200 8122 1.28
1993 7092 - 8122 1.15
1994 7914 Anderson Nuclear 1200 9322 1.18
In order to test the impact of Plan 9-7 versus independent City generation
and operation with full dispatch of the separate utilities, Plan 10 was
developed and results obtained. This independent approach by the cities
was shown to cost 5.5 mils/Kwh more than the preferred Texas Municipal
Power Agency generation mix resource Plan 9-7. Further studies by R. W. Beck
showed that a fully independent operation of Denton would cost 13.7 mils/Kwh
more than the integrated Plan 9-7.
(1)R. W. Beck Report of Marth 1975, Preliminary Power Supply Study.
r
• GIEMlCam+aNHNN
VI-4
'We are not aware of the original scope of work or tasks assigned to the
consultant at the initiation of his assignment. However, we have not been
able to resolve war the purchase of wholesale power froo an interconnected
utility was not examined as an alternative to new generating plants. We
would suggest that future Texas Municipal Power Agency power supply planning
studies include such an alternative . The purchase of wholesale power from
utilities such as Texas Power b Light is a practical alternative that may
be attractive depending on T.P. & L's fuel and capacity position and contract
term arrangements. While the goal of independence for Texas Municipal
Power Agency is admirable with respect to generation sources, a comprehensive
economic comparison of alternatives would identify all risks and rewards of
such a purchase power alternative.
In July of 1976, R. W. Beck issued a financial feasibility study which
analyzed the impact on'the cities of assuming obligations related to the
annual cost of. the proposed loin exas un c pa ower Agency' eve opmee'nr
r
projects. At the time of the study, Texas Municipal Power Agency was {
negotiating 6% of Commanche Peak, a 2300 Mw nuclear unit, with Brazo owning ,
an additional 4% for a total of 230 Mw. The 1983 cost of power from the
Commanche Peak plant was estimated at 18.9 mils/Kwh for the members of
Texas Municipal Power Agency.
A lignite "mine mouth" plant (Bryan Lignite) assumed conceptual status
based on a size of 400 megawatts. Within the limitation of the project
cost estimates, the preliminary estimate for Bryan Lignite is $348,000,000
with a projected busbar power cost of 30.5 mils/Kwh in 1983, This includes
a fuel cost of $1.315/hibtu for the lignite coal.
cue I Icaft"O"Am
VI-5
y..
NNNMMMWWWN
A lignite exploration program by the Paul Weir Company id:ntified two major
lignite beds and engineering and cost details were to be released by the
• 4th quarter of 1976. Based on incomplete studies, a preliminary cost
estimate of $117,000,000 was developed for the mine. The facilities required
to implement the first increments of the Texas Municipal Power Agency
generation expansion plan will require substantial capital investment. The
tota'r bond issues for the expansion plan amount to $715,000,000 as shown
from a table presented in the.Beck study.
The first Texas Municipal Power Agency bond issue of $50,000,000 was offered
in September of 1976. Based on information in the Beck study, the estimated
cost of power to Texas Municipal Power Agency members was forecast and the
estimated average customer cost in Denton is shown below:
TABLE VI-2
DENTON AVERAGE COST
TMPA City of Denton
Year Member Cost Customer Average Cost
1977 1.73 t/Kwh 3.05 t/Kwh
1978 1.96 33.24
.32
1979 2.06
1980 2.47 43.72
.47
1981 3.23 4.37
1982 3.18 4.44
1983 3.30 4.39
1984 3.30 4.41
1985 3.39
Texas Municipal Power Agency, in its new 10 year plan, has deleted the two
combustion gas turbines as originally shown for 1978 and 1979. This was
done as a result of revisions to load forecasts for member cities. Additionally,
' G~bert ltenwnonwNN
VI-6
the Comanche Peak nuclear unit has slipped to a 1981 date for commercial
operation. Bryan Lignite, now designated as Gibbons Creek Unit !1, has
been advanced to September, 1981 date for commercial operation. A contract
was awarded to Tippett b Gee of Abilene, Texas to begin engineering in
September 197¢.
Gibbons Creek is the major project now underway and managed by Texas Municipal
Power Agency and its consultants. The plant is located in Grimes County,
Texas adjacent to significant lignite reserves as identified by the Paul
Weir Company, a mining -ansultant. The first unit will have a capability
of 400,000 Kw with a cooling pond to be consw,rted through a series of
dams and roadways.
Texas Municipal Power Agency's latest schedule shows the unit to be in
commercial operation by September of 1981. This represents an overall
schedule of 4-3/4 years assuming engineering began in late 1976. Texas
els confident of the commercial date since the
unit is a duplicate of another unit under design by Tippett 6 Gee.
Our review of the Gibbons Creek unit project has indicated that the schedule
appears to be extremely tight with no allowance for delays in materials
shipments or unsettling labor conditions. We are accustomed to a 5-1/2 to
6 years schedule for coal fired units of comparable size. We are aware of
the reduced -equirements for environmental reports and public hearings for
the Texas Municipal Power Agrsncy unit, however, the administration and
coordination of several engineering contractors and the proximity of the
plant site to the Houston area construction market more than counterbalance
V1-7
e
the former advantages. We are concerned that a schedule slippage past 1981
to late 1982 is possible and would require interim power purchases by
Denton to maintain system integrity and reliability.
We find, that as a Texas Municipal Power Agency member, Denton is prudently
shifting to lignite, coal and nuclear generation in response to problems
Concerning the availability and cost of its traditional fuel - natural gas.
The decision to participate in Texas Municipal Power Agency has been made,
and the responsibility now rests with this electric utility organization to
assure the citizens of Dentin that its best interests are being looked
after.
RE CjKMENDV i O .
Considering the Importance of TMPA in the future plans of Denton's Electric
Utility System, we are presenting the following recommendations:
sa=- -that T.M.P.k. provide monthly documentation and reports
. concerning V e sV us of active projects (e.g., mine, power plant, and
transmission). These reports should be authored by TMPA personnel and
cover the following major aspects of current projects:
Schedule - bar chart schedule showing critical dates, contract awards,
mechanical completion and commercial operation.
Enain~ eerin9 - progress of Tippett & Gee and subcontractors, drawing
schedules (both vendor and A/E), engine ring manhours, and identification
of any coordination problems between TtG. and subcontractors.
GJiun,~
,'rte
Construction - site status, subcontracts awarded, field manpower
requirements and inspection reports.
Casts - a monthly summary of forecast costs (by account) for all
projects. Estimates are to include funds connitted, spent and
authorization in addition to account forecasts. An estimate of
confidence level on forecast accuracy and contingency levels should be
developed and included. A separate purchasing/procurement report
should be included.
2. The City of Denton should require TMPA to present a new project schedule'
for the Gibbons Creek unit showing the September 1981 commercial
operation. This schedule should identify schedule critical areas
(boiler, TG, permits) and the assumptions for labor availability,
productivity and labor contracts during major construction periods.
The impact of additional environmental requirements on the project
schedule as a result of EPA's most recent ruling concerning an
Fnvironmental Impact Statement should be considered,
3. Future TMPA planning for generation sources past Gibbon's Creek #1
should consider other alternative sources such es wholesale purchased
power (TPLL) and participation in other utility projects.
4. We recommend that the agenda for future Board Meetings be provided to
the Board Members in sufficient time to allow review and discussions
with City Council and the Public Utilities Board. We must emphasize,
however, that the purpose of this review is to consider thos items ethe
major importance to Denton. Operational aspects should be
discretion of T.M.P,A.'s staff,
G"ilca ► u
Y1-9
i -
SECTION VII
POWER SUPPLY ALTERNATIVES
INTRODUCTION
The City of Denton has retained riilbert Management Consultants a division
of Gilbert Associates, Inc., to develop and analyze several alternative
Electric Power Supply schemes to satisfy City demand and energy load growth
for the period 1978-1987. Several alternative schemes were identified by
Gilbert for legal review by the City Attorney as specified in the contract
for services. We have been informed by the City Attorney that no alternative,
other than Denton's present participation in the Texas Municinal Power
Agency (TMPA), was legally available to the City, The City's Charter, bond
ordinance, and TMPA's Power Sales Contract governed in this instance.
Further discussions by Gilbert determined that the full impact of TMPA
participation could not be satisfied by a singular review of the TMPA
rlternative. This section therefore presents the development of revenues
and costs for three base-load power supply alternatives. These
mutually exclusive alternatives are:
o Participation in TMPA;
o Continued independent expansion of the Denton Generation, System;
o The purchase of wholesale power for resale.
While it should be clearly understood that the two latter power supply
alternatives, continued independent expansion and the purchase of wholesale
power, are unavailable as options to the City of Denton, we believe we have
GAp«eJCemnwnw~M
VII-1
responded to the City's immediate needs by expanding the scope of our
services to include these additional cases for purposes of economic comparison.
The comparisons and conclusions developed in this report provide sufficient
data for the City Council and public to assess she City's committed
participation in TMPA for future =lectric por,,er supplies.
Study Horizon
Costs have been developed for individual alternative cases for the years
1978-1987. It was our initial intent to project costs through 1995;
however, several factors together render such projections unnecessary
and/or misleading,
our reasons for a 1978-1987 time frame are based on an adopted TMPA 10 year
capital program, identifiable and reliable load forecasts for the City of
Denton and potentially secured fuel supplies for existing City generation
facilities. Forecasts past 1987 would be based on unsupported demand and
energy loads. Further, the uncertainty in Federal government action with
regard to availability and costs of power plant fuels for utility use would
require assumptions that could overshadow and possibly distort the 10 year
results reported in this revitw. Finally the computation of electric power
costs in 20 to 30 year studies could lead to misunderstandings by the
general public when confronted by data that grossly exceeds current day
experience.
Major Assumptions
for any study, there are certain key assumptions that are made which effect
study results. For each case, we discuss individual assumptions, however,
f~Ert/tanmonvnn
VII-2
the importance of fuel pricing requires that we identify early our assumed
pricing for alternative boiler fuels. Where necessary, several sensitivity
tests were made to examine results based on different assumptions of key
variables.
FUEL PRICES 1978
Denton Natural Gas $1.84/MMBTU Escalated at 11.2% per year
Oil $2.05/MM8TU Escalated at »10% per year
Coal $1.36/MMBTU $30/ton Escalated at 7% per
year
TMPA Lignite $0.37/MMBTU (1977) Escalated at 7% per
year
We note that these escalation rates are average rates and vary from year
to year in our calculations.
A Load Forecast was prepared by the City of Denton for the period 1978-87
and indicated an average annual growth rate of 8%. Since the load
forecast is common to all cases, variations in ultimate loads will
not affect the outcome of study results.
The Wholesale Power Rate (TP&L) of 29.2 mills/kwh in 1981 s.:as based cn
A projected TPLL fuel miA of 58% lignite, 34% natural gas, and 8%
nuclear. We have assumed a 5% average escalation rate for the study
period.
Electric Utility System Operating Expenses for the development of revenue
requirements, operating expenses such as O&M, customer accounts, and
administrative accounts were supplied by Denton personnel. Existing debt
service has also been provided by the City.
c~e~ Iconunonr..~t1~
VII-3
Case uescriptions
Study Case Development - As defined in our proposal, Gilbert was to evaluate
the economics of power supply alternatives that are legally available to
the City of Denton. In mid-August, we presented, for review by the City
Attorney, Assistant City Manager and Director of Utilities, several study
alternatives which would basically provide base load generation requirements
for the period 1978-1987. These alternatives included:
o Continued independent system expansion;
o Participation in major planned units by neighboring utilities;
o Participating in TMPA;
o Sale cr assignment of existing facilities;
n Wholesale power purchases.
These proposed cases were to be reviewed by Denton against the restraints
of the TMPA Power Sales Con~ract, the City's bond ordinance, and the City
Charter. A review of our proposal was made by Mr. Paul Isham, City Attorney.
His review indicated that except far the TMPA alternative, no other
alternatives were legally available to the City of Denton at the present
time.
Since it is our opinion that a study of several basic alternatives is
necessary to respond to the intent and spirit of the needs of the City of
Denton, we proceeded independently with a. screening analysis of three
identifiable alternatives:
VII-4
AdL
o Base Case - Continued Denton System expansion, independent of
outside generation sources;
o Case 1 - Continued participation in lMPA as now planned;
o Case 2 - Purchase of wholesale power from Texas Power 6 Light.
The analyses and comparisons of.these alternatives was conducted by developing
annual electric system revenue requirements and average unit Kwh costs
based on projected total system costs. The minimu-.,; cost alternative was
considered most favorable. (The present 12 1/2`B surcharge was not included
in our development of revenues.)
We believe our choice of study cases presents clear information to the
citizens of Denton of the mix of economic problems facing utilities today
that have forced a divergence from traditional electrical generation practices
and costs. The presentation of such factors will be beneficial for public
understanding of the commitn*nt to TMPA and its potential costs and risks.
In the following paragraphs, we develop the basic descriptions for the
several study cases and tabulate costs and revenue requirements for the
timeframe 1978-1987. Since there was interest in the potential benefits of
a sale of Denton's Electric System assets; we have reviewed pertinent
correspondef,ce (Appendix D) and offer several convents following the case
descriptions.
Base Case - The base case was a continuation of "business as usual." for
Denton, this meant a continuation of satisfying electrical load growth
through the installation of wholly-owned generation equipment.
YIl-5
The system demand and energy (kwh) forecast shown in Table VII-1 is based
on Denton and TMPA projections. We have no basis for modifying that forecast
at this time. The data appears reasonable and since this data was connon
to all cases, the effects of its accuracy en our study results is considered
negligible.
Based on the demand forecast by the City and stipulated reserve requirements
in the City's interchange agreement, it was determined that a 25 Mw gas
turbine and a 100 Mw coal fired unit would be required in 1981-1982. These
new units are shown in Table VII-1. The gas turbine, which is oil fired,
will be used for peaking purposes and allows Denton to satisfy short teem
power supply shortages until the new 100 Mw base load coal unit is onstream
in late 1982. The 100 MW unit was estimated to cost $140 million including
interest during construction and escalation.
Coal was the obvious fuel choice for the new base load unit since under the
Texas State Railroad Commission order of December 17, 1975 Docket 600, gas
would be prohibited as boiler fuel, and recent FfA actions would likewise
prohibit oil for new power plpnts on s national basis.
The 100 Mw unit is assumed to burn a high quality, high sulfur mid-western
coal with stack gas scrubbing facilities. Operation of this plant would
require approximately 200 acres for a plant site. Coal consumption would
be 335,000 tons per year based on a 80% capacity factor in IPS4. For 1982
and 1983, it was assumed that the plant would operate at a 55% capacity
factor until the plant matures and reliability is at a higher level.
Incremental Kwh costs from the new base-load coal plant would be 21.1
mils/Kwh in 1982, Based on our projections for natural gas, the existing
&UMJCW44-e".hi+
VII-6
TABLE Y1I-1
CITY OF DENTON
DEMAND AND ENERGY FORECAST
CAPACITY REQUIREMENTS
1978 - 1987
L E D** C C N C E L NERG ~
MW M44M MW MARGIN * u tGA~T~• I
1978 125 169 35 502 46
1979 134 169 26 538 46
1980 144 169 17 575 46
1981 155 25 GT (Oil) 194 25 625 46
1982 168 100 Coal 294 75 677 46
1983 183 294 61 737 46
1984 198 294 48 798 46
1985 214 294 37 862 46
1986 231 294 21 931 46
1987 250 294 18 1007 46
* Purchases and interchange agreements from TIS provide
emergency or maintenance reliability.
Data Source: City of Denton 6/1/77
Denton units 1-5 would provide power at a comparable 37.2 mils/Kwh. It is
intended that the existing gas fired units would be used for cycling or
intermittent load operation.
Table v1I-2 tabulates the annual energy sources to satisfy yearly Kwh loads
in the Base Case. Short term purchases from Brazos are shown in 1981 to
account for reduced gas supplies and to satisfy interim needs until the new
coal unit is on stream. Gas is assumed displaced as a boiler fuel after
1985. While not shown, it is expected that a new coal unit (111) will be
onstream in 1988, thus minimizing costs for oil as a boiler fuel.
Our development of revenue requirements for the Base Case is shown in Table
VII-3. We have included additional fixed charges for the two new units and
have not included costs for any major transmission network modifications.
Further, it is anticipated that a second 100 Mw, unit will have to be onstream
in early 1988. The costs of this project have not been included in our
analysis. If included, such costs would substantially further raise revenues
in the years 1984-1987. The large rise in costs in 1982 is directly
attritatable to increased debt service required ty the new plants.
Case 1 - Thic casa develops revenues and costs o',' Denton's Electric Utility
System to support its participation in the Texas Municipal Power Agency as
now planned. In accordance with the Power Sales Contract, Denton through
TMPA, will participate in new planned nuclear and lignite generation.
Through this participation, Denton will achieve reliability and lower costs
not otherwise available by a continuation and growth of wholly-owned
facilities:
- Go'. rC&WOV +RA
YI1-7
.i d
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TABLE VII-3
CITY OF D6NTUN0TLAAs t:LLCIKIL UTILITY SYSTEM ICO.M 11
SUMMAk( OF PRUJLLTEO UPLMAIIONtat$ASE CASE
IILM 1977 1978 1979
OPENATING kEVENt1E5 lul t: 13445. 1616b0 Ib770•
Kvm SAt.kStOo0) 102 1 419500• 466b6Or 500340• '
WT F-Wh kEVENUL(CLNT5/R4M) 103 t, 31995 34.63 37.51
OPERATING EXPENSES
FUEL 104 1 74bo 11154. 13594•
OPERATION AND MAInTENANCE 1u~3 1 2216• 9200 975.
PURCHASED POWER lob l 00 THANSr,ISSION AND GISTN1bvi1Li. of 0.
107 1 0. 32b0 500.
CUS40MER ,r.,, , 1Gd 1 0. 454. 4b20
_ •~OtiIl1 5` if~iYi I . Ahti U+tiJLPAL l0y 1 0. 4510 470.
TOTAL OPERATIt46 EkPENSLS ?
Ilu -c y616• 13507. 160970
NET OPERATING REVENUICS. 11~ o" 3749. 26609 2683.
OTMEQ INCO14E 110 I
AMOUNT AVAILAULF F.Wo ii►.+s ~►r;!,1~r 050 250. 250•
Oa.l.
li'l/et.
DEBT SERVICL
EXISTING '
PRot9cEU 114.1 Ib3S. 1631. 18000
I15 I 00 105. 1550
BASF' CASE 110, 1 Of iJ. of
TOTAL bEllY SERVICE 1161 to 16J50 1yw00 19550
DEBT SEkVICE COVERAUt 11b I 202 - 105 1.5
BALANCE OF NLT kLVEr.ULS ;ib t 2tl94 Y700 yid.
BASE CASE
19bD 19bi 11182 1983 lvb4 Ivb5 1906 1987
2202e0 265670 41b86. 46119• 467626 b1333. 57247. 64839.
534750. 581250. 6296100 685410• ?42140. 8016bD. 365830• 936510.
41.1b 45071 6663 67029 es.u1 b4.03 86.12
690 Z3
!
I
1+,518. 15995. 17242• 209814 ?1153. 75479. 3ub25. 370010
,I
10500 1096• 64b3• 6872. 72N5. 7121, b1a4. b70b►
00 49708 00 00 0. 04
04
593. 629. 666• 1060 749. 00
20 I
$10• 7469 8416 8920
541• 513. 6080 644. 60. 724. 7670
5064. 5376 569. 603• 839. 67'70 71b. 161.
192379 237670 25474• 297704 30470• 353460
412920 48929•
7704. 28004 16412• 163490 1f2y2• 160270 15955. 159100
150. 2500 250• 250 2500 2500 2
3034 _-95l1..____
0n~z.'t~- "'7011i~,.. 16205• lbl60• f~
1766• 1131. 1696• 1661• 1630. 14601 116. 261.
, f
257. 303o MI 13>6
O, 9118. 2840 1824 275. I
0' 91160 4 9118. 9116. y116. 9•
2023• 20340 111080 110660 110280 106516 118
1u80J0 107730
105 lob 105 l.5 lob 105 105 1.5
10116 10170 55546 55330 55146 5476. 54020 53b70
1
1
{
I
A
Based on'projections of TMPA, Denton was to initiate purchases of energy in
1981 from new TMPA sources. As more fully discussed in Section VI of our
Management Review, we have assumed that Denton will not receive energy from
TMPA sources until 1983. able VIII-4 tabulates energy requirements and
sources by year for Case 1. For the 1981-82 period, we have shown emergency
i
purchases from Brazos until TMPA (Gibbons Creek) is fully operational in
1983. Denton's existing gas fired generation is utilized to satisfy the
difference between system requirements and energy available from TMPA.
i
This use of high cost gas fired gent ation is at a minimum in 1983, but
climbs to 37% of annual needs in 1987.
To develop revenue requirements, it was necessary to obtain projected unit
costs for Texas Municipal Power Agency generation sources. Table VII-5
tabulates the energy to be derived from new TMPA sources, Comanche Peak and
Gibbons Creek. The Texas Municipal Power Agency developed system unit
customer costs for the period 1978-1987 and this is reproduced in Table VII-
6, with two exceptions. First, member city fuel costs are excluded from
TMPA projections so as to isolate Agency costs. Second, we have reduced
the value for debt service by $11-23 million for the years 1983-1987.
These monies were forecast for a fuel program not presently authorized or,
associated with Gibbons Creek or Commanche Peek, but for future generation.
This reduction is consistent with our exclusion of costs for a second
100 MW unit in the base case and our study horizon.
Gibbons Creek is the major project now underway and managed by Texas Municipal
Power Agency and its consultants. The plant is located in Grimes County,
Texas adjacent to significant lignite reserves as identified by the Paul
croalc~nrnoow,M
VII-8
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TAB! c VII -5
TEXAS MIS~ICIPAl POWERCY
PROJECTED POWER PRODUCTION
(GWH)
FISCAL YEAR ENDED SEPTEMBER 30
1983 1984 1985, 1986 1987
Year
Source
456.2 458 456.5 456.5 456.5
Comanche Peak 1
Comanche Peak 2 168.8 393 459.5 459.5 459.5
Gibbons Creek 1 2196.7 2275,4 2343.7 2441.1 2512.6
2811.7 3126.4 3259.7 3357.1 3428.6
Texas Municipal Power
Agency Fuel & O&M Cost $26,815,000
Production Variable Cost 9,54
(Mills/Kwh)
Source: TMPA
60anltaw"too
Weir Company, a mining consultant. The first unit will have a capability
of 400,000 Kw with a cooling pond to be constructed through a series of
dams and roadways. Texas Municipal Power Agency's latest schedule shows
the unit to be in commercial operation by September of 1981. This represents
an overall schedule of 4-3/4 years assuming engineering began iii late 1976.
Texas Municipal Power Agency feels confident of the commercial date since
the unit is a duplicate of another unit under design by Tippett b Gee.
We have assumed a commercial operation date of January 1, 1983 for which we
believe recognizes realistically engineering, site, labor, environmental,
and startup factors which will affect this unit consistent with our experience
on other projects,
Table VII-6, which projects TMPA operating results, approximates unit Kwh
costs to be incurred by member cities and is used to determine annual
Denton payments to Texas Municipal Power Agency for energy including fixed
charges, With this data, and the emergency purchases from Brazo's i}i
1981-1982, Table VII-7 was developed to determine annual revenues and
average expected Kwh costs. Through 1981, annual revenues for Case 1 are
comparable to the base case. However, starting in 1982, revenue-; are
approximately $10 million lower for the TMPA alternative when compared to
the independent expansion basq case alternative,
Case 2 - While not presently legally available to the City of Denton,. It
was of interest to examine the situation whero the City would purchase its
entire power needs from a neighboring utility. Texas Power b Light, a
subsidiary of Texas Utilities, was contacted to determine potential
availability of firm wholesale power and costs, Our discussions with TP&L
indicated our data request was for study purposes only and that it was
V11.4
Case i
TABLE Vii-7
CITY OF OENTONs7EXAS ELECTRIC UTILITY SYSTEM (COON 1) CASE i
SUMMARY OF PROJECTED OPERATIONS
1980 1981 1962 1983 1984 1485 1986 1981
ITEM 1977 1918 1479 36976. 4023bO 457630 52781.
0 26568• 30730• 31014. b01660. bb5830• 936510•
13405. 16167• 18770. 22006, 2500 629610. 085410• 742140. 56.37
OPERATING REVENUES 1101 02 1 G 4195006 4668b0. 500340. 534750• 58145.71 46.b2 45025 49.8? 50619 52.85
KWH SALES10001 31.95 34.63 37051 41.15
UNIT KWH REVENUEICENTS/KWH1 !03 C
7335. 111680 15984. 22320.
13594. 16S780 15995. 107686 12315794• 1305. 13M 1466• 1554
OPERATING EXPENSES .
104 l 7400• 11154. 9756 1034• 10960 11610 . 2317b. 23749. 24257.
FUEL 105 I 22160 920. 4970. 14390. 19391• 23686. 7960 8416 8928
OPERATION AND MAINTENANCE Of 00 00 0' 666• 700. 744` 767•
PURCHASED POWER 106 1 52g• 5600 593. 629. 608+ 644. 6830 724.
107 1 0' 482. $10. 541• Si}• 639. 671. 718. 7610
TRANSMISSION AND UISiRIBUTION lob 1 00 454' 506• 5370 5691 6030
CUSTOMER ACCOUNTS 109 1 06 451• 4780 43482. SOSSIO
AOHlN151RATlYE AND GENERAL
135076 16087• 192216 23767• 279980 26339• 34358. 3]88?.
110 G 46ibO 2610. 23536 2281. 2236.
TOTAL OPERATING EXPENSES 27b5. 28010 27380 2675. 250 250* 2500
3784. ?5506 208}. 2501 250. 250. • ?S0• 25310 24860
111 C 250
NET OPERATING REVENUES 2650 250• 2500 . 286x. 2003.
112 1 2910• 2933. 3035. 30516 29886 2425.
OTHFF INCOME 4054.
AMOUNT AVAILABLE FON DEBT SERVICE 113 C 1460. 1414. 1396.
1661. 1630. 2750 2640 2611
DEBT SERVICE 114 1835• 1835• 18006 17660 1303. 1296. 2b9. O282. p•
757. 00 . 00 Of
EXISTING 00 1050 1550 0
' 0` 1912. 1735. 1687. 1657.
PAOPOSEO 115 ! 0 OO 00 1
116 I • p' 20230 20340 992. 1950.
:1~5C CAS: 117 C 0 350 19400 1955. 1.5 165
TOTAL DEBT SERVICE l,t 3.5 l.5
+.i
1!b 1 202 165 165 1.5 105 956 868. 944. 829.
DEBT SEkViCE CUVERAGE IOl7O 4960 9750 .
BALANCE OF NET REVENUES 119 C 2214. 4700 978. 1012.
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4 I
O
recognized that Denton was a member of TMPA and as such could not presently
purchase wholesale power for resale. TP&L supplied a copy of their Rate
Schedules WP-500 (June 1977) and FCF (fuel adjustment) which, together with
a projection of their fuel sources form the basis of future costs for our
study.
The presently effective rate schedule, WP-500, includes 11°0 of a petitioned
34% rate request by TP&L in December 1976. TP&L plans to file for additional
increases by the end of the year. We have assumed that the balance of
their originally proposed rate increase will be awarded.
To determine unit costs in 1981, we escalated the TP&L rate schedule (with
the 34% increase) components at 10% biannually to 1981. Based on a 1981
forecast of fuel mix (Table VII-8), we have determined that purchased power
costs would be 29.2 mills/kwh in 1981.
Table V1I-8 indicated that system fuel costs will increase from 92t/MMBTU
in 1976 to $1.32/M14BTU in 1981. This represents an increase of 7-8% per
year. TP&L is able to moderate their fuel cost increase by their timely
conversion to lignite as a primary fuel source. Table V11-9 tabulates the
TP&L portion of major planned lignite units which are to be in service
before 1987. The addition of these new units will further reduce their
dependence on high cost natural gas.
For our case study, we have assumed that existing Denton Generation is
retired in favor of purchasing Denton's entire system load requirements
since the purchase power costs are less than Denton's generation costs.
Table VII-10 tabulates the system energy requirements and sources for the
cae.nltomnan«nnn
V11-10
TABLE VII-8
TEXAS POWER & LIGHT
1981 FORECAST
KWH BY FUEL SOURCE
1976 Actual
KW~ Unit Cost Weighted Cost Weighted Cost
10 S MM BTU 5/IVBTU SJNHBTU
20226 0.53 0.30 0.096
Lignite
29415 1.05 0106
Nuclear
Gas
Non-Tufco 1'86 0.824
Tufco 11 812 2.75 0.95
Oil Equivalent .0.06
Purchases 103 0.01
Total 346556 $1.32 $0.921
KWH Fuel Cost in 1981 = $1.32 x 10,500 Btu/KWH 13.86 mills/KWH
10 Btu
1981 WHOLESALE RATE
Unit Cost
1
Demand Charge 9.6
Basis 155,000 KW C- $4.65/kw
Energy Charge (No Fuel) 5.7
Basis 759000 KWH/Month
Fuel Adjustment (per KWH) 13.9
29.2 Mils/KWH
Source: Gilbert Management Consultants
G+wt ~ [aiuron+uiu
TABLE VII-9
TEXAS POKER & LIGHT
GENERATING UNITS UNDER CONSIRUCTION OR IN DESIGN
~TATTC3V~ND L~ T [ Pi U . UNIT U T: NET
NO. CAPABILITY
(Kilowatts)
Tota Company- Scheduled
Participation For
Service
Martin Lake - Rusk County Lignite 1 7509000 4500000 1977)
12 7509000 450,000 1978)
Montciello - Titus County Lignite 3 750,000 375,000 1978
Martin Lake - Rusk County Lignite 3 750,000 225,000 1979
Sandow - Milam County Lignite 4 5459000 5459000 1981
Comanche Peak - Somervell 1 19150,000 3839000 1981
County Nuclear ~2 1,150,000 383,000 1982
Forest Grove - Henderson
County Lignite 1 750,000 150,000 1982
Martin Lake - Rusk County Lignite 4 750,000 225,000 1983
Twin Oak - Robertson County Lignite (1 7509000 572,000 1984)
(2 750,000 563,000 1985)
I
N
L
83~
ter
V W
8S
O O
x
99 ~
0
7a
1
IIr ~ _
L~ yVyIL .1 r
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tttu777 c ~ ~9✓1
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w
y y~ f A _
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r
W~ W C L N IP
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L WI
N
. TABLE VII-11 Case 2
i
CITY 01 OENTONaTEXAS ELLCINIL UTILITY SYSTEM iCO.r 11
SUMMANV OF PeOJECTEU OPERATIONS CASE 2
ITEM 1977 1978 1979 1940 1981 1982 1983 1984 1985 1946 1987
OPERATING REVENUES 101 C 13050 16167• 18770. 22006. 23524• 256098 293!3. 3?217. 3b595, 401306 46930a
Koh SALES40001 102 1 419500. 466860, 500340. 534700. 581250• 629,510. 085410. 742140. 801660. 865830. 936510.
UNIT KWH R.EVENU[(CENTS/144) 103 C 31095 34.63 37.51 4!•16 40.47 40.68 42.80 43.41 45965 46.35 50.11
OPERATING EXPENSES
FUEL 104 1 7400. 11154. 13594. 165780 as 04 00 Of 00 00 00
OPERATION AND MAINTENANCE 105 1 2216. 9200 9750 1034. 7670 813. 862. 914. 9680 10260 10860
PURCHASED POWER 106 1 00 0. 00 00 18250. 203100 23879. 26653. 311180 34540. 411860
Ti;ANSMISSION AND DISTHIBUT?ON 107 l 00 528• 560. 593• 629a 666. ?060 749. 1969 8416 89?.
CUSTOMER ACCOUNTS lob 1 00 4544 482. 514. 541a 5134 608# 644• 683.
724e r4'l.
ADMINISTRATIVE AND GENERAL 109 1 0. 451# 478& 5064 5370 $690 603a 639, 677, ilb& 761#
TOTAL OPERATING EXPENSES r 110 C 9615, 13507. 160870 192220 20123# 228710 26658# 2455x90 342420 378490 44694&
NET OPERATING REVENUES 111 C 3789& 2660, 2683# 27ds. 28010 2738, 2675# 2618& 2353.
2261& 2236&
OTHER INCOME 112 1 265# 250& 250# 250, 2500 2506 2500 250.
250. 2501 2506
AMOUNT AVAILABLE FOR DEBT SERVICE 113 C 4054# 19109 29336 3035# 30516 2988. 2925.
2868• 2603. 25310 2486,
DEBT SEkV1CE
EXISTING 114 I 1835& 18356 1800& 17666 1731. 16966 1661# 16301 1460• 14198 139(.#
PROPOSED 115 1 Of 105# 1556 2516 303# 2966 2890 2824
2750 264. 261.
BASE CASE 116 1 00 0# 00 00 Of 00 06 06 06 0#
TOTAL DEBT SERVICE 117 C 1835& 19406 1955# 20236 2034. 19920 19504 491?# 17354 1687& 1657,
DEBT SERVICE COVERAGE )18 1 2#2 105 l&5 1,5 145 105 165 115 145 105 105
BALANCE OF NET REVENUES 119 C 22194 970& 9784 10120 1017, 9966 9750 95641 868a 8440 829,
years 1978-1987. Assuming a contract and rate schedule is negotiated,
wholesale power as an energy source is shown starting in 1981. Table VII-
11 presents the forecast of System revenues and expenses to support this
alternative.
We have reviewed the wholesale rate schedules of LCRA and Central Power and
Light and that review determined that TP&L's rate was most economical at
this time. TP&L's favorable capacity and cost position, transmission ties
with Denton and TIS assured that our cost development would be representative.
Revenues under the wholesale power case are $2-4 million a year less than
the T.M.P.A. alternative. On a levelized basis we have determined that
wholesale power would cost 2-3 mils (nut of 40-45) less than the T.M.P.A.
alternative. However, as noted in our summary, the data used for this case
development does not have the firm basis and reliability that is embodizd
in the T.M.P.A. alternative. The results should be considered speculative
until confirmed by further study.
Other Considerations
As noted earlier, there are several power supply alternatives that were not
studied in detail in this report. We have previously listed our reasoning
for exclusion of such cases.
There is an alternative, for which some factual data exists, that is of
current interest and warrants our review and comments. This alternative is
the offer of Texas Power & Light to purchase the City of Denton Electric
Facilities for $~S million.
CAVA Mow. tog"
VII-ll
Ask
We have included as an Appendix 0, correspondence made available to us in
early October 1977 concerning this apparent bonafide offer. We assume that
management, City Council, and the Public Utilities Board are aware of those
terms and conditions. It would appear that in addition to the $25 million,
TP&L would make the following estimated annual payments:
Street Rental 1410,000
Ad Valorem Taxes 147,000
School Taxes 260,000
$867,000
Other potential income would be a return on remaining funds after the
retirement of outstanding Denton bonds. This is estimated to be $400,000
annual by TP&L.
At this time, it is difficult to develop a comparable case for comparison
to our other three cases. Such a development would require an investigation
into the TP&L system, including their forward planning and a development of
rates which would be applicable to the City, We believe that such forecasts
by TP&L or a consultant would show costs to Denton to be comparable to our
Case 2, wholesale power case.
fdCert 1Car rtanwuR~
VII-12
FINDINGS
Revenue requirements and corresponding unit electric power costs (mills/kwh)
have been determined fo~% three mutually exclusive power supply alternatives.
These alternatives are:
o Continued independent system expansion of the City's generation
facilities. (Base Case)
o Participation in the Texas Municipal Power Agency (TMPA). (Case 1)
o Purchase of wholesale power for resale from the Texas Power b Light
Company (TP&L). (Case 2)
For the ten year period 1978-1987, revenues and expenses were forecast to
analyze each study alternative based on certain major assumptions for fuel
costs and'load growth. For comparison purposes, it was assumed O.at the
City of Denton had the choice of pursuing either of three independent plans
listed above without regard to the City's committed participation in TMPA.
In essence, the study is intended to test the reasonableness of costs that
can be expected from Denton's decision in July 1976 to participate in TMPA.
We have summarized our results in the accompanying table to illustrate the
major cost differences between the three study cases. We conclude that:
1. Continued independent expansion of the Denton generation system is not
economically practical with respect to the magnitude of the City's
added capacity requirements. Escalating plant and fuel costs do not
allow the achievement of economies of scale necessary for today's
electric systems. For example, the cost for a 100 MW coal fired unit
~ rcam~wu
VII-13
for Denton's system, on line in 1982-83, would approximate 51,400/kw
for plant facilities, whereas similar plants for mayor utilities
constructed in the same time frame are less than $1,000/kw. Fixed
costs (debt service) on a 100 MW rcdl-fired plant would far exceed the
benefits of burning lower cost coal versus burning natural gas in
existing units.
When continued independent expansion is compared to the DTA (Case 1)
alternative, levelized system costs favor the TMPA alternative by
8 mills/kwh. This confirms previous studies conducted by R. W. Beck
and Westinghouse.
2. For Case 1, the TMPA alternative, our forecast unit cost of 45 mills/kwh
(4.50 which is 15% higher than previously published data (3.9¢) by
TMPA in their September 1976 Bond Report. This increase is due mainly
to higher plant and facilities costs. We should point out that the
earlier TMPA forecast data included the economic dispatch of member
units, while our data does not. Economic dispatching iiould reduce our
TMPA costs by 1 to 2 mills and thus narrow the difference between Case I
and Case 2. We find the costs of TMPA participation to be reasonable
compared with forecast costs being experienced by other utilities. TMPA
is prudently shifting to lignite and nuclear based plants which offer
economies Denton could not experience through independent action.
3. Based on our 1981 projections for TP&L wholesale power rates (Case 2),
it is apparent that this may be an attractive alternative to the
citizens of Denton. Case 2 results are somewhat hampered in that they
Govt rcaww"wm
VII-14
w •
do not contain a like de;ree of accuracy or confidence level as in the
data for the other cases. The case should at least be considered
speculative at present pending further definition and obtainmenc of
additional data from TP&L. We believe the four mill difference in
levelized unit power costs between Case 1 (TMPA) and Case 2 to be of
significant magnitude to warrant further study.
4. We have reviewed correspondence relating to an offer by TP&L to purchase
the xssats of the Denton Electric System for $25 million. We have
been advised that this alternative is not legally available to Denton
and was therefore not included in our scope of services.
RECOMMENDATIONS
Our studies indicated the TMPA alternative to be a reasonable route for
Denton to pursue under present economic conditions. We recommend that
Denton continue to monitor TMPA cost projections and project schedules to
insure that costs remain comparable to those estimated for purchased power.
i
As noted in Section VI, our judgement is that Gibbons Creek will not be
available until 1983. This delay may necessitate emergency purchases and
most certainly will result in additional costs due to the purcha!.-id power
and the financing of increased capital costs associated with Interest
During Construction and added escalation.
Prior to future commitments for generation projects, we recommend that
Denton require TMPA to study all reasonably available alternatives. Our
studies show that wholesale power (Case 2) may be attractive for Denton in
the future and should be studied as both a TMPA and Denton alternative.
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APPENDIX B
GENERATING STATION PROCEDURE
PLANT SWITCH AND TAGGING
APPLICATIONS
ppplications are to be used when either mechanical or electrical equipment is
to be isolated and tagged for inspection, testing, or maintenance. An exception
to the above is when equipment is specifically exempted in writing by the Plant
S;perintendent. Equipment on this list does not require an application if
"personal tags" are used and permission from the Shift Foreman is obtained.
These applications are meant to be a supplement to and not a replacement of any
existing Company safety rules for protection of men working on electrical or
mechanical apparatus.
i' Tho purposes of the plant applications are:
1. That the proper method for isolation and protective tagging for inspection,
testing, or maintenance shall be uniform and mutually agreed upon by the
various parties concerned.
2. Through such a procedure, complete protection (both electrical and
mechanical) can be supplied for the workmen involved in accordance with
the Company's safety rules.
3. That all parties involved will have a written record of all necessary
information pertaining to the work planned.
4. That the equipment may be scheduled out of service at such times as not to
interfere with the operation of the plant.
One copy of the application shall be ti'ept as a permanent record.
CAM K&WROW
6.1
INSTRUCTIONS
The applicant assigned to a specific Job shall complete an application down to
the first double line as a request for the isolation of the apparatus or
equipment needed. This must be done before attempting to start to ;ob. The
applicant shall also list the necessary switches or valves necessary for
isolation and safety, together with the type of tags to be applied.
The department and shift foreman's verbal approval must be obtained before any
switching and tagging is begun. The ap►:+ication shall be signed by both the
department supervisor and shift fort-man as soon as practical.
She applicant shall present his application to the switchboard operator or
Control Room operator, who will check the switches or valves to be tagged as
listed by the applicant. If he approves, the operator shall insert his name on
Vs proper line before writing his snitching order to isolate the switches or
valves requested,
The switching and tagging shall be done by personnel designated by the station
superintendent. The switching and tagging procedure must be witnessed by the
man for whom the tags are pla.,_d, either durinn the actual switching operation
or before starting his work.
At the completion of the switching and tagging, and before commencing work, the
applicant shall verbally request clearance from the operator for permission to
start hit work. At this time, the operator shall ascertain whether or not
grounds are to be installed by the applicant. This information shall be
recorded on the line marked "Clearance given."
B-2
...n . ~
When the applicant has completed his work and removed his grounds (if are), he
shall so notify the operator who will complete the line marked "Reported clear."
When convenient, the operator shall issue a switching order to remove the tags
and restore the isolated switches or valves to a normal position using personnel
designated by the station superintendent. It is not necessary that the applicant
assist in the restoration of the equipment.
If the applicant does not complete his work in one day and desires to leave
the work site, he shall report to the operator that his work is not completed.
This notification shall be inserted in the station log. On returning to the
work site the following day, the applicant shall again be given clearance by the
operator to commence his work. This clearance time shall also be inserted in
the station log.
After the switches or valves have been restored to a normal position, the
operator shall complete the line marked "Approved for operation" and notify the
shift foreman that the equipment is ready for service. .
Tha Original copy of all applica600i small too ret(A ned in a binder and kept
as a permanent recorc,
APPROVED:
Chief ystem perator
uper n en ent-OTTro uct on
ant uperinte c ent
Wiwi luft ft"M
B-3
STATION
. e N0.
DATE -
APPARATUS DESIRED
AH DAY
AM DAY `
- - - - 1
FROM PH DATE,,,,. - 19 UNTIL PH DATE
WORK T% BE D014E - +
SWITCHES/VALVES NECESSARY
TAGS TO BE PLACED FOR SIGNED BY
_,___(APPLICANT)
ALL OF ABOVE,, FORt-i TO BE COftPLLTE:D BY APPLICANT
ABOVE TAGGING APPROVED;
APPROVED - DEPT. FORE24AN
~i al.iiLJ
(Switchboard Operator) SHIT FOR%LAL1
(Control Room Operator)
DATE TIME GROUNDS APPLIED
CLEARANCE GIVEN BY AM 00
PH
REPORTED CLEAR BY DATE TREE AM GROUNDS R111OVED
PM
APPROVED FOR OPERATION DATE TIME
AM
PM
Switchboard Operator (Name of Shift Foreman Notified)
,,;ontrol Room Operator)
F`LE
ONE COPY TO IT HORE SPACE TS RLQUIIUD
USE REVERSE
B•4
SWITCHING ORnER
fT~f10N
ORt)[R MO. Olli[ H
ORO[R[0 6Y. ,~_11M[ pOVlt I
ORDER OF SWITGHtNO
a
s
Y
to
10
.1
11
14
If
is
Ir
fIM[ COMfI[t[D NIS.
by&"*" 0~0I■d+[41
Good 1180
$-5