2019-054 Georgetown TX Power SupplyDate: March 22, 2019 Report No. 2019-054
INFORMAL STAFF REPORT
TO PUBLIC UTILITY BOARD
SUBJECT:
Power Supply Overview of the City of Georgetown’s Electric Utility
PURPOSE:
The purpose of this staff report is to provide a high-level summary of the City of Georgetown’s
electric utility power supply situation using publicly available information posted to the City of
Georgetown’s official website: https://georgetown.org/. This report will also contrast
Georgetown’s renewable power supply situation with that of the City of Denton, which has also
adopted a near-term 100% renewable energy target.
DISCUSSION:
The City of Georgetown, Texas owns and operates a municipal electric utility system.
Georgetown has received significant media attention as a result of its 100% renewable energy
program and its recent rate changes to address revenue shortfalls in its purchased power budget.
In 2008, Georgetown adopted an Integrated Resource Plan (IRP) for power supply with a goal of
obtaining a mix composed of 30% renewable, 30% coal, 30% gas, and 10% market energy. The
plan also noted that nuclear energy could be substituted for the coal or gas target if nuclear
energy was available. Policy direction at the time on power portfolio goals were (i) competitively
priced; (ii) long-term stable rates; (iii) mitigate regulatory, legislative, and financial risk; and (iv)
30% renewable by 2030.
The Lower Colorado River Authority was the primary provider of electric energy to Georgetown
from 1940 to 2012. Georgetown elected to terminate this arrangement in 2012 since LCRA could
not meet Georgetown’s IRP goals. From Georgetown’s perspective, LCRA had an aging power
generation fleet, expensive new investments, and could not make rate guarantees.
When Georgetown sought to replace the LCRA arrangement, they evaluated multiple options in
wind, coal, and gas and found that all forms of power were quite costly. Every option was above
their electric rate targets.
Other than a small wind contract signed in 2008 that was passed through to Southwestern
University (located in Georgetown), the first power supply contract entered into by Georgetown
was natural gas based with a term of 2012 through 2021. Georgetown states that longer-term
contracts were not available in the Electric Reliability Council of Texas (ERCOT) due to
projected power shortages and high prices (the summer of 2011 was a notably hot summer).
Next, Georgetown entered into a contract for wind energy in 2013 that runs through 2035. This
was followed by a solar contract that was entered into in 2015 with a term through 2043.
Date: March 22, 2019 Report No. 2019-054
In reviewing publicly available information on Georgetown’s power supply and financial
situation, Georgetown’s challenges can be summarized as follows:
Georgetown has contracted for significantly more energy than necessary to meet its customer
needs. In 2019, Georgetown projects its power portfolio to total 1,260,200 MWH. At the
same time, it projects customer demand to equal only about 680,000 MWH, just 54% of its
supply portfolio.
Georgetown was an early adopter of renewables (i.e. 2013 and 2015) when renewable energy
costs were significantly higher than what is available today – perhaps by a factor of two or
three based on industry experiences. Georgetown’s natural gas contract, signed in 2012, is
also similarly impacted by high cost versus its value today. All resources are “take-or-pay”
which means Georgetown is unable to reduce its contracted purchases. (It should be noted
that each of these contracts were likely low cost options at the time of adoption and projected
to be favorable economically based on ERCOT forward price projections).
Georgetown’s power supply strategy was developed during a period when natural gas prices
(the primary driver of energy within the ERCOT market) were projected to rise. By signing
long-term contracts for fixed prices, Georgetown protected their ratepayers from further price
escalations, but exposed them to the risk of “over market” payments in the event those
projections did not materialize. In fact, natural gas prices actually declined, resulting in
lower electric prices in Texas and significantly reduced revenues associated with the excess
energy in Georgetown’s portfolio.
Cooler than normal weather during parts of 2018 reduced Georgetown’s (and all other power
producers in ERCOT) revenues well below budget projections.
Georgetown outsources its power scheduling functions to a third party. This approach limits
their access to detailed (real-time) market intelligence, which impacts power portfolio
management and optimization activities.
The Denton power supply situation has some similarities to Georgetown, but also has some
notable differences.
To meet its 100% renewable energy goal, Denton strives to match its renewable portfolio to
projected annual customer demand. An exception may occur in calendar years 2021 through
2023, if Denton’s “Whitetail” contract is not be considered to be renewable. While the
Denton Energy Center may also seem to be an exception, this resource is not “take-or-pay”
from an energy standpoint and operates only when market prices exceed variable cost.
Based on current and projected ERCOT market prices, only Denton’s Whitetail contract (30
MW) and its DTE landfill gas contract (1.6 MW) cost more than their respective market
revenue. Seven other wind and solar contracts (current and those under negotiation) have
revenues that will roughly equal or exceed costs.
Since 2014, Denton has maintained a comprehensive 24-hour power supply scheduling and
portfolio management operation.
Date: March 22, 2019 Report No. 2019-054
CONCLUDING REMARKS:
Some concluding thoughts on the Georgetown and Denton power supply situations may be
appropriate.
ERCOT bulk power market prices and associated rules can be forecasted, but not controlled.
Depending largely on natural gas prices and the ERCOT load-resource balance (i.e. reserve
margin), future market prices for buyers (and hence revenues for sellers) could be dramatically
higher or lower than current conditions or from projections. During the industry’s 100+ year
history, electric utilities have had the obligation to serve their customers’ electricity needs and to
acquire the power supply resources needed to do so – regardless of cost or economics.
Long-term contracts bring stability and certainty to the cost side of a utility’s power supply
budget. Prior to the advent of organized electricity markets like ERCOT, just knowing costs was
sufficient. Most of these costs could be reflected in electricity rate tariffs for customers with a
modest ECA (energy cost adjustment) for changes in fuel commodity costs.
Today, for budgeting, financial, and rate setting purposes, it is also necessary to realistically
project ERCOT market prices/revenues (which vary hourly) – not just know costs. Georgetown’s
current budget issue results from inaccurate forward market forecasts of ERCOT market
prices/revenues in 2018. DME and all other power producers in ERCOT are similarly impacted.
As a result, ECAs must now reflect not only power costs (easy to project if contracted in
advance) but also market prices/revenues, which are more difficult to project since weather (and
resulting sales) is a large factor in addition to ERCOT grid/equipment conditions.
As is prudent, Georgetown updated its energy cost adjustment rate (ECA) level for 2019 to
address their recent and forecasted revenue shortfall. Denton will evaluate its ECA level, and its
ECA methodology, during its FY 2019-2020 budget process.
ATTACHMENTS:
1. “FAQ Georgetown Energy Contracts” from City of Georgetown, TX website
2. “Sun City Town Hall” PowerPoint Presentation by Georgetown City Manager dated
January 24, 2019 from City of Georgetown, TX website
3. “What We’re Doing Now” from City of Georgetown, TX website
STAFF CONTACT:
George F. Morrow
DME General Manager
940-349-8487
George.Morrow@cityofdenton.com
Sun City Town Hall
CITY MANAGER D AVID MORGAN
JANUARY 24, 2019
2019 Look Ahead
South’s Best
Named number 1 on The South’s
Best Cities to Live in 2018 by
Southern Living
Number 12 on The South’s
Prettiest Cities 2018 list by
Southern Living
Citizen Survey
81 percent of residents rate the
value of city services as good or
excellent
98 percent of respondents rate
overall quality of life in
Georgetown as good or excellent.
Addressing Current and Future
Challenges
Electric Purchased Power Costs
Transportation
Water/Wastewater
2030 Plan
Q&A
Electric Purchased
Power Costs
BACKGROUND AND CURRENT STATUS OF THE CITY’S ELECTRIC FUND
2008 Purchased Power Goals
Current policy direction on power portfolio goals
◦Competitively priced
◦Long-term stable rates on energy
◦Mitigate regulatory, legislative, and financial risk
◦30% renewable by 2030
2008 Integrated Resource Plan (IRP)
◦30% Renewable
◦30% Coal
◦30% Gas
◦10% Market
◦Substitute Nuclear power for Coal or Gas if available
Contract History
LCRA Primary Provider of energy from 1940-2012
◦Did not renew as they couldn’t meet purchased power goals
◦Aging fleet
◦New investments were expensive
◦No rate guarantees to the City
2008 –Signed small wind contract with AEP as a pass through deal
for Southwestern University
Utility had no other sources of power at this time
State of markets in 2008-2012
All forms of power were
expensive to acquire
City evaluated multiple
options in wind, coal, and
gas
Every option was above
electric rate targets
0
20
40
60
80
100
120
140
160
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24MWs
Hours of the Day
Blocks of Power versus Load
Base Load Intermediate Peak Short Long Actual Load
Competitive Procurement of Purchased
Power
2012
◦LCRA contract terminated
◦Began competitive procurement for energy (gas, coal, wind, solar, and nuclear)
Philosophical design for the utility
◦Targeted peak vs. base load protection
◦Targeted future vs. current needs
2008-2012 had shown a high frequency of price spikes during peak
demand
Competitive Procurement of Purchased Power
2012
◦Mercuria (MEA) contract approved through 2021 (Gas Contract)
◦No long-term contracts available due to ERCOT forecasting shortage and resulting
high energy prices
2013
◦Spinning Spur 3 (SS3) contract approved through 2035 (Wind Contract)
2015
◦Buckthorn Contract approved through 2043 (Solar Contract)
Competitive Procurement of Purchased Power
0
50
100
150
200
250
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24MWs
Hours of the Day
Blocks of Power versus Load
Base Load Wind Solar Short SS3 Long Solar Long Actual Load
BkTH $$
MEA Block $$$
SS3 $
0
50
100
150
200
250
300
350
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043
Annual Peak Supply
MEA EDF BkTH Peak
*MEA block ($$$) expires at the end of Dec. 2021
Why the long position?
Georgetown’s energy demand was growing rapidly
High frequency of price spikes for peaking energy in 2008-2014
ERCOT was forecasting energy shortages past 2021
Forecast for energy market predicted increasing prices
State of the energy market in 2016
Mild weather depressed power prices throughout the year
0
10
20
30
40
50
$/mWhin SLZPower
2013 Power Forward curve Actual Price
0
1
2
3
4
5
$/mmbtuNatural Gas
2013 GAS price forward Actual Price
State of the energy market in 2017
Hurricane Harvey disrupted all of ERCOT
Energy prices crashed
0
10
20
30
40
50
$/mWhin SLZPower
2013 Power Forward curve Actual Price
0
1
2
3
4
5
$/mmbtuNatural Gas
2013 GAS price forward Actual Price
State of the energy market in 2018
Return to normal weather patterns
Normal market performance in late-May and all of June
Prices crashed as more generation came online
0
10
20
30
40
50
$/mWhin SLZPower
2013 Power Forward curve Actual Price
0
1
2
3
4
5
$/mmbtuNatural Gas
2013 GAS price forward Actual Price
State of the current energy market
Market fundamentals have changed significantly since our contracts were
originally proposed
0
20
40
60
80
100
120
140
160
1/29/20163/29/20165/29/20167/29/20169/29/201611/29/20161/29/20173/29/20175/29/20177/29/20179/29/201711/29/20171/29/20183/29/20185/29/20187/29/20189/29/201811/29/20181/29/20193/29/20195/29/20197/29/20199/29/201911/29/20191/29/20203/29/20205/29/20207/29/20209/29/202011/29/20201/29/20213/29/20215/29/20217/29/20219/29/202111/29/2021$/mWhin SLZPower
2013 Power Forward curve Actual power and current forward 2017 Forward 2018 Forward
State of the current energy market
Market fundamentals have changed significantly since our contracts were
originally proposed
0
1
2
3
4
5
6
$/mmbtuNatural Gas
2013 GAS price forward Actual GAS and current forward
2019 electric fund actions
•Budget based on rate target
•Took advantage of November natural gas price spike to sell 2019
MEA gas and energy into the forward market
•Initiated discussions with SS3 and Buckthorn on contract structure
•Actively soliciting proposals from other utilities and brokers on
selling remaining long position
•Updating management strategies
•Seeking alternatives for portfolio management going forward
Electric Rate Structure
Base Monthly Charge (100% of fixed costs)
◦Currently $24.80 per month (up from $20.00 to offset increased investment)
Variable per kWh Charge
◦Target for all Power and Transmission Costs including ERCOT Fees and Charges
◦$0.0629 per kWh
◦Power Cost Adjustment Factor (PCA)
◦$0.004 per kWh
◦Delivery costs, fees, and charges incurred by the City
◦$0.0329 per kWh
◦Transmission Cost Adjustment Factor (TCA)
◦0.000 per kWh
◦Used when unexpected increases to transmission rates occur during a budget year
PCA Adjustment
Effective Feb. 1 the City will adjust the PCA by $0.0135 per kwh through the
end of September
The average customer uses 949 kilowatt hours per month and will
experience a $12.82 increase on their monthly bill.
The PCA adjustment will generate $6 million in FY2019, and is needed to
ensure the financial stability of the electric fund should steps to reduce the
long position take longer to implement than expected
Transportation
Williams Drive
I-35 intersection
Lakeway intersection
Rivery Blvd. and Northwest Blvd.
Overlay Treatment in Sun City
Water and Wastewater
Sun City Water Tower
Berry Creek Interceptor
Water and Wastewater
2030 Plan
Began an update to the 2030
Comprehensive Plan
City hosted On the Table in
September, involving more than
1,500 people
Long Range Land Use Map
Future housing options
Commercial corridors
Cost of Service
Q&A
David Morgan
David.Morgan@georgetown.org
What We’re Doing Now – Georgetown Utility Systems
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Georgetown Utility Systems
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Georgetown Utility Systems > Electric > What We’re Doing Now
What We’re Doing Now
Current Challenge
Simply put, the City is buying more power than it currently needs.
Over the past few years, the energy market in Texas has also experienced a fundamental change. Forecasts provided by the
Electric Reliability Council of Texas, the State’s energy grid operator, have proven to be unreliable. What were perceived as
anomalies in 2016 and 2017, such as reduced consumption, unpredictable pricing, and unusually cold weather, masked the true
impact of a depressed global energy market. The effect of depressed energy prices became abundantly obvious in 2018.
At the same time, the utility is seeing a drop in consumer demand which is largely driven by conservation efforts, energy-saving
technologies, and more energy-efficient new construction. Due to these two factors, the City ended the 2018 fiscal year with a
$6.84 million shortfall in the electric fund, leaving a fund balance of $1.97 million.
In 2016, 2017, and 2018, the City addressed these ongoing challenges with one-time solutions, including adjusting how the City
financed electric infrastructure projects, such as cash versus debt financing, adjusting the timing of projects, increasing the PCA
on electric bills, and completing a rate study. All these efforts were intended to resolve what was previously perceived as one-
time problems.
Suffice it to say, the City’s strategy to mitigate fluctuating costs associated with purchasing energy has not worked. The focus on
ensuring adequate energy supply and mitigating high-prices overshadowed the short-term consequences of having a surplus of
energy in a depressed market. The City did not mitigate the risks associated with clearing energy at low prices.
What we are doing now
1. Addressing the increased costs for purchasing power
The City is working through several approaches to address increased costs. All of these efforts work to address the electric
fund’s current financial position.
The City has reduced expenses in the electric department. This includes not issuing any new debt for capital projects, halting
current projects, lowering the annual return on investment, or ROI, payment to the City’s general fund, a temporary hiring
freeze, and limiting noncritical expenditures. These one-time adjustments were addressed in the current budget and will be
considered in future budget discussions.
The power cost adjustment, or PCA, charge will continue through September. This is the charge which allows the City to
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recover costs associated with purchasing power. The PCA compensates for fluctuations in purchased power cost. The PCA is
one tool to ensure the stability of the electric fund should efforts to manage costs take longer than expected. The City has
increased and decreased the PCA several times over the years in response to changing energy prices.
The City currently contracts with Enterprise Risk Consulting, LLC and Garland Power & Light for energy portfolio management.
Based on the current challenges facing the electric utility, the City is requesting proposals to bring in new partners to help
manage the energy portfolio day-to-day, as well as market the City’s excess energy to other utilities for their use in the short-
term.
The City of Georgetown is seeking proposals for both managing the City’s energy portfolio and for a comprehensive review of
the City’s management practices related to purchasing and managing energy. Both requests for proposals can be found on the
City’s website at purchasing.georgetown.org.
Interested parties may submit questions regarding the solicitations to nicole.abrego@georgetown.org. The deadline to submit a
proposals for the review of the City’s management practices is 2 p.m. on Feb. 21. The deadline to submit questions is 5 p.m. on
Feb. 15.
The deadline to submit a proposals to review managing the City’s energy portfolio is 2 p.m. on March 7. The deadline to submit
questions is 5 p.m. on Feb. 22.
2. Making one-time adjustments to the current budget
The City amended the following revenues related to the electric fund budget for the 2019 fiscal year that began Oct. 1, 2018:
recognized the full year impact of continuing the PCA, reduced bond proceeds to zero, and recognized a portion of the proceeds
from the Bloomberg Grant.
The City amended the following expenses related to the electric fund budget to save about $2.3 million: reduced the transfer to
General Fund by $1.2 million, reduced salary and benefits related to three vacant positions (an analyst, an engineering
supervisor, and a journeyman electrician) for a savings of $316,488, deferred the purchase of a pressure digger vehicle for a
savings of $434,050, transferred the $60,000 cost for the holiday lights to the convention and visitors bureau, deferred $222,000
worth of radio replacements, and saved $156,000 for deferring the issuance of bonds. The total capital improvement project
budget was also reduced to $4 million from $7.9 million.
3. Adjusting electric rates
The monthly charge customers pay increased by $4.80 starting Jan. 1 to cover costs associated with operating the electric
department. The monthly charge increase included in the 2019 budget is to help cover costs associated with maintaining and
growing the electric system in Georgetown. These costs include large projects like providing power to new subdivisions, burying
overhead electric lines, and upgrading aging infrastructure.
The rate change also includes consolidating the State’s transmission charge, or TCOS, with the current energy charge.
Beginning Feb. 1, the City is also increasing the Power Cost Adjustment, or PCA.
Customers will incur an increase of $0.0135 per kilowatt hour, resulting in a new PCA of $0.0175 per kilowatt hour through
September. The average customer uses 949 kilowatt hours per month and will experience a $12.82 increase on their monthly
bill.
GEORGETOWN UTILITY SYSTEMS
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