2021-089 DME Winter PreparednessOctober 22, 2021 Report No. 2021-089
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
DME Winter Preparedness
EXECUTIVE SUMMARY:
Legislation passed by the 47th State Legislature of Texas in response to winter storm Uri and the
devastation it caused, mandates that the Public Utility Commission of Texas (“PUCT”) develop
regulations and standards for weatherization of critical power generation and transmission systems
across Texas. The regulations have been under development at the PUCT and will be approved in
the coming weeks1. More importantly, DME must put in place certain protective procedures and
equipment to mitigate potential equipment damages and limit financial consequences of the
inability to generate electric during adversely cold weather.
DME, along with most other electric generating companies in ERCOT, is taking a two-phased
approach to weatherization of the Denton Energy Center (DEC) and will comply with PUCT
regulations. Phase I includes immediate equipment modifications and operating procedures to
reduce financial and operating impacts. Equipment has been installed and procedures have been
developed at the Denton Energy Center to limit financial and operating impacts of a prolonged
winter episode. Phase II are long-term, significant capital investments that require a large
engineering effort and the purchase of long lead time equipment. Phase II engineering scope of
work has been developed by DME staff and Procurement is following their normal procedures to
issue a RFQ to identify qualified engineers and to seek approval of PUB and City Council. This
RFQ process is underway and is anticipated to be completed in the next three months.
ERCOT wholesale market redesign is expected to impact decisions that DME will make on Phase
II capital equipment and cost recovery. There is high likelihood that ERCOT will place significant
value on duel-fuel generation to improve overall market reliability. The PUCT is expected to issue
their direction on market design on December 19, 2021, and full implementation will likely take
24 -36 months given the need to amend ERCOT market protocols, new software requirements and
using the ERCOT stakeholder process.
Additional legislative mandates under SB 3 require natural gas critical infrastructure customers to
register their facilities with DME2 (or their Transmission, Distribution Service Provider) and put
in place procedures to ensure that power to these facilities is not interrupted during extreme winter
weather. DME has completed this effort and the appropriate procedures are in the place along with
a more robust overall identification of critical facilities.
1 PUCT Project number 51840, Rulemaking to Establish Electric Weatherization Standards, October 19, 2020,
Memo for Proposed Action.
2 https://rrc.texas.gov/media/r5dbn5b2/2021-nto_preparation-by-operators-for-winter_2021-2022_mlb_10-6-
2021.pdf
October 22, 2021 Report No. 2021-089
DISCUSSION:
During winter storm Uri, natural gas pressure at the DEC dropped below acceptable levels causing
the generating units to shut down. While the specifics of why natural gas pressure dropped below
acceptable levels remains under investigation by the Texas Railroad Commission (“TRRC”), the
record natural gas demand is likely the root cause. Upon the loss of fuel, the cooling systems for
the DEC engines froze up as removal of the heat source caused the circulating cooling fluid to be
expose to weather conditions below design temperatures. Freezing cooling fluid in the cooling
towers (radiators) expanded in the same way home water pipes froze and expanded resulting in
pipe bursting. When natural gas pressure was returned to a useable level, cooling water leaks
caused the outage to be extended by over 24 hours until the leaks could be repaired. Financial costs
associated with the ~ 48 hours of lost generation was the predominant component of the $141
million net cost of winter storm Uri since revenues from the DEC to offset these costs further were
not recognized.
Under Senate Bill 3, the legislature directed the PUCT and the TRRC to develop weatherization
standards for the electric generation and the natural gas production and delivery system
respectively. The PUCT has developed a set of weatherization standards that is in the last phase of
approval before becoming effective. The final staff recommendation was published on
October 19, 2021. The TRRC has issued draft regulations on the identification and registration of
natural gas critical infrastructure facilities. However, the Senate Business and Commerce
Committee directed the TRRC to amend the proposed identification and registration regulations
to close a loophole.3
Phase I Weatherization at the DEC.
Phase I actions are intended to provide immediate risk reduction and have been focused on
operational changes and minor equipment modifications to avoid potential equipment damages in
the event that the DEC loses gas supply. The physical modifications to the DEC include the
installation of a new coolant tank which will be used to drain all cooling liquid from the portions
of the plant where there is a potential for freezing in the event that natural gas supply was to be
curtailed. This installation also includes several valve installations and the development of
operating procedures and employee training. DEC staff have developed two specific procedures:
Extreme Cold Weather Preparation & Procedures (18 pages); and
Cooling Water System Infrequent Operations (51 pages).
These new procedures are comprehensive in nature and include the loss of natural gas for the
generation units, electrical outages and lack of propane used to heat the engine halls. Equipment
3 SB3, “require that only facilities and entities that are prepared to operate during a weather emergency may be
designated as a critical customer under this section”.
October 22, 2021 Report No. 2021-089
has been purchased and is on site to mitigate adverse consequences of these extreme weather-
related issues and to ensure that the new protective equipment will be operable under all conditions.
These procedures are not public documents due to ERCOT Nodal Protocols 1.3.1.1(1)(bb)
requirements and limitations on what can be disclosed publicly. DEC staff will undergo training
on the new procedures and a single engine test of the system will be conducted prior to
December 1, 2021.
Phase II Natural Gas Firming
Shortly after Uri, DME staff developed a detailed scope of work for evaluating three main options
to firm up gas supply. Procurement determined that we had no contracts in place to permit
engineering firms that were doing work for DME to perform the proposed scope and has required
DME to solicit the services under RFQ. The engineering and economic analysis scope of work
developed by DME is focused on the following options:
1. Backup on-site fuel storage – 3 to 7 days of liquefied natural gas;
2. Installation of an on-site natural gas compressor to ensure that pressure for generating units
meets specifications at all times; and
3. Installation of a second natural gas pipeline from another source.
Additionally, the Energy Management Office is evaluating the costs and feasibility of a firm gas
supply option on the existing pipeline. This firm gas option involves the purchase of firm gas
transportation, gas storage and a balancing agreement with the pipeline. Given that the DEC only
operates 10-15% of the time, the cost associated with firm gas delivery will likely be prohibitive.
And, in the event of a recurrence of Uri, despite the firm gas supply being in place, the pipeline
would have likely declared Force Majeure, allowing non-performance without financial
consequences to the natural gas supplier.
At this time, DME and Procurement are finalizing the evaluation of the responses to the RFQ.
Anticipated PUB and City Council presentation and approval are November 9 and November 16,
respectively.
Once the engineering consultant is on board, they will perform analysis of the three options listed
above and, in consultation with the EMO staff who will provide forward market data, will develop
a financial model to determine the relative net present value of each option. Final approval of the
recommended option will be put before PUB and City Council before implementation. Funding
above the $10 million in CIP funds that DME has set aside from the original Revenue Bonds issued
for the DEC that were not spent, if necessary will be considered as part of any future CIP budget
authority requests.
October 22, 2021 Report No. 2021-089
Depending upon supply chain issues and lead time on major components, it may be possible to
have the selected long-term fuel reliability improvements in place for the winter 2022/23 but more
likely these improvements will be in place for the winter 2023/24.
CONCLUSION:
DME has made operational and limited physical infrastructure changes at the DEC to ensure that
should natural gas supply be interrupted, damage to equipment from extreme cold weather will be
minimized or eliminated. Engineering is about to start to evaluate long-term natural gas supply
reliability improvements. ERCOT market design changes to address the reliability concerns made
evident during Uri will become more visible over the next two months and any benefit to increasing
fuel reliability will be incorporated into the financial analysis. Long-term fuel reliability
improvements may be in place for the winter 2022/23 but the winter 2023/24 will include such
approved and constructed improvements.
Changes to the Energy Risk Management Policy’s (ERMP) Hedge Plan have been recommended
and approved. These changes coupled with the Phase I weatherization at the DEC provide a much
better risk profile to DME than during winter storm Uri.
Identification of critical loads served by DME has been completed and have been fully integrated
into DME’s load shed procedures. The specifics of these improvements and the load shed
procedures are prohibited from public disclosure pursuant to NERC regulations.
STAFF CONTACT:
Terry Naulty, Asst. General Manager, DME
Terry.naulty@cityofdenton.com