Still in the dark on Georgetown’s energy situation? Here’s a primer

6

Georgetown electric customers are seeing a new increase on their bills this month as city officials attempt to reduce costs associated with city energy contracts.

This year, the city needs to avoid a similar situation to the $6.84 million shortfall in the amount of money that was expected to be left in the electric fund budget for Georgetown Utility Systems at the end of the city’s last fiscal year on Sept. 30.

Officials attributed the shortfall to price and demand volatility in Texas’ wholesale energy market and on the structure of the city’s renewable energy contracts.

The contracts have led to Georgetown buying more energy than the city actually needs in present day.

“Ideally, you want to be contracting for the exact amount of energy that we need here locally, but the reality of our fast-growing community and the dynamic of how energy demand fluctuates just makes that a challenge,” City Manager David Morgan told Georgetown City Council in January.

The power cost adjustment, or PCA, portion of customers’ bills increased Feb. 1 by $0.0135 per kilowatt-hour, setting the new rate at $0.0175 per kilowatt-hour until September.

Actual monthly increases for customers will depend on how much electricity they use, but city estimates show a customer using the citywide monthly average of 949 kWhs will pay $12.82 more than before.

Missed projections in the electric fund have become a trend in recent years.

Budgeted costs between 2016 and 2018 were a combined $26 million lower than what the city needed to meet its contract obligations and provide electric service to customers, according to the city.

Officials compensated in the past through PCA increases as well as delays on some planned energy-related construction projects and using debt to pay for more immediate projects ready to break ground.

The latest rate change follows a separate increase that began Jan. 1 of $4.80 to the base rate paid by electric customers. Increasing the monthly base rate, which is now $24.80 per residential customer, was necessary to cover growing operating costs for the city’s electric service, according to city officials.

The city announced Feb. 8 it issued two requests for proposals: one seeking a consultant to oversee its energy portfolio and another to review the city’s management of energy purchases. City officials set a Feb. 21 deadline for proposals to review the internal management of its energy contracts and a March 7 deadline for proposals to take over management of the city’s energy portfolio.

After proposals and bids are received, Georgetown City Council will decide selections.

New strategy

Morgan said the increase to the PCA in February would generate about $6 million and help avoid another year of cost overage.

“It is really needed to ensure the stability of the electric fund,” Morgan said.

Morgan said the city has initiated talks to renegotiate its renewable contracts, and officials are also looking for utility companies or third-party brokers that might buy portions of the excess energy Georgetown acquires.

“Market fundamentals have changed significantly since our contracts were originally proposed and originally executed,” said Jim Briggs, the city’s general manager of utilities.

The contracts include a 20-year, 144 megawatt-hour capacity deal with EDF Renewables’ Spinning Spur 3 wind farm that began in 2015 and a 25-year, 150-mWh agreement with the Buckthorn solar plant, now owned by Clearway Energy, that began in 2018.

City officials say they are bound by the terms of the renewable contracts from releasing specific rates or other details, and the Texas Public Information Act allows exemptions of certain contract details.

According to information the city has made available, Georgetown spent about $52.5 million in 2018 to buy more than 1 billion kWh of energy through all of its contracts combined. Energy usage last year was about 679 million kWh, or a little more than 63 percent of the total amount purchased, according to the city.

Power and money

Sources: city of Georgetown, Georgetown Utility Systems/Community Impact Newspaper (via Sources: city of Georgetown, Georgetown Utility Systems/Community Impact Newspaper)

Decision points

Prior to the most recent budget shortfall, Georgetown officials touted contracts with wind and solar power producers as both an eco-friendly move and a win for the city’s financial future.

Georgetown was lauded as the largest U.S. city to transition to “100 percent” renewable energy, a designation that in Texas is based on a comparison between the amount of power purchased by utilities through contracts with renewable producers and the amount of power utilities pull from the statewide electric grid.

While the new solar and wind contracts make up the bulk of Georgetown’s energy portfolio, smaller portions come from a nonrenewable natural gas power producer through a contract that expires in 2021 and an additional contract with a smaller solar producer that ends in 2028.

“Market fundamentals have changed significantly since our contracts were originally proposed and originally executed.”
— Jim Briggs, Georgetown’s general manager of utilities.

Briggs said during a presentation to council members in January that the city’s goals when negotiations with renewable providers first started in 2013 included finding competitive pricing; locking in long-term stable energy rates; and mitigating risk from outside regulatory, legislative and financial forces. Officials also sought to find deals to manage the city’s energy needs at times of peak demand as well as future needs as Georgetown continued to see fast population and development growth, he said.

At the time, market forecasts from the Electric Reliability Council of Texas, which manages sales on the state’s wholesale market, expected increased demand and prices during summer months to continue until 2021, Briggs said.

That trend would have allowed Georgetown to sell its excess power at well above the rates the city pays through its contracts, but a series of disruptions in the energy market mainly caused by weather, including Hurricane Harvey in 2017, along with the unexpected addition of several power plants in 2018 whose operation had previously been delayed, kept energy prices low, and the previous projections proved false, Briggs said.

Briggs told council members that moving forward, the city will base its energy strategy on market activity during the previous years.

ERCOT’s forecasts showing increased demand in recent years has largely been driven by needs from increasing oil and gas extraction in West Texas, according to the agency.

“ERCOT’s ability to meet Texans’ growing power needs through the record-setting summer of 2018 was supported by the actions taken by power suppliers and consumers, and the policymakers who are committed to the success of the ERCOT market,” ERCOT CEO Bill Magness said in a statement in a Dec. 4 news release.

Covering losses

City Council approved a series of budget amendments in December to account for the most recent shortfall, including a $4 million reduction in a budget fund for capital improvements.

Revenue amendments included adjustments to account for changes to the PCA charge, eliminating anticipated bond proceeds and reassigning a portion of the money the city is due to receive from the Bloomberg Philanthropies Mayor’s Challenge.

Adjustments to budget expenses included reducing the annual transfer of money from the electric fund to the city budget’s general fund by $1.2 million, delaying several new hires, bond issuances and equipment purchases.

Editor’s note: A version of this story appears on the cover of the February 2019 issue of Community Impact Newspaper’s Georgetown edition. 

Share this story
6 comments
COMMENT
  1. Georgetown Utility System’s (Gus) management, abated by the city council, signed long-term wind and solar contracts without hedging them. This is the root cause of the problem.

    Persons knowledgeable about energy contracts would not sign 20- and 25-year contracts without hedging them. In fact, whether anyone outside of a city owned monopoly would sign 20- or 25-years contracts is problematic.

    Someone should tell GUS management that the idea behind hedging is to help manage unanticipated events, like additional power plants coming online or the collapse of natural gas prices, which as it turns out is a major cause of the problem.

    As the source graphs show, Georgetown has not been 100 percent renewable. Apparently, those making the claim had a bout of temporary amnesia and forgot about the Mercuria Natural Gas Plant.

    Unlike 85 percent of Texans, GUS’s captive customers cannot shop for an electric service plan that meets their needs. They have to take the one size fits all plans offered by GUS. And has become abundantly clear, they have to eat management’s mistakes. If Georgetown were open to competition, the residents could tell GUS to take hike; they could find another provider.

  2. Interesting insights Mr Smith. Thank you for sharing this. I was not aware of the captive Georgetown residents as I myself am just outside the noose of GUS. I also noted the bogus claim of 100% renewable…. slight oversight by the Mayor when reaching for political notoriety!

  3. BTW, Evan Marczynski is doing a good job of reporting on Georgetown Utility Systems woes. It appears that he has taken the time to school himself on the issues.

  4. According to what was stated in this article and also on the Public Utility Commission website : “… “100 percent” renewable energy, [is] a designation that in Texas is based on a comparison between the amount of power purchased by utilities through contracts with renewable producers and the amount of power utilities pull from the statewide electric grid.

    Using this definition, it does appear that Georgetown earned the right to call itself “100% renewable.” Relying on projections provided by ERCOT, Georgetown purchased more energy than they needed, so the inference from that definition may be distorted in this case, but is nonetheless true, at least until/if contracts are renegotiated or are bought out, in which case the ratio of energy taken in versus taken out could be altered.

    It certainly seems irresponsible to commit to 20-25 years in a contract, although I would be forced to admit that if ERCOT’s projections had held out and everything in the contract remained the same, GUS would possibly be heroes instead of goats in 10 years. Still, long term projection like that seems like gambling.

    The article states “Missed projections in the electric fund have become a trend in recent years.” This needs clarification. Does this statement apply to electric utility systems in general or just GUS? If the former, it would be interesting to see some examples with figures. It would also be interesting to see if other utility systems have purchased energy via 20 year contracts.

  5. Gerald Pohlmeyer

    Paul Smith is 100% accurate on hedging long term risk in a contract. Electric power purchase no different than any other commodity. Any investor (which is what the City chose to be by committing to 20 year deals) would have back stopped their purchase with essentially an insurance policy to mitigate potential losses. Investing 101, limiting losses will impact potential gains but will also prevent the current situation where captive rate payers (citizens) pick up the tab for elected officials poor decisions or lack of knowledge on long term contracts. This will be a long term issue for GUS. Delaying capital improvements and not hiring staff is only making for a long term problem.

Leave A Reply

Evan Marczynski is editor of the Georgetown edition of Community Impact Newspaper, which he joined in 2016 as a reporter in Northwest Austin covering Austin-area health care and Round Rock ISD.
Back to top