Download a copy of the electric purchased power costs presentation given to residents at the Sun City Town Hall meeting Jan. 24 here: Sun City Town Hall electric purchased power costs presentation. Video of the Jan. 22 presentation to the City Council on the electric fund can be viewed here
1. How does the City purchase electricity?
The City electric utility purchases power from wholesale energy suppliers. The cost to purchase electricity includes the cost to generate and transmit power to Georgetown.
Georgetown is under contract to purchase power from four different providers. The two largest energy providers are Spinning Spur 3, a windmill farm near Amarillo, and Buckthorn, a solar farm near Fort Stockton. The wind power covers the bulk of the city’s energy needs. The solar farm provides energy needed during peak times of the day and year (primarily summer during the daylight hours).
The third source of energy is a smaller wind farm operated by American Electric Power (AEP) which primarily covers Southwestern University’s energy needs.
The final energy contract is with Mercuria for natural gas-based energy. This contract was initiated in 2013 with the former JP Morgan following our termination of the City’s relationship with LCRA. It was intended as a short-term power supply and is set to expire in 2021.
2. Is the City of Georgetown losing money on its purchased power contracts?
No, not for the power used to meet the demand of the City’s electric customers. The average cost of the power supplies is well within the City’s current rates.
For the excess power the City doesn’t consume that is cleared to the market, the price depends on time-of-day and the season. But on average for the year, this excess power is a loss due to depressed market prices. However, over time, the losses will lessen. The biggest relief will come in 2021 when the last Mercuria contract expires. That will create a savings of over $10 million per year.
While the City’s original strategy worked well when energy prices were high, the state’s energy market is in turmoil with a drop in fuel prices. 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. It is important to note that renewable energy is not the issue at hand, but the amount of energy under contract.
Additional relief will come as electrical demand in Georgetown grows. The less electricity the City needs to clear to the market, the better the financial outlook.
3. Why did the City sign long-term contracts?
Long-term contracts are standard practice among municipally-owned utilities and the best way to negotiate lower, fixed rates. Going back to the market every five or 10 years increases the city’s exposure to what can be a volatile energy marketplace.
Leading up to 2012, electric power prices were fluctuating and unstable. At the same time, there was uncertainty in how federal and state regulatory policies might impact traditional power generation via coal and fossil fuels.
The contract with Spinning Spur 3 started in 2015 and runs until 2035. The contract with Buckthorn started in 2018 and runs until 2043. The AEP contract expires in 2028 and the Mercuria contract ends in 2021.
The City recognizes that contracting for more energy than we currently need led to a risk of having to clear excess energy to the market. Due to depressed energy prices, the City is working to mitigate costs associated with that risk.
4. Was the current situation created by the city’s move to all-renewable energy?
No. The current changes in the electric fund are due to the amount of energy that the City has under contract, not the type energy. The outcome would have been the same if we had used the strategy with other sources of energy. Simply put, the City is buying more power than is consumed in Georgetown. The City did not anticipate disruptions in the market and overestimated the projected growth in demand.
At the time renewable contracts were signed in 2013 and 2015, and based on a 20-year forecast of continued city growth, it was logical to anticipate the need for more energy. Georgetown continues to be one of the fastest growing cities in Texas, so the City remains ready to serve demand from consumers and businesses. At the same time, the City is planning several steps to adapt our strategy.
5. Why do we have more energy under contract than we need for Georgetown?
In addition to preparing for city growth, a few other factors have led to the excess in power supply:
- In addition to the public power utilities in Georgetown and Garland, a third public power utility was planning in 2013 to partner in purchases from Spinning Spur 3. However, that partner pulled out at the last minute. The City was left with two choices: either cover both shares or walk away. If the City pulled out of the wind farm project, there would have been a substantial delay in procuring another source of energy. At that time, there were also federal tax credits for renewable energy set to expire. Without the tax credits, the costs associated with the wind farm could have gone up 20 percent.
- In addition to having 50 percent more power than the City needed coming from the wind farm for the short-term, the City also contracted with a solar farm that was larger than it needed in the short-term. Contracting for the larger solar farm allowed more purchasing power at cheaper rates. At the time, it made sense to purchase for the more power for the longer term.
- Smart technology and improvements in new home and commercial construction have slowed the growth in local energy consumption. Energy efficiency is indeed a good thing, but until we have a larger population to serve, we will continue to have excess power.
The City clears excess power to the market. Because of the lower energy market costs, the City is clearing excess power at prices below the contracted rate. That will change when prices for power increase. In the meantime, the City is adjusting the original power strategy.
6. Don’t the energy contracts provide a fixed energy cost?
The contracts guarantee a fixed-rate for the energy that is purchased. Current rates cover costs of energy consumed in Georgetown. The contracts require the City to purchase a set portion of the wind facility output and all of the solar facility output.
When the market price of power decreases, the City is still obligated to pay the fixed-rate for power and sells the excess at a loss. When the contracts were executed, the City did not expect power prices to decline and remain low for years.
If energy prices had maintained the trajectory they were on in 2013, the City would be experiencing a very different financial reality. However, the strategy does not work when energy prices are depressed and remain depressed for several years.
7. Why is the City just now addressing the increases in purchased power?
Over the past few years, the energy market in Texas experienced a fundamental change. Forecasts provided by ERCOT, the State’s energy grid operator, have proven to be unreliable. What were perceived as anomalies in 2016 and 2017 due to reduced consumption, unpredictable pricing, and unusually cold weather, masked the true impact of a depressed global energy market. Looking back, it is apparent that a longer-term trend of lower energy prices is the driving factor of the electric fund’s current finances. The effect of depressed energy prices became abundantly obvious in 2018.
In 2016, 2017, and 2018, the City addressed these ongoing challenges with one-time solutions, including adjusting how the City financed electric infrastructure projects (i.e. cash vs. debt financing), adjusting the timing of projects, increasing the power cost adjustment, or PCA on electric bills, and completing a rate study. All these efforts were intended to resolve what was previously perceived as one-time problems.
These efforts did not resolve on-going financial arrangements with the City’s energy providers. This year, the priority for the City is to change the on-going financial obligations of the electric fund. This could involve reducing the energy Georgetown is obligated to purchase, selling a portion of the energy to a third-party, adjusting the terms of some of the financial obligations, or some combination of all these efforts. The City is also exploring options to better manage the energy portfolio day-to-day.
8. What factors led to the growing underestimate of energy costs from 2016 through 2018?
The City has traditionally estimated its future energy costs based on market projections provided by ERCOT. Since 2016, these projections have proven to be unreliable.
Going forward, the City will estimate energy costs based on the previous year’s performance, while taking into account the anticipated revenue from customers. Any shortfall will need to be addressed by restructuring the financial arrangements the City has with its energy providers and increasing or decreasing the power cost adjustment or PCA to account for fluctuations in energy costs.
The City implemented a PCA on Feb. 1 to address the immediate financial concerns of the electric utility. The City has raised or decreased the PCA in the past to respond to power costs. Currently, the goal is to reduce the PCA as soon as possible.
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 this issue. All of these steps will be explored to address the electric fund’s current financial position.
The City is working to renegotiate the two long-term power contracts to extend the life of the contracts in exchange for lower costs for the next few years and allow the utility to grow into the higher supply costs as the population grows. The City is also considering selling a portion of the excess energy to a third-party, and identifying ways to better manage the energy portfolio day-to-day.
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 recover costs associated with purchasing power. The PCA compensates for fluctuations in purchased power cost. The PCA is one tool to ensure the solvency of the electric fund should renegotiating the energy contracts take longer than expected. The City has increased and decreased the PCA several times over the years in response to changing energy prices.
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, eliminated the $60,000 transfer to the Main Street Façade Fund for the holiday lights, 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.
A great way to improve the efficiency of heating and cooling systems is to incorporate control strategies that ensure systems are used only when necessary. Common control strategies include ENERGY STAR qualified programmable thermostats, multiple zones, and CO2 demand sensors. These strategies can be specified on new heating and cooling systems and retrofitted to older systems as well.
- ENERGY STAR Qualified Programmable Thermostats: These simple, easy to install thermostats allow convenient night/weekend setback to save you money. Models range from $50 to $200 depending on the desired features and usually include manual overrides to ensure comfort for late night workers.
- Multiple Zones: By dividing your facility up into multiple heating and cooling zones, your system can deliver more efficient heating and cooling by eliminating inaccuracies from a central sensor point. In addition, building occupants in different areas can adjust the temperature to meet their actual needs. If your facility has many rooms or floors, multiple zones are recommended.
- Demand or CO2 Sensors: Most heating and cooling systems draw in ventilation air by assumed occupancy, however modern technology has side-stepped this by designing systems that actually can regulate the air quality of your facility by measuring the amount of CO2 present. The result is more energy-efficient operation and better air-quality.
Just like your automobile, your facility’s heating and cooling systems need maintenance to operate efficiently. To improve efficiency and help ensure reliability and long life, consider the following tips.
- Engage a qualified HVAC firm in a maintenance contract with seasonal tune-ups. During these tune-ups, a technician should check combustion efficiency, refrigerant charge, and belt tension as applicable. Check NextDoor, the BBB website, Yelp, and other websites to find a good technician.
- Replace air filters regularly. Accumulated dirt and dust make your fans work harder. Clean or replace filters as recommended by your system’s manufacturer.
- Clean the evaporator and condenser coils on your heat pump, air-conditioner, or chiller. Dirty coils inhibit heat transfer; by keeping them clean, you save energy. Instructions for how to clean the coils should be available on the manufacturer’s website.
- Inspect ducts and piping for leakage or damaged insulation. Leaky ductwork is one of the biggest contributors to cooling loss in buildings. Apply duct sealer, tape, and insulation as needed. There are a number of how to videos and articles on how to find those leaks in your AC duct work.
Did you know that the City of Georgetown Texas has a solar panel and backup generation program? This program is designed for residential and small commercial customers. If you would like to find out more, visit our Distributed Generation here.
After washing your clothes, save energy by hanging them outside to dry!
Clothes dryers are among the biggest energy hogs in a typical household.
Air drying your washed clothes, instead of putting them in your loud, energy sucking, house-heating electric dryer is a great way to save energy … and it is making a comeback.
People talk about recovering the lost art of line-drying clothes idea the way our grandparents did it, but the ease and efficiency of modern technology is enticing. It may help to consider the other advantages of line-drying:
- You don’t have to hang around the house to pull out the clothes and fold them before they wrinkle (or set the timer for 4 hours of tumble). After drying, line dried clothes are ready anytime.
- Clothes last longer because they don’t get overheated, which can lead to the shrinking of some things (pants) and the stretching out of others (anything with elastic.)
- Rather than using detergents, whose chemical scents most often fall short of the fresh air they are trying to simulate, with line-dried clothes, you have the real thing!
Air drying your wash uses no electricity, and can be as easy as hanging a cord between two trees or as complicated as installing the big, spinning, pole-mounted one that looks like a huge TV antenna.
Of course, line-drying your clothes may cut down on the electric energy you use, but what about the extra energy needed from you?
The secret is to handle each piece of clothing as little as possible. One way this can be done is by hanging your clothes on plastic hangers, right out of the washer, while they are still wet and hanging the hangers on the clothesline…even those pieces that don’t usually hang on coat hangers, like your leotards and superhero capes. Smaller items, like socks and underwear can be placed on a drying rack. This aids in drying and keeping the wrinkles out, as well as avoiding the little indention’s that the clothes pins can leave in some of the clothes.
Once the clothes are dry, you just grab the hanging clothes and move them to a closet.
A customer who is disabled, or who is 60 years of age or older, may request, in writing, a standing waiver of the late penalty, for utility payments made after the due date.
The customer’s disabled status must be verified by an Award Letter from the Social Security Administration. This waiver applies only to the account holder or their spouse.
On June 18, 2021, Governor Greg Abbott signed HB 872 and declared it effective immediately. What does this mean for City of Georgetown utility customers? Prior to HB 872, if a customer wanted their account information to remain private, the customer would have to fill out a Confidentiality Request form.
With the passage of HB 872, all customer information of municipally-owned utilities is completely private* and may not be shared without customer permission. To learn more about HB 872, visit https://capitol.texas.gov/BillLookup/History.aspx?LegSess=87R&Bill=HB872
If you would like your customer information to be accessible (not private) to outside entities, please fill out the Request to Disclose form located here.
* Confidentiality under Chapter 182 does not prohibit a government-operated utility from disclosing personal information in a customer’s account record to: (1) an official or employee of the state, a political subdivision of the state, or the United States acting in an official capacity; (2) an employee of a utility acting in connection with the employee’s duties; (3) a consumer reporting agency; (4) a contractor or subcontractor approved by and providing services to the utility, the state, a political subdivision of the state, or the United States; (5) a person for whom the customer has contractually waived confidentiality for personal information; or (6) another entity that provides water, wastewater, sewer, gas, garbage, electricity, or drainage service for compensation.