What We’re Doing Now
Simply put, the City is buying more power than it currently needs.
Over the past few years, the energy market in Texas has experienced a fundamental change. Forecasts provided by industry experts have been challenging to employ correctly. 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.
To a lesser extent, the utility is seeing a drop in individual consumer demand driven by conservation efforts, energy-saving technologies, and more energy-efficient new construction. Due to these 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, 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 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 McAndrews and Associates 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 completed a comprehensive review of the City’s management practices related to purchasing and managing energy. Download an executive summary of the energy management assessment here: Energy Resource Management Assessment Executive Summary. A video of the May 14 energy management assessment presentation given to City Council can be viewed here.
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.
On Feb. 1 and June 1, the City increased the Power Cost Adjustment, or PCA.
Starting June 1, Customers will incur an increase of $0.00625 per kilowatt hour, resulting in a new PCA of $0.02375 per kilowatt hour. The average customer uses 949 kilowatt hours per month and will experience a $5.93 increase on their monthly bill. During the summer, the average use increases to 1,600 kilowatt, resulting in an increase to $10 on their monthly bill.