Denton City Council members on Tuesday are scheduled to vote on whether to allow the city's electric provider to borrow up to $300 million in the aftermath of a winter storm that forced the operator of Texas' power grid to implement rotating power outages and prompted officials here to issue boil-water notices.
“The simplest way to say it would be that we need cash immediately,” said David Gaines, an assistant city manager and Denton’s chief financial officer. The finance option “is a short-term way to get cash. And do we issue long-term debt — 20 years, for example — to pay off the short-term [debt]?”
Denton Municipal Electric spent $207 million from Tuesday to Friday to buy electricity from the Electric Reliability Council of Texas. DME's annual budget is about $231.4 million.
“Those are bills we paid to ERCOT last week,” Gaines said.
According to city documents, the average price of energy per megawatt-hour in February was $23.73. During the rotating outages that began around the state last week, that increased to $2,400 per megawatt-hour.
'A lot is going to happen'
Council member Paul Meltzer said taking on more debt may be the city’s only option to recover from the storm.
“I don’t know that we have any other alternatives in the short term to keep the bills paid and the lights on," Meltzer said. "A lot is going to happen in the coming weeks to identify every way to mitigate the impact of the city. And just as important, we are going to see what options we have to deal with without hurting Denton families.”
ERCOT is the primary operator of the state’s power grid. It declared an Energy Emergency Alert Level 3 early on Monday, Feb. 15, forcing rolling power outages that continued through Wednesday night. ERCOT later ended emergency conditions.
Texas Gov. Greg Abbott has called for an investigation into how ERCOT handled the crisis after temperatures dropped below freezing and eventually below zero.
“I’ve been having some pretty intense exchanges [on social media], because I’ve put out a lot of my political views on what I think should happen here beyond city control,” Meltzer said. “Those belong on our legislative agenda.”
Meltzer asserted that part of that agenda should include whether city officials are going to “shackle themselves to this statewide network."
"We need rules requiring all [electric] providers to be able to give 24/7, 365-days-a-year power under a wide range of conditions. And that’s on the Texas Legislature,” he said.
Denton staff members issued $100 million in new debt on Friday “to meet immediate cash flow needs” for DME. They’ll ask for authorization to borrow another $100 million to $300 million, but that requires the adoption of an ordinance.
“The $300 million is the total amount we can issue,” Gaines said.
If council members approve that financing option, staff members would not need additional authorization to issue the debt.
“I think it’s a good way to do it,” council member Birdia Johnson said. The weather crisis in Denton “is something we haven’t seen before, so it is very important that we do better planning. This could not have been foreseen, but it taught us a valuable lesson, and that goes beyond the City Council.”
'I want us to fight this'
But council member Deb Armintor does not favor adding more debt to the DME portfolio.
“The city has already paid its debt to ERCOT,” she said. “I don’t want the city to change our ordinance to take on $200 million more in debt just to cover these reserves. I want us to rebudget to sustain, and I want us to fight this and join with other cities in fighting it.”
Like Meltzer, Armintor said she wants state lawmakers to address cities’ dependency on the ERCOT grid.
“I also want to see what happens in the Texas legislative session and at the federal level to mitigate this disaster and hold those responsible accountable. I don’t want Denton ratepayers and taxpayers to have to pay for this any more than they already have," she said. "They are the victims in this.”
By the numbers
During the 2019-20 fiscal year, DME spent almost $64 million on power purchases. That compares with just over $97 million the previous year. The utility provider is carrying about $851 million in debt, in general obligation bonds, revenue bonds and certificates of obligation.
“We have bills that are due for the power that we bought and used,” council member Jesse Davis said. “To be responsible, we have to pay those. I am looking forward to … having a complete picture of what happened in our electric operations, including how we ended up paying some of the prices we did. Those are questions for a future date.”
Mayor Gerard Hudspeth complimented Denton officials for their work to find finance solutions for DME.
“I commend staff for considering all short-term financing options available to the city of Denton ratepayers,” he said. “Denton Municipal Electric needed immediate cash, beyond the $100 million in reserves.”
Another consideration while officials consider additional cash flow for DME is how utility rates may change following the rotating power outages. So far, city officials insist that increasing costs for customers is not imminent — an assertion reiterated through a statement posted Sunday night on the city’s website.
“We want to reassure our customers that DME only recovers the costs to provide electricity and will not financially benefit from this crisis,” the statement reads.
DME rates are fixed and determined by council members.
“Non-DME customers impacted by extremely high spikes in their bills are billed through variable rate for electricity — making them vulnerable to sudden price swings from the wholesale energy market,” according to the statement. “This is not the case with DME. Any change in rates must be approved by the Denton City Council after a thorough and transparent financial and rate review process.”
Also, DME accounts will not be disrupted because of nonpayment until March 15 “to give customers additional time to assess the impacts from the winter storm without worrying about losing power.”
The City Council meeting on Tuesday is scheduled for 3 p.m.