The Denton Energy Center is operating as it was designed, and February’s winter storm did not change that, officials and others say.
“The winter storm is kind of a separate issue because operation of DEC was so badly interrupted,” council member Jesse Davis said. “It’s not fair to judge its performance by conditions that existed, including not having fuel available. If fuel had been available, it would have been operating at peak.”
One of the largest natural gas-fired power plants in the country, DEC went offline twice during the winter storm of Feb. 15-17, when the Electric Reliability Council of Texas issued Energy Emergency Alert Level 3 that forced rotating power outages throughout Denton and across Texas.
“It tripped off because of the fuel interruption,” said Tony Puente, executive director of utilities. “The DEC runs whenever the price in the marketplace is above our cost to generate. That could be for five minutes at a time, five hours or five days. It’s all a function of what the market price is for energy and the cost to produce that energy.”
At DEC, two operators work 12-hour shifts and monitor energy prices and what’s happening on the statewide grid.
“Equipment must be ready at all times because DEC is a quick-start facility,” said Terry Naulty, assistant general manager of Denton Municipal Electric. “We have 12 engines, and this is one of the plants [in Texas] to restart power if the grid went totally black.”
DEC is one of 13 quick-start or black-start facilities (a power plant that can start without support from the grid) in the state.
“When that request comes in from ERCOT, we have 60 minutes to respond,” Naulty said.
The plant went online in 2019 — a predominantly renewable source, he said. Especially when solar input is minimal, DEC supplements that energy.
During February’s winter storm, when temperatures dropped well below freezing, fuel was frozen, some generators could not be used across the grid, and some Denton residents went hours at a time without electricity and running water. Only those homes and businesses on the same circuits as infrastructure considered critical maintained electricity throughout the storm.
“I would say that it shows the worst-case scenario that can happen, and it did happen,” said Bob Bland, professor of local government at the University of North Texas. “The rolling power outages were not caused by a failure to DME or DEC. They are victims like everyone else. There are benefits to having a city-owned electric power plant. Those benefits outweigh the costs.”
DEC, on which construction began in 2016, is a 225-megawatt natural gas operation. It was proposed as a way to free Denton from coal-fired power. In February — the latest data available — revenue for the plant was listed at nearly $118 million. For the fiscal year that started on Oct. 1, total revenue is almost $123 million.
Debt service on the plant is about $25 million per year in the first few years of a 20-year obligation.
“These gas plants are designed for 35 years of life,” Naulty said. “But if you operate and maintain them, you will likely get 50 years out of a facility like this.”
Bland said he favors what Denton officials have done with DEC.
“I am still in favor of a city-owned utility,” he said. “It can work, and the city has invested a lot here. I think those are good investments.”
As for DEC, it is a $240 million investment.
“The DEC was to go along with our 100% renewable goal,” former Denton Mayor Chris Watts said. “Some additional revenue is applied to offset the purchase power cost. DEC made more money than the debt service over [four days]. DME is buying power, and DME is selling power. The revenue on the sell side goes to offset what we paid on the paid side. It does benefit ratepayers because it offsets purchase power costs.”
Council member Paul Meltzer agreed.
“I definitely think the idea that it would be backup power for us was a common misunderstanding — maybe easier to allow than to correct,” he said. “The Renewable Denton Plan … was about how the DEC would enable us to confidently go to more use of renewables. I think 80% was the plan then. I may be the one who later coined the explanation that it’s a financial hedge — not a physical hedge.”
Meltzer also emphasized that the financial investment in DEC is substantial.
“It’s very unpredictable and may turn out to be about a wash,” he said. “We could be cumulatively behind for 20 years, until it’s paid for, then get 10 more years of life out of the plant without having to make payments. Maybe we catch up or somewhat less, maybe somewhat more.”
According to the city of Denton, DME is one of 2,000 community-owned public utility companies in the U.S., providing service to more than 56,000 customers with annual sales of nearly 1.5 million megawatt-hours.
Status of ERCOT suit
Meanwhile, ERCOT remains under a temporary restraining order following a lawsuit filed in February by the city of Denton.
“On May 10, the court heard ERCOT testimony to plea to jurisdiction,” Ryan Adams, Denton’s director of customer service and public affairs, said recently. The temporary restraining order runs to June 1, when the hearing on the temporary injunction is scheduled, Adams said.
In April, ERCOT in the 353rd Judicial District Court in Travis County, challenged that is not the proper venue in the suit, and a hearing was scheduled for May 10 in the 250th Judicial District Court.
The temporary restraining order was imposed by 16th Judicial District Court Judge Sherry Shipman in February in Denton County. Weeks later, she granted ERCOT’s motion for transfer, sending the case to Travis County. It prohibits ERCOT from using the uplift mechanism by which it “spreads the cost” of municipalities unable to pay exorbitant energy bills onto other municipalities, including Denton.
For example, a city unable to pay part or all of its energy bill to ERCOT because of the sky-high costs imposed during the weather event in February would have its debt pushed onto other cities.
The city of Denton contends “cities are barred from making such payments.” It filed the suit after Denton Municipal Electric spent $207 million to buy electricity from ERCOT. DME’s annual budget is $231.4 million.
According to documents, the average price of energy per megawatt-hour in February was $23.73. During the rotating outages that began around the state on Feb. 15, that increased to $2,400 per megawatt-hour.
Denton staff members on Feb. 19 issued $100 million in new debt “to meet immediate cash flow needs” for DME. 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 is carrying about $851 million in debt, in general obligation bonds, revenue bonds and certificates of obligation.
A little more than a week after rotating power outages began in February, Denton City Council members gave the OK to allow DME to borrow up to $300 million to cover costs incurred during the storm.
Ultimately, the city is seeking a permanent injunction that would, in part, keep ERCOT from demanding payments to cover others’ debts and keep ERCOT from taking action against the city for not making those payments. The temporary injunction would do the same at least until trial.