That sound you hear is electric chickens coming home to roost.
City leaders put off deciding on a rate increase for Denton Municipal Electric customers this week, but the numbers don’t look good.
First, there’s the Denton portion of the shuttered Gibbons Creek coal-fired power plant, with its old, stranded debt and now its new decommissioning costs. Then, there’s Texas renewable-driven energy marketplace, where DME and other utilities must sometimes sell excess wind power at a loss. But to really trim the tail feathers, the Denton Energy Center, Denton’s new natural gas-fired power plant, isn’t making enough money to cover its $18 million annual debt payment.
City Council member Jesse Davis recognized some of the current problem has been years in the making, but he also thought city leaders would borrow trouble by delaying the decision on raising rates.
“I just want to manage expectations,” Davis said during a council work session Tuesday afternoon. “I don’t want people to think we’ve waved a magic wand and gotten rid of a possible increase.”
Technically, council members did get rid of one potential rate increase for this year.
The city finance staff led most of the presentation Tuesday afternoon, showing council members how the two sides of a typical electric bill are calculated. The base rate on a customer’s electric bill helps DME recover its fixed costs, such as personnel, equipment and paying off the old power plant. The “energy cost adjustment” is a variable rate that allows DME to pass on costs incurred in the Texas energy marketplace, including costs of running the Denton Energy Center.
The council agreed to end the current ECA formula because it would have jumped too much this year. Instead, they agreed with a staff recommendation that about $40 million in electric cash reserves can be used to cover this year’s cost spike.
But David Gaines, the city’s finance director, recommended that the city use a phased approach in looking ahead to next year and the following three years. The city finance staff projected increases in the ECA rate would likely be necessary between now and 2023.
Currently, the average monthly bill totals $124.80 for 1,200 kilowatt-hours. The phased approach would increase the average bill about $2 per month. With or without the phased approach, that average bill would reach $128 by 2021 and $131 by 2023.
DME’s power costs are about $6.4 million higher than expected each year, Gaines said. He attributed about $4.2 million of the increase to the fact that Denton no longer gets electricity from the coal plant. Another $2.2 million comes from higher costs in the Texas energy marketplace, run by ERCOT, the Electric Reliability Council of Texas.
Because the Denton Energy Center has not offset vagaries in the electric marketplace as projected, the city finance staff opted to refinance about $28 million in old coal plant debt rather than finish paying it off.
“We need to smooth that hit to residents,” said City Manager Todd Hileman.
Council member Keely Briggs said while she knew it wasn’t healthy to revisit the past (she opposed the Denton Energy Center), she reminded fellow council members that DME wasn’t supposed to have rate increases with the new power plant.
“I’m trying to figure out why we’re here,” Briggs said. “I didn’t know it would be so bad.”
Several council members asked whether the city has options to either run the power plant more or sell it to cut the losses.
Hileman told them the plant runs only when dispatched by ERCOT. But he also assured them that he and the finance and DME staff have been studying the plant’s economic performance for the past several months and will continue to monitor the trends in its performance and the Texas energy marketplace in general.
“We will give you options if that changes,” Hileman said.
Council members agreed to revisit the losses in three to six months and consider whether to increase electric rates then.