What that $9K electricity trading day means to Denton

Statewide, most ratepayers can expect higher bills because of that extraordinary market frenzy.

How extraordinary? Monday was hot, perhaps the hottest day of summer. Yet even as temperatures soared to 102 degrees Monday afternoon, an approaching cool front kept things breezy. Texas was buying and selling electricity for less than $40 per MWh during the afternoon peak.

Settling with Denton Municipal Electric customers is a few months away. The Denton City Council has delayed a decision about folding the variable costs in local electric rates until fall.

“We plan to provide the City Council a budget update in November once we have final numbers for [the] fiscal year,” Chief Financial Officer Tony Puente said.

Denton closes its fiscal year Sept. 30. At that time, the Denton Energy Center also will have been running for 15 months and have many more weeks of performance data.

The power plant’s big money week Aug. 12-16 will surely be a part of that. According to the city’s settlement statements with the Electric Reliability Council of Texas, or ERCOT, the Denton Energy Center sold more than $15 million in electricity that week.

Trouble is, DME customers also used $23 million in electricity over those five days. Some, but not all, of the rest of the electricity bought and sold that week was provided by the city’s wind and solar contracts.

In 2016, some arguments for building the new power plant suggested that DME could make money with it. But the power plant’s only day in the plus column was Aug. 15. It didn’t happen when electricity was selling at $9,000 per MWH. Instead, it happened when the electric load was down locally and demand was high elsewhere. That day, the new power plant and the city’s renewable power contracts put DME in the black by $138,566.

As head of the finance department, Puente has been managing costs from DME and the new power plant. (DME continues to search for a general manager.) DME borrowed $265 million to build the power plant. The finance staff projected the plant would lose about $2.44 million this year, but as of the end of June, revenue was lagging expenses by $6.68 million.

The city can’t include financing costs into what it charges for electricity from the new power plant. However, ERCOT does pay a premium when the plant runs in times of scarcity.

Those few hours that electricity traded near $9,000 per MWh was one such time, Puente said. He estimated ERCOT paid Denton about $5,000 as a scarcity premium that day.

In July, the finance staff told the City Council that current electric rates appeared to be too low compared to costs. If trends continue — which the finance staff agreed could change — the council may be forced to increase electric rates 3% in 2020-21.

They recommended a phased approach to rate increases, with a 1.5% increase in the “energy cost adjustment” part of electric rates for 2019-20.

But the City Council said it wants more information about the new power plant’s performance before deciding on a rate increase.

Puente said he’ll want more information, too, after this month’s market swings.

“We’re resetting the button,” Puente said. “We’ll craft a new recommendations and options for the council to consider.

“We still need additional information to make that call,” he added.