The City of Georgetown recently took steps to address changes in the electric power market. Those changes will affect your electric bill if the City of Georgetown provides your electricity. I’d like to provide you some information about changes to your bill, provide some background on those changes, explain the steps we are taking, and address some mischaracterizations you may have seen in the news media or elsewhere.
PCA charge: Effective Feb. 1, the City is increasing the power cost adjustment, or PCA, to recover costs associated with purchasing energy. Customers will incur an increase of $0.0135 per kilowatt-hour, resulting in a new PCA of $0.0175 per kilowatt hour through September. The average customer uses 949-kilowatt hours per month and will experience a $12.82 increase on their monthly bill. The City has increased and decreased the PCA over the years in response to changing energy prices. Please know we take any increases in costs for our customers very seriously. Our hope is that the PCA will be lowered at the end of September.
Background: Over the past few years, the energy market in Texas experienced a fundamental change. Forecasts provided by ERCOT, the State’s energy grid operator, have proven to be unreliable. What was perceived as anomalies in 2016 and 2017 due to reduced consumption, unpredictable pricing, and unusually cold weather, masked the true impact of a depressed global energy market. Looking back, it is apparent that a longer-term trend of lower energy prices is the driving factor of the electric fund’s current finances. The effect of depressed energy prices became abundantly obvious in 2018.
Changing our strategy: The City’s original strategy to contain costs by contracting for fixed-priced, renewable energy was intended to mitigate the risk of spiking energy prices. Securing long-term energy contracts that provide more energy than customers currently need is a standard practice among city-owned utilities. As a fast-growth community, these contracts allow us to grow into our energy demand. The contracts also reduce the number of times the City has to buy energy in a potentially volatile marketplace.
However, when the price of energy decreases, the City is still obligated to pay the price for energy we secured in our contracts. Any energy that is not used by our customers is cleared to a statewide marketplace.
Looking back, this is an obvious shortfall in our strategy and one that we are dedicated to fixing. Additional relief will come as our customers’ demand for energy grows. The less energy the City needs to clear to the market, the better the financial outlook.
What we’re doing: This year, the priority for the City is to change the on-going financial obligations tied to our energy contracts. This could involve reducing the energy Georgetown is obligated to purchase, selling a portion of the energy to another electric company, adjusting the terms of some of our financial obligations, or a combination of all these efforts. The City is also taking steps to better manage the energy contracts day-to-day. Learn more about the electric cost issue and the steps we are taking at gus.georgetown.org/electric.
Mischaracterizations: There have been several inaccurate or misleading statements made by news media or posted on social media that I would like to correct.
- It’s been reported that the City lost $26 million, which is not accurate. The $26 million figure represents the difference between projected and actual power costs in budgets from 2016 through 2018. However, the City compensated for these missed projections with one-time solutions, including adjusting how the City financed electric infrastructure projects (i.e. cash vs. debt financing), adjusting the timing of projects, increasing the PCA on electric bills, and completing a rate study. While the current situation is serious, a more accurate assessment is to report that the 2018 fiscal year electric fund balance was $1.97 million, which is $6.84 million below the projected target for that fund.
- Another mischaracterization is that the City is not being open about electric contracts. It is important for customers to know that wholesale power contacts include nondisclosure agreements which preclude the release of wholesale power costs. Such agreements are included in contracts across the power industry. Releasing wholesale costs would expose the City to legal action from energy suppliers.
- Some have reported that the electric fund shortfall is due to renewable energy. However, the current changes in the electric fund are due to the amount of energy that the City has under contract, not the type of energy. The outcome would have been the same if we had used the strategy with other sources of energy.
You can read more background on this issue or rumors you may have read and learn what we are doing to fix the issue at gus.georgetown.org/electric.
Please know the City is working hard to continue to provide energy to our customers at competitive prices. Georgetown is fortunate to have a highly-reliable, community-owned and operated electric utility. Going forward, we remain committed to ensuring this valuable community asset benefits Georgetown for years to come.