The effect on residential customers will depend on where they get their energy from. Most residential electricity customers, such as City of Georgetown electric customers, are on fixed-price contracts with their power providers. As such, these customers are not exposed to changes in their rates due to scarcity-driven changes in the wholesale price of electricity.

Residential electricity prices in Texas are set in one of three ways:

1) Rates for electric cooperatives and municipally-owned utilities, such as Georgetown, are fixed and are approved by their respective city councils or governing boards. The Pedernales Electric Cooperative, which serves some Georgetown residents, also falls under this category.

2) Outside the ERCOT region, regulated utilities also charge fixed rates that are approved by the Public Utility Commission;

3) In areas with retail competition, customers have a contract with a retail electric provider that they have chosen. There is not a mechanism where a retail electric provider can go back and change the price agreed to in the contract. Georgetown residents in the Oncor service area, for example, have to pick a retail provider.

(Source: PUCT: Electricity Prices during the 2021 Winter Storm.)

The wholesale price of electricity is set in a market in which sellers of electricity (power generators) and buyers of electricity (retail electric companies) agree to a price based on supply and demand. Wholesale electricity can be bought in long-term contracts between buyers and sellers. If a power generator cannot generate enough of its own electricity to fulfill the contract, that power generator will have to buy power in the real-time market to make up the difference.

The real-time market is another way that electricity is bought and sold. Each year, an offer cap is reviewed and placed on the wholesale market price. The maximum wholesale market price for electricity is reserved for extreme scarcity conditions to encourage any and all generation able to come online and acts as a penalty for generators who fail to show up when needed. The cap currently is $9,000 per megawatt hour.

(Source: PUCT: Electricity Prices during the 2021 Winter Storm.)

During the week of the storm, freezing temperatures caused cascading problems in the state’s energy production and delivery systems, ultimately forcing both fossil-fuel based and renewable-generation plants to fail and reducing the amount of electricity available for purchase.

At the same time, people throughout the state were trying to heat their homes. Heating a home in freezing weather consumes a considerable amount of energy. Reheating a home after a power outage, like those mandated by ERCOT to save the grid from catastrophic collapse, added even more demand to an already taxed system.

As a result of that significant gap between supply and demand statewide, and the resulting need to incentivize all electric generators to come online and stay online to stabilize the grid, the price for wholesale electricity jumped to its pre-determined cap of $9,000 per megawatt hour for 70 hours from Feb. 16-19. All electric utilities that had to purchase energy from the ERCOT energy markets were charged this rate for energy used in this period. For reference, the average cost per megawatt hour in January 2021 was $20.79.

Texas natural gas prices experienced similar spikes, rising from $2 per million BTU the week before the storm to an average of $200 per million BTU, according to Fitch Ratings.

ERCOT also imposed other ancillary services rates that peaked at $25,000 per megawatt hour. Most load-serving entities in Texas, such as Georgetown, pay ERCOT a fee—the ancillary service charge—to procure reserve or on-demand generation on our behalf, in the event additional generation is needed to support the statewide grid. Normally, these costs are negligible, but during the extreme cold weather event, the per megawatt was not subject to a cap and resulted in a steep spike.

The City of Georgetown, for example, currently owes $17 million for ancillary services. For comparison, the City paid $710,000 in ancillary services in all of 2020. In other words, we were charged more for ancillary services in six days than we normally pay in 25 years.

Statewide, ERCOT estimated the wholesale market would incur charges of $55 billion during the week of the storm, which is what it normally incurs over four years. All electric utilities in Texas are being asked to share these costs relative to their usage and energy contracts.

Different municipally-owned utilities will have varying impacts from the weather event. Each city has a unique mix of generation sources and load to serve, and therefore a unique risk profile in the market. All electric utilities had to shed load during the event.

The State is working now to determine whether there was overpricing and, if so, how that can be addressed. We encourage you to reach out to our representatives and let them know your thoughts about the pricing.

There have been a few instances since 2015 when the price reached the $9000 per mwh. The major difference between the earlier instances and this event is how long the prices stayed at $9000 per mwh. During the winter weather event of February 2021, the prices stayed at $9000 per mwh for about 70 hours.

The City did not expect the prices to stay at $9000 per mwh for that long. This pricing event is unprecedented.

ERCOT sets the maximum per megawatt hour pricing based on what it thinks would be a high enough incentive to bring generators into the market when supply is running critically low.

Energy pricing in the statewide grid is set to allow for fluctuation, so it can reflect the market. However, no one in the state ever anticipated having the amount of load shed or duration of extreme pricing as we saw this February. The cap is generally intended to last for a short period of time, to encourage generators to get into the market and increase energy supply statewide. As we know, several generators were unable to do this due to the extreme weather.

The State is working now to determine whether there was overpricing/billing errors and, if so, how that can be addressed. We encourage you to reach out to our representatives and let them know your thoughts about the pricing.

Power outages experienced during the storm were tied directly to the severity and longevity of the winter weather. Temperatures in Texas reached lower than they have in 30 years, and crews worked around the clock to restore power and share updates as best we could.

This ongoing, prolonged, and widespread frigid weather across the state caused the statewide electric system — managed by ERCOT — to be strained by high demand and low operating reserves. Operating reserves are low when the capacity of available resources, such as power plants, only slightly exceeds anticipated customer demand across the ERCOT system.

In order to make sure critical infrastructure, like hospitals, retain power, ERCOT required all utilities across the state to reduce the amount of electricity to our customers. The City of Georgetown, like several other utilities across the state, accomplished this by rotating outages across non-critical customers, including residences and commercial facilities.

ERCOT requires energy providers to prepare for load shed every year, mostly to prepare for peak usage season in the summertime. Based on our system and our plan with ERCOT, Georgetown was prepared to shed up to nine megawatts across seven circuits in our system. These circuits were selected because they don’t have any critical infrastructure tied to them. Critical load circuits include hospitals, control centers, 911, the airport, and water/wastewater plants and are not subject to outages.

Initially, ERCOT asked us to shed two megawatts. Within an hour, that requirement jumped to 20 megawatts. Because Georgetown was mandated by ERCOT to shed so much additional load to help reduce demand, we quickly had to come up with a way to add more non-critical load circuits we could take offline to spread the shed requirements. Ultimately, we were able to rotate outages among 25 circuits. Areas of Georgetown that remained with power likely share a circuit with a critical load circuit.

As of March 23, the City of Georgetown issued a $48 million bond for the unbudgeted power costs during the extreme winter weather event (Feb. 14-20).

At City Council direction, the City issued $48 million of debt, which we will pay over the course of 10 years at our current rate structure, including the $0.01375 per kilowatt hour power cost adjustment (PCA). For the average residential customer, that amounts to about $10 a month.

The City issued what is known as self-supporting, tax-backed debt. In this debt structure, we will pay down the debt from the electric revenues but will pledge property taxes as collateral. This is a common practice among cities with utilities and will help the City receive a better interest rate on the bonds.

The Water Utility and Electric utility have historically pledged their debt together in order to receive higher credit ratings, and that existing debt is protected by rules called covenants. Because the $48 million owed significantly outpaces our budget and revenues, the City may have to set aside additional reserves as part of our existing bond covenants for both water and electric in order to meet its debt service coverage ratio obligations.

The debt coverage ratio is the number of times net operating revenue (operating revenue minus operating expense) covers the annual debt principal and interest payment. The ratio must cover water and electric outstanding revenue bond debt, which are co-pledged together. This is required in the rules (covenants) governing our existing bonds for both utilities. Debt coverage ratios are also used by bond-rating agencies to assess creditworthiness. Net operating revenue must cover the annual payment 1.35 times, or else the springing reserve is required.

The “springing reserve” would total $6.4 million in accordance with those existing bond agreements. The council directed staff to pursue a surety policy, which involves a one-time, up-front payment of a percentage of that amount. The insurance policy is an overall lower-cost option that will mitigate additional burdens on customers. It requires funding the policy one-time upfront. Funding the reserve would require larger ongoing payments continuously for 60 months.

On Feb. 26, Standard and Poor’s put Georgetown Utility Systems on CreditWatch negative. On March 3, the rating agency downgraded the City’s utility bond rating from AA- to A+. Standard and Poor’s may take additional action over the coming months. If we receive a lower bond rating, it will affect our ability to secure low-interest rates on future bonds and debt.

Staff did not recommend this, and Council agreed, because we need to preserve what reserves we have. The unrestricted reserves we have in the electric utility aren’t enough to make much of a difference in the large price tag we are facing. Reserves help bolster our bond rating and are needed in case another emergency happens.

If the City doesn’t pay this electric bill, we open ourselves up to several risks, including litigation and the inability to sell bonds and secure energy.

Some retail electric providers have decided to walk away from what they owe to ERCOT. As a result, there is a chance other providers, including Georgetown electric, will have to help cover the costs. If electric generators are not paid what is owed, they could stop generating electricity, limiting the amount of energy available on the state’s electric grid.

At this point, the City’s options are limited to petitioning our Texas legislators and pursuing litigation. The City is reviewing all options and will share more if and as we are able.

During the event (Feb. 14-20), the City used 16,000 megawatt hours. Of those, our electric energy contracts covered about 13,000 megawatt hours. The remaining 3,000 megawatt hours were exposed to the $9,000 per megawatt hour prices. In essence, our existing energy contracts covered about 80 percent of our electric needs during the event, substantially insulating us from the high wholesale market costs.

The energy delivered through our renewable energy contracts is variable, as generation allows. This is due to the intermittent nature of solar and wind generation.

During the extreme winter weather event, there were periods of time when our renewable energy facilities were degraded due to icy conditions.

The City is always actively working to improve our risk management practices, including managing our existing portfolio and as our energy needs as load requirements grow.

To read more about our energy contracts and the PCA, click here.

Much of what happened during the extreme cold weather event was out of our control; however, the variables we can control, we will. We have had an after-action meeting and will present our findings and recommendations to Council.

For the electric utility, we will continue to review, update, and follow our risk-management policies. This includes aligning our policies with any new market structures or changes the state imposes as a result of this event.

Some of the City’s large, commercial customers do participate in demand-response programs, and we plan on refining that program. We will be exploring the use of our advanced metering infrastructure (Smart Meters) to develop a more targeted load shedding program.

We are exploring all options.

Georgetown is looking at all possible options that can help us meet our growth needs while addressing the risks posed by events like the extreme winter weather event.

In a special-called meeting Tuesday, March 2, 2021, the Georgetown City Council directed staff to pursue a surety policy and a 10-year bond to cover the costs and reserve requirements resulting from the City’s $48 million electric bill. Council’s direction mitigates impacts to customers and keeps our rates flat.

The individual residential City of Georgetown consumer is not exposed to wholesale market prices and should not see extremely high electricity bills as a result of the wholesale energy costs. Georgetown customers might see higher than normal bills due to higher usage. We have multiple options to help you pay your electric bill, such as funding assistance through partner agencies and in-house customer programs you may qualify for.

Thanks to the financial stability of our electric utility and direction from City Council, we are able to pay our electric bill from the storm with the existing rate structure under the 10-year loan.

We will use the existing, monthly PCA customers pay to fund the annual debt. For the average residential customer, the $0.01375 per kilowatt hour PCA amounts to about $10 a month.

We lowered the PCA by 1 cent in January, and our goal was to eliminate it altogether in 2022, when we would see savings from having one of our purchased power contracts end. Based on current circumstances, we will use the existing PCA to pay for the debt incurred during the winter storm. That does not mean the PCA will stay at its current level for 10 years. Our goal is to provide a safe, reliable utility with competitive rates. We have been and will continue working very diligently to further reduce the PCA.

Please consider contacting your representatives in the Texas Legislature to let them know how this is affecting Georgetown.

Stay informed by following the Texas Legislature, local media, and City communications channels. As we have updates that affect our customers, we will share them.

We have multiple options to help you pay your electric bill, such as funding assistance through partner agencies and in-house customer programs you may qualify for. Please contact Customer Care at 512-930-3640 or customercare@georgetown.org to discuss options.

Georgetown electric customers are charged only for the power consumed and will be charged at the existing rates. Anyone without power during this time had no electric use recorded from meters during these outages. Heating – and reheating – your home for days in subfreezing temperatures consumed a considerable amount of electricity, resulting in higher electric bills.

Georgetown Utility Analysis and Reporting Doorway is a portal that allows customers to track water and energy usage on a daily basis. This is a great tool to gain an understanding of how much water and energy you consume, and can be useful to help with conservation and reducing cost of utility bills. Click this link to view our helpful GUARD introduction video that will provide instructions for registering and utilizing this tool. Click here to register.

Several people have reached out about high electric bills that are the result of multiple months, rather than the winter storm. If you have any questions about your bills, please contact Customer Care at 512-930-3640 or customercare@georgetown.org. Due to anticipated, larger-than-average calls, please give staff a few days to respond.