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Council approves rate increase for Denton Municipal Electric customers

DRC file photo

The Denton City Council voted Tuesday night to approve a midyear electricity rate increase that one council member referred to as a “pretty big whammy” for residential and commercial customers.

The midyear rate increase comes in response to skyrocketing energy and transmission costs and is the first one in seven years, Bill Shepherd, DME’s executive manager of business services, told council members Tuesday night.

Beginning April 1, the rate increase will be about $24.10 per month for households using an average of 1,000 kilowatt-hours. Of that increase, $10.60 is for recovery of pass-through purchase power costs, and $13.50 is for recovery of pass-through transmission costs.

For example, residents whose electric bill averages $106 per month will now see a total of about $130 per month. (That doesn’t include Denton Municipal Utilities’ charges for water, wastewater or solid waste.)

For small business customers now paying an average of $148 per month, their monthly bill will go up to about $174, while medium-sized business customers will see their rates jump from an average $1,361 monthly bill to $1,692, according to DME.

Large business customers will be the hardest hit as their rates increase to an average of $36,258 per month, up from $28,002.

“Even with the increase, we’re still below the average as our peers in the state,” Shepherd said.

But customers could see another increase sooner rather than later, depending on the purchase price for electricity, because council members and the public utilities board will now be assessing rates on a quarterly basis.

At Tuesday’s council meeting, Shepherd mentioned that there might be a 5.5% increase in October but reaffirmed that DME is simply trying to recover energy costs to make sure it breaks even.

Council member Chris Watts worried about the midyear rate increase since DME has already planned to increase rates by 20% over a four-year period beginning in 2025.

“I’m concerned that this is a pretty big whammy,” Watts said Tuesday night. “This doesn’t include the loan that we have to take out to cover whatever created that problem.”

What created that problem, according to DME, was record heat from July through September 2023. DME didn’t budget for the addidtional $31.2 million in power supply costs, DME spokesperson Stuart Birdseye said.

This increase is due, in part, to the fact that the price of electricity jumps from $50 per megawatt-hour on a typical day to as high as $5,001 per megawatt-hour when it’s not so typical, according to Sept. 1 report by The Texas Tribune.

Birdseye said DME plans to finance the loan beginning in 2025 until 2029 with an annual cost of approximately $7 million. DME will be taking the bond ordinance to the council this summer in conjunction with other bond sales.

The midyear rate increase in April does not account for seasonal impacts such as the triple-digit temperatures soon to hit North Texas, Birdseye told the Denton Record-Chronicle in February.

As Watts mentioned Tuesday night, it also does not include the additional 5.5% base increase proposed for 2025 and the four years of increases that will follow to cover the tens of millions the city spent during Texas’ dangerous winter storm in February 2021 — as well as what was once the proposed $75 million expansion to DME’s campus on Spencer Road.

In late February, DME told council members that it planned to delay the campus expansion other than land acquisition and design, reducing it from $75 million to $10 million that they plan to spread out over three years, Birdseye said.

In a news release Wednesday, Birdseye offered further details on the cost breakdown:

  • ERCOT market increases: statewide regulatory changes outside DME’s control that have increased energy costs for all Texans.
  • Increased transmission cost: paid by DME to other transmission system owners for investments they have made to improve the ERCOT grid.

In mid-February, DME representatives held a presentation with council members at a work session and originally proposed increasing average rates by $10.60 for the increased energy costs and $8.80 for increased transmission costs, according to a Feb. 13 Record-Chronicle report.

Birdseye said those figures were preliminary estimates and remained the same for the energy costs but increased from $8.80 to $13.50 for transmission costs once they started working on the actual ordinance.

The reason that customers will have to pay the transmission costs is because DME had filed a required Transmission Cost of Service rate case with the Public Utility Commission of Texas, which resulted in a decrease in revenues of $36 million per year paid to DME by other ERCOT transmission owners, Birdseye said.

“This reduction was expected, but DME did not increase rates at the time because the actual amount of the reduction was not certain until after the final order was issued,” Birdseye said. “Now the revenue loss is known, and this contributed to this midyear adjustment.”

On Tuesday night, DME General Manager Tony Puente told council members that the utility was paying $12 million for those costs in 2017, but that has increased to more than $26 million today.

“And it’s going to continue to grow,” Puente said.