The Denton City Council took a step Tuesday to shore up the city-owned utility, giving permission to issue more debt, if needed.
Denton Municipal Electric (DME) bought $207 million-worth of electricity from the state grid operator over four days last week, buying at a time of massively elevated wholesale prices.
Over the previous three years combined, the utility spent $237 million on electricity.
Paying for last week's electricity left the utility with practically no cash on hand. To meet its massive bill, the utility drained its cash reserves and issued $100 million in short-term debt to generate cash, city officials said.
The city council’s action Tuesday gives the city management the option to issue up to $200 million in additional short term debt if it needs to generate cash quickly. Denton Assistant City Manager David Gaines said he didn’t expect the city electric utility to need to issue the full amount.
Denton Mayor Gerard Hudspeth said the measure will ensure the lights stay on and the electricity flows if the city is faced by more unforeseen events.
“I don't know what else we can ask a municipal electric but for to provide for those who have had a really tough week, to make sure we don’t have future tough weeks,” Hudspeth said.
Forced Onto The Market
With the winter storm hampering power generators’ ability to supply enough electricity to meet demand, electricity prices soared. The shortage also forced the Electric Reliability Council of Texas to order rolling blackouts, plunging millions into darkness and cold statewide.
Denton Municipal Electric operates a natural gas-fired power plant. It was built in 2018 and is capable of generating 200 megawatts of electricity, enough to power the small city’s homes.
But demand for natural gas surged as temperatures plunged. By last Monday evening, the utility was toldthat it wouldn’t be able to get more gas to feed its power plant, and had to shut the plant down.
By the time DME got more gas the next day, some of the power plant’s machinery had frozen up, and workers were unable to get it started until the weather warmed.
That left the utility with no option but to buy electricity on the open market — a very expensive prospect.
On one day alone, last Wednesday, the utility paid out more to buy electricity than it did in the entire previous year.
In February 2020, the utility paid $23.73 per megawatt hour. Last week, the utility was paying $9,000 per megawatt hour at times.
The Council Debate
Council member Deb Armintor was the sole vote against giving the cash-strapped utility permission to issue more short-term debt, arguing the city should wait to see if state lawmakers take action following the storm.
She pointed out that the city had already paid the $207 million, and was skeptical about giving the utility the option to issue more debt. Even though ratepayers may not see higher bills from new debt, Armintor said, “the fact remains that it’s the public who’s going to be paying for it.”
But council member Birdia Johnson said the flexibility to issue debt was a matter of being prepared.
“I don’t see what would be bad about being over-prepared,” Johnson said. “Clearly, we know what underprepared feels like.”
Despite the massive price tag the utility paid for electricity during the storm, Denton Municipal Electric told customers that they won’t be subject to the huge electricity bills many Texans are now struggling with.
Got a tip? Christopher Connelly is KERA's One Crisis Away Reporter, exploring life on the financial edge. Email Christopher at cconnelly@kera.org.You can follow Christopher on Twitter @hithisischris.
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