HomeMy WebLinkAboutAgenda CC 05.14.2019 WorkshopN otice of M eeting of the
Governing B ody of the
C ity of Georgetown, Texas
M ay 1 4, 2 01 9
The Georgetown City Council will meet on May 14, 2019 at 3:00 P M at City Council Chambers, 510
W 9th Street Georgetown, TX 78626
The City of Georgetown is committed to compliance with the Americans with Disabilities Act (AD A).
If you require assistance in participating at a public meeting due to a disability, as defined under the
AD A, reasonable assistance, adaptations, or accommodations will be provided upon request. P lease
contact the City Secretary's Office, at least three (3) days prior to the scheduled meeting date, at (512)
930-3652 or City Hall at 808 Martin Luther King J r. Street, Georgetown, TX 78626 for additional
information; TTY users route through Relay Texas at 711.
Policy De ve lopme nt/Re vie w Workshop -
A P resentation and discussion regarding Atmos Energy -- Randy Hartford, Manager of P ublic
Affairs, Atmos Energy
B P resentation and discussion of improvements made to customer communication regarding utility
system outages -- Glenn Dishong, Utility Operations Director
C P resentation o f the Electric Resource Manageme nt Assessment repo rt from Schneider
Engineering -- David Morgan, City Manager
Exe cutive Se ssion
In compliance with the Open Meetings Act, Chapter 551, Government Code, Vernon's Texas Codes,
Annotated, the items listed below will be discussed in closed session and are subject to action in the
regular session.
D Sec. 551.071: Consul tati on w i th Attorney
Advice from attorney abo ut pending or contemplated litigation and o ther matters on which the
attorney has a duty to advise the City Council, including agenda items
- Litigation Update
Sec. 551.072: Del i berati ons about Real P roperty
- Sale of P roperty - 103 West 7th Street -- Travis Baird, Real Estate Services Manager
Sec. 551.086: Certai n P ubl i c P ow er Uti l i ti es: Competi ti ve M atters
- P urchased P ower Update
Sec. 551:074: P ersonnel Matters
City Manager, City Attorney, City Secretary and Municipal J udge: Consideration of the
appointment, employment, evaluation, reassignment, duties, discipline, or dismissal
Adjournme nt
Ce rtificate of Posting
I, R obyn Densmore, C ity S ecretary for the C ity of G eorgetown, Texas, do hereby c ertify that
this Notice of Meeting was pos ted at C ity Hall, 808 Martin Luther King Jr. S treet,
Page 1 of 98
G eorgetown, T X 78626, a plac e readily ac cessible to the general public as required by law, on
the _____ day of _________________, 2019, at __________, and remained so pos ted for
at leas t 72 c ontinuous hours prec eding the s cheduled time of said meeting.
__________________________________
R obyn Dens more, C ity S ec retary
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City of Georgetown, Texas
City Council Workshop
May 14, 2019
S UBJEC T:
P resentation and discussion regarding Atmos Energy -- Randy Hartford, Manager of P ublic Affairs, Atmos Energy
I T EM S UMMARY:
F I NANC I AL I MPAC T:
N/A
S UBMI T T ED BY:
Randy Hartford/jd
AT TAC HMENT S :
Description
P resentation
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Safety is our highest priority.
Page 4 of 98
We all want the same thing. The safe delivery of natural gas.
At Atmos Energy, we are committed to being the safest provider of natural gas services.
Our nation’s existing natural gas delivery network is aging and needs to be replaced. We
invested more than $1.1 billion in 2017 to modernize our pipeline infrastructure. Our spending
will continue to rise as we increase our pace of pipe replacement. We’re not only investing in
the safety and reliability of our system, but also in the growth, economic expansion and
welfare of our communities. We want everyone to enjoy the benefits of natural gas for
generations to come.
We own and operate over 75,000 miles of natural gas pipelines. Safely owning, operating and
modernizing such a dynamic system requires a strong partnership between the communities
we serve.
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We’re investing in safety. Everywhere.
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Customer
bills remain
affordable.
We’re investing in safety. Everywhere.
Page 7 of 98
We’re replacing our existing natural gas distribution infrastructure with modern
pipes. How do we determine the schedule for pipeline replacements? We use
a risk-based prioritization model that considers factors like the pipe’s age,
location, material, leak history, environmental factors and more.
We’re investing in safety. Everywhere.
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To detect leaks, we rely on aerial patrols and the use of advanced detection systems, like our mobile leak
detection vehicles, which measure and map methane plumes in the air. We are always working with
industry and technology partners to develop and deploy the most advanced technologies for finding leaks.
We’re investing in safety. Everywhere.
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Keeping our natural gas system safe and reliable.
When a leak is discovered, it is graded using state and federal guidelines
to determine its risk, which dictates its timeline for repairs. The more
significant the leak, the sooner we repair it. We take immediate action to
repair hazardous leaks. We operate a 24-hour emergency hotline so
anyone who suspects a leak can reach us quickly.
Leaks are almost always caused by one of three factors: accidental damage by third
parties, corrosion or environmental factors. That’s why we constantly educate
excavators, landscapers and homeowners to call 811 before digging starts.
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Keeping our natural gas system safe and reliable.
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Our culture in your communities.
Our company doesn’t just deliver natural gas to homes and businesses,
we also stimulate economic growth. We are a proud government
contractor, and partner with a full range of well qualified, diverse local
businesses, from landscapers and general contractors to auto mechanics
and plumbers. These volunteer efforts, combined with our local
partnerships, are how we invest in our communities from the ground up.
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Healthy relationships ensure a safer system.
Several stakeholders help us ensure the safety of our natural gas
distribution system. Once costs are deemed prudent, we collaborate to set
rates that allow cost recovery and reasonable investor returns.
It takes significant financial and human resources to own, operate and
modernize a natural gas delivery system. The rates we charge customers
cover only about 60% of our current capital program. Investors and
creditors cover the rest. We can only do this through regular, consistent
rate adjustments.
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Healthy relationships ensure a safer system.
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Partner with us.
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Partner with us.
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Partner with us.
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Partner with us.
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Partner with us.
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City of Georgetown, Texas
City Council Workshop
May 14, 2019
S UBJEC T:
P resentation and discussion of improvements made to customer communication regarding utility system outages -- Glenn
Dishong, Utility Operations Director
I T EM S UMMARY:
As a result of utility outages last year, and the resultant incident investigations, a Business Improvement P rocess (BIP )
project was initiated to improve customer communications during utility outages using our existing tools and technology.
Staff will present the improvements made to customer communications as a result of the project.
F I NANC I AL I MPAC T:
None.
S UBMI T T ED BY:
Glenn W Dishong, Utility Director
AT TAC HMENT S :
Description
C AN P res entation
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Customer Alerts and
Notifications (CAN) Project
James Foutz
Conservation and Marketing
Manager
Council Workshop
May 14, 2019Page 21 of 98
Agenda
•Background
•Project Phases
•What’s been accomplished?
•Next Steps
•Project Team
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Background
•Project was initiated as a result of the After Action
Report from the pump outage and the boil water notice
which resulted from that .
–Multi-functional team identified communications as a deficiency
during the event.
•Our ability to communicate with customers quickly and
with relevant information was not at an acceptable level .
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Background
•Business Improvement Program (BIP) Project started in
December of 2018 with requirements gathering and
analysis.
–Customer Survey
–Stakeholder feedback sessions
•Timeline
–December 2018 March 2019: Requirements and Analysis
–March 2019 May 2019: Development and Implementation
City of GeorgetownPage 24 of 98
Requirements Phase
•Looked at our communications processes during what
we termed as “Tier 2” events. These are events where
communication requirements are urgent and important,
but within normal business operation .
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Requirements Phase
•Defined four main requirements that we needed to
satisfy in order to close our process gaps.
–Provide relevant service interruption information to customers via
text or email.
–Provide outbound notification in under 30 minutes during a
service interruption.
–Make information accessible and centralized.
–Standardize electric and water outage business processes .
•Documented the existing business processes and
conducted analysis on past outage events.
City of GeorgetownPage 26 of 98
Work done up to this point…
•Process Improvement
•Website updates
–The gus.georgetown.org/outages page has been
updated to contain relevant information for customers.
–The main page for gus.georgetown.org will also
display a pop-up when there is a significant outage
occurring.
•Direct notifications
–Existing application (Paymentus ) has been configured
for communications based on CIS contact
information.
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Work done up to this point…
•Outage maps
–Both electric and water will have an outage
map which will display current outages in real
time.
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The Team
•This was accomplished with existing applications and
existing staff
•Multiple departments involved
–Communications: Keith Hutchinson, Jack Daly
–Conservation and Marketing: James Foutz, Judith Mattocks,
Randy McKenzie
–Technical Services: Joe Sepulveda, Christian Richardson
–IT: Eric McDonald, Neha Rathi, David Hernandez
–Customer Care: Cindy Pospisil
–Control Center: Chelsea Solomon, Kevin Vitek , Patrick Roepke
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Next Steps
•Automate the notification process
–Still a manual process from beginning to end
•Improve the contact information in our CIS
–Currently, we have email addresses for about 55% of our
customers
–CSR’s verify information when talking to customers on the
phone, but we will have to develop a campaign to have
customers update their information in the CIS customer
portal or through contacting the utility.
•Continuous Improvement & Public Awareness
•“Go-Live” for the outage maps on May 17 th.
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Questions?
City of GeorgetownPage 31 of 98
City of Georgetown, Texas
City Council Workshop
May 14, 2019
S UBJEC T:
P resentation of the Electric Reso urce M anage ment Assessment report from Schneider Engine e ring -- David Morgan,
City Manager
I T EM S UMMARY:
Schneider Engineering will present their findings and recommendations from the assessment of electric resource
management operations conducted o ver the past two months. The presentation will include factual findings, conclusions
and recommendations based upon their review within the following scope of work:
The City's Electric Resource Management organization/functional area.
Development of current wholesale power supply portfolio and the performance outlook for the portfolio.
Significant factors that contributed towards decisions that culminated insignificant increases in cost to the
wholesale power portfolio.
Impact of the power supply portfolio on recent City's budgets, retail electric rates and other City business areas.
Offer a forward-looking evaluation of steps the City may consider to effectively manage and optimize the
portfolio and consider market factors that may influence the performance of the portfolio.
The assessment is organized into the following sections:
Background
Financial Impact to the City
Organizational Assessment
a Forward-look at Market and Regulatory Issues
Conclusions and Key Findings
Recommendations
Schneider is also prepared to present the repo rt and findings at a public meeting o n May 20, where the public c an ask
questions. Frequently asked questions and other public materials are being developed to facilitate that meeting.
F I NANC I AL I MPAC T:
N/A
S UBMI T T ED BY:
D AVID M O R G AN, C ITY M AN AG E R
AT TAC HMENT S :
Description
Elec tric R esource Mgt Assessment R eport
Elec tric R es Mgt Assessment P res entation
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S CHNEIDER E NGINEERING, L TD.
P REPARED F OR
C ITY OF G EORGETOWN
M AY 9 , 2019
C ITY OF G EORGETOWN
E LECTRIC R ESOURCE M ANAGEMENT
A SSESSMENT R EPORT
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E LECTRIC R ESOURCE M ANAGEMENT A SSESSMENT R EPORT │ M AY 9, 2019
S CHNEIDER E NGINEERING, L TD. │ i
Disclosures
Schneider Engineering (SE) and its team currently have and previously have had historical relationships with
the City of Georgetown.
Mr. Steve Moffitt, prior to joining Schneider Engineering, worked with the City regarding power supply
planning and other issues. When he joined Schneider Engineering in August 2010, Mr. Moffit no longer
maintained a professional relationship with the City until it joined with a group of existing SE Clients who
opted not to renew their Lower Colorado River Authority (LCRA) contract and subsequently exited the
contract prior to its natural expiration. This work was purely related to project management and
coordination between the seven municipally owned utilities and cooperatives regarding their contract
dispute. The LCRA contract dispute was resolved in 2015, at which point the project coordination relationship
between GUS, the other SE Clients, and Mr. Moffitt was dissolved.
Mr. Ned Brown, Mr. Jay Hurst, and Mr. Ramsey Cripe have worked with Georgetown prior to this project, as
well. Schneider Engineering has a relationship with GUS to provide regulatory support services related to
compliance with standards, protocols and guidelines from North American Electric Reliability Corporation
(NERC), Texas Reliability Entity (TRE) and ERCOT Protocols and Operating Guides. These functions are not
related to finance, power supply, or related topics. Furthermore, Mr. Brown and Mr. Cripe performed some
work assisting Mr. Moffitt in the project coordination efforts relating to the LCRA contract dispute.
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TABLE OF CONTENTS
Section Page
Introduction 1
1.0 Background 4
1.1 City Utility Structure 5
1.2 City Council 5
1.3 Georgetown Utility Systems Advisory Board 5
1.4 Georgetown Utility Systems and Resource Management 6
1.5 Important Background Issues and Timeframes 7
2.0 Financial Impact of Power Contracts 10
2.1 Budgeting 11
2.2 Impact on Retail Rates 13
3.0 Electric Resource Management Organizational Assessment 15
3.1 Transition from LCRA Contract 16
3.2 General Manager Responsibilities 16
3.3 Single Points of Failure 17
3.4 Organizational Impacts 17
4.0 Forward Look at Market and Regulatory Issues 19
4.1 Positive Trends 20
4.2 Disadvantageous Trends 21
5.0 Conclusions and Key Findings 24
5.1 Section 1 25
5.2 Section 2 25
5.3 Section 3 25
5.4 Section 4 26
6.0 Recommendations 27
6.1 Power Contract 28
6.2 Impact Management 29
6.3 Policy Changes 31
6.4 Issues to Study 31
References 33
Appendices Non-Confidential Information 36
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Section Page
Appendix A – City of Georgetown Organization Chart 37
Appendix B – Georgetown Utility Systems Organization Chart 38
Appendix C – GUS Job Descriptions and Responsibilities 39
Appendix D – Current Risk Management Policy 43
Appendix E – Confidential Information 45
E-1 – Current Power Contracts 46
E-2 – Forward Look at Market and Regulatory Issues – Report Section-4 63
E-3 – Conclusions and Findings – Report Section-5 67
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E LECTRIC R ESOURCE M ANAGEMENT A SSESSMENT R EPORT │ M AY 9, 2019
S CHNEIDER E NGINEERING, L TD. │ 1
CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
I NTRODUCTION
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INTRODUCTION
On March 8, 2019, Schneider Engineering entered into an agreement with the City of Georgetown (City), to
provide an assessment of the City’s Electric Resource Management business area. During the months of
March and April 2019, Schneider Engineering’s (SE) project team conducted various interviews, electric
market analysis, and contract and electric generation resource research in accordance with the scope of work
and terms agreed upon scope for an Electric Resource Management Assessment (RFP No. 201918). The
assessment included a review and evaluation of the following confidential and non-confidential information
and subject areas:
Focus on the City’s Electric Resource Management team within GUS, the development of the current
wholesale power contracts, and the performance outlook for the contracts.
Identify, establish and discuss significant factors that contributed towards decisions that culminated
in significant increases in wholesale power costs.
Review the impact of the power contracts on recent City’s budgets, retail electric rates, and other
City business areas.
Offer a forward-looking evaluation of steps the City may consider to effectively manage and optimize
the power contracts which considers market factors that may influence the performance of the
contracts over the next several years.
The Assessment is organized into public (non-confidential) and confidential sections. Sections 1-6 contain
non-confidential information:
1. Background: Provide contextual and time-period information related to the construction of a City /
GUS wholesale power contracts and address the following questions:
o When did the construction of the power contracts begin?
o What decisions and events in 2011-2012 occurred that shifted this responsibility to an internal
City business function?
o What are the foundational organizational structures in place for the management of the
City’s wholesale power supply procurement and management business area?
2. Financial Impact to the City. Review the financial impacts of the contracts on the City’s budgets,
retail electric rates and other City business areas. This section will provide relevant information and
insights and address the following questions:
o How has the performance of the power contracts impacted the City’s power supply budget?
o Why has it been difficult to accurately forecast wholesale power supply expenses?
3. Organizational Assessment: An assessment of the City and GUS Electric Resource Management
organization and answer the following questions:
o What challenges does the GUS Electric Resource Management organization face?
o What are the implications of these challenges to the power supply contracts?
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4. A forward-looking discussion and presentation of market-side and regulatory issues: Given the
makeup of the current contracts, it is important to consider market trends, issues and developments
that may impact the performance of the current contracts. This section will provide relevant
information and insights and address the following questions:
o What are the favorable market trends that may impact the performance of the current power
contracts?
o What are the non-favorable trends?
o To what degree might these trends or developments change the performance of the
individual power contracts?
5. Conclusions and Key Findings: The assessment draws conclusions for each of the first four sections
and are designed to provide the City with clear, unbiased, and objective findings related to the
Electric Resource Management business area and power contracts. These conclusions and finding
are intended to address the following questions:
o When did the City become fully responsible for the procurement of the City’s power and
energy requirements?
o In retrospect, did the GUS Resource Management team provide sound recommendations
regarding power supply procurement?
o What has been the result of current wholesale power contracts?
o What has been the financial impact to the City?
o Has the organizational structure of the GUS Resource Management team contributed to
current performance problems and issues with the power contracts?
o Are there any market trends, likely developments that might improve (or negatively impact)
the performance of the current contracts?
6. Recommendations: The recommendations are organized into the following groupings: Impact
Management, Policy Changes, and Issues to Study. These recommendations are designed to address
the following questions:
o What procedures and actions can the City take to manage, track, and forecast the financial
impacts of the power supply contracts?
o What policy changes should the City/GUS consider based on lessons learned from this
experience?
o What issues related to this business area (if any) warrant further study?
7. Confidential Information – Appendix E: This section contains confidential information in order to
comply with Section 551.086 of the Texas Government Code governing Public Power Utilities and the
protection of confidential information.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
S ECTION 1: BACKGROUND
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1.0 BACKGROUND
This section is intended to provide contextual and time-period information related to the construction of a
City / GUS wholesale power contract portfolio and will address the City utility structure, the City Council, the
GUS Advisory Board, the GUS Resource Management business area and also review some key milestone dates
that provide the framework for the information in the report.
1.1 City Utility Structure
As a traditionally structured, municipally owned utility, GUS and its components are ultimately the
responsibility of the City Council. However, through Section 5.02 of the City of Georgetown Home Rule
Charter, the City Council has delegated this authority such that “The City Manager shall be responsible to the
council for the proper administration of all affairs of the City” (City of Georgetown 2019).
Administration and management functions are delegated, by necessity and standard practice, to various
members of City administration and staff to ensure appropriate operations of all aspects of the City
government and the services it offers; Georgetown Utility Systems (GUS) is the GUS departmental area
responsible for establishing and managing the City’s wholesale power contracts structure, its impact on the
City’s electric rates, as well as ensuring proper oversight and control mechanisms are in place to effectively
manage this contracts.1
1.2 City Council
The City of Georgetown City Council is ultimately responsible only to the voters for all actions taken by the
City; therefore, it is the body ultimately responsible for all matters relating to the Electric Utility. This
practically applies towards the approval of wholesale power contracts and changes to rates, other than to
the Power Cost Adjustment (PCA). As such, all contracts currently contained within the wholesale power
contracts were approved by the City Council.
The City Council deliberates wholesale power contracts in executive session, as it is generally considered a
protected competitive matter and, therefore, is not subject to open records standards under Texas law.
Much of what occurs or is discussed within executive session is privy only to the Council, the Mayor, and
various members of City administration to whom matters being discussed are relevant.
1.3 Georgetown Utility Systems Advisory Board
The GUS Advisory Board (Advisory Board, Board) is a body of seven appointed representatives designated “to
review and analyze the policies and resources of [GUS] concerning the business aspects of such policies and
resources as they relate to … electric rates, impact fees, and other Council-assigned projects, and to report
recommendations to the City Council” (City of Georgetown 2015). Generally, the City Council relies on the
Board for advice and subject matter expertise when it comes to decisions relating to GUS, particularly on
matters relating to wholesale power supply and electric rates, as described in various staff interviews.
Ultimately, while the Council relies on the judgment of the Advisory Board for direction, all recommendations
made by the Board to Council are non-binding. As such, the Council can opt to take action that deviate from
or go against the Board’s recommendations.
Furthermore, the Advisory Board has no power over the internal decisions, policies, or actions taken by GUS,
its management, or its staff. While the Board’s Bylaws establish it as an oversight body “to review and analyze
1 City and GUS organizational structures can be found in greater detail in Appendix A and B.
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the policy and resources of [GUS],” there is nothing within that very same document that allow the Board to
be effective in that role.
1.4 Georgetown Utility Systems and Resource Management
Georgetown Utility Systems was established as a result of a vote in 1910 by Georgetown voters for a bond
approval to build the Georgetown Light and Water Works Plant (City of Georgetown n.d.). The resulting
facility was a coal plant that served the City for a number of years; the power plant played such a significant
role for the City and the Utility that it appears on the GUS centennial celebration logo. Interviews with City
and GUS staff indicated that most of the wholesale power supply planning and strategy development
occurred internally within GUS, with support from consultants, which were then presented to the Advisory
Board and City Council for approval. This is inclusive of the decisions related to renewable energy
procurement and natural gas hedging. Interviews with staff indicated that the Council delegated
responsibilities relating to the execution of hedges and bilateral contracts to the Assistant City Manager who
oversees GUS.2 With so much responsibility vested in the GUS staff, understanding how each role contributes
to strategies and decisions relating to the wholesale power contracts will be key in shaping policy and
organizational recommendations moving forward.
Key GUS Resource Management Positions / Personnel
Assistant City Manager and Georgetown Utility Systems General Manager of Utilities
The Assistant City Manager and Georgetown Utility Systems General Manager of Utilities is a cross-functional
employee between the City and GUS, serving as an Assistant City Manager in addition to the role of General
Manager of Utilities, and is currently filled by Jim Briggs. In this role, he oversees the administration,
operation, and maintenance of a department that houses both some of the single largest expenditures and
revenue streams to the City.
The GUS General Manager of Utilities was critical to developing an integrated resource plan (IRP) in 2008,
evaluating the contract extension offered by the Lower Colorado River Authority (LCRA) in the late 2000s and
early 2010s, the early termination of the LCRA contract by the City of Georgetown, the wholesale power
contracts, and establishing and monitoring rates. Furthermore, the Council has established that the sole
person within the City that can execute hedges and bilateral trades on behalf of the City without prior
approval from Council is the General Manager. SE, as a consulting engineering firm to a number of public
utilities, recognizes this as a common practice across the industry; what is uncommon about the
implementation of this delegation of authority is that there were not any mechanisms put in place to allow
for secondary or backup authority, in the event that the person filling this role is not available.
Deputy General Manager of Utilities
The Deputy General Manager of Utilities is a relatively new role, developed in 2013, designed to help relieve
some of the growing administrative burdens on GUS General Manager of Utilities due to the split
responsibilities between the City and GUS. This role is currently held by Mike Babin. Mr. Babin oversees the
daily operations of Utilities and Transportation departments and various aspects of departmental
performance; furthermore, the Deputy General Manager develops, monitors, and evaluates various strategic
planning initiatives, programs, and projects.3 In addition to these functions, the Deputy General Manager
2 Shown in the documents presented in Appendix A and B.
3 Additional and more detailed descriptions of the Deputy General Manager’s responsibilities can be found in Appendix
C.
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oversees the Energy Resources Management department, the group directly responsible for overseeing the
wholesale power contracts. This role is also identified as the person responsible for performing the functions
of the General Manager in their absence; however, there is a general understanding by GUS Staff that the
ability to transact on hedges and bilateral transactions does not extend to the Deputy General Manager under
these circumstances.
Manager of Resource Planning and Integration
The Manager of Resource Planning and Integration was a position designed and filled in late 2013.
Technically, this position remained in the City’s finance department until 2016. This role is currently held by
Mr. Chris Foster. As the manager of the Energy Resources Department, the Manager of Resource Planning
and Integration is the direct manager of the wholesale power contracts, along with many of the ancillary
functions relating to that role. This includes the development and maintenance of various resource plans,
market and pricing forecasts, and models relating to consumption and use for both the water and electric
departments.
As it specifically relates to the wholesale power contracts, the Manager of Resource Planning and Integration
is the primary point of contact for the City’s current energy manager and power supply consultant. Therefore,
it is incumbent upon the position that the person responsible must be well versed in market trends, events,
and forecasts to verify and direct the energy manager and wholesale power supply consultant according to
GUS and City strategies; in some instances, this may include challenging these outside resources as to
whether the strategy presented is in the interest of the City, the Utility, or its customers. This position also
has responsibilities related to the City’s cost-of-services, cost forecasting, rates and fees for both the electric
and water utilities.
External Energy Manager and Power Supply Consultant
While, functionally, the Energy Manager and the Power Supply Consultant can be separate roles external to
the organization, since at least 2008, they have functionally rested with Neil McAndrews. Mr. McAndrews
has been a consultant to GUS to advise the City on matters regarding the ERCOT and natural gas markets.
Prior to the break with LCRA, Mr. McAndrews provided market advice relating to the Market Purchase Option
(MPO), a provision in the LCRA contract that allowed customers to receive up to ten percent of their energy
from other counterparties in the ERCOT market. Mr. McAndrews also worked significantly in reviewing
LCRA’s facts and figures relating to new generation projects in which they were considering investing. He
helped the City develop, publish, and evaluate the RFPs that eventually resulted in the contracts for the
Spinning Spur wind farm and the Buckthorn solar farm, as well as the contract with Mercuria.
Currently, functioning more as the City’s energy manager, Mr. McAndrews develops and prepares strategies
relating to management of the wholesale power contracts. This means the development of bids in the long-
term and monthly congestion revenue rights (CRR) auctions with ERCOT, as well as verifying and developing
energy schedules to be delivered to the City from its renewable resources. In doing so, Mr. McAndrews works
to sell excess energy in the ERCOT Day Ahead (DAM) and Real Time (RTM) markets to optimize their value.
1.5 Important Background Issues and Timeframes
In the review of the City’s current wholesale power supply situation, it became clear that there were
important issues and milestone events that impacted the City’s approach and planning related to
constructing the City’s wholesale power contracts.
Integrated Resource Plan (2008): The City embarked on an electric resource planning project in 2008
in order to understand the wholesale energy market and as part of the due diligence related to the
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LCRA contract renewal or extension decision. This IRP process had been established as an industry
best practice, primarily for utilities that owned generation assets and had decisions and alternatives
to consider for future power supply. The IRP process examined and identified all types of generation
resources and fuel types along with demand-side alternatives including energy efficiency, load
management and energy conservation.
The 2008 IRP eventually settled on a 30 percent coal, 30 percent natural gas, 30 percent nuclear, and
ten percent market purchase contracts and was internally referred to as the 30/30/30 IRP. The
strategy behind the IRP was to future-proof the contracts by having low or no-carbon emission fuel
options comprising the majority of the contracts, in an effort to mitigate against environmental
regulation, through the natural gas and nuclear components, but recognize the then low-cost
benefits of coal in the contracts. To accomplish the goals identified in the IRP, GUS would have to
contract its power supply contracts with specific generation assets in the market. This is a generally
accepted practice by electricity market participants as a way to point their power supply towards
certain types of generation or to specific power plants, even though the electrons produced from the
generation facility may not end up serving the contracted market participant because the contract
rate that the market participant pays to the generator goes specifically towards the cost to operate,
maintain, and produce energy from that plant.
The impact on the contracts of having a wholesale power contracts based on capacity rather than
energy is that the contracts is going to have excess energy against the load the contracts is required
to serve, otherwise termed a long contract or long in energy, during various market intervals. This is
quite common among market participants due to variations in forecasting load and production, and
very rarely does the load and production match. However, with a strategy to cover peak load demand
through generation tied capacity contracts, the contracts can become significantly long during
periods where a utility is experiencing low loads, such as the Spring and Fall and nights and weekends.
These positions are often manageable with appropriate planning and oversight, but to do so, an
organization must have internal market expertise and flexibility that allows for quick transactions
within acceptable risk boundaries. In meeting both of these conditions, a market participant can
manage their long position to transact on favorable conditions in the market to mitigate risks that
they are bearing through the long contracts and its exposure in the DAM and RTM.
LCRA Contract Notice (June-2011): In the late 2000s, LCRA and its customers began coordinating on
contract terms and agreements regarding extending or renewing the wholesale contract. The
existing power contract set the date of June 25, 2011 as the date whereby wholesale customers
would provide notice to LCRA regarding extending or renewing the existing power supply contract.
After careful consideration, the City and ten other utilities 4 provided notice to LCRA that it would not
renew, extend, or agree to the contract extension. This 2011 notice was significant for the following
reasons:
o The result of this notice and the position taken by LCRA regarding the existing contract meant
that the City would continue to purchase the majority of the City’s energy requirements from
LCRA through June 25, 2016.
4 The complete list of customers who notified LCRA that they were not going to renew were Central Texas Electric
Cooperative, the City of Boerne, the City of Georgetown, the City of Seguin, the City of Yoakum, Fayette Electric
Cooperative, Guadalupe Valley Electric Cooperative, Kerrville Public Utility Board, New Braunfels Utilities, and San
Bernard Electric Cooperative.
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o For practical purposes, the City had a significant period (approximately five years) to develop
strategies and take steps to have a City-directed power supply contracts in place June 25,
2016.
o In effect, 2011 notice ushered in a new era for the City. A date of June 25, 2016 was set as
the date whereby the City would be responsible for supplying 100% of the City’s power and
energy requirements.
LCRA Contract Early Termination Negotiations (May-2012): Georgetown began coordinating with six
of these other utilities 5 that culminated in providing a notice of breach of contract to LCRA relating
to the treatment of customers who opted to extend the contract against those who decided to leave
LCRA in 2016.6
LCRA Contract Early Termination (June-September 2012): Over the course of several months this
group negotiated to either resolve the contract breach or be allowed an early termination from the
contract with LCRA, but the discussions proved unsuccessful. Eventually, this issue led the group to
provide LCRA a notice of breach of contract on June 28, 2012. Shortly after this notice, the seven
utilities sent LCRA a Notice of Termination Letter on August 13, 2012 and a Contract Termination
Letter on September 13, 2012. As of the effective termination date of the contract, the City became
responsible for the entirety of its wholesale power supply obligations.
5 These included Central Texas Electric Cooperative, the City of Boerne, the City of Seguin, Fayette Electric Cooperative,
Kerrville Public Utility Board, and San Bernard Electric Cooperative.
6 One important element of the negotiations included an issue related to LCRA’s equal treatment of customers who
opted to not against those who opted to extend the LCRA contract. Those that had extended had the ability to access
the ERCOT power supply market for a portion of their power supply requirements through a new program called the
Customer Supply Obligation, an evolution of the MPO program. For those who had decided against extending the
contract, LCRA denied that opportunity, an action that violated a clause in the LCRA contract that forced all LCRA
customers to be afforded the same opportunities, benefits, and costs as any other LCRA counterparty.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
S ECTION 2 : F INANCIAL I MPACT OF P OWER C ONTRACTS
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2.0 FINANCIAL IMPACT OF POWER SUPPLY CONTRACTS
2.1 Budgeting
The practical application of the performance of the contracts first manifests itself in the preparation of the
City’s budget and Certified Annual Financial Report (CAFR).7 The City’s budget and CAFR serve important
roles relating the operations of GUS, helps the City identify whether there are adjustments necessary with
the PCA, while the latter contributes to the evaluation of the financial health of the electric utility. Where
these are particularly important is the intersection of the City’s Fiscal Year, which runs from October 1 to
September 30, and natural revenue cycle for GUS, where less revenue is generated in Winter while more is
generated in Summer due to natural cycles in energy consumption and sales.
Timeline
The development of the budget for wholesale power supply costs, its updates, and its year-end evaluation
have proved problematic for the City primarily due to conflicting timelines between the City and the
wholesale power supply market. The conflict in the timelines stem from the Summer being the highest
revenue generating months of the year due to greater kWh sales and the period with the greatest pricing
volatility in the ERCOT markets. Meanwhile, the City completes is budget for the upcoming fiscal year during
that same period, closing out the fiscal year at the same time as the end of the defined Summer season within
ERCOT. This naturally leads to some conflicts, as budget projections are traditionally developed on historical
production, and with the cost and revenues for such a market dependent contracts still in flux during budget
preparation season makes it very difficult to determine budget forecasts for the upcoming year.
To address this issue, the City has resolved to introduce a budget adjustment following the completion of the
fiscal year as an accommodation. This budget adjustment comes relatively yearly in the fiscal year, usually
in November. Figure 5 below illustrates the budgeting cycle with key steps by month.
This end of year reporting is a function driven by several things. The primary of these is a driven by a desire
to get the end of years numbers to be as accurate as possible; practically, this means relying on settlement
invoices from GP&L, functioning as the City’s QSE, rather than on any internal data that GUS may maintain.
7 The CAFR, in this instance, refers to the variety of end of year reports that the City prepares for either internal or
external consumption; the CAFR is one of these. CAFR was chosen because most of the other end of year reports either
fee into or are derived from information within the document.
Oct: Start of
FY
Nov: Close Out FY
•Final Budget Eval.
Jan: Mid Year
Budget Proj.
Jul: Budget
Prep. for
Upcoming FY
Sep: End of
FY
Figure 5 - Annual Budget Planning Cycle
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In preparing this report and in discussions with GUS staff, it was not clear whether there is an internal
methodology for tracking the daily settlement of the GUS contracts. Some of this is driven by a data
availability issue, primarily that GUS does not get real time output reads from the generation facilities and is,
therefore, dependent upon GP&L to report to GUS the MWh delivered to GP&L on behalf of GUS from each
asset. Without knowing the volume of the energy produced, it becomes difficult to maintain any meaningful
internal tracking sheets. GUS has taken steps to reduce the lag to report these values by having GP&L
produce weekly reports of production, trades, and settlements reported to GP&L. These reports are intended
to be interim, with preliminary settlement data, to be used expressly for budgetary and planning purposes
and not meant to replace the monthly invoice that is based on verified data from ERCOT. While this helps
reduce the data lag, there is still a one-week gap between the last day reported on the report and the date
the report is received. This means that, at best, GUS is receiving data for evaluation relating to its contracts
within seven days from the end of the month, but depending on when the month ends, could be up to
fourteen days. For the end of the fiscal year, that means the last preliminary data for the month could be
received in the middle of October, with the final invoice sent to GUS from GP&L about a week thereafter.
With the City striving to evaluate forecasts and revise its budget as quickly as possible following the end of
the fiscal year, it is imperative for GUS to be able to incorporate the data that it receives from GP&L and its
other providers as quickly as possible into its models and subsequent reports. It may not be feasible to
expedite the process, but as a core imperative to the City, this reporting function appears to not be receiving
the appropriate priority, according to City management.
Forecast Accuracy
Perhaps the biggest driver to get accurate budget numbers as quickly as possible is that budget forecasts and
subsequent revisions are significantly different than the realized settlement of the contracts. While no
forecast is perfect, there have been some fiscal years where the initial budget projection and the realized
settlement have varied by more than $10 million. An almost 25% discrepancy between the initial forecast
and the realized settlement has ramifications across GUS and City budgets. Table 7 identifies budgetary
performance over the past three fiscal years.
Table 7 - GUS Purchased Power Performance
Fiscal Year Initial Budget
Revised Projection Realized Settlement
Total $ Value % Diff.
to Init. Total $ Value % Diff. to
Init.
% Diff. to
Rev.
FY 2016 $34,000,000 $33,607,125 -1.16% $40,321,083 18.59% 19.98%
FY 2017 $36,500,000 $39,500,000 8.22% $46,038,447 26.13% 16.55%
FY 2018 $42,000,000 $45,000,000 7.14% $53,657,284 27.76% 19.24%
While there are significant adjustments between the initial budget projection and the revised budget
projection, published in November, the difference between the initial budget projection and the realized
settlement values are substantially off. Even during the revision process, there is a clear disassociation
between the forecasting methodology and the revised results. The fact that, for FY 2018, the revised budget
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forecast still under-projected the total settlement value of the contracts by 19.24%, or $11.6 million, limits
the credibility of the forecasting tool in the budgeting process. Given that the budget originates in the Energy
Resources Management department, there was a clear failure by the department to either recognize that
there was either a problem in the forecast methodology or to appropriately report the lower and upper
bounds within the forecast.
Forecasting contracts performance can be a very difficult task due to the substantial number of significant
variables influencing market behavior and prices. Based on discussions with GUS staff, the method regarding
the approach to developing the budget was to rely on forward curves in the market. This can be a relatively
easy way to value the estimated production within the contracts against the market. However, forward
market prices are not indicative of actual settlement prices, simply the value that market participants are
willing to bear to hedge their risk during a particular interval. Therefore, when preparing a budget forecast,
unless the excess contracts is hedged at that price, the forward prices in the market have little bearing during
the real settlement of the energy. The result is that the contracts can be vastly over-valued, resulting in a
lower budget forecast, compared to performance in the market, particularly during periods where pricing
volatility did not occur as projected.
This is not to say that using forward markets is an incorrect methodology to performing the budget forecast,
but it must be one of many approaches, producing a range of results, from which the GUS staff and the City
can evaluate which one to prepare the budget around. With a single value reported to the City’s finance
department and City management, there becomes an implication that only one, potentially flawed,
methodology was used for developing the cost estimate for the wholesale power contracts.
2.2 Impact on Retail Electric Rates
Rates and billing are generally where the electric utility interacts with its customers most directly. This
interaction occurs monthly, and when electric rates are on the agenda for review by the Council, it can
prompt citizens to become involved with city government, often for the first time. A cost of service and rate
study is a comprehensive evaluation of the financial health, wellbeing, and status of the entirety of the
electric system and to identify imbalances in the cost recovery associated with each rate class, specifically
whether some rate classes are subsidizing others. These studies are often precursors to changes and updates
to assessed rates to customers. The general practice among electric utilities is to conduct a cost of service
and rate study every three to five years, depending on growth and changes on the system.
Between June and September 2018, GUS made several presentations to the GUS Board and to City Council
regarding a cost of service and rate study that the Utility had commissioned. This was an update to the
previous cost of service study, which was last completed in 2013 but started in 2011. The prolonged study
period during the previous cost of service study was a result of the LCRA contract dispute and its uncertainty
as to whether there would be any additional costs that GUS would be liable for, should the Utility have been
found to be in breach of the contract. While there was a difference in five years from the completion of the
2013 and 2018 studies, the City has an internal target to complete a cost of service study and validate its
rates every three years.
Following the completion of the cost of service study, the City opted to pursue a rate adjustment to the City’s
rates to help in the recovery of increased expenses to own, operate, and maintain the electric system. For
residential customers, this resulted in an effective rate increase of $4.80 per month, collected exclusively on
the Customer Charge, a fixed fee in the electric tariffs that is designed to recover the administrative expenses
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relating to electric system operations. This rate change, upon approval, was set to take effect on January 1,
2019.
On January 22, 2019, however, the City announced that it would be increasing the PCA for electric customers.
The PCA is a component of the rates that is designed to recover a portion of the wholesale power costs
assessed to the City. As this rate component is designed to capture the naturally occurring variance in
wholesale power costs, changes to this, and only this portion of the rate can be implemented without Council
approval (City of Georgetown 2018).8 The $0.0135/kWh increase to the PCA was attributed to declining
reserves dedicated towards maintaining wholesale power cost stability (City of Georgetown 2019). GUS knew
that these reserves were declining but balanced this reality with an optimistic forecast of the long position
for the summer season, and therefore opted not to increase the PCA. The practical reality of wholesale power
expenses is that they vary monthly, despite the best implementation of fixed wholesale power expenses.9
With the increase to the PCA, the average residential customer’s bill increased an additional $12.82 on their
monthly bill (City of Georgetown 2019).
With two rate increases happening in such proximity to each other, the average customer’s bill from January
2019, assessed for consumption in December 2018, and March 2019, assessed for consumption in February
2019, increased $17.62. GUS management, in their interviews, stated that the PCA increase is designed to
be temporary and that they could reduce the PCA significantly within eight months of implementation. Part
of the reason for the drastic increase in the PCA is the considerably condensed timeline that the City is striving
to recover the shortfall in budgeted wholesale power supply costs to restore fund reserves to acceptable
levels.
A major factor in the declining reserves related to the wholesale power cost contracts was the internal target
GUS used for budgeting purposes regarding the energy portion of the wholesale power cost expenditures.
Beginning in September 2015, GUS began planning around a target energy only wholesale power cost rate.
The collective cost of the PPA on the wholesale power contracts is significantly higher than the target price
for the contracts. Being long in energy and natural gas means more cost is spread across the total amount of
MWh consumed by the City’s electric customers.
8 The City also carries a Transmission Delivery Cost Adjustment (TDCA) mechanism, but with 2018 rate revisions, what
had been assessed for TDCA was incorporated into the Energy Charge, effectively setting the TDCA to $0.00/kWh.
9 The variance in wholesale power cost expenses calculated under the can be attributed to misalignment of retail billing
cycles against calendar month billing cycles under wholesale power supply contracts and additional market costs and
fees that the City is required to bear.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
S ECTION 3 : E LECTRIC R ESOURCE M ANAGEMENT
O RGANIZATIONAL A SSESSMENT
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3.0 ELECTRIC RESOURCE MANAGEMENT ORGANIZATIONAL ASSESSMENT
Section 3 indicates the contracts for power supply are not performing at a satisfactory level. The
responsibility for the current contracts and the performance of the contracts resides with the GUS Electric
Resource Management (ERM) business area, which includes the internal GUS staff and external resources
described in Section 1 of this report. SE evaluated the organization of the ERM and identified specific areas
within the organization that likely contributed to the situation.
3.1 Transition from LCRA Contract
The transition from the LCRA full requirement contract to energy independence lacked sufficient staff and
staff resources to adequately manage the change in contracts structure.
The transition from LCRA as a full requirements power supplier in 2012 was a significant milestone for the
City of Georgetown. For decades, behind the scenes at LCRA, numerous analysts, contracts managers, and
risk managers managed a complicated generation contracts that included fossil fuel assets, renewable assets,
and purchase power agreements in order to meet the electricity demands of the wholesale customers, such
as Georgetown.
With the departure from LCRA in 2012, a new era was ushered in as the City began to take ownership in the
development and implementation of its own power supply contracts. The contracts were developed and
constructed through 2016 with much of the complexity of the LCRA contracts, which introduced significant
risk as well. However, within the organizational structure of the City of Georgetown, little was done to
address the need for the appropriate staff or outside consultants necessary to manage contracts of this
complexity.
Many of the other wholesale customers who left LCRA at the same time as Georgetown retained outside
consultants effectively as augmentations to their staff in order to manage the complexities of energy
contracts that now were more specifically tied to the market and, as such, impacted by daily and ongoing
changes in the market.
3.2 Responsibilities of GUS General Manager of Utilities
Within the current organization, the responsibilities of GUS General Manager of Utilities, are too broad to
allow for appropriate engagement in contracts management.
Currently this position is responsible for the following business areas:
o Business and Resource Management
o Customer Care
o Engineering
o Public Works
o Utility Operations
There also exists from a practical perspective, an “other duties as assigned” potential within the organization
that can add additional responsibilities to the already substantial responsibility list housed within the
Assistant City Manager / GUS General Manager of Utilities role in the City of Georgetown. As a practical
matter, given the level of engagement and oversight required to manage an energy contracts of this level of
complexity, it is extremely challenging for a person in this role to adequately devote time and attention to
this oversight. The demands on a person in this role are vast and potentially changing with some frequency,
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yet the demands of complex contracts management are daily and require a level of consistency that most
likely is not achievable by a person currently in this role as identified.
3.3 Multiple Single Points of Failure
There are multiple points of failure that can negatively impact the contracts management success.
In interviews with GUS staff, SE identified three single points of failures within the organization that pose a
significant risk to the long-term operation of the system. These are The GUS General Manager of Utilities,
the Manager of Resource Management and Integration, and the External Energy Manager and Power Supply
Consultant. Should any one of the three individuals currently in these roles be incapacitated or unavailable
for any reason, the management of the wholesale power contracts is at risk.
The GUS General Manager of Utilities role serves as a single point of failure in that within that role,
the person is the only person authorized by City Council to transact bilateral contracts or to
implement natural gas hedges. Because of the significant responsibilities that are allocated to the
GM role outside of managing the contracts within the ERM team, it is inconceivable that the GUS
General Manager of Utilities could devote the attention necessary to provide required oversight and
management of this business area.
The Manager of Resource Management and Integration, as the focal point for all daily wholesale
power supply operations, serves as the one person who is familiar with the intricacies of the daily
strategies within GUS. As the party primarily responsible for verifying outside consultant bids and
strategies in the DAM and RTM markets, this role serves a critical function in ensuring that the daily
management of the contracts meet the established strategies.
As the primary person responsible for the development and implementation of the GUS generation
and load schedules, the External Energy Manager and Power Supply Consultant is, perhaps, the single
largest point of failure within the entire system. Within this role, there is significant reliance on daily
availability, including holidays and weekends, in order to ensure that opportunities to optimize the
resource contracts are maximized. The current selection of outside consultant has staffing
limitations needed to support the daily operation needed to manage these contracts, thereby placing
significant burden on the current consultant to always be available. Given that the daily scheduling
process helps mitigate the risks that GUS may face in the RTM, this role is key to the continued
management of the wholesale power contracts, in its current form.
These single points of failure within GUS create significantly more opportunities for critical failure than
marginal streamlining of procedures. No single point of failure is worth risking the operations of a multi-
million-dollar wholesale power contracts; the fact that there are three single points of failure within the
organization is a significant outstanding weakness.
3.4 Organizational Impacts
As GUS transitioned away from LCRA, the organization became increasingly stressed and burdened by the
new responsibilities that the ownership of a complex self-supplied power contracts.
As the 2008 IRP called for, the contracts were tied towards covering the peak load through capacity-tied
power supply contracts, meaning that GUS was going to be a long position for its energy for the first time in
a modern energy market. Evaluating and managing these new-found contracts introduced or exasperated
issues within the organization.
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With the new responsibilities relating to self-supply significantly accelerated from 2012 to 2016, GUS
found itself needing to craft new contracts for 2016 and beyond in addition to its gap position from
2012 to 2016. In charge of that effort was the General Manager, but because he is responsible for
all of GUS, not including his other roles relating to the operations of the City, he delegated most of
this responsibility to the Manager of Resource Planning and Integration and the External Power
Supply Consultant. Therefore, he was not able to be as vested and involved in the process as he would
have otherwise preferred.
In the management of the current wholesale power contracts, the General Manager’s obligations
towards other aspects of the Utility and in his role as the Assistant City Manager limit his ability to be
more involved with the active management of the contracts. As an identified in Section 3.3, this has
ramifications on the contracts, but with the current structure of the organization, very little can be
done to increase the General Manager’s active involvement in wholesale power supply management.
The Manager of Resource Planning and Integration was placed in a position to oversee the work
performed by the Power Supply Consultant on two very complex contracts, both of which were new
to the Manager. As such, instead of serving as a balance to the Consultant and challenging the
evaluation of the proposed contracts was instead learning how to evaluate these contracts from the
very party he was meant to be overseeing.
Upon the implementation of the contracts and GUS fully assuming the long contracts position, the
Manager’s role was isolated as the only position within GUS responsible for verifying the daily bid
strategy in the ERCOT DAM and RTM; this role, too, was a new function where the Manager was
dependent upon the external consultant to learn how to participate in the ERCOT DAM and RTM in
addition to selling long positions in the forward markets.
The external Power Supply Consultant and, subsequently, the External Energy Manager developed
and published RFPs and evaluated market responses in coordination with the General Manager and
the Manager of Resource Planning and Integration, guided by the 2008 IRP. As it became clear that
continuing to pursue the 2008 IRP may no longer be advantageous to GUS, since it required GUS to
lose the fuel diversity identified in the IRP and take long positions within the contracts, the Power
Supply Consultant advised the GUS Management, Board, or the City Council that pursuing the
identified strategy would place the Utility in a position exposed to market forces. Upon
implementation of the contracts, the Power Supply Consultant became the External Energy Manager.
Therefore, the External Energy Manager, as the party with access to proprietary models and software
and the only one with significant market expertise within GUS, became essential for the daily
management of the contracts within the ERCOT Markets. Without the internal expertise within the
Utility, there options to verify, evaluate, and reconsider the recommendations became significantly
limited.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
S ECTION 4 : F ORWARD L OOK AT M ARKET AND
R EGULATORY I SSUES
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4.0 FORWARD LOOK AT MARKET AND REGULATORY ISSUES
With such a large portion of the GUS wholesale power supply portfolio exposed to the energy markets, either
ERCOT or natural gas, market trends have the potential to significantly impact the Utility’s portfolio. Given
how complicated these markets are, much of this evaluation is an educated estimate on these trends on the
market. Moreover, the forward forecasts evaluated exist only in the moment that they are evaluated; the
general trends and patterns may remain relatively constant, but the specific cost or impact to the wholesale
power supply portfolio may change as other factors intervene. As such, this section is designed to highlight
market trends that may affect the GUS portfolio and in what way they might do so.
4.1 Favorable Trends
Diminishing Reserve Margins
In March 2019, ERCOT published is Seasonal Assessment of Resource Adequacy (SARA) for Summer
2019, providing an updated assessment of the Summer 2019 Capacity, Demand, and Reserves Report
(CDR), published in December 2018. In the SARA, ERCOT reported a 7.4% reserve margin, a
historically low level of reserve capacity compared to forecasted generation within ERCOT (ERCOT
2019). This was an expected decrease from the previously assessed CDR for 2019, which estimated
an 8.1% reserve margin (ERCOT 2018). What these diminishing reserve margins indicate is that there
will be less available generation within ERCOT available during intervals where ERCOT has
traditionally peaked. As with many scarcity scenarios, market prices tend to increase. In ERCOT, this
is not due to market manipulation, but rather through the dispatch of more expensive resources.10
Note: Additional information related to Diminishing Reserve Margins is included in Appendix E-3.
Long-Term System Growth
Many of the municipalities along the Interstate 35 corridor in Texas are among the fastest growing
communities in the United States; Forbes, in their 2018 rankings, cited Austin-Round Rock
Metropolitan Statistical Region as the eighth fastest growing region in the Country (Sharf 2018). As
Georgetown serves as the county seat of Williamson County, one of the five counties that comprise
the statistical region, the growth that Austin and its surrounding communities will experience will
likely continue to affect GUS, too (United States Department of Labor 2018). This potential for
significant load growth, both in the short and long-terms, has significant impact on portfolio supply
planning.
Having a long wholesale power supply portfolio position can effectively mitigate this risk, as the
energy that is needed by the new and growing customer base is already controlled by the utility.
GUS, by purchasing a long position while experiencing high growth, potentially mitigated costly
contract carveout provisions, piecemeal contracts serving only three to five megawatts at time, that
due to their size, are significantly more expensive. Just like other municipally owned utilities in Texas,
such as GP&L and CPS, building a long position in the portfolio can mitigate potential future market
10 ERCOT dispatches generation resources based on their ability to perform at certain price points, as well as other
factors. To significantly simplify the dispatch process, ERCOT evaluates system conditions, then determines whether
more generation is needed. If more generation is needed, ERCOT will then instruct the next available generator who is
willing to operate at the lowest price to begin producing electricity. When less generation is needed, this process is
reversed.
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risk, so long as the long position is effectively managed via bilateral contracts and other market
mechanisms until it is needed.
Resolution of Constraints
One of the issues that has been plaguing the Spinning Spur and Buckthorn assets is congestion
constraints that force the price paid for the energy delivered to the City is greater than the price paid
at the original source of the energy; this is the result of a market mechanism known as congestion.
Congestion can be hedged through CRRs, a topic already discussed in previous sections of this
document. However, congestion can pose a significant increase to the end cost of the electricity,
significantly higher than the initial contract price for the energy.
The resolution of these constraints, which have or will improve present opportunities for GUS to
either stabilize or improve its wholesale power supply portfolio performance compared to previous
years, for when these congestion constraints become resolved, the performance of the asset, their
associated hedges, and auxiliary costs, such as paying for the energy that would have been produced
during a curtailed interval, become considerably more predictable.
Note: Additional information related to Resolution of Constraints is included in Appendix E-3.
Expiration of Federal Incentives
The expiration of Federal PTC impacts the operation of wind farms in West Texas. PTCs provide
subsidies on a dollar per megawatt hour basis to generators based on the number of megawatt hours
produced. Therefore, a common pricing behavior for many wind generators who are receiving the
PTC is to set the minimum price that they are willing to produce energy as the product of the PTC
multiplied by negative one. This value allows the wind generator to continue to operate at a profit,
even though they are technically paying ERCOT to take the wind that the wind farm is producing.
The net effect of these negative prices is that it drags the mean market price down, not just in the
region but across the market as a whole. Any entity that is long power traditionally relies on periods
of extremely high prices or sustained periods prices that are competitive with more traditional
generation facilities, neither of which ERCOT has experienced for a significant time. However, the
expiration of the PTCs may change the market value, as negative pricing becomes less of a norm and
more of an exemption. As prices return to a baseline of $0/MWh rather than negative values for
energy, the mean market price is likely to increase.
Note: Additional information related to Expiration of Federal Incentives is included in Appendix E-3.
4.2 Disadvantageous Trends
Continued Transmission Constraints
Transmission constraints are likely to be lessened with the completion of several projects in the
ERCOT market.
Ultimately, the vast renewable energy resources available to Texas and ERCOT are competing for
space, both geographically and electrically. As a result, the ERCOT West Hub and Load Zone can be
subject to significant swings in price, as the price is largely dependent upon how much generation in
the region is being driven by wind. Therefore, even while the immediate transmission constraints
may be resolved, mitigating curtailment risk, the real threat of congestion risk is likely to stay.
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Note: Additional information related to Continued Transmission Constraints is included in Appendix
E-3.
Continued Renewable Energy Penetration
Continued renewable energy penetration poses as significant threat to the long-term ownership of
energy delivered at the generation node in the West Hub and West Load Zone. Renewable resources
are largely concentrated within the same geographical region of Texas, with solar installed in far West
Texas and wind installed from far West Texas through the western edge of the Hill Country. This
means that the generation resources installed in the region are dependent upon either continued
load growth, primarily related to oil and natural gas exploration and extraction, or increased
transmission export capabilities to the load centers in Dallas, the Interstate 35 corridor, and Houston.
Note: Additional information related to Continued Renewable Energy Penetration is included is
Appendix E-3.
Depression of Natural Gas Prices
Currently, ERCOT forecasts natural gas to be the predominant provider of electricity in the region for
the next five years, as shown in Figure 6. With approximately two thirds of the market share, natural
gas generally serves as the marginal fuel source in the market, essentially making natural gas units
the price setter in the current and forward markets.11 Current forward monthly natural gas prices at
the Henry Hub are at historically low levels, as shown in Figure 6 (The Wall Street Journal 2019).
Forward natural gas prices at the Henry Hub are trading, as of April 16, 2019, roughly three dollars
or below on a dollar per million British Thermal Unit basis. The efficiency of natural gas units
generally degrades at a relatively minor rate – the assumption used by significant portions of the
market is that the cost, year over year, to produce one megawatt of energy at three dollars per
million British Thermal Units is about thirty cents.12 This means, provided there is not a run in forward
natural gas prices, that low market prices will be sustained for the foreseeable future.
11 This may change by subregion within Texas, such as renewables in the West, but this discussion is focused on the
entirety of the ERCOT market.
12 It should be noted that many parties in the ERCOT market also trade at the WAHA hub in West Texas. As of April 16,
2019, forward monthly contract prices for May, June, and July 2019 are trading either in negative values, meaning buyers
are being paid to take the natural gas, or close to zero. It is unlikely that these prices will be sustained long-term as new
pipelines are built to transport natural gas from West Texas to Central Texas and Houston but could remain low until
those pipelines are completed.
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Note: Additional information related to Depression of Natural Gas Prices is included in Appendix E-
3.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
S ECTION 5 : C ONCLUSIONS AND K EY F INDINGS
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5.0 CONCLUSIONS AND KEY FINDINGS
The primary conclusions and finding identified in this section of the report are intended to provide a factual
basis for the state of the City’s power supply situation and the foundation for recommendations on how
effectively address and manage the situation going forward. The findings are developed and organized based
on the previous sections of the report.
Section 1: Background
o Decisions regarding the LCRA contract fundamentally shifted the responsibilities for power supply
procurement to the City. Once GUS terminated the LCRA contract, the Utility became the
responsible for supplying the energy requirements for the City’s retail electric customers.
o The date for GUS to self-supply its power supply contracts moved forward from June 2016, the
expiration date of the LCRA contract, to September 2012, the date when GUS officially left LCRA.
o The early termination of the LCRA contract accelerated the planning and implementation of these
new responsibilities. The GUS Electric Resource Management team worked to implement interim
and long-term power supply strategies to meet the needs of the system while striving to beat internal
energy price targets for its retail customers.
Section 2: Financial Impact to the City
o During CY2016 to 2018, the contracts has cost the City significantly more than its budget
projections. By under-forecasting the wholesale power supply costs, the ERM team has forced
GUS and City management to make budgetary decisions regarding the Utility in an effort to
minimize the impact to customers. Actions were limited and financial positions were exasperated
due to delayed reporting of the realized performance against the budget of the wholesale power
contracts.
o With the limited tools available, GUS raised the PCA in 2019 to recover fund balances that was
used to support the wholesale power cost contracts. The limited actions available to GUS and
City Management resulted in the drawing on reserve accounts to mitigate impacts to customers.
With the end of FY 2018, GUS’s reserves could not be drawn upon any more, forcing the City to
pass through the cost of the entirety of the cost of the power supply contracts through an increase
in the PCA.
o The cost increases in power supply have challenged the City’s reporting, forecasting and
budgeting procedures. Obtaining accurate information and forecasts has been frustrating and
has produced ineffective budgeting.
Section 3: Organizational Assessment
o The structure of the GUS Electric Resource Management business area has contributed to
problems with the development, management and performance of contracts. Concerns in this
area include the depth of the current resources, the effectiveness of outside consulting resources
along with the observation that single points of failure currently exist within the GUS Electric
Resource Management business area.
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Section 4: A Forward-Look at Market-Side Issues and Developments
o Changing ERCOT market dynamics make it difficult to determine the long-term performance of
the contracts within the contracts. Energy markets are complex and subject to myriad significant
variables that impact prices.
Note: Additional findings for the Current Power Contracts in included in Appendix E-3.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
S ECTION 6 : R ECOMMENDATIONS
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6.0 RECOMMENDATIONS
The recommendations presented to the City are organized in the categories of impact management, policy
changes, and issues to study. Each of these recommendations will need to be discussed and developed in
more detail. While it is clear from the assessment, that no quick and easy solution(s) are available to the City,
with improved management of the contracts and clear understanding of the financial impacts to the City, the
overall situation can be improved.
6.1 Management of Current Contracts
1. Procure third party energy management services. These services can be provided by firms that are
focused on this business area and have considerable depth of resources to ensure all decisions are fully
considered and vetted. Energy Managers are individuals or organizations that specialize in the
optimization of energy contracts in the long and short-term markets. These functions are often
associated with a QSE, but energy managers may be found as a consultant, only.
Energy managers carry a significant advantage over the current GUS team in that they are significantly
more involved with variations and swings in the market, which would allow GUS to, potentially, optimize
its assets through more long and short-term bilateral agreements. This would primarily be related to the
energy manager’s active monitoring the market, which will allow GUS to more rapidly respond and react
to market conditions that are favorable to transacting hedges.
Beyond the additional potential to transact on hedges that could mitigate the long contracts position, an
energy manager will also help in the preparation, and if they also serve as the QSE for GUS, submission
of bids for CRRs and energy in the appropriate ERCOT auction and market sequences. These bids will be
tailored to market conditions and fit with the needs of the GUS contracts. Where the current practice
will likely change is in the strategies relating to these positions, unless the City explicitly instructs the
energy manager to the contrary.
2. Implement additional enabling contracts with market participants. This allows for transactions among
a wider pool of market participants.
These contracts will generally be between GUS and a QSE, but potential counterparties may include other
load serving entities in the ERCOT market, such as retail electric providers or another municipal utility or
electric cooperative. In establishing these contracts, GUS will lay the foundation to expeditiously transact
with other market participants when the market demand facilitates the City’s strike prices. These
favorable conditions may last for a couple of hours, a couple of days, or a couple of weeks, but whatever
the case, the Utility ought to have these in place to accommodate expedient transactions, as
recommended by the energy manager or by internal staff.
3. Direct energy manager to consider appropriate insured products in relation to serving native GUS load
and optimizing the value of the contracts in the market. This will allow the energy manager to extract
value and, in some cases, lock-in known costs for existing contracts.
An insured product can take a variety of forms, but within the wholesale power contracts, would most
likely be used to provide a firm generation shape, around which the Utility can plan. An insured product
works differently from other, more traditional, power supply arrangements within the GUS contracts in
that it ties the forecasted generation production to a shape that can be incorporated into the contracts.13
13 Depending on how the contract is structured and implemented, this may be a financial transaction or for firm power.
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Because of the complexity that can be associated with this form of contract, SE recommends that GUS
work with an energy manager to implement and manage a contracts with an insured product.
4. Leverage internal and external resources to increase oversight and accountability for decision making
regarding contracts management.
The wholesale power portfolio’s construction and performance are considerably more complicated than
many other matters that come before the City Council, which may require a more involved discussion
than typical timeframes may allow. GUS has one of the largest department budgets, with significant
revenues and expenditures. Because these expenditures and revenues are tied directly to utility
customers who are also citizens of the City, any substantial impacts to GUS, and subsequently to rates,
may be magnified significantly. Therefore, allocating the time and resources proportional to the potential
impacts to customers will be key in ensuring that future significant decisions relating to GUS will be
thoroughly vetted by those parties who are ultimately responsible for the Utility.
6.2 Impact Management
1. Establish mark-to-market and other valuation procedures. This will provide GUS staff, City
management, and oversight bodies a clear understanding of contracts performance on a short,
medium, and long-term basis.
Establishing means and methodologies through which GUS can evaluate its current and future
positions will be key, as the Utility will be required to manage its long position for a considerable
time. Therefore, GUS must develop myriad methodologies for internal and external reporting and
forecasting the financial impacts of its wholesale power contracts.
The City would benefit by receiving or developing an in-house process for creating a daily MTM report
with a clear goal of understanding the contract’s future MW position measured against the future
fair value of the market and create oversight on this report. The City must understand that MTM
accounting is not realized revenue, but rather aims to provide a realistic appraisal of GUS’s energy
positions through time and this report would be the starting point to managing and controlling the
City’s expectations on power procurement costs.
Another benefit for modelling GUS’s contracts in MTM accounting style is the City could realistically
start evaluating the Value at Risk or VAR of the contract’s positions and create policies that mandate
VAR threshold controls. These controls would maintain the operational parameters of the contracts
at all times. This would allow GUS to develop the operational policy foundation that will help the
utility engage the forward energy markets with more knowledge and control of power procurement
costs.
Both MTM and VAR serve as important performance metrics that can help GUS understand the
position of their wholesale power cost contracts against the general market. However, because these
performance metric benchmark against the forward markets, they gauge the risk to which the
contracts are exposed. Therefore, it is imperative that GUS not rely on these valuations for budgeting
purposes, due to the fact that these metrics are not necessarily tied to realized revenue, and GUS
must pursue other strategies to establishing budget numbers.
2. Establish reporting guidelines for each level of wholesale contracts management oversight, from
the ERM team to the City Council and customers.
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Upon the preparation of forecasts and the incorporation of historical performance into models, this
data must be reported to various levels of GUS and the City. How and to whom this data is presented
is particularly important, as each level of oversight is concerned with different aspects of the
contracts. Practically, this means that the ERM team that is involved in the daily optimization of the
contracts will require one set of data and reports, while the City Council will require something
completely different. Establishing which level of the organization needs to see what data and in what
format is essential to establishing a clear and effective understanding of the wholesale power
contracts and its performance.
Implementing these reporting methodologies are going to be a collaborative effort, with those
preparing the reports depending upon feedback from those who are reading and reviewing them.
This collaborative process will either inform the reviewer of the data being studied or direct the
preparer to revise how the data is prepared to more effectively communicate its meaning. This
second point is particularly important, as simply presenting the data is not sufficient, as the reviewer
may not have a contextual understanding of the information in front of them; instead, the data must
be presented to the reviewer in such a way that it communicates not just the findings, but how those
findings are impactful. This recommendation may be one of the most difficult and lengthy to
implement due to the collaborative nature of each level of reporting, a process that requires
significant commitment from those preparing and those reviewing the reports.
3. Set appropriate target levels for rate stabilization fund and manage power cost adjustment to meet
target levels by adjusting periodically.
The PCA is the only mechanism within the City’s electric rates that does not have to be approved by
the Council prior being changed by GUS. This is because these are a direct assignment of costs by
the Utility of wholesale power supply expenses to customers uniformly across all customers. The
City has the flexibility to adjust this rate component at its discretion, depending on the budgeted
period for the established PCA. The City’s approach has been to adjust the PCA as little as possible,
by striving to meet strict wholesale power supply targets, as a way to stabilize costs for customers by
insulating them from market volatility. This effort can be misguided, especially in a contract that is
so dependent upon market settlement as GUS.
GUS already took significant steps towards this, dedicating GUS reserves as a rate stabilization fund.
However, a rate stabilization fund is a reserve account specifically dedicated toward the maintenance
and stabilization of the retail PCA that should not be used towards other GUS financial obligations.
This is because, when the PCA is drawn upon, it not only impacts the account balance and
management of the PCA but also the other obligations to which the fund is dedicated, potentially
doubling the impact to the fund, mitigating the efficacy of the account. In maintaining the rate
stabilization fund, PCA must be actively managed. This does not mean that the PCA has to be
adjusted monthly; instead, the PCA can be set for any interval of time, but should the rate reserve
fall outside of certain target thresholds during that period, the PCA will need to be adjusted.14 This
will allow the reserve fund to absorb some of the impact to customers, as the PCA can be adjusted
more gradually, as the City can adjust the PCA as it forecasts approaching the upper or lower fund
boundaries in the reserve account.
14 SE generally recommends the PCA be set no longer than annually. Monthly tracking of the PCA is imperative, but
adjusting the PCA monthly, quarterly, or annually are all common approaches towards PCA management.
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6.3 Policy Changes
1. Develop and implement comprehensive risk management policy. This policy, while not addressing
past issues, will increase the probability of good power supply outcomes in the future.
The interviews with GUS personnel identified the perception that the limited scope of the existing
risk management policy underperformed in establishing and guiding the evaluation, selection, and
incorporation of some of the contracts currently within the wholesale power contracts. A
comprehensive risk management policy that establishes boundaries for risk tolerances for all aspects
of energy market participation, inclusive of ERCOT market participation, natural gas management,
and other, related financial obligations, is important for dictating to Utility staff in what manner they
ought to approach the management and administration of the wholesale power contracts. Should
the Council or City Management opt to implement some or all the recommendations relating to
active management of the long and short positions within the GUS contracts, a comprehensive risk
management policy will be imperative in guiding both internal and external parties responsible for
executing or approving transactions in their evaluation.
Establishing boundaries on market behavior is a generally recognized practice among most market
participants; there are utilities that are willing to take absolutely no risk in the wholesale power
supply market and opt to pay a significantly higher premium to mitigate as much risk as possible
while others bear significant risks in the ERCOT RTM. While there are variations to defining what
forms and how much risk a utility is willing carry, it commonly known or established what sorts of
risks are permitted with regards to market participation. The current City Risk Management Policy
does not meet this prudent utility practice, leaving the ERM team to determine among themselves
what are reasonable risks for the City to undertake.
6.4 Issues to Study
1. Study the installation of separate governance structure for Georgetown Utility Systems. While any
changes to GUS governance structure will not impact past decisions, this issue is worth considering
for future management of GUS power supply and other electric utility management.
GUS, as a department of the City, is currently pressed to compete with every other department for
money, resources, and attention from the City Council and City Management. Each department has
pressing issues to be resolved, and often, the Council must provide guidance on these topics.
However, GUS houses the City’s utilities, making this department the home to some of the single
largest expenditures and revenue streams across all departments.
Some Municipally-owned utilities (MOUs) utilize other structural models to separate all utilities or
just the electric utility from the City. Examples of these structures include CPS Energy, New Braunfels
Utilities (NBU), Brownsville Public Utility Board (BPUB) and Kerrville Public Utility Board (KPUB).
Other utilities do not separate the Utility function from the rest of the City, instead assigning many
of the duties associated with market performance to a risk management committee, a body
specifically dedicated towards understanding, overseeing, and instructing the Utility how to act with
regards to its risky positions. There are myriad options available to GUS and Georgetown with
regards to the correct form of governance structure; it simply becomes a matter of which framework
is the best fit for the Utility.
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2. Study the potential implications to the existing power supply contracts and GUS/City in Opt-In
scenario. While the Opt-In issues is present for all retail public power entities to consider, having
a solid understanding of how existing power supply contracts would be dealt with (especially long-
term contracts) is an important element in the potential evaluation of this issue.
While beyond the scope of this report, as GUS and the City look to manage the risk and uncertainty
that inherently stems from its contracts and mitigate future unforeseen price impacts to customers,
opting in to the retail market may present itself as an option. Prior to committing towards that
option, the City will need to evaluate all potential impacts to the system. This is not just in terms of
the financial implications of just owning and operating the distribution utility, but also including the
impacts of the long-term contracts on GUS customers. This study should not be performed just in
preparation for opt-in, but as method to understand all the potential financial impacts the wholesale
power contracts may have on customers and the City.
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
R EFERENCES
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Babin, Michael, interview by Edward Brown, Ramsey Cripe and Jay Hurst. 2019. (March 19).
Briggs, James, interview by Edward Brown, Ramsey Cripe and Jay Hurst. 2019. (March 19).
City of Georgetown. 2019. City Adjusts Customer Energy Charge. January 22. Accessed April 24, 2019.
https://georgetown.org/2019/01/22/city-adjusts-customer-energy-charge/.
—. n.d. City Management. Accessed April 10, 2019. https://government.georgetown.org/city-
management/.
—. 2015. "City of Georgetown Utility System Advisory Board Bylaws." City of Georgetown. December.
Accessed April 9, 2019. https://government.georgetown.org/files/2009/05/Utility-Systems-
Advisory-Board-Bylaws-12.2015-signed.pdf.
—. 2019. "Georgetown Code of Ordinances." Municode. February 21. Accessed April 9, 2019.
https://library.municode.com/tx/georgetown/codes/code_of_ordinances?nodeId=HORUCH_ARTV
ADOR_S5.02PODUMA.
—. n.d. "Georgetown Resource Management."
—. n.d. "Georgetown Utility Systems - Electric." City of Georgetown. Accessed April 10, 2019.
https://gus.georgetown.org/electric/.
—. 2013. "Georgetown, Texas - Code of Ordinances / Title 13 - PUBLIC UTILITIES AND SERVICES / CHAPTER
13.38. - RISK MANAGEMENT POLICY." Municode. Accessed April 23, 2019.
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UTSE_CH13.38RIMAPO.
—. 2018. "Georgetown, Texas - Code of Ordinances Title 13 - PUBLIC UTILITIES AND SERVICES CHAPTER
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UTSE_CH13.04UTSERACH_ARTIELRA.
—. n.d. "Org-Chart-FY2018." City of Georgetown. Accessed April 9, 2019.
https://files.georgetown.org/files/2009/05/Org-Chart-FY2018.pdf.
ERCOT. 2018. "Capacity Demand and Reserves Report December 2018." ERCOT. December 11. Accessed
April 15, 2019.
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Dec2018.xlsx.
—. 2017. Extended Outages on Certain CREZ 345 kV Transmission Lines in Northwest Texas. May 19.
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—. 2019. "Summer 2019 Prelimnary Seasonal Assessment." ERCOT. March 5. Accessed April 15, 2019.
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Foster, Chris, interview by Edward Brown, Ramsey Cripe and Jay Hurst. 2019. (March 19).
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McAndrews, Neil, interview by Edward Brown, Ramsey Cripe and Jay Hurst. 2019. (March 19).
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Osborn, Claire. 2019. "Georgetown city attorney: Solar company not following energy contract with city."
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CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT
ASSESSMENT REPORT
APPENDICES - NON-CONFIDENTIAL INFORMATION
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APPENDIX A – CITY OF GEORGETOWN ORGANIZATION CHART
(City of Georgetown n.d.)
Note: Organization Chart –
As of March 1, 2019
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APPENDIX B – GEORGETOWN UTILITY SYSTEMS ORGANIZATION CHART
(City of Georgetown n.d.)
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APPENDIX C – GUS JOB DESCRIPTIONS AND RESPONSIBILITIES
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APPENDIX D – CURRENT RISK MANAGEMENT POLICY
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(City of Georgetown 2013)
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PREPARED BY: SCHNEIDER ENGINEERING, LTD. | MAY 14, 2019
CITY OF GEORGETOWN
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT
CITY COUNCIL MEETING
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INTRODUCTION –ASSESSMENT GOALS
Assessment goal:Provide an assessment of the City’s Electric Resource Management business area .
The assessment included a review and evaluation of the following subjects:
o The City’s Electric Resource Management organization /functional area.
o The development of the current wholesale power contracts and the performance outlook for the
contracts.
o Significant factors that contributed towards decisions that culminated in significant increases in cost
to wholesale power.
o The impact of wholesale power cost increases on recent City’s budgets,retail electric rates and
other City business areas.
o Offer a forward-looking evaluation of steps the City may consider to effectively manage and
optimize the contracts and consider market factors that may influence the performance of the
contracts
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INTRODUCTION –ORGANIZATION OF REPORT
The Assessment is organized into the following areas:
o Background
o Current Power Contracts (Confidential Information)
o Financial Impact to the City
o Organizational Assessment
o A forward -Look at Market and Regulatory Issues
o Conclusions and Key Findings
o Recommendations
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BACKGROUND
City Utility Structure
City Council
Georgetown Utility Systems (GUS)Advisory Board
GUS Electric Resource Management Department
Important Dates and Issues
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 4Page 84 of 98
CURRENT POWER CONTRACTS
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 5
Due to the competitive nature of this information will be presented in executive session.
This includes:
o A review of the individual contract development and performance
o Analysis of total contract portfolio performance
o Findings
o Recommendations
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FINANCIAL IMPACT -BUDGETING
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FINANCIAL IMPACT -BUDGET FORECASTING
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FINANCIAL IMPACT -RETAIL RATES
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 8
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
2015 2016 2017 2018 2019
Residential Electric Bill per 1,000 kWh
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ELECTRIC RESOURCE MANAGEMENT
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 9
Transition from LCRA Contract
Responsibilities of GUS General Manager of Utilities
Multiple Single Points of Failure
Organizational Impacts
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FORWARD MARKET ISSUES
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 10
Favorable Trends
o Diminishing Reserve Margins
o Long-Term System Growth
o Resolution of Constraints
o Expiration of Federal Incentives
Disadvantageous Trends
o Continued Transmission Constraints
o Continued Renewable Energy Penetration
o Depression of Natural Gas Prices
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CONCLUSIONS AND KEY FINDINGS
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 11
Background
o Decisions regarding the LCRA contract fundamentally shifted the responsibilities for power
procurement to the City.
o The date for GUS to self-its power moved forward from June 2016,the expiration date of the
LCRA contract,to September 2012,the date when GUS officially left LCRA .
o The early termination of the LCRA contract accelerated the planning and implementation of these
new responsibilities.
o The GUS Electric Resource Management team worked to implement interim and long-term power
strategies to meet the needs of the system while striving to beat internal energy price targets for
its retail customers .
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CONCLUSIONS AND KEY FINDINGS
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Financial Impact to the City
o During CY2016 to 2018,the power contracts cost the City significantly more than its budget
projections.By under-forecasting the wholesale power costs,the ERM team has forced GUS and
City management to make budgetary decisions regarding the Utility in an effort to minimize the
impact to customers.
o With the limited tools available,GUS raised the PCA in 2019 to recover fund balances that was
used to support the wholesale power costs.
o The cost increases in power have challenged the City’s reporting,forecasting and budgeting
procedures.Obtaining accurate information and forecasts has been frustrating and has produced
ineffective budgeting.
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CONCLUSIONS AND KEY FINDINGS
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Organizational Assessment
o The structure of the GUS Electric Resource Management business area has contributed to problems
with the development,management and performance of contracts.Concerns in this area include
the depth of the current resources,the effectiveness of outside consulting resources along with
the observation that single points of failure currently exist within the GUS Electric Resource
Management business area.
A Forward-Look at Market -Side Issues and Developments
o Changing ERCOT market dynamics make it difficult to determine the long-term performance of the
contracts within the contracts .Energy markets are complex and subject to myriad significant
variables that impact prices.
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RECOMMENDATIONS
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 16
Current Power Contracts
o Procure third party energy management services.
o Implement additional enabling contracts with market participants.
o Direct energy manager to consider appropriate insured products in relation to serving native GUS
load and optimizing the value of the portfolio in the market
o Leverage internal and external resources to increase oversight and accountability for decision
making regarding portfolio management
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RECOMMENDATIONS
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 16
Impact Management
o Establish mark-to-market and other valuation procedures.This will provide GUS staff,City
management,and oversight bodies a clear understanding of contracts performance on a short,
medium,and long-term basis.
o Establish reporting guidelines for each level of wholesale contracts management oversight,from
the GUS Electric Resource Management team to the City Council and customers.
o Set appropriate target levels for rate stabilization fund and manage power cost adjustment to meet
target levels by adjusting periodically.
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RECOMMENDATIONS
ELECTRIC RESOURCE MANAGEMENT ASSESSMENT REPORT | SLIDE 17
Policy
o Develop and implement comprehensive risk management policy.This policy,while not
addressing past issues,will increase the probability of good power outcomes in the future.
Issues to Study
o Study the installation of separate governance structure for Georgetown Utility Systems.While
any changes to GUS governance structure will not impact past decisions,this issue is worth
considering for future management of GUS power and other electric utility management.
o Study the potential implications to the existing power contracts related to a City in Opt-In
scenario.While the Opt-In issues is present for all retail public power entities to consider,
having a solid understanding of how existing power contracts would be dealt with (especially
long-term contracts)is an important element in the potential evaluation of this issue.
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QUESTIONS / DISCUSSION
191 Menger Springs Parkway
Boerne, TX 78006 +1 830 249 3887 smoffitt@se-texas.com www.se-texas.com
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City of Georgetown, Texas
City Council Workshop
May 14, 2019
S UBJEC T:
Sec. 551.071: Consul tati on w i th Attorney
Advice fro m attorney about pending or co ntemplated litigation and other matters on which the attorney has a duty to
advise the City Council, including agenda items
- Litigation Update
Sec. 551.072: Del i berati ons about Real P roperty
- Sale of P roperty - 103 West 7th Street -- Travis Baird, Real Estate Services Manager
Sec. 551.086: Certai n P ubl i c P ow er Uti l i ti es: Competi ti ve M atters
- P urchased P ower Update
Sec. 551:074: P ersonnel Matters
City Manager, City Attorney, City Secretary and Municipal J udge: Consideration of the appointment, employment,
evaluation, reassignment, duties, discipline, or dismissal
I T EM S UMMARY:
F I NANC I AL I MPAC T:
.
S UBMI T T ED BY:
Karen Frost, Assistant City Secretary
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