Many Denton customers were stuck with astronomical electricity bills under the green power “choice” plans.
Denton, Texas, population 140,000, located in the Dallas-Fort Worth metroplex, received national media attention for its $9,000 per megawatt hour ($9.00 per kilowatt hour) electricity price spike during the February 2021 Texas Freeze power crisis.
Although not reported by the media as such, it was an unintended consequence of naive green dreams and “environmental justice” gone wrong.
“Green” Energy Planning
Home to two universities and a junior college, Denton is a Progressive Left city that:
What Went Wrong
With all of the above green power planning what could go wrong? Denton, and Denton Municipal Energy (DME), found out during the February 2021 Arctic Ice Storm when electrical power and natural gas rates skyrocketed and the threat of blackouts left it with a $207 million bill.
DME built its 225-megawatt natural gas power plant in 2018. It is designated by ERCOT to “black start” (jump start) the larger power grid in the event of emergency shutdowns. There are six designated black start power plants in Texas. Oddly, Denton apparently did not procure contracts for back-up natural gas fuel, and/or insurance to cover any losses, in the event of an catastrophic event, despite its designation as a back-up source of power to the ERCOT grid.
During the February 2021 power system freeze out, Denton could not buy natural gas to run its power plant and had to buy power from ERCOT at $9.00 per kilowatt hour retail ($9,000 per megawatt hour wholesale), worsening the lack of natural gas to power the ERCOT grid and/or heat homes. DME’s green power provided no effective backup to the ERCOT grid because it is vulnerable to power line frequency imbalances and outages and intermittency.
Now it is reported that Denton spent $207 million for backup natural gas for its municipal power plant during the February 2021 crisis. It had budgeted for $83.3 million for the entire year. DME’s annual budget is reported to be around $231.4 million.
The Denton Record-Chronicle newspaper stated:
“The $207 million we spent is for buying power off the grid” said assistant city manager David Gaines. “The immediate concern is that we depleted our reserves. We had $100 million fund balance in the electric fund, but we had $200 million in unexpected costs. We’ve got to make up that whole $200 million just from immediate cash flow needs”.
DME’s 2021 winter electric rates are from 6.84 cents per kilowatt hour for the first 600 hours and 4.55 cents for all additional hours. The Denton Record-Chronicle newspaper reported that electricity prices jumped from $23.73 to $2,400 per megawatt hour, or from $0.24 to $2.40 cents per kilowatt hour, a tenfold increase. But the media did not report the whole story.
Denton has no backup power itself other than ERCOT, resulting in a misleading price of about 4.5 to 6.8 cents per kilowatt hour for its power that does not include the cost of reliability (e.g., the $207 million in emergency power purchases at $2.40 per kilowatt hour).
Moreover, Denton offers its ratepayers a choice of selecting its own cheaper green power provider other than DME for ultra-low power rates but puts those “choice” customers at risk of very high electricity bills in the event of an emergency. The promise of cheap green power without reliable backup, in other words.
This left many customers with astronomical electricity bills under the green power “choice” plans.
The Full Story
Even this does not meet full disclosure, however. Denton’s 2020 Annual Financial Statement states it had $51.1 million in cost reductions due to mild weather conditions apparently prior to the February storm and $36.7 million in decreased purchased power costs in the 2019-2020 fiscal year (page 29), not reported by national media nor disclosed by Denton. In other words, mild weather produced larger net budgetary windfalls in the prior year.
Denton Municipal Energy enjoyed an apparent $87.8 million windfall from mild weather leading up to the February 2021 Arctic Ice Storm and a reported $207 million cost to purchase natural gas from ERCOT to run its power plant during the energy crisis. Together, with its $100 million emergency budget reserve, this makes DME’s estimated real net loss look much more modest at around $19.2 million.
Windfalls for “Wipeouts“
These windfalls and wipeouts are called an “externality”, defined as a
“side effect or consequence of an industrial or commercial activity that affects other parties without it being reflected in the cost of the goods or services involved” (Oxford Dictionary).
A negative externality, a wipeout, is typically noncompensable if it was not caused by unreasonable government interference. But a positive externality, a windfall, does not usually have to be reimbursed to ratepayers except in rare cases as ordered by courts or regulators such as from Enron by the SEC, (see Donald Hagman, Windfalls for Wipeouts: Land Value Capture and Compensation, 1978).
For example, in the 2001 California Energy Crisis, municipal power agencies such as Pasadena Water and Power, reaped a $150 million windfall from surplus power sales, but Enron was criminalized for essentially doing the same thing (source: personal knowledge). What is good for the goose is not good for the gander. Denton is trying to privatize its gains and socialize its losses, a story not reported by the media.
DME wants to have the advantages of a non-profit municipal power entity but the advantages of Enron at the same time while falsely claiming it is producing cheaper green power than conventional fossil fuel power.
By erecting its own natural gas power plant, Denton did what ERCOT has urged, but not mandated, most merchant green energy providers do: it bit the bullet and built its own backup power plant for reliability. But, as stated above, it failed to procure a contract for emergency fuel and/or backup electricity or buy insurance to cover any losses in the event of an emergency.
Renewable energy has been successful in demonizing conventional energy producers as polluters, while capturing profits but socializing its potential losses by forcing regulated Investor-Owned-Utilities (IOU’s) and Merchant Energy providers to build backup peaker power plants for them. This is called “cost shifting” in the energy business.
Unfortunately, the media is only telling half the story of this charade. The February arctic ice storm and the ERCOT blackouts have pulled back the curtain on this deception.
Green Power: Cheap, Unsafe
However, not considering the windfall offsets from a mild weather year prior to 2021, the $207 million reflects the true avoided cost of not providing reliability to Denton’s ratepayers. This might be likened to building a cheap, non-polluting battery powered car that lacked sufficient safety features (like the original Mini Cooper).
This hypothetical banned car can beat all others in gas mileage and emissions, but if it is in a serious accident passengers are prone to die, resulting in millions of dollars in insurance payouts. The true cost of safety is not discovered until there is an accident. Same with green power plants that lack reliability, as witnessed the Denton $207 million loss for not having bought a long-term backup natural gas supply contract as insurance in the event of an emergency at a locked-in cheaper price.
The promise of cheap, clean renewable power without disclosing the true cost of reliability is an example of Pareto’s Principle: 80 percent of the consequences come from 20 of the cause. The cost-avoidance of reliability will not be known until an extreme weather event. Pareto’s Principle is on display not only in Texas but in places like California where heat waves have compelled its public utilities commission to re-open mothballed gas-fired power plants just to meet typical hot summer weather that has been re-termed climate change.
Wayne Lusvardi appraises private water companies regulated by the Public Utilities Commission in California. He served on the California energy crisis task force in 2001 for the state’s largest wholesale water agency. He currently resides in San Antonio (firstname.lastname@example.org).
His previous posts at MasterResource are here.