Denton could borrow up to $300M to cover high electricity costs during winter storm

Denton could borrow millions to cover high electricity costs

The city of Denton is one of several in Texas with its own electric utility and it took a real hit in the winter storm with unexpectedly high costs. It may have to borrow millions of dollars to cover that.

DENTON, Texas - The city of Denton is one of several in Texas with its own electric utility and it took a real hit during the winter storm with unexpectedly high costs.

Denton City Council members voted Tuesday to allow the city’s electric provider to borrow up to $300 million in the aftermath of last week’s storm.

Denton Municipal Electric reportedly spend $207 million from Tuesday to Friday that week to buy electricity from the Electric Reliability Council of Texas. Its annual budget is about $231.4 million.

According to city documents, the average price of energy per megawatt-hour in February 2020 was $23.73. But during the rotating outages that began around the state last week, the price increased to between $2,400 and $9,000 per megawatt-hour.

"It obviously presented a cash-flow issue for us because that’s more that we’ve obviously paid in any given year. In fact, in one day we had a bill from ERCOT that was in excess of our entire purchase power budget for a previous year. So just to put it in context the magnitude of what we’re looking at from a cash-flow perspective," said Denton Assistant City Manager David Gaines.

Gaines said the city was able to secure $100 million in funds to pay some of the costs. Taking on additional debt may be the city’s only option to cover the remaining costs.

"The short-term financing option is the route that we went to ensure that we can meet those cash-flow obligations and provide that service to our residents," he said.

Over the next few months, the city plans to look at options for recovering the costs but insists increased costs for customers is not imminent. Denton Municipal Electric rates are fixed and determined by council members.

"Obviously if there is no other mechanism we would pay those back with long-term debt. But there’s obviously a number of conversations happening on the state and federal level and we can see how those play out and other conversations with ERCOT themselves. So we’re going to pursue every avenue that we have to address these costs but it’s definitely a significant concern for us," Gaines said.

Other cities with their own electric utility such as Garland and Austin are likely having the same conversations.

"I can’t address their specific financials and I’m not privy to exactly the situation they are in but I think anyone that’s in the market that had to purchase from the ERCOT market last week experienced the same prices that we did. So I imagine similar conversations are happening everywhere," Gaines said.