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One step back, another forward: Denton hobbled in exit from coal-fired power

Denton cannot walk away from coal-fired power anytime soon, likely leaving more work for the city and its energy consultants. 

The Denton Public Utilities Board will review the next round of work expected from Deloitte and Enterprise Risk Consulting on Monday. The consultants propose additional analyses for Denton Municipal Electric that are expected to cost $345,000. 

In addition, the PUB will be briefed on the future operations of Gibbons Creek Steam Electric Station, the coal-fired power plant near Bryan. 

A previous deal to sell the 40-year-old plant fell through.

“Negotiations failed over the course of the summer,” said Mayor Chris Watts.

In the next week or two, the plant will be closed down for the winter, as it is out of coal, Watts said. But it will start again next summer and run from June to September, since coal-fired power is still competitive in the Texas electric market in the summer.

Denton is part-owner of the plant with Greenville, Garland and Bryan. Denton remains responsible for its share of the operating costs and will receive electricity from the plant in the summer, Watts said.

Engines inside the northern engine hall are nearing completion as workers close up the last wall of the building Friday. DRC
Engines inside the northern engine hall are nearing completion as workers close up the last wall of the building Friday. 
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Even though the sale fell through and Denton may well be powered with nearly all renewable energy sources in the near future, DME is building another power plant near the airport. The controversial, $265 million Denton Energy Center is a quick-starting power plant that will run on natural gas.

Enterprise Risk Consulting is finishing the plan that details where Denton should get its renewable energy sources. The plan is scheduled to be delivered on Oct. 16.

Next, analysts with Enterprise will identify a "hedge strategy" for DME, or how the city-owned utility can ensure against price spikes when the renewable energy does not come as predicted.

Enterprise will also help position the Denton Energy Center in the wholesale electricity market, including advising natural gas fuel purchases. The new power plant is expected to be making and selling electricity to the Texas grid by next summer. 

Deloitte, the other consultant, is working with the city’s energy traders. Called the Energy Management Organization, the traders will execute the plan that Enterprise writes for Denton. Deloitte is helping identify the risks of the trading operations and how to mitigate them.

Denton Municipal Electric has been doing its own energy trading on the Texas grid for about three years. Previously, DME contracted for that service, similar to other municipally owned utilities.

During its first phase of work, Deloitte’s analysts determined that DME’s traders have saved ratepayers nearly $7 million each year. The analysts also set up benchmarks to help DME and the Denton City Council keep tabs on the trading group’s productivity in the future. 

For the second phase, Deloitte’s analysts say they can help better identify the risks inherent in having a trading group and how to mitigate them. To do that, Deloitte will study the governance and controls of the group, along with the resources and technology the group has to do its job.

Analysts in the office of the Energy Management Organization at Denton Municipal Electric on Friday monitor screens with various information to help them determine when to buy and sell electricity at the best price. Friday, July 28, 2017, Denton Municipal Electric in Denton, Texas. Jake King/DRC ORG XMIT: txderDRC
Analysts in the office of the Energy Management Organization at Denton Municipal Electric on Friday monitor screens with various information to help them determine when to buy and sell electricity at the best price. Friday, July 28, 2017, Denton Municipal Electric in Denton, Texas. Jake King/DRC ORG XMIT: txder
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Stephen Johnson, who heads DME’s trading group, said the first thing he and the other traders consider before entering a deal is how they are going to get out of it, if needed.

Trading involves risk. By doing its own trading, the city also assumes the occasional risk of needing to buy power during a price war, or selling power when prices are depressed. The city also assumes the risk of regulatory compliance. Sometimes, a trading partner needs credit. The city assumes the risk that a trading partner could default. Other times, the city has to put up collateral in order to trade, which means the city has to assume that cash flow risk.

City leaders hired the energy consultants, now totaling at least $530,000, after losing confidence in the previous leadership at DME. Four high-level employees left the department, including two who were fired, in the wake of an investigation that uncovered contracting irregularities.  

The PUB meeting is scheduled to begin at 9 a.m. Monday at City Hall, 215 E. McKinney St. The meeting will be live-streamed on the city’s website.

The City Council will not take up the consulting contracts until early next month, as they are interviewing candidates for city attorney this week.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881.