What is the Electric Company FY-18 Financial Loss?

The news media and the City are all reporting different financial losses in FY-2018 for the City electric company.

The City Budget Manager reported “Electric expenditures exceed budget due to higher than projected purchase power costs. The net of purchased power(electricity) and CRRs exceed budget by $11.6 million.”

The Wilco Sun reported that the City owned electric company lost $6.8M.

Well, they both are correct! It all depends on how you want to “slant” the story.

Here is the budget for the electric company:

Notice the highlighted numbers. The City lost $11,635,139 in the Purchased Power line item. Netting other operational revenues, including CRR credits with the non-operations revenues results in the $6,844,132 number.

So what are CRR credits? See the definition from ERCOT.

A Congestion Revenue Right (CRR) is a financial instrument that results in a charge or a payment to the owner, when the ERCOT transmission grid is congested in the Day Ahead Market (DAM). CRRs may be used as either a financial hedge, or a financial investment. When used as a hedge, a CRR locks in the price of congestion at the purchase price of the CRR. When purchased as an investment, it may be used as a financial tool to speculate whether the congestion rent will be greater than the purchase price.

So in this case it appears Georgetown purchased CRRs at a fixed price early in the year and when the actual Congestion Transmission Rights were allocated to Georgetown, the City realized a net gain of $2,975,855.

What are Congestion Transmission Rights? Again from ERCOT.

A transmission congestion right (TCR) serves as a financial hedge against interzonal congestion costs. The TCR gives its holder the right to receive payment at the current shadow price of energy for each TCR held for the CSC path being constrained at the specific time of the constraint. The holder of the TCR is paid by ERCOT for the congestion value of that CSC.

Congestion occurs the most in West Texas when there are more wind turbine generators than there are transmission lines to transport the electricity to the population centers. When the lines are at peak capacity, ERCOT has to supply electricity from other generators at a higher costs to meet demand. This higher cost is essentially the congestion costs. These costs can be offset by the CRRs.

Thus the loss in purchasing power(electricity) is $11.6M while the net loss is $6.8M after considering gains from CRRs and delays in spending money allocated for capital projects.

So why did the City experience a loss of $11.6M in purchasing power(electricity) when the City as fixed price contracts for solar and wind generated electricity?

Stay tuned for the next episode of the 

Georgetown watchdog.