Georgetown"s Notoriety

Georgetown became the laughing stock of the United States today after it was revealed in a national publication that it's citizens were paying over $1200 per household for electricity just to claim the city was using 100% renewable energy. Just read the comments for a flavor of the sentiment.

Watchdogs Assumptions Proven Wrong

In a blog post last Friday, Watchdog said: If one examined all the schools in GISD it is likely one would see similar results.

Everyone should know it is very dangerous to make broad generalizations based on a small sample size, Watchdog included.

Here is the relevant chart for GISD 3rd graders reading and performing math at or above grade level.

Click graphic to enlarge.

Looking at the District column, it is observed that only 37% of 3rd graders in 2018 are reading at or above grade level!

Only 40% of 3rd graders are performing math at or above grade level.

Thus the assumption that the scores at Ford elementary represent the District as a whole is flawed!

District wide 37% meet or exceed grade level in reading and 40% meet or exceed grade level in math. That means 63% and 60% respectively are failing or below grade level in reading and math.

Yet the Texas Education Agency gives Georgetown ISD an overall grade of "B". It seems like a very generous grade given the 3rd grade reading and math scores.

It is clearly time to incentivize the superintendent to improve those scores!

Is the Jarrell ISD Superintendent Earning His Pay?

The Jerrell ISD superintendent is paid more than $193,000 per year. Are the children and community receiving value equal or greater than that pay? That is a relevant question that needs to be asked and answered.

The superintendent's 2018/19 contract can be found here. Looking at the compensation part of the contract the following pay and benefits are identified.

This salary is significantly more than that of the Texas Governor according to the 2018 Book of the States. ($153,750)

Recall that JISD recently received a grade of "C" from the Texas Education Agency and there are no incentives provided in the superintendent's contract to improve that grade. Should there be?

Get involved and run for the JISD school board if you want to have an impact on these and other school issues.

Jarrell ISD Impacts Part of Georgetown

It not generally recognized, but, the Jarrell ISD boundary is within the Georgetown city limits, particularly in the northeast part of Sun City. Here is a map showing the district boundaries.

Click on the image to make it larger.

For reference, here is a map of the northwest limits of the city of Georgetown.

Even though the City Manager pointed out in his presentation to Sun Citians that the locus of current development is the southeast quadrant of Georgetown, the city is constrained by existing cities in all directions, except to the northwest toward Andice.

Thus the point is, those who own property that is within the city of Georgetown and the Jarrell ISD need to pay attention to the growth that is happening within the Jarrell ISD as those property owners are paying the school property taxes, even though their property is within Georgetown.

Sun Co-Publisher Makes Strong Argument for Transparency in City Government

The city continues to hide behind a veil of secrecy with respect to the management and financial details of the Georgetown Utility System (GUS). It is just coming to light for the general public that the utilities overcharge their customers so that they can contribute $ to the general fund where public safety, parks and the library are funded. This lets them perpetuate the myth of the lowest tax rates in central Texas.

This veil of secrecy has clearly frustrated the publishers of the Wilco Sun as they try and understand the $26M in power purchase losses that GUS has experienced over the last 3 years and report it to the citizens of Georgetown.

The editorial in the January 27, 2019 edition of the paper lays out the issues very well and calls for changes to provide transparency to Georgetown citizens.

Click on the editorial for a larger view.

Sun Publisher Castigates City for Using a Straw Man

A well known technique used by governments and especially politicians, is to construct a straw man to change the subject to one more favorable to the straw man builder.

The co-publisher of the Wilco Sun, Clark Thurmond, does a masterful job of identifying the use of this technique and how it was used make it look like the city electric utility lost $6.8M, not $26M. Here is the editorial that appears in the January 27, 2019 edition of the paper.

Click on the image to make it larger.

City Hosts Town Hall in Sun City

The City hosted a town hall in the Sun City ballroom. It was well attended with several hundred citizens.

Several observations are in order.

The million dollar losses by Georgetown Utility System (GUS) was the main topic addressed by the city manager David Morgan. Much time and graphics were employed to try and convince the audience that the city staff did not and could not see this debacle coming. It was asserted the 2016 loss was a one-time event, but then another loss was experienced in 2017. The 2017 loss was attributed to hurricane Harvey, another one-time loss.  Also they concluded that ERCOT's power forecasts were unreliable. Therefore, they had no warning that the losses would continue into 2018 and beyond.

During the Q&A several retired experienced senior executives disagreed that the issue of declining fuel prices was not foreseeable and that mitigating strategies were available to the city.

The main strategy that several retired executives identified was that the city should have been hedging against gas price declines. In their view this is almost mandatory when you have signed 20 and 25 year contracts for wind and solar. Instead all the city was hedging were the Congestion Revenue Rights, CRRs, which only protect against congestion on the high voltage lines from West Texas.

Questions were asked if the contract losses were due to the fact that renewable energy was being purchased. The city response was that renewable had nothing to do with the losses. The losses were solely due to the long term nature of the contracts at fixed prices with no flexibility to adjust prices.

Watchdog would disagree somewhat with that characterization. The city staff was enthralled with the idea that renewable energy prices could be locked for 20 and 25 years, which was different than with fossil fuels. This caused them to not even consider the possibility that energy prices would decline as alternate fuel prices declined.

The city council is the body that should have stepped back and asked the obvious "what if" questions.They clearly did not do that.

The city manager indicated the charts used in the presentation would be available, but, so far no sign of them.

Transportation and development issues were discussed. The center of development currently is in the southeast corner of Georgetown.

Traffic issues were highlighted and some of the planned projects to mitigate congestion were identified. However, solutions in the Wolf Ranch area, like I35 and Hwy 29, are multiple years in the future as TxDot is primarily responsible.

The new water tower in Sun City was discussed as was the Berry Creek sewer line. Both these projects are in response to growth.

Affordable housing was identified as a potential problem area, but, it was not discussed. This is the next action that the city staff wants to be engaged in and it would be nothing more than another transfer of wealth scheme. Government has no role in affordable housing. The free market will provide the most cost effective solution.

GISD Has Room to Improve Student Outcomes

A concerned citizen has looked at the test scores for the Round Rock ISD and found the following:

STAAR testing results have become particularly enlightening now that the archaic “Met Standard” vs. “Improvement Required” system has been replaced by the A-F accountability ratings, and domain calculations rely on weighted levels of performance. I was particularly horrified to learn from Round Rock ISD’s 2017/2018 Texas Academic Performance Report (TAPR) that passing the STAAR exam does not mean our students are performing on grade level, but rather that they are merely “approaching” grade level. For example: reading and mathematics are tested annually from grades 3 – 8. Although only 15% of students in Round Rock ISD failed the reading portion of the STAAR test at all grade levels, a full 35% of our students are reading below grade level, and will need targeted instruction in order to catch up during the following school year. Likewise, although only 11% of students in Round Rock ISD failed the math portion of the STAAR test at all grade levels, a full 33% of our students were performing below grade level. It is thanks to the STAAR test, and the TEA’s new accountability rating system that our district can finally begin addressing these academic challenges so that all of our students have a shot at developing into the best versions of themselves.

Looking at just the results for the Ford elementary school in Georgetown, the results look very similar. Here is the relevant data for 2018:

There is much analysis to be performed using this and other school data, but, just look at reading and Math that meets or exceeds grade level for 2018; 68% meet or exceed grade level in reading and 67% meet or exceed grade level in math. That means 32% and 33% respectively are failing or below grade level in reading and math.

It looks that there are tremendous opportunities to improve math and reading ability in Ford elementary.

If one examined all the schools in GISD it is likely one would see similar results.

Its time to hold the superintendent accountable for improving the outcomes in GISD. How about writing incentives into his contract to improve test scores?

Outstanding Article on Local Control Vs Liberty

The idea that local control means local elected officials are allowed to enact any ordinance that is not prohibited by the State is a very dangerous idea. Some cities in Texas apparently believe that as they have enacted local ordinances that are in violation of the Texas constitution or law and exceed the authority provided by the same.

An excellent article that explains the idea that local control does not trump liberty with specific examples was published in the Austin Statesman.

But local control isn’t a foundational principle; it’s a tool. And like all tools, its purpose is to accomplish something much bigger.

Its validity is based on the idea that decentralized power is best, and that rules should be made at the level of government closest to the people. And that’s very often true. But it doesn’t supersede constitutional rights nor foundational principles. In other words, it’s not a blank check.

Over the years, a growing number of Texas cities have adopted ordinances telling property owners what they can and cannot do with the trees on their land. Fortunately, this bad practice was curtailed somewhat during the last special session, to the chagrin of local control enthusiasts. It was something that needed to happen.

Why?

Beyond the policy concerns, tree-cutting ordinances had—and to some extent still do have—the potential to violate a person’s constitutional rights. See, the Texas Constitution has a provision called the Takings Clause that requires just compensation be provided to a person whose private property has been taken for a public use by the government. Lawmakers determined that preserving this constitutional right was more important than protecting a community’s aesthetic preferences.

Constitutional rights 1, local control 0.

Georgetown has a tree ordinance and it has the potential to violate the Texas Constitution if the landowner is not adequately compensated. Why should a city have authority to devalue the use of private property? Tree ordinances should be eliminated with respect to private property.

Attention!! City Raises Electric Rates

The following announcement appeared on the City website tonight.

City adjusts customer energy charge

The City of Georgetown will increase the power cost adjustment, or PCA, on customers’ electric bills starting Feb. 1. The PCA allows the City to recover costs associated with purchasing energy.

Customers will incur an increase of $0.0135 per kilowatt hour, resulting in a new PCA of $0.0175 per kilowatt hour through September. The average customer uses 949 kilowatt hours per month and will experience a $12.82 increase on their monthly bill.

Over the past few years, the energy market in Texas experienced a fundamental change. Forecasts provided by the Electric Reliability Council of Texas, the State’s energy grid operator, have proven to be unreliable. What were perceived as anomalies in 2016 and 2017, such as reduced consumption, unpredictable pricing, and unusually cold weather, masked the true impact of a depressed global energy market. The effect of depressed energy prices became abundantly obvious in 2018.

In 2016, 2017, and 2018, the City addressed these ongoing challenges with one-time solutions, including adjusting how the City financed electric infrastructure projects, such as cash versus debt financing, adjusting the timing of projects, increasing the PCA on electric bills, and completing a rate study. All these efforts were intended to resolve what was previously perceived as one-time problems.

This year, recognizing a fundamental shift has occurred in the energy market, the priority for the City is to change the on-going financial obligations of the electric fund. This could involve reducing the energy Georgetown is obligated to purchase, selling a portion of the energy to a third-party, adjusting the terms of some of the financial obligations, or some combination of all these efforts. The City is also exploring options to better manage the energy portfolio day-to-day.

The current challenge is not related to renewable energy sources. While the City has received national recognition for its move to renewable energy, it was originally a decision driven by economic considerations to stabilize long-term power rates through fixed-price contracts while reducing any regulatory risks associated with fossil fuels.

The City executed its current energy contracts based on a 20-year forecast of continued City growth. Like most city-owned utilities, Georgetown contracted for more energy than it currently needs. Georgetown continues to be one of the fastest growing cities in Texas, and the City must be ready to serve demand from consumers and businesses. The crux of the current challenge hinges on the large amount of energy the City must sell on the market that is not currently consumed in Georgetown.

The PCA is one tool to ensure the financial stability of the electric fund as the City works to address its current financial arrangements.

For more information, please review the FAQ on the City's energy contracts at Georgetown Utility System.

In the frequently asked questions the city indicates they are reducing the "ROI"/profit paid by the energy fund into the general fund. The "ROI" was reduced approximately $1.2M which leaves a balance to be transferred to the general fund of $4.0M .The question is: Why are they not eliminating the transfer of "ROI" to the general fund?

The PCA is estimated to cost the GUS customers $6M. Transfering the remaining $4.0M would significantly reduce the PCA charge to the electric customers.

I am sure there are other activities that could be reduced or eliminated in the general fund so that the electric rates would not have to be increased.

Possible Incentives for the GISD Superintdent

It was noted in a prior post that the Superintendent's contract did not contain any incentives to improve the overall performance of the district. Neither does it contain incentives of any kind.

To be paid almost $350,000/yr, it would seem that the parents and taxpayers of Georgetown ISD would expect improvements in student outcomes.

Many educators believe that a student should be taught to read by the 3rd grade. After the 3rd grade, reading is central to the students ability to learn and operate in our modern world.

In other words, children learn to read by the 3rd grade, thereafter they read to learn all the other subjects!

Therefore, one straightforward metric for the superintendent might be the percentage of children reading at grade level by the end of 3rd grade. The superintendents pay could be scaled with this simple metric.

Another simple metric for the superintendent could be the overall grade of the district. His pay could be proportional to the grade, from F to A.

The factors that go into these metrics are largely under the control of the superintendent and he should be able to influence their direction if not the absolute level.

Contact your school board member and let them know the superintendents pay needs to be incentivized to improve student outcomes.

Is the GISD Superentindent Earning His Pay?

The Georgetown ISD superintendent is paid almost $350,000 per year. Are the children and community receiving value equal or greater than that pay? That is a relevant question that needs to be asked and answered.

The superintendent's 2018/19 contract can be found here. Looking at the compensation part of the contract the following pay and benefits are identified.

This salary is more that twice that of the Texas Governor according to the 2018 Book of the States. ($153,750)

Recall that GISD recently received a grade of "B" from the Texas Education Agency and there are no incentives provided in the superintendent's contract to improve that grade. Should there be?

Get involved and run for the GISD school board if you want to have an impact on these and other school issues.

Georgetown Pulls Back the Veil of Secrecy

City staff is presenting the history of electric power contracts as well as the current status at the Council workshop on Tuesday January 22, 2019. The workshop starts at 3pm.

Here is the "money" chart describing the current rates:

Even though it does not divulge the wind and solar contract costs, it does show the total cost per kwh the city pays ERCOT. Presumably at $0.629 per kwh the city will not be losing money, but they do not explicitly address the price that Georgetown receives for its excess electricity, which is the source of the $26M in losses over the last 3 years.

The City also admitted they are hedging congestion rights to provide certainty in the delivered price.

So even though this is a good first step in transparency, there is much more to learn. The contracts need to be available to the citizens to see not only the power purchase price, but, the terms and conditions that impede flexibility.

The entire presentation is here

City Increases Parking Enforcement

Early last year the City decided to focus on parking enforcement in and around the Courthouse square. Here are the initial results.

It looks like there are some serial offenders and they are enriching the City coffers.

Be aware that enforcement has increased and violating parking rules can get very expensive!

GISD School Board Elections

Candidate filing began Wednesday and ends Feb. 15. Early voting begins April 22 and finishes on election day, May 4, 2019.

Georgetown
Place 1: no filing

Place 2: Elizabeth McFarland, 41, attorney

Place 3: Andy Webb, incumbent, 44, insurance agent

The Board of Trustees governs the district by adopting policy and regulations. The key roles and responsibilities of the school board members are:
1. Hire and Evaluate the superintendent and delegate all administrative responsibilities
2. Approve the school district's budget
3. Establish goals and evaluate outcomes
4. Adopt and evaluate policies
5. Communicate with the community

If you think your school taxes are too high, or money is mis-allocated within the district, then get involved and run for a board seat.

Under the latest Texas Education Agency report card, the Georgetown ISD received a "B". Is that good enough, or should the board implement incentives for the Superintendent to improve the grade?

More on Tax Breaks for Apple

The headline on page 1 of the Austin American Statesman today, January 17, 2019, is "More tax incentives for Apple?".

Still, county officials said they don’t consider it particularly noteworthy that the cumulative value of incentives for Apple could top their estimate if the company merely does what it has said it’s going to do, because a higher figure would correspond to more tax revenue for the county. 

“It is an increasing amount of revenue for the county no matter what the upperend" value of the incentive ultimately totals, said Cynthia Long, a Williamson County commissioner. 

Under the contract with the county, Apple is required to invest $400 million in the campus — not $1 billion — and hire 4,000 workers, in exchange for annual rebates totaling 65 percent of its county property taxes. Williamson County will keep 35 percent of the county property taxes paid by Apple, so the county’s revenue will rise along with the property value despite the rebate. 

Apple — one of the most valuable companies in the world with a recent market capitalization topping $730 billion — also has been pledged a total of $25 million for the project from the state-run Texas Enterprise Fund.

Based on that scenario, the cumulative value of the financial incentives to Apple would top $33 million if the projects ramps up to $1 billion at an identical pace. The portion of Apple’s tax payment that the county would get to keep works out to a cumulative total of slightly more than $18 million on that basis, compared with about $7.2 million under the county’s assumption of a smaller Apple investment.

Long noted that the site of the new Apple campus has had an agriculture exemption and previously generated little tax revenue. 

“I looked at this as kind of a 30 -year view of Apple moving into Williamson County,” she said. The development should generate millions of new tax dollars for the county even after the 15-year incentive deal ends, she said, as well as an improved quality of life for residents through the addition of good-paying jobs in proximity to a major employer.

But Greg LeRoy, a Washington, D.C.-based critic of taxpayer-funded corporate incentives, said Williamson County likely could have gotten those benefits for free, because academic research indicates incentives “almost never determine where a company relocates.” 

He also said the county’s estimate of its tax break for Apple fits a pattern of local governments nationwide downplaying how much they stand to give away when they make such agreements. “Politicians want to maximize the perceived benefits and minimize the perceived costs,” said LeRoy, executive director of a nonprofit group called Good Jobs First that tracks incentive deals. 

Nothing was said about politicians picking winners and losers. Also, nothing was said by County representatives as to why they thought giving Apple tax breaks was a "make or break" part of the deal to get Apple to relocate. Clearly the tax breaks were not integral to Apple's decision to relocate to this location compared to many other factors, such as proximity to its existing operations and access to a skilled workforce and affordable housing for that workforce.

The bottom line is that these tax breaks flow directly to Apple's bottom and thus increases their net profit.

City Council Elections Coming May 4, 2019

Councilman Fought has indicated he will run for reelection in District 4 and Jaquita Wilson is rumored to be challenging Tommy Gonzales for the District 7 seat. There are no known candidates for District 3 at this time. As noted below, the filing deadline is February 15 at 5pm.

MAY 4, 2019, GENERAL ELECTION

The City of Georgetown will be conducting a General Election for Council Members in District 3, District 4 and District 7. The Mayor and Council Members serve terms of three years. The Mayor is elected at large and the Council Members are elected from single-member districts.

Election packets, with all of the required forms for candidates, may be picked up at City Hall, 113 E. Eighth St., Georgetown, Texas beginning January 2, 2019. Completed applications for candidacy should be submitted to City Secretary Robyn Densmore at City Hall, 113 E. Eighth St, through Jan. 22 and at 808 Martin Luther King Jr. St. after Jan. 25 (City Offices are moving to the new City Center and will not be open Jan. 23-24).

Jan. 16, 2019, is the first day for filing an application for a place on the ballot. Feb.15, 2019, at 5 p.m. is the last day and time for filing an application for a place on the ballot.

Mayor Ross Participates in Bernie Sanders Climate Change Town Hall

It apparently escaped the notice of the Texas media that Mayor Ross participated in a national climate change town hall hosted by Senator Bernie Sanders on December 3, 2018 in Washington, DC.

Here is a youtube video of the event with the Mayor appearing beginning at  1:03:40 and ending at 1:19:10.Climate Change Town Hall

Notice at approximately 1:11:30 the mayor indicates that he has talked with a billionaire who has authorized the mayor to spend $50M in the city of Georgetown because he wants to reward cities with environmentally friendly policies. The mayor indicates he is working on a plan to spend that money.

Perhaps this is the way the mayor intends to keep electric rates from increasing as GUS loses money.

The following day the mayor granted an interview to CityLab in which he describes the language used in the narrative to sell the city's renewable energy program wherein the word "innovative" was used instead of the more descriptive word "progressive".

Read the entire interview as it is very revealing.

Details of GUS $26M Loss

The following chart came from the Wilco Sun.

Click on the graphic to make it larger.

Notice that in each of the last 3 years,the city increasingly lost money purchasing electricity, from $8M in 2016 to $20M in 2018. They were saved from these extreme losses by purchasing Congestion Revenue Rights, which are a financial derivative product created by ERCOT. What if they had bet the other way on the CRRs? The losses would have been truly massive.

As long as natural gas prices remain low, we can expect GUS to lose money. How long will that be? Who knows?

The City can only delay capital projects so long before the projects will have to be implemented to replace existing equipment and construct new capacity as the city grows.

Unless gas prices increase, expect that additional funds will be extracted from Georgetown citizens.

GUS Loses $26M Over Last 3 Years

The Wilco Sun newspaper has finally published City financial data that shows the City has lost $26M over the last three years by selling the excess electricity from the wind and solar farms that is purchased at fixed prices and sold at below market prices. The City has to do this since there is no way to store electricity that is excess to the City's needs and they are apparently contractually obligated to take all the electricity generated by the wind and solar farms.

The publisher has acknowledged that perhaps legislation should be enacted that allows the City to share utility contract information with its citizens.

One thing a few city staffers have mentioned to us is that it is unfair to be scolded for not releasing information that they are legally obligated to keep secret. This is mainly the contents of the power contracts.

They have a good point. They can’t reveal what they know without legally endangering the city, or themselves, personally.

What we should do is support legislation to make these sorts of contracts more transparent. 

Perhaps the city folk might ask the companies to amend the contracts to remove the non-disclosure clauses and  allow them to tell their citizens what is in the contracts.

Read all the articles as much more information is provided. 

Texas Businesses Want Taxpayer Money

The Texas Association of Business want to continue the taxpayer funded economic development programs that allow local elected leaders to pick winners and losers by selectively handing out tax breaks. The Austin Statesman has an extensive description of the lobbying agenda of the Texas Association of Business.

One of the major programs — allowing local governments to enter into so-called Chapter 312 agreements to abate property taxes — must be reauthorized by lawmakers in 2019 if it is to continue. 

A similar program allowing school districts to waive portions of a company’s property tax bill - - known as Chapter 313 agreements — survived an effort to kill it during the 2017 legislative session. Such agreements are named for the sections of the state tax code covering them. “We simply have to have” the ability to provide property tax breaks, said Tony Bennett, president of the Texas Association of Manufacturers. “Competition (for projects nationwide) is not going away, and your team has to have everything the other team has” to win. 

Property taxes in Texas are higher than in many competing states, Bennett said, so deals to waive portions of them often just level the playing field. 

Business groups also are advocating to add millions the Texas Enterprise Fund, a deal-closing incentive tool used by the governor’s office as a final carrot to sway corporate decisions. Gov. Greg Abbott secured enough for the fund during the 2017 legislative session to begin the current two year budget cycle with a balance of $150 million — despite an effort by some lawmakers to eliminate money for it altogether — but proponents this year are pushing for a starting point of $200 million. 

Business drives the Texas economy by producing goods and services that people want and need. If they cannot provide them at a profit without taxpayer help, then they are not viable enterprises that deserve to exist. Let free markets determine what is to be produced and sold.

Texas working and taxpaying citizens do not need to subsidize business and they certainly do not need to allow elected officials to pick winners and losers!

More Propaganda on "Local Control"

The propaganda and misinformation spewed forth by the media continues unabated. The latest tirade comes from the Dallas News.

In sum, there’s a yawning gap between the much-ballyhooed Texas miracle and economic reality on the streets of Dallas. And that’s relevant now, because the Legislature opens Tuesday and many economic issues will get a hearing — often in debates on local control.

The beauty of local control is in the eye of the beholder. Statewide leaders warn about the threat from “a patchwork of local laws,” saying it would slow business growth. That’s the rationale for prohibiting large cities from increasing the minimum wage for employers, requiring paid sick time or limiting fracking in certain areas.

In this year’s Lege, property taxes are likely to be the No. 1 fight over local control.

Statewide leaders will push to lower the cap on annual tax increases, which have been climbing along with home values. But capping tax revenue poses a major threat to fast-growing cities that must invest in schools, roads and other infrastructure.

Notice how they imply that the state wants to "cap" tax revenues. That is absolutely not true. The Governor proposes to establish a "trigger" that requires the taxpayers to vote on any tax increase above the "trigger". It is clearly not a cap!

Remember, liberty trumps local control every time. Preservation of individual liberty is the ultimate goal of our republic.

Councilman Fought's Newsletter on GUS

GUS is the Georgetown Utility System. The following newsletter deals with the electric utility part of GUS.

GUS Financial Issues

 

Nearly everywhere I go these days the conversation eventually turns to the Georgetown Utility System (GUS) financial condition.  Given the interest, and the far ranging perspectives of those who have weighed in on the discussion, I thought it might be useful to provide an annotated chronology of how we got here, as well as some clarifications along the way.

The discussion begins with an objective the City Council set in 2008 to have 30% renewable energy in the GUS portfolio by 2030.  Shortly thereafter the City Council became concerned about the long-standing relationship between its primary electrical provider (the Lower Colorado River Authority, or LCRA) and GUS.*

During this time there was considerable, and long-lasting, volatility in the energy market.  It got to the point that the City, along with the business community, found it difficult to do reliable budgeting or other financial planning.  Additionally, Federal policies were promoting renewable energy, and were generally not favorable to the fossil fuel industry. 

These and other circumstances combined to create an impasse between LCRA and the City of Georgetown on the energy portfolio.  The Council eventually decided to end that relationship and seek new sources of energy.  The formal GUS-LCRA "divorce" process was set in motion in 2012, at which point the City also undertook the task of renegotiating power contracts for energy that could be used in the ERCOT system. 

The City Council set three objectives** to be achieved following the separation from LCRA:

• Obtain relatively low cost power at predictable long-term rates.

• Mitigate the regulatory risks from the Federal government associated with fossil fuels.

• Reach and maintain the earlier objective of 30% renewable energy by 2030.

Now, let's step back for a minute and consider the setting at the time these and subsequent decisions were made because the environment in which decisions are formed can be every bit as important as the decision process itself.

• In 2012, oil prices had been hovering above $100 per barrel for the second year in a row.  Brent crude oil, one of two common benchmarks in the oil market, averaged $111.67 per barrel, slightly above the 2011 average of $111.26.  The other commonly used benchmark, West Texas Intermediate oil, averaged $94.05 per barrel in 2012, down slightly from $94.88 in 2011.

• The average wholesale price for natural gas at Henry Hub in Erath, Louisiana (a key benchmark location for pricing throughout the United States) was $4.02 per million British thermal units (MMBtu) in 2011 (although it did fall to $2.77 per MMBtu in 2012).

• The nationwide average price for a gallon of regular gas was $3.51 per gallon in 2011 and $3.60 in 2012.

• It was obvious that President Obama's Administration was going to institute aggressive environmental policies that would favor renewable energy and, most likely, penalize the fossil fuel energy producers (especially coal).

By May of 2013, which is when I was seated on the Council, the die had been cast: Georgetown was committed to the GUS-LCRA divorce; objectives had been set and passed to the new Council; and the search for new energy providers was underway.  After I was seated, I was made familiar with the terms of each of these activities.  I found the terms reasonable, given the circumstances***. 

During that same period several renewable energy companies were close to coming on line and were seeking long-term customers.  The Georgetown City Council took bids from many energy providers, including traditional generation companies and the new renewable energy companies.  The Council eventually decided upon long-term, fixed priced, contracts for both wind and solar energy that would meet Georgetown's growing demands over a 20-25 year period.****

• The fixed price contracts would assure customers a predictable price per KwH over the period of the contract (a highly desirable feature).

• Because the contracts were for renewable energy (solar and wind), the relationship would dramatically reduce the risk created by fossil fuel regulations (recall, this is a period when the federal government was proceeding to penalize coal plants, and was greatly restricting other forms of fossil fuel use).

• By purchasing an amount of power to meet the summer peak and accounting for the eventual demands of a growing region, the City strategy resulted in seasonal and off-peak excess power.  In Texas, all power is cleared through ERCOT at market prices.  The City's expectation was to sell the excess power (i.e., the "long" positions) back into the ERCOT energy market at or near cost and perhaps at a profit until a point where the excess was absorbed by the growing demand.

GUS retained the services of a professional energy trading consulting firm to manage the day-to-day market operations alongside GUS Staff Members.  GUS also retained a short-term contract with Mercuria Energy Group to cover a portion of immediate power needs through 2021 when the city was engaged in the lawsuit with LCRA.

 

By 2015, the renewable energy began to come on line, beginning with wind energy (2015) and followed by solar (early 2018).  By April of 2017, Georgetown was able to retire as many Renewable Energy Credits as it consumed, allowing the claim of being "all renewable." ***** 

Unfortunately over the last few years the turmoil in the global energy market has taken its toll.  Continued depressed energy prices are affecting all sectors of the energy industry across the globe. 

 

These price drops, in addition to cool rainy summers. somewhat warmer winters, and customer conservation efforts reduced overall electric demand.  GUS thus found itself selling the long positions into a market with depressed prices in the face of lower demand.  This produced substantial losses.

As mentioned earlier, the City does not engage in active energy trading or wholesale energy marketing.  Instead, all energy purchased under the various power contracts is cleared to and through ERCOT.  The City does not have real-time energy management or trading systems.  Monthly energy and ERCOT invoices, which typically lag about 30 days after the end of the month, provide the most accurate information to which the City currently has access. 

It is patently obvious that the current approach does not work in today's dynamic and volatile energy market, and that corrective action needs to be taken in a number of dimensions.  Among the necessary changes are: access to more detailed and timely information; a more dynamic way to clear excess power; and an overall, short-term reduction in the amount of purchased power.  As reported in an earlier edition of this newsletter, and in several media outlets, the following actions are underway:

• Reduce the impact of the long positions.  Several general approaches are available.  One is to sell a portion of the long positions to another electrical power company.  Another is to extend the time period during which the current level of long positions are purchased.  A third is to renegotiate the contracts to purchase less energy over the near term and increase the amount of energy purchased in the out-years.  These, and other, options are being pursued.

• Enhance the energy management function to take advantage of more detailed and timely information and more active and real-time methods for clearing power such as energy marketing and/or energy trading.

• Make near-term adjustments to the GUS budget by delaying electrical infrastructure projects, personnel freezes, and other reversible actions until the losses can be contained or eliminated.

These are essential changes, but while they are essential, there are also cautions to be considered:

• If we reduce our long positions to the point that we cannot accommodate the demands of growth, then we will eventually have to buy energy in the open market.  That will negate the objective of stabilizing prices over the long haul.

• If we are eventually forced to buy energy in the open market, we will likely be subject to whatever regulatory forces are in play for fossil fuels.

• Please click here, and watch Item "A", around the 5 minute and 30 second mark, to hear a discussion from the 27 November 2018 Council Workshop on these issues.

My bottom line is that we need to make the adjustments discussed above, but we need to do so in a manner that is mindful of the objectives of long-term rate stability and regulatory risk reduction set by the Council in 2012.  These are important strategic objectives.

I also want to point out one of the most prevalent comments I've seen in the public debate, especially on the NextDoor site.  Numerous contributors, on all sides of this issue, have pointed out that we would not even be having these discussions if the oil and natural gas prices had not fallen so far.  The corollary is that it is unlikely that oil and natural gas prices will remain at this low level forever. 

In my opinion, we need to keep our focus on what I think is a reasonable long-term strategy and set of objectives.  It's time to take a less aggressive strategy by reducing the long exposure, but not a totally passive stand and withdraw from the long market entirely.  Let's pull the throttle back, not bail out.

As of now, that will be my position during the Council debate.  But I'll also be attentive to the public discussions on social media, to your e-mails, and to the comments you make when we discuss these events in person.

 

We need to get this right.

____________________

 

*  The relationship between Georgetown and LCRA went back to the 1930s.

 

** To the best of my knowledge, the City Council never set an objective of becoming "100% renewable".  In my opinion those who assert the City had some sort of "All Green" objective are in error.  However, it would also be an error to assert that the outcome, which was indeed "100% renewable", is unimportant.  Quite the contrary, and given the publicity and even international notoriety Georgetown has received over the past 12 months, the "All Green" aspect is now an important part of any policy debate on the City's energy policy.

 

*** The primary task facing the Council that was seated in May of 2013 was to unravel the relationship between the City and LCRA.  That chore, which was essentially to complete the divorce, was tedious and contentious, requiring the participants to come to closure on such things as the value and ownership of assets, amounts due, and even service prerogatives.  That took a considerable amount of time, but was eventually completed in 2016.

 

**** The contract for wind energy, with Spinning Spur 3, was approved by the Council in November of 2013 and the contract for solar energy, with Buckthorn, was approved by the Council in February of 2015.  I voted in favor of both contracts.

 

***** One of the terms of the contracts was that the cost of energy was to be proprietary.  As such, and according to Texas law, that data is not subject to discovery through open records requests.  While I might personally feel as though that information ought to be part of the public domain, that is not what is written in the contracts, nor is it what is allowed by Texas Law.  Basically, my personal preference is moot -- the contracts say what the contracts say, and the law is the law.