Month: March 2016

Guest Post: A Reply from Brian Daskam at DME

Posted on by arbriggle

A couple of days ago, I made an argument that we might be able to restructure our capital investment schedule to make the 100% renewable option more affordable. Brian Daskam with Denton Municipal Electric wrote to me today with a reply and I’d like to share it here. So, here is his note to me:

Adam,
 
In your recent blog post you wrote about, “How Denton Can Afford 100% Renewable Energy.” As always, I appreciate your interest in this project, as well as the humility you bring to the discussion. In your final paragraph you say, “Now, if I am wrong, someone please let me know how.” In fact, the post does make a mistake about how electric transmission infrastructure projects are funded in Texas, and this mistake makes a real difference to your analysis.
 
DME invests in electrical infrastructure to meet new growth in the city as well as to replace aging infrastructure. Reviewing these activities, you make an analogy:
 
“It’s as if we have an old house and we decided to remodel it and at the same time build an addition on the west side.”
 
It would certainly cost money for a homeowner to remodel and expand their house, and you claim that DME’s capital investment projects also, “makes for a bigger mortgage.” You push the analogy further by saying that we should install solar panels as part of the remodel (i.e. go 100% renewable) and hold off on some of the other improvements as a way to save money. Perhaps this would be a way to achieve 100% renewable energy without raising rates.
 
It’s worth mentioning that, like all analogies, this one can only go so far. Families often remodel their homes for reasons of comfort and aesthetics. As such, we think of these as non-essential expenditures. Electrical infrastructure is different. New housing developments are being built in Denton and the downtown area continues to experience infill development. Those homes and business expect power, and are not likely to view electric service as non-essential. As our infrastructure ages, it needs to be replaced for the sake of the safety of Denton’s residents. Neglecting this duty would be unacceptable.
 
Furthermore, even if we decided to be irresponsible, the Federal Energy Regulatory Commission (FERC) would not allow us to be. FERC is the federal agency with regulatory oversight of our transmission system, and DME’s capital improvement plans are developed to be in compliance with FERC requirements.
 
But imagine that both DME and FERC decided to neglect their duties. The analogy still has a major flaw which has to do with how transmission infrastructure projects are financed in Texas. We can generally presume that a family would save money by reducing or delaying a home renovation. Not only is this different from how DME’s electric transmission infrastructure projects work, it is exactly the opposite.
 
All rate payers in ERCOT share the cost of transmission infrastructure projects. If a new transmission line is built in San Antonio or a new substation is energized in Dallas, rate payers across the state reimburse the entity for the cost of constructing those projects. Because Denton rate payers are funding the transmission projects of others in ERCOT, we need a different analogy. It’s as if we live in a large apartment complex. Each tenant is able to make approved improvements to their apartment, and each renter shares the cost of those improvements. It’s worth noting here that solar panels (i.e. going 100% renewable) would not qualify for these funds, since they are considered generation rather than transmission.
 
Even this analogy doesn’t go far enough. You might think that reducing our own costs related to infrastructure improvement would still reduce our costs, however modestly, since they are being shared with the entire state. But in fact, given how the Transmission Cost Recovery Factor works, if we reduced our own infrastructure spending while the rest of the state did not, we would see an increase in our costs.
 
So am I saying that Denton cannot afford to go 100% renewable? That is not my determination to make. DME presented estimated rate impacts of various scenarios, including 100% renewable. The City Council has repeatedly given DME direction to increase renewables while protecting rates and reliability. The Renewable Denton Plan is still the best plan that I have heard to meet that direction.
 
Thanks again for your continued interest and dialogue on this topic,

Brian Daskam
Manager of External Affairs
Denton Municipal Electric

 

How Denton Can Afford 100% Renewable Energy

Posted on by arbriggle

(this post written with the  help of Devin Taylor)

I have often heard it said that it will cost too much for Denton to go to 100% renewable energy. But will it?

The chart below shows that the 100% option would cost roughly 0.6 c/kwh more than the Renewable Denton Plan (which entails building two gas plants). That’s about a 5% rate hike.

rate_comparison

Now while some in the city have been saying that we cannot afford this, the city just imposed a 5% rate hike through a capital expenditure program.

Annual capital expenditures for DME were $24 M/yr. in the time period 2010-2014 (p. 223). That jumped to $80 M/yr. in the time period 2015-2019 (p. 304). The debt service in 2012 was $19 M/yr. (p. 12). The debt service in 2016 is $29M/yr. (p. 12). That additional $10 M/yr. of debt service works out to the same as the 5% rate hike it would take to get us to 100% renewables.

To put it bluntly: it seems we are willing to put a 5% rate hike in place with little public discussion. But when it comes to renewables, a similar rate hike is a conversation stopper. Why is that?

Let’s say we have a $175/month electric bill (this is actually the total annual budget of DME in millions, so you can read this example as a fictional rate payer or just put it in millions and you’ve got how this all pays out in the aggregate for DME). The raw power is about half, or $90 per month (that is, $90 million/year for DME). Operations and maintenance cost about $39. Franchise fee is $7. Another $5 goes to paying down the investment in the TMPA coal plant. Another $5 goes to non-operating expenses. And $29 goes to paying the mortgage, the loan that we used to buy our transmission lines and substations.

Going to 100% renewable would cost $9.50 a month more. But DME has already made decisions since 2010 that have had an even bigger impact on our bill. In 2010, the mortgage portion of our bill was half what it is now, or $15 instead of $29. And that $29 is going to grow over the next 5 years, because of a planned upgrade and expansion of the Denton grid.

Until 2010 or so, we were able to expand and repair infrastructure at a rate that allowed us to pay off our mortgage as we went along. But old parts of the grid started to operate past their rated life and demand was increasing. So the decision was made to upgrade all of our substations and increase the power available in all parts of the city.

Yet at the same time, DME launched an expansion project to build substations in areas where growth is expected. It’s as if we have an old house and we decided to remodel it and at the same time build an addition on the west side. This makes some economic sense and it takes advantage of current low interest rates. But it also makes for a bigger mortgage. Our mortgage was $19 a month in 2010, it is $29 a month in 2016, and it will be around $45 a month in 2021 (the last figure is an estimate).

So, the $9.50/month to go 100% renewable needs to be seen in the context of  this $26/month remodel and expansion (going from $19 to $45).

Now, of course, we need a remodel, and we will need to expand. But we could do the remodel first, then the expansion incrementally. Even the remodel could be slowed down, which would lower the mortgage payment. I wonder if we couldn’t trim the mortgage to enough to buy us the $9.50 needed to go to 100% renewable without any rate hike.

Indeed, although some of these increased debt services are already baked into the cake, others are not. We could adjust our infrastructure plans to absorb the extra cost of going to 100% without sacrificing the reliability of our grid.

The rate hike associated with 100% is always pitched against this unspoken background of planned infrastructure work and the associated debt. The conversation assumes that all of that is going to go forward as planned so that we would be talking about adding $9.50 per month on top of the already budgeted $30 extra per month. It’s like saying (to press the metaphor) that we can’t afford to put solar panels on the roof of our newly remodeled and expanded home, because the work already budgeted now means the extra cost of the panels is out of reach. But we could adjust the capital expenditure plans to make room for the solar panels in the budget.

This doesn’t have to be about burdening lower income families and the big 100 corporate customers of DME with a 5% rate hike. This can be about prioritizing 100% renewables in our budget – finding room for it by slowing down some of our infrastructure plans.

I know most of the conversation has been about the quest for that magic technological bullet – maybe batteries or concentrated solar power – that would somehow make the 100% renewable option cheaper than what DME claims. But perhaps the conversation should be about the capital expenditure side of the equation, not the technology side.

In summary: It seems like we can reduce the mortgage portion of our electricity bill by the equivalent of the 5% needed to pay for 100% renewable power. We can do so without jeopardizing reliability.

Now, if I am wrong, someone please let me know how. If I am right, then I think we should restructure our financing plans, because I think avoiding the new sources of air pollution is worth it. I think it is worth it to avoid adding more fossil fuel infrastructure. I think the reputation Denton will gain is worth it.