Feb 19, 2021 City Council on 2021-02-19 9:00 AM (SPECIAL CALLED/EMERGENCY MEETING)

good morning and welcome to this emergency special called emergency meeting of the Denton City Council it is February the 19th 2021 it is currently 9.01 am we do have a quorum so I will call this meeting to order the first portion is a closed session item so let me get that language in front of me forgive me for not having it pulled up and we will go into closed session and then come back out for one more item but let me get there sorry and here we go so we will go into sorry that's not what I'm looking for there it is well that's not what I'm looking for either bear with me they sent it to me and I didn't pull it up here we go so we will convene in closed session at 9.02 am we will consider the following items consultation with attorneys under Texas government code 551.071 deliberations regarding certain public power utility competitive matters under Texas government code section 551.086 so 2021 and we have one item for this today's work session and it's a work session report it's item a id 21345 receive report and hold discussion and give staff direction on funding the purchase and sale of electric electricity electricity during a declaration of state and local disaster in response to an extreme weather event and utility service outage good morning mayor and council david gains assistant city manager and cfo i will hold the presentation here good morning right well uh we we obviously come to you in this emergency meeting at the end of an unprecedented week and that's really an appropriate term as we go through this presentation discussion as we're sitting with an unprecedented financial situation so what we'll do in this presentation is review our our power expense um expenses that we've seen over the past number of days as a result of the winter storm emergency and review a very high level of impact on the electric fund and then the true purpose of the meeting is to present a recommended plan really focused on the immediate and critical financial needs that we have to continue to purchase power provide power to our to our community i think as as we go through and as i'll touch on a number of times really focused on this immediate concern that we have understanding that we'll have a number of conversations over the next weeks and months of what this means for our fund and what other considerations there are out there as things will certainly change as we move forward and given that we're still in the midst of this emergency so at a very high level uh some of the results from the winter winter storm emergency that um you know i don't think is surprising to anyone here or anyone watching if our energy demand is far exceeding the generation available we've all seen that over the past number of days i think the next bullet point here to show how drastic that has been on what we've paid for uh for power through irkot and we'll touch on this again on the next slide as well mayor can you hear me better now you're a little more clear david mayor you're uh you're muted i've said a lot just then but okay thank you mr manager i was checking with him to see how you sounded on his end okay so you can see there with our second bullet point that we've um unprecedented is again the only word that we can use for the crisis that we've the energy prices that we've seen uh if you look back at february 2020 the prices that we paid to irkot on the market for to meet our power supply needs were 23 24 dollars per megawatt hour on a single day over the past week those prices were 2,400 dollars per megawatt hour this represents a 10,000 percent increase um this is this is a situation that that we no one could have predicted obviously and the drastic nature of it i think just looking at those numbers alone helps to set the stage for the situation that we find ourselves in dme as i mentioned purchases power supply from irkot on the day ahead markets and the real-time markets based on the need that we have to supply supply the demand throughout the city our power as our power expenses and we'll show this on the next slide with with a with a table our expenses on a single day exceeded the expenses for the entirety of last year so one day of our expenses exceeded what we paid for the entirety of the prior fiscal year the we obviously have the dinner which is one of its purposes is to work as something of a hedge and help mitigate some of those costs while it was operational it did it did help um initial initial initially it was about 35 million in power expense it helped mitigate from those costs so they would be even higher that number as it's been uh as the deck has been more operational is up to 45 million or so so while operational it has been a benefit to us but we still find ourselves in the situation that we'll show here on the next slide so if you look over to the right you'll see what we've paid irkot over the past four days to meet those market demands in total to over 200 or right at 207 million dollars just for four days and what we've had to pay into irkot for our power supply to put that in the context and as i mentioned on the slide prior you can see what we paid for an entire year in in the previous three years so you can see we had single days that were in excess of what we paid for an entire year and definitely above what we had for averages over three years so on the left we'll go through what this means for us from a fund perspective again at a very high level and what options we considered and where in where we see ourselves right now with having to make immediate purchases to provide power and keep consistent reliable power throughout the city our estimated fund balance right now is about 105 million dollars in the electric fund we started the year with 100 million dollars in the electric fund and one of the conversations that we've had is that 100 million dollars was so far in excess of our fund balance target that we were looking at what is the appropriate amount we need in that fund balance we came into the year thinking that it was not only in excess of our fund balance target but so far in excess that we would obviously have no issues with operational costs but have the discussion with council about the what's the most appropriate way to use the fund balance that we had so we really want to put that in perspective that we have a fund balance target that's based on a policy and driven by what is what is the best practice for electric utility and what does the market look at as we go out for bond sales and so that fund balance target was 48.5 million dollars and we had 105 million dollars in the fund balance that just again points to the situation that we find ourselves in or over four days we exceeded double that fund balance despite it being well above our fund balance target another then the next piece you go to when when presented with a situation like this where we're four days we we go through our entire fund balance in the fund our inner fund loans from our other funds obviously as a city we we we have fund accounting so we have uh we have fund balances in our utility funds our water wastewater solid waste we have our fund balance in our general fund and it is allowable in our debt policy to do inner fund loans in emergency situations like this to transfer some funds from a note from one fund to the electric fund in this situation as a loan but given the magnitude of the situation that we have those fund balances available wouldn't be enough to make up the difference without going below our targeted reserves in each of those funds as well we also looked at cash funding our utility projects that we either plan this year or ongoing that were funded with cash uh revenue funded projects and move those to debt funded projects to free up free up revenue for us to get through the situation that is a plan that will continue to do as we as we deal with the the cash situation but again the magnitude of what we can do with those projects does not come near what we need for simply cash to pay the electric our power purchase power bills over the next few days you know the final point i think is an important one uh the other option it would have been to try to reduce cost by having outages having rolling outages in ex in excess of of our ERCOT requirements over the past number of days you know as as well as we've all learned throughout throughout the week ERCOT dictates or tells the entity has told the entity what they need uh in reduced uh demand to to get and reduce load to get through the emergency at the staff level we could have said we need to reduce costs in excess of that and had excess outages to be honest that's not something we considered and that was not an option we thought was was appropriate because of the public health and safety concerns were simply too high so we did not do that and to be honest did not consider it as a viable alternative so where that leaves us is uh large bills to be paid with without the appropriate cash in the electric fund to pay them so financing solutions are truly the only option to meet those immediate cash needs we did consider a number of short-term financing options but truly the best and most immediate source of funds for us is to utilize the existing commercial paper program that council approved a few months ago for the utilities so as a reminder of what our extendable commercial paper is again it was uh approved by council in january and last year we also approved a commercial paper program for the 2019 bond program uh in in what that allows us to do is if you can see the benefits there immediate access to funds within one or two days of issuing the notes has the lowest interest rates for short term financing and then those notes mature after 90 days again because it's the short-term um a short-term tool after 90 that's the initial maturity um after that initial maturity of 90 days at the staff uh at the city level we would decide if we want to roll that into another short-term 90-day commercial paper pay that with available funds or refund well and we also have the opportunity to refund those with long-term bonds so those will be discussions that will will bring forward uh in that interim and and present a plan to city council uh so definitely at the end the presentation can it can answer more questions on the commercial paper program itself um but that was the decision that we made uh immediately was to use the 100 million that we have available in the commercial in the utilities commercial paper program as it exists today so it was our recommended plan and in progress in process we have issued the entirety of the commercial paper program the 100 million dollars or began the we initiated the issuance of those notes those are um we anticipate that those funds will be available as early as today which will help us to have the cash flow necessary to at least get through the next few days the next week but it well at this time we do not believe that will be enough and i think that's obviously evidenced by what we paid over the past four days and where we sit with a fund balance heading into this crisis so our next steps at next tuesday's council meeting would be to amend the commercial paper program as it exists and increase the total from 100 million which obviously we're issuing today or we have initiated the issuance of today and increase that amount to 300 million dollars there the the benefits of doing that are are are a few obviously it allows the city to issue additional notes or the cash necessary to meet this meet this crisis um it also maintains the appropriations benefit for all of the utilities if you recall from our conversations on commercial paper in the past it allows us to enter into those contracts that for projects that may take a number of years and issue debt in alignment with what will actually take on expenses so by increasing that capacity we still get that benefit for all of our utilities with the number of capital projects that are ongoing and then obviously in accordance with with our policies since council will be notified whenever notes are issued with justification staff will so that's our that's our immediate recommendation next tuesday and further next steps that staff will obviously present regular updates of the electric funds financial situation moving forward but do want to highlight that there's still significant uncertainty remain remaining and changes will occur over the next several months that will that will shift this picture of where the finding of where the fund will will end up and and how does this future decisions will interact with with where the fund is but the immediate concern right now is meeting the obligations to provide service to our residents and customers so with that i'll open it up to any questions that you may have okay questions for staff councilmember melzer yeah uh first i'm you know very glad we have this option it's you know the least unpalatable option and i'm glad it's available um do do we believe that the uh market is operating properly willing buyers willing sellers or you know is there any kind of uh market dysfunction gouging whatever that you know might lead to legislative intervention you know yeah yeah i don't think we can answer that councilmember melzer at this point the the rules are what they are but i think terry nalte uh is probably best position to answer your question as far as what he's saying and how the rules are actually play out in an emergency situation good morning council terry nalte assistant general manager at dme uh you know the market has a very steadfast uh set of rules uh the the reason why uh we're having to post so much cash and collateral is based upon the clearing price at the cap of nine thousand dollars a megawatt hour uh and the shortages that we had in our supply portfolio uh due to uh way uh way more demand than we had anticipated so in terms of uh the market itself the market is functioning per the rules that urcot set um with regard to legislative action i think that a number of investigations have been announced uh the federal energy regulatory commission the texas railroad commission i believe the governor's office as well has announced uh its intent to do investigations and i think it's uh we'll have to see how those investigations play out before we know whether there's any legislative or government intervention may i ask another one mayor yes sir uh so we're under a declared emergency both national and local and i guess public state as well uh just and and i understand the purpose of those declarations is in part to make some kind of funds available obviously we're not the only ones in this uh circumstance but uh you know is that going to be brought to bear potentially to address these kinds of expenses no i i think we'll just we'll have to see nothing obviously is available right now to meet the immediate demands that we have but that's going to be one of those pieces as we come back over the next months if something becomes available it changes the picture so it's just one of one of those variables out there it's a great question but one that we'll just have to see what it what it looks like i mean there's a federal or state level of what's what the opportunities are okay questions for staff council member armature uh yeah yeah so first of all you know to take the obvious this is a very very very serious and a lot of money uh and rate payers are wondering how what is known about how or if this will affect them so if if that could be explained to rate payers in just the the this simplest uh most accessible layperson's terms that would be great as well as explaining to a layperson who doesn't understand what commercial paper is you know what you know how how bonds work how selling bonds work if you could break that down in the simplest terms possible uh as far especially as far as the effect on on rate payers and also taxpayers since we're talking about bond sure you know as far as rates i mean that's that definitely i understand that question so to step back our rates are fixed rates that are approved by by city council typically during the budget process where we're able to set back and say what does our fund look like and what are those costs what are the rates necessary to recover costs because you know as if enterprise funds in the city that our rates are only set to recover the cost that that we need to provide service so we cannot at this time say what those discussions will be over the next few months we can say with certainty rates aren't changing now they're not changing in the next few weeks obviously but we will be having once we get once we can step back and have the conversations of what the fund looks like in a few months we will have to present council a summary of what where we are and that would incorporate anything obviously that could come in from from a an emergency program obviously but without without that time to see what the fund looks like we really cannot give any expectations of what that means for rates and ultimately it's just going to have to be a conversation that we have to have with what our costs are and what are the best mechanisms to recover those costs so again again those those are conversations that are really just taken from the level of of how to what is the best way to recover costs i think well what a benefit and i'll talk a little bit about the commercial paper program a benefit of this program is the commercial paper program itself but is a nine is a very short-term um uh maturity so at 90 days we can reassess what is the best way to pay back this debt we could also push it for another 90 days we can roll the debt to another commercial paper program so that gives us three to six months to determine what is the best way to refund the the short-term notes that we're issuing and we have our financial advisors on the line as well if there's any more detailed questions but at that point we can see do we have cash available from some other source to pay back these notes do we need to issue long-term debt that spreads some of those costs out for a number of years to repay those notes so those will be conversations that we have again in in in view of a long-term plan with the fund itself so we can show that the fund is is in good shape moving forward and then obviously the further conversation will be rates and how rates are recovered in that regard but i think what i want to emphasize is there are so many moving parts from both the expense side and the revenue side that it's hard to say where we're going to end up at this point okay uh yes councilman roberter uh yeah and another question of uh big public interests can you speak to or can someone speak to how this will affect electric bills so outside of rates so rates are you know are not going to change in the immediate future in the immediate future um but as far as electric bills and also uh policy uh dme policy also water bills and our utility policies about uh you know late payments and shutoffs there's been talk about uh what flower mound is doing well the suspend uh payment i'm wondering if someone can speak to that the effect on people's electric bills and on you know what to do if someone can't pay their their electric bill or their well in terms of what flower so mayor yeah i could help david out here i think what he what he just said to you is it's going to be you know one or two months before we can get all the uh the fund accounting done to see exactly where we are once we understand exactly what shaped the electric fund and the water and wastewater fund are in he can come back to you with some solutions on on how this might affect rates when you start attacking uh those issues that sort of thing it's very premature right now to be talking about anything other than that because he doesn't know the extent of the problem yet until we close the books once once once those books are closed um the idea would be to come back to you with exactly that information and options for you to consider and then the entire council could kind of weigh in on what policy uh you know you want to change or or or how you want to deal with this moving forward but you um i think right now the point is in the forward market we have to buy power we have to write a check for the the power in advance he needs that money and um and he's telling and so we're trying to share that with you in addition to the fact that we're probably going to need a little bit more dollars but these questions that are being asked it's going to take closing out the month and giving the staff an opportunity to give you a exact estimate on where we are sitting financially so you can have a productive policy discussion okay thank you yeah councilmemorandum it just just follow up question a clarification to that uh so outside of the issue of rates and i i understand what what you're saying uh people are asking uh if if the city can do what flower mound did well councilmember armater i'm sorry but i this i'm gonna read the caption again and and ask you to frame your question so that it it relates to this receive report hold discussion and give staff direction on funding the purchase and sale of electric and electricity during a declaration of state and local disaster in response to an extreme weather event and utility service outage this obviously would be speaking with respect to the city of denton and so if you could help me by speaking on on posting that would be that'd be fantastic yes so this is regarding the if the effects of these these actions which are based uh on the high on on the high cost for the city um it is it is directly related to uh concerns about what people's electric and water bills are going to be even without a rate change uh so because the city of flower mound has already issued assurances about what what ratepayers uh will and will not be responsible for i'm wondering if we can do something similar to right right now even before we know or i i say right now but say at at at tuesday's meeting you know before the uh next round of bills come in because because people because people are are concerned about that and they're seeing that at least one other city has said you you don't have to worry um about your your uh water and electric bills right now at least as i understood it okay yeah and if you can get that information to erin we're going to move forward if you can get that information to legal and city manager they'll look it over uh obviously they've been working 20-hour days and have not had a opportunity to investigate or review flower mounds notices or policies etc so i don't think they're prepared to speak to that but if you will please get that information to the city manager and legal for them to review and in preparation for our meeting tuesday that'd be great okay uh counselor melzer sorry so uh this big expense that we've racked up uh while you know the price of power has uh you know sort of exploded uh it's it's based in two two inputs this is all ultimately a question the high rates but then also the amount that has been used so obviously it's it's the fact the matter is it's still huge and we need to finance it um or pay for it and we're proposing financing but my question is about the usage part of the equation with the rolling blackouts has our is the effect of that that our total usage in that time uh you know hasn't made it half or you know significantly less than it would otherwise have been and would that be similarly true for individual usage you know it's the sum of all of our individual usage so has the rolling blackouts meant that our amount used has been much less than it would otherwise have been well you know i mean i'd certainly the purpose of the of the rolling outages was to reduce our loads or our load was reduced as a result of those to try to and obviously we have um we have terry and tony here if they'd like to elaborate but what we came to do right now is quantify that in dollars and what does that mean as far as yes our load is was less because of the of the rolling outages so so in the immediate future uh while we you know need to uh find a way to pay the you know the uh unprecedented cost as far as the reflection individuals we don't know uh whether or how or you know we aren't even going to be discussing any change to rates in for some weeks uh and individuals usage just as the total has been less individuals usage must have been less as well because of the blackouts is that all fair to say sure on average right yeah sure okay thank you very much all right any other any other questions for staff seeing none one more time any other questions for staff uh okay councilmember johnson okay i would like to just make a synopsis here one our focus before the weather issue was the covid 19 there were programs and things that were set aside that would assist with uh mortgage ranch utility bills those things are still in effect is that correct and secondly with the fact that we have the paper thing that we need to decide on today to take care of our bill that we have pending with that being said the fact that there was rollbacks would that not have increased the amount of electricity that we were using so since the rates are not going to change that should not affect the bill being higher at this point the rates remain the same is what we are hearing immediately so this problem of the rates possibly increasing and we don't have any information on that yet what we have now and today is to know that one with the rollback the less electricity was used secondly we need to make a decision on paying our bills so that we continue to have electricity please somebody correct me if i'm wrong well said councilmember johnson okay thank you uh any other questions for staff seeing none one more time okay uh then i'll take a motion may there there would be no motion at this time i think no just wanted to present um what we're going to bring forward next tuesday is the increase in the commercial paper program to 300 million unless there's any direction to not bring that forward we would proceed in that manner so okay so no so you just need direction so if there's uh well councillor melzer yeah i'm just going to sort of restate in case anybody watching didn't uh catch this the reason the motion is required is because we already set up this commercial paper program you know with the 100 million dollar limit that that uh is going to the market right now so they didn't they don't need any action on our part to use the authority before to given them okay thank you so far all right and then i'm sorry man that that's correct and the point of today was we didn't want to hit the public and the council with all this information on tuesday especially when we're likely going to need to request that uh that additional amount be extended from 100 to at least two or three hundred million dollars next week depending on what happens in the market over the weekend but the way urqat works and i think david you can articulate this better than i we have to pay them for the power we're going to need the next day so it's not as if you can tell them no and that's that's why he needs the cash and if you want to articulate on that to explain that a little bit better than i did no that's that's right and and i have to say the very high level urqat basically tells us how much we need to put into the market to meet our load for the demand that's necessary so we just have to have the cash available each day to do that and and i'll further simplify that just in case so that's it's a wire transfer of some sort we have an account set up wire transfer we're not we're not loading up the brinks truck right so very good okay uh so any council member armature yeah another question that that i just thought of that people might be wondering is there any indication or possibility of you know state or federal government uh helping out financially cities in this situation with this particular issue that we're discussing today yeah i think david touched on that a little bit we've not heard anything but we we are they're monitoring them am i wrong david that's correct yeah yeah that was touched on uh okay so any anything else for staff and so mayor pro tem davis just by way of direction and thanks um this was this was quick footwork by staff figuring out how to keep the lights on literally and keeping uh keeping a solvent going through the weekend and i just want to point out for folks at home this is one of those times where you want your power company and your city council uh in the same hands you where you're you want your power company's board to be the folks that you sent here to make these decisions and to hire the good folks that we have so lots of unanswered questions but that's because it's not time for the answers yet stay tuned lots more updates in coming days okay thank you that's that's well said and so any other questions for staff or and then then if there's any uh one that does not give that direction to move forward or is dissenting in that opinion uh then i'd need to hear from you i'm going to assume otherwise that you're giving staff direction to move forward seeing none okay so uh david you have the direction you need and i'm going to take a moment briefly just to say same thing that mayor pro tem said i thank staff again uh lots of uh long days short short nights uh on all fronts uh thanks staff for uh subsidizing our volunteer efforts at warming stations etc so really appreciate all the efforts going in and and everyone there at the denton energy center that's probably working around the clock trying to get the engines back up and running that sort of scene so uh really appreciate the presentation the transparency uh to mayor pro tem point is is um unparalleled uh amongst other groups so really thank you a lot for putting this together and we will be back on tuesday to 23rd uh for those watching for our regularly scheduled city council meeting uh and we'll have uh for sure more information then and i would encourage all of my council members if you have questions for staff that you'd like answered uh tuesday please get those to them uh today and monday so that they have time to research those and can have detailed answers for us so please get those questions in uh early uh similarly staff uh citizens watching please submit your questions uh so that we staff has time to research those can give you the detailed answers you deserve uh versus uh kind of not having those is there anything else uh david or todd before we conclude oh thank you very much great okay so it is uh i'll uh adjourn the meeting today at uh 10 32 a.m it's still february 19 2021 thank you