Good morning, and welcome to the Public Utility Board meeting of the City of Denton, Monday,
August 12, 2024.
It is 9 a.m., and we'll see if there is, are there any comments from the public or any
comments written down?
It doesn't appear to be, so we'll move right on to the regular meeting.
There are no presentations from the public.
The Consent Agenda, would anyone like to pull any item from the Consent Agenda?
Does not appear to be.
Nice.
We'll move on to items for individual consideration.
We do have a, item C and D, I believe, that if there are any questions about the Power
Purchase Agreement or the Lease Agreement, then we'll need to go into closed session.
Yeah, I'm just, yeah, I'm just, I'm just making sure everybody's aware that if we have any
technical questions about those, we need to move, we'll move into closed session for those
items.
All right, we have item, item A, which is, oh, sorry, skipped right over.
So do I have a motion to approve the Consent Agenda?
Second.
Motion and a second, all those in favor, please say aye.
Aye.
Any opposed?
Okay.
As there is none, we will move on to items for individual consideration.
Item A, consider approval of the July 22nd, 2024 minutes.
Are there any changes?
We have a motion.
Second.
And a second.
All those in favor, please say aye.
Aye.
Any opposed?
Sign the same.
We'll move on to item B. Consider recommending adoption of an ordinance to the City of Dittin,
Texas, approving the execution and delivery of a financing agreement with the Texas Water
Development Board.
Good morning.
I'm Stephen Gay, Director of Water Utilities, and we're, so the project overview is Lake
Ray Roberts was constructed in 2002, its current capacity is 20 million gallons a day.
And based off of our recent master planning where we looked at our growth projections
with the municipal utility districts, the development of hunter coal, and a lot of other
growth within our corporate limits, we are anticipating the need for additional water
treatment capacity.
The planned expansion project will increase the treatment capacity at the site by 20 million
gallons a day, and we're reserving capacity an additional 30 million gallons a day so
we can add the capacity as we need it as growth demands.
So the total new capacity at the site is going to be 50 million gallons, so we currently
have 20.
We're going to add the 30, or if we have 30, we're going to have 20.
And then the combined capacity is going to be right at 70 million gallons a day, and
the current cost of the project is roughly 195 million gallons, 195 million dollars.
So with that, I'm going to go ahead and I'm going to turn it over to Viz with our finance
team and let him go over the financing piece of it.
Good morning.
I'm Viz Papandavong, ADF Finance, and I'm here to talk about the benefits of the SWIFT
loan.
So a few things, looking at the slide, divertification of our finance portfolio, and also we're
there's a big interest saving component to this loan since it's running through the federal
government basically.
So we came back a few months ago just on the intention of applying.
Now we're here for the actual signing of the financing agreement.
This basically provides a commitment with Texas Water Development Board to kind of be
committed to getting the loans through them basically pretty much.
So a little bit more about the financing agreement this time around.
So we're going to basically looking at about $10.1 million loan through the Texas Water
Development Board, and this will be done annually.
So the city chose to look at it on an annual basis versus committing through the whole five
years.
So every single year we'll come back and basically look at these dollars, looking at the five
year schedule to say, "Hey, do we want to go through with this loan, signing the financing
agreement and looking at the terms and saying, "Yes, we want to do this," and kind of move
forward.
Here is just a little bit of the timeline.
So next week we'll go to council and get approval for finance agreement, and here is just the
outline of the next few months.
So if everything goes well and goes through, then we'll pretty much get the cash sum around
at the end of the calendar year.
And here are some just the potential penalties if we decide not to go through after signing
the finance agreement.
We don't anticipate that, but this is just something we want to disclose to the city.
And that's it.
Any questions?
Mr. Neuquist.
First year, 10 million, second year, 11 million, 57 million, 87 million.
So then it all becomes an accumulation of what was the number that you said ultimately?
195.
195, I think.
195 million.
Yes, 195 million.
Yes.
Well, what is the payment timetable on something like that?
So the payment timetable, I think we're looking at 30 years.
That's what I'm going to show, a 30-year payout.
Yes, sir.
Thank you.
So is the Texas Water Development Board funding competitive or better than?
Yes.
So with the loan getting through the Texas Water Development Board, we're getting around
a 14% subsidy.
And also we get a slight discount on the interest rate just for that reason because it's all
going through the federal government.
So they're actually issuing the loans on our behalf and we get the loan through them.
So we get both like a rebate effectively and then also a lower interest rate?
Correct, yes.
And then these five years, it'll use market rate kind of each year as we go forward.
Yes.
Yep.
So that's why each year we'll kind of come back and say, hey, you know, here's the finance
agreement, sign the finance agreement, and then take a look at the terms.
And we work with our bond council and our hilltop advisors when we're looking at these
documents every year.
So the interest rates for, let's say, the first year, that would be a 30-year payout.
Is that a fixed rate?
Yes.
And then for the second year, the 11 million, that could be a different rate depending on
it.
Exactly.
So that's a flexible, in a sense it looks like, of an interest rate or a combined average
is what we're looking at, hoping that everything is low.
But all of those are fixed rates.
Correct, yes.
Okay, thank you.
Yes.
And just to keep in mind, each year when we go through the finance agreement, Texas Water
Development Board gives us that 14% subsidy.
So whatever market rate is, you'll get 40% less because you're going through the federal
government.
Definitely, yeah.
But you're correct.
And then on the penalty page.
Yes.
So if these were paid off early, like 20 years, we refund for a better interest rate or something
like that, this seems kind of pretty onerous for an early payment.
Is that correct?
Or is the termination different than an early payback?
Steven Gay, Director of Water Utilities.
It's different.
That's only if we, these penalties are if we choose to not accept the monies.
So it's anticipation of them issuing the debt, and so the further along they get down the
path of issuing the debt, the more egregious those penalties are.
So that's why we're coming to you now, getting the approval, we're going to get the finance
agreement, we'll review it, and in plenty of time.
So if we want to back out, we're going to mitigate our liability.
Does that make sense?
And did that answer your question?
Yeah.
So that this doesn't affect like early refund the bonds in 2040 or something like that.
And then one, actually, one last question regarding water supply.
Is this increase to 70 MGD, about what year does that put our next capacity expansion
at?
Oh, that's a good question.
I might have to get back with you on that because I'm trying to think, I want to say
just 2050 is the number that comes to mind, but I have to verify that.
So this is like an expansion capacity for about the next 10 to 15 years.
Easily.
And that's why we're building it the way we're doing right now.
So we know we're going to need the additional capacity.
So we're building the building for up to 50 million gallons a day, but we're only putting
in 20 today because that's what our immediate demand is.
And then we can kind of mark, we can monitor the market and the growth patterns and things
like that, and then we'll be set up more easily to add the capacity.
So it's more or less adding equipment and not concrete and infrastructure and wiring
and things like that.
Thank you.
Yes, sir.
I'm so excited.
Thank you.
Thank you, sir.
Oh, yeah.
Okay.
Anybody else?
Oh, so we can do an early payoff and there's no penalty.
And is it the history of this city that we do strive to make those early payoffs?
I would defer to our finance team for that, but I would say yes.
That just depends, like I said, you know, we have to work with our hilltop advisor just
to get understanding if that's beneficial, you know, from a finance perspective.
So...
Well, I would think from a real estate thing, if I could pay off a note sooner, I'm better
off eventually, because I know the city's already set and the pipeline's going, but
if we could pay it off early, I can't imagine a scenario where that would not be appropriate.
But just my own opinion.
Thank you so much.
Okay.
My question is this.
So the payback of this is based upon utility rates, impact fees, I would imagine, right?
Is there any MUD district contribution rather than usage?
In the development agreements that we are negotiating with the MUDs, we have provisions
in there that they will pay impact fees for their impact to our system, and that's going
to be consistent with what the development community within our corporate limits would
be paying, and furthermore, services outside of our corporate limits are charged at a premium,
so we have an additional, I guess, a rider on top of that, because it's outside of the
corporate limits.
Does that answer your question?
Yes, and it just brought up more questions in my head about MUD districts, which may
not be on the subject too much, but I'm curious for the residents that would be outside of
our district or our area that have already paid their MUD district and already built
their homes, and they're able to get onto our system, that's just going to be usage
income, correct?
Can you restate the question?
I want to make sure I understand.
I buy a house in a MUD district who does not have an agreement with Denton currently.
I pay my MUD district impact fee, or whatever they call that, when you buy your house, and
I've already built my home, so therefore, I've paid all impact fees that were necessary.
Of course, MUD's going to hit them every year for a while.
Do you pick up those MUD districts that have been sitting there that weren't currently?
No, we're negotiating with all of them.
If you did, it'd be a whole different ordeal, right?
We'd have a different agreement, a structure with them.
What MUD districts do you currently have agreements with?
We don't have an agreement, well, Legends, but it's not a MUD.
Where's Legends?
Legends is kind of up on the west of the 35 above University, 380, it's one of the newer
districts out there.
We don't have a wastewater agreement with any of the MUDs currently.
We're under negotiations and discussions with them, but nothing has been inked.
I hope I didn't get off discussion, but it was mentioned in this, and I didn't think
about MUDs being part of this.
When we look at our growth, we want to look at our entire ETJ, Extraterritorial Jurisdiction,
to ensure that we're prepared for anything.
When we do our impact fee analysis, we're allowed to, through I think it's 395 of the
TAC, we're allowed to look at our Extraterritorial Jurisdiction, and I guess identify an impact
fee in those areas, and that's what we're doing currently.
We're doing that analysis right now.
Quite a few moons ago, maybe 15 to 20 years ago, we did have the situation come up where
we did stop expansion of our Pecan Creek, because we had predicted of that entire subdivision.
Well, Pecan Creek is actually almost at capacity.
We can only discharge about 30 million gallons a day at that site, and with the current project,
we're going to get right up to 30 million gallons a day.
On the wastewater side of the equation, that's why we're looking at those, basically looking
at by basins, the Hickory Creek Basin, the Pecan Creek Basin, and the Clear Creek Basin,
and having a plant in each one of those.
Okay.
All right.
Yes, sir?
Payments, monthly, quarterly, annually.
Payments are semi-annually, so basically twice a year.
Great.
Thank you.
All right.
Anything further?
Do we need action on this item?
Yes.
All right.
Well, if there is not any further discussion, we'll entertain a motion.
Second.
We have a motion, and a second, did you get those?
Okay.
Any further discussion?
If not, all those in favor, please say aye.
Aye.
Opposed, sign the same.
None.
Pass unanimously.
Item C, consider recommending adoption of the ordinance for the City of Denton at Texas
Home Rule Corporation, authorizing the city manager to execute amendment number three
to the power purchase agreement between the city and Core Scientific.
Could you read item D in as well, please?
This is item D, PUB 24-128, consider recommending adoption of an ordinance of the City of Denton
at Texas Home Rule Corporation, authorizing the city manager to execute amendment number
two to the lease agreement between the city and Core Scientific, a Delaware corporation
providing for an effective date.
Thank you.
Happy now?
Yes, sir.
Thank you.
Thank you to the assistant general manager at DME.
So today we're here to talk about an amendment to the power purchase agreement with Core
Scientific and a lease amendment as well with the same entity.
I'll give you a quick update on the project status.
As you can see from the aerial, this is the Core Scientific project at the Denton Energy
Center.
The Denton Energy Center is here in the center.
Our substation is here.
Phase one, phase two, and phase three.
So phase two, phase one complete.
Phase two, about 80 percent.
And phase three was the phase that was impacted by the bankruptcy in 2021.
They've successfully come out of bankruptcy and are now looking to finish out the construction
on phase three.
Phase three is intended now to be converted from cryptocurrency mining to a traditional
-- sorry, traditional tier three data center, which is a constant load.
Unlike the cryptocurrency operation, this load would not be subject to price sensitivity.
So they will run around the clock.
The purpose of this entity is to begin doing artificial intelligence computations.
So not only are we suggesting to -- or requesting a change to the power purchase agreement because
of that different load profile, we have to provide for our protection and for there's
a fixed price rate for this part of the operation.
But we're also including an expansion of the leased area.
And the expansion of the leased area is shown over here, these black rectangles.
Those are standby generators.
Those will be either diesel or gas fire generators to back up critical operations at the high
performance computing phase three.
The mauve colored rectangles here are heat exchangers.
Currently the cryptocurrency operation runs using air cooled.
So it takes ambient air and passes it through the processors and then exhausts the hotter
air out through the top of the building.
As a tier three data center, this will be an environment controlled building.
So there will be space heating and cooling in these buildings once they're converted.
So as a jurisdictional monopoly, DME is required to serve these loads.
We're the only provider and as long as we can meet the demands without upgrading our
transmission or distribution system, we have to serve the load.
So what we're asking today is to modify the power purchase agreement to convert this high
performance computing section to a firm tariff price.
It will only be subject to ERCOT mandated load shed events or DME outages due to distribution
or transmission system issues.
The tariff price that we are proposing is one that is a cost of service base to recover
all of our costs to serve this customer.
And it will be a renewable energy supply.
For the immediate term, we will be doing forward hedges in the market, buying the power we
need to serve this entity.
Longer term, we'll be discussing that with you at a later date as part of the debt and
renewable resource plan chapter two.
One thing that I think is important to understand that this is our forecasted peak demand.
The orange line at the bottom is our forecasted peak demand for the system without the core
phase three HPC operation.
The blue line is with the HPC operation and then the purple line is kind of the upper
bounds of where we could potentially be at as a system if we continue to see the high
growth rates that we've been seeing over the last two to three years.
So as I'm looking at this, is it fair to say that your 56% would that be the blue line
and the 84 being the purple or do they have any correlation to those colors at all?
That is correct.
Oh, wonderful.
So at the bottom you see the gray bars, that's the debt and energy center, the 225 megawatts
of firm capacity that we have.
The rest of our energy is filled from renewable energy power purchase agreements and or bilateral
agreements with counterparties in the market.
So the changes, we've established a new demand based rate for the HPC operations in phase
three.
We've added an early termination fee to protect our customers if for some reason the core
HPC load were to go away.
We are adding some telemetry requirements to know the status of the backup generation
and we're amending the load shed language to be consistent with their protocols.
For the lease, we're amending the lease to add an additional 5.5 acres which is required
for those backup generators and heat exchangers.
And with that I'll be glad to answer any questions you might have.
Mr. Rayner?
The last slide you had on the 5.5, is that a ground lease?
It is.
It is a ground lease.
So we already have a ground lease out there for 31.5 acres.
We're just adding another 5.5 to that.
And what is the term on that?
That's 14 years with a 14-year option to extend.
And it's coincident with the existing lease.
And then my other question is on the early termination.
So I understand Core, Core Scientific, did they go into bankruptcy or were they involved
with that?
They were.
In late 2021 they declared Chapter 11 bankruptcy.
They have emerged as quite a strong entity now.
And I'll just point out that even through the bankruptcy, the city was able to collect
all amounts due.
There was no loss as a result of that.
And that's what I was curious, because of already having that strike, rightfully so
or not, as the early termination fee, was it, would it be fair to say it was beefed
up a little bit because of that situation?
It was.
So it's specific to the Phase 3 operation.
Only?
Only to the Phase 3 operation.
We beefed that up.
That's where we have the most price risk, since it is a more of a fixed-price offer
like our normal load that we-- I got you.
Thank you.
Question?
Mr. Taylor?
Good morning.
Morning.
You know, I see all those generators, and I think that that might be a really good opportunity
for demand response or behind-the-meter load reduction.
And I just want to make sure that we're offering our large customers terms that would allow
them to do that and maybe split the revenue or split the savings in cases that prices
do get really high.
You know, we could-- DME could allow them to reduce their load, and we could sell back
some of our forward purchases while the customer could avoid, you know, or get paid basically
to run their own equipment.
That's a great idea.
And yeah, we are pursuing that.
Obviously, what CORE wants to do is get this lease and the PPA amendment in place.
They have a contract with a large, high-tech business to try to get this thing up and running.
Those types of arrangements on the demand side-- obviously, there are demand-side programs
in ERCOT.
Unfortunately, right now, there's very little incentive for people to participate, because
unless the utility-- in the-- I should put it this way-- in the competitive markets,
there is more of an incentive.
In the MOU markets, like Denton, where everything is vertically integrated, there really is
very little incentive.
However, for these types of facilities that have this backup generation, we will be exploring
those types of options.
We just don't have any big customers right now on the system that would be able to participate
in a meaningful way.
Thank you.
So that was along the same lines as the question I was going to ask was-- are they-- this may
be a closed session item.
I'll just not ask it, because that really answered my question.
Thanks, Terry.
You're welcome.
I just said it.
I'm thinking through it.
All right.
Any other questions?
It doesn't look like we're going into closed session, so can we-- you want to do them separately?
Yes.
OK.
With the presentation last meeting and this meeting, I think I've satisfied all my questions
regarding the revised PPA.
So I move approval of item C, the revised PPA for phase three.
OK.
I have a motion.
Any second?
Second.
I have a second for Mr. Rayner.
Any further discussion?
There being none.
All those in favor of item C, please say aye.
Aye.
Any opposed?
Sign the same.
There are none.
All right.
Is there a motion for item D?
I think there are package deals, so I'll move for approval of item D.
I have a motion.
Second.
I have a second for Mr. Newquist.
All those in favor, please say aye.
Aye.
Any opposed?
Sign the same.
There being none, we'll move on to item E, management reports.
Mr. Puentes.
Mr. Chair, members of the board, just to your future agenda items, we don't have anything
listed on there.
That means that we won't have items on the agenda, but certainly not any items at this
point that we want to specifically highlight for you.
And then on the new business action matrix, we still have the one item for fleet.
I have been in communication with the fleet manager, and he is working on that and anticipates
having that to you before that October date.
So with that, if you have any other questions or any other requests, I'm really happy to
talk through with you.
Anyone?
Bueller?
No?
All right.
Looks like we've made it through.
If there is no further discussion, I'll entertain a motion to adjourn.
I'll move.
All right.
I don't think we all have to be in favor, so we'll be adjourned.
Thank you.