Finally, a utility's bottom line driven by 100% renewables -- in Texas, of all places

Editor's note: This is the first of a two-part series by the City of Georgetown's Chris Foster and consultants Larry Lawrence and Neil McAndrews examining how Georgetown, Texas became a 100 percent renewable city while pursuing least-cost economic goals. Up next: a look at how Georgetown Utility Systems renewable supply portfolio can serve as a model for a sustainable solution.

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In 2017, Georgetown (Texas) Utility Systems (“GUS”) will become the largest municipally owned electric utility to be powered by 100 percent renewable energy resources. 

Significantly, it wasn’t Georgetown’s intention to become the first city in the U.S. to commit to 100 percent renewable energy.  The city’s leadership simply set out to purchase the lowest cost, most secure, environmentally friendly, and easiest-to-manage supply of electric power, period.

Yet the most interesting aspect of the city’s purchase effort is that renewable resources met all of these goals. 

After GUS acquired solar and wind supplies, Georgetown embraced clean power as a symbol of its fast growing, modern city.  Now, other cities are looking to Georgetown as a model for developing sustainable and cost-effective supplies of renewable power. 

GUS’s path to a renewable portfolio utilized elements of sustainability science, a framework of decision-making that had several iterations, with an approach that examined and solved problems related to the interrelationship of environment and economic development.

The City of Georgetown laid the groundwork for a clean power portfolio by using planning goals and affording their staff the freedom to review a broad range of solutions. Business-focused local leaders asked the utility to pursue a path of cost certainty and risk mitigation when considering power supplies.  The City Council issued the following objectives for acquiring power supplies to the GUS staff:

1. Secure low cost power sources
2. Secure long term fixed cost power sources
3. Mitigate as much risk as possible, both financial and regulatory
4. Achieve at least a 30% renewable energy portfolio by 2030

In the state of Texas, many cities have opted into electric competition, where the consumer can purchase their own power from third party providers. Georgetown, however, decided not to opt in because they understood competition places too much financial risk on the consumer and because third-party suppliers offer only short-term contracts. GUS chose to continue managing its own long term power supply portfolio.

In 2012, GUS decided to exit a long term power supply arrangement that was backed almost entirely by fossil fuel resources.  This decision left GUS with the challenge of replacing power supplies for one of the fastest growing cities in the U.S. 

The United States Census Bureau estimates that as of 2014, Georgetown’s population had grown by almost 25 percent since 2010.  If this rate of growth were to continue, the city would double in size every 10 years.  GUS’s power supply management staff knew they needed substantial supplies to cover the city’s exposure for both the near- and long-term.

Fortunately, GUS already had experience in power supply resource planning and portfolio management because it had been purchasing power in the market for more than a decade.  GUS had staff, and employed consultants and legal counsel, who were fully acquainted with the intricacies of the modern Independent System Operator market, and who were familiar with the economics of the Texas power market.  

GUS issued Request for Proposals (RFP) in 2013 for all types of possible power generation.  Based on Georgetown City Council’s objectives, GUS specifically asked for long-term arrangements and received dozens of responses from coal, natural gas, solar, and wind organizations, including one nuclear energy proposal. 

GUS maintained a disciplined strategy of evaluating the proposals first by lowest overall costs, including adjustments for projected transmission congestion risks, and including the potential cost impact of carbon and other regulatory risks.  An important part of the process was the review of potential environmental liabilities. For example, power producers using coal as a fuel were very insistent in having GUS assume future environmental liabilities.

In the end, wind providers, who were facing expiring tax breaks in 2013, offered the lowest power prices in an attempt to secure project financing prior to federal tax benefit deadlines.  GUS selected a wind farm based in the Texas Panhandle.  The wind farm’s output would cover GUS’s load in the overnight hours during most months, but did not cover all of the daytime hours.  GUS entered into a 20-year contract at one of the lowest price-points available in the market over the past 25 years.

A second supply contract was needed to cover the remainder of GUS’s load: the highest peak daytime hours, especially during late summer.

In 2014, GUS launched a second RFP aimed at proposals to cover those peak power needs.  At that time, GUS was entering a market where solar modules were rapidly falling in cost, dropping prices to historically low levels.  GUS found that both solar and natural gas producers offered equitable pricing, but GUS opted for a solar contract based on its fixed price certainty, and based on the additional benefit of regulatory risk mitigation.

Another crucial attribute for GUS was that both solar and wind resources avoid the consumption of large amounts of water that are required by fossil fuel generation.   

Solar and wind resources are an incredibly complementary match.  Daytime hours, which comprise the strongest period for solar production, are the weakest period for wind production, whereas wind production starts to increase during the late afternoon and keeps increasing late into the night.  And, importantly, this combination of complementary production supply profiles matches the load demand profile in Texas.

The outcome of GUS’s resource planning and purchase process is that solar and wind supplies proved to be the least expensive available, with the added bonuses of avoiding substantial water consumption and avoiding potential cost risks from carbon, particulates, and mercury regulations.  

The City of Georgetown opted for contract solutions that will be 100 percent renewable starting in 2017; solutions that are energy effective, cost efficient, and green -- better for the city's and its taxpayers' bottomline, and better for the environment.

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Chris Foster is manager of resource planning and integration for the City of Georgetown, Texas, with a primary role of managing the city’s municipally-owned utility power supply. He orchestrated the successful transition of Georgetown’s power supply from a single provider that was over 90% fossil fuel-based to a 100% renewable portfolio by 2017. Foster also acts as the city’s economist and lead contract negotiator for issues such as water rights, garbage contracts, technological systems, and development agreements. Foster holds a B.B.A. in economics/finance from the University of Mary-Hardin Baylor, and a M.A. in public administration from Texas State University. For more information, follow Twitter @georgetowntx. 

Larry G. Lawrence, president and founder of Enterprise Risk Consulting, LLC, is an energy professional with 30 years of consulting, management, and entrepreneurial experience that blends commercial risk management success with senior risk management roles. He has extensive experience in trading and risk management implementation for energy companies. Lawrence holds a B.S. in communications from the University of Texas at Austin.  For more information, contact him at llawrence@enterprise-risk.com and visit his website at www.enterprise-risk.com.

Neil F. McAndrews, senior principal for Enterprise Risk Consulting, LLC, has more than 25 years of experience in the energy industry. He was co-founder and COO of one of the first integrated risk management programs for an electric utility in the U.S. As a consultant, he assists in establishing enterprise wide energy risk management and power trading programs at utilities in several NERC regions. Since 2010, McAndrews has extensive energy risk management experience with some of largest wholesale power transactions in Texas and in PJM. McAndrews holds a B.S. in geology from the University of Iowa and a M.A. in energy and mineral resources from the University of Texas. For more information, contact him at nmcandrews@enterprise-risk.com and visit his website at www.enterprise-risk.com.

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The views expressed by contributors to the Cynthia and George Mitchell Foundation's blogging initiative, "The Economic Argument for Environmental Protection," are those of the authors and do not necessarily represent the views of the foundation.

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