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Biomass Plant Negotiation Facts ("The Rest of the Story")


Fact: The 2009 Power Purchase Agreement (PPA--copy available upon request) obligated the city and GRU to buy power at a minimum cost of $70 million dollars a year, totaling about $2.1 billion dollars, whether we used its power or not. The pricing provisions were included in Appendix III, redacted and hidden from the public until GREC’s attorney released an unredacted version on March 30, 2011, almost two years after it was signed and approved. Among other things, it provided that unused “available energy” would be priced at $23.00/MWh as a fixed O&M charge and $58.10/MWh as a “Nonfuel Energy Charge”. GRU defends this as incorporating the cost of building the plant. “Delivered energy” was priced at $3.15/MWh.

Fact: GREC invoices available for public review on the GRU website show that the plant stood mostly idle (“dispatched off”) between August 2015 and March 2017, during which GRU paid over $117 million dollars for “available”, but unused and “delivered” energy. See GREC invoices at the link below:

https://data.cityofgainesville.org/browse?q=grec%20billing&sortBy=relevance

Fact: Upon authorizing GRU to proceed with negotiations on May 12, 2008, the Commission was briefed that natural gas prices, then at $11.27 per million BTU, were only expected to rise. However, upon ratification of the contract a year later on May 7, 2009, the Commission was told by GRU Director of Strategic Planning, Ed Regan, that natural gas prices had fallen to an “all-time low”, but was considered to be highly volatile. See video of the Commission’s discussion here (Agenda Item 071159):

http://gainesville.granicus.com/MediaPlayer.php?view_id=2&clip_id=319

The US Energy Information Administration's Henry Hub report reported that natural gas prices had fallen to $3.50 per million BTU by April 2009 when the contract was signed (prices had been actually falling steadily the entire year since negotiating authority was approved). See US Energy Information Administration “Henry Hub Natural Gas Spot Price” report here:

https://eia.gov/dnav/ng/hist/rngwhhdm.htm

Fact: Upon authorizing GRU to proceed with negotiations on May 12, 2008, the Commission expressly added a requirement that the contract should include a “binding back door” clause. Mr. Regan said such clauses were “normal” in such contracts but “had to be negotiated”. (See media clip above).

Fact: The “binding back door” clause was absent from the final contract signed on April 29, 2009 and ratified by the Commission on May 7, 2009. There was no discussion concerning the reasons it was not included. See Commission discussion in full here (Agenda Item 081036):

http://gainesville.granicus.com/MediaPlayer.php?view_id=2&clip_id=536

Fact: Under Article 3, Contract Prices, paragraph 3.1, and Appendix III, Contract Prices of the unredacted PPA, the City’s costs may be calculated at $79.5 per MWh fixed charges x 102.5 theoretically “available” MW x 24 hours per day x 365 days per year, resulting in more than $70 million in fixed charges each year whether any power was “delivered” to the customer or not. The City also paid for testing and fuel during the years of construction. The rates in Appendix III of the PPA make a clear distinction between “available” energy and “delivered” energy. The City paid either way. Initially, these rates were redacted and not seen by the public until released by GREC’s attorney on March 30, 2011.

Fact: In the “Asset Purchase Agreement” (APA--copy available upon request) the Commission approved in 2017, the City agreed to pay GREC’s asking price of $750 million, and to borrow the necessary funds with 30-year “must pay” bonds with a mix of fixed and variable interest rates. With interest, the biomass plant’s true purchase price was about $1.2 billion dollars. The City Commission’s discussion on August 24, 2017, during which I argued that the City still had an inherent legal right to terminate the contract for its convenience, whether the clause was in the contract or not, citing US Supreme Court case law precedent, may be reviewed here:

http://gainesville.granicus.com/MediaPlayer.php?view_id=2&clip_id=3024

Fact: Although the APA excepts “fraud or willful misconduct” from its liability and indemnity provisions, Exhibit C, “Form of Settlement Agreement and General Release as to American Arbitration Case No. 01-16-0000-8157 and General Release as to the Purchase Power Agreement added this sweeping language:

6. The City and GREC, on behalf of themselves and each of their respective Affiliates and Representatives, hereby unconditionally and irrevocably release, acquit, and forever discharge each other, their respective Affiliates, and all of their respective present and former officers, elected officials, employees, agents, servants, successors, assigns and insurers of and from any and all claims, causes of action, attorney’s fees, suits, liabilities and obligations (contingent or otherwise), promises, agreements, controversies, damages, debts and demands and losses of every kind, character and nature, whether known or unknown, that the City and GREC have ever had, now have or hereafter may or shall have against each other arising from, out of or under the PPA. This Agreement is not intended to release any claims based on any fact, matter, incident, injury, event, circumstance, happening, occurrence, or thing that arises or occurs after the date of this Agreement, other than with respect to the PPA.

Fact: GRU’s own “Financial Statements and Independent Auditor’s Report dated September 30, 2018 and 2017” include a chart (at page 43, Footnote 7) estimating its total debt service (principal and interest) was $2,437,029,000, with payments averaging $90 million per year through the year 2047.

Fact: Although GRU requested in February 2019 that the general fund transfer (GFT) be reduced by $6 million (later $3 million), the City Commission ultimately demanded that it remain flat. This, despite the fact that the Commission approved additional borrowing earlier this year to cover revenue shortfalls up to $70 million dollars, which with interest, increased the debt burden by about $115 million dollars. This pushed the overall debt service burden even higher. Even with this new borrowing, GRU is proposing to increase the electric utility rates by 6.4 percent and the fire assessment fee by 32 percent (as reported in the Gainesville Sun). See also “GRU at a Crossroads” February 7, 2019, Edward Bielarski, GRU General Manager (reporting a $6-$12 million gap and suggesting proposed solutions at pages 20-21).

“Bottom Line”: After budget deliberations which failed to produce any meaningful cuts but several Commissioner-sponsored “increments”, the City Commission tentatively voted 4-3 on July 18, 2019 to increase property taxes by about 11.5 percent (a half mill increase) for the coming fiscal year beginning October 1, 2019 (after first disapproving the motion by 4-3 and taking a recess). Final votes approving the budget and these increases will be taken at two upcoming meetings in September (likely September 12 and 26, 2019). The Commission’s July 18, 2019 discussion and action may be viewed here (Agenda Items 190140 and 190137).

http://gainesville.granicus.com/MediaPlayer.php?view_id=2&clip_id=3715

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