Monthly Archives: March 2011

The Water Flows Like Money – Conclusion

It’s been a hot budget week in Texas. Big news is that the Legislature is moving to tap the Texas Economic Stabilization Fund aka the Texas Rainy Day Fund. Not that this action was not expected, but conservatives expected a thorough budget review of each department by expense line and to make cuts prior to agreeing to tap this fund. We are not even mid way through the session and lawmakers are caving in now. Empower Texans has a tight article on this and other Texas Government waste – http://empowertexans.com/issues/Drinking_From_The_RDF.  Now Teachers are being threatened with job loss and Texas is not even close to cutting the glut of administrators it has. The Ft Worth Star Telegram has a juicy article on this topic as sides are squaring off on the number of admins to teachers. http://www.star-telegram.com/2011/03/18/2933254/schools-dispute-conservative-groups.html. Regardless of who is right, we do know we need the teachers more than the admins. Sorry if you fall into the latter category.
 
The bottom line – Texas legislators have not whipped out the budget cutting knife yet. When and if they do, the Texas water authorities are a prime area of waste that always escapes the eyes of the media as well as budget committees. My ire is focused on the Brazos River Authority or the BRA for short.
 
One big Texas snow job in the fall
I left you last time with the weirdness of HB3793 and its impact on how monies can be obtained. I also showed you where the BRA still has 3.8 million in unspent bond money from a 2005 bond issue that still floors me that no one on the Board in under investigation. The final topping on this meat lovers pizza is how the BRA is running off revenue from the cleanest source of energy we can get and adding to water issues on the Brazos River.
 
The BRA Board of Directors held 2 meetings on the topic of de-commissioning the hydroelectric power units at the Morris Shepherd Dam at Possum Kingdon Lake on 10-25-2010 and again on 11-8-2010.  Here are the links: http://www.brazos.org/board_audio/10-25-2010-BOD10.mp3, http://www.brazos.org/board_audio/11-8-2010-BOD02.mp3. These are long, boring, and best listened to on a serious caffeine boost. Here is a summary of what these hour plus long boratoriums discussed:
  • The hydro units are a 1940’s Ford that need rehabilitation to make them work another 40 years. Cost 19.6 million
  • FERC fees and surveys will cost another 8.1 million to rehab, plus 12.7 million in fees over 40 years
  • Operating costs are estimated at 450000 a year
  • Interest on the rehab would be issued at higher rates (6.5 & 7.2%) because the work did not qualify for tax free bond. Add 62 million for interest.
  • Total project cost – 104 million
  • Estimated revenue from electricity sales from the hydro units starting at .047/kwh and end at .07/kwh at the end of 40 years would produce only 87 million in revenue and therefore the project must be scrapped.

Oh, there was plenty of ringing of hands and comments of “doing the right thing” and thus the reason for calling the November meeting. That meeting was a regurgitation of the first. This topic had been brought up a year earlier and the only reason decommissioning had not occurred then was that pesky lawsuit. BRA President Chris DeCluitt commented on the Board making this tough decision for the good of all, etc, etc.

Excuse me while I go wretch.

Where did you guys learn accounting and forecasting?
There are a couple of key components in the BRA math that I have to call bullsh@t on right away. Lets start with the basic accounting principle of depreciation. If you are going to present a cost model to folks, be complete. The rehab of the hydro units allow for depreciation on the books for the BRA. All assets depreciate and proper balance sheet accounting of assets requires the factoring of the depreciation of the asset. The BRA presentation makes no mention of depreciation in the model it uses. Why no mention of the 3.8 mill from the 2005 bond issue? That could offset some of the cost, correct? Is financing the project the best option when the BRA has 140 mill in the General Fund? I had to back up and replay that section a few times. BRA has 140 mill in the bank and we need 27 mill to rehab and pay fees to save 62 million in interest. The explanation on the interest rate of the bonds made sense and using the General Fund money, which is not making the interest the bonds would cost, is a smart move. So why not use it?  And how about that revenue projection! The BRA model starts at .047 cents per kilowatt-hour (.047/kwh) and only goes to .0768 over 40 years and thus projects a loss. Boys and girls, I want you to go pull out your electric bill and look under what you pay per kwh. Most everyone will be from .9 to .11 or higher in the Texas markets. Wholesale re-sellers of power are not making a nickel or more on the retail spread. It is usually 1 to 1.5 cents at best as a re-seller. That clouds what the low-end of the wholesale rate would be. Research I have done shows the low-end closer to .06/ kwh to start and that would bump the revenue on that alone. However, even if I give them the .047/khw for starting, if you think that a de-regulated market will only increase a little over 3 cents per kwh over 40 years – you’re on crack!

Energy & Growth in Texas that expose the revenue forecast from the BRA
Texas populations is around 25 million and is forecast to double in the next 50 years. Texas has some serious energy needs and will pull from every resource available to meet the demand. Oil, gas, nuke, renewable – it will all be used in the state and we may still not have enough. What expansion or closings of nuke facilities occur from how the Japan earthquake exposed serious issues with nuclear energy is difficult to gauge. However, you can bet permits will be few and far between for now. As such, we are going to be looking at lengthy, expensive construction processes of all forms of energy to meet demand. Does the BRA and its advisors think this will be free and will not push power costs upward? You can google this topic all day long and see where the trends are going, so don’t take my word for it.   Every forecast model in existence shows estimates of wholesale rates in excess of 10 cents per kwh or greater in the next ten years. The BRA estimate of income is conservatively off by 30%. Would an additional 30% of revenue changed the process of decommissioning? So, lets put forth what the BRA should have done:

  • 19.1 million in rehab cost and 8.1 million in FERC fees and surveys to get running again.
  • Take 3.8 mill from the 27.2 mill because that 2005 bond money has not been spent and is sitting somewhere.
  • Take 23.4 from the General Fund to save a boatload of interest.
  • Have 40 year revenues closer to 100 million which will cover the 12.7 mill in additional FERC fees and the 18 million in other operating costs. Gosh, could this help the budget????
  • Project makes money (even with depreciation), more power is returned to the Texas Power Grid, and the Brazos has help in a controlled flow again.

Golly, gee whiz Darren. Why won’t the BRA do this?
In my opinion it can only be because Luminant wants the water to stay at PK Lake for the Comanche Peak Nuclear Power Plant in GlenRose. When former State Senator Kip Averitt became chair of the Texas Natural Resource Committee in 2006 , he had a defined change in his path for Luminant’s prior owner TXU. TXU applied for the permits to build additional reactors at Comanche Peak in 2006 and they needed Averitt to help push through the Texas side of the legislation. It was not an expected move and most of this has been scrubbed from the web. Here is one post from a left leaning post at the time: http://salon.glenrose.net/default.asp?View=plink&id=1707. In that same year, TXU pushed for 11 coal plants, 5 of which were to surround Waco and were dubbed the Texas Ring of Fire. While only one ended up being built around Waco, it was apparent that Averitt was TXU’s bud. A year later, TXU sold Comanche Peak to Luminant and the new reactors potentially coming on-line with applications in the pipeline and friends in the Texas legislature made it an alluring deal. That was the same year that the BRA shut down the hydro units at PK Lake…… . The BRA Board was selected by Averitt for appointment….. 

Is keeping water at PK Lake help Comanche Peak better than having a greater flow down the Brazos for reactor expansion? I have not seen the benefit yet. If it’s there, please show me.
 

This is just one example
While I have chosen the BRA as the focus of my rant, they are not alone in poorly managed Texas water authorities. Texas has numerous water authorities like the BRA that operate  with very little apparent oversight to see what money is being spent on, how debt and assets are being managed, as well as prevention of killing revenue sources like the hydro units and the sale of electricity at PK Lake. I find it difficult to listen to any fiscal banter coming out of Austin right now when not one state legislator is reviewing these departments to get a real handle on what is going on.
Until that time, taxpayer dollars will continue to be siphoned out of our pockets and will keep the water flow of money moving on.

 

 

 

 

 

 

 

 
 
 

 

 

 

 
 

 

 

Advertisements

1 Comment

Filed under Uncategorized

The Water Flows Like Money – Part 2

The Bill that keeps on giving
If you took the time to read through House Bill 3793 (HB3793), it may seem rather boring and without harm. However, the bill grants powers to the BRA that cannot be found in any other piece of Texas legislation. If someone can locate a similar bill for any of the other Texas water boards – please forward it to me. It gives the BRA broad powers on raising and finding funds, as well as eliminating any cap on the value of land that can be disposed of in any one year. What could unchecked ability on issuing debt do for taxpayers? Could this bill have any impact when the BRA sells off land around lakes they control? Could cronies of those that passed the bill profit?

Consider this – when the BRA started selling off land around Possum Kingdom in 2009, a planning process that went back 3 years, all of the land was sold to one group: Patterson Possum Kingdom Land Group headed up by Mike Patterson out of Arlington. The price was $52 million. Was that a  brother-in-law price on all that lake front property?  Rules of real estate is that land broken up into smaller parcels are worth more, so was this sale in the best interest of Texas?Well, let’s have a look. On April 11, 2006 the Staubach Company made a lengthy recommendation to the BRA Board to make changes to the Possum Kingdom Lake (PK Lake) portfolio. They recommended the BRA not sell of the assets. The reasons were pretty straight forward – loss of a paid for capital asset, loss of shoreline control, loss of water quality, and loss of environmental control. They stated the land value as of 2002 values were being assessed at $39 million. Staubach Company felt the value was $150 million and to make adjusted, gradual increases in fees to bring up rates. They also suggested that existing leaseholders get a break for time invested to be taxed at 35% of the real value based on case studies in other markets. If you take 35% of $150 million, that comes up to $52.5 million. That’s a scoche more than Patterson’s group paid for the land at PK. Then Patterson’s group announced that they would allow existing leaseholders to continue to lease or purchase based on 2008 assessed value. So much for the existing leaseholders getting that 35% of market.

Sound too weird? Here are the docs and links: http://www.brazos.org/board_audio/04112006_PK-AM4.mp3, PK_Open_Bid_Process.pdf for PK Lake 2008, 072909_Approval-Contract-Final, http://www.star-telegram.com/2010/10/24/2572382/shlachter-co-fighters-for-bombers.html

How did Patterson pull this off? It might have been who he knew. Patterson made a $5000 contribution to then State Senator Kip Averitt just months after the announcement of the sale. Averitt was the chair of the Natural Resource Committee at the time. Averitt also nominated then and current BRA President Chris DeCluitt, who I was told testified on behalf of Patterson in the “bid” process. That has not been confirmed, but I am still reviewing audio from the BRA meetings. Here is Averitt’s mid 2008 report to the Texas Ethics Commission.  Page 62 shows the contribution – KA FInance Report. Guess it’s not always what you know but who.

The real issue is why did the BRA allow the land to be sold when the Staubach Company presented a compelling study showing to keep the assets? If the decision was to sell, why not sell individually to the existing leaseholder as was also suggested by Staubach Company? Did the State of Texas just miss out on some serious cash? Did the BRA Board breach their fiduciary responsibility to the State of Texas and its taxpayers?

A river of money
Before you answer, factor in this as well – The BRA recently announced plans on a “conjunctive” water use project to “locate potential” groundwater supplies to augment water coming from Lake Granger. The first phase is $100 million. Total cost is estimated at over $500 million. Here is the link: http://www.brazos.org/newsPdf/2010-ConjunctiveUseProject.pdf Note the “low-interest loan” from the Texas Water Development Board. In business school they always teach that government entities can only raise money through bond issues.  Guess HB 3793 shoots that theory to hell. Wonder which state ledger this will all be reported under? Now it would appear HB3793 set the wheels in motion for the BRA to get money in whatever manner needed to keep operations in tact. Why would the BRA have to “take a loan” from a sister agency? I think part of the reason that this money was “loaned” by another Texas government agency has to do with fact the BRA might have an issue raising bond money or perhaps the interest rate they have to pay since they have outstanding unused funds from a 5 plus year old bond issue.

While I am hammering on the BRA in this writing, they are not the only Texas water board spending loads of cash. The Guadalupe Blanco River Authority just began the first phase of a $400 million dollar project. Wonderful reading on this –  http://smithvilletimes.com/2010/12/23/pipeline-project-gets-nod/ At least taxpayers are getting a pipeline out of it. The dollar amount seems a bit steep.

However, whether its is interest on bonds, interest to an intrastate agency, or interest to a loan shark – the State of Texas taxpayers are on the hook for the principle balance and the interest. If an agency has no oversight on spending, how can you truly balance a budget? Also, how do you know the money borrowed is being used as applied for?

It was a little over a year ago that I conducted a town hall for the Lake Granbury Waterfront Homeowners Association over issues related to water levels in Lake Granbury.  From research, communications from the BRA, and other information obtained there was no question that a stink was occurring over exactly why the hydroturbines had been shut down at Morris Shepherd Dam on Possum Kingdom Lake. For residents of Granbury, they just wanted the unit’s operating again to avoid the conditions on the lake in 2009. At the time of the meeting on February 22, it was still unclear as to what had been spent on repair of the facility and its condition. BRA refused to allow anyone at the site, claiming Department of Homeland Security protocol. As such, I presented options on how the get the facility up and running again. The BRA had decided in a 10-26-2009 Board Meeting to de-commission the hydro units pending the lawsuit outcome. Here is the link for the audio: http://www.brazos.org/board_audio/10-26-2009-BRD06.mp3 The residents at the meeting were none too happy when that was played the audio. At that meeting, I gave a presentation on how to fix the hydros and get the dam going. I utilized knowledge of retrofits of other dam projects around the nation, the 30% energy grant as enacted under the 2009 Stimulus, and prevailing wholesale electric rates. My presentation was intentionally high (150 mil) on retro fit costs and we still had an illustration that made money with prevailing electric rates, an estimate of allowable hours for production, and debt service on all this. Actual costs came in after the presentation around $60 million to build new units before any tax credits of 30%. This number would have knocked the debt service I projected by more than half, adding to profitability.  This is the document I presented at the time before the actual costs came in: Possum Kingdom Lake

A few days after the presentation to the group I received information on the bond issues done on the hydro units and the dam since 1991. In short over 35 million in bonds issued since 1991 for maintenance on the dam and hydros. OK, wait a minute, the BRA shut down the hydros on the dam for maintenance, but have been issuing bonds for maintenance. I now had evidence that a whole load of money was issued in bonds, one issue for over $24 million in 2005 alone, for the very reason the BRA is claiming needed repair. So what gives? I issued a press release on it and pointed a big arrow towards BRA President DeCluitt. He panicked and penned a lousy response that admitted $3.8 million of the 2005 bond issue had not been spent. Really Chris? Where might that money be? These are the bond documents and DeCluitt’s admission that 3.8 million is outstanding on the 2005 issue – BRAos91 BRAos01 BRAos05 Z7143_DeCluitt_Letter

Here is where my beans get steamed – it is a federal crime to not use bond funds for their issued purpose. If you or I did it, we go to jail. Will someone explain to me why DeCluitt and the whole BRA Board are not before an investigative panel for holding this money? Where the hell is this money? With budget issues, talk of raiding the state “Rainy Day” fund, murmurs of raising taxes and such, is anyone looking at this and other state water boards?

The lawsuit between BRA and BEPC was kicked out by the 10th Circuit Court of Appeals in Waco on June 25, 2010. Reference my earlier blog https://darrenyancy.com/2010/07/03/the-brazos-river-authority-all-excuses-for-inaction-washed-away/ That re-opened the door on the de-commissioning issue. The BRA did a hearing once again on the issue on 10-25-2010.

I’ll cover the snow job that the BRA pulled on the citizens of Texas next week.

2 Comments

Filed under Uncategorized