AVALANCHE-JOURNAL EDITORIAL BOARD FINALLY WEIGHS IN ON HIGH PLAINS POWER GRAB

For months the Lubbock Avalanche-Journal editorial board was silent on the High Plains/Republic Power Partners attempt to issue 1.5 billion in municipal debt to buy two Odessa power plants worth only 520 million. The editorial board was silent when High Plains filed for court approval of the plan; it was silent when Odessa legislators passed legislation in Austin taking away the tax exempt status of the plan, and it was silent when the Cities of Lubbock and Odessa hired attorneys to oppose the plan. It was not until a judge ruled that the formation of the partnership was illegal that the editorial board wrote its first and only editorial expressing its opinion of the deal.

By expressing its support for the “outside the box” thinking of Republic Power Partners, the editorial board expressed admiration for the “leveraging of private investment to create a project the freestanding HPDEC would own and could finance through public debt.” What the editorial board failed to mention was that Republic Power Partners would have walked away with 75 million in profit without putting any equity into the actual purchase price of the power plants. To the editorial board, this is “business acumen,” but to the rest of us it was a private company attempting to use pubic funds to enrich private investors. The City of Lubbock’s brief put it correctly when it stated: “This proposed acquisition is part of a plan to use special powers and benefits reserved for governmental entities to conduct private business transactions and enrich private parties.”

The Avalanche-Journal called the plan “stretching the law too far.” Putting aside the dubious nature of the partnership attempting to use pubic money to enrich private investors, the most troubling aspect of the entire plan was that the former head of the Lubbock Economic Development Alliance brought Republic and WTMPA together to create High Plains. LEDA is a tax payer funded corporation owned by the City of Lubbock and its board members are appointed by the city council. After the head of LEDA put the deal together, he resigned from LEDA and joined the Republic board as an investor and partner with High Plains and stood to benefit financially if the deal had been approved. This is a clear conflict of interest. No elected or appointed city official should use his governmental position for private financial gain. As the only newspaper in Lubbock, the Avalanche-Journal has a duty to serve as the public watchdog to expose such an obvious conflict of interest by a public official. By choosing to ignore the ethical breach, the A-J gives tacit approval to others who wish to engage in similar conduct in the future.

As citizens of Lubbock, we must be on guard for the next “new idea” to provide for Lubbock’s power needs in 2019. We are a city of 220,000 citizens with a monopoly market in which electrical rates are not regulated by the state or federal government. Because of the enormous potential for profits, this situation makes Lubbock a unique and tempting market for others who want to “think outside the box”. This blog will do what the A-J refuses to do. It will fairly, accurately and timely report on all future plans to provide electricity to our city.

JUDGE RULES THAT HIGH PLAINS ILLEGALLY CREATED

Judge John B. Board of Randall County ruled today that the 2008 court ruling which created High Plains Diversified Energy Corporation was not valid and that W.T.M.P.A. did not have the authority to create High Plains. Because High Plains was illegally created, High Plains has no authority to issue 1.575 billion in bonds to buy two power plants in Odessa. The court dismissed the suit and effectively ended the purchase of the power plants. High Plains indicated to the court that it would appeal.

The long saga which began in January with the announcement by High Plains of its intent to purchase the two power plants ended in the court room today with a whimper and not a bang. And that is a fortunate thing for the taxpayers of Lubbock. My thanks to the Lubbock City Council and the Odessa City Council for protecting the citizens of their respective communities from this power grab.

WEST TEXAS MUNICIPAL POWER AGENCY BACKS HIGH PLAINS BOND ISSUE AGAINST THE CITY OF LUBBOCK AND LUBBOCK TAXPAYERS FOOT THE BILL

Last week, the taxpayers of Lubbock began paying for lawyers on both sides of the lawsuit in which High Plains Diversified Energy Corporation seeks to issue 1.575 billion in bonds. On one side are the lawyers from the Houston law firm of Vinson & Elkins who were hired by the city to oppose the bond issue. On the other side are lawyers from the San Antonio law firm of Davidson and Troilo who represent WTMPA. The taxpayers of Lubbock will pay 100% of the legal fees to oppose the bond issue. The taxpayers of Lubbock will pay 85% of the legal fees to support the bond issue. How did this happen? It happened because the city is a member of the West Texas Municipal Power Agency and is obligated to pay 85% of WTMPA costs and expenses. Because the city has been forced to intervene and oppose the High Plains bond issue, it is now paying lawyers on both sides of the issue and the fight is shaping up to be a long and expensive one.

On one side of the suit are High Plains, Republic Power Partners and WTMPA who are supporting the authority of High Plains to issue the bonds and purchase the Odessa power plants. On the other side are the Cities of Lubbock and Odessa who oppose the bond issue and allege that High Plains was not legally created in 2008. It is not clear at this point where the Attorney General stands, but my guess is that he will join with Odessa and Lubbock in opposing the bonds.

Regardless of how the suit plays out, the taxpayers of Lubbock will be paying the bill, win or lose. This situation could have been avoided if the city had opposed the creation of High Plains in November 2008. The city should now correct its mistake by using this opportunity to terminate all relationships with the WTMPA. Membership in the WTMPA no longer makes economic sense for the City of Lubbock. The power interests of Lubbock verses the power interests of the cities of Brownfield, Tulia and Floydada have little in common. Lubbock is a growing city with a major university and a population of more than 229,000. The population of the other WTMPA cites combined totals less than 17,500. The non-Lubbock member cities have experienced dramatic population declines in the past 20 years and projections indicate that these population declines will continue in the future. The structure of the WTMPA governing board fails to recognize the huge disparity in population and economic power of Lubbock verses the non- Lubbock cities because it is made up of 3 members from Lubbock and 3 members from non-Lubbock cities. This 50/50 split does not accurately reflect the population or economic status of the WTMPA member cities. Lubbock’s unequal representation on the board was one factor in allowing the creation of High Plains to occur.

And unfortunately, this is not the first time that WTMPA has left Lubbock taxpayers holding the bag. In 2003 WTMPA owed Lubbock more than 5 million dollars and was accused of mismanagement. Back then, Tom Martin saw no reason for Lubbock to be involved in the WTMPA and advocated for Lubbock to pull out of the association. See the story here. Since 2003 Tom Martin has changed his position and does not support Lubbock withdrawing from WTMPA. He was right in 2003 and he is wrong now. The taxpayers of the City of Lubbock have the bills to prove it.

CITY OF LUBBOCK OPPOSES HIGH PLAINS BOND ISSUE; HEARING SET FOR TUESDAY

A Houston law firm hired by the City of Lubbock filed a trial brief opposing the High Plains bond issue stating that High Plains was illegally created and cannot issue 1.5 billion in bonds to buy two Odessa power plants. In blunt language, the filing sums up the position of the City of Lubbock and many of its citizens when it states as follows:

“This proposed acquisition is part of a plan to use special powers and benefits reserved for governmental entities to conduct private business transactions and enrich private parties. If the Court validates the bonds, the net effect will be that High Plains will have the legal authority to incur $1.5 billion of apparently insufficiently collateralized debt and the Dallas-based investment firm will receive bonds representing as much as $75 million in additional public debt.”

In brilliant fashion the City of Lubbock’s brief details how High Plains was illegally created in 2008 by the W.T.M.P.A. The City argues that because the WTMPA is a municipal utility rather than a municipality, it could not create High Plains as a municipal corporation because only a municipality has the authority to create a municipal corporation. The original court filing in 2008 which was approved by former Judge Sam Medina, has no legal effect, according to the City, because there was no real opposition to the filing making the court order an advisory opinion only.

The City brief is also highly critical of High Plains for filing a request for the court to approve the bond issue without first filing any of the necessary bond documents that are required by law to be filed, for attempting to perform acts outside of the bylaws which created High Plains and for failing to have customers lined up to buy the power produced by the two plants.

In response to the City of Lubbock’s brief, High Plains held a hastily called board meeting on May 18 without public notice or posting of an agenda, and approved the issuance of the 1.5 billion in bonds and the agreement to pay Republic 75 million to buy out its “interest” in the partnership. High Plains then filed the board resolution, the bond documents and the agreement with Republic in an amended filing on May 19, one day before the scheduled hearing. The first question the attorneys for Odessa, Lubbock and the Attorney General will be asking at the hearing on Tuesday is how High Plains could file a suit on April 18 asking for approval of 1.575 billion in bonds when its own board didn’t approve the issuance of the bonds until May 18 at a meeting that in all probability was illegally held because the public did not have proper notice of the meeting.

At the hearing on Friday, many members of the public did not attend because signs posted at the courthouse indicated that the bond hearing had been canceled. Despite the notice of cancellation, a hearing was held. Judge Les Hatch overruled a motion by the Attorney General to reset the hearing for a date later than Tuesday in order to allow the parties to respond to High Plains late filing. The court overruled the motion and ordered the hearing to proceed on Tuesday. Then, in a highly unusual move, the court stated that he knew some investors in Republic Power and for that reason he was removing himself from the case. This is unusual because when a judge believes he has a conflict and intends to remove himself, he doesn’t rule on pending motions. He leaves all matters for the new judge. Instead of following established procedure, Judge Hatch ruled in favor of High Plains having the hearing on Tuesday and then removed himself. The manner in which Judge Hatch found out the names of the investors in Republic Power also raises questions. When a judge acts as a fact finder, he can only consider the evidence presented at trial and the pleadings filed in the case. Unlike Federal court, Texas does not require corporations to disclose the names of interested parties when corporations file suit. High Plains has never listed the names of the Republic investors in its pleadings and no testimony was taken at the hearing on Friday regarding the names of the investors. The media has never posted the names of the Republic investors. It would be interesting to know how, when and in what manner the judge found out the names of the Republic investors.

I will update the blog on Tuesday after the hearing.

HIGH PLAINS FACES LITTLE OPPOSITION IN SUIT FOR PERMISSION TO ISSUE 1.575 BILLION IN BONDS

As reported by this blog earlier, High Plains filed suit on April 18, 2011 requesting court authority to issue 1.5 Billion in revenue bonds to purchase two power plants located in Odessa and for 75 Million in subordinate bonds to buy out the interests of its partner Republic Power. Its suit also requests that the court declare the entire transaction and operation of the plants to be free of government oversight and property tax. High Plains had smooth sailing without opposition when it was created by court order in 2008, and things do not appear to be any different this time around.

On May 6, 2011, on behalf of West Texas Municipal Power Agency, a San Antonio law firm filed a token petition in intervention in the suit to issue the bonds. In its pleadings, the WTMPA simply restates that it legally created High Plains in 2008 and that High Plains has authority to issue the bonds requested. In addition, WTMPA’s petition requests that the court issue an order that the financing documents issued by High Plains state in bold print that the indebtedness of High Plains is not the indebtedness of Lubbock or any other WTMPA city. This, of course, is nothing new. High Plains has always maintained these same legal positions making WTMPA’s intervention meaningless because there is no real dispute between the parties.

Not to be left out of the meaningless intervention business, the City of Lubbock hired one of the largest and most expensive law firms in the State to file the same type of intervention. According to the Avalanche-Journal, the Houston firm of Vincent & Elkins was hired to intervene in the bond suit and to ask for the same meaningless court declaration that the debts of High Plains are not the debts of the City of Lubbock. In 2007 the firm charged Dallas $300 an hour per attorney for its services. See what Dallas paid them here.

The net affect of both interventions is that the WTMPA and the City of Lubbock hired two expensive out of town law firms to rubber stamp the High Plains deal. Once again, the winners are High Plains and Republic and the losers are the tax payers of Lubbock.

To understand why the court declaration that the debts of High Plains are not the debts of the City of Lubbock is legally meaningless requires that you understand how the legal system works. Our system does not issue “advisory” opinions. What this means is that when you file a suit against another, there must be a real issue in controversy. If there is not, then any declaration of the court is meaningless. This has been the law in the United States for many years and was recently restated in a Federal case out of the Eastern District of Texas styled Texas v. City of Frisco, 2008 WL 828055 (E.D. Tex. Mar. 27, 2008). In that case the State of Texas filed a declaratory judgment against the City of Frisco asking the court to declare that it did not have to preserve certain documents held by the Texas Department of Transportation that Frisco wanted preserved for a potential lawsuit.

The City of Frisco moved to dismiss the declaratory judgment action arguing that the State failed to plead the elements of any viable claim and was essentially asking the court for an advisory opinion concerning what action it must take to properly preserve the documents subject to the litigation” hold.” The court agreed, and dismissed the complaint.

The facts of this case are the same. Neither the City of Lubbock nor the WTMPA opposes the issuance of the bonds, the request for non-tax status or the request for no government oversight. The expensive out of town lawyers are simply asking for an advisory opinion that the bond debt is not the debt of Lubbock. Since there is no real dispute between the parties such an opinion is meaningless and will easily be set aside if the bonds go to default and a purchaser wants to hold WTMPA cities responsible.

Lubbock Lawsuit Intervention Coming Next Week

Lubbock City Council voted on Monday to have the law firm of Vinson & Elkins provide a second set of eyes on the HDEC / Republic deal that is going to be in court on the 16th.

Who knows what this will mean in terms of altering or delaying the deal. We really won’t know until after next week’s hearing.

Here is an A-J article about the Council’s action.

Here is the website for the law firm of Vinson & Elkins.

BILL TO TAX HIGH PLAINS POWER PLANTS SAILS THROUGH HOUSE AND SENATE WITH ONLY FRULLO AND DUNCAN OPPOSED

On May 5, 2011, a bill to access property taxes on the two Odessa power plants purchased by High Plains Diversified Energy/ Republic Power Partners passed almost unanimously in the House and Senate. The vote in the House can be found here. State Representative John Frullo joined only one other member of the House in opposing the bill. State Representative Charles Perry voted to tax the power plants.

On the Senate side, Senator Robert Duncan joined only one other Senator in voting against the tax. The Senate vote can be found here.

As previously stated in this blog, Odessa is very upset about the potential loss of 6.4 Million in tax revenue and enlisted the help of its State Representative Tryon Lewis and Amarillo Senator Kel Seliger to push the bills through the legislature. See the story in the Odessa American here. Each bill will now go to a joint conference committee to be reconciled and then a final single bill will go back to each chamber to be passed. Because the bills passed with an overwhelming majority of the vote in each chamber, it appears that this is one of those non controversial bills that will easily be passed into law. However, Julie Hillrichs, a spokesperson for High Plains, told the Avalanche-Journal that she believed the law to be unconstitutional. According to a story written by A/J reporter Elliott Blackburn, she said that “The company was operating under the system the Legislature had put in place, and did not believe the effort to change that was constitutional…” “If legislation is passed and we’re forced to pay 100 cents on the dollar to the local taxing authorities, that is a concern.” My guess is that High Plains will send in the lobbyists to kill the bill in conference committee. If they lose in conference committee and the bill goes to the Governor, they will lobby him hard to veto it. If that fails, they will challenge it in court as unconstitutional. The bottom line, as I have learned in following this story, is that the individuals who are behind this power grab are determined, wealthy, politically connected and should be taken very, very seriously.

On a related front, the hearing on the High Plains lawsuit to issue 1.5 Billion in revenue bonds and 75 Million in subordinate bonds has been moved to May 16, 2011. As of May 5, 2011, no one has intervened in the suit to oppose the request.

HIGH PLAINS PETITIONS COURT FOR PERMISSION TO ISSUE 1.575 BILLION IN MUNICIPAL BONDS

CORRECTION: The article below originally stated $2.25 Billion as the bond total, due to the incorrect amount of $750 million (rather than $75 million) being added to the $1.5 Billion in First Mortgage Revenue Bonds. The correct bond total is $1.575 Billion. We regret the error.

High Plains Diversified Energy Corporation filed suit in Lubbock County on April 18, 2011 seeking court approval to immediately issue 1.575 Billion in municipal bonds to purchase two Odessa power plants. It will also use bond funds to make improvements to the SPP power grid which services Lubbock and to build the infrastructure to connect the Odessa plants to the Lubbock power grid. I have broken down the lawsuit into various sections with my comments below.

THE BOND ISSUE

High Plains is requesting permission to issue 1.5 Billion in “First Mortgage Revenue Bonds.” The bonds will be backed by the power plants themselves and by the revenue generated from the sale of power generated by the plants. High Plains is also requesting permission to issue an additional 75 million in “Subordinate Bonds”. Prior to issuing the Subordinate Bonds, High Plains and Republic will enter into a new agreement in which Republic will assign its right to receive 40% of the future revenues from the power plants to High Plains in exchange for the 75 million in Subordinate Bonds. This will have the effect of allowing Republic to the immediately cash out of the project with 75 million dollars before any power is ever generated by the plants and without putting up any private money to purchase the plants.

PAYING FOR THE BONDS

The First Mortgage Revenue Bonds will be paid out of revenues generated by the sale of power from the plant. The Subordinate Bonds will be paid out of a “special fund” that will be funded from revenues available after payment of the First Mortgage Revenue Bonds. The problem with the funding plan is that the WTMPA will not be able to take any power from the plants until June 1, 2019. This means that for eight years, High Plains will have to sell the entire 1,500 MW of power to “Off-take Entities” under Power Purchase Agreements. To date, High Plains has not secured one Power Purchase Agreement with any Off-take Entity. High Plains recognizes this problem and tells the court as follows:

“It is presently anticipated that amounts to be derived under the Power Purchase Agreements with Off-take Entities may not be sufficient to fully pay the expenses described in Paragraph 11 above, and the requested periodic payments on the First Mortgage Revenue Bonds. Accordingly, any insufficiently will be funded from the proceeds of the First Mortgage Revenue Bonds.”

What this means is that the bond issue will be oversold because the amount of bonds sold will be more than needed to purchase the plants and build the improvements to connect to the Lubbock power grid. The purchase price of the two plants is 520 million. It is anticipated that the cost to connect to the Lubbock power grid and to refurbish the now idle plants will be approximately 200 million. This means that a bond issue of 1.5 Billion will be secured by improvements worth only 720 million. The remainder of the funds from the bond issue will be used to pay interest on the bonds for eight years until WTMPA begins taking power from High Plains. This is like buying a house for $200,000 and taking out a $400,000 loan against it and using the extra $200,000 to make the mortgage payments. No bank would make such a loan. This does not even take into account paying an additional 75 million to Republic partners. So in effect, a 720 million project will cost Lubbock taxpayers 1.575 Billion. If Lubbock is required to bail out the project before 2019, which is highly likely based upon the highly leveraged nature of the transaction, the taxpayer will own assets worth 720 million and owe bond payments of 1.575 Billion.

NO GOVERNMENT OVERSIGHT

In addition to requesting permission to immediately issue bonds to purchase the plants, the lawsuit requests a court declaration that the assets of the plants are exempt from all taxes and exempt from all government oversight. The reason for the tax provision is that elected officials of the City of Odessa are angry that the two power plants are being purchased by a tax exempt entity after the private utilities that built the plants were given tax free status for eight years. The purchase by High Plains, a tax exempt entity, will cost Odessa taxpayers 6 million in lost tax revenue. A link to a story run on the local CBS affiliate regarding the tax loss is here. Elected officials in Odessa are not accepting the loss of tax revenue without a fight. They have enlisted the help of their local State Representative Tyron Lewis and Midland Representative Tom Craddick to introduce a bill that would make the High Plains purchase of the plants subject to taxes by the City of Odessa and other taxing authorities. See the story here. The High Plains lawsuit seeks to short circuit this issue by getting a court declaration that it is exempt from all taxes before the legislature has a chance to pass the proposed Odessa legislation so that it can later argue that it is ‘grandfathered’ in and not subject to the provisions of the bill.

High Plains also specifically requests that it be declared free of all government oversight. In its pleadings it states that the court should decree that “High Plains has been properly created and it is not necessary for other governmental entities to pass resolutions, acknowledge, or ratify the creation of High Plains; (vii) no further authorization by WTMPA or its member cities is required in connection with the issuance of the Bonds, nor the acquisition and/or construction of the Project, nor performance by High Plains under the Development Agreement…” In other words, High Plains wants to issue bonds backed by the WTMPA member cities but doesn’t want any oversight on how the funds are spent or how the project is managed. This of course is great for High Plains and Republic, but bad for the Lubbock taxpayer.

WHAT CAN BE DONE NOW?

Although the taxpayers of the WTMPA member cities are nominal defendants in this lawsuit, to intervene in the suit would require the citizen to post a bond in an amount necessary to pay lost bond revenues and attorneys fees if the private citizen’s intervention was unsuccessful. This has a chilling effect which prevents any private citizen from objecting to the proposed bond issue. The City of Lubbock will not intervene because, to date, not one member of the City Council has publicly opposed the project. Neither is it likely that the Texas Attorney General will oppose the project because Greg Abbott has never been inclined to take the side of taxpayers over powerful special interests such as Republic Power Partners. The best hope for the taxpayer of Lubbock is that the City of Odessa, with 6 million in tax dollars to lose, will oppose this deal and save us from this 1.575 Billion dollar financial disaster.

Odessa, please rescue us.

COLLIER TO ASK FOR A CONTRACT EXTENSION TO TRY TO SALVAGE POWER PURCHASE

The Lubbock Avalanche Journal reported today that Scott Collier, board chairman of High Plains Diversified Energy, will travel to Baltimore in an attempt to get an extension on the April deadline to purchase a 550 MW generator from Constellation Energy. Collier and High Plains cannot meet the contractual deadline to close the purchase, prompting Collier to ask for an extension until July. “We’re not going to get that done,” Collier said. “As a result, we’ve been working with Constellation to request an extension of the contract, and it looks like they’re going to extend that for us.”

The deadline to purchase an additional 1000MW generator in Odessa is set for July as well. Collier wants to delay the April closing with Constellation because of resistance from the WTMPA regarding the partnership business plan. Without a commitment from the WTMPA, the partnership will not be able to purchase the plants. The purchase would not be feasible because the plants are being financed not by private investors but by municipal bonds issued by High Plains. High Plains will put up all the money in the form of municipal bonds backed by Lubbock and other WTMPA Cities, but will receive only 60% of the revenue. The rest of the revenue will go to Republic Power, even though Republic Power will not put up any of the purchase money for the plants.

As reported in this blog, the financial plan for the High Plains-Republic Partnership is fatally flawed. The purchase of the two power plants will result in the generation of 2/3 more electricity than will be needed by WTMPA member cities. Because the cost of purchasing the plants will be paid for by revenue bonds backed by the taxpayers of Lubbock, the partnership needs the cash flow from the sale of excess electricity to payoff the bonds. At the present time, no contracts exist with anyone to purchase the excess power from the partnership. In response to an open records request, the attorney for High Plains acknowledged that no contracts have been finalized. See the letter from Bradford L. Moore here.

In the AJ story, for the first time, Collier concedes that the partnership business plan is not workable without contracts to purchase the excess power. “We’ve maintained from the get-go that these are not going to be merchant plants, as they are today,” Collier said. “We are going to have firm power purchase agreements for all 1,500 megawatts, or we’re not going to purchase the plants.” To the contrary, Collier and the partnership never before n1entioned the excess power when announcing the purchase contracts. It was only after questions by this blog and board members of WTMPA that the partnership acknowledged that to sell this deal to the WTMPA it will have to come up with a business plan that works. Even if it manages to finalize contracts for the excess power before the new July deadline, the big question still remains. Why should the taxpayers of Lubbock and the WTMPA finance 100% of the plants but receive only 40% of the revenue? Until Collier satisfactorily explains how that split is fair to the citizens, I will remain a critic of this deal.

WEST TEXAS MUNICIPAL POWER ASSOCIATION REJECTS POWER AGREEMENT WITH HIGH PLAINS

Last week Scott Collier, President of High Plains Diversified Energy, called a meeting of the board of West Texas Municipal Power Association to convince the WTMPA to purchase power from the HDEC/ Republic partnership. High Plains has insisted upon keeping the details of the proposed power agreement secret so all discussions occurred completely behind closed doors. However, it is clear from media reports that the terms of the power agreement that Collier presented to the WTMPA board were not acceptable to the board. We know this because WTMPA board members voted to hire an attorney to draft a new power agreement with terms more favorable to the WTMPA. Whether or not the new power agreement will be acceptable to the HDEC/Republic partnership remains to be seen.

The reluctance of the WTMPA board appears to be centered upon the business plan of the HDEC/Republic partnership. Dr. Michael Giberson, instructor at the Center for Energy and Commerce at Texas Tech, has calculated that the two Odessa plants owned by the partnership will provide 1,500 MW of power. This is three times the amount of power the WTMPA will need for the next 20 years, even factoring in a 20% demand growth rate. So where will the rest of the power be sold? We know from the legal filings in Judge Medina’s court that the partnership does not want to be regulated by either the Texas Public Utility Commission or the Federal Energy Commission. The reason for this is that the partnership wants to be able to provide unregulated rates to the LP&L monopoly in order to ensure large returns to the private investors of Republic. However, we know that the proposed bonds, which will be sold to finance the purchase of the plants, are revenue bonds. The repayment of the bonds depends upon the revenue stream generated by the sale of power from the plants. No tax dollars will be available to meet the bond repayment obligations. Because the plants are being financed 100% by bonds, it is necessary to sell all of the power available to generate the revenue needed to meet the debt service on the bonds. Unless all 1,500 MW of power is sold, the partnership will default on the bond repayment.

The partnership cannot sell the excess power to the ERCOT grid because that would subject them to state regulation. The partnership cannot sell the excess power across state lines because that would subject them to federal regulation. The solution, according to the proposal presented by Collier to the WTMPA board, is that private “resellers” have agreed to take up to 750 MW of the excess power. Apparently, there is a loophole in the law which allows electricity (which is traded like a commodity) to be sold to private resellers who will then mark up the price and sell it across state lines or into ERCOT. These sales would not be regulated and the resale of the power would not affect the status of the partnership as an unregulated utility. A request under the Texas Public Information Act for copies of the agreements that have been entered into by the partnership to sell the excess power has been made. The contracts will be posted to this website if they are furnished.

The questions raised by the business plan of the partnership are obvious. If the resellers are private entities, what creditworthiness do they possess? What remedies are available if the resellers default on the purchase agreements? How much risk is the partnership taking with the excess power sales? How do they plan to minimize that risk? Will the partnership be able to make the debt service on the bonds without selling the excess power? All of these questions need to be answered in a public forum prior to any action by the board of WTMPA to agree to buy power from the partnership.