Collier Rushes to Push Through Power Deal

On Wednesday, the West Texas Municipal Power Authority will meet at Lubbock Country Club to hear a sales pitch from Scott Collier, President of HDEC, urging the utility to commit LP&L and others to a power purchase agreement with the two Odessa power plants that they recently agreed to purchase. Apparently Collier is desperate to get Lubbock and the other member cities locked into a contract to buy the power beginning in 2019. Collier told the Avalanche-Journal on February 21, “We’ve got to get them on board,” Collier said. “We’ve got to get them comfortable with it.” He went on to say that he wanted an answer from the WTMPA board members no later than March 15.

Why the big rush to lock Lubbock citizens into buying power from the two plants? It’s only speculation at this point because Collier and HDEC have refused to release the signed power plant purchase contracts for public inspection. Instead, Collier requested an Attorney General’s opinion in an attempt to keep the contract terms secret. In addition, all discussions of the deal will be done behind closed doors at Lubbock Country Club with only the vote being in public. Because of the secrecy it is difficult, but not impossible, to determine the reasons behind Collier’s desperate attempt to get this deal pushed through before the purchase of the plants even closes.

The first reason is economic. Goldman Sachs, which is marketing the bonds for Republic and HDEC, wants to show investors that the plants will have a guaranteed market for power at unregulated monopoly prices. This makes the bonds easier to sell. As discussed elsewhere on this website, the bonds are revenue bonds backed by the cash flow of the two utility plants. If the Republic and HDEC default on payment, the only recourse for the bondholders is to foreclose on the plants. In reality, the deal is backed by the good faith and credit of the City of Lubbock, so the bonds cannot be allowed to default. If that were to happen, it would have a devastating effect upon the ability of Lubbock to issue municipal bonds in the future. Goldman knows this, but it also wants to be able to tell investors that beginning in 2019, Republic and HDEC will have a monopoly on providing electricity to Lubbock without any oversight or regulation of rates. Collier claims that Republic and HDEC will sell the electricity at “cost”, and we all know what that means. Their cost will include money to repay bond holders, money to repay Republic investors at 10% interest, operating expenses, taxes, salaries, perks, benefits, etc. plus volatile natural gas pass through fees. All of these items can be adjusted monthly if need be because there will be no regulation on the rate charged and no agreement between HDEC and WTMPA as to cost per KW, only an agreement for Lubbock to buy at “cost.” Under this agreement, LP&L rates will vary monthly depending upon the cash flow needs of Republic and HDEC. It’s obvious that once Lubbock citizens are on the hook, the bonds will be an easy sale. Good for Republic, good for the bondholders, but bad for small businesses and individuals who will face significantly higher and variable utility rates.

The second reason Collier is pushing for a decision now is political. Soon, LP&L board members W.R. Collier, Loyd Rinehart and Craig Wells will be leaving. Their terms are expiring and they cannot be reappointed. Collier wants to get LP&L to sign off on the HDEC / Republic deal under the current make up because he knows it will be approved. He does not want to take the chance that the city council will appoint three new members that might not think that the deal is a good one for the citizens of Lubbock. In addition, three council seats plus the Mayor will be up for reelection next year. The last thing he wants is a political hot potato during an election year. By approving it now, it becomes a “non issue” next year.

No doubt, the WTMPA will quickly approve this agreement at Lubbock Country Club on February 23. Be assured that the local media will cover only the press release details rather than asking the hard questions about financing, conflicts of interest, private enrichment at taxpayer expense, and the future cost of unregulated utility rates. The failure of the advertising supported media to cover this story is the most unfortunate part of this entire process.

HIGH PLAINS DIVERSIFIED ENERGY LAWYER FILES NEW LETTER WITH THE ATTORNEY GENERAL TO KEEP PURCHASE CONTRACTS A SECRET

In an effort to keep the dealings of High Plains Diversified Energy secret, the attorney for HDEC has filed a new letter with the attorney general arguing that the citizens of Lubbock have no business viewing the purchase contracts for the two power plants HDEC has agreed to buy using municipal bonds. The bonds will be backed by the good faith and credit of the citizens of Lubbock. I believe that the citizens should have a right to examine the terms of the purchase because the electricity from the plants will be sold to us at unregulated rates and the financing for the purchase of the plants will be by the issuance of municipal bonds. You can view the letter to the Attorney General from HDEC attorney Brad Moore here.

What does HDEC have to hide? The terms of the purchase have already been negotiated and the price released to the public by press release. Why the secrecy? When a governmental entity signs two contracts to buy two power plants for more than 500 million dollars and it intends to finance that purchase with municipal bonds, the public has a right to know the details of the purchase. Anything less is unacceptable.

If you believe that the purchase contracts which have already been negotiated and signed by the parties, should be released to the public, write, e-mail or call your city council person or the Mayor and tell them to release the contracts immediately. Now is the time to speak up. Unless we act together and act now, the details of the power plant purchase will never be known until it is too late.

HDEC REFUSES TO RELEASE CONTRACTS

On January 21, 2011 a request under the Texas Public Information Act was sent to High Plains Diversified Energy Corporation (HDEC) for copies of the contract entered into by the public/private partnership of Republic Power and HDEC to purchase two Odessa power plants. The statute that provides public access to government documents is very clear as to its purpose:

Sec. 552.001. POLICY; CONSTRUCTION. (a) Under the fundamental philosophy of the American constitutional form of representative government that adheres to the principle that government is the servant and not the master of the people, it is the policy of this state that each person is entitled, unless otherwise expressly provided by law, at all times to complete information about the affairs of government and the official acts of public officials and employees. The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created. The provisions of this chapter shall be liberally construed to implement this policy.

Despite the plain meaning of the statute, HDEC and its partner Republic Power have refused to release a copy of the contract between it and Constellation Energy for the Quail Run Plant and the contract between it and PSEG for the Odessa 1,000MW plant. Through its attorney Brad Moore, HDEC requested an Attorney General opinion as to whether or not it must make the contracts public. A copy of Brad Moore’s letter to the Attorney General is posted in the documents section of this site. A public entity is allowed to request an Attorney General opinion when it does not want to release information, but it must state in its request letter to the AG the specific reasons as to why it should not have to disclose the information to the public.

Sec. 552.301. REQUEST FOR ATTORNEY GENERAL DECISION. (a) A governmental body that receives a written request for information that it wishes to withhold from public disclosure and that it considers to be within one of the exceptions under Subchapter C must ask for a decision from the attorney general about whether the information is within that exception if there has not been a previous determination about whether the information falls within one of the exceptions.

(b) The governmental body must ask for the attorney general’s decision and state the exceptions that apply within a reasonable time but not later than the 10th business day after the date of receiving the written request.

The request for the contracts was received by HDEC on January 21, 2011 and HDEC made a timely request to the AG for an opinion. However, the request for an AG opinion does not specify the exceptions to the Public Information Act which HDEC believes prevent the public from seeing the contracts. This is a direct violation of the law which requires that the request for opinion letter state the specific exceptions that apply.

The decision of HDEC to deny the public access to the contracts even though the amount of the purchase price for both plants was announced by press conference raises several questions.

The first question is obvious; what is HDEC hiding from the public? Municipal bonds backed by the good faith and credit of the tax payers of Lubbock will purchase the two power plants. Shouldn’t we have a right to know the terms of the deal? The power supplied by the plants will most likely be purchased by the West Texas Municipal Power Authority and sold to LP&L and then to the citizens of Lubbock. Shouldn’t we know what that power is eventually going to cost us?

Where is the city council? The Mayor has said publicly that the purchase of the two power plants is a good deal for the citizens of Lubbock. No city council person has stepped forward to challenge the Mayor so it must be assumed that they are all on board with his assessment. We can also assume that each member of the council has seen the contracts as well. If it is such a great deal for the city, why won’t the city council demand that HDEC release the contracts so that the public can decide?

The refusal of HDEC to release the contracts to the public is disappointing, but not surprising. As documented elsewhere on this website, the entire HDEC/Republic Power deal is a bad one for the citizens. The city council knows that it is a bad deal and the board members of WTMPA, LP&L and HDEC know it is a bad deal. When the contracts are finally released, the citizens will know that it is a bad deal.

MAYOR SAYS THAT REPUBLIC POWER DEAL GOOD FOR CITY

By Charles Dunn

During his recent appearance on the Wade Wilkes morning talk radio show, Mayor Tom Martin defended the Republic Power agreement and revealed the names of the Lubbock investors in Republic Power. Republic Power is the private company which is a partner with the city in the 500 million dollar purchase of two power plants in Odessa. The names of the Republic investors are listed in the documents section of this website. Under questioning by Wade Wilkes, host of the long running radio talk show, Mayor Martin defended the actions of David Alderson. Alderson was chairman of the Lubbock Economic Development Alliance in 2008 when LEDA approached Republic proposing the partnership between WTMPA and Republic. After the deal was signed Alderson was quoted as praising the project for providing economic development for the area. The press release link can be found here. Alderson fails to mention in the press release that he intended to resign from LEDA so that he could join the board of Republic to profit financially from the “economic development.” Of course, we now know that shortly after the deal was signed between WTMPA and Republic, Alderson resigned from LEDA and invested in Republic and joined its board. To the Mayor, this is unfortunate only because Alderson left the LEDA board, not because Alderson will benefit financially from his insider status as the city council appointed Chairman of LEDA. What does this say about Tom Martin’s view of ethical, transparent government?

The City Council should pass a common sense ordinance that requires all appointed board members to file a financial disclosure form disclosing any conflicts of interest between their job and board service. Ethical government demands that citizens who serve on boards be held to the highest standards of conduct, first and foremost being to avoid even the appearance of self enrichment and insider self dealing. The self dealing by David Alderson casts an ethical and legal cloud over the entire Republic Power deal and such actions by board members in the future should be prohibited by city ordinance.

The Mayor, Paul Beane, Jim Gilbreth and Floyd Price are all up for election in 2012. If they fail to take action by city ordinance to prevent the repeat of the Republic Power scandal between now and Election Day, they do not deserve to be re-elected. Nothing is more important that ensuring the honesty and integrity of our city government. If our elected officials refuse to demand the highest accountability and integrity of their appointed board members, and are not willing to back up those standards with a tough city ordinance, then they should be replaced with individuals who will.

The Basics

HOW MUCH WILL LUBBOCK CITIZENS PAY FOR ELECTRICITY AFTER 2019?

By Charles Dunn

On January 3, 2011, Scott Collier, Chairman of the municipal utility company High Plains Diversified Energy Corporation, announced that the company was spending 185.3 million to buy a 550 megawatt natural gas powered electric generation facility located in Odessa. On January 14, Mr. Collier announced the purchase of a second natural gas plant with 1000 megawatts for 335 million. The announcement of the purchases was in typical press release fashion ( although it did run on the front page of the Lubbock Avalanche Journal) and has stirred little interest in the local media. This article will explain why this project should concern every taxpayer. To understand the transactions requires a short history of how the citizens of Lubbock receive their electricity and who will provide it in the future.

There are four major players in the Lubbock electricity market who are described below:

The West Texas Municipal Power Authority

In 1986 the cities of Brownfield, Floydada, Lubbock and Tulia jointly created a municipal corporation for the generation, transmission and sale of electricity to the public. This entity is called the West Texas Municipal Power Authority and is a municipal corporation under Texas law. Because it is a municipal corporation, it has the authority to issue municipal revenue bonds. This will become very important to remember as we examine how the recent power plant purchases will be financed. The WTMPA is obligated to supply electricity to its cities and currently fulfills that obligation through a wholesale power contract with Xcel Energy that is in effect until 2019.

Republic Power Group

Republic Power Group is a private organization based in Dallas that operates as a Texas limited partnership. The partnership consists of Dallas investment banker John Crew and Eagle Oil and Gas founder Pat Bolin. Crew is the founder of Republic Holdings, an investment group that specializes in public/private financing.

Lubbock Economic Development Alliance

Lubbock Economic Development Alliance is a municipal corporation owned by the City of Lubbock. LEDA’s mission is to recruit and retain businesses for the City of Lubbock and to engage in other economic development. It is supported though sales tax revenues generated within Lubbock. It’s board of directors is appointed by the Lubbock City Council.

High Plains Diversified Energy Corporation

High Plains Diversified Energy Corporation is a municipal corporation formed by the WTMPA to provide electricity to West Texas. It is owned entirely by the WTMPA which appoints its board members. Its current Chairman is Scott Collier who is the son of current Lubbock Power and Light Chairman W.R. Collier. Scott Collier is Vice-President of Teinert Construction in Lubbock.

The Development Agreement

On August 1, 2008, WTMPA and Republic Power Group entered into a development agreement to jointly develop power plants to provide electricity to WTMPA member cities and others in the West Texas area. Republic Power agreed to raise 40 million before August 1, 2009 to pay for the development costs of a potential power plant. After the contract was signed, WTMPA assigned all of its rights under the contract to HDEC whose sole purpose was to jointly operate the proposed power plant with Republic. Financing for any power plants purchased or built would be through the issuance of municipal bonds which would be repaid from the revenues generated by the retail sale of electricity to member cities and others. All profits after deducting bond payments and operating expenses would be split 50% to Republic and 50% to HDEC. In addition, Republic would be repaid its 40 million in development costs at 10% interest per annum and would also receive 50% of an undisclosed “development fee” which would be added to the cost of the bonds at closing.

LEDA was instrumental in choosing Republic Power to partner with WTMPA. The Chairman of LEDA at the time that the agreement was signed was David Alderson who is CEO of Alderson Enterprises. Shortly after the agreement was signed, Mr. Alderson resigned as Chairman of LEDA and joined the board of Republic Power Group.

In November of 2008, Republic Power and HDEC filed suit for a declaratory judgment from a Lubbock District court that the agreement between the two entities was legal under Texas law. The suit specifically sought approval for HDEC to issue municipal bonds, to have the power of eminent domain, to engage in no bid contracts and to split any profits with Republic. The suit was filed in the 237th District Court whose presiding judge was Sam Medina. On January 21, 2009, Judge Medina signed an order approving the agreement. Judge Medina specifically held that HDEC could issue the bonds and split the profits with Republic. He also ruled that HDEC was a municipally owned utility and that it was not subject to regulation under the Texas Public Utility Regulatory Act. This means that it does not have to get approval from the Public Utility Commission before buying or building a power plant and that the rates charged for the power generated by any plants owned by HDEC and Republic are not subject to regulation. In essence, HDEC and Republic can charge any amount they want to WTMPA for the electricity which will then be free to pass those charges on to citizens of Lubbock, Brownfield, Tulia and Floydada. According to Elliott Blackburn of the Lubbock Avalanche-Journal in an article dated January 22, 2009, “No one had expected much trouble from the (court hearing). Medina took just 20 minutes at the morning hearing before company officials posed for a group picture in front of his desk as he inked his name at the bottom of the judgment.”

Eight months after signing off on the legality of the agreement and having his picture taken with all parties, Judge Medina resigned from the bench and became the city attorney of the City of Lubbock. He received a $60,000 a year pay raise as a result of the job switch.

Republic Power was not able to meet its responsibility to raise the 40 million in development costs by the contractual deadline of July 1, 2009. Rather than terminate the contract as it was allowed to do, HDEC agreed to extend the deadline for Republic to raise the capital. In an addendum to the original agreement, Republic agreed to raise at least 20 million by January 1, 2010 and the remaining 20 million by July 1, 2010. Because HDEC agreed to the extension of time for Republic to raise the capital, Republic reduced its take of the profits to 42.5% and its take of the development fee to 45%. It is unclear from public documents whether or not Republic has raised the 40 million in capital as required by the agreement.

Questions About The Agreement

Why does WTMPA need Republic Power?

The original agreement contemplated that Republic Power would raise 40 million to develop diversified power sources including wind, solar and biomass. Instead, Republic found two existing plants located in Odessa that are powered by natural gas and agreed to purchase them using municipal bonds. Republic Power developed nothing and has apparently contributed nothing toward the purchase price according to press reports which state that the entire purchase is to be financed with municipal bonds. Although it has no equity in the deal, Republic will receive 45% of the profits and 42.5% of the development fee. The WTMPA could have purchased the two plants on its own which would have allowed it to keep 100% of the profits. Splitting the profits with a private company which has invested no money in the deal instead of returning those profits to the taxpayer will raise the utility rates for everyone who receives electricity provided by the WTMPA.

Why do city officials tell us that Xcel will not provide power to WTMPA after 2019?

Court filings represent to the court and to the public that Xcel will not renew its wholesale power agreement after 2019. But a Public Information Act request to both WTMPA and HDEC for any correspondence or documents that specifically state that Xcel will not renew the 2019 agreement or otherwise provide power to the WTMPA after 2019 returned no documents. Xcel is a multi-billion dollar publically held utility company. It does not conduct its business in an informal manner. If Xcel has decided not to provide power after 2019, the WTMPA would have legal documents in its possession stating that fact.

Michael Gilberson, an energy researcher and instructor at the Texas Tech Center For Energy Commerce in the Rawls College of Business, has stated that LP&L paid 87 million to purchase assets that Xcel valued at 64.2 million and questions the price paid by LP&L. In addition to questions about the price paid, Gilberson stated that his review of the acquisition agreement specifically indicates that Xcel will continue to provide some wholesale power to Lubbock, despite the representations by city officials to the contrary. His blog is located at knowledgeproblem.com.

How will David Alderson profit from the agreement?

No person appointed by the City Council to serve on a city board should be able to negotiate a business agreement between the City (or its entities) and a private company and then resign and join the board of that company to benefit from the agreement. David Alderson was directly involved on behalf of LEDA in securing the deal between the WTMPA and Republic Power. After the deal was completed, he resigned from LEDA and joined the Republic Board. How much does he stand to gain from being on the board? Was he chosen to be on the board of Republic Power because he invested money in the group or because the brought WTMPA and Republic Power together? The apparent self-dealing by the former board chairman of LEDA casts a legal and ethical cloud over the entire partnership between WTMPA and HDEC.

Who else will profit from the agreement?

Other than David Alderson, who else from Lubbock is a partner in Republic Power? Who else will benefit financially from this partnership either as a member of HDEC or the WTMPA? The Lubbock media needs to demand answers to these questions.

Is the bond issue really risk free as Mayor Martin has stated?

According to Mayor Tom Martin, the agreement between HDEC and Republic is a good deal for taxpayers because the bonds that are being issued are revenue bonds without recourse. This means that if the bonds go into default, the only remedy the bond holders have is to go after the assets of the power plant, rather than the assets of the City of Lubbock. Therefore, Lubbock takes no risk. Technically this is correct. However, in reality, the City of Lubbock cannot allow the bonds to fail. To allow the bonds to fail would endanger the credit and bond rating of the city and would make it impossible for the city to raise funds needed for future infrastructure and improvements. In essence, this deal is “too big to fail” and could result in another tax payer financed bailout.

How much will electric rates increase after 2019 and who will provide the power?

After the recent purchase of the Xcel assets by the City of Lubbock, the WTMPA now has a complete monopoly. According to the agreement, the rates charged by WTMPA are not subject to regulation by the Public Utilities Board. With unregulated rates, no competition, a captive group of consumers, 200 million in bond indebtedness, and a private partner interested in a profitable return to its investors, the future is certain to include large rate increases without taxpayer recourse other than through the ballot box.

Is the agreement between the WTMPA and HDEC legal?

Putting aside the cozy manner in which the parties sued each other to declare the agreement valid and then had their picture taken in front of a willing judge who now works for one of the parties, the agreement signed by Judge Medina is not the same agreement that is in effect today. Because Republic did not raise its funds in the time period allowed, it had to go back to HDEC and materially modify the terms of the agreement. The parties did not return to court for a ruling on whether or not the modifications are legal. Because the parties chose not to get court approval for the modifications, the legality of the bond issue may be in doubt.

Conclusion

The purpose of this article is to inform the public about the steps being taken by the City of Lubbock to provide electrical power in the future. Whether this public/private partnership is in the best interests of the taxpayers is an important issue that should involve a public dialogue, input and comment by the media and concerned citizens. Hopefully this article is the first step in that direction.