Summary

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.

7 comments

  1. g says:

    Is Scott Collier the son of W.R Collier?

  2. BlackSheep1 says:

    Will Lubbock residents have the options, after 2019 (as the current contract with Xcel forbids this) to
    1. put up solar panels and generate their own power, while remaining tied to the grid ?
    2. switch to South Plains Electric Co-Op or some other supplier?

    • Charles Dunn says:

      In response to Blacksheep, the answer to question 1 is probably not. It will be up to LP&L to allow individuals to connect to the grid and provide their own power and sell what they don’t use to LP&L. My guess is that they will not allow Lubbock citizens to sell back to the grid. As for SPEC, it cannot provide electricity to the City of Lubbock. LP&L has a complete monopoly on electric services for those who live in the City of Lubbock. SPEC will still be available to those who live in Lubbock County.

  3. Larry Simmons says:

    Nicely done Charlie-good informative article.

  4. unclechuck says:

    Yet another example of the “golden rule”….them what has the gold makes the rules….guess the “big boys” decided it was time for the Alderson family to step to the plate and get their “home run”….this whole deal stinks but it is par for the course in the “good Christian environs” of Lubbock.

  5. Mark says:

    Thanks for your work. I also had a FOI go to the State Attorny office about public access TV. Seems like they didn’t want you to know about the contractural agreements to get access. I won. Let me know when we can work together on an investgative film crew!

    What questions do we need to be asking our councilmen?

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