Lessons Learned at the Texas Grid Security Summit 2016

Senator Bob Hall hosted a grid security summit in Austin on April 28 & 29. The following is the author's take-away from the summit.

Texas Electric Grid Vulnerability                                              4/29/2016

There are four major threats to the entire Texas Electric Grid in addition to the traditional localized threats usually created by severe weather.

1.    Cyberattacks on the grid’s computerized command and control system.

2.    Physical attacks on substations and major high voltage transformers.

3.    Geomagnetic storms created by solar flares from the sun.

4.    Electromagnetic Pulse (EMP) attacks by nuclear explosions at high altitudes (60 to 240 miles.)

Threat No. 2 would require multiple simultaneous attacks to bring down the entire Texas grid. One AK-47 attack was carried out on a substation near San Jose, California two years ago and the perpetrators have not been identified or apprehended.

Threat Nos. 1,   3 and 4 would use the same physical mechanisms to render the grid inoperable, but, would enter the grid system via different paths.

Cyberattacks would enter through the internet and attack the Supervisory Control and Data Acquisition (SCADA) systems, like the recent Ukraine utility attack. They would likely command over-voltages and currents that would permanently damage the large high voltage transformers. These key transformers are connected to the high-voltage transmission lines. They can weigh up to 800,000 pounds and have the dimensions of a small house. These transformers are hand built for each specific location and are only manufactured in South Korea and Germany with an 18 month lead time for construction. There are no spares.

Cyberattacks could also be directed against the SCADAs themselves rendering them inoperable. There are thousands of these computer control devices in the Texas grid.

An EMP event results in three pulses of energy called, E1, E2, and E3. The E1 pulse is high frequency and short duration and it damages the microchips in the SCADAs. The E2 pulse is similar to lightening and causes residential style transformers to fail. The E3 pulse causes large voltage and current swings in the high voltage transmission lines. When those high amplitude fluctuations enter the large transformers they cause transformers to overheat and fail. High altitude nuclear explosions causes all three type of energy pulses. The solar flares generate just the E3 energy pulse.

Therefore, any hardening or protection against the nuclear generated pulses will also protect against the solar generated energy pulses and the lightening induced pulses. Hence, it seems the more prudent approach.

Texans are completely dependent on the electrical grid like all Americans. If the grid is inoperable for more than a few days, it would have catastrophic impacts on Texas citizens. No electricity means no heating or cooling, no gasoline, diesel or natural gas, no internet, no ATMs or money, no cell phones, no lighting, and no food or medicine. No life-saving equipment would operate and there would be no communications capability except for Ham radio operators with an independent power supply.

Localized grid outages can be handled in the traditional manner. Everyone should stock sufficient food, water and other essentials for 3 days. Our government promises that FEMA will supply everyone with the essentials to survive by the 4^th day.

For a complete grid failure that could last days and months, each individual and their family would be completely on their own to insure their survival. This is a very unappealing scenario!

Our utility companies say that these threats have high impact, but low probability of occurrence. This may be true of the solar flare event; but, it is definitely not true for the other threats.

Russia, China, Iran and North Korea have written military doctrines to attack and destroy America’s electrical grids. They also have the technical means to construct, deliver and detonate a low yield nuclear weapon 60 to 240 miles above the U.S. to destroy the electrical grids. North Korea currently has 2 satellites orbiting around the earth that pass periodically over the U.S. With an irrational dictator like Kim Jung Un, an attack could be launched without warning at any time – especially on a bad hair day!

The technology currently exists to harden and protect the Texas grid against these threats. The costs, though not insignificant, are quite manageable given the size of the Texas economy. The major impediment to protecting the grid is the education of our citizens and local and state lawmakers. The biggest impediment may be our utility companies and their lobbies’. The resistance of our utility operators to protect the grid needs to be overcome by any and all means from incentives to regulations. 

The Budget Cycle has Begun

The city council held a workshop yesterday at which the city staff presented the economic outlook for Georgetown. The economic outlook forms the basis and justification for the up-coming budget.

The major revenue sources were presented as follows:

1.  Property tax(22%)

2.  Sales tax(22%)

3.  Return on Investment(20%)

4.  Fees or Service/Other(21%)

The percentages refer to the percent of the General Fund budget which is approximately $50M currently.

The assessed value within the city is currently $6.2B, up from $5.84B last year. Residential value accounts for 70% of the total value. The average home value is approximately $260,000.

The residential value has increased 9.75% over last year. Has everyone noticed?

The sales tax revenue for Georgetown is still growing, although at a somewhat slower rate than the last few years. Since early 2015, when the oil prices started to collapse, the average growth rate of sales tax revenue across Texas has declined from 8% to about 0%. Since Georgetown is not dependent on the oil industry, it is projected that sales tax revenue for the city will continue to have a positive growth rate. 52% of the sales tax revenue for the city comes from retail businesses.

Return on Investment(ROI) are code words for "profit". The city makes a profit on Water, Wastewater, Stormwater, Irrigation, & Electricity by charging consumers more that it costs to provide the service. It is expected to grow 3-5% based on overall growth of the city.

The Fees for Service and Other include Development and Permit fees, Parks and Recreation Fees, ESD #8 Fire Protection Contract, and Sanitation/Texas Disposal Systems Contract.

Another post will detail the city population and growth parameters that the staff is using to justify the budget.

Stealth Taxation in Georgetown

We all owe a great big thanks to Bill Stump, Jr., for his letter to the Sunday, April 24, 2016 edition of the Wilco Sun. In his letter he exposes the fact that Georgetown's electric utility makes a profit which the city uses to fund other city services.

"This utility belongs to us,the citizens of the City of Georgetown. Instead of going to distant shareholders, the money it makes helps pay for our police, firefighters, library, parks, roads, etc., through a transfer to the General Fund. Last year, this transfer to the General Fund accounted for nearly 20 percent of revenues, or over $10.3 million. If not for this money, all of us who pay property taxes, or pay rent to those who pay property taxes,would have to pay much more, or do without the services we have come to expect."

This money that the utility makes comes from over charging its customers! It is a hidden tax on the utility customers and the citizens of Georgetown.

I wonder how those utility customers who are outside the city limits, but purchase city electricity feel about paying for Georgetown's parks, roads, libraries, police etc? How about all the renters, would they like a smaller utility bill?

Many property owners are able to deduct their property taxes on their federal tax return, but, they cannot deduct their utility costs unless it is a business.

It is also a subterfuge that allows the city to claim that Georgetown's property tax rate is among the lowest in central Texas. Other cities of a similar size do not own utilities and so have to pay for all their city services through taxation.

To maintain the same level of city services without the utility subsidizing the cost, the city would have to increase the taxes in the amount of $10.3 million, which would be highly visible to the property owners where as the "profit" in the utility rates is not readily seen because the city is very secretive about how much they pay to purchase electricity from wind and solar generating companies.

Perhaps it's time for the city to set utility rates to achieve break-even and directly tax the citizens for the level of services they are willing to pay for.

Hedge Funds are Toxic in Retirement Portfolios

California Public Employees’ Retirement System and the New York City Employees Retirement System, both public pension fund managers have decided to divest their portfolios of hedge funds. 

Fees are big; 2% of assets plus most commonly, for the lucky ones, and 20% of profits. If these profits aren’t substantial, it’s a prescription for investor frustration.

Hedge funds have delivered hope, lousy returns, and high fees. A toxic mix.

An excellent review can be found at Wolf Street.

Georgetown and the Texas Municipal Retirement System can learn from the large pension funds by following their lead in getting rid of hedge funds.

Central Texas Law Enforcement Being Trained in Riot Control

"Dozens of McLennan Community College students posed as unruly protesters as part of a Federal Emergency Management Agency training program. Area agencies sent 61 officers to the program at MCC’s Emergency Services Education Center for the course that started Monday and finished Wednesday, training coordinator Jay Fonville said." Waco Tribune

This is just up the road in Waco! Is Georgetown, Round Rock and Cedar Park next?

What is happening in our country that our government and local police think they need training in techniques and methods of riot control? "During classroom sessions and demonstrations, officials learned about large-crowd management, critical thinking, intuitive decision-making skills and the public’s right to peaceably assemble."

Officials in charge anticipate that more training sessions will be held in the future to bring in and train more law enforcement personnel.

Law enforcement are supposed to protect and serve their constituents, not protect the government's interests from the citizens. They have obviously forgotten whom they work for.

SunEdison Just Filed for Chapter 11 Bankruptcy!!

"Solar-energy company SunEdison Inc. on Thursday said it filed for chapter 11 bankruptcy protection, a dramatic move for a company whose market value stood at nearly $10 billion in July.

SunEdison said its publicly traded so-called yieldcos, TerraForm Power Inc. andTerraForm Global Inc., aren't part of the filing.

The company said it has secured commitments for new capital of up to $300 million in debtor-in-possession financing from a consortium of first- and second-lien lenders."

The company still has not submitted it's annual financial report and has not set a date when it will. Trading of company shares has been halted!

OK Georgetown, are you going to let the citizens know what impact this is going to have on their electric rates or whether or not the city has any liability?

More Spending is Not the Answer

As is usual for "progressive" politicians, they always focus on the needs for more spending, not on opportunities to reduce spending. Texas House Speaker, Joe Straus is already trying to condition the public to accept more spending for foster care, public schools and retired teacher's health care.(Straus)

The exact same thing goes on at the local level. Our City Council focuses on high visibility capital projects, that require more debt, rather than reducing regulations and fees imposed on the citizens.

For instance, did you know that the city receives 20% of its revenue from Return on Investment, or ROI? What is ROI? Most forms of ROI compare returns to costs by calculating a ratio or percentage. Usually, a result greater than 0 means that returns exceed costs, while a negative value mean that costs outweigh returns.  Some would say a value greater than zero represents a profit.

The question is: Should the city be generating a profit on some services or investments in order to fund other activities? It would seem that a proper goal would be for the city to break-even on each service in order to provide the lowest cost to each consumer of city services.

The budget cycle is starting for FY 2017 with staff presentations to the council at their workshop on April 26, 2016.

Contact your council representatives to give them your thoughts and recommendations as the budget development proceeds.

Election Time Coming

Election time is coming for the City of Georgetown. One councilman, John Hesser, has an opponent, Dwain Boydstun in district 3. Early voting  starts Monday, April 25 and runs through Tuesday, May 3. Election day is May 7, 2016.

There has been a lot of publicity about voter fraud in recent years and much of effort has been focused on voter ID and updating and maintaining accurate voter registration rolls. However, the more important area where election fraud may be occurring is mail in ballots and in the electronic voting/counting process.

Election results can be changed most efficiently when the electronic ballots are tabulated at the Elections Office central computer facility. It has been demonstrated that computer code can be inserted in the central computer that changes the results as they are being tabulated. That code can then self-destruct leaving no trace of its existence and therefore no evidence of fraud.

Texas Election Code requires the retention of three types of election records for computerized voting to assure that a recount could identify any fraud.

1. Retain an image of all ballots cast

2. Paper Precinct returns must be signed, returned and retained

3. Result computation and tabulation of vote totals

Apparently Williamson County Elections keeps records 2 & 3, but not record type 1. In fact, it has been alleged that not one of the 254 Texas counties keeps an image of the ballots cast. Without the ballot image, one cannot be sure that computer code was not inserted into the voting system that changes the actual votes.

Dr. Laura Pressley, candidate for the Austin City Council District 4, found multiple inconsistencies regarding the results of her run off election and filed an election contest lawsuit. That appeal is to heard April 27. This case has the potential to significantly change voting and record retention.

The only foolproof method to stop voter fraud is to return to the paper ballot, since the minute vote data is converted to digital bits, it is subject to manipulation by very sophisticated computer programmers.

An effort is expected in the next legislative session to enact legislation requiring the use of paper ballots.

Asset Forfeiture in Texas?

Is asset forfeiture used in Georgetown, other than eminent domain? The question needs to be put to the city so that citizens know what their police department is doing. Texas state law and federal law allow asset forfeiture, but, more information is required to determine if it is being abused.

"Some great news in asset forfeiture reform is coming out of Florida. S.B. 1044, approved by the legislature earlier in the month, was signed into law today by Gov. Rick Scott.Reason.com

The big deal with this particular reform is that, in most cases, Florida police will actually have to arrest and charge a person with a crime before attempting to seize and keep their money and property under the state's asset forfeiture laws. One of the major ways asset forfeiture gets abused is that it is frequently a "civil", not criminal, process where police and prosecutors are able to take property without even charging somebody with a crime, let alone convicting them. This is how police are, for example, able to snatch cash from cars they've pulled over and claim they suspect the money was going to be used for drug trafficking without actually finding any drugs."

This sounds like a good law for the Texas legislature to consider in the next session.

SunEdison Featured on Front Page of WSJ

SunEdison, the company that is supposed to supply Georgetown with 150 mega-watts of solar generated electricity starting later this year, has become front page news in the financial world. This company used financial engineering, deception and out-right lying to construct a solar generating business that was destined to fail. It has cost investors over $10B!

The entire sordid story can be found on the front page of today's Wall Street Journal. WSJ 

Yet, the City of Georgetown has issued no statement on the impact of SunEdison's impending bankruptcy on the citizens of Georgetown and the steps taken to assure adequate electricity in the future. There is too much secrecy surrounding the Georgetown electric utility operation and it needs a good dose of sunshine!

SunEdison Enters Bankruptcy Negiotations

It was reported today by Bloomberg that SunEdison has entered into bankruptcy negotiations with its lenders.

"SunEdison Inc., the world’s biggest clean-power developer, is talking with creditors about restructuring financing, though it said the discussions are ongoing and there’s "no assurance" they will result in a deal.

The company and its first- and second-lien lenders entered into a confidentiality pact on March 17 for the financing transactions in a potential bankruptcy filing, the company disclosed in a regulatory filing to the Securities and Exchange Commission, which included a 34-page slide presentation to creditors.

The company will require a $310 million loan to fund it through a potential bankruptcy process, according to estimates in the March 17 presentation. The company projected using a total of $779 million in cash for the first quarter. It said it expects to reduce headcount by 50 percent from their October 2015 base with additional $150 million of non-labor savings.

Restructuring financing or debtor-in-possession loans, also known as DIP loans, give lenders control over the restructuring process."

Still no word from the City of Georgetown on the impact this event will have on the contract with SunEdison to deliver solar generated electricity starting next fiscal year.

Woodland Park/Majestic Oak Lane Redux!!

It is hard to believe that the city of Georgetown did not learn anything after the fiasco of constructing a connector road between Sun City and its 10,000 homes and Woodland Park, an older community with large lots and relatively few homes. The anger and acrimony that was generated was fierce and continues to this day. It could have all been avoided if the Apache Mountain Lane - Majestic Oak connection were disapproved when the subdivision map was originally submitted.

Now the city is going down the same path by preparing to approve two connector roads between a new 940 home development called The Madison and the existing Shady Oaks development. There are two major roads planned out of The Madison, one to Hwy 195 and one to Ronald Reagan. Clearly there is no need to connect to the narrow Shady Oaks streets.

The same old tired excuses of public safety and mobility are trotted out as justification. If public safety is so important to The Madison, then maybe a fire house should be included in The Madison's development plans. The police will have quick and easy access from their headquarters down Shell Road and then up Hwy 195 to The Madison or a substation could be included in The Madison's plans. Certainly many other solutions to mobility and public safety exist that do not require disrupting old established neighborhoods.

It is also reported that the city's development code requires that a development connect to nearby existing rods. If this is true, it is time to revise the development code and allow common sense to prevail.

It is time that the city learn from past experience and consider the desires and needs of the current citizens as it plans for future growth.

More Warning Signs for Public Pension Plans

The Wall Street Journal(WSJ) reports that the largest pension fund for municipal employees, the New York City Employees Retirement System, will scrap an investment path that once promised big investment returns. They plan to eliminate its investments in and through hedge funds. Hedge funds charge exorbitant fees for high-risk and opaque investments according to one of the fund trustees.

The New York City Employees Retirement System has invest-able assets of $55B while the Texas Municipal Retirement System (TMRS) has $23.6B.

The following quote is from the Texas Municipal Retirement System Investment Policy Statement, dated December 2015:

"Investments in private equity can offer high returns and diversification, but lack liquidity, have infrequent valuation, are slow to generate initial returns and therefore have significant risk."

Private Equity and Absolute Returns are two of the TMRS investment categories that use hedge funds to implement and manage the investments. These two categories are allocated about $1.6B of the total $23.6B of the TMRS invest-able assets. Hedge funds are involved in other investment categories for TMRS, but, it is difficult to assess their role.

TMRS continues to increase the allocation of assets to Private Equity and Absolute Return at a time when other pension funds are reducing their exposure to these expensive, high risk investment vehicles.

Even though the City has little influence over TMRS, they should advocate for less risk in the investments and eliminating the use of hedge funds due to their high fees and opacity.

Annexation Plan Developing Under the Radar

At the council workshop on March 22, the City Manager summarized the City's Goals and Strategies , enumerated the specific strategies and identified the tactics to achieve the goals. The entire presentation is available on the city website.

Of particular interest is the plan to develop an annexation plan consistent with the city 2030 plan. Here is the tactical plan:

Create a "Donut Hole" strategy
Tactics:
Council Strategy – Create Comprehensive Annexation Strategy
1. Create a Broad-Based Annexation Plan with Alignment to the 2030 Plan
  a. Donut hole plan one of several subsets to larger annexation strategy
  b. Strategic goals/policies/tactics
  c. Prioritization/Ranking of Areas
      i. Financial (cost to City)
     ii. Potential for long-term growth/revenue
    iii. Public Safety
     iv. Equitable distribution of services/taxes
  d. Solidify funding source if costs associated
  e. Annexation a key piece of the City’s Long-Range Planning Efforts
  f. Ensure that other long-range plans align with and support        annexation strategy
  g. Adopt a Future Annexation Map and Strategic Plan as element of 2030 Plan
2. Effectively Communicate Planning Efforts and Outcomes
  a. Orientation/Education for City Council
     i. Staff to provide guidance, recommendations
  b. Gauge Council philosophy, priorities, desired criteria
  c. Partner early with neighborhoods considered for annexation
  d. Signal to general public and other governmental entities timing      of potential annexations
  e. Promote annexation in positive light

We have pointed out before how undemocratic forced annexation is in Texas. Those whose property is being annexed by a city have no vote as to whether or not they wish to join the city. It is taxation without representation as the newly annexed people/property are obliged to pay city taxes and obey city rules after annexation. A good analysis and argument against forced annexation can be found here: Texas Public Policy Foundation

There are other pernicious methods that cities use to take people's liberty and property rights, but, this is one of the most egregious.

Legislation to change Texas law to allow those being annexed a vote was introduced in the last legislative session, but, it did not receive a vote because of opposition by the Texas Municipal League among others. It is expected an effort will be mounted in the next legislative session to change the law to allow those who would be annexed a vote.

People living in neighborhoods like Serenada and along Booty's Crossing among others better be vigilant as this plan develops if they do not wish to be annexed by Georgetown and pay Georgetown taxes and obey Georgetown rules.

Impact of Low Income Housing on a Community

Two Stanford professors, Rebecca Diamond and Timothy McQuade have demonstrated through analysis of low income housing tax credits awarded over the last ten years that there are measurable impacts on the surrounding properties. They analyzed 16 million transactions from 15 states around 7098 low income housing tax credit sites.Professor Diamond

Here is the salient part of the abstract from their research paper:

"We nonparametrically estimate spillovers of properties financed by the Low Income Housing Tax Credit (LIHTC) onto neighborhood residents by developing a new diference-in-diferences style estimator. LIHTC development revitalizes low-income neighborhoods, increasing house prices 6.5%, lowering crime rates, and attracting racially and income diverse populations. LIHTC development in higher income areas causes house price declines of 2.5% and attracts lower income households."

From this research it is apparent that low income housing needs to be situated in low income neighborhoods as it help revitalize the neighborhood and causes property values to increase, crime to decrease and improves diversity. This is the kind of information that city staff needs to be aware of and to present to council whenever decisions about low income housing come before council.

Georgetown's Green Energy Adventure

There is a very informative piece in the Wilcosun today describing the availability of wind generated electricity supplied to the Texas Electric grid during a summer day.

Georgetown has broadcast to the world that all electricity consumed within Georgetown in 2017 would be generated by solar and wind sources. With the impending bankruptcy of SunEdison, the city's contracted supplier of solar generated electricity, it looks less and less likely that one half of Georgetown's demand will be met by solar. The total current demand is approximately 180 megawatts.

Let us examine just how much wind generated electricity Georgetown can expect to receive via their 20-year deal with EDF Renewables signed in early 2014. EDF Renewables is to furnish 144 megawatts on demand. The city does not share how much wind generated electricity they are receiving from EDF, so we have to construct an estimate.

From the Wilcosun article today, it is observed from the following chart that on August 15, 2015 between noon and 6pm, less than 2500 megawatts out of 15,000 megawatt rated capability was available.

This is 16.7%. Therefore if 16.7% of EDF Renewables contracted capacity of 144 megawatts is available, that means wind supplies only about 24 megawatts out of the required 180 megawatts. This is a far cry from being fossil fuel independent. Where is the additional power going to come from?

In the spirit of transparent government, the city needs to share the relevant information with it's citizens so that the citizens are informed and supportive or not of being a "green energy" community.

Update on Officer Hoskins-Brown Status

Thanks to readers, we have new information on the status of the Hoskins-Brown legal case.

"The Third Court of Appeals mandate has been received by the 277th District Court stating that the action taken by the City of Georgetown was disciplinary and subject to civil service thus stating that Officer Hoskins was entitled to a civil service hearing to review the grounds for termination. Please note that those grounds were letters from the Williamson County District Attorney and Williamson County County Attorney that have since been rescinded." Stacey Mathews is the 277th District Court judge.

After her second firing in 2013, Officer Hoskins-Brown filed a law suit against the City, the police chief, the city manager, and the civil service director to have her reinstated as a police officer. The Federal Lawsuit pending against the City and Chief Nero has a scheduling order in place and a status hearing scheduled for April 14, 2016.

It has also been pointed out that Georgetown is obligated to pay the legal fees for Hoskins-Brown in the amount of $43,000 so far. Adding that amount to the City's outside council fees of $83,136.63, the total spent by the city is or will be $125,136.63, not including city staff time.

SunEdison Death Watch

SunEdison Plunges 51% to 21 Cents on WSJ Story Bankruptcy Being Prepared Barrons

WSJ Says SunEdison Preparing for Bankruptcy

The Wall Street Journal(WSJ) reported tonight that SunEdison is preparing for bankruptcy. The stock closed today at $0.43 per share with a market cap of $136 Million, a far cry from the $33 per share last summer.

"The company is preparing a chapter 11 filing and is in talks with two creditor groups to obtain a loan to fund its operations during the process, according to people familiar with the matter. Creditors are likely to take control of the company and its portfolio of power projects, the people said."

No word yet whether Georgetown has been able to extract itself from SunEdison and if they have made contractual arrangements for electricity supplies next year and into the future. When is the city going to tell its citizens and taxpayers what is going on? Now is the time to demand transparency from our elected city officials.

Status of Officer Hoskins-Brown Reinstatement to Georgetown Police Dept.?

As previously reported, officer Hoskins-Brown was indefinitely suspended, otherwise known as fired, by the police chief after allegations of drinking cactus juice. The civil service hearing examiner reinstated her and she was subsequently fired again after the Williamson County Attorney and the District Attorney said they would refuse any cases filed by officer Hoskins-Brown.

Officer Hoskins-Brown sued in district court and lost. She appealed and won.

The City turned down Officer Hoskins-Brown's settlement offers. Offer one asked for $143,000 in damages, which included back pay, three years of lost opportunity overtime pay and money for mental anguish. Offer two asked for $83,000 in damages and an apology from the Police Chief. The city declined to accept either offer.

The City appealed to the Texas Supreme Court and they denied review.

After an open records request, the city has admitted they have spent $82,136.63 on outside counsel to handle the defense and appeals to the Texas Supreme Court. The City did not provide the cost of the city staff time that has been expended in this process. That would include the city attorney's time, city management time, human resources time and the police chief's time. One can imagine that many more thousands of dollars have been spent on this losing effort!

Note that this suit could have been settled back in October, 2015 for $83,000, except for the hubris of the council and city management. This appears to be a prime example of mismanagement by the city, especially after the appeals court ruled in Hoskins-Brown's favor. The appeal to the Texas Supreme Court was a waste of time and money.

It is worth noting also that the Texas Municipal League filed a brief to the Texas Supreme Court supporting Georgetown's appeal. The Texas Municipal League is a lobbying organization for cities for which the cities pay annual dues. They do not represent the average citizen or taxpayer and Georgetown should rescind their membership. Another post will explore this issue at a later date.

Now the question is, what is the status of officer Hoskins-Brown? Has she been rehired and damages paid, or has some other settlement been reached? Inquiring minds want to know.