More Transparency Needed in Government

Fiscal conservatives, government watchdogs, consumer groups and industries that depend on robust access to public records, such as newspapers and broadcasters, have formed the Texas Sunshine Coalition to back legislation to increase the transparency of Texas government spending and hold public officials accountable. 

The ongoing financial fiasco experienced by Georgetown's electric utility lays bare the need for transparency and accountability.

The Denton Record-Chronicle identifies the problems and those who are against more transparency.

Georgetown's Reputation is Suffering

Web sites all across the internet are picking up the story that Georgetown's electric utility, which is all renewable, is losing money at a high rate. 

Al Gore used Georgetown in his movie, An Inconvenient Truth to tout his farce of global climate change.

Gore proposed Georgetown as the beacon on the hill when it comes to renewable energy. This city took the chance and went full green. They would prove to the world that green energy was the wave of the future. The fiscal savings would be staggering.

Then the real inconvenient truth hit.The Black Sphere

Disinformation by Texas Cities Continue

Cities in Texas continue to try and maintain their unfettered ability to raise property taxes by employing lobbyists and employing disinformation in the public media. Here is the latest effort from Temple News. 

City Manager Brynn Myers outlined several items, including the possibility of legislation that would place revenue caps on cities.

“The first (priority) is to oppose caps on local revenue. We’ve seen this in every session since I’ve been in local government, and probably long before that,” Myers said. “There has always been some kind of bill filed that would restrict or cap revenues for cities. Last session, there was pretty active legislation that was filed.”

Of course it is a complete fabrication that proposed legislation by the Governor would "cap revenue". The proposals simply require local officials to get voter approval to raise taxes above a certain level, such as 2.5%.

This is the kind of disinformation campaign that Georgetown's lobbyists, Council and staff will use to try and keep local citizens from voting on tax increases above a given threshold.

Its time the control for tax increases is placed in the hands of the voters.

Civil Asset Forfeiture

Many Texans have trumpeted the cause of private property rights when it comes to annexation, fracking bans or local tree ordinances, yet they have been strangely silent on civil asset forfeiture.

The political will apparently doesn’t exist to eliminate the practice of seizing property without a criminal conviction. The practice remains too popular with law enforcement agencies that have legislators’ ears.

Legislators should at least take common-sense steps to protect everyday citizens by providing greater transparency around such seizures, requiring agencies to absorb any costs for wrongly seized property and requiring a conviction before forfeiture is final. Read the Statesman's Editorial for more information.

But for those who truly believe in the cause of small government and the sanctity of private property rights, reforming civil asset forfeiture should be an easy call.

Taking a person’s property is one of the most intrusive things a government can do. The Legislature should ensure the process is done right.

Beware of City Tree Ordinances

Georgetown has a tree ordinance that restricts the rights of tree/property owners! This is a violation of the US Constitution if the tree/property owners are not compensated. Here is a description of how a township abuses the rights of property owners.Gilmer Mirror

Unfortunately, the township’s ordinance is not an isolated problem. It is part of a growing trend. Cities from Michigan to Texas and everywhere in between have adopted similar laws. While these laws may have good intentions (everyone loves trees), the best intentions do not excuse abusing private property owners and trampling constitutional rights. As the Supreme Court has repeatedly reminded us, “a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.”

If cities want more trees, they can plant them on public land, or they can pay others to plant them on private land. But what they cannot do is take private property for what they deem to be a public benefit without paying for it. The Constitution simply does not abide that sort of theft. It is time that the courts step in to stop this growing problem.

Propaganda from Mayor Ross

It looks like the mayor has been taking lessons from Al Gore. Inconvenient facts omitted!

Video

Off Topic Georgetown, On Topic Texas

Did you know that foreign dictators are funneling money into Texas? Allan West reports Texas A&M has received over $225M over the last 7 years from QATAR. What do they expect in return? Inquiring minds want to know!

Some universities have refused to discuss where strings are attached to that money. The Qatar Foundation, for example, filed a lawsuit against the Texas attorney general Oct. 12 to hide information about the $225 million Qatar has awarded to Texas A&M University since 2011.

More on Wilco Giveaway to Apple

A figure of $16m reported by Austin media (Statesman, Chronicle) as the size of a 15-year tax abatement given to Apple by Williamson Co. is NOT correct. This is assumes a property valuation of only $400m, far less than the $1bn Apple says it will invest in land and improvements.  Austin Bureau

Valuing the property at $1bn (from year 4, when initial construction ends) implies a tax incentive of $33m+. Even a more conservative valuation equivalent to that of Apple's existing (smaller) campus ($535m) yields much more than $16m. Savings to Apple will be $20-40m easily.

These incentives mean that typical homeowners will be paying a higher effective property tax rate than Apple for many years to come. For example, a homeowner in Williamson County whose home is appraised at $200,000, situated in the same tax jurisdictions as Apple, would pay a combined property tax bill of $4,423, equivalent to a tax rate of 2.21%, including homestead exemptions.

Apple, by comparison, would pay an effective rate of only about 1.7% on the property, assuming an appraised value of $400 million, which is the minimum amount the company has committed to invest in the property under an agreement with the county. In other words, the homeowner will pay 1.3 times the rate paid by Apple.

Here is how our elected Commissioners are being dishonest with the citizens of Williamson County.

Williamson County officials used a $1 billion valuation in estimating local tax revenue from the completed campus, but only a $400 million valuation when explaining to journalists the total size of the incentive package.

Williamson County Joins Georgetown in Crony Capitalism

We now have the cost of the crony capitalism($91M) that the City has awarded the developer of Wolf Lakes Village at the northwest corner of Hwy 29 and I35.

Georgetown has been abusing tax-increment financing (TIRZ) for years, diverting tax dollars from roads, public safety, health & human services, and other essential programs in order to subsidize economic development. Now the County is joining in the scheme to reward specific developers. Statesman

The main beneficiaries of a TIRZ are a few developers and contractors. City taxpayers are often forced to back fill the lost revenue for essential services by raising taxes and fees.

This is the very definition of crony capitalism, picking winners and losers instead of letting markets decide the appropriate use of undeveloped land.

Here is an excerpt from the Statesman:

Williamson County commissioners have approved giving $19 million of the property taxes the county will earn over a 20-year period to pay for roads and drainage at a 164-acre planned development in Georgetown.

“It will be bringing jobs to the center of our county and reducing commutes more,” said Commissioner Terry Cook after the approval Tuesday.

The commissioners’ agreed to create a tax increment reinvestment zone with the city of Georgetown for the development called Wolf Lakes Village.

Under such a financing tool, officials said, the county will continue to collect the same amount of tax revenue from that area that it gets today.

But as the area grows in value, 50 percent of any additional county tax revenue over the next 20 years will go toward improvements in that district. The amount the county will give will be capped at $30 million.

The politicians always talk about the benefits, like jobs, but they never talk about the downsides, like picking winners and losers. Just imagine what $91M + $30M could be used for in other critical areas, such as emergency services and law enforcement. That $121M will  not be available to meet the most critical needs as the TIRZ locks the funds into infrastructure for the property within the TIRZ. 

More Fiscal Conservatives Against Apple Deal

https://mail.yahoo.com/d/folders/1/messages/AO75fHxqDyhpXBqjfwtxsI4zgaw?.partner=sbc

Summary of Georgetown Electric Fiasco

An excellent article recently appeared describing the financial fiasco that Georgetown has created with their municipally owned electric company. Here are several of the salient quotes from the article: Forbes

The City of Georgetown, Texas, and its mayor, Dale Ross, have become known internationally over the past couple of years due to the city’s claim that its municipal electricity utility uses 100% renewable energy.

But as recent developments show, Georgetown’s proverbial 15 minutes of fame came at great cost to taxpayers and electricity ratepayers. Mayor Ross can get on television. But can he fix a pothole?

First, some background about Texas’ electricity market. In 2002, the Texas electricity market moved from a heavily regulated system to a market based system. Most electric customers, except for El Paso and parts of the Panhandle and East Texas, can choose their energy supplier. As a result, millions of consumers have shopped for lower prices, and Texans pay less for the electricity they use than the national average. There are exceptions though: consumers served by electric cooperatives and municipal utilities can’t choose their electric providers.

First, Georgetown just announced that it is renegotiating its wind and solar energy contracts after energy costs came in about $23.1 million over budget in 2016 and 2017. This year, the city—meaning the city’s taxpayers—paid $8.6 million more for electricity than expected due to falling electricity prices. The city made up $1.8 million of the shortfall by not spending as much as budgeted on investments in electric infrastructure. So much for getting a good deal for the taxpayer.

And here is the money quote!

As for Georgetown’s claim of 100% renewable electricity, Charles McConnell, executive director of the Energy and Environment Initiative at Rice University, told the Austin American-Statesman in 2017, “It’s not kind of misleading, it’s very misleading, and it is for political gain.”

Wilco Approves $16 million Apple Incentives Package

The Wilco commissioners caved to Apple and have approved tax break for #Apple of 65% property tax exemption for 15 yrs. The Statesman

Williamson County leaders on Tuesday unanimously approved a taxpayer-funded incentives package for Apple that could be worth up to $16 million, solidifying the tech giant’s plan to invest $1 billion in a new campus in North Austin and add up to 5,000 jobs.

In just 30 minutes, Williamson County commissioners voted 5-0 to approve the deal, which the county estimates could amount to about $16 million in reimbursements to Apple over the span of its 15-year term. Apple is also in line to get up to $25 million in incentives payments from the state-run Texas Enterprise Fund.

Crony capitalism is alive and well in Williamson County, TX. Enjoy your increase in property taxes to backfill those not paid by Apple and the increased traffic and demand for government services.

More $ Numbers on Georgetown Electric Company Loss

Another set of numbers have been published by the Statesman describing the loss suffered by the Georgetown electric company during FY 2018. 

The city had budgeted $45 million for renewable energy but ended up paying $53.6 million, he said.

Georgetown was able to reduce the $8.6 million unanticipated extra to $6.8 million through savings from lower capital improvement utility project costs, Morgan said. It paid the remaining $6.8 million with reserves from the city’s energy fund, he said.

The City Council also approved a budget amendment Dec. 12 that will build the reserves in the electric fund, which helped to pay for some of the loss, from $1.9 million back up to $4 million in 2019. 

The city manager also owned up to the fact that the electric company lost money in FY-16 and FY-17, but it was covered up through clever accounting. See blog post December, 1, 2018

The city also had to pay more than anticipated in fiscal year 2016 and fiscal year 2017 for renewable energy because of depressed energy prices, he said. In 2016, the city projected the bill would be $33.6 million for renewable energy, though the actual costs were $40.3 million, Morgan said. In 2017, the city projected the power would cost $39.5 million, though it ultimately cost $46 million, according to city figures.

“These differences in projected and actual costs were previously offset by increased revenue, implementing a power cost adjustment and adjusting the timing of some large capital projects,” Morgan said.

But even this story is incomplete. Looking at the budget presentation of 11/27/18, the city lost $11.6M purchasing/selling electricity from/to ERCOT. At the same time they earned $3M in credits by buying or selling financial derivatives called Congestion Revenue Rights (CRR). A Congestion Revenue Right (CRR) is a financial instrument that results in a charge or a payment to the owner, when the ERCOT transmission grid is congested in the Day Ahead Market (DAM).

Thus we see the city still spinning the numbers that the net loss was $11.6M-$3M = $8.6M without disclosing that the city earned $3M gambling with derivatives in the ERCOT market!

There has been a pattern of losses over the last three years.

FY-16 loss was $6M
FY-17 loss was $9.6M
FY-18 loss was $11.6M

All these losses were experienced either purchasing electricity necessary to meet the demand in Georgetown on the spot market, or from trading financial derivatives in the ERCOT market.

There are still inconsistencies between the contemporaneously reported losses for FY-16 and FY-17 and those reported in the Statesman above that will be resolved in the future.

Cronyism in Williamson County

Now Apple is asking the taxpayers of Williamson County to subsidize their new facility within the Austin city limits. This is a company with more than $250B in cash assets. The Wilco Sun summarizes the proposed deal.

Apple will ask commissioners for a tax abatement. Discussion and a vote are tentatively set for the Tuesday, December 18, commissioners court meeting, which begins at 9:30 a.m. in the county courthouse. Terms of the proposed 15- year agreement call for it to start when Apple has initially created 700 full-time jobs at the new facility. The company plans to employ at least 1,300 people by year two of the agreement; 1,900 by year four; 2,500 by year six; 3,100 by year eight; 3,700 by year 10 and 4,000 by year 12.

Apple also plans to spend at least $400 million for purchasing and building on what is currently raw land. Williamson County government’s obligations in the proposed agreement call for it to abate 65 percent of Apple’s property taxes for 15 years.

The planned Apple facility will be in Precinct 1 Commissioner Terry Cook’s area. On Thursday her executive assistant, Garry Brown, said the commissioner and other elected officials will not be commenting before Tuesday’s meeting.

The revenue from this proposed tax abatement  will likely run into the millions of dollars and this will be money not available to pay off the existing bond debt or build new infrastructure such as roads, emergency services and Sheriff services.

Let your County Commissioners know if you oppose this handout to Apple, Inc.

Innovative Public Transportation Option

Arlington Tx has instituted a novel public transportation system, Star-Telegram, that provides transportation without the massive long-term investments that traditional rail and bus systems require. The riders also have to pay a nominal fee that assures their need for the service. 

Arlington has entered into another one year contract with Via, a ride-sharing service company.

“We have hit on something that is tremendously successful that is getting the ridership we’ve all been hoping for — at a fraction of the costs of traditional transportation like buses or light rail,” said Mayor Jeff Williams at a Nov. 27 council meeting. 

Via uses drivers in independently owned vehicles (similar to Uber or Lyft) to keep passengers’ average waiting times below 12 minutes. Unlike those services, Via doesn’t pick come to your doorstep but instead directs riders to a location within walking distance.

Via works by using a smart phone application and dynamic routing to allow passengers to access a wide range of destinations within Arlington. It doesn’t stick to fixed routes or a fixed schedule. Rides cost $3 per person per trip. Passengers can catch a ride from 6 a.m. to 9 p.m. Monday through Friday and from 9 a.m. to 9 p.m. on Saturdays. Riders can also purchase a ViaPass for $15 per week and ride up to four times per day all week long. Via doesn’t run on Sundays.

This looks like a concept that the City of Georgetown should look into. Meets the needs of the community without huge capital investments or expanding the city workforce. 

Will Electricity Transmission Prices Increase?

The transmission costs were originally allocated equally to all power producers without consideration of the distance that the electricity is transported between generator and consumer. The generator with plants in Eastern Texas believe that is inappropriate and are working the Public Utilities Commission to change how the transmission costs are allocated.

If the PUC adopts a transmission costs that is a function of distance, this will make the cost of electricity produced in West Texas, where the wind and solar plants are situated, more expensive. The transmission costs are allocated to Georgetown consumers separately from the generation costs and thus they can be increased independent of the generator costs. Thus this mechanism would be a way to increase the electricity costs to the Georgetown consumer!Houston Chronicle

Calpine Corp. of Houston and NRG Energy, of Houston and Princeton, N.J., have asked the state Public Utility Commission to change the way transmission costs are apportioned among power generators, a move that would undo a key element of the policies that have made Texas the nation’s top producer of wind energy. Instead of using state tax credits, Texas has attracted billions of dollars in investment in wind energy by offering generators easy access to the biggest electricity markets through low-cost transmission. 

Not only would the change proposed by Calpine and NRG increase the price of electricity fromWest Texas wind and solar farms, analysts said, it could also discourage new investment in renewable projects.
But NRG and Calpine argue that their proposal revolves around market effciency. Producers don’t have incentives to build new power facilities close to their customers if they don’t have to pay for the power that is lost by transporting it over a long distance, according to the companies’ fling to the utility commission. 

Directly assigning transmission losses would expose the true costs of delivering electricity from remote locations where renewable resources have been concentrated, NRG and Calpine said, especially West Texas which has seen an over-building of renewables that have overwhelmed the existing transmission infrastructure.

Living Costs on the Rise

The cost of living in Austin has spiked 34% over the last year according to Austin Culture Map. Clearly this increase in living costs is also spreading to Georgetown.

The cost of living in Austin has gotten, shall we say, costlier than nearly any other major U.S. city, according to a new study from personal finance website GOBankingRates. 

GOBankingRates ranks Austin second for the biggest percentage increase on the “live comfortably” index. The study finds that the cost to live “comfortably” in Austin skyrocketed 33.92 percent from 2017 to 2018. 

In terms of costs, that amounts to a year-over-year increase of $18,532 in Austin, the biggest leap among the 50 cities studied.

More Evidence that Property Taxes are Out of Control

Property taxes continue to be a problem for all Texans. School, city, county and special district taxes are becoming so burdensome that it impacts businesses as well as individuals.

In 2011, property taxes foisted onto Texas taxpayers totaled a more modest $40.5 billion. That means that from 2011 to 2016, the overall tax burden grew by $15.6 billion or by roughly 40 percent. That’s quite an increase, especially compared to population growth and inflation.
Texas’ population numbered 25.6 million in 2011. By 2016, that figure had grown to 27.9 million, equating to a five-year increase of 8.8 percent. Over the same period, inflation rose mildly by 6.7 percent. Combined, population and inflation climbed by a little less than 16 percent, well under than actual tax levy growth. Gainsville Register

There is absolutely no rational reason for property taxes to grow faster than population growth plus inflation! It is time to limit property tax growth to that metric unless there are exceptional circumstances and voters approve the increase.

Electric Generating Companies Want to Raise Prices

The fossil fuel and nuclear generating companies are asking the Texas Public Utility Commission to approve rate hikes. Houston Chronicle

"The Public Utility Commission could raise electricity bills by $4 billion in the coming weeks if members acquiesce to demands from generators who insist power in Texas is too cheap.

Generators say that if the commissioners do not shift the so-called Operating Demand Response Curve to guarantee higher revenues, they will not build new power plants."

Georgetown city officials would say that this would not affect Georgetown residents because the city has fixed price contracts for 20 and 25 years.

But, connect the dots. If there is insufficient generating capacity on the ERCOT network, then there will be brownouts or outages that will have to be managed and that will surely impact Georgetown consumers in some unforeseen way.

The impact that subsidized renewable energy is having on the broader market is clear. The renewable energy contracts require that ERCOT take all the electricity that the renewable generators provide first drives down the market price when there is a surplus of electricity. Also, the renewable energy generators can reduce their electricity price below cost because they are subsidized. This drives the fossil fuel and nuclear generators out of business.

Because of the low subsidized prices set by renewable energy generators, the other generators cannot afford to build new generating plants. That is why they are asking for rate increases.

It is only a matter of time before Georgetown consumers are affected. When demand in Georgetown exceeds that available through the existing contracts, Georgetown will have to purchase on the spot market. Those prices tend to be highest during periods of high demand. 

Wilco Sun Concerned About Secrecy in Georgetown Government

The publisher of the Williamson County Sun published a blistering editorial yesterday, December 5, 2018 castigating the City Council for conducting business associated with the wind and solar energy contracts in secrecy.

Last week we got a nasty surprise — going green has turned out to be a lot more expensive than we thought. On Tuesday the council had to approve a budget amendment to account for a $6.9 million loss that has accumulated since July when the solar farm went live. The money came from our reserve fund, which has now dropped from $8.8 million to $1.9 million in a matter of weeks. At this rate, our reserves will soon be exhausted if they’re not already. Once our savings are gone, it’s belt-tightening time for the city, and we who pay tax and electric bills. 

However, some will let their belts out a notch. The city’s wind and solar companies have contracts to sell us, at a fixed and profitable price, all the electricity they make for 20 to 25 years. Since we can’t use all that electricity until the town grows bigger, we sell the surplus on the open market where we compete with electricity from plants run on low-cost natural gas.

 We buy high and sell low. We appear to be stuck with the losing end of a trade, at least for the time being. There is talk in city circles about renegotiating the contracts. But what leverage could we have? Maybe our city folk have a card up their sleeve no one knows about.

 This unfortunate business seems to me to be the newest example of what happens when we run our city affairs on the basis of secrecy and limited public discussion. The details of the contracts are secret. They were discussed in private and in secrecy during the non-public special sessions of the city council. Who knows the details? Some of the staff. All of the city council folk. 

As citizens, we know only one hard number: the contracts go for 20 and 25 years. We know, or think we know, one general fact: Georgetown is committed to buy all the electricity the solar and wind companies produce at some fixed price. In the public discussions we heard almost nothing about the chance that the deal could go south. We do know that we’ve gotten our money’s worth in the publicity department.

 At this point, virtually all the discussion about going green has been upside talk. This is possible only because no one on the outside knows what is in the contracts. As a result, the upside talk has been the only talk. 

You wonder — if the green energy issue had gone through a big brouhaha fight, could we have ended up with a better way to do it? Perhaps it is time for us to reconsider how open we want our city government to be. Should city council closed sessions be less closed? Should our utility contracts be secret as they are now? Much of what we do in the city is done on a public bid basis. The final prices are known. Should we consider treating more of our city business with a similar openness? It’s worth talking about.

The outrage over the financial losses by the Georgetown owned electric company focus only on the losses experienced in 2018, however, there has been a pattern of losses over the last three years.

FY-16 loss was $6M
FY-17 loss was $9.6M
FY-18 loss was $11.6M

All these losses were experienced either purchasing electricity necessary to meet the demand in Georgetown on the spot market, or from trading financial derivatives in the ERCOT market.

As the The Sun Publisher Clark Thurmond said in his editorial, its time to have public discussions about the content of these energy contracts.

City Trading Derivatives in ERCOT Electric Market

Citizens are concerned about the city's ability to trade in ERCOT's energy market with derivative financial instruments. There are several letters in the Wilco Sun questioning how the city has managed to lose millions of dollars with its electric utility. A retired seasoned trader who lives in Georgetown penned the following letter to the Wilco Sun newspaper.

Maybe its time for an independent citizen audit of the Georgetown electric company. Mr Baker is right, it seems the city is in over its head trading energy derivatives.

POTUS Plan to End Renewable Energy Subsidies

"White House economic adviser Larry Kudlow said Monday that plans were in the works to scrap subsidies for electric cars and other renewable energy items, Reuters reported." The Washington Times

What does this mean for Georgetown's renewable energy contracts? Probably nothing as politicians almost never make any law or policy retroactive and Georgetown's contracts are for 20 and 25 years.

If the law or policy were made effective on a certain near-term date, then the companies involved would scramble to reopen negotiations with the city as their existing contracts would likely be major losers for them.

It will be a different story for any new renewable energy contracts. The electricity price they would have to sell for would likely be uneconomical compared to gas, coal and nuclear generated electricity under the existing business model. Substantial cost reductions in the installation and production of electricity would have to be effected to be competitive.

Land Use and Zoning Regulation Constrain Housing Supply

There seems to be increasing emphasis within the city staff that something needs to done by the city to increase the affordability of housing in Georgetown.

The Council and city staff would be well served to read the following research paper before any further actions are taken.

Federal, state, and local governments seek to assist poor households financially using transfers, minimum wage laws, and subsidies for important goods and services. This “income-based” approach to alleviating poverty aims both to raise household incomes directly and to shift the cost of items, such as food, housing, or health care, to taxpayers. Most contemporary ideas to help the poor sit firmly within this paradigm.

 A “cost-based” approach would instead reform existing government interventions that raise living costs for the poor. Shelter, food, transport, and apparel and footwear alone account for 59 percent of spending by the average household in the bottom 20 percent of the income distribution, and government policies raise prices in all those sectors. Local land-use and zoning regulations constrain housing supply, which raises housing costs and deters labor mobility.Cato

Why Georgetown Electric Lost Millions of $

Before we get to the reasons that the electric company has been losing money, some definitions and facts have to be established.

If one listens to the discussion by the City Council and City Manager, City Workshop, one hears that the electric company is “long” something. What this means is that the city has contracted for more electricity than there is demand within the city of Georgetown.

To understand why the city is “long” one needs to understand the terms of the contracts that Georgetown has with the solar and wind generator companies. Even though the city will not disclose those contracts to the citizens of Georgetown, generally these contracts require that the contractee takes all the electricity generated by the windmills and solar panels, regardless of the demand.

The owners of these renewable energy plants sold bonds to obtain the money to build the plants. They guaranteed the bond buyers a certain payment of principal and interest that is backed by the contract the generator has with the city. If they do not pay the full obligation on time in the full amount, then they may be in default and subject to legal action and penalties.

The generator receives subsidies from the Federal Government that depends on the quantity of electricity produced. Therefore, the wind generators are incentivized to produce the maximum electricity, even though they can “feather” the windmill blades to produce no electricity. The feathering mechanism is what is used to protect the windmill when winds exceed the design limit of the windmills.

Recent market activity has driven the price of oil/gas down. The generator companies that use natural gas powered turbines to power generators have reduced the price of the electricity that they produce as the price of natural gas has declined. They do this because they have certain fixed costs to pay and they need cash to pay those costs even though they may not be making a net profit.

When the “gas generators” sell electricity into the ERCOT market for less than what Georgetown pays for its renewable electricity, Georgetown has to sell its excess electricity into that market at a loss! This is one of the ways that Georgetown electric loses money. There are other ways that will be discussed in a later post.

So why is Georgetown in this pickle? Because they assumed the oil/gas market price would continue to increase and they never considered the possibility that it could decrease. They entered into 20 and 25 yearlong fixed price contracts for renewable energy. Remember the Mayor telling us over and over that the decision to enter into these contracts was for economic reasons alone. They would save the city money!

There is apparently no mechanism in the contracts to provide the city with any relief in the event the market price of electricity declined. In other words, there is no flexibility built into the contracts.

Bottom line – 20 and 25 year fixed price purchase contracts coupled with a contractual requirement to take all the electricity produced in a declining oil/gas market with concurrent electric price reductions results in a money losing operation.

The city has reported they are going to open negotiations on these contracts to try to get some relief. Good luck with that! These companies have obligations to their shareholders and bondholders. They likely will not give substantial relief to the city because, if they do, then all their other customers will demand relief.

One can almost smell electric rate hikes coming for Georgetown electric customers.

More Taxes?

Here are some of the ideas on how to increase school funding. The fundamental question of how existing funding can be used more effectively seems never to be asked.

• Increase the motor fuel tax, which was originally set 25 years ago when vehicles were less fuel-efficient.

• Expand sales tax to property sales, management consulting, public relations, contract computer programming, market research, public opinion polling and outdoor display advertising, plus legal, accounting, auditing, architectural, engineering and financial services.

• Eliminate sales tax exemptions for high-cost natural gas, airplanes and motor boats.

• Charge an additional tax on cigarettes, soda and candy.

• Increase the alcoholic beverage tax by 50 percent.

• Charge a fee for hybrid cars.

• Tax all internet purchases.

• Reduce the 10 percent cap on how much one’s taxable home value could grow by over the previous year.

• Allow local communities like Austin to vote on whether to increase the sales tax charged locally, by a penny, for example, which would produce extra revenue for schools and allow districts to lower property tax rates.

The Texas Commission on Public School Finance, created by the Legislature last year, has for months been listening to input from district officials, state leaders and analysts. It is slated to issue recommendations by the end of the month.

All these brilliant ideas come from think tanks and school officials as well as by combing through Hegar’s latest annual report on the state’s tax exemptions in which he identified $60 billion worth of potential revenue.

What is the Electric Company FY-18 Financial Loss?

The news media and the City are all reporting different financial losses in FY-2018 for the City electric company.

The City Budget Manager reported “Electric expenditures exceed budget due to higher than projected purchase power costs. The net of purchased power(electricity) and CRRs exceed budget by $11.6 million.”

The Wilco Sun reported that the City owned electric company lost $6.8M.

Well, they both are correct! It all depends on how you want to “slant” the story.

Here is the budget for the electric company:

Notice the highlighted numbers. The City lost $11,635,139 in the Purchased Power line item. Netting other operational revenues, including CRR credits with the non-operations revenues results in the $6,844,132 number.

So what are CRR credits? See the definition from ERCOT.

A Congestion Revenue Right (CRR) is a financial instrument that results in a charge or a payment to the owner, when the ERCOT transmission grid is congested in the Day Ahead Market (DAM). CRRs may be used as either a financial hedge, or a financial investment. When used as a hedge, a CRR locks in the price of congestion at the purchase price of the CRR. When purchased as an investment, it may be used as a financial tool to speculate whether the congestion rent will be greater than the purchase price.

So in this case it appears Georgetown purchased CRRs at a fixed price early in the year and when the actual Congestion Transmission Rights were allocated to Georgetown, the City realized a net gain of $2,975,855.

What are Congestion Transmission Rights? Again from ERCOT.

A transmission congestion right (TCR) serves as a financial hedge against interzonal congestion costs. The TCR gives its holder the right to receive payment at the current shadow price of energy for each TCR held for the CSC path being constrained at the specific time of the constraint. The holder of the TCR is paid by ERCOT for the congestion value of that CSC.

Congestion occurs the most in West Texas when there are more wind turbine generators than there are transmission lines to transport the electricity to the population centers. When the lines are at peak capacity, ERCOT has to supply electricity from other generators at a higher costs to meet demand. This higher cost is essentially the congestion costs. These costs can be offset by the CRRs.

Thus the loss in purchasing power(electricity) is $11.6M while the net loss is $6.8M after considering gains from CRRs and delays in spending money allocated for capital projects.

So why did the City experience a loss of $11.6M in purchasing power(electricity) when the City as fixed price contracts for solar and wind generated electricity?

Stay tuned for the next episode of the 

Georgetown watchdog.