Bielarski: Why GRU had to be taken away from the City Commission, Part 1

Letter to the editor

Part 1 – How it began

As told through excerpts from my book, “The City that lost Control – the true story of how greed, deception, politics and a battle over green energy shattered a community”

Excerpts from Chapter 6 – Pay no attention to the woman behind the curtain

“In the city elections of 2004, Gainesville elected a young, vibrant, Hillary-esque figure, Pegeen Hanrahan, to the high office of mayor. As a ‘vegetarian, bike-riding environmentalist,’ she was a true believer that Gainesville, through GRU, had to lead the nation, maybe even the world, in a crusade to rid it of man-made greenhouse gases. She wasn’t alone in that belief. Hanrahan galvanized her political power base through the support network of dyed-in-the-wool environmentalists within the vast University of Florida faculty as well as among other like-minded liberal-leaning people. There was little argument that Hanrahan and her army exerted a dominant hand in guiding the utility.  

“During her reign, GRU was transmogrified from a cost-conscious municipal utility that delivered low-cost, safe, and reliable service to a high-cost utility that subsidized major city projects, a small portion, if any, of which benefited its customers. No matter what the cost, GRU would lead the way in saving the world, one project at a time.

“The first of these major projects was the restoration of Depot Park. The Depot Park was not really a park as much as a repository for the waste byproduct of converted coal tar into gas for commercial use. The site was owned and operated by the Gainesville Gas Company until GRU acquired the company as a way to expand its natural gas footprint. Decades of serving as a rather nasty industrial site had left Depot Park as an environmental cesspool, no pun intended.

“The commission decided to restore the site, not to a simple brownfield, but an improved greenfield location that would become Gainesville’s Central Park – a new downtown location. Once completed, the expanded restoration would cost utility customers over twenty (20) million dollars.”

…

“GRU’s participation in the Depot Park project was a landmark decision because it set the philosophical template for the way in which the commission would come to view the utility and its resources – if the city can’t afford it, GRU surely can.”

…

“Depot Park and the Power district were intended to serve as a physical, green, emerald gateway into downtown Gainesville. The Solar Feed-in-tariff (FIT) served as the city’s philosophic gateway into its next green energy quest. The piece de resistance of the Hanrahan era (former Gainesville mayor) would be the zero-emission (by EPA standards) biomass plant.

“No matter the reality, Hanrahan’s almost decade-long tenure in office had reached its crescendo by 2009. The sum of her political will and capital perfectly captured Gainesville’s zeitgeist during the early 2000s. It made building the biomass plant inevitable.

“What was just as inevitable was GRU’s depleted financial power. To pull off the crowning environmental achievement would require the construction of a costly biomass plant embedded in a power purchase agreement (PPA). For Hanrahan and her army, that’s when her master plan would turn into a master money pit. The Hanrahan era projects doubled GRU’s debt load by the end of her tenure and doubled it again even after she left. The utility no longer had the capacity to borrow the funds necessary to construct a biomass plant without negative impacts on its bond ratings. GRU was tapped out. They had to find a way to get it built without any balance sheet impact – in a process called off-balance sheet financing.

“Investopedia defines off-balance sheet financing as ‘an accounting practice whereby a company does not include a liability on its balance sheet, and it is used to impact a company’s level of debt and liability.’

“Investopedia also noted: ‘The practice has been denigrated by some since it was exposed as a key strategy of the ill-fated energy giant Enron.‘

“In GRU’s case, the biomass PPA was anticipated to be granted off-balance sheet financing treatment.  Maybe it was just wishful thinking because, in the end, under Generally Accepted Accounting Principles (GAAP), the PPA was classified as a capital lease or debt on GRU’s balance sheet. Rating Agencies recognized the PPA as a debt obligation with all the negative implications.”

…

“Hanrahan’s legacy is quite remarkable. She had led a commission that approved the ultimate quadrupling of GRU indebtedness from approximately 450 million dollars to almost 1.8 billion when the biomass PPA was rightfully recorded on GRU’s books as a capital lease. No other comparable municipal utility in the state had experienced close to that level of astronomic growth in their debt during the same period. When Hanrahan took office, GRU had some of the lowest electric rates in the state. During her two terms, GRU’s rates for its electric customers increased dramatically… When I came on board, those rates were projected to drive bills for residential customers over 50% higher than the state average.” 

…

“Hanrahan was the all-omnipotent Wizard of Gainesville, governing the utility and the rest of the kingdom behind her grand green energy curtain. That is, until I came to town as Toto and doggedly pulled the curtain on the biomass PPA, the Solar FIT, and the Depot Park costs.”

…

Next up – How buying out the biomass PPA was so necessary

GRU CEO Ed Bielarski, Gainesville

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