Bielarski: Why GRU had to be taken away from the City Commission, Part 3

Letter to the editor

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 18 – GRU at a Crossroads

“On February 7, 2019, I launched an offensive when I crafted my first white paper, GRU at a Crossroads, in which I presented a plan to mitigate the embedded structural financial deficits brought about by the commission’s governing decisions.”

…

“I launched my white paper over public email servers, which made it available for online reading. I intended the white paper to be the cornerstone of discussions of GRU finances, particularly the general fund transfer. GRU at a Crossroads was my philosophy of how the utility had to operate in the future. It was also a historical accounting of how GRU changed over the period of the last decade, the consequences of that change, and, most importantly, what must be done now.”

…

“While GRU had been forced to spend more than a decade navigating the uncharted waters of early adoption of new climate-change-driven power plant technology such as Solar Feed-in-Tariffs, net metering solar customers, and a biomass plant, the commission continued to expect and demand an unhealthy-sized general fund transfer from the utility to fund city services.”

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“Unfortunately, at $38 million a year, the size of the general fund transfer was vastly stripping GRU’s ability to fund it.  Worse yet, in previous years, GRU had used its cash reserves, not current earnings, to fully fund the payments.”

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“To replenish its reserves, GRU had been forced to fund a higher percentage of its capital improvements with debt, along with requiring annual increases in its utility rates. It was a vicious cycle, and it was an unsustainable practice.”

“The size of the general fund transfer and borrowing to pay it were the concerns that a post-biomass buyout commission needed to address, not the imposition of a trifecta of commission wishes (one-city government, free internet for all, and net-zero carbon emissions) which would add more debt to GRU’s already massive debt burden.”

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“Later in 2019, I worked closely with Anthony Lyons’ interim replacement, Deborah Bowie, who had tentatively agreed to consider sharing in the pain of GRU’s cash shortfalls by accepting a six-million-dollar reduction in the general fund transfer. We were moving towards the resolution GRU so desperately needed. It appeared that all the stars were aligned for a historical reduction of the general fund transfer and a meaningful stabilization of GRU’s finances.”

“Instead, the commission took the path of least resistance. They simply froze the general fund transfer at the $38.3 million level for 2020. Their actions left 96% of the financial burden to fall upon GRU. It was reckless. It was also a slap in the face to all GRU employees and its customers.”

“Disgusted with the commission’s failure to do the right thing, I sat alone in my office one evening, pondering my next steps. I reflected on my life in this small southern town. The biomass buyout had been a negotiation of two savvy businessmen, while my current interactions with the commission, facing a fiscal crossroads, were more complex. How could any single person convince amateurish politicians that GRU was at a historic crossroads? I wondered if I would soon be finding myself on a similar path.”

   Excerpts from Chapter 19 – GM at his Crossroads

“In March 2021, my CFO, Claudia Rasnick, and Director of Finance, Mark Benton, and I delivered a report to the commissioners on an individual basis called ‘The State of the Utility.’ The report was a clarion call to the commission in which I outlined the utilities’ must-haves and a list of decisions the commission would need to make. For starters, I told the commissioners that GRU must not pay more in the general fund transfer than it earns. A debt defeasance plan must also be developed, and our next steps in power generation must be balanced with an ability to fund them.”

“I also told the commissioners that they needed to decide whether to 1) continue as a power generator; 2) pursue a net zero or 100% renewable plan so quickly; 3) layoff/reduce workforce; 4) deliver the same level of utility services; 5) consider a cycle of constant financial restructurings to meet current debt service requirements; and 6) risk downgrades from rating agencies and higher borrowing costs and limited access to capital markets.”

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“It didn’t take long before the commission found karma to be a bitch. Within a month, on May 3^rd, after taking no action, one of our three rating agencies, S&P Global Ratings, lowered its long-term bond rating on GRU’s combined utility revenue debt two (2) notches to ‘A’ from ‘AA-.’  I notified the commission in a two-page e-mail: ’This two-notch downgrade is the first of its kind for GRU and is the fifth bond rating downgrade since 2010.’”

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“Although a downgrade to ‘A’ sounds fairly innocuous, it is five notches away from losing investment grade status and four notches away from the higher investment grade status of ‘AAA+’.  An ‘A’ rating is not like an ‘A’ on your children’s report card.  It’s more like a ‘B-‘ or a ‘C’.”

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“With this downgrade, there was no doubt what brought us to the tenuous state of the utility. Warned of GRU’s inability to fund the general fund transfer because of low growth, high fixed costs, and the burdens of two ill-advised contracts (Original Biomass PPA and the Solar Feed-in-Tariff), the commission needed to act in 2019, or 2020, and/or 2021.  Failure to act in 2021 was the commission’s last strike.” 

SUMMARY

This is the real story, supported with contemporaneous notes, presentations, correspondence, e-mails, and newspaper accounts, through which the public needs to understand how after the Biomass Buyout on November 7, 2017, the city commission 1) refused to lower the general fund transfer, 2) ignored the advice of GRU staff, 3) drove down bond ratings, 4) refused to govern GRU as a business, and 5) placed GRU and its customers in a very vulnerable financial position. It’s the cautionary tale of poor municipal governance.

Click here to read Part 1 – How it began

Click here to read Part 2 – Why the buyout was necessary

GRU CEO Ed Bielarski, Gainesville

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