GRU plan requires vetting and consideration of alternatives

OPINION

BY NATHAN A. SKOP

[Editor’s note: You can submit comments about items on the City Commission’s agenda here until 11 a.m. on January 16.]

On Thursday afternoon, Gainesville Regional Utilities (GRU) will ask the Gainesville City Commission to approve Agenda Item 190804 (GRU Generation Transition Plan). The GRU request symbolizes the latest chapter in a string of rushed financial and policy decisions that GRU will ask the City Commission to approve with insufficient vetting and consideration of strategic alternatives.

GRU is asking the Gainesville City Commission for approval to enter into a 30-year contract with Florida Power & Light (FPL). GRU would “initially” pay FPL $9 million per year (not including purchased power costs) to “expand its electric transmission interconnection to FPL to receive up 450 megawatts of transmission capacity by 2022.”

The capacity of this new transmission interconnection (to be built and owned by FPL) is roughly equal to GRU’s maximum summer peak electric load. GRU intends to retire existing fossil fuel generating assets and purchase power from the grid to meet its electric system requirements.

In layman’s terms, GRU is transitioning to buy the majority of its electricity elsewhere, rather than continuing to generate it.

Unfortunately, the 93,000 GRU customers (including GRU employees) who are affected by this proposal will not have a meaningful voice in this decision. While this column and 3 minutes of public comment before a City Commission (that doesn’t listen to citizens) is unlikely to change the outcome, the ongoing mismanagement of GRU at the hands of the City Commission is clearly reflected in your GRU electric bill.

The proposed interconnection with FPL makes sense for several reasons. Unlike GRU, FPL strategically invested in new, state-of-the-art, highly-efficient, and clean natural gas fired generation. FPL’s generating assets, combined with operational excellence and economies of scale, allow FPL to generate electricity at a lower overall cost per MWh than GRU. FPL is the textbook example of a well-managed and operated electric utility, delivering value to its customers through low electric rates and reliability.

What doesn’t make sense, however, is the City Commission failing to pause (despite repeatedly telling GRU management to stop forcing the Commission into making rushed decisions) to consider strategic alternatives that would maximize value to the City and actually result in substantially lower electric rates for hard-working Gainesville families and local businesses. Specifically, the City Commission should consider selling the GRU electric system to FPL (or Duke Energy) while it still has value, as an alternative to GRU’s proposal, which further erodes the balance sheet and value of the electric utility by retiring assets.

GRU General Manager Ed Bielarski claims the GRU proposal “actually takes away any economic incentive for FPL to buy us.” That is yet another reason to consider a sale while the GRU electric system still has value.

Consider the net cash inflows and outflows. The GRU proposal sends over $1.5 billion out of Alachua County over the next 30 years. In sharp contrast, a sale of the GRU electric system generates the purchase price, increased tax revenue for local governments, hundreds of millions of dollars of new infrastructure investment (adding to the existing tax base), and lower electric rates for hard-working Gainesville families and local businesses.

Unlike GRU, an investor-owned utility has the ability to make substantial investments in replacing aged infrastructure and keep rates low by spreading this incremental cost across a large customer base.

While GRU laments the age of its existing fossil fuel generating fleet, the reality is that many utilities continue to run plants well beyond their initial service life. GRU has already spent millions of dollars to upgrade and maintain these assets (scrubbers, rotors, etc.).

GRU currently generates the majority of our electricity with these fossil fuel generating assets, which work perfectly fine (although not the most fuel-efficient) and contribute to fuel diversity, benefiting GRU customers. If it were not for the constant refinancing of GRU debt, the majority of these existing assets would have already been paid off by GRU customers. Retiring these existing generating assets results in stranded cost (debt) and erodes the value of the GRU electric system. 

Ironically, the Deerhaven Renewable Generating Station (GRU’s biomass plant) actually emits more tons of CO2 emissions per MWh than Deerhaven 2 (GRU’s coal-fired power plant). Virtue signaling and spurious renewable energy claims will not stop all the tons of CO2 emissions billowing out of the biomass stack.

In 2013, the Gainesville Sun published my editorial entitled, “GRU has bright future if we learn from past mistakes.” Along with stating that “moving GRU forward to regain its prominence as Florida’s flagship municipal utility requires new thinking, better decision making and overcoming many challenges,” the editorial offered several prudent recommendations, including the need to reduce the General Fund Transfer (GFT) to “improve credit metrics, reduce upward pressure on utility rates, and protect the financial health of GRU.” Unfortunately, the Commission failed to heed prudent advice.

Exactly as predicted, GRU customers have the HIGHEST municipal and commercial electric rates in the state of Florida, as a direct result of the City Commission’s failed crusade into energy policy (replacing GRU’s proven business model with their own energy policy choices, irrespective of cost and risk) and ongoing mismanagement of GRU. The GRU debt downgrades, $1.7 billion in outstanding debt, and your GRU electric bill illustrate the magnitude of these mistakes and mismanagement.  

Purchasing power elsewhere is not going to change the fact that GRU operates under a competitive market disadvantage and lacks the economies of scale associated with a large customer base.

GRU rightfully laments the “pressures” placed on GRU by the failed policies of the Gainesville City Commission. The Commission goal of 100% renewable energy is laudable, but it will cause further financial hardship to GRU and its customers without a substantial reduction to the GFT. FPL customers have the option of paying a voluntary premium each month if they want to demonstrate their commitment to renewable energy.

Consumer choice is certainly better than another Gainesville City Commission mandate, dictating how we must live our lives in their totalitarian quest for utopia and a costly merit badge. The hypocrisy of Mayor Poe and the City Commission’s climate emergency claims are clearly evident by the carbon footprint of their taxpayer-funded travel junkets to Honolulu, Russia, Boulder, Washington, D.C., and countless other places.

Virtue signaling and creating a dependency on purchased power is not going to solve the financial challenges resulting from the ongoing mismanagement of GRU at the hands of the City Commission. Under the GRU proposal, GRU will never be the same, and jobs will be eliminated.

In closing, the GRU proposal fails to present the best alternative for the City and GRU customers. Just like the biomass contract, GRU is rushing into another 30-year contract, gambling on future energy prices, projecting savings under assumptions that may never materialize, and creating an irreversible dependency on purchased power.

Based upon the above, the City Commission should consider the strategic alternative of selling the GRU electric system to maximize value to the City and lower electric rates. At the very least, they should slow down and give everyone time to examine all the ramifications of GRU’s proposed plan.

Nathan A. Skop is an attorney and former Commissioner on the Florida Public Service Commission.