Konish: Basic facts about GRU debt

Letter to the editor:

GRU is a municipal multi-utility company comprised of five (5) discrete systems: electric, gas, water, wastewater, and internet. GRU is a d/b/a of the City of Gainesville (City). Neither GRU nor its five subsidiaries are separate entities. They are in fact the City.

It is notable that the current GRU debt of $1.7 billion remains unchanged from the post-biomass plant purchase debt level in September 2019. Interest paid on the massive GRU bond debt is exempt from federal income tax. This is not the case with interest paid on the bond debt of investor-owned electric utilities (IOU).

Both this fact and the sheer magnitude of GRU debt make any purchase of the GRU electric system assets by an IOU very problematic.

Moreover, the City Charter requires prior City Voter approval of any such purchase.

There are other issues. Unless all GRU debt is paid off, with associated penalties, there would be the issue of which entity’s debt would be subordinate. GRU debt, therefore, is probably not assumable by an IOU.

GRU’s massive debt comes in many forms. Recent GRU credit rating downgrades do not merely increase borrowing costs on top of otherwise raising interest rates. These rating downgrades trigger financial penalties for exotic debt such as credit default swaps.

The continuously rising GRU electric rates, charges, fees, etc., are not producing increases in GRU non-fuel electric revenues that could ever reduce GRU debt. This is because GRU ratepayers must reduce, and in fact are reducing consumption or are exiting from unfavorable GRU programs such as outdoor rental lighting. There really is no way for GRU to significantly reduce its debt. It is important to note that GRU revenues and assets are three to four times greater than those of the City. The City could never itself absorb the GRU debt on top of the non-GRU debt.

GRU has become an embarrassment to the entire Florida Municipal Electric Industry. GRU belongs to a consortium within this Florida Municipal Electric industry. It would be a good idea to reach out to these groups and ask them for rescue plans. Legislative takeover of GRU poses a threat to all Florida Municipal Electric Utilities. There are no more financial gimmicks or fig leaves for GRU to hide behind.

GRU ratepayers, City taxpayers, and possibly GRU debt holders will have to absorb the costs of this entirely avoidable and predicted financial disaster. The purchase of the biomass plant for twice its actual value failed to produce “savings” and leaves GRU facing bankruptcy.

The Florida legislature has created municipalities and has the power to dissolve a municipality, change the charter without voter approval, or recommend that the Governor remove elected City officials for cause. Stay tuned.

Jim Konish, Gainesville

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