Darin Cook’s presentation below explains why advisory boards don’t work and GOVERNING boards are necessary in managing and operating large utilities like GRU. It’s about protecting GRU customers from sky high GRU bills and protecting the financial health of our utility.
Transcript from Darin Cook/CEO of Infinite Energy and former Chair of the City of Gainesville’s Utility Advisory Board (UAB), presented to the 4As Candidate Forum on September 10, 2018.
I support the GRU governance referendum for an Independent Utility Board for three main reasons: lowering costs, improving focus and transparency and creating a platform to appropriately serve a city of Gainesville’s size.
The first, cost, is a major concern for GRU customers, and it’s no wonder.
GRU has the highest electricity rates in Florida for commercial accounts and towards the highest for residential accounts. Next year, they are even going higher. This expense means that over 18,000 households can’t pay their bill in full every month and have to get a payment plan from GRU. That’s a staggering 20% of GRU’s customers. So if they have any kind of unanticipated costs, such as car trouble or a medical expense or a sickness that keeps them from work, these families are just one setback away from having their electricity turned off.
Those who are hurt most by high electricity rates are those who can least afford it. People on fixed incomes, such as the elderly and the poor, will be harmed most by the rate increase. According to a racial inequity study conducted by UF with some funding by the City of Gainesville, African-American households’ utility bills are 39 percent more than white households as a percentage of total household income.
How did we get here?
The politicians in Gainesville haven’t made good financial decisions in regards to GRU. They entered into a contract with GREC, despite serious opposition by experts, including myself, to purchase biomass-produced power for the next 30 years. This cost GRU ratepayers $70 million per year with no appreciable gain, by GRU’s own admission.
Eventually, the politicians in Gainesville approved a $750 million purchase of the biomass facility to get out of the contract. This actually lowered but locked in our loss to over $40 million dollars per year over the next thirty years. This averages out to approximately a $13,000 dollar extra expense for every ratepayer of GRU.
Their second huge blunder will cost ratepayers over $81 million dollars over the next thirty years. The politicians chose a board of experts called the Utility Advisory Board. Before the negotiations with GREC for the purchase of the biomass plant, the UAB asked the politicians to give all savings back to the rate payers from this purchase and the politicians voted unanimously to do so if it happened. However, mostly the same politicians decided to keep a tax windfall directly caused by the purchase of the biomass plant, despite the UAB voting two additional times for them to return that windfall. This was $2.7 million per year for the next thirty years, and they kept it instead of giving it to the rate payers, which essentially clawed back 25% of the savings. With those funds they decided to create 14 new positions such as a citizen engagement program manager whose midpoint salary is over $70,000 per year and something called a civic collaboration specialist. These positions were never needed in the past, but now with that $2.7 million dollar windfall they are suddenly essential and the ratepayers of GRU are picking up the tab.
To add insult to injury, GRU’s electric rates are going up by 2% next year! An electric rate increase did not have to happen if those politicians had kept their word and had given back all the savings from the biomass purchase.
Robin Hood stole from the rich to give to the poor, but in Gainesville, the poor are the ones subsidizing these programs through GRU and paying wall street bankers millions of dollars of interest a year for something that should never have happened.
So why do politicians continue to extract money from GRU instead of either being more austere or raising property taxes? Because it is easier to extract money from the poor than from the rich. Property taxes are a progressive tax and generally affect those with means. Increased electricity rates are very regressive and generally affect those with little means. If property taxes go up, politicians are voted out. This is rarely the case when electricity rates go up. So it is much easier for politicians to draw revenue from GRU than from property taxes.
In fact, the City of Gainesville is projected to draw $38.3 million directly from GRU through a general fund transfer and another $13.8 million (an increase of 2.7 million dollars that should have gone back to the rate payers) from utility taxes next year. That’s an astounding $52.1 million from a regressive source. By contrast, the City of Gainesville is projected to derive just $30.5 million from property taxes next year. That is an incredible disparity between a progressive tax, property taxes, and a regressive tax (utility transfer and tax).
An Independent Utility Board would lower costs because it would divorce these two revenue sources. And that brings me to the second reason I support this ordinance, which is focus.
If you vote yes on this ordinance, a board of five experts will be appointed by the City Commission to basically be the board of directors of GRU. Their only focus will be on the health of GRU, to keep rates low to the ratepayers, and to provide a fair return to the City of Gainesville who owns GRU. Because the focus will be so narrow, it is not in their interest to fund strange new jobs with strange titles for the City of Gainesville.
They will have the power to lower the general funds transfer by 3% a year. They will have the power to say no to things like entering that biomass plant contract, and I can guarantee that during my time on the Utility Advisory Board, that board would have never entered into that biomass contract. If that decision had not been made, our residential electricity rates would be towards the bottom in the state.
In addition, the General Manager of GRU will report to the Independent Board of experts and not to politicians. This allows the board to draw from the expertise of the General Manger to make long-term decisions for the health of GRU and impact on ratepayers, rather than succumbing to the expediency of the moment from political agendas.
Now some say the board will not be accountable. Of course it is. Initial terms of service for board members have been staggered. One of the board members term will only be one year in the beginning, another two, another three and two others for four. Afterwards all terms will be four years. If someone’s not doing a good job, they won’t be reappointed by the City Commission.
And while they’ll have the ability to make decisions on GRU operations, they do not have complete control. For example, they will not have the power to sell GRU or its assets without City Commission approval by at least a 6-1 vote, and then it would have to be approved by you the citizens.
Finally, Gainesville has grown, and our utility structure must reflect that in order to serve all customers well. Having an Independent Utility Board is not unusual or experimental. It is a normal evolution of a city-owned utility when it gets to a size over 50,000 customers. According to a 2015 survey by the American Public Power Association of those utilities of over 50,000 customers, 77% of city-owned electric utilities have an Independent Utility Board and 23% are run by a city council. For those that are run by an IUB, over 70% are appointed, not elected. The larger the utility, the more expertise is needed, not political agendas by amateurs running the utility.
For cities with independent utility boards, even when they make mistakes, it is easier for them to recover because they are properly structured and don’t bet the farm like GRU did by entering into the contract with GREC. Last year Kissimmee Utility Authority was the lowest in the state. Jacksonville, despite some missteps, is still toward the bottom in rates.
We have a chance to provide a platform that looks out for the welfare of utility ratepayers instead of using them to unjustly enrich city government. Force the city to make hard choices of austerity or raising property taxes instead of continuing to exorbitantly leach off of utility ratepayers by playing the part of the sheriff of Nottingham. You will do just that by voting yes for a GRU governance board.
CEO | Infinite Energy