Sunday, July 29, 2012

City's Draft Budget for Health Insurance

The City of San Angelo released a draft budget for 2102-2013.  City Council wants greater headcount reductions, which would save in both salary and benefit costs.  Council intends to shift operating money toward capital items.  One source of savings for this council has been employee and retiree health insurance.  Consider this statement from the city's 2011-2012 approved budget:

Employee Health Benefit Stabilization – The cost of health benefits has increased substantially over the last eleven years. Health coverage in fiscal year 2009-2010 paid by the City is approximately $5.3 million for both employees and retirees. The amount increased to $5.8 million in fiscal year 2010-2011. In fiscal year 2011-2012 the City went to an exclusive provider plan for its employees which generated $525,000 in savings. Additionally employee and retiree only premiums decreased by $3.30 per month and costs for dependents of employees and retirees were equalized and were also reduced by 10%. The remaining savings of $324,500 was set aside for use in future years.

The City already had nearly a $1 million surplus in its self-insured health insurance account.  Year to date figures portend another large surplus.

Add $343,000 in federal ERRP money and the city has nearly $2.2 million in its health insurance cash kitty.  That's a nice chunk of change for City Council to redirect to capital needs, while dancing to stay within ERRP's only requirement of maintaining their employer contribution.

In the past Council committed to a public vote on transferring any funds from health insurance to general purposes.  I expect a lively discussion when they live up to that promise.

Click on an image to make it larger

TTU's 21 Day Notice on Rallo Replacement

Texas Tech posted a plethora of information online regarding its search for a new President for Angelo State University (ASU).  The Texas Tech Board of Regents webpage indicated. according to state law::

The governing body of the institution must give public notice of the name or names of the finalists being considered for the position at least 21 days before the date of the meeting at which final action or vote is to be taken on the employment of the person.
As no name is yet to surface, the topic must not be on the agenda for the August 9-10 Board of Regents Meeting in El Paso.

The search involves a corporate-oriented Search Committee charged with:

Nominating more than one candidate to be recommended to the Chancellor. In turn and in accordance with the Regents’ Rules (which provide that the Presidents of Texas Tech system component institutions shall be appointed by the Chancellor with the concurrence of the Board of Regents), the Chancellor will make the final selection and appointment.
Unless there's a special called Board meeting, the next opportunity for Regents to rubber stamp Chancellor Hance's selection is October 12, 2012.

Two candidates (at least) and twenty one days notice; these elements seem newsworthy.

Thursday, July 26, 2012

Hirschfeld Industries' Tax Situation

Prior to being bought out by Insight Equity Hirschfeld Industries paid federal taxes at a 36% rate.  Post buyout the rate is 1% or less.

How did this occur?  Insight Equity fashioned Hirschfeld into its private equity underwriter (PEU) image.  As a Texas Limited Partnership Hirschfeld spins profits out to partners via distributions, which are taxed as investment income at a preferred rate of 15%.  In the PEU world this is known as "carried interest." 

While PEU Hirschfeld hates paying taxes, it benefited from government spending.

This is the picture available on Hirschfeld Industries, thanks to their 2009 effort to go public.  Had that not occurred, the public would be blind to Hirschfeld's operations.  Such cases require a whistleblower or leaker.

I chronicled the private equity explosion on PEU Report and am sad to find an example of greed so close to home.

Click on any image to make it larger.

Sunday, July 22, 2012

Council's Capital/Operating Conundrum

Having under invested in capital items and infrastructure over the years, San Angelo's City Council is in the throes of budget woes.  Council needs money to replace expensive fire trucks and restore area roads.  Elected leaders assented to some level of borrowing to play capital catch up and reducing operating expenses to drive more funds to capital.

A wild card in the meeting was an offer from State Representative Drew Darby and the Texas Department of Transportation.  The state proposed the city fund and build an interchange near Howard College, currently slated for 2018. Mayor New said TXDOT would expect partnerships in the future for new roads or improvements.  He sees toll roads in metro areas (public-private partnerships) and local funding required for our area (public-public partnerships)

City employees generate the largest operating expense though pay and benefits.  Mayor New raised reducing headcount in Council's recent budget session.  Nine months ago Mayor New discussed taking nearly $500,000 in projected health insurance savings and buying a needed fire truck.  His idea got no traction in a public meeting.

Pressure to reduce staff and save on benefits played out indirectly at the end of the July 17 council meeting.  Mayor New raised the issue of meeting GASB obligation, which impacts pension funding and employee health insurance.  New focused solely on pensions and what he perceives as a low return problem.

Mayor New mentioned other pensions.  GM recently offered certain pensioners a buyout, then contracted out the pension (for those not taking the buyout) to Prudential, via a group annuity.    New talked about challenging times for pensions to garner return.  This could presage investing in riskier assets, like private equity.  Might San Angelo employee pensions end up with a stake in MedHab?

Update 7-23-12:  Chasing return brings risk.  Consider what one financial consultant said in Barron's.  "Pension funds are front and center on the endangered list, having, as Stephanie notes, "loaded the boat with junk (debt) in a desperate attempt to meet 8%-plus return assumptions in a 1.5% risk-free world."

Update 7-24-12:  The Standard Times reported on Council's latest budget workshop.

Saturday, July 21, 2012

Hirshfeld Wind's PEU Owners can Siphon Cash

Martifer withdrew from its wind tower joint venture with Hirschfeld Industries, giving Hirschfeld 100% ownership.  This news is the latest in a series of setbacks from their original vision.  The plant opened a year late and failed to deliver the number of jobs anticipated.  Consider this Standard Times 2011 report:

Richard Phillips, President of Hirschfeld Industries, said the plant maintained about 25 employees during 2010 and has hired about 20 people so far this year with plans to hire up to 125 more in the next half year. That's more than 50 people short of what the plant said it would hire in the coming years, but Phillips said the plant could end up hiring up to a few dozen more employees.
That totals 170 employees by the end of 2011.  Sean Lewis, Director of Community and Economic Development for the City of San Angelo stated:

"Our goal with the project has been to create jobs and that is the development corporation's ultimate priority, so while we would've loved to have seen these jobs created last year with the federal tax implications with the wind industry and with a slow economy, we do feel very good that production has started on the towers and that they are ramping up employment, even if it a year later than we were hoping."

Hoping or planned?  Fast forward to today.  Hirshfeld Wind is virtually gone, renamed Hirschfeld Energy Systems.  The only products it promotes on its website are oil and gas related.  However, it still makes wind towers under contract to other firms, including Siemens.   The plant employs 125 people, 45 fewer than their revised estimate, 100 fewer than their original representation.

City, county, state and federal governments threw $22 million in tax incentives/abatements at Martifer-Hirschfeld.

In 2010 the City of San Angelo budgeted $2.64 million in incentives, paid nearly $1.3 million with the expectation the complete amount would be paid.   In July 2012 San Angelo City Council approved a budget amendment for $230,000 to be paid to Hirschfeld Martifer based on their agreement.  The City has three more years to write checks for $6,000 per job.  Should employment remain at 100, that would amount to $600,000 per year, for a total of $1.8 million.

Hirschfeld's private equity owner, Insight Equity, has a history of taking cash out of the operation via partnership distributions.  From 2006-2009 Hirschfeld paid out nearly $100 million to owners via partner distributions.  In 2009 they floated debt, part of which funded partner payouts.  City economic development money could end up in many places, including partner pockets.  It's a PEU world

Update 7-22-12:  San Angelo City Councilman Kendall Hirschfeld recused himself from the budget amendment item, which granted an additional $230,000 to Martifer-Hirschfeld.  City staff remained silent on Hirschfeld's buyout of Martifer's interest in the JV.

Monday, July 16, 2012

Martifer Out of Hirschfeld Joint Venture

San Angelo's City Council will consider a $230,000 budget amendment for Martifer-Hirschfeld in tomorrow's meeting, only the Martifer-Hirschfeld of today bears little resemblance to the one garnering $3.5 million in tax credits from President Obama's White House in 2010.

After hearing a rumor and inquiring, a city official informed me:

Hirschfeld bought out Martifer’s stake in the Martifer Hirschfeld joint venture several months ago. There are two production lines that are still running three shifts at the Hirschfeld Wind Energy plant (formerly Martifer Hirschfeld), and one of the lines is still producing wind towers for Siemens. However, there are very few, if any, new orders for towers coming in. Lucky for San Angelo, oil is booming, and Hirschfeld Wind Energy can easily switch their second production line to oil tanks which are in high demand. 

While Martifer is out of the joint venture, its name remained in City Council documents.

As for Martifer's exit, my guess is capital got scarce for a Portuguese company in the European Debt Crisis and they sold out their interest for cheap.  Here's Martifer's stock chart:

The stock traded at 0.6 Euros, roughly 74 cents a share.  The debt crisis could've impacted Martifer's interest expense and exchange rates in a negative manner.

The end result is Hirschfeld Wind/Oil Tank continues to employ West Texans.  I do wonder what commitments came with the $3.5 million federal tax credit and how producing oil tanks might factor into any terms.  It seems the City's tax rebate for Hirschfeld is safe, given no council members proposed reducing such in last week's budget workshop.

Other funds were expended to get Martifer-Hirschfeld up and running:

For the Texas Pacifico Railroad rehabilitation project going east from San Angelo, including the bridge at Ballinger, to facilitate movement of wind energy components produced by Martifer-Hirschfeld Energy Systems, $14.1 million in stimulus funds were committed.
There were training dollars, as well

Texas Workforce Commission Skills Development Fund Grant is enabling Howard College to provide training to 133 employees at Martifer-Hirschfeld Energy Systems this year.

The grant, totaling nearly $600,000, will give employees the skills to perform several jobs, including logistics operators, production helpers and repair welding operators.

Additionally, Howard College, through a grant from the American Recovery and Reinvestment Act of 2009 stimulus package, will purchase hydraulic and electrical training systems this year.

This equipment will allow students to obtain the initial hands-on training and experience necessary to enter certification and/or degree programs that specialize in preparing graduates to work in the wind energy, wind turbine and associated renewable energy industries.

Martifer-Hirschfeld moves may be news for less than 24 hours, should City leaders update Council and the public on developments.  It will be interesting to see.

Update 7-17-12:  The Standard Times report doesn't indicate city leaders updated Council on Martifer's moves and the changing work at Hirschfeld Wind/Oil Tank.   It seems Council approved the budget amendment and moved on.

Update 7-18-12:  The Standard Times picked up the story

Update 7-20-12:  Nearly $100 million was paid out to Hirschfeld's PEU and family owners from 2006-2009  

Turner Schools SOD on Red Light Cameras

Thank heaven Jim Turner of ConchoInfo schooled me on red light cameras.  His e-mail stated:

Might want to look at what I have up on ConchoInfo.

This died soon after Hogg proposed it. I have a feeling he had been
approached by a camera company. There is no money there. No real
revenue. In 2007 the legislature changed the rules of the game. They
basically said that if the cameras are really for safety then all the
revenue generated will be spent on traffic safety related expenses. Half
goes to trauma centers, the other half to intersection improvements,
education, and traffic safety programs. Only those red light cameras
install before the bill passed were grandfathered on the use of
revenues. Lubbock killed their program shortly after the bill was

I'm also very familiar with the cameras you see at intersections. Like I
said in my post, they are there to tell when a vehicle is in the
intersection, etc.. I was working for TXDOT in 1995 when they installed
the first ones here. I did their radio maintenance and helped the signal
department with the then new technology. There were concerns about the cameras and their use even then. One nice thing about them when used for traffic light control: they look at such a broad area to detect vehicles that you can't tell the license number on the cameras. I've seen the outputs. They are mounted high to get a good area and are looking at about a third of a football field to detect vehicles. State and federal
laws to limit them to only functioning as a fancy motion detector and
they have no recording capability built in. Red light cameras need to be
much lower to get a good picture of the license plate (and hopefully
picture of driver). There are also huge problems with false positives on
right turn on red. Greg Mauz in Christoval has been fighting this nation
wide for years.

We do need to watch these systems carefully. Once the cameras are in
place adding extra equipment in the controller cabinet that does
recording in the name of "public safety" or "Crime control" or even
"Anti-terrorism" is easy. The laws would have to be changed but that's
never slowed down federal or state governments before. Can't be changed locally but no problem in Austin or DC. Just do it "for the children."
I didn't realize the children needed $100,000 in revenue for the coming budget year.

Sunday, July 15, 2012

San Angelo's Sparse Red Light Camera History

Red light camera revenue made City Council's list of options for reducing a projected budget shortfall.  This isn't the first time Council considered red light cameras, also known as photographic traffic systems.  On November 6, 2007:

Councilmember Hogg requested consideration of red-light cameras in conjunction with traffic tickets.

Council took up the topic in the next meeting.  Flashback to November 20, 2007:

Councilman Hogg stated he had received correspondence regarding citizen concerns and due to recent legislation, such ordinance would require a citizen committee and traffic study. He suggested any revenues would be for public safety use only to help fund trauma facilities and emergency medical services.  Councilman Hogg noted he was not in favor of the revenue; however, he was interested in utilizing such a tool at specific intersections.

City Manager Harold Dominguez stated in light of recent legislation, staff is researching intersections with numerous red light violations specifically identified by the Police Department. He noted the challenge is to utilize such a tool to either monitor the intersection or protect the streets. Mr. Dominguez asked whether the Council preferred a mobile or permanent unit.

Councilman Hogg stated the cameras could not be used for traffic studies, and the legislation had specific requirements which may raise concerns. Councilmember Farmer spoke in favor if the cameras assisted the Police Department in controlling traffic issues.

City Manager Harold Dominguez read the legislation into the record.

Councilman Morrison stated studies have shown an increase in rear-end accidents and suggested staff consider a yellow light time increase. Mayor Lown added it was sometimes difficult to identify the driver. Both spoke in opposition to the proposal.

Councilman Hogg replied studies have also shown a decrease in citations and violations, and the City of Garland has had the successful system in place for years.

Councilman Fields suggested all parties research the studies prior to further consideration.

Motion, for staff to explore studies and draft an ordinance for red light camera enforcement, was made by Councilman Hogg and seconded by Councilmember Farmer.

Citizen Jim Turner commented on privacy issues and how cities with cameras have abandoned then. He suggested issue research be redirected to other areas that need to be addressed prior to considering cameras, i.e., yellow light timing, etc. Mr. Turner noted the system has false positives, and the technology is premature.

City Manager Harold Dominguez stated new systems from various companies indicate the technology has improved. He noted staff was in the process of finalizing the Traffic Engineer position and once hired, the individual could research the project in more detail.

Councilman Hogg recognized the need to evaluate and receive additional information regarding traffic studies and issues at particular intersections, and if so warranted, Council may direct staff to draft such ordinance.

Motion, to amend the prior motion and direct staff to evaluate the possibility of such ordinance, was made by Councilman Hogg and seconded by Councilmember Farmer.

Councilman Morrison and Mayor Lown reiterated their disinterest.

Citizen May Johnson suggested Council may appreciate such technology if they had been the victim of a red light accident as she had been. She noted this project was a valid study.

A vote was taken on the motion on the floor. AYE: Fields, Perez-Jimenez, Hogg, and Farmer NAY: Lown, Morrison, Cárdenas. Motion carried 4-3.

What progress did the city make on red light cameras since 2007?  The City's website is virtual black hole on the topic.

Did staff ever draft an ordinance?  Did the traffic engineer ever finish their assessment?  What were their findings?  How does it compare to others, including local red-light activist Greg Mauz of Christoval?

Cameras can have different uses, but I find it odd that a newly lit intersection has something that looks like a red light camera ready to be used.

Which cameras perform what function in America's surveillance state, where revenue is badly needed?

Distinguishing Budgets

The City of San Angelo received the Distinguished Budget Award from the Government Finance Officers Association of the United States and Canada.  The city must meet GFOA criteria to garner the award. 

The document must include summaries of revenues and other financing sources, and of expenditures and other financing uses for the prior year actual, the current year budget and/or estimated current year actual, and the proposed budget year.

The City received the award for 2010, the year it raised health insurance premiums for employee/retiree dependents from 36 to 58%.  That information did not make the original budget document or presentation, nor did it make a revised budget.

The city's pattern of not adjusting the health insurance line item for Council decision continues.  The July 17 agenda shows a number of budget amendments, none of which include $480,000 in projected savings from the Aetna-Community Hospital exclusive provider arrangement or increased costs of $200,000 for reinsurance.

First public hearing and introduction of an Ordinance amending the 2011-2012 Budget for grants, new projects and incomplete projects.
Last time I checked with the City, Early Retiree Reinsurance Program (ERRP) funds were yet to be applied.  The City has three material reasons to update the budget, yet it failed to do so.

It takes an accountant to figure out the City's actual position on health insurance. That is distinguishing, just not in the same way as the budget award.

Saturday, July 14, 2012

Showdown in San Angelo: New Land Based Version?

San Angelo's City Council will consider leasing 100 acres in its Industrial Park to Lucas Oil for $1 a year.  The July 17 agenda states:

Consideration and possible action regarding a recommendation by the COSADC Board to approve leasing approximately 100 acres of Phase 2 of the Industrial Park to Lucas Oil at a lease rate of $1.00 per year, for a period of five (5) years, requiring Lucas Oil to hold a minimum of one (1) race per year on the leased land, releasing the deed restrictions limiting the use of the land for industrial park purposes only, to allow use of the land for off road racing, authorizing the City Manager or his designated representative to negotiate and execute said lease agreement and any other matters in connection there to
Lucas Oil conducts the annual Lake Nasworthy Boat Races, known as Showdown in San Angelo. The agenda packet showed:

At its meeting of April 11, 2012 the COSADC Board approved leasing up to 100 acres of phase 2 of the Industrial Park for use by Lucas Oil as an Off Road race track. In order for this to occur, an existing deed restriction imposed by Council at the time the property was conveyed to COSADC must be revised to eliminate the restriction that the property can only be used as an industrial park.
I'd heard rumors the city wanted to use Twin Buttes for off road racing, but didn't put much stock in those.

The City has been approached by Lucas Oil as a possible venue for one or more races per year in their off road racing series. They require approximately 100 acres to create the race course, parking area, fan area etc. COSADC staff was approached by City staff to investigate the possibility of utilizing a portion of the Industrial Park for this purpose. In researching the records it was discovered that the original deed to the Park included a provision that “the property shall be used for an industrial park and no other purpose.” There was also a concern that due to the fact that Phase 1 of the Industrial Park was constructed using a grant from the Economic Development Administration (EDA) that this might in some way impact that grant. Staff contacted the EDA regional office and verified that use of Phase 2 property would not impact the Phase 1 grant.
The 2012 Lucas Off Road Racing Series season schedule runs March 31 thru October 28. There are currently seven venues, with 8 race events of 2 days duration each. Current race locations are as follows:
Firebird Raceway, Chandler, AZ
Lake Elsinore Motorsports Park, Lake Elsinore, CA
Speedworld Off Road Park, Surprise, AZ
Miller Motorsports Park, Tooele, UT
Glenn Helen Raceway, San Bernardino, CA
Wild West Motorsports Park, Sparks, NV
Las Vegas Motor Speedway, Las Vegas, NV
The types of Racing typically include :
Trucks-Pro 4 Unlimited, Pro 2 Unlimited, Pro Lite Unlimited, & Super Lite
Buggies – Pro Unlimited & Limited
Karts – Modified, JR2 &JR1
Lucas anticipates holding one race per year in San Angelo, possibly as a single day of racing as opposed to the normal two day race weekend. They also anticipate needing to subsidize drivers to get them here at least in the beginning. The anticipated draw is similar to the Boat Races. Lucas has visited San Angelo during the rodeo and likes the reception given to visitors and competitors as well as the way Boat Race drivers are treated here.
Given the mention of subsidy, this next item warrants examination

Financial impact:
To be determined
Surely Lucas Oil had an idea of how much it would cost to launch an inaugural off road race in San Angelo.  The question is how much the City will kick in between its various economic development arms?  A search of Lucas Oil on COSADC's website produced no results

Other Information/Recommendation:
Staff recommends approval

Might off road be the future of San Angelo?  It makes sense in light of the city's deteriorating streets.

San Angelo's Budget Priorities

City Council July 20, 2012 Budget Presentation
City Council held a budget workshop on Tuesday, July 10.  I listened to the meeting on Channel 17 via the web, but only heard audio.  The video feed didn't show on my computer.

While no final decisions were made, Council discussed a few highlights:

1.  Identifying $3 million a year for street maintenance and replacement.  Currently, only $1.5 million is available for General Fund capital projects

Due to poor upkeep the city is behind on street maintenance, to the point some streets need total replacement.  The operating budget has an additional $1.2 million for seal coating, where the city will take back over a service currently privatized.

Worst case scenario shows $155 million in long term street capital needs.  Council wants to dig out of this pothole with cash, not borrowing.  That's like saving up for your home and not buying until you can pay cash.  Therefore, council looked for operating savings:

2.  Shifting animal service functions to an area nonprofit.

The aim here is to reduce the amount the city spends on animal services.  The City believes grant funds would support an area nonprofit, although Interim City Manager could identify no foundations currently interested in supporting this move.  Other possibilities include:

3. Closing parks and shifting the Texas Bank Sports Complex to a private facilities corporation.
I find it ironic that items #2 and #3 are privatization, while #1 is re-publicization of a formerly privatized function, since judged inadequate.

4.  Installation of parking meters downtown that would be in effect during the day and evening.

Many cities are privatizing their parking functions.  The City of San Angelo might install parking meters, which could be privatized later.  .  

Health insurance arose at the end of the meeting.  The hope is that no new money is needed, but that's due to tow factors.  One is the city's experience to date, while the other is the city's byzantine budget process which never adjusted the budget for the exclusive provider arrangement with Community Hospital.  In effect, there's a budget sandbag to absorb a minimal increase. 

Overall, council did not want to pass the total budget increase onto citizens in the form of fee or tax increases.  Mayor New noted the City could reduce employee headcount, at least in relation to other cities which employ fewer (but pay them more).

These elements simmer in the 2012-2013 budget stew.  The heat's fixin' to turn up. 

Sunday, July 08, 2012

ASU's AGB Presidential Search

Three weeks ago Texas Tech launched a website for Angelo State University's Presidential opening.  TTU wanted to give the public the ability to nominate people for the position, which arose from Dr. Rallo's accepting a Vice Chancellor of Academic Affairs position at Tech.  Here's the chronology of events:

May 18 - Rallo named Vice Chancellor

The timing of Rallo's promotion seemed to knock newly appointed Vice President & Provost Dr. Brian May out of the running (at least in my mind).  How could someone just months into that job be named President?  Could they even legitimately throw their name in the hat?

May 29 - Search committee named

The Committee is corporate dominated, which could favor Dr. May, given his 2008 Citizen of the Year Award from the San Angelo Chamber of Commerce.  Other committee members could conceivably benefit from the internal promotion of Dr. May, as a provost slot would need to be filled.  If Dr. May couldn't credibly put his name in the hat, who could?.  The public.

June 18- Website for public nominations
There are two rumors running around campus.  One has May with a credible shot.  The other calls for an outsider to clean up ASU's spotty accreditation status and fiefdoms, which allow for personal patronage.  That outsider could be from TTU.

I have friends who think very highly of Dr. May and he could make an excellent President.  That said, it'd be amazing for someone new to the top academic position to parlay that into a Presidency in four months.  But I've been amazed before and will be again. 

Does the AGB in AGB Search stand for "a good-ol' boy"?

Saturday, July 07, 2012

Council's Budget Workshop

San Angelo City Council members will work on the budget for the 2012-13 fiscal year during their July 10 meeting.

Detailed discussion of needs such as street maintenance, raises, property tax relief, etc. In order to fund these needs, we will discuss options such as increased user fees, franchise fees, hotel occupancy tax, etc.
After saving a projected $480,000 via an exclusive provider arrangement with Community Medical Center, council didn't touch on health insurance during their June 19 meeting.

Council plans for the coming year by comparing numbers to this year's budget, not actual figures with projections to year end.  They effectively guess the coming year by looking at this year's guess, omitting the accuracy of the current guess.

As the city never revised the health insurance budget for the EPO savings, an estimated $480,000 is available to fund health insurance increases.   For years the city effectively provided no increases in its health insurance budget.  When increases came employees paid more than the city.  Likewise, when savings arose the city took the lion's share.  I expect that trend to continue.

The City is willing to spend new money, just not on health insurance.  Evidence is the Master Developer request for qualification.  It identified a number of money pots, varying from direct cash incentives to tax rebates to tax abatement.  It will be interesting to see Council's health insurance and master developer decisions.

Monday, July 02, 2012

Shielding White House E-mails: BP & Katrina

The Bush and Obama White House cited executive privilege in not releasing e-mails from their respective Gulf Coast disasters.  Obama's BP "Oil Spew" and Bush's Katrina "Toxic Gumbo" claimed lives before both administrations cried "unprecedented disaster." 

Investigations into White House disaster operations weren't able to locate the honesty promised by George W. Bush or the transparency offered by Barack Obama.

 A government lawyer offered in the BP case:

“Disclosure of these documents would chill the open and candid discussion of internal opinions, ideas, and strategies” among federal policy makers, including the Executive Office of the President, during a future incident like the Deepwater Horizon oil spill."

By hiding past mismanagement, the government will be able to do better next time?  Hardly.

How many more unprecedented disasters will occur before citizens' right to a fair and complete investigation outweighs a president's right to privacy?  Privacy, it's the principle that cuts one way.  

Sunday, July 01, 2012

Energy Wholesale Prices to Rise 50% in August

The Standard Times reported:

The Texas Public Utility Commission voted Thursday to raise the wholesale electricity price cap by 50 percent this summer in a move it hopes will spur construction of new power plants.

The vote by the three-member commission, all appointed by Republican Gov. Rick Perry, raises the wholesale rate cap on Aug. 1 from the current $3,000 per megawatt-hour to $4,500. And there could be more to come. Commissioners are already considering tripling the price to $9,000 in 2013.

This move is to stave off bankruptcy for Energy Future Holdings, formerly TXU.  Private equity underwriters KKR, TPG and a smattering of big Wall Street names bought TXU in 2007.  The buyout group made major promises to consummate the deal.  I imagine most are unfinished given Energy Future Holdings precarious financial position.

PEU investors wrote down their equity holdings from $8 billion to $1.6 billion (20%) in early 2011 (source WSJ).  According to Dealbook that fell to $800 million (10%) in early 2012, . Bloomberg recently reported another haircut, with EFH equity down to $400 million or 5%.  The Dallas Observer opined that EFH could soon go belly up, causing a ripple in the financial world.  Thus the need to socialize the losses, which takes "political will" to execute..

EFH has the political connections to influence state policy.  KKR and company loaded the EFH board with heavyweights.

The former US Secretary of State James A Baker, III will serve as advisory chairman to the investment group of new owners. William Reilly, chairman emeritus of the World Wildlife Fund and former EPA Administrator, will join the board of directors and lead their efforts in making climate stewardship central to corporate policies. Donald L Evans, former US Secretary of Commerce; James R Huffines, chairman of the University of Texas Board of Regents; and Lyndon L Olson Jr, former Texas State Representative and former US ambassador to Sweden, will join the board of directors.
A tripling of wholesale energy rates from $3,000 to $9,000, a 200% increase in one year is targeted to save EFH.  KKR raised $4 billion for energy and infrastructure investments.  They won't throw good money after bad.  Thus the state will use its power to make middlemen and consumers pay.  Meanwhile, PEU's love investing in Texas energy.  Privatize the gains, socialize the losses.  It's a familiar refrain.

Update 10-24-12:  The race is on to $9,000 peer kilowatt hour.  Vote is next week.