What’s Wrong With GRU?

GRU was started in response to a privately owned electric company turning off the power to the city in 1912.

The situation came to a head on January 26, 1912, when GG&E shut off the City’s power. Citizens were outraged and organized a grassroots effort to demand the creation of a city-run electric utility. They got their wish, and construction of Gainesville’s downtown power plant — known today as the John R. Kelly Generating Station — began the following year.

https://www.gru.com/100thAnniversary.aspx

Somewhere along the line, the city decided that it was only fair to charge the utility (GRU which the city owns) an annual fee for the access to the “right of way” for all of the wiring as other cities do for utilities. This seems like a fair way to raise money that the city needs to provide government services. I’m sure there was much discussion as to what this fee should be as it is ultimately passed on to it’s customers, the residents of Gainesville. This charge that the city makes GRU pay is called the General Fund Transfer where it goes into the city’s general fund to be spent with no restrictions. Here is how GRU describes it:

General Transfer Fund

What is the General Fund Transfer, or GFT?

The GFT is utilities revenue that is transferred to the City of Gainesville’s General Fund.  The General Fund pays for a broad range of city services, including Gainesville’s Fire Department, Police Department, Parks, Recreation & Cultural Affairs and Public Works. 

How much utility revenue is transferred? 

In fiscal year 2018, the GFT was about $36.4 million; in fiscal year 2019, the GFT is expected to be $38.3 million. 

http://gru.com/AboutGRU/DidYouKnow.aspx

The percentage that GRU pays to the city is calculated off the gross revenues of GRU and has been adjusted through the years for various reasons, usually to make up for shortfalls or needs in other parts of the budget. I will show you the budgets for GRU and the City of Gainesville to try and give you an understanding of how it works. Here are two excerpts from the GRU 2019 Annual Budget that will show you Income and Expenses for that year.

https://gru.com/Portals/0/Annual%20Operating%20and%20Capital%20Budget%20FY19%20Post%20CC%20changes%20Summary.pdf

So you can see that the GFT of $38.285M came off the the total gross income (all utilities) of $418.326M or 9.2% of Total Gross, not just electricity. Compared to other cities with a similar situation, the 9.2% amount is much higher than the average of other Florida cities which is somewhere between 5 – 6% of total electrical gross. I haven’t done the research yet for the other utilities (gas, water etc.) but I would guess that the 9.2% we are paying is also much more than other cities in a similar situation.

Here is an excerpt from a Gainesville Sun article from 2012 so this information isn’t new.

That American Public Power Association survey looked at 2010 data for 284 public electric utilities. It showed that the median transfer of revenues from a publicly owned electric utility to a local government’s operating budget was 5.2 percent of electrical operating revenues. By comparison, the approximately $36.7 million general fund transfer for the 2012-13 fiscal year would equate to 9.9 percent of GRU’s projected $370.07 million in operating revenues.

That would place the GRU transfer in the upper quartile, or top 25 percent, of public utilities with revenues above $100 million, according to the American Public Power Association survey.

https://www.gainesville.com/news/20120811/grus-transfer-of-funds-to-city-exceeds-peers

When questions arose about the GFT at the time a commissioner responded this way:

Commissioner Thomas Hawkins said he is not committed one way or the other, but his preference — at this point — would be to avoid cuts to the general fund transfer.

“It’s a better source of revenue than property taxes,” Hawkins said. “It allocates costs more broadly across all the people who receive services.“

Hawkins said the transfer is beneficial to city taxpayers because it comes from rates collected across the GRU service area, which includes a large swath of the unincorporated county.

Those customers in the unincorporated county do not pay city property taxes, but because Gainesville is a “regional economic hub,” they come into the city to work, shop or go to a business, Hawkins said.

In doing so, they use the city’s parks and streets or rely on other city services such as the police department, he said.

Hawkins said he also feels the general fund transfer offers ratepayers more control over what they pay than property taxes allow property owners. While the City Commission sets utility rates and property tax rates alike, Hawkins argued that customers would be able to reduce their utility bills — and indirectly their contribution to the general fund transfer — through conservation.

https://www.gainesville.com/news/20120811/grus-transfer-of-funds-to-city-exceeds-peers

I feel that many GRU customers who are not residents of the city are not too pleased when this sort of sentiment is expressed which along with rates that are among the state’s highest causes a lot of ill will towards GRU. When you look at the GRU website to find out their explanation for the high rates, you find this:

Services

Why do I pay so much for GRU services?

The residential basket of services GRU provides (electric, water, wastewater and gas) is actually competitively priced, especially when you consider the additional value we add to the environment and community. GRU returns 70 percent of the water pulled out of the aquifer back to the aquifer and has built facilities that remove nitrogen from wastewater, which is healthy for the ecosystem and unique to this area.

GRU has invested heavily in GRUcom to build out a broadband backbone that supports communications with businesses in the community.

GRU’s electric generating portfolio is one of the most diverse in the state and relies more and more each year on renewables. 

GRU has built a state-of-the-art electric distribution grid which sustains the community during storms such as Hurricane Irma.

GRU gives back to the community through partnerships with schools, organizations and charities. In 2017, we raised $104,000 for charities and invested another $77,300 in our community.

http://gru.com/AboutGRU/DidYouKnow.aspx

They are certainly taking the “what problem?” approach. Denial is not going to change people’s opinion and they may not even care what the public opinion is even though we are the owners. I find it very interesting too is GRU.com is one of the reasons they site for the high rates when the public gets no direct benefit from that investment unless it is leveraged to enter the residential market.

It’s clearly not just the GTF that is the cause of our high rates. There have been several poor decisions made along the way which have added tremendously to the debt that they carry. The most recent example is the GREC project which ended up costing us dearly and we will be carrying that extra debt for a long time. Even though GRU takes the public blame for this mistake, the decisions were made by the Gainesville City Commission.

My understanding of how this happened is that the suggestion for the plant was made by the technical staff of GRU because the cost of coal was going through the roof and it seemed to make sense to utilize one of our plentiful local resources (wood waste products) that would otherwise end up as landfill. The idea was sound, what made it such a bad decision was two factors. The first factor was unforeseen, the price of natural gas took a major drop, making it a cheaper source of fuel than the wood waste. This in itself would not have worked out terribly, GRU could have just throttle back the GREC plant and burn more natural gas. The catastrophe came about because of the way the city commission decided to fund it.

The city commission was concerned about taking on so much debt so they came up with what they though was a brilliant idea. They entered into a “buyback” agreement where a corporation paid for the construction of the plant and the city would promise to buy a certain amount of electricity every month a a price that was determined at the time of the contract. This decision turned into a nightmare for the Citizens of Gainesville. When the price of electricity dropped the city was locked into a binding agreement to buy electricity that we didn’t need at a price that was higher than the market.

As many of you know, the city later had an option to buy the company back at a price that they felt was too high at the time so the GREC plant was sold to another operator and we continued to buy the expensive kilowatt hours from them. The city finally decided that this financial bleeding had to stop and negotiated to buy the plant at even more expensive than it was offered before.

This string of terrible decisions decisions not only left us with an enormous debt, it has left us with the current environment where the commission doesn’t appear to have the political will to make a decision to move forward with the residential internet. This fiasco led many to believe that the management of GRU should be taken away from the city commission and given to an independent board.

Back in that same Gainesville Sun article from 2012, then-commissioner Todd Chase put it this way

Commissioner Todd Chase, on the other hand, pointed to the general fund transfer as one reason he feels there needs to be discussion about potentially moving away from the City Commission governing GRU and instead have a separate utility board running the utility.

Because residents of unincorporated Alachua County are GRU customers and pay into the general fund transfer, Chase said they should have representation on the utility’s governing board.

On the potential lowering of the general fund transfer, Chase said conversation should take place in the context of overall reductions to the city’s budget. It is not a good financial sign for the city, he said, that the issue was broached in the context of the rate impact from the biomass plant.

“I think that talking of reducing it in the broader discussion on the city’s budget and the GRU budget, and property taxes, that is a worthy discussion,” he said. “Having to discuss it because of this biomass contract, that concerns me.

https://www.gainesville.com/news/20120811/grus-transfer-of-funds-to-city-exceeds-peers

Later, in 2018, a proposal to change the control of GRU to a board was placed on the ballot and voted down by the residents. Personally, I was happy for this decision because I think the public can have more of a say if the control stays with the commission but it is clear, the public needs to keep a much bigger spotlight on the workings of GRU. GRU needs to be analyzed top to bottom and brought into this century. Earlier this year, the head of GRU Ed Bielarski presented a proposal to the city commission that could possibly have them stop generating power completely in 30 years or so:

Edward Bielarski Jr., the general manager of GRU, said the utility company has four options: It could maintain the status quo, replace its equipment, exit the business or create a hybrid solution.

https://www.alligator.org/article/2020/01/city-commission-tables-gru-plan

This discussion will go on but I’m afraid of anything that could cause GRU to miss the opportunity to successfully enter the residential internet service provider sector before it disappears. This would seem like a very good long term investment as it comes down to just maintaining the equipment over time, no ongoing fuel cost like with electrical generation. Mr. Bielarsky wrote this paper for presentation to the city commission in February 2019, I believe that it is well worth your time reading it.

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