Will City Vote to Buy Biomass Incinerator in Order to Shut it Down? Reply

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To: Mayor Ed Braddy

From: Don Glendening

Just like Austin, after more responsible commissioners became elected, we may find it is cheaper, for rate payers, to buy this plant and shut it down – than it is to run it.

Subject: Oct, 2nd City Commission Meeting

Finally, The City Commission, is attempting to look at some of the real issues regarding GREC. Mr. Poe, and Mrs. Botcher are even talking relevant issues and trying to use facts. Both offered relevant and considered opinions regarding the use of a financial “gimmick” called a Blocker Corp. In the last 9 months, based on some of the questions being asked at meetings, a couple other City Commissioners also are starting to realize that costs are important, that facts are as important, if not more important than just saving face, for an ideology, that over time has been shown to be of negligible merit, in saving the Planet Earth from Global Warming. An idea held by some previous mayors or city commissioners, as the primary reason, for the few who promoted this plant, no matter what the cost.

There seems to be a great deal of misunderstanding about the 1603 Grant.

The Blocker Corporation “NewCo” is a “gimmick” GRU suggests is a way to be used to “Get around” the law implementing the legislative intention. Which until repealed or non-renewed as of Jan 2014 was

1) To Provide a 1/3 rd subsidy to “Private” companies for developing an assumed more Carbon Friendly Electricity producing facility.

2) And to not pay a Municipal entity for doing this development.

The GRU team’s approach is to chisel the US Treasury out of $118 Million by creating , a very shaky “NewCo” conduit company owned 98% by GRU taking on additional debt, at who knows what rate. And a 2 % private equity interest, circumventing the law, according to some outside legal counsel. But not so much a “slam dunk” possibility without other legal ramifications, according to Ms. Shalley, City Attorney.

The legislative intent of the 1603 Grant purports to pay one third of the development cost, thru a grant recoverable over 5 years, payable up front – IF and only IF

1) The plant is in commercial operation prior to Jan` 2014, otherwise zero. And

2) It is a private equity development corp. For which the Treasury is Rebating up front, one third the development costs of the plant.

The discussion regarding whether to make an offer depends on the value being offered.

This facility standing on its own has NO commercial value, producing $134 electricity in a $65 mwh world. The value of this plant is Zero. Unless you are significantly overcharging Gainesville ratepayers Thru the PPA contract –

The Value that the city should offer should be bifurcated, split into two considerations.

1) The Value of the plant, which I believe is commercially actually zero, absent the PPA contract and the 1603 stimulus Grant.

2) The value of the PPA Contract. Which In reality – just 40 or so, pieces of paper , which has NO intrinsic value. If it CAN’T be enforced against the Citizens of Gainesville. Because of the Noise ordinance, and other defects, pollution, dust, etc. There is a risk that the contract may not be enforceable – Particularly if there was any fraudulent inducement in the execution of this contract . But even without fraudulent inducement, the plant may violate other ordinances, which will make it commercially unusable.

Commercially, Jim Gordon , is not likely to get any offer much above $400 Million, and maybe not even that. Believing GREC would qualify for the 1603 Grant, just as keeping the plant commercially running within ordinance guidelines, according to some of your constitutional authorities, is by no means a “Slam Dunk”. Even with fancy GRU accounting calculations of NPV using assumptions about discount rates projecting “So called” Savings to the rate payer, which are negligible. This misdirection entirely misses the point, that the plant itself, has almost no value. And by now, most commissioners realize, that we would all be better off, if we had never heard the name Jim Gordon, GREC, or American Renewables. That this was a scheme from the very beginning for carpet baggers to come into town and take advantage and mislead a naive set of city commissioners, for the benefit of the few and the detriment of the many. With no identifiable benefit to air quality, pollution abatement, global warming, CO2 emissions, or any other measurable standard.

If the city wishes to make an offer for the plant, it should be for the plant “Alone” and this depends much more on the details of the fuel contracts, operation and maintenance contracts with NAES, noise mitigation possibilities or probabilities and cost, etc. — then it does on GRU management’s guess of NPV, and future guesstimates of so called “Savings”.

In any event – No offer by the City should be greater than 3 times the $118 or $354 Million, that the Treasury says a plant of this size is worth to develop, even if this plant were built according to current guidelines far enough away from residential areas, that now seems to be recognized as a guideline to make Biomass commercially operational. Commercial operation, within city ordinances, at this time is by no means certain.

Just like Austin, after more responsible commissioners became elected, we may find it is cheaper, for rate payers, to buy this plant and shut it down – than it is to run it.

How low would the GRU purchase price actually have to be, to make the debt (bond issue), being considered, in order to make idling the plant viable, as was done in Austin.

That is the financial decision that should be considered. As it may well come to that.

If the initial assumptions regarding GREC’s costs and benefits by GRU’s management are any indication of their ability to assess future risks. We should look at any assumptions regarding future “savings” , by the same GRU people, with the same element of risk of being wrong, as their prior assumptions concerning this plant turned out to be.

Don Glendening dglende@ufl.edu


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