Correcting (More) Misinformation on GRU

Did the city take $68 million more from the utility than it made? Did the General Manager warn the Commission about this for years? Can GRU not afford to produce power anymore? Let's take a look:

A lot has happened with GRU since I last wrote “Correcting the Misinformation on GRU” over a year ago. The GRU Takeover Bill passed, the Governor appointed 5 members, those members all resigned at once, he then appointed new members, the City Commission voted to put eliminating the Authority on the November ballot, the General Manager was fired, and the appointed chair of the Authority was hired to the role.

With the new board a lot of new accusations have been leveled at the City and GRU in general. It seemed like a good time to bring up some of the bigger whoppers I’ve heard out there, and put real, verified numbers for people to see.

Just like the last time I wrote about this, I don’t expect you to take my word for it. I don’t work in utilities, there’s no reason to trust me blindly. So I’ve linked everything for you to see yourself, citing the actual experts and documents that show these statements for what they are.

GRU had to borrow to pay the transfer

At the June 10th GRU Authority Meeting the Authority used very aggressive words to describe the money the utility pays the city. One member called it stealing, another compared the city commissioners to “drug addicts”. 

This line goes back to the original passing of the bill, where Republicans in Tallahassee restated it over and over again as a reason why the utility needs to be taken from the local community and given to the Governor.

If this were the case that would be a problem. A municipal utility isn’t a for-profit company, its job isn’t to make a bunch of profit. But if money is consistently being pulled out of reserves to balance budgets that is a serious issue.

But we now know that didn’t happen. A recent review by City staff found that GRU has made plenty of money since 2018, well above and beyond the transfer.

On June 18th city staff analyzed revenues and expenses of GRU from 2018-2024 using the “Flow of Funds” equation. This equation has long been how GRU staff has viewed GRU’s ability to pay the transfer. It is how GRU budgets every year, it’s the number our rating agencies look at, how the state auditor reviewed our transfer, and what Chuck Clemons himself wrote into HB 1645¹. It’s a fairly simple equation: how much money did GRU make, how much money did GRU spend, and if money came out of reserves to “balance” the budget that needs to be included.

So here’s what they found: from 2018-2023 the utility made $5.9 million in excess revenues or “profit”. If you include this current budget year, the utility will have made $37.5 million in excess revenues or “profit” by the end of this fiscal year.

Like any organization, GRU has up years and down years. In the three years following the biomass buyout and into the pandemic the utility pulled money out of reserves to balance its budgets. But by 2021 the City Commission had passed a “debt defeasance” policy, implemented regular reductions in the General Funds Transfer, and a standard 3% rate hike to match inflation. GRU’s financial numbers started to turn around rapidly after that happened, and today GRU is very much in the black and then some.

The City Commission took $68 million from the utility

This is closely related to the last item, but I want to hit this directly on the head. The GRU Authority has now taken this number as a fact and has budgeted a $6.8 million cut out of the already historically low transfer every year for 10 years to “claw back” the money.

The only problem is that it isn’t a real number. Or at least it isn’t a number that any financial expert would recognize.

When I wrote about this over a year ago in the first “Correcting the Misinformation on GRU” I didn’t know where the number came from, but had a few guesses:

It’s possible they’re using some Frankenstein accounting structure that adds in depreciation and other expenses that aren’t a part of how our bond resolution accounts for “net revenue”. In a utility the size of GRU, with the complexities of all the assets and finances and bonds and numbers, there are a million ways to cherry pick and get to a number you want.

Well now we know how they got to the number, and that’s exactly what happened. It’s a number that includes huge sums of non-cash items like depreciation, but then cherry-picks the numbers in it they want or don’t want to get an absurdly large number that means little to ratepayers or the utility.

To get to this “Frankenstein accounting structure”, they started out using “Statement of Revenues, Expenses, and Changes in Net Position” in GRU’s audited financial statements. This is a totally reasonable analysis to use, but doesn’t tell you much about GRU’s actual budget or how much it had to “borrow” to pay it. That’s because GRU doesn’t use it to set rates or balance its budget, it uses actual cash, as described in the flow of funds above.

This “net position” equation, also called a “GAAP Analysis”, includes over $100 million annually in depreciation expenses. Depreciation is just an on-the-books write-off of physical assets, it isn’t an actual cash expense. GRU doesn’t borrow or take money out of reserves to pay down depreciation.

But simply adding this “net position” equation from 2018-2021 doesn’t get you to $68 million either, it gets you to about half that, $37.5 million. To get to $68 million GRU had to simply cross out numbers they didn’t like to juice the number larger.

The line they cross out is called “Capital Contributions”. These are physical assets dedicated to the utility by new developments. Since these are actual assets to the utility that are included in their net capital assets, they are also included in depreciation as well. So GRU is essentially double counting expenses, crossing out revenues, and still referring to that as a “GAAP Analysis”.

And to be clear, it is explicitly against the professional standards of the AICPA to make any departure from the GAAP while stating that it is the GAAP². There’s no gray area here, calling this number “generally accepted accounting principles”, which Ed Bielarski has done repeatedly, is wholly and completely false.

And regardless of the ethics of that, it’s still not money that GRU actually spent, so asking the taxpayers of Gainesville to pay GRU back for it is absurd. The reality is GRU made $37.5 million in actual excess cash since 2018, which helped to pay down debt and put money into reserves.

The General Fund Transfer has been high

A general funds transfer is industry standard. Virtually every utility pays something to the government it serves. The transfer is an approximation of the taxes the city would receive from their utility were it private and a dividend to the owners of that utility. Here’s how GRU compares to our peer utilities:

As you can see from the graph above, at a transfer amount of 2.93% GRU is far and away the lowest of any municipal utility in Florida, and the lowest of any energy-generating municipal utility in the nation that I can find.

Some have argued that GRU finances have gotten worse in the past 10 years and the transfer is to blame for that. That’s impossible, the transfer has remained flat for over 10 years.

This is in spite of 43% inflation during this time, so in real terms the transfer has gone down. Under no reasonable metric can anyone say the transfer is too high, at least in comparison to every other utility or to GRU historically.

The former General Manager warned the Commission to cut the GFT for 7 years

The General Manager of utilities is hired by the Gainesville City Commission to oversee the utilities and ensure they are financially sound and stable. If the General Manager was consistently warning the Commission about the finances of GRU and he was ignored that is a big red flag.

This narrative has been pushed by Mr. Bielarski ever since he was fired by the City Commission in January 2022. He claims that he wasn’t fired for mismanaging the utility and coming up short on a number of critical projects like the Commission said during his firing, but because he was a hero who was “speaking truth to power”. He wrote an entire self-published book touting this and ran for mayor on it.

You see, for the almost seven years of my tenure as the General Manager of GRU, I fought desperately with the City Commission to stop them from playing politics with GRU and get them to treat it like a business, not a piggybank.

I wasn’t on the Commission for any of this period, but watching old budget meetings and speaking with former Commissioners and City staff I see no evidence that Ed “fought desperately” for this. Neither does anyone else I’ve spoken to who was there during that time. I mostly see the opposite.

Here is the timeline of Ed’s recommendations and positions on the GFT:

In 2018 Ed Bielarski was far and away the highest profile and most vocal defender of the General Funds Transfer. He posted dozens of Facebook posts during that time period about how reasonable it is, how it is industry standard, how if we cut it it will result in defunding of police and fire, and aggressively fought with Keith Perry and Chuck Clemons about this in public.

This is just a small smattering of his statements, his advocacy in favor of the transfer was constant. At that point, the General Funds Transfer was $38 million.

In 2019 Ed began to soften a little bit on his defense of the transfer, but only a little bit. Ed released “GRU At The Crossroads” which, again defended the transfer, agreed that it is low compared to how much has historically been budgeted, but began advocating for changes in the formula. In it he simply asked for the transfer to “freeze” for three years and not rise with revenues in the next year. The City Commission agreed to that, and the transfer was frozen, just like he requested.

In October of 2019, after the 2020 budget was finalized, Ed wrote an article for the Gainesville Sun entitled “GRU’s Service is anything but average” which, again, defended the General Funds Transfer amount and made the argument that it is better for residents to see higher GRU rates than tax increases.

Six months later, in July 2020 in preparation for the 2021 budget, GRU finance told the Utility Advisory Board that they were “comfortable with the amount of the transfer”. Ed Bielarski agreed, and didn’t recommend any reductions to it in the budget³. He mentioned that there would be negotiations in 2021 about a new equation, which he hoped would be lower, but agreed that this was a “good compromise” going into 2021.

In spring 2021 the Ed Bielarski we see today began to emerge. This was well into the pandemic, City Hall was fighting between various charter officers, and Ed started growing his hair long and making more combative public statements.

But he still didn’t ask for major cuts to the transfer.

By 2021 the 2019 freeze in the transfer that Bielarski requested was ending, and a new equation was being negotiated. So Gainesville Regional Utilities and General Government agreed to bring in a consultant to review the general fund transfer and find an equation that “balances General Government’s need for certainty of funding, with GRU’s ability to sustainably fund the GFT over an extended amount of time.”

The firm selected was nFront Consulting, a long-time GRU consultant who is well-known in the utility finance field and has worked all over the United States.

After a deep review of GRU’s finances nFront Consulting, basically, sided with General Government. Here was the outcome of their report:

• GRU can afford to pay a $36 million transfer

• GRU’s insistence on using GAAP is inappropriate since it includes depreciation and isn’t how GRU budgets

• If GRU were a private entity they would be paying over $60 million to the City between taxes, franchise fees, and investor dividends

In the end, GRU finance and Ed Bielarski came forward with a very modest proposal for the Commission. It would cut the transfer to $26 million in 2022 and raise it to $32 million over 6 years.

This was a dumb recommendation. Why force a large cut at general government tomorrow, only to raise it up in 6 years? That would cause major service cuts or tax increases without really benefitting debt reduction at all.

The City Commission responded by cutting roughly the same amount but doing it in reverse, as the consultant recommended. Instead, the City would cut the transfer by $2 million per year. For the rating agencies, who are looking at more long-term financial metrics, this was essentially the same outcome, and they cheered it as “credit positive”

Ed’s response was to praise the City Commission to the Gainesville Sun:

“I think this was an historic, holistic plan that was approved for the utility by the city commission to ensure the long-term financial health of the utility,” he said.

Nothing in these years of statements show someone who “fought desperately” with the City Commission over the GFT. Periodically Bielarski would mention that he “preferred” a lower transfer, or that the GAAP shows negative numbers, but the idea that he “fought desperately” isn’t backed by his statements. Mostly, it seems, he got what he wanted and praised the Commission for that.

Now I have no way of knowing what was said behind closed doors. Perhaps Mr. Bielarski was more aggressive about the transfer in private than he was in public. I can only go off of public statements, and based on those there is no evidence that the General Manager was putting forward more aggressive GFT reductions than what was eventually approved by the Commission.

The Local Public Utilities referendum is illegal

In November voters within the City of Gainesville will have the chance to eliminate the GRU Authority from the City Charter. The GRU Authority has challenged this, and sent a letter to the Supervisor of Elections trying to get her to keep it off the ballot.

Their arguments are that because the GRU Authority was created by a special act of the Legislature, the residents of the City can’t change it. They also make some odd and specific arguments related to specific language in the Charter.

The Florida Supreme Court has repeatedly ruled that a Charter can be amended by a special act and then later amended by the voters. The Court rejected the argument that “the Legislature reserved to itself the sole authority to propose charter amendments.” This is how every other law works too: you can change a law and then change it later if you want. Our charter is the same way.

As it relates to whether the Charter itself stops the voters from voting on this, I don’t see it. There’s nothing in HB 1645 that stops the voters from voting on a ballot amendment of the Commission from putting this on via an ordinance. Our City Attorney has said that Chuck Clemons could have written the GRU Takeover bill in a way that does that, but he didn’t. Courts are very reluctant take away residents right to vote on a referendum unless it is clearly in opposition to the law, which this isn’t.

Barring a weird overthrowing of long-standing precedent and an activist judge, the residents of Gainesville will be voting on this in November. You can learn more and donate to the campaign here.

The Integrated Resource Plan is faulty and needs to be stopped

If there’s one thing we learned about from the biomass plant it’s that we can’t make assumptions with our energy investments. We need surefire numbers, third-party reviews, and a holistic data-driven process before making big investments for GRU. That was the main outcome of the 2015 Navigant Report on what went wrong with the biomass plant.

For over a year, careful data analysis has been happening. Called an “Integrated Resource Plan” this is a standard practice where top experts in the energy field review various energy investment options for the utility and recommend the cheapest option. Using some of the best experts in the industry, The Energy Authority and nFront Consulting, GRU has been crunching numbers and coming back with recommendations.

This process is far and away the most important thing GRU policymakers do. I’ve called the 2019 IRP “the bible of GRU”, and the new update is just as important.

On February 7th the experts came out with their preliminary results for this update and it was good news for ratepayers. As former GRU GM Tony Cunningham said at the May 29th meeting it is “significantly less than [the cost] of the old plan.” The reason is that Renewable energy is far and away the cheapest option for producing power, with a massive drop in cost since we last reviewed this in 2019. For a utility that has early invested in renewable energy that is good news, even if our early investments have cost us.

But the new CEO, Ed Bielarski, has spent time in each meeting calling into question the whole process and alleging issues with it, seemingly trying to put an end to it entirely.

We have to look at the electric system expanding transmission access to get access to a cheaper available power. We’ve got to explore expansion with FMPA, FPnL, and Duke. It is our lifeline to wherever we want to go. If we think we have the capital to invest $3.6 billion into additional resources and not drive customers out of Gainesville we have another thing coming. We are being bound by this Net Zero by 2045 mandate and building yet another IRP around it. We can't do that.

Based on Ed’s recommendations the GRU Authority voted to “cut all contract services for the IRP” on June 10th and Bielarski has said they need to pause it entirely. Almost as soon as he was hired as CEO Ed fired Eric Walters, the man in charge of this planning, and disbanded the department overseeing it.

Why would Mr. Bielarski try to toss out a carefully planned process where energy experts review the cheapest options for GRU ratepayers? Here are his stated reasons, which don’t make a lot of sense:

“We are being bound by this Net Zero by 2045 mandate”

This was a statement by Ed Bielarski at the May 23rd meeting (quote above). This is clearly untrue. At the February 7th meeting Eric Walters repeated at least 5 times that the IRP has nothing to do with the net zero “non-binding resolution” passed by the Commission in 2018:

As I've said a few times before the Net Zero resolution is not baked into the Baseline, it is not a constraint. It is not based on that and and I'll say it again, it is not based on that at all.

-Eric Walters, former Project Manager for the Integrated Resource Plan

And of course it isn’t, why would the Authority be bound by a resolution passed by the City Commission? The Net Zero resolution was never a mandate to begin with, it was a “non-binding resolution” for the utility to take “A balanced approach between fiscal responsibility and emissions reductions.”

“The idea there's other gas plants that are being put in as part of that IRP. You're not going to get them built, they have to have carbon sequestration.”

Ed’s argument here is that the IRP is faulty because it recommends 102 MW of new natural gas plant production. He claims Joe Biden’s EPA newly passed “sequestration” rules make it impossible to build new natural gas plants, so the IRP is void.

If this were true it would be huge news, since natural gas is the largest source of power in the United States. Outlawing it would have enormous consequences. Of course, it isn’t in the news because it isn’t true. Aside from a typically hyperbolic Fox News segment on it, there is no one in the utility industry arguing that these new rules make building natural gas plants impossible.

The IRP will cost $3.6 billion, which we can’t afford

This has been repeated often in every meeting. This number isn’t based on any actual number in either the 2019 Integrated Resource Plan nor the new 2024 update.

Nowhere in the preliminary results does any cost come anywhere near $3.6 billion. The baseline cost in both is about $2 billion for the cheapest investment available. The most expensive option is the privatization option, in which GRU stops producing power and just buys it from FPnL or FMPA. That will cost ratepayers an additional $380 million if we go that route, costing $2.46 billion.

It’s worth pointing out here that GRU made $524 million in revenue in 2022. $2 billion is a lot of money, but let’s put that in context. It’s sort of like saying someone making $52,000 per year can save $200,000 over 25 years. That is absolutely possible, people do it all the time.

And if we’re actually worried about the long-term debt of our utility the only decision that makes sense is to take a holistic view of all the energy needs and investments over the next 25 years and pick the cheapest option. That’s the sole purpose of the “Integrated Resource Plan.”

Why is Ed Bielarski trying to undermine the long-term planning of GRU to find the cheapest energy solution for the utility? To analyze which long-term investments will bring GRU rates down? I have a pretty good idea, but I’ll leave that for a future blog post…

1. I disagree with Chuck Clemons on just about everything, but on this we agree: the flow of funds is the correct way to analyze the revenues of GRU and its ability to pay the transfer

2. AICPA Rules of Professional Conduct: 1.320.010 Responsibility for Affirming That Financial Statements Are in Conformity With the Applicable Financial Reporting Framework

A member shall not state affirmatively that an entity’s financial statements or other financial data are presented in conformity with generally accepted accounting principles (GAAP) if such statements or data contain any departure from an accounting principle promulgated by a body designated by Council to establish such principles.

Striking Capital Contributions from the GAAP is clearly a departure, making it not GAAP.

3. To be fair to Ed, he said in the meeting that, although he agreed with the transfer amount of 38.3 million: “I would add, Mark, that you know, if I ruled the world, that we only paid only a portion of the excess revenues over expenses would be, but I think this is the appropriate compromised solution given the relationship that the utility has with General Government. So that would be my only caveat to what Mark said, and with everything else he said I agree."