Gainesville BIO-MESS Scandal: Secret Memo Reveals GRU and Mayor Lied.

 RAY WASHINGTON

Attorney & Counselor at Law

Reply to: (352) 337-2700
P.O. Box 6008             
Gainesville, Florida 32627                           

Reply to: (352) 337-2700 — (877) 288-6167 (toll free) — (352) 374-9548 (fax)

MEMORANDUM

DATE:           OCTOBER 25, 2011

FROM:           GAINESVILLE CITIZENS CARE, INC. COUNSEL RAY WASHINGTON

TO:                 MEMBERS OF THE GAINESVILLE MEDIA AND THE PUBLIC

RE:                 CONTEXT OF THE NOW KNOWN GRU-GREC BUYOUT AGREEMENT

Last week, the not-for-profit public interest group Gainesville Citizens CARE, Inc. (for Clean, Affordable, Renewable Energy) came into possession of a previously secret memorandum written on September 26, 2008 by GREC Project Manager Josh Levine and addressed to GRU Assistant General Manager Ed Regan, who was one half of the two-man-GRU-leadership team that negotiated the GRU-GREC deal on behalf of the City of Gainesville.

It previously has been represented by leaders of GRU and Gainesville City Commission that no “buyout” provision had been possible in GRU’S negotiation of the $3-billion-to-$4-billion deal between GRU (the city-owned utility Gainesville Regional Utilities) and GREC (the out-of-state shell corporation created for the express purpose of collecting payments from GRU for building, managing and operating a 100-megawatt wood-burning electricity generator).

As the attached copy of the Levine-Regan memorandum now establishes, these representations were false. Not only was GREC’s shell corporate parent – American Renewables (then known as Nacogdoches Power LLC) willing to agree to include a buyout clause in what has come to be known as the GRU-GREC Power Purchase Agreement (PPA), GREC/American Renewables/Nacodoches at the time the Levine-Regan memo was written had included the buyout clause in a proposed version of the GRU-GREC PPA.

Specifically, Mr. Levine wrote Mr.Regan: “At the request of Gainesville Regional Utilities (GRU), we have included a Termination for Convenience Clause (Section 29) within the PPA between GRU and Gainesville Renewable Energy Center, LLC (GREC).”

Gainesville Citizens CARE, Inc., for more than a month, has been attempting to acquire a copy of the September 2008 GRU-GREC PPA, and every other iteration of the PPA, which public records GRU, to-date, has not released. When these records are obtained they will be made available to the public at Gainesville Citizens CARE’s website, www.gc-care.org.

In the meantime, the Levine-Regan memorandum makes clear that GREC/American Renewables/Nacodoches had agreed to include in the $3-billion-to-$4-billion GRU-GREC PPA a “convenience” clause that would have allowed the City of Gainesville to get out of the deal for a “termination fee” of $32 million plus “development costs” (which costs Mr. Regan a few months earlier had told the city commission he estimated would be about $2 million until after the developer filed a final notice to proceed).

This approximately $34-million buyout provision would have amounted to only about one percent of the GRU-GREC’s PPA’s 30-year-cost to GRU ratepayers, and less than the total payment GRU ratepayers would have to pay in the first year of the biomass contract for biomass fuel.  And yet this buyout provision – which the Gainesville City Commission had voted unanimously to require to be included in the GRU-GREC PPA – was not included.

Why?

At this point, all the public knows is that Gainesville Mayor Craig Lowe, Gainesville City Commissioner Jeanna Mastrodicasa, GRU General Manager Robert Hunzinger and GRU Assistant General Manager Ed Regan have all made on-the-record statements implying or directly stating that the reason no buyout clause was included in the GRU-GREC PPA was because GREC/American Renewables/Nacodoches had never agreed to such a clause. 

The $3-billion-to-$4-billion question is whether some or all members of the Gainesville City Commission misled the public, or whether someone at GRU misled some or all members of the Gainesville City Commission, or some combination of the two.

In short, what did the Mayor and members of the 2008-2009 Gainesville City Commission know, and when did they know it?

As a starting point for understanding the context in which this important question is asked, I have prepared, on behalf of my client Gainesville Citizens CARE, Inc., a chronological list of facts I believe to be undisputed.

1.      It is undisputed that on May 12, 2008 –  before the Gainesville City Commission approved GRU General Manager Hunzinger going forward to negotiate the largely secret deal with the shell corporation Nacogdoches Power LLC (which has since become the shell corporation American Renewables LLC) – GRU Assistant General Manage Regan assured the commission and the public that the negotiated contract would contain a buyout clause (the so-called “backdoor out” clause) that would allow the GRU to act in the public interest and get out of the contract up until the time of the Nacogdoches filed its final notice to proceed.

2.      It is undisputed that the vast majority those attending the May 12, 2008 city commission meeting spoke in opposition to the GRU-Nacogdoches deal.

3.      It is undisputed that the city commission, as a result of demands of citizens attending the May 12, 2008 city commission meeting, unanimously adopted a motion directing Mr. Hunzinger to “ensure” that a buyout clause be negotiated into the GRU-GREC contract.  

4.      It is undisputed that on April 29, 2009 Mr. Hunzinger signed off on a final version of the GRU-GREC deal that would obligate GRU to pay GREC at least $3 billion over three decades, and contained provisions allowing Mr. Hunzinger to approve payment increases to GREC without city commission approval.

5.      It is undisputed that on May 7, 2009 the city commission ratified the GRU-GREC contract, the terms of which expressly prohibited key financial from being made known to the public for more than three decades.

6.      It is undisputed that the neither GRU nor the city commission at the May 7, 2009 city commission meeting told the public that the contract being ratified (A) did not contain a buyout clause, and (B) that the contract being ratified contained a provision prohibiting the public from viewing important aspects of the contract until after 2043.

7.      It is undisputed that for the rest of 2009 and for all of 2010 the city commission did not hold another public meeting to discuss financial terms of the GRU-GREC deal, the most costly private contract ever approved by the city commission.

8.      It is undisputed that in 2010 the first of several groups of Gainesville area citizens –opposed by former Mayor Pegeen Hanrahan, and her successor, current Mayor Lowe, and some members of the city commission – began a series of legal challenges to the then largely secret GRU-GREC deal.

9.      It is undisputed that in early 2011, the citizens challenging the GRU-GREC deal entered into a joint settlement agreement under which they agreed to drop their legal challenges to the GREC project (which Ms. Hanrahan and other city commission supporters of the GRU-GREC deal had argued were not in the interest of GRU ratepayers) in return for several important concessions, among them a commitment by GREC to make public the provisions of the GRU-GREC contract that GRU had sought and received approval by Ms. Hanrahan and the city commission to keep secret from the public until beyond 2043.

10.   It is undisputed that in February 2011 Gainesville Citizens CARE, Inc. (for Clean, Affordable, Renewable Energy), now my client, was incorporated in the State of Florida as a non-profit public interest group for the express purpose of educating the public about  local public policy decisions, including the GRU-GREC deal.

11.  It is undisputed that on March 16, 2011 – after the settlement agreement between groups of private citizens and GREC had been reached, but before GREC actually released the previously secret financial detail of the GRU-GREC contract – GRU Chief Financial Officer Jennifer Hunt, signing for Mr. Hunzinger (without public announcement, and without the city commission scheduling a public meeting to discuss the action) signed off on a sizeable new “equitable” increase in the already-burgeoning $3 billion-plus GRU-GREC deal, all of which would have to be paid for by GRU ratepayers. 

12.  It is undisputed that that on March 16, 2011– after the settlement agreement between Gainesville area citizens and GREC had been reached, but before GREC actually released the previously secret financial detail of the GRU-GREC contract –  The Gainesville Sun published an editorial column by former Mayor Hanrahan in which she defended and supported GREC’s past attempts to keep the GRU-GREC contract secret from the public, and implied that Gainesville area citizens who had launched the legal challenges that resulting in the secret contractual provisions becoming public had thereby risked increasing the cost of the GRU-GREC deal to GRU ratepayers..

13.  It is undisputed that on April 5, 2011 – after the settlement agreement between citizens and GREC had been reached, but before GREC actually released the previously secret financial details of the GRU-GREC contract – GRU General Manager Hunzinger had published in The Gainesville Sun an editorial column in which he too supported the GRU-GREC deal, but, unlike Hanrahan, did not criticize the citizen litigants whose settlement whose settlement would soon result in the public having access to some, but not all, previously secret information about the GRU-GREC deal.

14.  It is undisputed that on April 6, 2011 – as required by the settlement agreement between Gainesville area citizens and GREC – a version of the previously secret financial provisions of the GRU-GREC contract was released to the public, including documentation of the March 16, 2011 “equitable” increase in contract payments from GRU to GREC, which must be funded by GRU ratepayers.

15.  It is undisputed that after April 6, 2011many individual Gainesville area citizens – including representatives of Gainesville Citizens CARE – began appearing before the city commission asking for explanations of what was revealed in the now unblackened GRU-GREC contract, including questions about the amount of the March 16, 2011 “equitable” increase in contract payments from GRU to GREC, which must be funded by GRU ratepayers.

16.  It is undisputed that neither Ms. Hanrahan nor Mr. Hunzinger in their columns published in The Gainesville Sun before the release of the previously secret portions of the GRU-GREC PPA – or in any public forum thereafter – acknowledged the March 16, 2011 “equitable” increase in the required GRU-to-GREC contract payments, which must be funded by GRU ratepayers. 

17.  It is undisputed that, to date, no GRU or city official has ever publicly acknowledged the March 16, 2011 “equitable” increase in the required GRU-to-GREC contract payments, which must be funded by GRU ratepayers. 

18.  It is undisputed that beginning in April 2011 area citizens – including representatives of Gainesville Citizens CARE – have appeared at every regularly scheduled city commission meeting attempting to obtain answers to questions arising from the April 6, 2011 release of previously secret parts of the GRU-GREC contract, including acknowledgement of the March 16, 2011 “equitable” increase in contract payments from GRU to GREC, which must be funded by GRU ratepayers.

19.  It is undisputed that representatives of Gainesville Citizens CARE have made know to city commissioners and executives of GRU that experts consulted by Gainesville Citizens CARE calculate the be amount of the March 16, 2011 “equitable” in increase in contract payments from GRU to GREC will amount to more than $100 million over the life of the contract, and which must be funded by GRU ratepayers.

20.  It is undisputed that, to date, neither any GRU executive, nor former Mayor Hanrahan, nor current Mayor Lowe, nor any member of the city commission, nor the city’s Regional Utilities Commission, has disputed Gainesville Citizens CARE’s assertion that the March 16, 2011 “equitable” increase in contract payments from GRU to GREC amount to more than $100 million, which must be funded by GRU ratepayers.

21.  It is undisputed that on May 19, 2011 I appeared before the Gainesville City Commission and formally presented a letter I had written on behalf of Gainesville citizens in which I asked the city commission to consider the appointment of an independent panel to review the details of the GRU-GREC deal before GREC could file its final notice to proceed.

22.  It is undisputed that my May 19, 2011 request was made for the express purpose of assessing whether, in light of changed circumstances, it was in the best interests of the citizens of Gainesville and GRU ratepayers for GRU to (A) negotiate a release from the GRU-GREC contract; (B) seek to renegotiate provisions of the GRU-GREC contract unfair to GRU ratepayers, or (C) continue with the GRU-GREC contract, explaining to the citizens why the present course was should be maintained.

23.  It is undisputed that neither the Mayor nor any member of the city commission on May 19, 2011, or on any date thereafter, has ever responded to, or acknowledged, my request for consideration of the appointment of an independent panel.

24.  It is undisputed that on May 19, 2011 representatives of Gainesville Citizens CARE presented to the city commission seven boxes containing more than 400 alphabetically organized petitions signed by concerned Gainesville area citizens and GRU ratepayers requesting that the city commission re-examine its commitment to the GRU-GREC deal.

25.  It is undisputed that neither the Mayor nor any member of the city commission on May 19, 2011, or on any date thereafter, has responded to, or acknowledged, the requests of the citizens and ratepayers whose petitions were presented to the city commission.

26.   It is undisputed that on May 24, 2011, engineer Joe Wills, a citizen member of the Gainesville Energy Advisory Committee (GEAC) made a written request to GRU executives to “Please consider the advisability of suggesting that the commissioners consider organizing a ‘town meeting’ of sorts, inviting the opposition, in particular, and public in general, to attend the event to receive an briefing update on the project and formally address the many concerns that are being voiced.”

27.  It is undisputed that on May 24, 2011 GRU Assistant General Manager John Stanton – half of the two-man-GRU-leadership team that negotiated the GRU GREC deal – rebuked Mr. Wills for attempting to have GEAC perform its legally-mandated duty to serve as an information bridge between the community and the city commission.

28.  It is undisputed that Mr. Stanton wrote Mr. Wills that he should not attempt to foster a public discussion about the GRU-GREC deal, and should not mention the possibility of the city buying its way out of the GRU-GREC deal, because, according to Mr. Stanton, “even the discussion of such is contrary to GRU’s position.”

29.  It is undisputed that Mr. Stanton wrote Mr. Wills:  “Let me be clear; stop it! Now. Do not continue to push this agenda. Do not suggest more public meetings.” 

30.  It is undisputed that at every regularly scheduled city commission meeting in May 2011 and June 2011 citizens appeared before the city commission continuing to ask specific questions about the GRU-GREC deal.

31.  It is undisputed that at no city commission meeting in May 2011 or June 2011 did the mayor or any city commissioner answer (or even acknowledge) a single citizen question about the GRU-GREC deal, though commissioners answered most other questions posed to the commission by citizens, including questions about policies asserted to result in dogs occasionally defecating on city sidewalks.

32.  It is undisputed that on June 30, 2011 City Commissioner Thomas Hawkins wrote GEAC member and engineer Mr. Wills: “I believe the best strategy to take towards the vocal minority that opposes any increase in base load capacity is to politely ignore them.”

33.  It is undisputed that in early July 2011 GREC announced that it had finally obtained financing for some of the construction of the GREC biomass burner, and on June 30 had filed its final notice to proceed.

34.  It is undisputed that on July 7, 2011 – the first city commission meeting after GREC’s final notice to proceed was filed – the city commission voted to send to the city’s three-commissioner Regional Utility Committee (RUC) a charge to look into the rate impacts to GRU ratepayers of the GRU-GREC deal (the first city-sponsored meeting to discuss the GRU-GREC deal since May 7, 2009, when the deal had been approved by the city commission).

35.  It is undisputed that for months after the July 7, 2007 city commission referral, RUC Chair Susan Bottcher declined to put discussion of the GRU-GREC deal on any RUC agenda.

36.  It is undisputed that in August 2011 Gainesville Citizens CARE announced its intention to organize its own community biomass forum to present independent information about the GRU-GREC deal to the public, and provide the public with an opportunity ask questions.

37.  It is undisputed that Gainesville Citizens CARE’s decision to sponsor a biomass forum for the public was the result of the city commission’s continuing failure since May 7, 2009 to answer significant public questions, and the failure of the city’s RUC committee under Commissioner Bottcher to schedule a meeting to discuss financial aspects of the GRU-GREC deal the commission had approved on that date.

38.  It is undisputed that in late August, 2011, I began sending written invitations to GRU  Manager Hunzinger and various specified GRU executives and staff members, inviting them to participate in the Gainesville Citizens CARE’s planned community biomass forum.

39.  It is undisputed that Mr. Hunzinger responded only to the second of multiple written invitations to participate in the community biomass forum – then only to ask for another copy of the first invitation – and that Mr. Hunzinger thereafter neither responded to the initial invitation to participate as a member of a community biomass panel forum or to any of the multiple subsequent written invitations he received.

40.  It is undisputed that on October 2, 2011 – a week before the community biomass forum was held – that City Commissioner Jeanna Mastrodicasa, a close friend of former Mayor Hanrahan, allowed to be published in The Gainesville Sun, over her name, an editorial column in which the writer suggested that the community biomass forum planned for October 9, 2011 was unworthy of the public’s attendance.

41.  It is undisputed that Mastrodicasa – who had never communicated with  a single member of Gainesville Citizens CARE about the forum –  attempted to discourage attendance at the community biomass forum because according to her the forum was only “a small group of vocal opponents” who “plan to have a forum amongst themselves without facts.”

42.  It is undisputed that on October 7, 2011 Former Mayor Hanrahan, in the on-line comments to The Gainesville Sun, made a public appeal to a Gainesville citizen named Health Lynn Silberfield – who had written a letter to The Sun that he was going to attend the community biomass forum because he wanted “to know more facts about the planned biomass plant” – advising Mr. Silberfield that attending the citizen forum would not be the best “use of your time.”

43.   It is undisputed that on October 9, 2011 the community biomass forum was held at Grace Presbyterian Church (part of the Presbyterian Environmental Ministries) – with an attendance of more than 150 community members, according to the church’s pastor, Dr. Richard Palmer.

44.  It is undisputed that the October 9, 2011 community biomass forum allowed hours of questions to be asked by dozens of members of the community unaffiliated with Gainesville Citizens CARE — including lawyers, engineers, a resource allocation specialist, a former utility executive, people employed in construction of the GREC biomass plant and dozens of community members.

45.  It is undisputed that the dozens of questions asked and answered at the community biomass forum included questions that neither Ms. Hanrahan, nor Ms. Mastrodicasa, nor Mr. Hawkins – nor any GRU executive advising them – had ever publicly addressed.

46.  It is undisputed that on October 10, 2011, City Commissioner Bottcher opened a meeting of the Gainesville Regional Utilities Committee (RUC) at which she had advised the public not to ask questions about the GRU-GREC decision-making process.

47.  It is undisputed that on October 11, 2011 The Gainesville Sun quoted RUC member, Mayor Lowe, a supporter of the GRU-GREC deal, as having “expressed optimism that federal carbon regulation could be on the horizon, which is important because it would drive up the costs of coal-and-gas-generated power.”

48.  It is undisputed that The Gainesville Sun on October 11, 2011, further reported that Mayor Lowe’s expressed “optimism” was based on the his hope that the rise in the cost of coal-and-natural gas-generated-power would “change the relative value” of the GREC biomass plant.

49.  It is undisputed that Mayor Lowe was not quoted in The Gainesville Sun as being concerned about the fact that a rise in the cost of coal-and-natural-gas-generated power would result higher bills for GRU customers – most of whose power for decades to come is expected to be generated by coal and natural gas.

50.  It is undisputed that RUC members Lowe, Bottcher and Hawkins have all publicly stated that they fully support moving forward with the GRU-GREC contract regardless of the cost of biomass generated electricity to GRU ratepayers beginning in 2014 GRU as predicted by GRU Executives Hunzinger and Regan at the October 10, 2011 RUC meeting under a best case scenario – asserted by Hunzinger and Regan to be more than $130 per megawatt hour, which they translate into a yearly increase of at least $126.72 for the most modest 1,000-kilowatt-hour-per-month electricity user.

At some point, the Mayor, some city commissioners, and some GRU executives are going to have to answer the still unanswered question of how much it will cost to get out of the GRU-GREC deal without a buyout clause. Meanwhile, the public now knows the city commission had the chance to buy out of the deal for only 1 percent the contract price. But he $3-billion-to-$4-billion question remains:  Did some or all members of the Gainesville City Commission mislead the public, or did GRU executives GRU mislead some or all members of the Gainesville City Commission?  In short, what did the Mayor and members of the 2008-2009 Gainesville City Commission know, and when did they know it?