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The San Antonio Citizen
Part I
"What It Is"
The big story, when I arrived in San Antonio, was about how our public utility, CPS Energy, was going about acquiring new sources of electric power and the great debate over whether or not to expand its current stake in the nuclear facility known as STP (South Texas Project).
In addition to monitoring ongoing print sources, I researched all the back articles published in the San Antonio Express-News that were available online. These included, for the period August through February, well over one hundred pieces, as well as the commentary accompanying those reports and editorials.
As I watched, the situation boiled over, ended up in court, and was finally settled on or around March 1st. Immediately thereafter, all the players I had been monitoring were unanimous in declaring the outcome "a great deal" and assuring the public that, although there had been some serious problems, everything had turned out just hunky-dory, and so we could all relax in the knowledge that CPS (and San Antonio) "was back on track".
Unanimity, which can be useful in helping dining out couples chose between pizza and Chinese(or tacos), does not alone persuade me on policy issues. In fact, given the unanimity of opinion favoring financial deregulation which preceded our current bust, my hair tends to stand on edge just as much when politicians agree as when they squabble. No matter how many rabbis put lipstick on a pig, it still ain't kosher.
Contrary to the published conclusions, my reading of the events, and my research, did not lead me to the conclusion that San Antonio had gotten such "a great deal". Nonetheless, as I've aged, the humility born from the self-knowledge of how many times I've been wrong before; and as a newcomer, the possibility that "old hands" here could make better sense of the facts than I, urged further consideration.. I deferred my opinion, both in the hope that the new era of "transparency" proclaimed extant at CPS had indeed arrived; and in the faith that, after all, this group of civic leaders were my betters, at least in their knowledge of the CPS-NINA* affair.
*NINA stands for Nuclear Innovation North America. It is a syndicate formed to further the interests of its partners. NRG controls 88%, while Toshiba has the remaining 12%. CPS, a public utility serving greater San Antonio recently concluded negotiations with NINA that finalized its share in the expansion of STP.
To solicit this wisdom, and to exorcise the doubts clanking around in my mind, I wrote down some questions, and cobbled together a list of people I felt could best answer them. There were about twenty-fives names on my list. These included his honor, Mayor Castro, all ten council persons, the Express-News, our niche weekly the "Current", most of the groups involved in testifying for or against nuclear expansion, some local journalists, one or two academics, an acquaintance or two, and of course, CPS. I also went in person to the Bexar County Dems, the Northside Progressive Dems and sent an e-mail to the county Republicans to see if the political parties had a position on the issue. The Democrats I talked to, although happy to chat, didn't have a clue as to what I was talking about. The "Party of No" was also silent. As for my e-mail questions to the "players", I sent that out early in March.
I waited eagerly for the expected responses. Then, I waited some more.
In mid-April, I finally heard from CPS.
It was my bill.
It was the first thing I had heard from the wounded company since the "new era" of transparency had been trumpeted. With the bill was included, depending on your POV, what could either be called a newsletter, or a spinsheet. Whatever you call it, it wasn't an answer to my questions. Not only did this pamphlet contain no insights into the "new" CPS, it completely ignored the most important thing of all.
Peek-a-boo: Your electric rates have been raised. While we must all be grateful for "free" reading material, even when it is not clear whether this stuff has been provided for our literary enlightenment or to spur on our re-cycling efforts, we must wonder why amidst all the happy talk there is not a single chirp regarding such an important fact: The Big Increase. You'd think the new transparency (if not common courtesy) would demand they would at least mention it.
Nor did I, as of that date, hear back from his honor, my city council person (district 1), any of the other council persons, any of the concerned "citizen" groups, the academics, or anyone at all**, for that matter.
** In response to subsequent pestering, I did receive two gracious responses from local journalists that were helpful. Public Citizen Texas also responded but would not document its strident anti-nuclear opinions
After having identified the problem at CPS as being "a failure to communicate" (are you listening Cool Hand Luke?) and placing the blame for this "communications" disaster on a few individuals at CPS, I had expected more from the self-righteous finger-pointers.
By temperament, I'm not a letter writer. Maybe I shouldn't have expected a response; perhaps naively, I was shocked to get stonewalled. This lack of professionalism was surprising- even for amateurs. The "communications" problem here, I concluded, is not restricted to a few CPS executives. I was left alone, with only the public record, to figure out in regard to the deal, "what it is". Was it, or was it not the "great deal" all the players said it was?
A thumbnail sketch emerged outlining in my mind the events leading up to the spectacle that unfolded in late 2009 and early 2010.
CPS, having been badly burnt by a previous over-reliance on natural gas, had diversified by taking a forty percent stake in the original South Texas Project (STP). The original cost estimates for STP 1 & 2 were under a billion dollars. The project was completed in the late nineteen eighties for many, many times that figure, and years behind schedule.
In the hard sell for buying into the expansion (STP 3 & 4) CPS played the role of "bad cop". Forecasts of projected energy needs were disseminated with the clear warning that San Antonio had to act or the lights would go out. In addition, CPS informed us, the price was right in comparison to other types of energy generation. In a very curious negotiating tactic, it was the buyer proclaiming we had to buy, and we had to buy now.
The role of "good cop" was played by the Express-News, our only major daily and charter-member of the group backing the plan. For the good of San Antonio, a steady stream of editorials and favorable "reports" told us we must follow the advice of the professional managers and planners. Their opinions, unlike the many experts on energy that testified against the plan, should be accepted. Reasonableness and professionalism were extolled in keeping with the values expressed by a reliance on the city-manager system.
It sounded good to me. I'm no more an expert on energy than the mayor or the city council persons. I didn't have a dog in the race.
In the final months leading up to scandal, and ultimate approval, various levels
of participation were proposed. The total cost of the project was estimated at thirteen billion dollars. This time, we were assured, these numbers were written in stone. New techniques in nuclear construction guaranteed that, unlike STP 1 & 2, there would be
no cost overruns. STP 3 & 4 would be completed on budget before the AC went off.
When our public utility had originally partnered up with private groups no firewalls had been erected to prevent the "public" mission of CPS from being contaminated with the private mission of its partners. No committees or watchdogs were formed. Indeed, among most leaders in Texas, "public" is a dirty word. As a result, the first configuration of the new plan had CPS with a fifty percent share. Fifty percent was way more electricity than San Antonio needed; even by the most hysterical estimates, and 6.5 billion a lot more money than we had to spend. CPS responded "not to worry", they were going into the private energy business, and would recoup the money by selling the excess capacity on the free market; something we were assured was as simple and certain as putting the cat out at night.
Texans, if nothing else, are famous with being stingy with the public nickel, and even though they did not order prompt mental evaluations for those at CPS putting forth this scheme, astute leaders began to back off.
Plan two had our share reduced to forty percent. Although Austin had not been able to
find any buyers when it tried to bail out of STP 1 & 2 in the nineteen eighties, CPS was confident it could sell the excess ten percent. The total cost remained thirteen billion, and our forty percent share would cost us 5.2 billion. The only problem was, we didn't have 5.2 billion.
Plan three reduced our proposed share to twenty percent. Because the total estimate of thirteen billion was still written in stone, our new toll would be half of the 5.2 billion of plan two, only 2.6 billion. As it turned out, we didn't have 2.6 billion either.
Around this time, although we had no final deal or ironclad guarantees, and the matter was still being "debated" by council, CPS had already extended hundreds of millions in cash to the NINA syndicate.
This behavior is typical of folks that are throwing around "Other Peoples Money" (for further insights into that subject see "Other Peoples Money" a Norman Jewison film starring Danny Devito- a schmaltzy look at predatory business practices). Using someone else's money is an art form when practiced by the sharks on Wall Street. Steve Winn, who is running the NINA syndicate for NRG, swims in the deep water. Formerly an executive VP at Lehmann Brothers in charge of financing energy projects, we can be sure he is among the worlds best at this technique.
Just prior to flinging in our final one hundred million in cash, the proverbial stuff hit the fan. According to the official line, at the midnight hour, a little bird from NINA landed on the mayor's aide's shoulder, and broke the shocking news. It seems that thirteen billion wasn't written in stone after all. Revised estimates were forty percent higher. While this would not be the least surprising to even the most casual observer of nuclear developments, the leak was greeted with apocalyptic consternation by the players in San Antonio. Moreover, it seemed that the CEO of CPS had known this inconvenient fact for some time; indeed, he had known about the higher figure when he was giving public assurances that thirteen billion was absolutely sacred.
Outrage!
Bye-bye CEO, bye-bye culpable exec, bye-bye head of CPS board.
When the dust of scape-goating settled down, a new era of truthfulness and transparency was proclaimed. Things were going to be different now. The problem did not extend beyond a few "bad apples", on the contrary, the remainder of nuclear backers came up smelling like roses, despite the fact that they too had gone hook line and sinker for the myth that nuclear developments can be guaranteed to come in at exactly the original estimate. They were not only not to blame, they were heroes for cleaning out the bad guys.
The interim CEO sued NINA for thirty two billion dollars. CPS claimed NINA had defrauded San Antonio, and demanded our money back. Press coverage took this suit seriously, although we had not negotiated any legal basis for a refund. Of course, we lost.
Not surprisingly, when we did, the Express-News and the Current told the public we had
won. A new Tall Texan Tale had been created- the story of "the great deal".
As an exemplar of the new era, CPS claimed in the lawsuit that the indispensible land and water rights that San Antonio was contributing to the deal were worth at least two billion dollars.
Despite the fact that we were told we had won, and that we had gotten "a great deal",
the figure was reduced to just one billion in the final humiliating settlement we were forced to accept. Over one billion in value evaporated overnight, and still the pact was hailed as a victory. (if you want to see how serious water rights can be, I suggest viewing "Chinatown" with Jack Nicholson and Faye Dunaway)
The deal includes about one hundred million dollars in kickbacks contingent on final approval and political performance. This reduces San Antonio's cash outlay to about
three hundred million. Together with the one billion dollar figure assigned to the land and water rights, we spent 1.3 billion dollars.
To evaluate whether or not that 1.3 billion was well spent (a great deal), a citizen does not need a Harvard law degree, a working understanding of Einstein's theory of relativity, or any particular attachment to any of the many masters of the universe. All you have to have is a reasonably good grade school education, the ability to understand that 7.6 is less than 10, and no axe to grind.
Throughout every act of the show, some of the things we were told remained remarkably constant. Nuclear energy was the best choice because it was the best buy. The choice to go nuclear wasn't corrupt; on the contrary, it was arrived at by sober civic minded leaders concerned only in getting the best deal for the public. Unfortunately, how it remained the best buy after the toll was hiked forty percent, no one hailing the "great deal" has bothered to explain No one has ever suggested that nuclear was forty percent less expensive than its nearest price competitor.
Despite what we have been told, we did buy in at the higher, previously unaffordable and uncompetitive, price. That's the simple fact. Just like 1.3 billion is ten percent of thirteen billion.
We all know that. At least, I always thought we did. When we were supposed to buy forty percent, the tag said 5.2 billion. When we reduced by half to only a twenty percent stake,
the price was halved to 2.6 billion. In every instance, the most we could afford to pay,
the price beyond which nuclear power was no longer competitive, and regardless of the size of the stake we imagined we could afford, the rate never changed. Every ten percent
was worth 1.3 billion. Or, as seen from the view of the seller, every 1.3 billion in your jeans would get you another ten percent.
Basic math doesn't lie.
When we sweep away the marketing, the interests, the politics, the editorials, the slanted reporting, and every other form of posturing, arithmetic provides the litmus test for evaluating this deal. When we focus on simply whether or not we got our monies worth,
which is the only honest way to evaluate any financial transaction, and ignore all the smoke and mirrors both pro and con regarding nuclear power plants, the question of whether or not the people of San Antonio got " a great deal" is really quite simple.
Did we get ten percent for our 1.3 billion or not? Basic math doesn't lie.
We got 7.6%. It's no secret. This inconvenient fact had to be made public. Rather than being embarrassed, the mutual admiration society responsible for this shortfall simply
brazened their way through the math. With brass born of a conjugation of all the players,
they simply declared that a 7.6% interest was better than 10.
"What It Is", unless 7.6 really is more than 10, is a lousy deal.
No matter how thick you slice it, bologna is still bologna.
If you take, as some businessmen would, the difference between what we got and what we should have gotten as a markdown, 7.6 is 24% less than 10. If we look at it as a mark-up, 10 is 32% more than 7.6. It doesn't matter which method you use. Either a quarter of the money wasted, or a third, when you're dealing with 1.3 billion is still an awful lot of tacos down the drain.
The very least we could have thrown away is over three hundred million dollars.***
From Mr. Winn's point of view, this was a real piece of work. He earns his money. I admire the job he did on us. In return for giving us 8% of STP 3 and STP 4 on March 1st, we got the privilege of spending at least 50% of the money allegedly spent as of that date- more than six times our share. After the "great deal" he still controlled about 80% of the NINA syndicate, ten times what CPS got, but hadn't spent a dime more in cash than the people of San Antonio. You gotta love the action.
The monies wasted by CPS and their cronies do not include additional costs such as line costs, plant decommissioning, radioactive baby-sitting, the interest on the monies borrowed to buy in, or legal fees. These millions have been too trivial to mention, just pin money to the hot shots throwing around rate-payer money.
Equally alarming is that San Antonio is still in the market. Even though the hard sell estimates have proven to be elastic; to fit the great deal story, nobody claims we have secured more than a third of our projected energy needs. Our land and water rights, our only ace, have been dealt away. We are out of trump.
If the performance of this "Happy Talk Chorus" that thinks they have done such a great job, is any indication, we are really going to be paying through the nose soon.
Just based on recent performance, electric rates are already expected to rise here by forty percent by the time the new nukes come on line. How much more will they rise as we acquire the other two thirds?
The irony is that these increases might produce a rate market here so high that new business can no longer be lured here with the promise of cheap electricity- the very thing
the "business progressives" say they want to avoid the most.
While these swells can afford irony, only sadness can describe what effect this malfeasance will have on the very decent but modest of means citizens of San Antonio.
Higher rates are a regressive form of taxation sucking millions from those segments of the public that can least afford to pay, and will have a measurable impact on their quality of life.
The tragedy is that these citizens have, thanks to the PR job done on them by the press
here, actually believe (if they have any opinion at all) that CPS got them a great deal.
The politicians supporting the deal, CPS, and the rest of the "Happy Talk Chorus", are all in line for a hearty "well done". The Mayor has been called a "hero" for his role in putting over the deal.
How this can be, will be the subject of further informed speculation, in "Part II"- "Why It Is"
***since this piece was written, subsequent transaction involving NINA have revealed that the amount San Antonio was overcharged was much higher than I initially thought
May, 2010 with subsequent editing
Intelligent comments to swantsays@gmail.com
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