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Hidden figures

Profile image for By Peggy Heinkel-Wolfe
By Peggy Heinkel-Wolfe
Trucks move in and out of the Denton Energy Center site, where a new power plant is under construction on the city’s west side.Tomas Gonzalez
 - DRC
Trucks move in and out of the Denton Energy Center site, where a new power plant is under construction on the city’s west side.
Tomas Gonzalez - DRC

DME says details of city’s $265M plant deal would boost competition

When city officials unveiled the most expensive capital project in Denton’s history last fall, they didn’t disclose any details to the public.

And it looks like they never will.

Denton Municipal Electric, the city’s electric department, is building a power plant on the city’s west side. We know some things. For example, the Denton Energy Center will have 12 natural-gas fired engines built by Wärtsilä, a Finnish company. A Missouri engineering firm, Burns & McDonnell, will design and supervise construction of the building that houses them.

DME is part of the city government and much of its debt is backed by Denton taxpayers. Even so, DME’s position is that the public cannot be told the most basic information about the deal it made on the public’s behalf. Currently, the public has no way of finding out how much city government is paying Wärtsilä. They cannot know how much Denton is paying Burns & McDonnell, either.

The Denton Energy Center is expected to cost $265 million or more. The only reason that figure is publicly available is because state law requires certain disclosures when a city issues bonds to finance a project.

DME officials say disclosing any more information about the new power plant would put them at a competitive disadvantage in the Texas electric marketplace. Another power plant could figure out DME’s costs and beat the energy center’s bids to sell electricity to the grid.

Phil Williams, DME’s general manager, said most of the buying, selling and trading of electricity in Texas is done by private utilities.

The Texas Legislature changed open records laws so municipal utilities wouldn’t have to show any more cards than private utilities do in the Texas electric market. Without exemptions in open records laws, those private companies could get information to undercut public utilities, like DME.

“Otherwise, it’s not fair and we don’t have a level playing field,” Williams said.

 

Massive blackouts

DME has used those exemptions to keep private the specific details of its major business dealings for many years. The “purchase power agreements” set terms when DME buys electricity from wind and solar farms. The agreements also include terms for selling electricity to large customers, such as the University of North Texas.

Last fall, DME sought the City Council’s approval to build the Denton Energy Center. Officials redacted, or blacked out, more than dollar figures in its contracts with Wärtsilä and Burns & McDonnell. They redacted how much noise the plant will make and how much air pollution the plant will emit.

After a deeply divided City Council voted 4-3 to approve the deal, the Denton Record-Chronicle asked for complete, unredacted copies of the city’s contracts.

Other people asked for complete, unredacted copies, too, including a reporter who wanted to write on the groundbreaking deal for a trade publication. Another person asked how many people DME would hire to run the plant.

DME’s attorney, John Knight, appealed to the Texas attorney general’s office. He claimed all the information people sought needed to be kept secret. He cited a controversial decision by the Texas Supreme Court in 2015, Boeing Co. vs. Paxton.

The state’s highest court told Attorney General Ken Paxton’s office Port San Antonio and Boeing could shield their lease terms from public scrutiny. Boeing operates an aircraft maintenance hub at the Port San Antonio development on the site of the old Kelly Air Force Base.

In the past 18 months, the Texas attorney general’s office has received more than 300 requests from governmental entities, like DME, looking to shield their contract terms from public scrutiny, too.

DME’s power plant deal was similar, Knight said. He claimed the Boeing decision gave Wärtsilä, Burns & McDonnell and the other firms that bid (but lost) on the Denton Energy Center a chance to keep their information secret.

Those secret bids were the only way DME could be sure it was getting the best deal for ratepayers, Williams said.

Among the losing bidders, only General Electric asked to continue to keep its bid a secret. Wärtsilä and Burns & McDonnell asked that their bids and contract terms continue to be kept secret, even after the contracts were signed. The two firms have worked together on similar projects elsewhere in Texas and are likely to bid on more.

The Texas attorney general’s office agreed the Boeing decision applied and sided with DME and the three companies. They said DME could keep the information secret: not only dollar figures, but also noise and emissions calculations.

DME’s contracts to build and run the plant aren’t different from other purchase power agreements, Williams said. Moreover, the deals are scrutinized. Both the City Council and their appointees on the Public Utilities Board review the agreements on behalf of the public.

“Fourteen individuals are aware of the details,” Williams said.

So far, the Denton Energy Center and DME’s goals to buy more electricity from renewable sources are “on target,” Williams said. He expected construction of the power plant to cost less than $265 million once it is finished.

In addition, even though the new plant won’t make electricity until 2018, the power plant deal helped DME negotiate its first wind power deal on better terms than expected, Williams said, adding more wind and solar deals are coming.

DME officials say the new power plant will keep them in the driver’s seat — buying, selling and trading on their own terms, keeping rates low for customers in the future.

 

A two-headed DME

DME is somewhere in between a private company and a government utility.

It is increasingly different from the other 70-plus municipally owned electric utilities in Texas. Other municipalities employ a private utility to do their buying, selling and trading on the Texas grid. DME does its own trading.

Williams and many other executives came to DME from TXU or other private-sector utilities. They created a special unit that can buy, sell and trade electricity in the Texas market. Williams said that unit already has saved millions for ratepayers in the two years it has operated.

DME also has become increasingly secretive about its budget matters in the past two years. Last summer’s budget talks for the city-owned utility stayed behind closed doors. DME used to announce with pride its purchase of wind and solar power and how much closer it got the utility to its goal of 70 percent renewable energy by 2019.

But no more.

That’s now considered a competitive matter. An open-records activist asked how many people DME would hire to run the plant, but he was rebuffed. Even though they would be city employees, that number, too, was considered a competitive matter.

 

Closing Boeing loophole

Until recently, Texas law was clear on the status of contract documents once bidding has ended and the contract is signed. Government contracts can be made available for public inspection. In addition, state law was clear that environmental impact information was not considered a competitive matter and had to be disclosed.

That changed after the Texas Supreme Court’s decision in the Boeing case in June 2015. According to the Texas Tribune, secret deals emanating from the Boeing decision run the gamut.

A Kaufman County school district kept secret the terms for a food service deal. The city of Houston won’t reveal how many permits it had issued to Uber drivers. And the city of McAllen didn’t have to say how much it paid Enrique Iglesias to sing at a holiday parade.

Whether DME’s secret contract terms, ostensibly allowed by the Boeing decision, circumvent federal law by withholding environmental information is not clear. Williams said he knew that information would not typically have been redacted.

Members of the Texas Legislature have already filed bills to close what critics call the “massive loopholes” created by the Boeing decision. In a press conference this week, state Rep. Giovanni Capriglione, R-Southlake, and Sen. Kirk Watson, D-Austin, filed two bills in each chamber to address the problems.

One pair of bills, House Bill 792 and Senate Bill 407, would limit the threshold governments can use to withhold information when considering competitive matters. In addition, the legislation restores the biggest loss from the Boeing decision: Once a contract is finalized, it once again would become a public document.

Another set of bills, House Bill 793 and Senate Bill 408, would make sure that private entities that receive public funds are subject to open records laws under certain circumstances.

The next session of the Texas Legislature begins Tuesday.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter at @phwolfeDRC.

 

BLACKED OUT

Here is a list of information the city redacted from its purchasing contract with Wärtsilä:

Contract price, including starting payment, milestone payments and final payment

Dates of the punchlist and delivery schedule

General scope of supply

Performance guarantees and all matters related to liquidated damages

Quantities for engine performance tests

Emissions rates from the engines

Insurance requirements

Fuel gas specifications

Gross output and heat rate

Equipment noise tests

Reliability guarantee tests

Cancellation schedule

 

Here is the list of items redacted from the construction contract with Burns & McDonnell:

Contract price

Construction schedule guarantee and amount of damages for delays

Liability amount for owner property and limitation of liability

Insurance amounts, including builder’s at-risk insurance amount

Materials specifications

Subcontract and equipment list

Reference and design drawings

DME’s electric generating permit

Final site conditions report

Scope of supply and engine technical specifications

Commercial clarifications

Milestone payment schedule

SOURCE: City of Denton