City looking into failed Tenaska deal

Staff Writer

Brownsville city commissioners have unanimously approved an audit of city-owned Brownsville Public Utilities Board regarding a power plant project agreement with the Nebraska-based energy company Tenaska that was announced in 2013 but ultimately died on the vine.

The audit, to be conducted by city auditor Patrick Zacchini and overseen by a three-member audit committee appointed by Mayor Trey Mendez, will look into what became of tens of millions of dollars generated by rate increases imposed by BPUB to pay for the utility’s share of the planned $500 million Tenaska Brownsville Generation Station.

Mendez, who as mayor serves as an ex-officio BPUB board member, said that of more than $100 million generated by incremental rate increases of 35 percent spanning five years, roughly $29 million is accounted for. The board voted a year ago to set aside all the remaining money, he said.

“We set that aside and put it in a separate account, not to be touched until we figured out how best to use it and what exactly to do with it,” Mendez said.

Under the power plant agreement, which took effect in October 2014, Tenaska was to build an 800-megawatt, natural-gas-fired generating facility on 200 acres at F.M. 511 and Old Alice Road in exchange for a 10-year tax abatement from Cameron County. City-owned BPUB committed to a development and purchase agreement with Tenaska that entitled the utility to 200 megawatts of generating capacity in exchange for BPUB sharing construction costs.

Under the terms of the agreement, Tenaska wasn’t required to move ahead with construction until it secured purchase commitments for all 800 megawatts, which never happened. In November 2016, Tenaska asked the county to terminate the tax-abatement agreement. In a letter to then-county judge Peter Sepulveda Jr., Tenaska vice president for strategic development and acquisitions Robert Ramaekers wrote that the structure of Texas’ electricity market “made it extremely difficult to finance and build new base load electricity generation in the state.”

Specifically, the market couldn’t accommodate the huge growth of renewable energy (wind and solar) and at the same time support new gas-fired power plants, he wrote. The city declared the Tenaska project officially dead early last year, Mendez said.

“We need to know what went on here and how this money got spent, because you’re looking at a whole lot of money that was raised over the course of … the time it was approved to last year when it was formally terminated,” he said.

The commission’s vote to approve the audit and authorize City Manager Noel Bernal to provide the necessary resources occurred during an Oct. 27 special meeting, held virtually, and was a follow-up to an initial authorization for BPUB oversight approved by commissioners on May 5. Bernal said during the Oct. 27 meeting that the request for city staff to seek information from BPUB originally came from District 4 City Commissioner Ben Neece, and that BPUB subsequently provided some information voluntarily.

Neece said there are many unanswered questions about the Tenaska agreement.

“I think the commission owes it to the public to find out everything we can about what went wrong with this project,” he said.

City Commissioner at Large “A” John Cowen Jr., a member of the audit committee, noted during the Oct. 27 commission discussion that Zacchini’s prior role before coming to Brownsville was as a utility company auditor.

“I think he brings sufficient expertise in this audit,” Cowen said. “In my opinion I think this issue is merited to look into. There was $30 million spent on a project that didn’t happen, and another $30 million that was levied on the taxpayers that hasn’t been spent. I think it’s our duty to look into this and make sure everything was kosher at the end of the day.”

BPUB spokesman Ryan Greenfeld said the utility’s internal audit manager, Melida Pinales, and BPUB General Manager and CEO John Bruciak were set to meet with Bernal and Zacchini on Nov. 12 to discuss the audit. The utility said in a statement that “BPUB will work closely with the city auditor and will provide any information requested by the city about the Tenaska Generation Project. As a municipally owned utility, BPUB looks forward to cooperating with the city on this.”

Greenfeld also pointed to a program BPUB implemented in April 2016 to lower customers’ bills during rate spikes and said the program, using money from the Tenaska rate increases, has continued uninterrupted.

Mendez said that if he had been in a municipal leadership position back in 2013 he probably would have been skeptical of the Tenaska agreement, which was approved by the city commission at the time, and noted that BPUB’s utility rates were never lowered even though the power plant project was terminated.

“I’ve always been in favor or reducing the rates back, but it’s going to take a vote of the majority of the commission to do that” he said. “I don’t know if that majority exists at this point in time. “There’s also a lot of other issues we have to deal with if we were to reduce those rates. I’m a proponent of reducing them incrementally, not just from one day to another.”

The fact that the cost of generating electricity has increased may stand in the way of a significant rate reduction, Mendez said.

“It does open up a whole host of issues as far as revenue, because the city does get a certain portion of PUB revenue that comes back to the city,” he said.

Meanwhile, the city is interested in uncovering any potential “inconsistencies or illegal activity” involving the Tenaska deal and warranting further investigation, Mendez said. The next step will be to figure out what to do with the remaining $29 million, he said. It could be used to help expand broadband under the city’s current initiative and/or to upgrade BPUB’s utility infrastructure, resulting better service and lower rates for customers, he said.

“Whatever’s done is going to be done in the best interests of Brownsville and the best interests of our citizens,” Mendez said.

Some of the money generated by the rate increases went to right-of-way acquisition, which isn’t a bad thing to have if the city ever wants to create its own gas utility, for example, he said. Some of it, however, went to consultants and attorneys “and other things that don’t really bring any return,” Mendez said.

“The bottom line is where did that money go? People need to know where it went, especially considering the amount of money that came in throughout the years, and knowing that not a whole lot of it is left,” he said. “I think over the course of the next several months we’re going to find out a lot of information about the project, and maybe some things that we’ll be surprised to learn.”