A forensic analysis of a failed power plant deal that Brownsville Public Utilities Board entered into in 2013 concludes that BPUB management took extraordinary steps to continuing promoting the project as viable even after it clearly wasn’t, all in order to maintain the higher rates that had been imposed on customers to pay for the project, and to proceed with right-of-way acquisition for a related natural gas pipeline that would never be built.
On Nov. 1, 2021, the city of Brownsville engaged accounting firm Carr, Riggs & Ingram (CRI) to conduct the analysis, and the 69-page report on the Tenaska Brownsville Generating Station project was made public on Oct. 5.
BPUB signed letters of intent with Nebraska-based Tenaska Inc. in 2011 for construction of the $500 million Tenaska Brownsville Generating Station Project, an 800-megawatt (MW), gas-fired power plant. Twenty-five percent of its generating capacity was to have been owned by BPUB and Tenaska was responsible for finding customers, or subscribers, to buy the other 75 percent.
The Brownsville City Commission in December 2012 approved an incremental series of five rate hikes to cover BPUB’s financing obligations for its share of the development cost, plus operations and maintenance costs. BPUB and Tenaska signed “definitive agreements” on Jan. 25, 2013. The first of the five rate hikes took effect April 1, 2013, and the last on Oct. 1, 2016, increasing electric rates by 36 percent over four years, or more than 41 percent compared to before the project was initiated.
CRI reports that the city did not receive formal notice from BPUB that the project had been terminated until August 2020. Of the $118 million generated by the five rate hikes, roughly $35 million had been spent on the doomed project, $54 million was “allegedly allocated” to a BPUB rate-reduction program starting in April 2016, and $29 million was set aside in a Tenaska Equity Fund, according to the report.
To sell the project to the BPUB board and the city commission, BPUB’s management intentionally relied on outdated load-forecast data that overestimated future electricity needs even though more up-to-date, reliable data was at hand, CRI reported. Presentations from BPUB consultants were sometimes altered by BPUB before being presented to the board and the city commission in order to create the impression that the Tenaska plant was the preferred option for bringing more power to the local market (and that the rate hikes were therefore necessary) even when available data contradicted that claim, according to the report.
BPUB relied on a 2009 load-forecast from consultant R.W. Beck “based in large part on data from 2007 and prior” that did not reflect the economic downturn of 2008-2009, CRI found. The “Beck Forecast” also included a lengthy warning about the “uncertain and volatile nature of the data underlying the assumptions and the steps (BPUB) Management should take to address those risks.”
“Beck provided BPUB with the means to identify and address the sources of potential error in the forecast or, at the very least, compare the monthly forecasted values to actual as time went on,” CRI wrote. “Doing so would have highlighted the need to update the forecast long before BPUB made the decision to proceed with the Tenaska Project. Yet, BPUB did not do so.”
On top of an already-exaggerated load-forecast, the consultant added (at BPUB management’s direction) a 13.75-percent reserve margin that made BPUB’s supposed capacity shortfall seem even more dire, noted the report, which added that management falsely claimed to the board and the city that the reserve percentage was a requirement of the Electric Reliability Council of Texas.
In addition to that fact, plus the “vintage information” in the Beck Forecast, BPUB management was also “fully aware” of a 2012 technical analysis warning that the project would fail if Tenaska was unable to find buyers for its 75-percent share of the plant’s generating capacity, which is exactly what happened, CRI wrote.
“In short, Management neglected their responsibility to make sure the Board was well informed before making key decisions on spending tens of millions of dollar,” according to the report.
Despite being advised fairly early on that the project would fail, BPUB General Manager and CEO John Bruciak and other management personnel, with the help of former mayor Tony Martinez (serving as the BPUB board’s ex-officio member at the time) and consultants, in many cases “omitted pertinent information that would have jeopardized support for the Project,” CRI wrote.
“In other cases, they outright changed facts to create a false narrative in an effort to deliberately cloud the Project’s status and viability,” according to the report.
CRI noted that much of the money spent on the project was for pipeline right-of-way acquisition after July 2015, the original deadline by which Tenaska was required to subscribe all of its 75 percent share of generating capacity. By that point, the project was undeniably dead, something BPUB’s board knew by November 2017 at the latest but didn’t share with the city and the public until August 2020, according to the report, which concluded that it’s likely right-of-way acquisition would have stopped had BPUB announced an end to the project earlier.
“BPUB could have saved the (city) millions of dollars in legal expenses had it been prudent and objective when assessing the viability of the project,” said the report.
CRI also found that BPUB management attempted to discourage city commissioners once they started talking about rescinding the rate hikes, in part by reminding them that city revenues would also be impacted. BPUB, since 2006, has been required to transfer 10 percent of its gross revenues to the city once a quarter, minus whatever the city owes BPUB for utility services. In 2017, once all the Tenaska rate hikes were in place, the BPUB transfers accounted for nearly 10 percent of the city budget, according to the report.
“In voting for the rate increase, the Commission was, in reality, voting to increase the (city’s) revenues” CRI wrote. “We cannot separate this incentive to the city from their motivations when they approved the rate hikes, and apparently neither did BPUB. Approving rate increases and receiving the benefits thereof, does present a conflict of interest for the COB.”
While CRI found no evidence that BPUB’s board intentionally misled the city during key decisions, and acknowledged that board members may have had difficulty grasping all the highly technical information being presented to them by BPUB management and consultants, the analysis concluded nonetheless that more questions should have been asked.
“Given the size of the Project and the number of moving parts, Board members should have been more skeptical and asked more questions, especially as the failure of Tenaska to get subscriptions continued to mount,” according to the report.
None of BPUB’s current board members were on the board during the years covered in CRI’s report. BPUB issued a statement on Oct. 6 saying that it received the full report on Oct. 5.
“We take the report very seriously and are reviewing it in detail,” according to the statement. “BPUB will join the city of Brownsville’s efforts in addressing the audit’s findings.”
Brownsville Mayor Trey Mendez said he’s been advocating the rescission of BPUB’s Tenaska rate hikes since being elected in 2019, given that the project was obviously not going to happen, and that the commission finally succeeded in doing that earlier this year.
“It took until just a few months ago for the commission to actually go forward and move on that, and we finally … committed to lower the rates a total of 22 percent,” he said. “But those rates were probably not necessary for the last couple of years of that project at least, if not longer.”
The 22-percent will take place over a two-year period that began June 1. That rollback has been eclipsed by the fact that electric rates have skyrocketed —not just for BPUB customers but for utility ratepayers around the nation — due to the near record high cost of natural gas, which fuels most power plants in Texas.
As for the $29 million in rate-hike revenue sitting in the Tenaska Equity Fund, the city is “waiting to figure out the best use of that money,” Mendez said.
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