The needler in the haystack.

Wednesday, August 11, 2010

UCIA Solar Panel Plan: A gift horse to be looked over carefully


A gift horse that should be looked over carefully.

As Plainfield's City Council continues to look into the proposal to join with other Union County communities in the Union County Improvement Authority's solar panel scheme, it seems to me there are serious questions that need to be answered before the governing body can give its assent.

Despite the proverbial advice to 'never look a gift horse in the mouth', Plainfielders have learned from hard experience when dealing with the UCIA to heed the proverb at their peril.

The only thing I can find online is the UCIA's glossy pitch brochure (see here, PDF). I am not surprised that trying to float a $45 million bond issue with such thin information would cause questions to be raised.


This is the extent of the UCIA's description of the project's inter-relationships.

Everyone agrees going green is good. No one wants to be seen to be dragging their feet, and solar panels are the currently hot topic.

However, those are exactly the conditions under which well-meaning but relatively uninformed decision-makers can be scammed.

Already, Cranford (see here) and Berkeley Heights (see here) have put the brakes on participation, seeking answers to several questions. The two towns have now been joined by Summit (see here), which also thinks the program bears more investigation.

Here are some questions I think need satisfactory answers if Plainfield is to sign on --
DEFAULT SCENARIO
Private companies are to receive the bond funds to purchase, install and operate the solar panels. Setting aside the question of how these companies are selected (this is, after all, Union County), it is important for towns to know if they will be on the hook IF THE PRIVATE OPERATORS DEFAULT ON THE BONDS. Who then would be left on the hook? The municipalities? How much of the long-term risk of the project should a municipality be willing to assume?
PRICING
The private entity is supposed to own the panel installation and sell the electricity generated to the municipality or other entity, at a markup that includes servicing the bond debt and a guaranteed profit to the private firm. As prices are alway in flux and the public utilities are also working on 'greening' their technologies, what guarantee do the municipalities get that prices they must pay for the power they are generating will ALWAYS BE LOWER THAN THOSE OF UTILITY COMPANIES SUCH AS PSE&G?
MAINTENANCE
Who is responsible for maintenance over the long haul -- and not only of the panels, but of the underlying building fabric which may suffer deterioration as a result of the panels' installation? This is a question that should be settled now, rather than after an incident arises.
PROFITS
Is there some structuring of the financial aspects that provides a process for the municipality to participate in the profits of the venture over the long haul? Are the bonds structured so that the debt is amortized in addition to the interest being paid or will there be some 'balloon' payment down the road? If the private firm's liability for the bond principal declines over time as it is amortized, will the price structure change?
TERM
At what point, if ever, would the asset revert to the municipality? At what point could the whole deal be renegotiated? Forever is a very long time, and great care should be taken before entering a 'forever' agreement.
As Katherine Barrett and Richard Greene point out in a column in this month's GOVERNING magazine (see here) -- local governments are prone, on the one hand, to accept overly optimistic assessments of a project's costs and timelines, and on the other hand, to be disadvantaged by having less sharp negotiating skills.

They point to a study by William Eggers, Partnering for Value (see here, with link to PDF file), which outlines issues for local governments in public-private partnerships and what local government officials can do to improve their game.

Maybe the Council should even consider appointing a citizens committee to look into the matter and make recommendations.

At any rate, let's hope Plainfield's City Council looks this nag over pretty closely before deciding to buy.

-- Dan Damon [follow]

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9 comments:

Anonymous said...

Of course you would oppose it. Just because the county is behind this - that is all the reason you need. This is a standard knee-jerk reaction from New Dems. Note that all the opposing towns are Republicans and not a single town has given any good reasons. Mumbo-jumbo like "unanswered questions" is all they can come up with. It is this same Republican call you and Mapp are dancing to.

Anonymous said...

I read the UCIA sales brochure. That's the only way to describe it. Less like they are proposing a service to the taxpayers through their representative governments and more like they're selling land in the Ozarks to semi-informed council members. I get the broad outline but not the details, but then again I'm neither an attorney nor an investment banker. Oh wait, neither is anyone on the council nor on the Board of Ed, who are also considering signing on.

The best advice comes from the linked-to Governing article: hire a serious, independent, perhaps expensive consultant. This would be a perfect opportunity for municipalities to share services by sharing the same consultant. The issues appear to be similar if not identical for Union County cities, whether rich or poor, black or white, run by republicans or democrats. It might also lead to municipalities sharing consultants in another critical long-term arena: union contract negotiations, the state and municipal battleground of the next decade.

Anonymous said...

Do all municipal buildings continue to get FREE Lighting from PSE&G? All other electric consumption is paid for but I thought any electric for lighting was FREE.

If this is still the case, and if the City does go green, that they not include the lighting.

Anonymous said...

I notice that all the towns that are saying yes are democrat towns. That too could be a knee-jerk reaction, although I don't think getting more information could in any way be described as knee-jerk. It could be that there are more lucrative options. The UCIA leaves a lot to be desired. So far, we've only heard from the salesman/attorney whose firm makes millions of dollars off UCIA projects. Anyone comfortable with that?

Alan Goldstein said...

If it makes economic sense then maybe we should just have them installed and reap the benefits without any 'operator' extracting a profit.

My friend Dave in Cokesbury set up solar panels at his house and gets solar credits from selling excess electricity back into the grid. He also saved money because of substantial tax credits that reduced the out-of-pocket cost of installation, without which the system would not make economic sense. What guarantees are there that we will save any money, and that what savings we could generate won't be swallowed up by 'operator' profits?

What's the likelihood that 10 or 15years down the road new and improved technology makes this system obsolete and other sources and methods become cheaper?

Why, if there is profit to be made, aren't these private operators just getting bank financing or venture capital to fund the project, and be content with selling us a good product cheaper?

There are an awful lot of whats and whys. Too many in fact. The City Council should withhold its approval pending receipt of real answers. The Administration should have come prepared with answers before bringing its resolution. Our first 'green' step should be one of fiscal responsibility.

Anonymous said...

If "asking questions" is thought of as a Republican trait that might explain why our children do so poorly in the Plainfield schools.

Anonymous said...

We have no actual concerns. Just questions that are unanswered. And we won't even tell you what these questions are.

Until these concerns are addressed, a through review is given, the new council takes seat, A CITIZEN'S COMMITTEE is created to review this, bids from 5 others are obtained, hell has frozen over, pigs are flying, and there is a blue moon,this must be put on hold.

Otherwise, I am all for it.

Anonymous said...

Larry Bashe come out and remind us all of how the City got FREE electric at City Hall until the 70's. Hay he even made it on TV !!!

Anonymous said...

The only way that solar panels make sense economically is when there are tax benefits to offset the high cost of installation and maintenance. It is hard to see how a town gets tax benefits so you have to question how the installation costs are being paid for. If a private enterprise gets a tax credit from the state to steal our tax money on inefficient technology fine, but the local towns need to understand that there is no way current solar technology stands up to standard ROI paybacks. Local towns should not be spending taxpayer money on anything that fails to properly benefit the people who supply the funds!