Bill could raise public schools’ electricity costs

Losing bidder wants to end program that helps schools, local governments

Hundreds of schools, cities and counties could have to pay more for electricity under a bill being considered by lawmakers who say it would level the playing field for Texas energy providers.

AUSTIN — Hundreds of schools, cities and counties could have to pay more for electricity under a bill being considered by lawmakers who say it would level the playing field for Texas energy providers, prodded in part by a Houston company that failed to win a state contract to supply power to those local government agencies last year.

The bill’s proponents tout the measure as a move toward free enterprise, but lobbyists for Direct Energy acknowledge the Houstonbased company sought to kill an energy program after its bid to win the state contract fell short last year.

“Only after trying to work with (the state) did we say, ‘Well, we can’t work with them, we’re going to go ahead and try to end this arrangement because it shouldn’t be an exclusive arrangement that only benefits one company,” said Edward Ross, one of five registered lobbyists for Direct Energy.

The bill would end the State Power Program that gives a tax break to schools, military bases and local governments, including several in and around Harris County, that buy electricity through the Texas General Land Office rather than the open market.

The push to end the program has touched off a lobbying battle between area energy providers who competed for the contract to provide electric service.

“This is one of those things that kind of stinks, frankly,” said Jerry Patterson, an opponent of the bill and former Republican commissioner of the General Land Office, which has managed the program since 2000. “The Legislature is

not supposed to intervene or try to redress agreements of a company that lost a bid.”

Direct Energy lost the 2016 bid to participate in the program to Cavallo Energy Texas LLC, which has held contracts under the program for close to seven years. Cavallo is owned by Calpine Corp., which is fighting Direct Energy’s arguments that the state should not be competing in the energy market.

“I find it curious that a company who was participating in a competitive process to secure the business and serve the load under the state power plan now complains about the results and believes the process should be abolished,” said Brett Kerr, Calpine’s director of external relations.

Direct Energy is pushing House Bill 1685 and Senate Bill 736 that would phase out the program, which offers government agencies a 2 percent tax break on their power bills and has contributed more than $70 million to the state’s education fund in the past decade.

“House Bill 1685 ensures that all schools, including higher education and public education, are treated the same under state tax law and receive the benefits of electric competition,” said Jessica Mahaffey, vice president of external affairs for Direct Energy. “The legislation closes the tax loophole and puts all private competitors in the electricity business on the same footing.”

‘Made some sense’ once

The legislation, backed by several energy companies and the conservative Texas Public Policy Foundation, would phase out Texas government from the energy business by 2022, ending the program created in part to help fund public education.

“Maybe once upon a time, this program made some sense,” said Rep. Travis Clardy, R-Nacogdoches, who is sponsoring the House bill. “There’s no more reason for Texas to be in the electrical sale business than it is to be in the used car sales business.”

Clardy said the state’s request for proposals to provide energy for the program appeared “set up” for Cavallo. “It’s one thing to say you have an open bid contract but no one else can meet the parameters of bid specs,” he said.

Kerr said the state looked favorably to companies with a Texas-based call center, but rejected Clardy’s suggestion the bid was tailored for Cavallo to win. “It’s troubling that these allegations are coming out now given the timing when this bill has been exposed as nothing more than an increased tax on schools,” Kerr said.

George P. Bush, commissioner of the General Land Office, said his agency was transparent last year “in soliciting the best offer that we could, so we’re comfortable with our selected vendor. But if the Legislature in their infinite wisdom want to eliminate the program, we’ll by all means operate by those confines.”

The State Power Program, also known as the State Energy Marketing Program, was created by the Legislature in 1999 to offer power at competitive rates to other government entities such as schools and counties. There is no guarantee electricity would be cheaper from the state than on the open market.

The state acquires electricity from the wholesale market and sells it to local government agencies with a small margin added to the price, according to the General Land Office. More than $72 million in profits from the program over the past decade have been deposited in the Permanent School Fund, the state’s education endowment for school districts.

As of this year, the state is selling energy to some 550 school districts, utility districts, military bases and local governments, and makes up 1.7 percent of the market share in Texas, according to the General Land Office.

Harris County could have to pay about $460,000 a year more for electricity if lawmakers eliminate the State Power Program, Harris County Treasurer Orlando Sanchez said.

“Half a million is a substantial amount of money, especially when the state is proposing rollback legislation to further diminish our tax revenue,” he said, referring to a Senate bill to curb property taxes. “On the one side they want to diminish our tax revenue and on the other side they want to potentially raise the cost of utilities. That doesn’t sound too conservative to me.”

‘Tax on school districts’

An analysis by the state’s Legislative Budget Board concluded that eliminating the program would result in a loss to the Permanent School Fund of $12 million by 2022. Local government agencies no longer buying power from the state would begin paying the same 2 percent tax all other municipalities pay, which would result in a $28 million boost in general revenue for the state by 2022. The Foundation School Fund, the primary source of state aid for Texas districts, would receive more money, but less than what the Permanent School Fund would lose, according to the Senate bill’s fiscal note.

The University of Texas System predicts elimination of the program would cost it $1.6 million per year.

“If this bill passes, all those school districts are going to have a higher electric bill. We’ve essentially passed a tax on local school districts,” Patterson said.

The General Land Office offered no position on the bill, with a spokeswoman saying only that the office will continue selling electricity “for as long as the Legislature continues to value the program.”

The Senate approved the bill 22-9 this month.

The House Land and Resource Management Committee has left the bill pending, and its members are still studying the measure, said Rep. Abel Hurrero, DRobstown, who chairs the committee.