Pro-Competition Bills Could Cost Schools, Agencies Millions
Texas Power Plan offers lower-cost electricity to schools, VA hospitals and other agencies, but bills calling for increased competitive bidding would eliminate it
Under a electrical power pro-competition bill being debated in a House committee, Texas schools could lose between $7 and $12 million in tax breaks.
If passed by the legislature, North Texas state Senator Kelly Hancock's SB 736 and its companion bill HB 1685 authored by East Texas Representative Travis Clardy and co-authored by North Texas representatives Matt Krause and Lynn Stucky, would eliminate an electicity discount to schools, veterans' services and others through the General Land Office in favor of a strictly competitive bid process by electricity retailers.
Senator Hancock is chairman of the Senate Business and Commerce committee.
The Texas General Land Office was authorized in 1999 to accept royalties taken "in kind" -- rather than in cash -- an an interest in mineral rights to land owned by the state's Permanent School Fund.
The value of the oil and gas from that land is converted to electricity for the State Power Program by Houston's Cavallo Energy and then sold at a reduced rate to "public retail consumers," mostly Texas schools, counties, VA hospitals and military bases.
The electricity offered to them is not taxed, saving up to 2% (which varies among schools), and meter fees are waived, among other benefits, according to Cavallo, which is a wholly-owned subsidiary of Houston-based Calpine
In seeking to eliminate the "in-kind" electricity offered by the Land Office to such public services, the current bills contend that the untaxed cheaper electricity is anti-competitive.
"The purpose of the bills are to bring a competitive solution to an anti-competitive arrangement," Direct Energy's Ned Ross told The Texas Energy Report.
Part of the problem, Ross says, is that some schools are so sold on the plan they don't take bids. Or perhaps they they just re-sign out of habit.
Ross addressed the Texas Senate Business and Commerce committee last month in favor of the senate bill, saying the state-provided power stifled competition.
The State Power Program is already open to competition, according to former Texas Land Commissioner Jerry Patterson, because of the limited number of recipients of the service, adding that its elimination would cost the Permanent School Fund alone about $7 million a year; other estimates say elimination would cost schools considerably more.
"The General Land Office's electric power program saves school districts millions of dollars every year," Patterson said, "simply by ensuring the minerals that effectively belong to those same school districts are converted to electricity and then sold to schools at the lowest possible price."
The General Land Office is not publicly for or against the bills.
Spokeswoman Brittany Eck told The Texas Energy Report, “State agencies are precluded from taking a position on legislation. However, I can say that the GLO will follow the direction of the legislature with regards to this program.”
Critics have said that endorsing of the bills by companies such as Direct Energy -- companies that have offered competitive bids and been rejected by GLO-serviced agencies -- is just sour grapes.
"There's no truth to that," said Direct Energy's Nat Ross, "with some schools paying into the state and others not paying [the Gross Receipts] tax, we're trying for a level playing field.
"Two years ago we approached the General Land Office and were turned down" for more competitive arrangements; Ross says a number of recipients of the State Power Plan no longer even take bids for electricity, they just re-sign with the plan.