1/19/2007

Insanity?

“Insanity: doing the same thing over and over again and expecting different results.”

Albert Einstein said that.

Despite numerous pleas for a frank assessment of the risks involved in the City's venture into building a coal fired generating plant, the City has responded...not at all.

So, while I hate to be the Little Black Raincloud, let's consider a scenario. The swimming pools book assets of $1,220,342.00. (All numbers from the CAFR). The Recreation Fund books assets of $447,297.00. Civic Center events books assets of $416,163.00.

Swimming pools lost $309,174.00 on those assets, for a return on those assets of -25.3%. Recreation lost $134,334.00, for a return on those assets of -30%. Civic Center events lost $179,627.00, for a return on those assets of -43.1%. The average return on assets, then, is -32.8%.

I know, I know, I have purposely selected funds that are losing money. There are some funds that are performing much better. But we've already heard the rosy scenarios. I want to consider a doomsday scenario. (Hey, nobody else is doing it!)

The City proposes to invest 25% of 515,000,000.00 in the Highwood Generating Station, for a total of $128,750,000.00. Assuming 10% of these funds will be spent on non-recoverable start-up expenses, that means we'll have assets of $115,875,000.00.

Downside? With our average return on assets of -32.8%, that would mean a loss of $38,007,000.00. How many years like that could we weather?

Oh, that could never happen, some might argue. Well, it is happening in these other areas.

What if the cost of our "cost-based power" is higher than the market cost? Who's going to buy it? What if we get sued and lose? What have building costs done over the last few years since the $515,000,000.00 cost of the plant was estimated? What if we can't get the coal here?

Obviously I am not suggesting that we will lose $40,000,000.00 per year on power, but has anyone from the City discussed, openly and honestly, risk of this magnitude? What are the risks?

If the City would explain the risks, they could also explain their thoughtful analysis of a) how the undesirable outcomes can be avoided and b) the contingency plans that exist in case the undesirable outcomes cannot be avoided. But when all we hear are rosy projections, it makes one wonder whether the risks have been thoughtfully considered at all.

5 comments:

Anonymous said...

Oh, what a difference a year makes. Gee Guy, our Mayor posted this on your website a year ago:

Gregg, the quote WAS taken out of context. Another attempt by the Tribune to stir the pot, I'm afraid. I made the comment in the context of Mr. Lawton's extreme focus on the energy deals to the neglect of basic housekeeping issues within the city.The next time I am in an interview situation with the Tribune, I will be taping it. Rich Ecke's notetaking leaves a great deal to be desired. Maybe HE should tape his interviews in the interests of accuracy...

Find it at: http://ecityblog.blogspot.com/2006/01/equal-time.html

free thought said...

You keep saying you want to support the plant. At what point do you decide we cannot take the gamble since we do not have enough information?

It seems to me that the public is in the position of (a) trusting our elected (and under them, appointed and hired) officials, or (b) taking active stances against the plant.

Not being a trusting type, I think we are needing to go to opposition, at least until your questions are answered.

Anonymous said...

How long would anyone trust their investment broker if he or she lost 30% of your portfolio every year?

Anonymous said...

Frankly, I've lost all respect for our Mayor, Donna. She is making poor choices, lacks knowledge and strikes me somewhat as a bit of a bully. Look forward to not voting for her!

Big Sky Husker said...

I'd like to support the coal fire plant... but there are too many questions not being answered by the City... to move ahead. And until the City answers those questions (they're on this blog)... I do not support the project.