Notes from our conversation with Dr. Gary Zheng

CEO and Director of Public Utilities Gary Zheng is a frustrated man.

We have been critical of Dr. Zheng, but we are also sympathetic with his exasperation and want to treat him fairly. The best way we know to do that to report as much of what he said as possible.

Here are our notes from our two conversations with Gary Zheng this week.

 

•One of Zheng’s greatest sources of frustration is the public clamor over LP&L electric rates.

LP&L September rates were some of the lowest in the state. About 3% higher than San Antonio but 10% less than Amarillo (Xcel Energy).

Click to enlarge comparison of LP&L Sept. rates.
Click to enlarge comparison
of LP&L September rates.

“Why do people criticize us when we have the lowest rates in the state?” asked Zheng.

 

•What makes LP&L bills so high is, in part, the water, sewer and garbage charges included in the bill.

“If I managed electricity the way that the city manages water we would have the highest rates in the state,” said Zheng.

While that’s an apples and oranges comparison it is true that Lubbock’s water rates are very high.

It is also true that we live in a semi-arid climate where water is scarcer and must be transported over long distances. Lake Lubbock, if it ever existed, dried up a long time ago.

When talking with Zheng it becomes clear that he carries a good deal of resentment for the confusion that results from having to bill for water, sewer and garbage along with electrical power.

 

•AEG’s bid is $20 million/year lower than the next highest bid.

Zheng told the Sandstorm Scholar that if opponents are successful in preventing AEG from winning the bid that it will be costly to the city. “You are going to cost the $20 million a year,” Zheng said of the Sandstorm Scholar’s reporting. “That is how much difference between lowest bid and next higher.”

That assertion assumes the lowest bid is the best bid and that change orders and add-ons do not create cost overruns. That is always the danger of going with a lowest bidder.

This is where it is important to review the experience, references and and resume of the bidder. Track record is critical, if the bidder has one.

 

•In executive session some board members argued against hiring an outside investigator, according to Zheng.

When he spoke with us, Zheng mistakenly thought that there were votes against that motion in the EUB meeting. The vote was unanimous. He was certain however, that some members argued in closed session against the move.

 

•PYCO, the company headed by EUB Chairman Gail Kring, has a contract with LP&L.

As a result of our conversation with Zheng we have requested a copy of that contract.

According to Zheng, the contract is for electrical power and was signed prior to Kring joining the Electric Utility Board.

This is interesting since Dwight McDonald was booted from the board because of his contract with the city of Lubbock. Mayor Glen Robertson publicly scolded McDonald for not disclosing his potential conflict at the time he was appointed to the EUB.

This raises questions about whether Gail Kring disclosed the potential conflict to the city when he was appointed?

Will the City Council consider that potential conflict when voting on Kring’s reappointment? Will it ask for the city attorney to opine as to Kring’s eligibility just as was done with McDonald?

In light of recent events with Dwight McDonald and questions about Carroll McDonald and Marc McDougal, isn’t it reasonable to expect that EUB Chairman Gail Kring has made a full disclosure of the matter?

Questions also arise as to exactly what is contained in that contract. PYCO owns several windmills along east 50th street. Is the contract to buy, sell or wheel electricity?

 

•Zheng’s confidence in AEG is based upon the fact that it’s funder, it’s “bank” if you will, is an experienced firm that has underwritten or financed many projects like this for companies other than AEG.

That company is Energy Investors Funds (EIF).

“They have over 100 people who do this all the time,” said Zheng. It is not clear exactly what EIF’s role in the transaction would be since, according to Zheng, they are not the bidder.

This too raises questions. How does the credibility of the funder, who is underwriting a project based on the creditworthiness of the city of Lubbock, lend expertise and experience to a project developer who has none?

Is EIF a part of the bid proposal? Are they a guarantor or bonding agent for the bid?

 

“…there are some people who want to kill this thing. I think potentially they may financially benefit. They may personally benefit from it.”

•Dr. Zheng accuses at least some who question him of having indirect motives.

Zheng said of the Sandstorm Scholar, “You reporting this is discrimination.” CEO Zheng feels that he is being “singled out” for criticism.

Dr. Zheng also made this statement in the context of questions that should be directed at EUB members Marc McDougal, Clayton Isom and Mayor Glen Robertson, “I hope you will keep in mind, there are some people who want to kill this thing. I think potentially they may financially benefit. They may personally benefit from it.”

Those are serious allegations. We will continue to investigate.

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