The other shoe drops, and it’s a big one

The good times are over.

As long as ten years ago, some Titus County leaders warned it was dangerous in the long run not to plan for the day when the piles of tax money paid by Luminant for its Monticello power plant would go away.

The first warning signs had already been seen in 2007, when two private equity firms purchased TXU, Luminant's predecessor parent company, for a record $45 billion in debt and cash, creating Energy Future Holdings (EFH), the parent of Luminant and subsidiaries Oncor and TXU Energy.

The leveraged buyout proved to be a massive miscalculation. The buyers made a huge gamble that natural gas prices would remain high. In Texas' deregulated power market, natural gas largely determines wholesale power prices. If gas is costly, nuclear and coal plants can make a killing. But natural gas prices plummeted in the ensuing years.

Plus in 2008 we saw the election of a President who, to satisfy the environmentalists, approved all sorts of anti-coal regulations – promulgated without the approval or even consultation of Congress.

At the national level, it did such things as convert West Virginia – a poor, coal-producing state that was formerly reliably Democratic – into a Republican bastion. Locally, it reinforced the local perception among our more farsighted leaders that the good times with all that tax revenue from the power plant would be coming to an end.

The effect on employment was felt quickly. First one, and then a second, of the power plants were put on hiatus in anticipation that they would need to be retro-fitted to meet the more stringent pollution standards.

And that tax revenue did begin to drop - sharply. In 2008, the Monticello plant was appraised at $1.05 billion. Right now, the Titus County Appraisal District puts its value at $341 million.

Luminant itself claims the plant is worth only $50 million – a 95 percent drop in nine years - and since it sued last year, it only had to pay taxes on that amount, under Texas law, until the lawsuit went to court.

Of course, at least while Obama was in power one could argue the facility was literally worthless – why would anyone buy a business the federal government was attempting to stamp out?

With the election of President Trump, we have seen some common sense directed toward extreme environmental regulations. But in the case of Monticello, it was too little and too late.

Luminant’s taxes for over 30 years subsidized a county where now 84 percent of students are considered economically disadvantaged and 68 percent are Hispanic. The steady drop over the years not only impacted the Mount Pleasant ISD – the single largest taxing entity – but also Northeast Texas Community College, Titus County, and the Titus County Hospital District.

Because the facility is outside the city limits, Mount Pleasant itself never benefited from its tax revenue, and is unaffected by the closure.

For something to go so bad, multiple things have to go wrong. In addition to the leveraged buyout and the hostility of the Obama Administration to coal-fired power plants, in the last eight years, electricity prices have dropped more than 70 percent, from $63 per megawatt-hour to about $17.

Luminant’s parent company filed for bankruptcy in April 2014 in Delaware. And today it tossed in the towel and decided not to bother re-opening the closed units, and to close everything down instead.

There are people out there – Commissioner Al Riddle was one – who warned this day would come.

There’s nothing else to say but “Brace yourself!” The impact on county government will be impressive. The school district will probably be left in shambles.

More news and information about the impact of this devastating news will be coming in during the next few week. Mount Pleasant For Real will keep you posted.