Santa Fe’s contract with Dalkia to upgrade the city’s streetlights to LED technology is a guaranteed utility savings contract. State law appears to require that these contracts be submitted for expert review and certification by the EMNRD before being signed. Santa Fe did not seek or receive EMNRD certification of its Dalkia contract.
What have so-far learned?
- Santa Fe’s contract with Dalkia to upgrade the City’s streetlights is a guaranteed utility savings contract. In a guaranteed utility savings contract the contractor is required to guarantee cost savings sufficient to fully fund the improvements, and the city is allowed to use those guaranteed savings to fund the project.
- In the case of the Dalkia contract, Public Works Director Wheeler, City Attorney McSherry, and City Finance Director McCoy presented vastly exaggerated claims for the savings to the City Councilors and their oversight committees.
- State law appears to require that the savings in a guaranteed utility savings contract be “guaranteed to the extent necessary to make the payments for the conservation measures.” The contract with Dalkia, with its savings guarantee, will expire before the loan is paid-off. Additionally, the savings that are actually guaranteed by the contract may be insufficient to pay-off the financing altogether, even if the contract were extended.
- State law appears to have required Santa Fe to have received from Dalkia a bond or other surety insuring Dalkia’s ability to provide the guarantee, which Santa Fe did not do.
How might Santa Fe have avoided all these missteps, which have placed its resident’s tax dollars at risk? Read on…
Guaranteed Utility Savings Contracts Must be Approved by EMNRD
Admittedly, guaranteed utility savings contracts may be tricky. In dealing with them, city elected officials and staff may be unable to recognize when they are in over their heads. State law recognizes requires that and requires that before being finalized all guaranteed utility savings contracts must be submitted to the New Mexico State Energy, Mineral and Natural Resources Department for expert review and approval.
Thus, NM Stat §6-23-5, entitled “Contract approval required,” reads that “[a] governmental unit shall not enter into a guaranteed utility savings contract with a qualified provider or any installment payment contract or lease-purchase agreement pursuant to that contract unless the contracts and agreements are reviewed and approved…” It further reads that approval requires “a certification by the energy, minerals and natural resources department that … the guaranteed energy savings from the energy conservation measures proposed appear to be accurately estimated and reasonable.” (Emphasis added.)
In other words, Santa Fe should have had expert advice, from the EMNRD. What happened??? How did Santa Fe end-up with such an unfavorable contract?
Did Santa Fe seek Approval of its Dalkia Contract?
An IPRA filed with EMNRD requested copies of any certification by the EMNRD that the energy conservation measures proposed in the guaranteed utility savings contract between Dalkia and the City of Santa Fe appear to be accurately estimated and reasonable in the meaning of NM Stat §6-23-5. In response EMNRD responded that they have no records of having issued any such certification.
IPRA request #21-6326 filed with the City of Santa Fe asked for copies of any review, by Santa Fe or any state agency, of the estimated guaranteed energy savings from the streetlight conversion to be performed by Dalkia under the guaranteed utility savings contract. The City of Santa Fe was unable to provide any city or state agency review, or evidence of a review, of the energy saving estimated by Dalkia.
Correspondingly, we are led to conclude that the City of Santa Fe failed to request or receive the contract review or certification by EMNRD that is apparently required by state law.
The law governing guaranteed utility savings contracts is not long and appears to be quite clear. In particular, Santa Fe was required to seek expert review and approval by EMNRD of its contract with Dalkia. The city failed to do so.
This is not a trivial matter. Had the Dalkia contract received an expert review by EMNRD it is very likely that the city’s gross overestimate of savings would have been caught. If, as appears possible, the utility cost savings and conservation-related savings are insufficient to pay-off the financing in the manner required by law, that would also likely have been identified. Finally, it is all but certainly the case that the deficiencies in the contract’s cost savings guarantee – the failure of the guarantee to cover all the utility costs, and the failure of the guarantee to actually be usable to make-up a shortfall in utility cost savings – would have been flagged.
EMNRD review was, in many ways, the last check on Santa Fe City Government’s failure to safeguard the interests of its residents and their tax dollars. Ordinary prudence would have dictated that the city have engaged with an independent Professional Engineer, expert in urban streetlight design and guaranteed utility savings contracts, to advise it on guaranteed utility savings contracts, assist it in devising a light plan, and choosing a contractor. Mayor Webber and all the councilors were urged – in a New Mexican editorial, by members of its “Citizen’s Steering Committee,” in many private emails by area residents, and in many public comments by many area residents at Governing Body meetings – to hire such an independent expert to do exactly these things. Those requests were strongly opposed and ultimately rejected by the Mayor and a majority of the Councilors (including, most oddly, some that take special pride in touting their “good government” credentials). Had these urgings been heeded, many of the aforementioned problems might have been avoided and a contract that was in Santa Fe’s best interest negotiated, reviewed and approved.
City Attorney McSherry’s role in all this is especially difficult to understand or explain. According to its web site, the City Attorney’s Office’s mission is advising, defending and protecting Santa Fe City. More specifically, the City Attorney is responsible for drafting contracts – like the Dalkia contract – and determining the legality of proposed ordinances. Early on the City Attorney forcefully asserted that the Dalkia contract was a guaranteed utility savings contract governed by NM Stat §6-23-1 through -10. Yet, it appears that the City Attorney “missed” NM Stat §6-23-5, provocatively entitled “Contract approval required.” (And, as we saw previously, also NM Stat §6-23-8, titled “Municipalities; use of certain revenues authorized,” and the definitions in NM Stat §6-23-2, etc.) And, of course, the City Attorney signed-off on a grossly misleading and counterfactual Fiscal Impact Report, used by the Councilors and their oversight committees to judge whether the proposed contract was in Santa Fe’s interest.
At the very least it appears that the City Attorney’s Office has failed to adequately advise, defend, or protect Santa Fe City or its residents.
In the end, however, responsibility rests with Mayor Webber. The City Attorney was appointed by Mayor Webber and reports to the Mayor alone. The Public Works Director was appointed by Mayor Webber and reports to Mayor Webber alone. The Finance Director was – you guessed it – appointed by Mayor Webber and reports to Mayor Webber alone. City residents voted to place all this unchecked power in the mayor’s hands. Whether that was advisable or not, it does simplify the question of who is responsible for this debacle: Mayor Webber.
We’ve provided what we believe to be a factual and well-documented discussion of what the law appears to require and where the city has fallen short. Write your Councilors and the Mayor and ask them to provide an equally factual and well-documented discussion either confirming or disputing the statements made here:
- Either the city submitted the Dalkia contract to EMNRD and received the required certification, or it did not.
EMNRD says they have no record of reviewing or approving Santa Fe’s contract with Dalkia. In response to IPRA request #21-6326 Santa Fe was unable to provide any evidence of having asked for or received EMNRD approval of the Dalkia contract. But, maybe both were wrong. Ask! And, if the Mayor, or a Councilor, or the City Attorney, or the Public Works Director says they did, ask to see it! It’s a public document: you are entitled.
And if the law wasn’t followed, and the financing and financial planning was done incorrectly, ask them how they are going to change the way they do business so that this doesn’t happen again.
Get the word out! Contact the New Mexican, the Santa Fe Reporter, Searchlight New Mexico, KRQE TV and KSFR radio news, and other local radio and TV news outlets and urge them to provide their own, independent reporting on the issues raised here. City Attorney McSherry has famously stated that the City Attorney’s office does not answer or otherwise respond to city resident questions or complaints: perhaps the City Attorney’s office will respond to questions from one of these news outlets. Insist that area newspapers, radio, and TV stations not take the Mayor or other City Staff “at their word:” fact-check them. That ought not be hard for a reporter from a newspaper or TV news program. If the Mayor and his staff are being honest the independent assurance is good to have; if they are not, they need to be held accountable.
Contact the Office of the State Auditor. City government has a fundamental responsibility to be effective stewards of the taxpayers’ money. The State Auditor’s office is responsible for holding local (as well as state) government and elected officials accountable in the use of public funds.
Contact the Office of the Attorney General and ask that they investigate what are apparently multiple violations of state law associated with the city’s entering into the Dalkia contract.
Finally, share this blog with everyone you think might be interested in responsible city government.
Yes: there is still more to say! Tomorrow we’ll turn our attention to Santa Fe’s partner in this mess: the provider of the guaranteed utility savings contract, Dalkia, LLC.