Legislative committee hears calls for reforming energy co-op
Sen. Somers wants CMEEC dissolved; other plans weighed
Hartford — The controversial practice of hosting lavish trips to the Kentucky Derby as strategic retreats for the past four years prompted a lengthy debate Tuesday before the legislature's Energy and Technology Committee, with critics calling for enacting strong fiscal controls if not state regulator oversight of the Connecticut Municipal Electric Energy Cooperative.
CMEEC officials, members and representatives from business organizations within the municipal utilities districts strongly opposed any move to eliminate CMEEC and replace it with what one bill called “joint purchasing agencies.”
State Sen. Heather Somers, R-Groton, who submitted the bills to repeal the state statute that created CMEEC about 40 years ago, asked the legislative committee for assistance in achieving her goal. Somers said if CMEEC is not dissolved through legislation, the energy cooperative at least should be subject to much stricter fiscal controls, if not direct regulation by the state Public Utilities Regulatory Authority.
Several other bills considered at Tuesday's hearing would require CMEEC and its six member utilities, including Norwich Public Utilities, Groton Utilities, Bozrah Light & Power and Jewett City Utilities, to follow state Freedom of Information laws in disclosing budgets and financial information, meeting agendas, minutes and reports from strategic retreats.
Somers told the committee that four years of strategic retreats to the Kentucky Derby — which included no official business — costing more than $1 million for dozens of CMEEC staff, board members, family members and other invited guests was enough evidence to show that the cooperative needed stronger oversight. She said she has been unsuccessful in obtaining budget information from CMEEC, and had to seek the information from a town with a contract dispute pending with CMEEC: Wallingford Electric Division.
Somers said CMEEC maintains several funds with member utility money, but there is no traceable accounting of how, or if, that money is funneled back to the member utilities. The CMEEC audit posted on its website does not include all of its funds, she said.
Somers called for a forensic audit of all of CMEEC's funds and proposed that the cooperative and its member utilities be required to open their financial statements to public scrutiny.
State Sen. Cathy Osten, who co-sponsored one of the proposed bills calling for greater transparency of CMEEC, listed several proposed transparency requirements CMEEC should follow and suggested the legislature add an enforcement mechanism to ensure compliance: “I would also recommend authorizing a strong penalty which could be levied by the (Freedom of Information Act) Commission for any company that hides behind proprietary information in not revealing the above necessary public information.”
Somers said the lack of transparency and CMEEC's failure to comply with the state FOI law allowed it to operate in secrecy and to use funds meant to be returned to member ratepayers through a rate-stabilization fund for the Kentucky Derby trips and one trip to the luxurious Greenbriar Resort in West Virginia.
“It is my hope that this committee will act to draft the necessary statutory changes to ensure CMEEC is adhering to its mission to provide low cost, reliable power to the municipal utilities it serves and to ensure that (its) management and board uphold the highest standard of conduct as it carries out its essential government functions,” Somers said in her written testimony to the committee.
But CMEEC and member utilities officials said most of the bills under consideration would cause “significant financial harm,” as NPU General Manager John Bilda said of the bill to dismantle CMEEC. Bilda said the bill greatly would increase electric rates for tens of thousands of residential and business customers. Bilda and CMEEC Executive Director Drew Rankin repeated the estimated cost savings of $127 million from 2013 to 2016 that CMEEC has provided to its member utilities.
Rankin, in his lengthy written testimony, took full responsibility for the controversy over the Kentucky Derby trips. He told the committee he created the retreats during a time of major transformation of the cooperative “to create a more unified staff and higher functioning board.” Rankin admitted the trips have now caused more harm to the entity.
“I now appreciate that these specific forums were not in the best interest of CMEEC and I am professionally responsible and accountable for the adverse consequences of my bad judgment in these business decisions,” Rankin said. “I am sorry for my actions that are causing such harm, and will work to ensure we restore the full faith and confidence of all stakeholders.”
Following his testimony, state Rep. Lonnie Reed, D-Branford, co-chairwoman of the Energy and Technology Committee, asked if Rankin would step down, and he declined.
State Rep. Charles Feraro, R-West Haven, acknowledged Rankin for having the courage to testify at the hearing, but added: “I'm not really sure an apology is enough.”
Rankin said CMEEC and its member utilities already have enacted changes to increase transparency and to eliminate future strategic retreats that don't include business, reporting and financial controls.
Rankin said dissolving CMEEC would be costly and complex for its members, affecting long-term power contracts and energy projects in which CMEEC has $98 million in bonded debt.
“Dissolving CMEEC creates overwhelming stranded investment, default and legal consequences,” Rankin said in his written testimony.
But as CMEEC supporters touted the lower rates the cooperative, its investments and renewable energy projects have provided, along with the reliable energy sources, Somers submitted to the committee a spreadsheet comparing electric rates among the six CMEEC members, Eversource and United Illuminating, and Wallingford, which ended its electricity purchase agreement with CMEEC in 2014.
Using an average monthly usage of 750 kilowatt hours, the spreadsheet compiled by the Office of Legislative Research showed that a Wallingford customer has the lowest bill at $100.58 at a rate of 13 cents per kWh. The CMEEC member utilities all pay less than Eversource and UI, ranging from Groton Utilities at $116.69 to the $140.99 an NPU customer pays.
Eversource customers pay $144.10 at 19 cents per kWh, while a UI customer pays $181.80 at 24 cents per kWh, according to the Office of Legislative Research information.
Wallingford Electric Division Director George Adair said he would not favor repealing the statute that created CMEEC, but supports bills that would ensure the cooperative operates in “equitable and nondiscriminatory” capacity. He said Wallingford had been an “all requirements” customer of CMEEC, but over the years, his utility found that CMEEC was operating more and more in a “for-profit” manner.
For example, CMEEC in 2013 started charging a $1 per megawatt hour usage fee to generate profit, but that Wallingford was not receiving the benefit of the funds generated. Adair said when Wallingford decided to leave CMEEC, the utility began contracting on its own for electricity purchases. He said the action was complex and tedious.
Adair said the new system has been in place since 2014 and Wallingford is paying considerably less than it paid to CMEEC and has maintained local control of all decisions.
“We're all buying out of the same market,” Adair said. “... It's really just how you make the decisions and the oversight you enjoy if you do it yourself.”
Kenneth Sullivan, chairman of the CMEEC board of directors and director of Jewett City Utilities, said CMEEC does provide valuable services to its members. Sullivan said his small utility alone would not have the resources to provide the research and technical services in obtaining power and investing in energy projects.
Sullivan also said the CMEEC board already has enacted corrective action to prevent future lavish trips. Sullivan chaired a board committee that set the new guidelines, including limiting retreats to the Northeast, limiting participation to CMEEC staff and board members and requiring retreats to center on utility business.
Norwich Alderman Gerald Martin also testified at Tuesday's hearing. Martin said he does not support eliminating the energy cooperative but said some changes on the table would be good. Martin said he wanted to pass along to the committee the “outrage” expressed to him from his Norwich constituents and the demand for change.
Martin said the scandal has dragged Norwich's reputation through the mud and has hurt people who can least afford to have utility revenues misused, including working poor families and elderly residents on fixed incomes.
“Redesign the makeup of these organizations where there is more oversight and more ethical behavior,” Martin said. “If that oversight and ethical behavior was in place, we wouldn't be here having this conversation.”