State Auditor smacks Springfield utility for raising rates to subsidize other city departments

(From the State Audit. Emphasis editor) “The following findings were included in our audit report on City Utilities of Springfield, Missouri. -------City Utilities (CU) customers may be paying too much for some utility services as a result of subsidization of non-utility activities of the city, subsidization of other utility departments from electric revenues, questionable spending, and granting public funds in possible violation of the Missouri Constitution. The Electric Department continues to have a significant increase in operating income each year, and CU has not complied with its own rate policy standards, which requires an outside consulting firm to review rates and report the findings to the board at least every five years. Rates for utility services should be set to cover the costs of producing and delivering services, and utility services should not generate profits to fund (through subsidization) other services provided by the city or other utility departments or provide the opportunity for CU to spend monies unnecessarily.

CU has provided several millions of dollars to the city for various projects over the past few years. As a result, CU's customers are being required to subsidize the cost of some city services through the payment of their utility bills. Also, some utility departments need continued financial support from the electric department to cover their cost of operations. The electric department provided funding totaling over $6.3 million during the year ended September 30, 2006 to the transit department, gas department, and SpringNet® to cover the cost of operations.

Numerous disbursements and contributions of services totaling at least $259,000 do not appear to be a prudent, reasonable, or necessary use of utility funds and some may violate the Missouri Constitution. Some unnecessary spending included a 2006 Family Day Picnic held to show appreciation for the employees and their families with costs totaling over $19,000. Monies were spent for catering, decorations, and party supplies. Numerous other examples of unnecessary spending were noted in the report. Safety and service awards valued at over $52,000 have been given to employees, which do not appear to be prudent, reasonable, or a necessary use of utility funds, and CU paid employees $26,050 in finder's fees for identifying and reporting illegal use of utility services. Such identification would appear to be part of their regular job duties. Further, CU contracted with various entities to provide funding totaling at least $321,000 without ensuring all contractual requirements were met or requiring adequate documentation of how those monies were used.”

In the rest of the Springfield utility audit you will very likely find identical practices of your own felonious utility department. The Springfield utility does the same dumb things, they just do it bigger and with more money. Their responses to the auditor were typically arrogant. Springfield is a member of MJMEUC but they didn’t sign a MoPEP contract. We thought it was because they were a bigger city and too smart to be sucked in. After reading this audit it’s obvious they’re not very smart at all.

Reading petition audits of Missouri towns large and small is like getting a degree in governance. Everyone who files for any public office should be required to read at least ten of them.

"Milking the Electric Cow"

Before we dig deeper into the MoPEP scam that’s hurting your personal finances and your town, there’s a second big issue that affects electric power prices in our home-owned utility towns, it’s the common but very illegal and corrupt municipal practice of overcharging for utilities so the excess "profits" can be skimmed off to subsidize perpetual deficits in your city’s budgets and other local pork projects they don’t want to tell voters about.

For years, in the many petition audits resulting from petitions circulated in small towns for the state to audit their town for one irate reason or another, the state's auditors have denounced the practice of raising the kilowatt rate charged and then skimming utility “profits” off for political uses as a corrupt practice. The auditor quite rightly calls “hidden taxation.” It is “hidden taxation” and that’s exactly why it’s so popular with city council members, mayors and city administrators. The auditors hired by your city government to perform that token annual ritual known as the "independent city audit" turn a blind eye to this illegal practice because they want to get hired again next year so every year they committ fraud to give your town another "clean" audit even though they know quite well that if there was such a thing as a "clean" audit (and there isn't) yours certainly isn't one. This local audit is also known outside your town as a “sweetheart audit.” True, they are done by CPA’s but…well…let’s say the profit motive frequently overwhelms their professional ethics. Missouri’s CPA’s have developed soft-peddling bad news into an art form.

Prior to 1980, when our elected and appointed officials were short of cash they didn't look around for savings to pay for their little extras, rather they looked around for fees to raise. John Hancock, a rabid Republican from Springfield (does Springfield have any other kind?) stopped that practice, bless his little fiscally responsible heart, with a statewide referendum which became Amendment X Sec. 22. The people we elect and hire to run our cities in these post-Hancock Amendment days have to wear this Hancock hair-shirt and they really, really don't like it because it prevents them from willy-nilly raising most local fees and inventing others unless they have the consent of the voters. They are rightfully leery of trying to get voters to consent to most of the road-kill they call "public benefit projects." Post-Hancock the only thing local elected officials had left to pay for their pork was one last department, the utility department, where the sneaky monkey's could raise cash under the table by raising the price of the kilowatts people burned. Just a fraction of a kilowatt was enough to raise lots of cash. The utility department was an invaluable and secret city resource; a private little pork pot that you never noticed they were siphoning until MoPEP came along in their big clumsy boots kicking over the furniture and attracting all this attention to utility rates

The Rolla on-line newsletter No Standing News, calls the practice of raking off excess utility profits by to cover up city budget deficits, “Milking the Electric Cow.” These excessive rate charges either disappear via an “inter-fund transfer” from the electric department to the city’s general fund or, in Rolla’s case the money is passed out to crony organizations for things excused under that handy catch-all label, “economic development.” Rolla's lame excuse for this corrupt practice was to call this a "fee in lieu of franchise taxes" and -in an ordinance mind you - they explained that it was "in lieu of" the franchise tax the city would have gotten if their citizens hadn't paid off a $45 million G.O. bond issue to buy the utility department from it's previous private owners. In other words, the taxpayer’s punishment for paying off a huge bond issue to buy the utility company was to perpetually make them pay a phony franchise fee to the city!

In 1998, in their first petition audit, State Auditor Margaret Kelly told the City of Rolla and the Rolla Municipal Utility Board (Board of Public Works), “The statutes in Chapter 91, RSMo, cited in the Board of Public Works’ response do not support the board’s assertions. In addition, these statutes do not apply to the city of Rolla. The Board of Public Works’ authority and power is limited to managing municipal utilities. Any expenditures of utility monies for non-utility purposes translates into higher utility rates than necessary to operate and maintain the municipal utilities.”

That’s a much too diplomatic way of saying, “Skimming from artificially inflated utility rates to pass out pork to the city and the utility board’s cronies under the guise of “economic development” is a corrupt practice and all of you should be prosecuted and sent to jail.” Like the rural electric co-ops that rebate the excess revenues accruing from utility rates, cities that own their own utility departments and add a few cents markup to the wholesale rate should rebate any excess to their customers not use it to cover up reckless city spending, pass it secretly to pay for so-called “development projects" the voters didn't approve and don't know they're paying for. You will find a similar statement in the petition audits of Hermann 2003 and Farmington 2006 and other small towns with their own utility departments. As soon as Rolla's next petition audit is completed you will see the same statement in their second petition audit for the second time. That's our State Auditor for you, they are meticulous about documenting lawbreaking, but do nothing to stop it.

MoPEP, the "ill-disgused display of bureaucratic avarice"

Missouri Supreme Court Justice Holstein once characterized the excessive fees charged by the board of an ambulance district as “an ill-disguised display of bureaucratic avarice.” Compared to the gluttony of MoPEP, the greed of that ambulance district pales by comparison.

Check all the following statements that apply. 1.___You live in a small rural town in Missouri. 2.___Your town owns its own utility department. For decades they bought wholesale power from Ameren UE or KCP&L or another big PSC regulated power company. Your board of aldermen, city council or utility board (different organizational methods, same thing) marked it up and sold it to you. 3.___ Within the last seven years your city aldermen or council signed a contract electric with MoPEP #1 because they promised to give better power prices through “economies of scale.” 4.___On or before 2005, your town council hastily signed something called “The Restated and Amended MoPEP contract” and you didn’t even notice. 5.___Since 2005-‘06 your price per kWh has shot up by 45%-71% or more and you have new charges to pay like “service availability fees” and electric meter fees you didn’t have before. 6.___Outraged citizens have demanded city officials 'do something' but all they got was that deer-in-the-headlights stare. 7.___Your city officials keep repeating the excuses of MJMEUC’s CEO Duncan Kincheloe, “It’s because of industry deregulation” or “MoPEP projections call for continued increases until 2009 when prices should stabilize,” or “In a few years other rates will be as high as ours.” You’re beginning to realize they have absolutely no idea what’s going on and they just want you to shut up and go away. 8.___In frustration you’ve resorted to writing nasty things on your electric bills. 9.___Your city officials have asked a PSC regulated electric company and/or the regional Associated Electric Co-op about contracting with them and that’s when they found out for the first time that they can’t get out of their MoPEP contract without a five-year notice and huge financial penalties. 10.___The towns around you are still buying power from the PSC regulated commercial companies or a co-op for the price you used to pay. Your friends who live in those towns are really rubbing it in. 11.___You’re looking for a house to buy out of town.

If you checked more than 8 of the above, welcome to the World of MoPEP, and the “ill-disguised display of bureaucratic avarice."

Here’s a tip. If your town hasn’t already bought a few million dollars worth of diesel generators to join MoPEP’s “generator farm” count your blessings and at all costs stop them from doing it. This failed business plan, a.k.a. The MoPEP modified Ponzi Scheme, is a story you won’t believe.

Watch this blog for news on MJMEUC's swelling investment portfolio and newspaper reports on the struggles of MoPEP member towns as they try to cope with their artificially inflated local utility rates and realize they are locked into MoPEP's perpetual, cost-plus contract. Our Google News Alert picks up news articles on MoPEP and MJMEUC but your local paper may not have an on-line version so Google will miss it. This is the place to pass along those articles.