The first reading of the MoPEP contract leaves you confused. After the second or third pass you begin to wonder why, if this is a contract to buy a commodity i.e. electricity, why isn’t there a single mention of what the price of the commodity will be? In fact, there are almost none of the technical electrical details you’d expect to see in a contract to buy electricity or any other commodity. All 31 MoPEP contracts are identical; no individual negotiation or deviations were permitted. The following are some of the worst provisions in the MoPEP contract. Each one is a deal-killer and should have been identified and explained to the city council members before they voted on the contract. As far as we have been able to determine from minutes, news reports and first hand accounts, these highly unusual contract provisions were not pointed out or discussed at the time votes were taken to enter into this investment scheme disguised as a power supply contract. Even those cities where Duncan Kincheloe came himself to seal the deal he did not disclose or explain these highly disadvantageous provisions.
1. The "COST-PLUS" CONTRACT and “DIRECT COSTS.” "Direct costs" is the MoPEP euphemism for “everything including the kitchen sink.” This is the key provision that allows MJMEUC to suck the maximum amount of cash out of its member towns to spend on high-risk investments. Without it the whole MoPEP house of cards will collapse. The “direct costs” allow MJMEUC/MoPEP to pass through to MoPEP cities all MJMEUC’s direct costs and debts and bonds “without limitation.” The contract says they will bill members for the power they use and for “direct costs” which are defined as, “Direct Costs: "Including without limitation all payments MJMEUC is required to make (including reserves and debt service coverages MJMEUC is required to maintain pursuant to any bond indenture, financing lease or loan agreement)."(Art. I, Definitions pg. 3) Anything MJMEUC buys or leases from a BILLION DOLLARS in high-risk investments to a box of paper clips will be passed through to MoPEP members by tailgating the expenses on their overpriced electric bills. This is called a “cost-plus” contract just like the disastrous Halliburton contracts. You pay what your electricity costs plus anything else they want to load on to your bills. In a cost-plus contract the contractee has no incentive to try to keep costs down. No matter what MJMEUC spends, the MoPEP victims have agreed to pay for it. (The MoPEP contract is an an adobe file. After you have accessed the contract through the above link, follow contract locations referred to in purple. Minimize the contract and flip back and forth between the two documents.)
Each month each MoPEP member city gets a bill that has two parts. One part is for MoPEP’s overpriced electric power and the other is for the “direct costs” which include the “development costs” for what is now, as well as we can estimate, $1,113,991,391 in investments in five power plants: Prairie State, Plum Point, Iatan Unit 2, Laddonia and Nebraska City 2. These investments are explained in the MJMEUC 2004/2005 audit on pages 13 to 17. In their '05-'06 audit, the only audit still available on the MJMEUC web site, they explain they’re planning to invest in two more plants.*(We can’t link to the much more revealing ’04-‘05 audit because they’ve deleted it from their web site but the ’05-‘06 audit is available. The estimated revenue bond debt of $1,113,991,391 is the revised estimate of revenue bond debt since the ’05-’06 audit came out. Previous est. was $1,102,620,000)
2. FIVE-YEAR TERMINATION NOTICE. The MoPEP contract is perpetual; there is no termination and renewal date included in the contract. If you check in to Hotel MoPEP you don’t check out. Years and decades may go by without anyone noticing that they’ve never had the opportunity to evaluate MoPEP’s performance or negotiate a better price.
Ah hah! You say. What if we sell our utility to some big company and get out of the contract that way. Section 8.7 anticipated your attempt to weasel out so it requires that the company buying your utility comply with a menu of requirements including taking over your Resource Obligations forever or for 40 years whichever comes first.
In 2006 the citizens of Fredericktown became so enraged at their MoPEP prices they petitioned to recall their mayor. The new mayor, Karen Yates, has a powerful mandate to get her city out of MoPEP’s clutches. Kincheloe told her he would let them out if she could find a replacement city for him. Here’s a moral dilemma. How can a mayor entice another city to take Fredericktown’s place on MoPEP’s dinner plate without lying like a rug? If the truth is told, that being a MoPEP member would ruin your city financially and force you to raise your electric rates to ruinous levels, no one would touch it with a ten-foot pole. That probably explains why Mayor Yeats hasn’t succeeded in finding a replacement victim.
3. MOPEP GRABS A FIRST LIEN. On page 2, number 13, the contract announced their intent, “to enable MJMEUC to acquire construct and maintain such facilities so as to provide Services at the least cost, the parties recognize that MJMEUC should be expected to pledge its revenues under the Agreement as security for the payment of MJMEUC’s bonds.” In Section 8.10 it states that, “…Pool Member covenants and agrees that it shall not issue bonds, notes or other evidences of indebtedness or incur lease obligations which are payable from the revenues derived from its electric system superior to the payment of the operating expenses of its electric system.” How could any city attorney, mayor or council member read that and not ask, “What superior payment, what bonds?”
By signing the MoPEP contract each city was now prohibited from incurring any debt that would interfere with or come ahead of using their electric revenues to pay MoPEP’s monthly bills. Each city had now given MJMEUC a first or “superior” lien on all their electric revenues. This nearly armor-clad stream of income is what MJMEUC used as collateral to issue revenue bonds to buy stock in (so far) five power plants. This and the near impossible 5-year “can’t get out of jail” terms are to protect MJMEUC’s ability to meet their debt service payments on the multi-millions they’ve borrowed and may continue to borrow to leverage more revenue bonds.
With a first lien on the city’s electric revenues the city utility is financially handcuffed and cannot pledge their electric revenues or include them in their cash-flow calculations if they need to borrow for any capital improvement, lease/purchase or emergency the city may have. Municipal utilities are often self-insured and in case of a natural disaster if federal and state aid does not cover repair and replacement of the electric infrastructure, cities would have to borrow from banks to meet their obligations. Now they may not even be able to do that. Because the MoPEP contract quietly slipped this “superior” provision into the unread contract, a bank would have to take a second lien on utility revenues as collateral. Banks are rarely willing to take a second lien on anything.
4. AUTOMATIC PAYMENT. When the 31cities voted to enter into their MoPEP contracts, among all the things they didn’t know about was that they were agreeing to break numerous state laws dealing with public accountability. One of them is RSMo 95.365 which requires a public vote of the governing body before any and all bills can be paid. In the MoPEP contract, Section 17.2 Billing and Payment says: “It is also expressly understood that the governing body of each Pool Member has authorized, and does hereby authorize, its city staff to pay monthly power bills prior to the 10th day following delivery of the bill to the Pool Member without separate monthly approvals by such governing body.” There it is. A state law voided by the MoPEP contract, and that’s not the only one. With one vote they unwittingly agreed to rubber-stamp each and every future MoPEP bill without an opportunity to question any of them. Section 17.08 says you can appeal a payment but how can you appeal a bill you didn’t see because some clerk has a sticky note on her computer that says “Pay within 10 days.” Kincheloe didn’t want the MoPEP bills seen and discussed at every monthly council or utility board meeting with all the other bills. Someone might start asking questions.
Despite the “It is also expressly understood…” the people who voted to enter into this contract had no understanding either express or otherwise. To this day they still have no clue that they “authorized” any such thing because none of the members of the “governing bodies” nor their lawyers or city administrators got past the title page. Not having read the MoPEP contract in the first place and being extremely gullible, it still hasn’t occurred to most of them that there is some connection between that contract and their suddenly skyrocketing energy prices. It’s hard to believe but it’s true. They actually swallowed the excuses that energy prices were going up everywhere and it was all due to deregulation. They have no clue as to what was deregulated or why or by whom. The whole MoPEP process is carefully designed to fly below the public accountability radar. In this same section it tells what the process is to appeal a mistake or other error on your electric bills. You appeal to the MJMEUC board and their decision is final and cannot be appealed - another benefit for MoPEP of having no PSC oversight.
5. CONTRACT AMENDMENTS, the 85% RULE. While the city can’t get out of the contract without an expensive 5-year process the MJMEUC board can amend the contract with the consent of only 85% of the Pool Members. Art. XIII, Amendments pg. 15: “Other than as provided in section 3.9, this Agreement may only be amended by action of the MJMEUC Board of Directors, and only when concurred with by 85% of all Pool Members.” When the gloves come off we see the power and initiative are in the hands of the MJMEUC board of directors. They only need the consent of 85% of the 31 members of the Pool Committee and they’ve demonstrated they can make those dogs sit up and beg. If 15% of the Pool Committee members do not agree…well, too bad, they’ll get their contracts changed without their consent.
Legitimate contracts can only be changed by mutual consent of both or all parties. It is unthinkable that any governmental entity would agree, or would be allowed to agree, to be bound by unknown amendments to a contract. The amendments being shoved down the throats of the 15% may be illegal and may put cities and their officials at risk. This isn’t just arrogant, it’s dangerous. Can the Columbia City Council take a vote and change the provisions of a contract they have with
6. MJMEUC OVERRIDES THE RATE SETTING COMMITTEE. Although the contract and all their publicity and verbiage supports the illusion that the MoPEP “Pool Committee” members (that’s your local utility guy who “represents” your town but who didn’t tell you he was casting all these votes that saddled you with over a billion dollars worth of debt) are running the whole show in a very fraternal and democratic manner, the truth is anything but fraternal and democratic. The Pool Committee sets the rates for the electricity they’re buying and approves all the Direct Costs that are going to be passed along for their fellow citizens to pay. In the event they ever wise up and rebel they could set the rates artificially low and bring Kincheloe’s whole empire crashing around his nose couldn’t they? No they couldn’t. Kincheloe anticipated this and provided in Section 4.3 that, “In the event that the Pool Committee fails to establish rates in accordance with this Section 4.3 MJMEUC may establish rates to prevent an event of default under any bond indenture, lease or loan agreement.” If there is any rebellion the MJMEUC gloves come off and the “representatives” will find out the whole Pool Committee rate-setting process is a sham and they are nothing more than rubber-stamps. In actuality they represent no one and have no power to make final decisions. MJMEUC rules - the river of cash must flow.
These are some but not all of the poison pills in the MoPEP contract that should have caused 31 city attorneys to advise their clients to stay away from this deal. It should have been rejected out of hand simply on the basis of any one of these six provisions. While reading the 24 pages of the contract and being appalled at what is in the document, it is easy to overlook what isn’t in it.
a. THE CONTRACT IS ONE-SIDED. It gives powers only to MJMEUC. The one so-called decision-making power of the Pool Committee representatives from each contract town are a sham as Section 4.3 demonstrates. The contracting cities have no power to veto any action of MJMEUC. There is not even any provision that MJMEUC report to them on a regular basis. In this contract MJMEUC has all the power and owes no accountability to its member cities. They presumably toss some kind of reports to the MoPEP “representatives” (actually we aren’t sure they produce any reports at all) and if those baffling papers wind up in the wastebasket or on the floor of the Pool Committee Member’s truck…well, so what. The contract doesn’t say MJMEUC has to provide quarterly reports or their audit or reveal their plans to the cities they’re sucking dry.
b. NO DEBT LIMIT and NO OVERSIGHT or CONTROL. When Kincheloe engineered a constitutional amendment to get rid of PSC oversight he had no intention of replacing it with control by anyone else. In the definition of “direct costs” it states that debts “without limitation” will be passed on to the city MoPEP members to be paid off by their local rate payers. Nowhere in the contract is there anything that allows the municipalities to vote to tell Kincheloe and the MJMEUC board to stop running up more debt or stop doing anything else. After he had their signatures on the contract they ceased to have any role in MJMEUC decisions. As long as he can keep signing up more “collateral towns” Kincheloe can keep issuing more revenue bonds in MJMEUC’s name and using them to pile up more investment debts “without limitation” to pass along to tens of thousands of unsuspecting electric customers trapped in Missouri towns with frightened elected officials who are afraid to join together and sue to get out of their contracts.
One recent unsavory piece of MJMEUC propaganda being circulated to keep them all in line is that if cities go to court and break their MoPEP contract they will have no electrical power! Now think about that. Have you ever in your life heard of a city or town or village that was blacked out by a utility provider? No you haven’t because the federal government doesn’t allow it. Such an event constitutes a public emergency and kicks in a lot of civil defense issues up to and including the governor’s office not to mention a lot of unwelcome media attention for the idiot who left a city in the dark without heat or light. If anyone were harmed the liability would be enormous. However, as a MoPEP scare tactic to keep nervous city officials in line it seems to be working well.
c. NO PENALTY FOR POOR PERFORMANCE. If one or more towns are left without power frequently or for prolonged periods, MoPEP and MJMEUC suffer no contractual or financial consequences. If there is other lack of accountability such as the current pretense that Kincheloe and the MJMEUC board have adequately communicated to their contract towns by holding meetings in a remote location to take votes to add more debt that the member towns have no knowledge of, nothing can be done about it because MJMEUC promised their MoPEP members no accountability of any kind.
