Kincheloe stalls Owensville's vote again with plea for "appropriate sequencing"

MJMEUC CEO promises new meeting by Dec. 20; MoPEP chair notes ‘willingness’ to resolve issues

Wednesday, 15 December 2010 08:16 Dave Marner, editor Gasconade County Republican

COLUMBIA — Duncan Kincheloe used nine lines of type in his Dec. 9 general manager’s report to the MoPEP membership to congratulate staff members for getting married and hired, to make a “progress” report on another’s pregnancy, and update them on the pending retirement of a southwestern Missouri city’s utility manager.

He spent seven lines stating Owensville officials met Nov. 29 in Columbia with members of subcommittees dealing with rates and contract. None of those seven lines provided MoPEP members with information about what Owensville officials actually requested, and did not receive (a vote on three specified proposals relating to the city’s exit strategy from the pool).

So on Thursday before the full MoPEP membership, when Owensville City Administrator John Tracy delivered a prepared motion asking that their MoPEP assignment issues be resolved, it is no wonder the membership looked on in stunned silence for several moments.

“I’ve got one little thing,” said Tracy noting the city appreciated the efforts of the subcommittees and Kincheloe meeting with the city on Nov. 29.

“One of the big issue that seems to be popping up —stranded cost,” Tracy began. “I think everybody’s wrastled that until it probably can’t be wrastled much more. Hopefully additional meetings will help to solve those issues. With that, at the direction of my Board of Aldermen, I’d like to place a motion on the board, on the floor.”

Tracy read the following motion: “At the direction of the Board of Aldermen of Owensville, I would make the following motion. Motion to approve the city of Owensville assignment to the next city joining MoPEP upon completion of all documents required for an assignment and approval; and that any stranded cost issues be deemed covered from St. James joining MoPEP with a MW load capacity of 15 versus the city of Owensville MW load of 6.4.”

The motion was seconded by Jim Grebing of Hermann.

What followed was several seconds of complete silence followed by an audible muttering of questions from around the conference room of the Days Inn Motel in Columbia.

Presented as a request from the Owensville Board of Aldermen, Tracy requested that the next MoPEP member assignment go to Owensville and that the city of to St. James be approved to take over the stranded cost issues the MJMEUC leadership is attempting to place on Owensville. Those stranded cost issues have been discussed but have never been resolved.

Tracy said this week that MJMEUC officials first said Owensville was responsible for up to $19 million in long-term obligations for power contracts obtained on the city’s behalf. That figure was later revised down to $120,000 per year, through 2021, and then later back up to $468,000 per year through the life of the contract. “No one knows what it is,” said Tracy, “or if it even exists.”

Owensville contends it does not since St. James came on board with a utility use more than twice what Owensville is using.

Owensville officials have never signed any long-term power purchasing agreement with Ameren Energy and contend they do not owe stranded costs for future power purchases which continue until 2021.

Chad Davis, from Trenton, Mo., and chairman of the MoPEP Committee and the MJMEUC Committee on MoPEP Contract Matters, noted his “initial reaction” was to “take the motion up for consideration without a doubt.”
Davis restated the motion and asked for a copy of the motion for the record. He noted Owensville had proposed — for the MoPEP members to approve — a motion “to authorize an assignment from Owensville to the next member that joins MoPEP, and, as a substitution for the stranded cost issue, or concern, to earmark St. James as a substitute for that stranded cost issue to make the stranded cost issue go away.”

“Basically,” said Tracy.

Davis then handed off the microphone Kincheloe, seated three seats to his right.

Tracy’s motion obviously came as a surprise to Kincheloe as he stumbled through a rambling explanation of what must happen next and how additional meetings would be needed to help Owensville resolve its stated intention to exit the pool.

“Just procedurally, I think, I want to note that, the commission is, that I think, procedurally (the commission) would need to act on this assignment issue,” said Kincheloe. “That the board of the commission itself. I think. But obviously, the commission members, not, not all of them, have an interest, a financial interest, in the outcome of this issue.

“And so,” he continued, “I think, the commission board, although it needs to be only the one that acts, will be looking to the MoPEP members who have the actual financial interest at stake here to provide some direction here so I think the deliberations would first logically come among the MoPEP members that need to consider this and then once the MoPEP pool has provided, perhaps a recommendation to the board at large, when the issue gets to that stage, would be the appropriate sequencing which, would,  the (MJMEUC) Board of Directors would have to consider this.”

Kincheloe stated that should a city with a larger power load than Owensville want to join the pool, it would mean “there would be a favorable impact, presumably, on the pool and the current situation of resources of  membership, if another member comes in that’s larger than Owensville and does not have capacity, generating capacity, of its own.”

Kincheloe’s report twice mentions, on two separate pages, that Owensville had a meeting with the subcommittees but did not go into any detail about Mayor Dixon Somerville’s letter seeking a vote on assignment issues. Somerville’s letter noted, “the city of Owensville would like to have key elements of the plan we discussed with you and your staff over the past several months formally presented to the Contract Committee and then the full MoPEP Committee for a vote.”

Owensville did not receive a vote from the subcommittees on Nov. 29 and the full MoPEP membership on Dec. 9 appears to have been intentionally left in the dark regarding what transpired Nov. 29 when Owensville officials met with the small group. Here is how Kincheloe attempted to explain the group’s apparent lack of understanding of, or preparation for handling, such a proposal.

“This, you know I think the, uh, I think the, the silence here probably is indication of the fact that this is, uh, I think the members are, uh, uh, looking for, are a bit flat-footed here, not expecting this motion to be made here,” said Kincheloe stumbling awkwardly through his response. “And I think the Rates and Services Committee and the Contract Matters Committees did expect to meet again as we suggested at, you know, on, a, whatever timely basis is necessary in order to move your process ahead.”

Pool members certainly appeared “flat-footed,” as Kincheloe suggested. He himself appeared caught off guard by Tracy’s action.

It’s not difficult to understand why the pool members may have been caught off guard. They were told about the progress of a staff member’s pregnancy in Kincheloe’s report. They were not, however, informed of Owensville’s Nov. 29 proposals to facilitate exiting the pool and their formal request for a vote.

Kincheloe said his “suggestion to the chair” would be to refer the city’s motion to those committees and to meet with city officials again by Dec. 20 for further discussion after he and Tracy had  the chance to “put our heads together.”

“That would be my suggestion process,” Kincheloe concluded.

Kincheloe’s recommendation included setting up another meeting with those committees for early next month.
Tracy then offered to withdraw his motion “at this time.”

Tracy said he expects to meet again with Kincheloe, Davis, and Dennis Klusmeyer, chair of the MoPEP Service and Rates Committee, of Shelbina, Mo. Tracy said he’s requested the meeting be held in Owensville. As of Tuesday afternoon, Tracy said he had not received confirmation of a time, date, or location of the meeting.

Tracy said Kincheloe told him he was “ checking his calendar.” (Read more)

Frustration mounts in city’s ongoing attempt to exit MoPEP

Wednesday, 01 December 2010 08:32 Dave Marner ed. Gasconade County Republican

OWENSVILLE officials including Mayor Dixon Somerville (fourth from left) and City Administrator John Tracy (to his left) are flanked respectively Monday by Leland Curtis, special counsel to the city, and Dr. Michael Proctor, electric consultant, during a joint committee meeting of MoPEP members. COLUMBIA — Owensville’s next step in its MoPEP exit strategy may be a legal one…playing the game with continuously moving goalposts certainly is not working.
Owensville officials met Monday with MoPEP rate and contract committee members seeking answers to three specific questions. “We made our case and it appears we didn’t get a direct answer again,” said City Administrator John Tracy.  “We requested a vote and evidently didn’t get a vote.”
Duncan Kincheloe, general manager for MPUA, revealed few details about the majority of a 2-hour, 20-minute closed joint session of the Committee on MoPEP Contract Matters and MoPEP Services and Rates Committee. “It was a closed meeting,” said Kincheloe. “There was an opportunity to further the discussion. There was feedback.”

Kincheloe confirmed there were no votes taken when asked if Owensville received it’s thumbs “up or down” vote as requested on three proposals presented by Mayor Dixon Somerville in an Oct. 22 letter to Kincheloe.
“I’m not sure what was expected. They got some response to questions they posed,” said Kincheloe. He called the discussion “beneficial to all” and added “the discussion moved forward.”

Kincheloe said committee members asked he and his staff to prepare a “status report” for the combined MJMEUC and MoPEP meeting on Dec. 9. He added that if Owensville desired any additional meetings over the next few weeks, committee members were willing to “try to accommodate” those requests.

Tracy said members of the joint committees meeting Monday requested additional documents related to an offer to buy the city’s power transmission system from a publicly-traded electric generator and supplier. “That’s none of their damned business,” said Tracy noting the offer has yet to be made public. “It’s not going to happen.”
Tracy said members of the two committees should worry about their own community’s financial operations and added “the city of Owensville is capable of running theirs.”

The Republican was granted access to the 55-minute long portion of the meeting which included only Owensville’s presentation to the committee members. During their presentation, city officials, their attorney, and a consultant spelled out Owensville’s financial problems and the city’s need to exit the pool.

Kincheloe opened the session by giving an overview of Owensville’s request.  He noted the city’s “internal finances are the main concern. Internal finances and local debt.”

He also spelled out what could be done as far as granting a city’s release from MoPEP. “A city’s legal, long-term obligation, contractual obligation, can be transferred to another municipality while in keeping with the MoPEP contract,” he said.

Kincheloe noted the commission was not in a position to speak with any other potential pool members seeking  “assigning status to another city.”

“My position,” added Kincheloe, “a city must take the lead in that process.”

He noted the committee must act to protest the pool from contractual obligations of a city seeking an exit. He also wanted to make sure the pool was “held harmless” for any costs to make the transfer.

He noted the mayor’s letter sought a “equitable accommodation. ‘Give us a break’ is basically Owensville’s basic position. Make it fair and accommodating.”

He posed the questions: would additional pool cities offset stranded costs? Would taking a potential loss a power contract be offset by the additional load from more cities? Are shared capacity costs a benefit to the pool?

At 11:25 a.m., the joint committees excused The Republican’s reporter and met until noon with city representatives. After excusing city officials, the committees worked through a box lunch. “It’s tough in there,” said a committee member during a quick break after lunch. “We never stopped. We worked right through lunch,” said Floyd Gilzow, a MJMEUC staff member.

City personnel were invited back into the closed session at about 1:15  p.m. and met behind closed doors with committeemen until 1:45 p.m.

Two minutes later the committees adjourned.

Standing in Owensville’s way as the city attempts to sell off its electric utility system is a release from its MoPEP obligations including the apparently unresolved stranded cost issues and an assignment (to an incoming pool member) of long-term power contracts arranged on the city’s behalf. “The main thing is we wanted an answer on stranded costs and we didn’t get that and probably won’t get that,” said Tracy on Tuesday.

During the city’s presentation, Dr. Michael Proctor, a power supply consultant retained by the city, noted figures from 2008 showed a potential for $120,000 in annual costs to the city for stranded costs issues. In 2009, however, the cost jumped to $800,000-plus annually. Proctor explained that while the cost of wholesale electricity dropped 70 percent in 2009, that actually increased stranded cost issues by 30 percent.

That translated from a potential fee of $8 per month per city customer using 2008 figures to $56 per month using 2009 costs.

“That just was not do-able,” Proctor told the committee.

Proctor asked the committee to consider the “benefit of energy freed up if Owensville left (the pool).” Consider, he said, “the value of (this) energy in the open market.”

City officials also contend no one from the city signed a power contract with Ameren Energy locking the city into a contract until 2021. Therefore, they say there should be no stranded cost issues if Owensville should be granted an exit from the pool.

“Owensville’s case is one of hardship,” said Leland B. Curtis, of Curtis, Heinz, Garrett & O’Keefe, PC, of St. Louis, the city’s special legal counsel. He said the bonding practices using “unique financing” have create “an intolerable situation.”

The 11 to 12-cent per kilowatt hour rate for electricity the city’s residents have been paying is “another straw breaking the camel’s back.”

“It is a hardship situation. It is a unique situation,” said Curtis. (Read whole article)

Is skimming inflated utility rates a "hidden tax" and a Hancock violation? Supreme Ct. hears Arbor v. Hermann Wednesday, Dec. 15, '10

The Missouri Supreme Court will hear oral arguments in Arbor v. Hermann on Wednesday, December 15, 2010 at 9:30 a.m. challenging the decades-old corrupt practice enjoyed by many unregulated municipal utilities of inflating utility rates so they can “skim” off what the plaintiffs contend are “grossly excessive amounts” of utility revenue to use for other city purposes. The “other purposes” are most commonly budget shortages from bad management and “special” projects for “special” people, also known as “pork.” For years Missouri State Auditor's in city petition audits have bluntly called this practice a "hidden tax" and a violation of the Hancock Amendment.

The Missouri Attorney General and the Missouri State Auditor have filed amicus briefs on behalf of the plaintiffs (the citizens suing), Arbor Investment Company, et. al. The Missouri Municipal League and MPUA (MJMEUC-MoPEP) have filed amicus briefs supporting the City of Hermann’s defense case defending their right to lie to the public and charge them for utility services when they know the ‘profits’ from overcharging will be used for other non-utility purposes.

The docket page link will take you to the SC page where you can open all the briefs to be presented by the plaintiffs, the city of Hermann, and the other entities filing amicus curiae briefs in support of one side or the other. Below is the court’s summary of all the briefs.

Must reading: The brief by the Armstrong Teasdale firm on behalf of Arbor Investment et. al. which is very lucid and describes the issues well. The defense brief by the City of Hermann sounds sweaty and desperate. For laughs read the feeble amicus brief filed by MPUA - the mother ship of MJMEUC-MoPEP. Their argument is that the “utility customers consent to the city providing them utilities and are free to discontinue their use of the city’s services.” Oh sure they can, but only if they want to live without heat and light, and without bathing, cooking, flushing and all the other MONOPOLY city services. Well, MPUA couldn’t just come right out and say, “Leave them alone because if you let the public start voting on raising their utility rates, the MoPEP Machine won’t be able to suck them dry by making them pay all MJMEUC's debts 'without limitation.' ”  

DOCKET SUMMARIES
SUPREME COURT OF MISSOURI

9:30 a.m. Wednesday, Dec. 15, 2010

________________________________________

SC91109
Arbor Investment Company, LLC, et al. v. City of Hermann
Gasconade County
Hancock Amendment challenge to city utility charges

In December 2006, a group of Hermann utility customers brought a class action lawsuit against the city of Hermann, alleging the city charged utility customers “grossly excessive amounts” for utilities, thereby violating the Hancock Amendment of the state constitution by subsidizing city operations through a “hidden tax.” The city is the sole provider of utilities for its taxpayers. The trial court granted summary judgment in favor of the city. The utility customers appeal.

The utility customers argue the trial court erred in entering summary judgment in the city’s favor. They contend that the undisputed facts show – or, alternatively, that there is a disputed material fact whether – the city increased utility fees and violated article x, section 22 of the Missouri Constitution (part of the Hancock Amendment) by setting utility charges at a level to increase the city’s general revenue and subsidize general governmental expenditures. The customers assert this is tantamount to raising taxes without a vote of the people.

The city responds that the trial court did not err in entering summary judgment in its favor. It argues the facts are undisputed and show the city’s utility charges are not subject to the Hancock Amendment because: the utility charges are not a tax; the trial court properly applied the correct legal test in determining the charges are not a tax; the test produces “consistent results;” and municipally owned utilities are not required to be operated at “cost.”

The attorney general and state auditor argue, as friends of the Court, that when a municipal utility that is the sole provider of essential services sets rates to fund non-utility expenses, it adds “user fees” taxes that are subject to the Hancock Amendment. They contend that although the Hancock Amendment does not bar a municipal utility from continuing to collect fees for general revenue as a portion of its existing rate, it requires a public vote if the utility seeks to increase the portion of the rate that is not being collected to pay the costs of the service.

The Missouri Municipal League argues, as a friend of the Court, that the trial court properly held the city’s utility charges were not subject to the Hancock Amendment. It contends applying the Hancock Amendment to any contractual service generating revenue is unsupported by law and violates public policy, thereby depriving the public of fair compensation for use of public property and services. It asserts the attorney general and state auditor’s arguments improperly distinguish sole providers of utilities.

The Missouri Public Utility Alliance, the Missouri Joint Municipal Electric Utility Commission and the Municipal Gas Commission of Missouri argue, as friends of the Court, that the city’s transfer of utility funds to general revenue funds is not a tax or a fee. They contend the utility customers consent to the city providing them utilities and are free to discontinue their use of the city’s services. Finally, they assert the attorney general and state auditor’s arguments fail to consider that utility revenues may increase or decrease based on external economic factors.