Ed. note: I think there’s a rule that blog entries should be short but I blew through that rule with my first entry. This entry is very long because it explains the nut of the MoPEP Machine and what's wrong with it. There’s just no short way to explain that…sorry. But if you’ve gotten hooked on this story of bureaucratic skullduggery, of bankers, crooks and criminals it’s worth slogging through the whole thing because this isn’t the end of this tale…not by a long shot. We’ve recently turned over another rock and guess who was under it…
Now that you know from the earliest blogs how the MoPEP system came about and what is actually in the contract, the next question everyone asks is how can a rip-off like this be legal? Over a period of just a few years MJMEUC and their lobbyists had gotten the Missouri Constitution Art. VI, Section 27 changed…no small task. The 2002 constitutional amendment eliminated oversight of the Missouri Public Service Commission from all future activities of any “joint commission” and the old constitutional requirement that joint commissions such as MJMEUC would have to submit “public utility projects to a vote of the electors” was also gone - with it went the people’s first line of defense. Then MJMEUC spent hundreds of thousands of dollars lobbying the Missouri General Assembly and by 2004 our own representatives and senators had obligingly passed for them the enabling statutory authority in RSMo 393.700-.770 which contained all the details as to how they would set up the MoPEP contract to put the squeeze on any small member community with its own utility that fell for the line that this “joint commission” would provide cheaper power because of Kincheloe’s “economies of scale.” In just a few years the few constitutional and statutory protections our naïve small towns had were stripped away and we were completely at the mercy of Kincheloe’s MoPEP Machine. The decks were clear for the MoPEP machine to roll in and chew up 32 little towns. They had dismantled the law, redesigned it to suit their purposes and they had it all wrapped up…or did they?
On December 19, 2006, as Kincheloe was in a frenzy of signing mega-million dollar contracts to acquire ownership in coal-fired power plants, a case was just ending in the Missouri Supreme Court titled, STOPAQUILA.ORG, et al., Appellants v. City of Peculiar, Missouri, Respondent. The battle had started two years before on December 7, 2004 when the City of
The bonds in the STOPAQUILA v. Peculiar case were utility revenue bonds but the city had a contract with Aquila to lay off all the repayment and other liability (like lawsuits from states in the stack shadow for fouling their air) on Aquila so the Peculiar aldermen argued that only their own 6 votes were necessary because the people of Peculiar would have no liability. This is the way the deal was structured as stated in the final case summary (emphasis added.): “Peculiar and
Constitutional Amendment VI, Section 27 was the section at issue in the STOPAQUILA v. Peculiar case. It has two almost identical subsections (a) and (b) that were approved by voters in a statewide referendum in 1978, and the differences between the two were critical. Section 27(a), said that “a vote of a majority of the qualified electors” of a county, city, town or village could issue bonds for “the purpose of paying all or part of the cost of purchasing, constructing, extending or improving any of the following: (1) revenue producing water, gas or electric light works, heating or power plants; or (2) airports to be owned exclusively by the county, city or incorporated town or village the cost of operation and maintenance and the principal and interest of the bonds to be payable solely from the revenues derived by the county, city or incorporated town or village from the operation of the utility or airport. However, Section 27(b) said that “a majority vote of the governing body thereof,” could issue negotiable interest bearing revenue bonds, for such utility plants if they were “to be leased or otherwise disposed of pursuant to law to private persons or corporations. The cost of operation and maintenance and the principal and interest of the bonds shall be payable solely from the revenues derived by the county, city, or incorporated town or village from “the lease or other disposal of the facility.”
[Revenue bonds issued for public utilities are different from non-utility revenue bonds which, for instance might finance construction of a building for an industry that would pay back the revenue bonds out of the earnings of the company, because the only source of revenue to pay back utility revenue bonds are the ratepayer-voters. Non-utility revenue bonds are repaid by ‘rental’ payments by the commercial company that benefited from the bond not by the voters. The last sewer treatment plant or water tower renovations in your town may have been paid for with a voter-approved revenue bond. If so, your sewer or water fees probably were increased for a certain number of years to repay those utility revenue bonds.]
The court’s decision in STOPAQUILA turned on one question…if things went wrong who would be left holding the bag? Who would have to pay the bills, repay the debt and defend any lawsuits? The Missouri Supreme Court in STOPAQUILA declared that if the liability for the revenue bond issues fell upon the taxpayers the revenue bonds had to be approved by the voters. However if, by use of a lease-back or contract, all liability for repayment of the revenue bonds and for operation of the plant was assumed by the commercial company or other third party then the utility revenue bonds could be issued by only a vote of the city or county government.
So what does that have to do with MJMEUC and the MoPEP contracts? In STOPAQUILA v. Peculiar the Supreme Court clarified Sections 27 (a) and (b) and explained who had to vote on utility revenue bonds before they can be issued and why. Depending on how the deal was structured it was either the city council or the voters but the court did not say that a council vote on a so-called MoPEP commodities power contract was an acceptable method of approving utility revenue bonds. “Art. VI, Section 27 says specifically that the ‘somebody’ with the authority to vote must either be member of a “county, city, town or village” it says nothing about the vote to issue $1.2 Billion in utility revenue bonds being taken by a “body corporate and politic” like MJMEUC.
There are certain special and exclusive powers given by the state constitution to cities and one of those powers is the authority to incur debt. Such votes can only be taken by council members in an open meeting or by the people in a referendum election – that power cannot be delegated to some ‘representative’ to an association (Pearson v. City of Washington) In this case, STOPAQUILA v. Peculiar, the court decided that the group that gets to take that vote is the one burdened with the liability. MJMEUC took the votes but the MoPEP members got the liability. MJMEUC-MoPEP isn’t going to be the one on the firing line if Kincheloe’s investments go bad.
Through ignorance and the MJMEUC-MoPEP contract our elected officials had pledged their member cities as the collateral that guaranteed payment of the debt thus burdening us with the liability therefore there should have been a referendum vote in each town on each stock purchase. Kincheloe will without doubt defend this exploitation by saying that when he redesigned Chapter 393 of the Missouri Statutes to further his investment plans, he made sure MJMEUC was - not a municipality with the power to tax and with the protection of sovereign immunity – but a “body politic and corporate”(RSMo 393.720) and as such it has the power to issue revenue bonds (393.725) therefore, the revenue bonds were MJMEUC’s, the investment contracts were theirs and the actions were the actions of the MJMEUC board members. That’s just crap. The MJMEUC board members who made these decisions are selected from the MoPEP member representatives from each of our 32 towns. MoPEP is described in the contract as “a “project of MJMEUC,” it is not a separate organization. While it’s technically correct that MJMEUC can issue its own revenue bonds with only a vote of the MJMEUC board it’s also a fact that no one would ever buy MJMEUC’s revenue bonds if Kincheloe hadn’t been able to offer investors the substantial assets of the 32 MoPEP contract towns as collateral which guaranteed repayment of the bonds.
MJMEUC is a middleman’s middleman - their only asset is their contracts and their promises to milk the MoPEP towns by use of the contracts which give them a first lien on all the utility revenues of each of the 32 MoPEP towns. That giveaway was bad enough but that’s not all he used us for. In the Fitch Rating’s announcement of giving an “A-” rating for the Plum Point power plant the rating company based their “A-” ratings of MJMEUC’s bonds on the fact that Kincheloe and MJMEUC pledged the MoPEP towns to ante-up additional collateral of the most extreme and punishing type - the “take or pay” and “step-up” clauses promised in those contracts. In the contracts and bond rating reports for the Plum Point stocks ($330 million) the Nebraska City 2 investment ($79 million) and Prairie State ($564 million) it says MJMEUC’s “Credit strengths” included: “Unconditional, take-or-pay power purchase agreements with the unit power purchasers that include a step-up provision to 200% of each participant's original allocation; Unconditional, take-or pay power purchase agreement with MoPEP #1, which requires an unconditional step-up among the 32 MoPEP #1 participants to support the entity's Prairie State allocation.”
The only asset MJMEUC has to offer as collateral for the bridge loans and revenue bonds they used to invest in $1.2 Billion in stocks is you, the local utility rate payer who must pay your bloated MoPEP bill every month or get your lights, a/c and hot water cut off. Without secretly binding their customer/members to the most dangerous and punishing conditions for repayment of their bonds, MJMEUC could not have gotten that rating on this or any other revenue bonds. It’s no wonder that they’ve never offered anything close to full disclosure of risk to their collateral cows.
If we’re very lucky revenue from the plants will be sufficient to pay off the revenue bonds but there were millions in pre and post construction and “other” costs that the MoPEP ‘stockholders’ have unwittingly agreed to pay through their monthly MoPEP electric bills which are disguised as “Direct Costs.” If all doesn’t go well bondholders will sue MJMEUC to force payment of MJMEUC’s revenue bond debts. To satisfy those judgments, MJMEUC will just reach out and siphon off as much as they want from the annual utility revenues of their 32 member towns and write the checks. This will deprive the 32 towns of sufficient cash to buy their power, operate their local utility departments and in some cases - where they are using the utility as a cash cow to provide a large percentage of their city budget, they will be short on a lot of the cash they need to run their city services, but that’s not Kincheloe’s concern is it?
Who was the guiltiest? The MoPEP contracts that touched off Kincheloe’s frenzy of investments in coal-fired power plants gave neither the elected officials nor the citizens of the 32 contracting towns the opportunity to vote on each of these massive multi-million dollar construction projects. When they signed their MoPEP contract few, if any, of the 32 communities knew about the secret MJMEUC plan to issue revenue bonds or knew that their local “representative” when he was a member of the MJMEUC board was going to be voting on these massive equity investments. They also didn’t know that they were giving away a first lien on their annual utility revenues as collateral for these loans. They didn’t know that in case of default of any one of the coal-fired plants 32 small towns would be drained of their utility revenues for 40 years to repay the revenue bonds and any other cost overruns incurred by mismanagement of MJMEUC and the individual plant managers. They didn’t know any of these things because the board of MJMEUC deliberately withheld all this information and their investment plans from the 32 city governments as each signed the MoPEP contracts. Were the elected officials guilty of not reading the contracts carefully? Were they guilty of not getting a second opinion on the contracts, for not exercising diligence and asking pointed questions before making this commitment? Were they guilty of being too lazy or too frightened to read a thick contract with all those big words? Yes they were guilty of all that but the greater fault was MJMEUC’s. They knew what their secret investment plans were and what the risks were in these investments. It would not have furthered their investment goals if their patsies had fully comprehended what they were being enticed to sign with a lot of scare tactics, false promises, lies about deregulation and promises of cheaper power through “economies of scale.”
The question is often asked, “How could all 32 city governments have failed to read and understand what they were getting us into? How could they fall for Kincheloe’s “economies of scale” cliché? No doubt the MoPEP contract was offered to all 58 MJMEUC member cities. No doubt the other 26 read the contract with the care elected officials are supposed to give to such things but seeing what a trap it was those 26 towns wisely refused to join the MJMEUC investment club. What were left were the 32 that didn’t read it who run their towns by the “we-have-to-trust-the-experts” cop-out. In short, the 32 city governments who joined MoPEP are winners of “The Darwin Awards of the Decade” for being the dumbest towns on MJMEUC’s membership roster. The long-term effect of having such ‘leaders’ is something the voters in those towns should give serious thought to.
The MoPEP contract that each of the cities signed contained only veiled references to what management planned to do once they collected enough MoPEP contracts to reach the amount of collateral they needed for the revenue bond issues to make the power plant investments. On page 2 of the MoPEP contract it says in Recital 13: “Pool Members desire that MJMEUC pursue ownership interests in electric generation and other facilities and resources…..the Parties recognize that MJMEUC should be expected to pledge its revenues under the agreement as security for the payment of MJMEUC’s bonds.” We “desired” that they “pursue ownership interests in electric generation?” We “recognized that MJMEUC should be “expected” to pledge its revenues under the agreement as security?” We didn’t have the first blooming clue that we expected all that. MJMEUC’s “revenues” referred to are the monthly ‘electricity’ payments from their MoPEP contracts. Recital 13 of the MoPEP contract isn’t what anyone would call a forthright statement which would have gone something like this: “Within a year we intend to load up on about $1.185 BILLION in debt to buy stock in some very high-risk coal-fired plants and if anything goes wrong we will exercise our first lien on all your electric revenues to pay off this and any other debts MJMEUC has and we will do all this at our pleasure and without consultation with you and without prior notice.” But, however ignorant their votes may have been at the time and however secretive MJMEUC may have been about the enormous debt they planned to dump on the MoPEP rate-payers, each of the 32 town council’s and aldermen did in fact vote to enter into their MoPEP contracts…so, didn’t that vote give MJMEUC/MoPEP the authority to drag us into billions in equity investments in the same type of plants that were being cancelled all over the country?
No, fortunately, the law has other means of protecting us from the venal acts of stupid people who abuse the power of their offices and default in their official responsibilities. That one misguided vote on the Amended MoPEP contract that they thought was just a power supply contract didn’t make legitimate or legal the cascade of subsequent actions by MJMEUC/MoPEP for three reasons and these are only a few ways of questioning this contract.
1.) Legislative bodies may not delegate their powers as the MoPEP contract forces them to do. In Pearson v. City of Washington, the Court stated that municipal corporations owe their origins to, and derive their powers and rights wholly from the state, and “where the Legislature has authorized a municipality to exercise a power and prescribed the manner of its exercise, the right to exercise the power given in any other manner is necessarily denied.” In another case, Anderson v. City of Olivette they said, “Any reasonable doubt as to whether a power has been delegated to such a municipality is resolved in favor of nondelegation.” Appointing an employee to attend meetings in Columbia and, as a member of the MoPEP, MJMEUC or MAMU boards make decisions and take votes on debts and other obligations that only city governments are authorized by law to make is the kind of thing that “is necessarily denied” whether the method was agreed to in a prior contract or not. If mere contract terms could be used to void or get around the laws designed to protect the public from sly manipulations then we would be a “nation of contracts” not a “nation of laws.”
2.)
3.) The veiled references in the MoPEP contract to ’desires’ and intentions to "pursue ownership interests in electric generation and other facilities and resources" will not pass the “full disclosure” test when a court looks at MJMEUC’s lack of disclosure in these investments. In
The voters and utility ratepayers in 32 towns not only didn’t know at the time their elected officials voted on the contract what they were getting involved in, but to this day most of them still don’t know why their local utility bills jumped by 45% - 71% or more after their elected officials voted on what they thought - and what they were told - was just a simple contract to buy cheaper power from MJMEUC/MoPEP because of their “economies of scale.” The contract was grossly misrepresented as a commodities contract when it was really a compact to join an illegal investment club so MJMEUC could use public revenues as collateral to enable their investments in high-risk equities. The fact that 32 cities are trapped in it now is the fault of their lazy public officials who failed to read the contract and conduct their own due diligence, but the greater fault was that of MJMEUC’s board and CEO Duncan Kincheloe, who made no effort to inform the city’s government of the high risk involved in pledging huge sums of their future electric revenues to buy stocks in these unproven power plants. The investment aspect of this MoPEP scheme was deliberately concealed from the elected officials and the people in each town. How hard would it have been for Kincheloe to send a letter or make an appearance before the city at a public meeting and tell them that within two years they intended to have $1.2 Billion in revenue bond debts leveraged to invest in illegal equities in an industry already in trouble which would cause their local utility rates to double and that each MoPEP member would be responsible for the next four decades for their “proportional share” of the debt for a dying technology which is now so high-risk that banks won’t finance coal-fired plants? It wouldn’t have been hard for him to do it but it’s easy to see why he didn’t do it.
Unless they’ve been reading this blog, to this day most of the elected officials and electric rate payers in the 32 MoPEP towns still do not know a thing about these MoPEP investment contracts and the massive liability they’ve been suckered into. Owensville, Hermann, Fredericktown and a few other towns do know and are trying to do something about it. The City of
You’re wondering how this could happen if it’s not legal for all these different reasons? As I’ve said before when someone does something illegal God doesn’t send a thunderbolt to fry their little brains…mores the pity. We’re supposed to take care of ourselves, not sit and wait for the government that we usually scorn to come make it all better like mommy did. We are the watchdogs of our own fate and our own communities. The only way we can disengage from The MoPEP Machine to preserve our assets, our revenues and our credit ratings, is to complain to the state, the IRS, reporters and especially to the members of the Missouri General Assembly who enabled this system that’s draining our small towns. If none of that works then we will just have to drag their sorry asses into court until we pry their fat greedy fingers off our money and our assets.
We could also just reverse the process they used to take away our protection by adding it back on. With the addition of ten little words to Article VI, Sec. 27, our legislators, who so far have done a miserable job of looking after the interests of their constituents, could cure this problem by offering a change to the Art VI, Sec. 27 amendment. The 10 words are: “Nothing in this section shall affect the ability of the public service commission to regulate investor-owned utilities…and such joint board or commissions formed under this section.” Mo. Public Service Commission oversight would stop all these shenanigans dead in their tracks.
In Chapter 393 it would only be necessary to make a small change in the wording of the section that allows MJMEUC to use their member’s utility revenues as collateral. Just deleting the last half of the sentence in RSMo 393.725. 1., would keep their hands off our electric revenues and they couldn’t use us as their collateral cows. “Bonds issued pursuant to sections 393.700 to 393.770 by a commission shall be payable, as to the principal and interest, solely from the net revenues derived from the operation of any one or more of the projects financed by the commission, after providing for the costs of operation and maintenance of the project or projects, or from any other funds made available to the commission from sources other than from proceeds of taxation.”
It took many years for federal regulators to believe that the biggest energy company in the world was nothing but greedy lying executives and greedy lying energy traders and the biggest accounting firm in the world was covering up for them. It may take years to get people to wake up about MJMEUC, MoPEP and MAMU but that’s only one end of our problem. The other end is that we keep electing good ole’ boys to local offices whose only qualification for local office is that they’ve never offended anyone by having an opinion based on fact and they've never done anything as dangerous as read a book.
