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.

The very expensive Fitch Ratings ‘Mine-Mouth Report’ on Prairie State

In the last post about the Fitch Ratings credit warning to the six municipal investors of Prairie State rated by Fitch, at the bottom of the press release there was reference to the full research report the press release was taken from entitled, “Prairie State Energy Campus Review: Finding the Bottom of a Mine-Mouth Coal Plant.”

Unfortunately Fitch charges over $200 for this interesting in-depth report so I put out an all-call on the Internet and within days the report magically dropped into my inbox. The report expanded on the press release and also contained an investor-by-investor credit summary for six of the eight public municipal consortium investors that are rated by Fitch. The details are interesting if not exhaustive and if this is all Fitch knows about these municipal investment entities I suggest they go back to work and get a more in-depth view of the finances of the municipalities who are the collateral behind the consortium investors who are behind the multi-consortium investors who are behind the financing of this coal-fired power plant with what may possibly be the largest cost overruns (going on $5 billion now and counting) in the history of coal-fired power plants.

Fitch will not be pleased that their pricy $275 report is loose out there in net-space but if so they need to adjust their thinking to fit their new clientele. Secret reports and decoder rings worked in the old days when the top ten investment banks in the US backed big power projects financed by private investment. Then Fitch worked for private companies and commercial investors that were entitled by law to keep proprietary information secret. But the world of investment in power projects has been flipped on its head. Since 2007, the Big Ten won’t touch dirty coal plants with a ten-gigabyte pole and since King Coal sucked Little Town USA into providing the billions in financing to these publicly financed projects with public money the access rules on such reports have changed. The operative words are not “proprietary information” but “public right-to-know.”

These days, to provide their credit and investment reports, Fitch takes public money derived from taxes acquired from taxes levied by public governments that make up the public joint agencies. Those reports are all covered under public disclosure and open record laws common to every state. In Missouri those laws are contained in Chapter 610 called “Sunshine Laws” for obvious reasons – the cleansing effect sunshine has on public affairs.

So, here is the full secret Fitch report on the increasingly wobbly credit of six of the Fitch rated public investors of the Prairie State coal-fired plant and their individual credit summaries that produced the October 17, 2010 credit warning by Fitch Ratings. Get out your secret decoder rings and enjoy…. 

“Prairie State Energy Campus Review: Finding the Bottom of a Mine-Mouth Coal Plant”

Impact of PSEC’s Revised EPC Contract Will Not Be Uniform

The owners of Prairie State Energy Campus (PSEC) have issued nearly $5 billion of debt to finance the construction of a mine-mouth, super critical coal-fired power plant. The contract revision and amendment announced on July 22, 2010 increased the price of the engineering, procurement, and construction (EPC) contract, but also limited the impact of further cost increases and delays. Fitch rates six of the eight owners of PSEC, which will compose a significant portion of each owner’s future resource mix. Therefore, project delays, cost increases, and operational performance of the PSEC have the potential to impact each owner’s credit profile and rating. The credit impact will not be uniform across the owner systems, but will depend on each member’s share of PSEC as a percentage of its resource mix, as well as its ability to absorb or pass through cost increases. Full Report…

Fitch Ratings issues warning to Prairie State investors!

On October 10, 2010, Fitch Ratings issued the following very strong warning. If there is more mismanagement and more cost overruns on the already grossly mismanaged and severely cost overrun Prairie State coal-fired plant, the credit ratings of MJMEUC and the other six muni consortium investors rated by Fitch Ratings* may be damaged. If one rating company, such as Fitch, begins dropping ratings the other two rating agencies, Moody’s and S&P will not be far behind.

If MJMEUC's 'A-' is dropped to a ‘B’ rating that means they’re a “junk” bond, their interest rates will go up and current bond holders could dump their bonds on the secondary market. As Grotzinger reported to the MoPEP committee in 2008, this could cost MoPEP another $30 Million a year in additional interest costs! That’s probably an underestimate because in 2008 their investment debt was only at about $1.3 billion. Now it’s over $2 Billion.

MJMEUC/MoPEP is a “joint venture” so any financial collapse will fall on all 60 MJMEUC members and all 35 MoPEP members. None of the MJMEUC/MoPEP communities sitting under this hanging sword are aware of any of this.

It’s important to bear in mind when reading credit reports such as this that the entity being rated paid the rating company for the rating and most of the information used for the rating came from the entity being rated. That often explains a “strong credit profile.”

(emphasis below by ed.)

Fitch: Credit Impact of Prairie State Energy Campus' Revised EPC Contract Will Not be Uniform

Posted on : 2010-10-04

NEW YORK - (Business Wire) According to a new report issued by Fitch Ratings, the credit impact of the Prairie State Energy Campus' (PSEC) revised engineering, procurement, and construction (EPC) contract will not be uniform for all PSEC owners. The July 22, 2010 contract revision has increased the price of the EPC contract but also limited the impact of further cost increases and delays. 

PSEC, a 1,600 MW coal-fired generating station located in Washington County, IL, is owned by eight public power agencies, six of which are rated by Fitch. While Fitch believes that the ratings of the owners are currently stable, further project delays, cost increases, and the initial operational performance of the PSEC have the potential to impact each owner’s credit rating.
"While all PSEC owners have manageable debt and strong credit profiles, it's important to note that the credit impact and pressures as a result of the increased cost of PSEC will be different for each owner," said W. Drake Richey, Associate Director at Fitch. "The impact will depend on each owner's dependence on the Prairie State units and the credit quality of underlying retail participants." 

All Fitch-rated PSEC owners remain in the 'A' rating category, which indicates a high credit quality and low default risk stemming from the strong contractual obligations requiring owners to make debt service payments regardless of the project’s operation together with adequate revenue capacity derived from each system’s full rate-setting authority. 


Over the last 10 years, each PSEC owner has been transitioning from purchasing the majority of its power to owning resources such as the PSEC. Fitch judges a utility's resource mix based on individual unit concentration as well as its fuel exposure compared with the regional makeup. The systems that receive greater than 50% of their power from a single resource are exposed to single-unit risk. In the event that the project's costs are higher than expected, the credit rating of the utility could be impacted. In the case of participants in PSEC, Paducah Power System and the participants in Northern Illinois Municipal Power Agency (NIMPA) are exposed to this risk. Paducah, in particular, which is transitioning away from purchasing power from Tennessee Valley Authority, will have excess energy and capacity when PSEC comes on line. 

Regarding the fuel mix of owner systems, most of them will not be out of line with their respective regions, which are coal based. The exception is Illinois Municipal Electric Agency (IMEA) since the state has the highest nuclear generating capacity of any state in the nation.
Fitch's special report 'Prairie State Energy Campus Review' includes detailed credit summaries of each Fitch-rated PSEC owner in addition to in-depth analysis of key issues affecting PSEC. The report is available at 'www.fitchratings.com'. 

Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Prairie State Energy Campus Review: Finding the Bottom of a Mine-Mouth Coal Plant 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=561248
 
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. 

Fitch Ratings
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com
or
W. Drake Richey, +1-212-908-0325

(* Fitch rated-not rated PS Investors: American Municipal Power (AMP), Illinois Municipal Electric Agency (IMEA), Indiana Municipal Power Agency (IMPA), Missouri Joint Municipal Electric Utility Commission (MJMEUC), Illinois Municipal Electric Agency (IMEA), Indiana Municipal Power Agency (IMPA), Lively Grove Energy (sub. Of Peabody Energy NR)

The Silence of the MoPEP Lambs

Dave Marner, editor of the Gasconade County Republican, is the only reporter in the state who has covered the out-of-sight, out-of-mind" MoPEP meetings held in Columbia, Missouri at the MPUA office. Thanks to Marner we have a blow-by-blow account of the meeting held during the MPUA Annual Conference where, without one protest or one question by the MoEPEers, they obediently voted to add another $140,000,000 to the existing Billions in revenue bond liabilities to cover the latest cost overruns on Prairie State and two other MJMEUC projects. 
 

MoPEP approves $100 million in bonds for Prairie State project

Wednesday, 06 October 2010 08:47 Dave Marner

HERMANN ALDERMAN Brian Chorley (left) looks on as Vernon Kincheloe explains progress on the Prairie State Energy Campus construction project MoPEP cities are helping fund. The project’s costs have risen from $2.9 billion to $4.2 billion. MoPEP members voted Friday to issue $100 million in construction bonds to finance the group’s portion of the cost overruns on for the coal-fired power plant.
LAKE OZARK, Mo., — Without asking a single question, MoPEP member cities voted unanimously by voice vote on Friday to issue an additional $100 million in construction revenue bonds to cover cost overruns on the Prairie State Energy Campus in southern Illinois.

John Tracy, city administrator for Owensville, did not cast a vote. Previously during votes to issue debt on the Prairie State, or the Iatan II project near Kansas City, Tracy has voted against such proposals. He said afterward that recent negotiations have shown MoPEP and MJMEUC officials seem willing to work with Owensville in the city’s efforts to exit the pool.

“I didn’t want to vote yes,” said Tracy about Resolution 07-2010 for the Prairie State project approved during the Missouri Public Utility Alliance’s annual conference held at Tan-Tar-A. “As a gesture of Owensville’s good faith, I didn’t want to vote no. As a gesture of good faith, I didn’t want to say anything.”

Bonds approved Friday go toward the estimated cost overruns listed by the daily newspaper of public finance, The Bond Buyer, at $1.3 billion. The original project was projected to cost $2.9 billion. Revised estimates on construction costs show the project at $4.2 billion. Duncan Kincheloe, general manager of the Missouri Public Utility Alliance, noted in his report to  Missouri Public Energy Pool cities that a negotiated  cap on construction costs had been reached.

The bonds approved Oct. 1 brings the total issuance of MoPEP and MJMEUC participation in the Prairie State project up to the $850 million figured originally authorized  back in 2007. Kincheloe’s report noted “This resolution would authorize final financing for the updated costs, and includes an increase of $7 million dollars over and above the $850 million authorization approved in 2007.”

Owensville’s portion of the long-term debt on the $100 million issue, calculated at the 1.23 percent rate of electrical power dedicated to Owensville’s future needs, is $1.23 million. On the entire $850,000 issuance by MoPEP for the project, Owensville’s portion is $10,541,100, according to Tracy’s calculations.
Owensville is seeking a replacement in MoPEP and such a replacement would take over the city’s assignment of power and financial commitment to MoPEP projects.

Tracy said recent discussions with MoPEP and MJMEUC (Missouri Joint Municipal Electric Utility Commission) members indicate a willingness to work with the city to accommodate an exit.

MoPEP cities have voted to “invite” any of the Sho-Me Electric Cooperative cities to join the pool through a request for proposal (RFP) due Oct. 1.  The pool, Kincheloe noted in his report, “is further pointing to a potential special opportunity to benefit from Owensville’s interest in assigning its MoPEP status.”

At a Sept. 21 committee meeting in Columbia of MoPEP cities, a motion was approved including a provision in the RFP to “credit any approved Owensville assignee approximately $60,000 in recognition of Owensville’s approximate” (6MW) peak electric use. Basically, the group granted Owensville a credit for paying into a reserve fund for the pool which generated $12.5 million from last fall to early this summer.
MPUA STAFFER Mike Loethen explains a resolution Friday authorizing the Missouri Joint Municipal Electric Utility Commission to issue $100 million in revenue bonds for the Prairie State Energy Campus project. Based on new projections, Loethen said they may only need to actually between $78 million to $80 million in bonds to complete MJMEUC’s portion of the project. Cost overruns have driven the projected $2.9 billion project up to an estimated and recently capped completion total of $4.2 billion, according to The Bond Buyer newspaper which tracks financing projects. The bonds mature no later than 2042 and “shall bear interests at various rates not to exceed 10 percent” annually, according to the resolution approved by voice vote.
Minutes from the meeting also indicate a statement was made by Jim Roach, of Jackson, Mo., that “Owensville should have priority for any member transfer.” His motion was to include the credit provision into the RFP response to any Sho-Me cities expressing interest in joining MoPEP.

Tracy noted the city “did get a little commercial into the RFP” regarding their contribution to fund balances as a credit to a potential incoming member taking the city’s assignment. “It can’t hurt.”

City aldermen on Monday expressed frustration at what they perceive as another delaying tactic by Kincheloe. Tracy, however, noted the other cities appear to understand Owensville’s need to exit the pool and seem willing to help make it happen. “If they want to get along, we’ll go along until they prove different,” Tracy told The Republican this week.

Resolutions were also approved on vice vote issuing $20 million in construction bonds for the group’s portion of costs to help complete the Iatan II power plant near Kansas City. The measure funds a previous vote which allowed MJMEUC official to obtain a $20 million line of credit to cover construction costs. Another authorized the issuance of $20 million in revenue bonds for a MJMEUC combustion turbine project at Fredericktown, Mo.
Tracy did not cast a vote for, or against, either resolution.

Dumb, Dumber and Alderman Penning

I’ve often said that MJMEUC’s MoPEP and UPPA contracts are I.Q. tests for city elected officials…when they sign; they flunk, but perhaps even that was too kind. This is a true story about Hermann, Missouri, another MoPEP town, and their city council discussion of the class-action lawsuit against them for allegedly skimming their inflated utility prices which could cost them as much as $5,255,000 in rebates alone.  The city of course denies that they ever deliberately inflated utility rates so they could skim off the excess revenues for non utility uses even though this ‘accident’ happened with uncanny regularity month after month, year after year, decade after decade.

On September 27, 2010, the Hermann City Council was listening to a report from City Attorney Politte on the progress of the lawsuit which had just been transferred to the Missouri Supreme Court. It’s a total mystery why Mayor Miskel allowed them to discuss this in open session as “new business” when a report on the status of active ongoing litigation not only isn’t “new” business it’s one of the few topics that they can legitimately discuss in closed session.   Oh well….

Nevertheless, the discussion was held in open session where CountyNewsLIVE.com publisher Jeff Noedel could capture this priceless record of the meeting where the collective pants of Hermann’s city government were pulled down around their ankles. In just seconds and in one very long run-on sentence, City Alderman Penning dropped the city’s legal defense into the toilet. It was possibly the most painful, if not the most expensive bombing run on a city since World War II.

This makes Alderman Penning a candidate for the 2010 MoPEP Darwin Awards, not because he blurted out the awful truth in front of witnesses and killed their key legal defense, but because Penning really believes that a local vote in Hermann can supersede a statewide voter referendum to amend the state constitution.

Read the short transcript below and after you quit laughing – or, if you live in Hermann, after you quit crying - see if you don’t agree that there is dumb, dumber and then there is Alderman Penning. 

PERILOUS "ARBOR LAWSUIT" DISCUSSED IN CITY MEETING MONDAY NIGHT: City lawyers consider case's transfer to Supreme Court "positive development" -- Ald. Penning says electric department was set-up in 1950s "to make money to run the city"

CountyNewsLIVE.com Mon, 09/27/2010 - 11:20pm — J. Noedel-Publisher

Monday night was the first Board of Aldermen meeting since the "Arbor lawsuit" against the city was transferred to the Missouri Supreme Court.  Hermann Mayor Larry Miskel asked City Attorney Dave Politte to offer a report.

Here is a transcript of what was said by Politte and by Hermann Aldermen Dan Wilson and John Penning:
(23:23)  MAYOR LARRY MISKEL:  Next on the agenda under new business is the status of the of the Arbor-Hancock lawsuit...the Arbor lawsuit. (inaudible)  You're up.

CITY ATTORNEY DAVE POLITTE:  Just...It won't take long.  I just want to report that the Supreme Court of Missouri has accepted transfer and will consider arguments in this case.
As you recall, our local circuit court ruled in the city's favor, without even the need for a trial, saying the city wins.
The plaintiffs took the case to the Court of Appeals of the Eastern District.  And, as you recall from Mr. Heinz's discussion, there were five factors for the Court to consider when try to determine whether our electric fees are a tax or not.  And if they decide that they are not, then that's in favor of the city.
Well a local circuit court decided in favor of the city on four-and-a-half of the five.  The Court of Appeals said, 'No, we want the circuit court judge to look at it again, because we think that three of the five are inconclusive.'  They didn't rule in favor of the other side; they just said they needed more information.
But now that the Supreme Court has going to look at it... And we, the attorneys, view that as a good thing, because they may just decide to overrule the Court of Appeals.  And in that event...

ALDERMAN DAN WILSON:  Can you speak-up just a little bit please?

POLITTE:  The Supreme Court is going to take the case, and we think that is a good thing because they may decide to overrule the Court of Appeals and to uphold the local circuit judge's decision.  In which case, the case is over.  Without the need to come back to the local circuit court and have a trial and go through the expense and hassle of all that, with the possibility of having to go back up the ladder again to the Court of Appeals and the Supreme Court. So...it's, I think, a positive development.

(25:30)  WILSON:  Is it alright to discuss that there were others that are interested in this case that were not previously?  Could you go into that briefly, if it doesn't...?

POLITTE:  Well, officially, the Missouri Municipal League and the Missouri Public Utility Alliance have filed what they call amicus briefs with the court, supporting the position of the city of Hermann.  What an amicus brief is it's something that the courts allow to be filed by parties who aren't a party to the case but who have a real interest, or a real... (26:00) something at stake in the outcome, and I think those two organizations both...

WILSON:  That part is clear.  What status are these two groups....are they recognized in the state as having any kind of standing in any way?  You know, I mean, what does this do?  I mean, I'm not trying to tie you into legal...  What I'm trying to find out is... I know what the M.M.L. is, but maybe other people do not.  And...

POLITTE:  Well, the Missouri Municipal League is an association of Missouri cities or municipalities who associate in order to look out for the interests of the cities and municipalities.  And they have a lobbying arm.  They'll have individuals that go to Jeff. City trying to lobby on behalf of cities.
(27:00)  A lot of what they do, though, is education and support. They host the seminars for the city officials to go to and learn how to become aldermen and mayor.  And they hold city attorney seminars.  And they provide newsletters to city clerks and mayors and attorneys on updates on the law and so forth.  They're basically an organization formed by cities to advocate for cities.

WILSON:  And the other group?

POLITTE:  It is the same thing with respect to utilities, and municipally-owned utilities.  The Missouri Public Utility Alliance is the umbrella under which you have MDGMCK and MOPEP and the Gas Commission and the various...

WILSON:  So this means we've acquired quite a few friends in this case.

POLITTE:  We have.  And we've also made some good friends... If you want to say 'Misery loves company,' but... (27:53)  The City of Marceline has been sued by the same plaintiff's law firm under the same theory.  And the City of Salem has been sued by the same plaintiff's lawyer under the same theory.
Rumor has it that there are other cities out there that have a target on them.  But those are the only two that I know of so far.

WILSON:  What was the original date of the filing of this case...when this case started?

POLITTE:  It was on or about January first of 2008.

WILSON:  2008.  Thank you.

(28:20) ALDERMAN JOHN PENNING:  I still have a question that I have... There was a magazine that came out this week that was in our file.  Did you read the last page of it?  That covered this lawsuit?  The City of Hermann and Arbor?  Written by a lawyer in St. Louis. I don't know if he represented them or not.
What I don't understand... The Hancock Amendment was passed in 1980.  We had an election in the 50s in this town to go into the electrical business to make money to run the city.  It's never been rescinded.  And that would sure supersede the Hancock Amendment.

And that point has never been argued.

And that was a vote of the citizens of Hermann.  And I was asked if I can document that, and I said, 'Absolutely.'  Because I voted in that election.

And that was, to me, superseded any Hancock Amendment that may come up.  Because it was done specifically to make money to run the city.  And that's what the people voted in.
(pause)

MISKEL:  I believe our attorneys are well aware of that.


PENNING:  But that was never brought up, and it should have been.  It's never been changed.
(end of article)

Mo. Supreme Court to hear Hermann utilities rate case

Gasconade County Republican, Wednesday, 22 September 2010 08:30 Dave Marner 

Missouri’s Supreme Court will hear a Hermann-based lawsuit seeking relief from the city of Hermann for alleged violations of the Hancock Amendment, specifically overcharging its residents on utility fees.
Minutes from the Supreme Court’s session on Tuesday, released at 1 p.m. Sept. 21, noted the appellants’ Aug. 3 “application for transfer from the Court of Appeals, No. ED92933, (is) sustained and cause ordered transferred,” according to the court’s web site.

Jeffrey T. McPherson, an attorney for the  firm Armstrong Teasdale, LLP, in St. Louis, which represents Arbor Investment Company, LLC., CFV Plastics, LLC, and citizens Buzz Manley and Donna Austin as the plaintiffs/appellants, said Tuesday afternoon he had not received a written order from the court but confirmed he saw the notice on the court’s web site. “That’s what I heard,” said McPherson. “That’s what the notation on the (court’s) web site says. I believe its been granted.”

He said the application for transfer to the state’s Supreme Court was filed “in the general interest for the people of the state.”

The application for transfer notes the cities of Salem and Marceline, like Hermann, “have padded their general revenue by unconstitutionally increasing utility charges without a vote of the people” and cites state audit reports of those Missouri communities as a footnote. Hermann’s audit, according to the Appellate Court’s ruling of June 22, shows the gross receipts fees paid from electric, water, sewer, and natural gas utilities to the general revenue fund accounts for 35 percent of total general revenue.”

What remained unclear to the Appellate Court, however, was if this was done by design to raise general revenue funds or simply the way it worked out. The court was unable to determine if that issue favored the city or the appellants/plaintiffs.

The Court of Appeals found two factors in the city’s favor and three others which involved “genuine disputes of material fact.” It ruled the trial court “erred in entering summary judgement in favor of the city” since there were disputed facts concerning utility rates as they pertained to the Hancock Amendment approved by voters in November 1980.

“We’re asking the judgement of the Circuit Court be reversed,” said McPherson, “It’s an issue of general interest (statewide) that the court should rule on.”

In the Appellate Court’s ruling, Presiding Judge Robert G. Dowd, Jr., wrote for the 3-judge panel: “If it is shown on remand that the object of the fees is to fund the city’s general revenue, then this constitutes a violation of the Hancock Amendment and deserves an appropriate remedy under the Hancock Amendment.”

“That’s what was asked of the Supreme Court,” said McPherson. “To rule on the Hancock Amendment as it’s applied to all these political subdivisions.”
McPherson said they seek the Supreme Court’s ruling to “uphold the Appellant’s reversal and enter a judgement for the plaintiffs.” The Whole Story....

The not-so-final deal to cover Prairie State cost overruns

The September 15, 2010, Bond Buyer headline confidently declared “Final Prairie State Deal Looms” announcing that the nine municipal consortium owners – MJMEUC among them – will have to pony up another BILLION dollars to cover the cost overruns on this ill-fated coal-fired power plant. Calling this the “final deal” was just way too optimistic.

Don’t confuse this article about the additional debt necessary to cover the colossal cost overruns on the Prairie State plant which was exposed by the Chicago Tribune in July, with the Kansas City Star’s expose on September 8th, of the colossal cost overruns that will have to be covered on the Iatan 2 power plant, another of MJMEUC’s ill-advised high-risk investments.

These belated reports on the true costs of both Prairie State and Iatan 2 plants, and the accelerating cost of the megawatts both plants will eventually generate, should make for interesting discussion at the next MoPEP meeting when CEO Kincheloe and CFO Loethen try to explain to their members that finding their share of the Prairie State BILLION dollar cost overrun to add to the billions in debt they already have and doubling the cost of the power it produces is....no big deal?

MJMEUC owns 12.3% of PS and has already invested over $600 M in the project. Because they are owners the joint venture MJMEUC/MoPEP members will have to throw in about another $60 million to cover their share of the cost overruns at this stage of construction which is still less than 50% complete. There is no telling how astronomical the cost per megawatt will finally be when the last 50% of the plant is finished because from here on it’s all cost overruns!

At the next MoPEP meeting CEO Duncan Kincheloe will stumble through some admin-babble explanation to the utility managers, mayors and city administrators who are used to having smoke blown up their noses and have unquestioningly swallowed all the sunshine construction reports they have been getting for years from CEO Duncan Kincheloe and his Project Manager Vern Kincheloe. Will any of these gullible MoPEP members wonder if their MJMEUC/MoPEP investment in PS, which was supposed to produce $35 MW power, is still cost effective at $64.40 per MW?

How high does the price have to go before they realize they’ve been had - $75, $85, $100 per MW? Which of MJMEUC's other power investment gambles will be the next to report billions in cost overruns that the Kincheloe Family construction reports haven’t mentioned?

Finally someone - an IMPA official in this article - admitted what anyone with a grain of common sense (that automatically excludes everyone who voted for a MoPEP contract) knew, “For all participating agencies, the increased costs will ultimately mean higher electric rates for municipalities and other customers that buy their power from the agencies.”

The article quoted MJMEUC CFO Mike Loethen as saying MJMEUC/MoPEP plans to issue additional debt to cover its increased costs, although those numbers have not yet been finalized. “The immediate need for funds is not there yet, but we may enter the market before the end of the year to take advantage of the BAB program,” Loethen said.

The “immediate need is not there yet?” Which “immediate need” is Loethen talking about? The “immediate need” to borrow more millions to cover Prairie State cost overruns, the “immediate need” to borrow more millions to cover the Iatan 2 cost overruns or the “immediate need” to cover the cost overruns for the remainder of both the Prairie State and Iatan 2 construction?

Even leveraging the usual first lien on the utility revenues of their newest member, the City of Lebanon, and cashing the check for Lebanon's join-up fee of $550,000 won’t begin to cover the ante-up on these plants and even if it did there are all those lawsuits. There is the one by Kennett and Poplar Bluff against MJMEUC because Duncan allegedly stole their Plum Point transmission rights and gave them away to other members - that one may cost MJMEUC millions. Then there are the class action Hancock lawsuits against Hermann, Marceline and Salem that MJMEUC/MoPEP members haven’t been told about. If successful those will permanently cripple MJMEUC’s ability to squeeze unlimited rate increases out of their obtuse MoPEP captives. The bond rating agencies aren’t going to like that one at all.

MJMEUC's upside down pyramid of debt that teeters precariously on top of 35 little rural Missouri towns just gets bigger….and bigger….and bigger….

The Bond Buyer – Final Prairie State Deal Looms
Agencies Gear Up For Coal Plant Sale

By Caitlin Devitt and Yvette Shields Wednesday, September 15, 2010

CHICAGO — Public power agencies in Indiana and Ohio plan to return to the market this month with their final borrowings for the Prairie State coal-fired plant project that has risen in cost by more than $1 billion to $4.4 billion.

The nine power agencies that own a stake in the Prairie State Energy Campus will need to come up with more than $1 billion to cover rising construction costs associated with the project, one of the only new coal plants being built in the U.S. more…