Fitch Ratings has placed its A+ long-term rating for the Connecticut Municipal Electric Energy Cooperative on a “Rating Watch Negative” outlook in light of the federal indictments of five current and former cooperative officials and the distractions the controversy has placed on staff.

The watch also applies to CMEEC’s sister agency, Connecticut Transmission Municipal Electric Energy Cooperative, called TRANSCO, which transmits electrical power. CMEEC is owned by six member municipal utilities in Connecticut, including Norwich Public Utilities, Groton Utilities, Bozrah Light & Power, Jewett City Department of Public Utilities and two utilities in Norwich, and provides wholesale electricity to them and other contracted customers. The cooperative has an estimated 74,000 electric customers.

Five CMEEC officials were charged in federal indictments Nov. 8 with federal corruption charges, including CEO Drew Rankin, Chief Financial Officer Edward Pryor, Norwich Public Utilities General Manager John Bilda and former CMEEC board members James Sullivan of Norwich and Edward DeMuzzio of Groton.

In a press release issued Tuesday, Fitch officials said the Negative Watch reflects “credit concerns and uncertainty regarding excessive utility spending and potential outcomes as highlighted by and related to the federal indictments.”

The federal charges for conspiracy and alleged theft from a program that received federal funding stemmed from CMEEC’s hosting of lavish trips to the Kentucky Derby for top staff, board members, their families and invited guests for four years from 2013 to 2016, and to a West Virginia golf resort.

Rankin and Pryor were placed on unpaid leave. The Norwich utilities commission placed Bilda on paid leave, and the CMEEC board of directors removed him from the cooperative board in the wake of the indictments.

“Fitch's near-term credit concerns relate to the burden on existing staff resources and possible management or board distraction while the investigation proceeds,” the Fitch press release stated. “Resolution of the Rating Watch is anticipated when the outcomes of CMEEC's internal investigation are known.”

Fitch noted that CMEEC has launched an internal investigation into the charges and its own policies and internal controls. The board committee established to do the investigation will meet for the first time at 1 p.m. Friday at the CMEEC office at 30 Stott Ave., Norwich.

“Fitch's Rating Watch does not presume the outcome of the federal indictments,” the Fitch press release stated.

Fitch officials wrote that the “sudden absence” of the CEO and departure of the chief financial officer — Pryor announced he will retire effective Jan. 1 — is likely to place time and workload burdens on remaining staff, “particularly in light of additional work needed to support the internal investigation.”

CMEEC Interim CEO Michael Lane, also designated as the cooperative’s chief financial officer starting in January, issued a statement Tuesday in response to the Fitch announcement.

“We have a very strong and capable management team in place,” Lane said in an email. “A Special Committee of the Board, consisting of five individuals who do not have management responsibilities, is overseeing the investigation and will review the findings, make recommendations and address any related developments.”

Lane continued, stating that CMEEC is “fully operational and continues to provide all of our customers with reliable service at exceedingly affordable rates.” He said the cooperative has projected CMEEC’s value to its members and customers at $175 million from 2013 through 2018.

“We are confident in the value we provide to our members, customers and the communities they serve,” Lane wrote.

Bill Kowalski, the state-appointed municipal ratepayer advocate — a position created in 2017 in response to public outcry over the Kentucky Derby trips — asked CMEEC officials at the Nov. 15 annual meeting whether any rating agencies had raised concerns over the indictments. There were none at the time.

“It will be worth watching others in the financial community for a similar response to current events,” Kowalski said Tuesday in an email. “If so, perhaps some level of additional regulatory oversight will ease any concerns — and related financial impacts — that may result.”

c.bessette@theday.com