CMEEC economic development fund questioned by forensic auditor

Two of the six municipal utility members of the Connecticut Municipal Electric Energy Cooperative have chosen to assess their electric customers a 50-cent per megawatt hour charge to generate money for economic development, but those funds remain at CMEEC until requested by the utility.

Currently, only Norwich Public Utilities and South Norwalk Electric and Water participate in CMEEC’s economic development fund, while Groton Utilities stopped participating in 2004. Through Nov. 30, NPU had $248,763 in its economic development fund, while South Norwalk had more than $1.4 million. Groton Utilities still has a small balance of $4,711 remaining in the fund.

A state-mandated five-year forensic audit of CMEEC’s finances done by the firm CohnReznick and released last week included a finding that the firm was unable to determine whether the funds are used for economic development. The audit also noted that some recipients of the economic development funds appear to have relationships with members of the CMEEC board of directors.

“We recommend that CMEEC remits economic development funds directly to the Participating Members on a monthly basis,” CohnReznick wrote. “This will eliminate CMEEC’s custodial responsibilities over these funds.”

In its response to the audit firm, CMEEC management acknowledged that it could not verify how the money was spent but said that would not be the cooperative’s responsibility. CMEEC created the economic development fund by resolution, collects the surcharge, invests the funds to generate interest income and maintains the account balances “only as a service to its Members,” the written audit response stated.

“To automatically remit funds on a monthly basis would decrease the yield to members,” CMEEC management wrote. “Instead, CMEEC will adopt a procedure to remit funds to the Member that requests it, not directly to the end-use recipient.”

The forensic audit was ordered by the state in 2017 in response to public outcry to CMEEC having hosted lavish trips to the Kentucky Derby for four years from 2013 through 2016 for top staff, board members, their families and dozens of invited guests. The trips cost well over $1 million. On Nov. 8, five CMEEC officials, CEO Drew Rankin, Chief Financial Officer Edward Pryor, NPU General Manager John Bilda and former CMEEC board members James Sullivan of Norwich and Edward DeMuzzio of Groton were indicted on federal corruption charges. The five face one count each of conspiracy and three counts of theft from a program receiving federal funding.

Rankin and Sullivan also face the same four charges in a second indictment for Sullivan’s alleged receipt of nearly $100,000 from CMEEC for personal expenses and travel.

NPU spokesman Chris Riley said Friday the 50-cent per megawatt economic development fee is built into the wholesale rate CMEEC charges NPU for electricity. NPU withdraws $150,000 per year from its CMEEC economic development fund for its annual contribution to the Norwich Community Development Corp., the city’s economic development agency, for its operating budget.

Acting NPU General Manager Chris LaRose was appointed as a voting member to the NCDC board of directors and to the CMEEC board of directors in December – likely one of the “party relationships” referred to in the forensic audit. Bilda, who is on paid administrative leave pending an investigation by Norwich utilities commissioners into the federal indictments, previously represented NPU on the NCDC board and served on the CMEEC board. Norwich Board of Public Utilities Commissioners Robert Staley also serves on the NCDC board.

“While Chris is new to both the NCDC and CMEEC boards, at this time, we intend to maintain the practice of using these funds to support NCDC,” Riley said in an email response to questions about the economic development fund. “By supporting NCDC, we benefit from increased electric load (and often natural gas, water and wastewater services) from economic development, which impacts NPU's overall revenues.”

South Norwalk Electric and Water General Manager Paul Yatcko said SNEW has not withdrawn any of its CMEEC economic development money since he started in his position in 2015. The utility's service territory is small, with little land available for development.

He said the utility is aware of its economic development funds at CMEEC and is considering using some of the money for a proposed development project.

Groton City Mayor Keith Hedrick, also chairman of the Groton utilities commission, said Groton ceased participating in the CMEEC economic development fund in 2004 and has no plans to reinstate its participation. Groton continues to earn interest on its small remaining balance, he said. He said no money has been spent from the fund in the past five years.

Groton Utilities purchased Bozrah Light & Power in 1995, but Hedrick said BL&P never participated in the CMEEC economic development fund.

GU and BL&P both do not plan to participate in the fund in the future, Hedrick said.

c.bessette@theday.com

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