Details released on CMEEC fund used to pay for Kentucky Derby trips

Revenue from a surcharge on rates paid by municipal utilities belonging to the Connecticut Municipal Electric Energy Cooperative flows into the CMEEC Margin Fund, the source of funding for controversial trips to the Kentucky Derby, newly released documents on the fund show.

Funds for the trips to the Kentucky Derby — which cost the cooperative more than $1 million over the past four years for dozens of participants — were listed as the lone expense in the Margin Fund. The cooperative allocated $400,000 in 2016 for “Delegation Related Expenses,” and $350,000 the previous year to pay for what were called strategic retreats.

All revenue other than the delegation-related expenses is funneled into member utilities' respective “rate stabilization funds” according to the agency's membership agreement, CMEEC Executive Director Drew Rankin said in an email response to questions about the Margin Fund.

On May 1, 2013, CMEEC began charging all “Rate 9” customers — which are all the utilities that buy wholesale power from CMEEC, all the member utilities and some contract customers — a surcharge of $1 per megawatt hour, called a supplier charge or usage charge. Revenue from those charges is placed in the Margin Fund.

CMEEC officials have said throughout the Kentucky Derby controversy that no member ratepayer money paid for the trips, which were funded through revenue received from private contracts for electricity sales and services.

Rankin repeated that assertion this week, saying the trip funds “were sourced from non-Member generated CMEEC Margin, which is the overwhelming source of CMEEC Margin." The Rate 9 surcharge on members “is returned to their Rate Stabilization Fund, for a net zero cost to members and their rate payers,” he said in the email response.

In response to a Freedom of Information request and complaint, The Day recently received a partially unredacted Margin Fund spreadsheet showing its categories of revenues.

Margin Fund Rate 9 revenue was budgeted at $374,877 in 2015, and $365,566 in 2016 and projected for $374,885 in 2017. CMEEC follows a calendar fiscal year. All individual entries under the Rate 9 category remained redacted. CMEEC claims the specifics of revenue into the Margin Fund are proprietary business information.

Revenues from all sources into the Margin Fund, including the Rate 9 fees, wholesale supply customers and services, were budgeted at $5.85 million in 2015 and $5.57 million in 2016, and projected at $5.64 million in 2017.

A separate sheet released by CMEEC shows actual revenue allocated to each of the six member municipal utilities in their rate stabilization funds, totaling a combined $5.2 million in 2015 and $4.2 million in 2016 — lower than the initially budgeted net Margin Fund projections.

But that money does not go back to the member municipal utilities to lower rates directly. At least some CMEEC member utilities choose to leave all or a portion of their rate stabilization revenue at CMEEC to strengthen the cooperative's finances, local utility officials said.

“We keep all (rate stabilization fund) money at CMEEC to strengthen CMEEC Financials, which in turn helps with CMEEC Credit Rating, and of course that helps rate payers by allowing lower cost,” Jewett City Department of Public Utilities Director Kenneth Sullivan said in an email response to questions about use of the rate stabilization revenue. Sullivan also is chairman of the CMEEC board of directors.

Sullivan added that the Jewett City representatives on the CMEEC board eligible for stipends from CMEEC place half their per-meeting payments — $600 per board meeting attended, $200 for telephone participation, $250 for committee meetings and $100 for telephone committee meeting participation — into the rate stabilization fund held by CMEEC.

According to a breakdown of rate stabilization revenue, the Jewett City utility, the smallest CMEEC member, received $85,010 in 2016. CMEEC did not provide a per-utility breakdown for 2015.

NPU was allocated $1,186,710 in 2016 in rate stabilization revenue, and Groton Utilities, CMEEC's largest member utility, was allocated $2,513,239 in 2016. Groton Utilities also owns Bozrah Light & Power, a new CMEEC member in 2016. BL&P was allocated $723,577 in rate stabilization money in 2016.

NPU’s rate stabilization fund at CMEEC has a balance of a little more than $7 million — about the cost of 2.5 months of wholesale electricity, NPU General Manager John Bilda said. He called that a “healthy balance,” and said NPU likes to keep at least two months' worth of wholesale electricity costs in the rate stabilization fund.

“NPU does not use the (rate stabilization fund) for rate stabilization every year and did not use any of the funds in 2016,” NPU spokesman Chris Riley said in an email response to questions about the CMEEC fund. “Keep in mind that NPU cut electric rates by 4 percent during 2016, and that 10 percent of our revenue from electric sales are returned to our customers each year.”

By Norwich city charter, NPU must turn over 10 percent of gross revenues from electric, natural gas and water revenues to the city's general fund. The money does not go directly to ratepayers.

Bilda said wholesale power costs are expected to rise this summer, and the rate stabilization fund might be used to soften that blow. The 2016-17 budget has not yet been finalized, he said.

NPU also has a purchased power adjustment charged to customers in their monthly bills. Those funds also are used locally to stabilize costs over a long period of time, NPU said.

Groton City Mayor Marian Galbraith, chairwoman of the Groton Utilities commission, said GU makes its decisions each year whether to tap into the rate stabilization fund held by CMEEC to mitigate sharply rising costs.

Two years ago, GU moved money from a separate trust fund held by CMEEC for member utilities into the rate stabilization fund when it was depleted.

“We try to keep a certain amount there,” Galbraith said.

Paul Yatcko, general manager of South Norwalk Electric & Water, said his utility uses a similar strategy as NPU in deciding whether to tap into its rate stabilization fund held by CMEEC, or even to raise local rates to boost the fund. Yatcko, former GU director, said the utility monitors the amount in the fund each year. Two years ago, SNEW raised its local purchase power adjustment to add money into its CMEEC rate stabilization fund, which totaled $337,295 in 2016.

“We look at the balance each year, at our rates, at our competitors' rates and make a judgment call,” Yatcko said.

If power costs are projected to rise sharply, Yatcko said, “you might want a bigger cushion” to stabilize the rates for local customers.

James Smith, general manager for the East Norwalk Third Taxing District, said his utility's rate stabilization fund balance at CMEEC "goes up and down" as needed to lower costs to customers. The district was allocated $222,301 in rate stabilization revenue in 2016.

Smith said allowing CMEEC to hold onto each municipal utility's rate stabilization fund serves a dual purpose: cutting management costs at the local level and strengthening CMEEC's finances for a better bond rating for debt financing, which also helps the members.

c.bessette@theday.com

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