State program’s cozy relationship to supplier raises concerns
GARDINER — Finance Director Denise Brown knows how to shop for a bargain. Budgets here are always tight, and Brown prides herself on stretching the dollars of the city’s 5,800 taxpayers as far as she can. But shopping for electricity is always a headache.
“I’m just not an electricity gal,” she says. “I don’t understand it very well. It’s not my world.”
That’s why Maine PowerOptions (MPO), an energy consortium operated by two of Maine’s 14 quasi-state agencies, seemed the perfect way to make Brown’s job easier. By bringing together the buying power of towns, schools, community colleges, sewer and water districts, MPO could drive a harder bargain and save municipalities like Gardiner money.
But both a confidential state probe three years ago and a subsequent independent investigation by the Maine Center for Public Interest Reporting raise questions about whether MPO is living up to that promise.
Among the Center’s findings:
- MPO selects an exclusive electricity supplier for its members through a process it touts as “detailed and well-thought out.” Yet over the 16-year life of the program, a single supplier — Constellation New Energy and its corporate predecessors — has won every bid for the group’s electricity contract. MPO staff provided little documentation to justify the winning streak, citing a lack of recordkeeping and exemptions to the state’s Freedom of Access Act.
- The program sells itself as an unbiased, non-profit partner and an “advocate” for members in negotiations with suppliers. Yet MPO’s electricity supplier, Constellation New Energy, pays the program a monthly fee to support the expenses of MPO and its staff, creating the appearance of a conflict of interest, according to some industry experts who reviewed the terms of the arrangement.
- MPO’s 2008 agreement with the Maryland-based supplier — kept confidential but obtained by the Center — reveals that MPO staff have been prohibited from recommending any other supplier to members, regardless of potential cost-savings, calling into question whether MPO is consistently working in its members’ best interests.
MPO declined to provide the Center with a copy of its current agreement with Constellation.
Constellation New Energy deferred questions about the program to MPO staff, but in a statement said: “The program gives members the option to shop for electricity supply and energy services from an endorsed supplier that has been selected through a competitive RFP process.” (RFP stands for “Request for Proposals.”)
In a statement in December, Michael Goodwin, the executive director of the Maine Municipal Bond Bank and the Maine Health and Higher Educational Facilities Authority, which oversee MPO, defended the program and its mission by emphasizing that it is entirely voluntary. “MPO provides a voluntary option for our members to utilize when analyzing who provides their power. We do not make those decisions for them,” he said.
Maine lawmakers set the stage for MPO in 1999, when the state was preparing to deregulate its electricity supply. That meant all the state’s consumers, from individual homeowners and businesses to towns and school districts, would be forced to shop for the best deal, rather than have it negotiated for them by state regulators.
In response, MPO devoted itself to smoothing the transition: Sign up as many members as possible, pool their electricity demands, and then open up the contract to bids from national electricity suppliers.
The idea of supplying electricity to hundreds of MPO members — a tantalizing slice of the Maine market worth tens of millions of dollars annually — enticed bids from the country’s electricity powerhouses, including Direct Energy, World Energy, Select Energy, Gexa Energy and Constellation New Energy — exactly as legislators had anticipated.
Yet 16 years later, both a state Office of Policy and Management review and an independent Center investigation noted that a single company — Constellation New Energy and its corporate predecessors — had won every bid for the group’s electricity supply.
Constellation, a subsidiary of energy behemoth Chicago-based Exelon, is known not only as one of the country’s largest energy suppliers, but also for receiving in 2012 the largest fine ever imposed by the Federal Energy Regulatory Commission — $245 million — for market manipulation.
In its 2013 review, the Office of Policy and Management did not find evidence of corruption or wrongdoing regarding MPO’s agreement with Constellation. But the office’s findings, documented in a draft white paper kept confidential under a legal exception to Maine’s Freedom of Access Act but obtained by the Center, were unequivocal: The program lacked transparency and couldn’t be trusted. It should be overhauled or terminated.
Patrick Woodcock, former director of the Governor’s Energy Office, who reviewed the report and expressed his concerns to MPO staff shortly after it was completed, agrees that transparency would help alleviate concerns about the program.
“Think about it the same way as the state procures bridges, oil or buildings,” Woodcock said. “You’ve got to be transparent. The idea that you would get the same supplier for the last 13 years, and that the supplier is paying to run the program…certainly creates the appearance that a special deal has been arranged.”
“It’s very surprising in such a competitive market.”
A MURKY RELATIONSHIP
The Center’s independent investigation found that the arrangement between MPO and Constellation — estimated to have directed as much as $500 million to the company and its corporate predecessors over 16 years — is murky. In part, this is because MPO has repeatedly refused to make public the program agreement negotiated every three years on behalf of its members, citing exceptions to Maine’s open records law.
But a signed confidential agreement between Constellation and MPO that spanned 2008 to 2011 and obtained by the Center sheds some light on the pair’s relationship.
According to the 14-page agreement, Constellation pays MPO a monthly fee to support its expenses, a fact the company discloses on the contract each member signs directly with Constellation. In 2008, the energy giant paid MPO a quarterly fee of $35,000, or $140,000 per year, according to the agreement obtained by the Center. Goodwin said that total had increased to $19,000 per month by 2013, or $228,000 per year.
It is unclear how Constellation and MPO arrived at the sum, how it was spent, or whether or not it increased in the current contract because there are no publicly available documents describing the selection or negotiation process.
When the Center requested MPO’s budget to better understand how Constellation’s payments were spent by the consortium, program staff responded with a one-page sheet listing only total revenues and expenses by year, and indicating the group had lost money for the majority of its years in operation.
Goodwin defended the arrangement, saying that the flat fee from Constellation shifts the onus of paying for the program from members to the supplier. Members who do not like the terms, pricing or anything else about the program are free to look elsewhere, he said.
AN ADVOCATE, BUT FOR WHOM?
One aspect of the agreement, however, is crystal-clear: Constellation’s payments buy it exclusivity, a clause that appears to do more to protect the electricity giant than the largely taxpayer-funded members of MPO.
In its marketing materials, MPO has long sold itself as an “advocate for members” and an “unbiased” non-profit partner. Goodwin, in an interview in August, summarized MPO’s mission: “We work for our members, we don’t work for the suppliers.”
But as part of the arrangement with Constellation, MPO agreed not to “promote or in any way endorse to Members the electricity supply of any person or entity other than Supplier.”
The contract also suggests that MPO has little clout when it comes to assuring the favorable terms and conditions that some members value.
“Supplier shall have the sole right to determine the final terms and conditions of any Electricity Supply Agreement, or to reject entering into an Electricity Supply Agreement with any of the Members, and Supplier will have no liability arising out of or relating to exercising a decision not to transact with a Member,” the agreement states.
Despite such restrictions, some MPO members believe the arrangement with Constellation should be judged on the fine print of the contract.
Ralph St. Pierre, the assistant city manager for Augusta who has served on MPO’s advisory council since its inception, touted the “parental guarantee” negotiated by the consortium, which he said assures members of a supply of electricity at the promised prices even if Constellation were to go out of business.
“At the end of the day, they’re really not that much different on pricing. It’s terms and conditions that you’re getting, not pricing,” said St. Pierre.
Members from smaller municipalities interviewed by the Center were less versed in the benefits but said they trusted in MPO’s clout and experience. Others touted the educational forums sponsored by MPO and alerts sent out by the organization, warning members of price spikes during high-use periods.
Gordon Murray, the buildings and grounds director for Regional School Unit 2, in Hallowell, said the school district relies on MPO and trusts in its service. “I can’t say there’s been huge savings, but I know they do a competitive bidding process. It’s been good for us so far,” he said.
But others, like Denise Brown, Gardiner’s finance manager, will be looking more closely at the fine print of her agreements with Constellation and MPO than she has in the past. Reviewing the city’s most recent electricity bill from Constellation, with terms and pricing negotiated by MPO, she said she can’t help but wonder: Could MPO be driving a harder bargain?
“I’ve always understood them to be a non-profit that did the legwork for municipalities to find the best deal. But how would I know if their process was fair, or if they’ve just been renewing with the same company over and over again?” she said. “Those are questions I’d like to have answers to.”
Dave Sherwood is a staff reporter for the Maine Center for Public Interest Reporting, a nonpartisan, non-profit investigative news service based in Augusta. Email: email@example.com. Web: www.pinetreewatch.org.