The MOPEP contract is not a normal commodity supply contract it’s an “open-ended cost-plus” contract just like the disastrous Halliburton contract. That’s why in barely two years our total utility bills have nearly doubled. It isn’t because of gas prices, it isn’t because all energy prices went up and it isn’t because RMU is a “cost-of-service business,” or any of the other excuses they’ve given us, it’s because we’re trapped in a contract that is not like any standard power industry contract.

We were promised by RMU that this contract and spending $6 million to become one of MoPEP’s diesel generator farms would give us would give us cheaper power but we have proof every month there’s nothing cheap about MoPEP’s power and the $6 million generators are only “generating” MoPEP IOU’s.

This contract is designed for one purpose, to build an UNREGULATED POWER CARTEL operated by a non-profit corporation in Columbia. Their plan is for us to pay to build them a portfolio of power investments for 30-40 years or longer under the guise of routine power contracts. While we’re paying 9.3¢ per kWh for MoPEP power, towns around us are enjoying non-MoPEP pricing of around per 6¢ kWh because their wholesale power contracts are standard industry commodity contracts not MoPEP “cost-plus” contracts. RMU keeps excusing the rate difference by saying those towns with 6¢ kWh power “will catch up with us someday.” They ARE NEVER going to “catch up with us” and this is why:

1. MoPEP has a FIRST LIEN on all RMU electric revenues because the city and RMU agreed to let (MJMEUC) MoPEP pledge our electric payments as collateral for, what we have learned from Marshall Mo., is approximately HALF a BILLION DOLLARS* they have issued in revenue bonds to buy shares in 7 or more coal-fired plants - plants that won’t be on-line for years and which might never be opened.

Even if some of the plants never open we still have to pay off the Half Billion bond debt! (*Marshall Democrat-News 7/14/07) It wasn’t the price of gas that caused our electric rates to shoot up over the last couple of years, it was the price of MoPEP’s investments that went up by HALF a BILLION DOLLARS. We are making MoPEP’s excessive bond payments in our rates the contract says so very clearly!

On January 18, 2005, when Mayor Jenks, as a RMU board member, urged the council to pass the Revised and Amended MOPEP contract, he admitted to the council that the only way MoPEP’s investments would be “paid is through [our] utility rates”.* Unfortunately at that time, no one but the RMU board understood what form those investments would take or that they would total a HALF BILLION DOLLARS and counting! Did the council know that the MoPEP contract allows MoPEP to continue to indulge in UNLIMITED high-risk investing? Is this what you thought you were voting on two years ago? (*city council minutes 1/18/05)

Dan Watkins, RMU’s representative at these MoPEP meetings, has voted for all these investing schemes but neither Watkins nor the RMU board has ever reported on his MoPEP votes to the Rolla City Council. Why? They did not report to the council that they were actively and secretly collaborating with MoPEP to incur approximately $500,000,000 (that’s a Half Billion)* in high-risk revenue bond investments to buy shares in coal-fired plants. Why didn’t they tell you or tell us?

Because the contract gives MoPEP a FIRST LIEN on RMU’s electric revenues, the city and RMU cannot pledge those electric revenues for any debt, lease/purchase, bond payments or anything else the city or RMU may need because this contract gave MoPEP a “SUPERIOR” position. What bank or finance company will loan money to RMU on a second lien? (8.10)

As long as Watkins, RMU and these people in Columbia keep making secret investments our rates will continue to automatically go up to pay for them and because of MoPEP’s FIRST LIEN on RMU’s electric revenues, MoPEP can cancel or suspend the city’s 5% utility tax if they need more money to make more bond payments on more investments. Even if these plants are never finished we must still pay off all their debts. These bond debts run for 30 and 40 years and they all have provisions for what are called “step-up payments.” That requires us to provide up to 200% replacement payments if anyone is lucky enough to escape the MoPEP system. These harsh financial commitments that we are now bound to are contained in separate bond investment contracts which Watkins and RMU knew about but the council and Rolla voters were never told about.

Unless this contract is broken the council is powerless to keep MoPEP and RMU from making more of these investments. How many more investments are MoPEP, RMU and Watkins planning and how much more of MoPEP’s debts can we expect to have loaded into our electric rates in another year or two or three? What is Rolla’s current share of MoPEP’s HALF BILLION bond debt and how will it affect the city’s credit and debt limits? Why hasn’t any of this been revealed in the many hours of “explanations” RMU personnel have given to the council?

State law says the RMU board is appointed by the council simply to operate the utility department, it does not say RMU has the authority to drag us into open-ended, half billion dollar bond debts and investment schemes disguised as supply contracts and lock us into an UNREGULATED POWER CARTEL masquerading as a non profit association. The people ofRolla did not agree to become part of this high-stakes investment scheme.

RMU did this behind our backs and then they have the nerve to tell us we’re paying their outrageous prices only because the price of natural gas went up!

2. MJMEUC/MoPEP can AMEND this contract WITHOUT CONSENT of the Rolla Council.

There is another unacceptable provision that allows MoPEP members to amend the contract with the consent of only 85% of the members. In other words, if Rolla doesn’t like the contract changes they can force them on us without the council’s consent. A supply contract between two parties isn’t a democratic forum and it can’t be changed by majority rule. Name one contract the city has or one you have ever heard of which can be changed without the consent of both contract parties? Why would RMU board member Jenks (now Mayor Jenks) urge you to sign a contract that allows the other party to amend the contract without council agreement?

Has the contract been amended since 2005? If it has been changed, why hasn’t RMU’s MoPEP representative, Dan Watkins or RMU President Jim Stoffer reported this to the council?

3. The MoPEP “cost-plus” contract has no termination or renewal date, it states no price for the product as do all other commodity supply contracts and it specifies that we will pay all their “Direct Costs” which are all their debts of every kind and all their overhead.

Before asking you to vote on the contract your city attorneys and the RMU board should have at least caught the fact that this contract is PERPETUAL, it has NO TERMINATION date and quotes NO PRICE for the power they’re selling you!

It’s unheard of for any government to enter into perpetual and permanent contracts for any reason. Who on earth would sign a contract to buy a commodity when there is no price for the commodity mentioned anywhere in the contract?

On July 9th at RMU’s exclusive presentation to the council, Mr. Wood from the PSC said, and I quote, “Rates in contracts typically include an escalation clause because of an expectation that wholesale market prices are going to continue to climb and there is some fuel risk.” Wood added, “As a seller of power I’m not likely to come back and offer a contract based on current fuel prices without some sort of means for me to get out of that contract if fuel prices change dramatically.”

The MoPEP contract also has no “means for us to get out of that contract.” What Mr. Wood says is prudent for the seller is also prudent for the buyer - Rolla.

The MoPEP contract has none of what Mr. Wood and the PSC consider “normal,” provisions for “typical” power contracts. Mr. Wood obviously had not seen the MoPEP contract and did not know it was NOT the standard industry contract he assumed it was.

Mr. Woods would probably be as shocked as I was to see that the MoPEP contract has no price quoted for the commodity they’re selling us; instead, MoPEP demands they be allowed to pass on to us ALL their costs of power - whatever those may be - ALL their costs of doing business, ALL their multicorporate overhead, ALL their unlimited investments and ALL other debts of every kind without limitation.

With this “cost-plus” contract MoPEP has absolutely no incentive to provide the lowest power prices or manage their four affiliate corporate bureaucracies to keep their overhead down and our prices competitive with other towns.

In saying he would always leave himself a “means [to] get out of the contract” Wood shows he was ignorant of the fact that getting out of a MoPEP contract takes five years of servitude.

Mr. Wood should have taken a careful look at MoPEP’s contract, their business methods, the reasons for MoPEP’s extreme pricing and RMU’s extreme rates before he came here to give everyone the impression that he and the PSC were endorsing RMU’s prices and MoPEP’s town-killing schemes.

And if all that isn’t bad enough here is one of the worst parts of this contract …

4. MoPEP pays for RMU’s diesel-generated power with “funny money” or MoPEP “credits.”

Every year since they bought the generators RMU has accumulated so-called “MoPEP credits.” Their financial statements show that to date they are carrying over $700,741 “MoPEP credits.” RMU apparently ‘earns’ these credits as MoPEP ‘buys’ the power RMU generates from their 18 diesel generators. (Sec. 4.1 and 4.1 b.) Why is the RMU board hoarding $700,741 worth of ‘sterile’ MoPEP credits? They’re ‘sterile’ credits because they can’t be used to pay bills, buy supplies or pay employees and they can’t be put in the bank to earn interest - they aren’t real money.

Storing $700,741 worth of MoPEP IOU’s is very bad business management.

Here is the strange thing about MoPEP’s diesel “generator farm” credits scheme that RMU bought into hook, line and sinker six years ago. We, or RMU, are paying off $6 million in revenue bonds to pay for the diesel generators – that’s payment in cash.

We, or RMU, pay cash for insurance, maintainance, labor and other costs to generate the diesel electric power that MoPEP buys from RMU with “credits” that can only be spent in the MoPEP company store! We pay cash to generate this expensive diesel power at their command but we get paid with lousy MoPEP IOU’s? Could we sell this power to someone who’ll pay us in real
money? NO. The MoPEP contract forbids us to sell power to anyone but MoPEP and
like a black market money changer, MoPEP also decides what a MoPEP “credit” is
worth.

When we pay cash for the “power plus bond debt” package MoPEP sells us every month The power + debt package we’re buying from them includes some of the power we generated and “sold” to them for MoPEP “credits” so..…they really haven’t paid us for our generator power at all have they? WE PAID TO MAKE IT

AND THEN WE PAID TO BUY IT BACK! When you unravel the money, IOU’s and kilowatts you find out the RMU board has been triple-suckered by MoPEP and we’re paying the price for it.

Why didn’t Beger and Bushie advise the council not to enter into a perpetual cost-plus contract for a commodity that had no price, that could be changed without your consent, which put a lien on RMU revenues and which would take a 5-year notice to escape? How do we get out of it?

The only way we can get out of this contract is to give MoPEP a 5-year notice but we will have to continue to pay these prices for the full five years. That’s not a commodity contract that’s indentured servitude.

The council MUST give MoPEP the five-year notice immediately. The worst case is we’ll be out of the MoPEP trap in at least five years, so the sooner you give notice the better.

The council must hire good lawyers to sue MoPEP if necessary. While we’re waiting out the five-year penalty phase skilled attorneys may be able to get us out of the contract faster.

Every year that Rolla citizens are spared these rates means thousands of dollars in savings for every family in Rolla and every business. Some will protest that a hiring a good law firm would be very expensive and a lawsuit even more expensive. That’s true, but we say the council can easily afford to pay whatever a lawsuit would cost because you’re getting over $1 million of OUR MONEY from the council’s 5% utility tax you take straight off the top of our electric and water bill payments every year. There is no reason why you can’t spend every dime of it to get your constituents out of the MoPEP trap and get our rates back down to what they were two years ago.

RMU’s Watkins explains rates, optimism for ’08

by Alan Lewis Gerstenecker - Editor, Rolla Daily News
Published: Friday, June 1, 2007

While there is no crystal ball for predicting energy costs, Rolla Municipal Utilities General Manager Dan Watkins said Friday the utility’s affiliation with the Missouri Public Energy Pool will be seen having a stabilizing effect on customers’ bills.

Watkins, 51, discussed rates, cost-of-service utilities, the MoPEP and challenges for the utility during nearly a two-hour interview with a Rolla Daily News reporter.

“I still believe our rates look pretty good,” Watkins said. It is his belief that RMU’s rates per kilowatt hour will stabilize and the rates of other utilities will increase as the cost of energy continues to increase.

“People must understand, energy is more costly than it was, and it’s even going to get more expensive,” Watkins said.

Watkins said the three rate increases RMU customers experienced last year -- the last coming in August -- were long in coming and erased a below-average rate that had existed for RMU customers for many years.

“From about 1988 to 2003 our rates were about 25 percent lower than everyone else’s,” Watkins said. “We have since lost that 25 percent. During that time, we’ve had almost zero rate increases. Peoples’ memories are short in that regard.”

When it comes to current rates, Watkins shied away from exact figures, saying energy purchasing is complicated and volatile.

During the past 12 months, RMU has purchased electricity that ranged from a high of 7.3 cents per kilowatt hour in April 2006 to a low of 6.11 cents in October. Currently, customers pay 6.3 cents, on which another 3 cents is added per kilowatt hour for distribution and administration costs.

“The 6.3-cent figure is a way in which (RMU Board Chairman James) Dr. Stoffer has chosen to explain our rates,” Watkins said. “It’s something he’s done to simplify things. It’s much more complicated than that. Some months, it’s well above the 6.3 cents (per kilowatt hour.)”

MoPEP affiliation

During the interview, Watkins carefully answered questions and defended the utility’s affiliation with MoPEP, contending the union adds bargaining strength as power is purchased.

Watkins, in addition to being general manager of RMU, serves as chairman of the Joint Operating Committee of the Missouri Public Utility Alliance (MPUA), the parent organization from which MoPEP buys electricity. He also is Budget and Finance Committee Chairman of the Missouri Joint Municipal Electric Utility Commission (MJMEUC) of the MPUA.

We’re buying $25 million in electricity annually,” Watkins said referring to a pie chart that breaks down RMU’s expenses for 2006. “As you can see, nearly 83 percent (82.6 percent) of the revenue goes directly to pay for the power. Another 10 percent is operating expenses and seven percent is for capital expenses.”

Then Watkins was asked about RMU’s status as a “cost-of-service utility” when clearly there are profits and a long history of contributing to the city and special projects. Also, RMU was a partner in purchasing the Briggs & Stratton building -- it’s contribution was about $750,000 -- that enabled the parties to lure the company to Rolla.

Also, it has been reported that RMU has contributed more than $21 million to various causes in the city dating back to 1945. The utility has contributed everything from purchasing new fire engines, to swimming pool improvements, to contributions to Rolla Technical School.

Defining cost-of-service

With that generous history of contributions, Watkins was asked to define cost-of-service.

The cost-of-service status is more of an accounting phrase than anything,” Watkins said, searching for a document that offers a definition. Essentially, to qualify, a utility must have the right combination of acquisitions and depreciations.

Reading from the document, Watkins offered this definition of cost-of-service: “The allocation of utility costs to the various classes of users to whom service is rendered (residential, commercial, and industrial) in accordance with the manner in which these classes cause utility costs to be incurred,” the written definition reads. It continues with the levelized cost-of-service definition: “A method of determining a company’s cost of service such that it remains flat over time. This is actually done by setting the depreciation rates in initial years low and then increasing them over time as opposite to straight-line depreciation rates.”

To estimate the cost of service, Watkins’ document read, “Once initial objectives (scope of services) have been set, governments should estimate the cost of providing service. But much confusion still surrounds the definitions of ‘cost of service’ and ‘cost recovery.’ The focus of this section is on average costs as the starting point for determining the level of tariffs. Marginal costs may be important for determining the structure of tariffs. Setting the price of an additional unit of consumption at marginal cost can be a good signal to customers to only use services when the value of the service exceeds the cost of producing it,” the documentation concludes.

A shorter definition was found on the Internet: “A ratemaking concept used for the design and development of rate schedules to ensure that the filed rate schedules recover only the cost of providing the gas or electric service at issue. This concept attempts to correlate the utility's costs and revenues with the service provided to each of the various customer classes.”

Watkins resume

Watkins has been with RMU for 29 years, 15 of which has been as general manager, its top official.

To say he knows the company is accurate, having started as a service team member at the age of 22. He also has read meters, worked as a lineman, repaired water meters, was a line-crew foreman, served as a superintendent in charge of the entire outside operation, served as operations manager and acting general manager before taking the role permanently in 1992.

He does not have an electrical engineering degree, but, as he points out, “many of those who consult utilities don’t either.”

As compensation, Watkins is paid $10,000 a month or $120,000 annually.

Asked to comment, he said his salary “is set by and approved by the (Rolla Public Works) board.”

Asked whether that compensation was fair, which makes him the highest-paid Rolla city employee which even exceeds that of City Administrator John Butz, by nearly $21,000, Watkins said, “my employment is a personal thing.”

To be sure, RMU is governed by the Public Works Board, which is governed by the City Council. City Finance Director Steffanie Rogers outlined the hierarchy this way: “If the city is the corporation, RMU would be the subsidiary.”

Watkins forthcoming

For his part, Watkins was forthcoming with information throughout the interview, carefully choosing his words. He understands there are questions to which curious rate-payers seek answers, and that customers who are paying higher utility bills may be scrutinizing RMU records.

We don’t have any secrets here,” Watkins said. “We’re audited regularly, and everything is available for inspection.”

According to a salaries list obtained by the Rolla Daily News, the number of RMU employees total 52 and seven of those salaries are more than $50,000, those of Watkins, Dave Stogsdill $103,272; Rodney Bourne, $73,424; Tom Parker and Vicki Cason at $55,328; Dennis Roberts at $56,000, and Tom Wassilak at $51,708. Salaries for the top seven total $515,060.80.

Two other employees, Curt Reppond and Derek Carroll are within $80 annually of the $50,000-mark.

Total payroll for all 52 employees is $1,986,140.80, for an average of $38,195.

When discussion turned to MoPEP, Watkins defended RMU’s alliance with the energy pool of approximately 30 members.

When Rolla got in, there were 20 members and that number has grown,” Watkins said. “Now, there are another five seeking to get in.”

And, Watkins acknowledged there are other communities that are looking to break that alliance with MoPEP.

Getting out (of MoPEP) is one thing, but you have to have a place to go,” Watkins said. “I don’t believe there’s anyone out there who could take us.”

Leveling of rates?

Watkins presented a chart of comparative costs, which took into consideration electrical rates from 2002 to 2006. Overall, cost for electricity had increased 85.14 percent, going from $11,546,124.75 to $21,375,961.35. So far, for 2007, rates are 7.74 percent higher than the 2006.

In today’s market, our rates look pretty good,” Watkins said Friday.

RMU officials have said they expect rates to level off, and Friday, Watkins offered customers hope for next year.

We’re preparing our ’08 budget, and I’m very hopeful that it will not require a rate movement,” Watkins said.

As the interview concluded, Watkins dispelled some misconceptions. They include:

- Like all customers, RMU employees do not get discounts on their utility bills.

- There is no requirement that RMU employees live in the city.

- The Centre pays its utility bill, just like other city departments.

- Meters -- water and electrical -- periodically are checked to make sure they are reporting accurately.