Maine group that buys power with public money operates in the dark

Posted Jan. 11, 2017, at 1 a.m.
Last modified Jan. 11, 2017, at 6:24 a.m.

AUGUSTA, Maine — After a scandal at the Maine Turnpike Authority in 2011 landed its director in prison on theft charges, Maine lawmakers of both parties vowed to increase supervision of such quasi-government agencies.

Operating on behalf of the public but managed more like private businesses, these agencies are a challenge for lawmakers to oversee and evaluate.

Five years after the turnpike affair, one such quasi-government program — Maine PowerOptions, which brings together hundreds of municipalities, school districts and other state nonprofits to purchase electricity and fuel oil in bulk — still lacks transparency and effective oversight, making it impossible to know whether it is in fact serving the public interest.

An investigation of Maine PowerOptions’ electricity program by the Maine Center for Public Interest Reporting found there is virtually no proof that up to $500 million in taxpayer money that Maine PowerOptions has directed to a single electricity supplier over the past 16 years has been well spent.

The questions raised by the center’s investigation underscore the challenges in reducing Maine’s energy costs, which has become a hallmark goal of Gov. Paul LePage’s administration and a priority for public officials. Whether you’re the manager of the Brunswick Sewer District or the finance director for the city of Gardiner, the difference of even a fraction of a penny per kilowatt-hour of electricity can translate into tens of thousands of dollars — costs that must, in turn, be borne by taxpayers.

The center’s findings, which also support the results of a confidential 2013 probe conducted by the state Office of Policy and Management and obtained by the center, include:

— Maine PowerOptions’ decision-making is not transparent. Few public records are kept of meetings or decisions the group makes, despite influencing the spending of tens of millions of taxpayer dollars each year.

— Lawmakers who created the program intended that it would save taxpayers money, according to a review of committee notes and testimony. Yet Maine PowerOptions staff claim that they do not track cost savings, instead citing other benefits such as favorable contract terms that are difficult to quantify.

— Sixteen years after the program’s creation, the Maine Legislature has yet to review Maine PowerOptions’ effectiveness, despite red flags raised by the state Office of Policy and Management more than three years ago.

Maine PowerOptions staff failed to produce much documentation to refute these findings, choosing to emphasize that membership in the electricity consortium is voluntary.

“Members are free to participate or not,” said Michael Goodwin, executive director of the Maine Municipal Bond Bank and the Maine Health and Higher Education Facilities Authority, the two quasi-state agencies that oversee Maine PowerOptions. “No decision made by the program is legally binding to any member.”

‘A call out of the blue’

Maine PowerOptions’ mission, outlined in legislation passed in 1999, was clear enough: To bring the state’s hospitals, community colleges, municipalities, school, sewage and water districts together in order to increase their buying power on the open market. Maine PowerOptions would manage the consortium and, through a competitive bid process, shop for the best electricity deal on behalf of its members. Members pay a small one-time membership fee.

It was nearly 14 years after that mission was written into law that anyone asked whether the energy consortium was actually accomplishing what it set out to do.

In May 2013, Chase Martin, a 29-year-old lawyer working with the state Office of Policy and Management, came knocking at the door of the Maine Municipal Bond Bank’s offices, just off Civic Center Drive in Augusta.

“It was a call out of the blue,” recalls Jonathon Youde, program officer at Maine PowerOptions. He said Martin arrived “unannounced, as if he wanted to be sure we existed.”

A recent graduate of the University of Maine law school, Martin had been recruited by the LePage administration to work in an office tasked with optimizing government efficiency and effectiveness.

“Every agency had to justify their existence,” he said in an interview. “My job was to ask the hard questions.”

Martin’s 2013 examination of Maine PowerOptions, kept secret for three years under a legal exception to the state’s open records act, revealed that the program maintained almost no records, making it impossible for Martin to assess its effectiveness in achieving its public mandate: saving money.

“The initial response and continued discussions with the staff at Maine PowerOptions were devoid of any metrics or statistics that would help to gauge the effectiveness of the program,” Martin wrote.

The quasi-government group didn’t appear to play by the same procurement, or purchasing, rules regarding transparency that full-fledged state agencies were required to follow, Martin said.

“When someone isn’t forthcoming with information, you start to wonder why,” he said.

Another surprise: The group’s Institutional Advisory Council maintained no records of its meetings, despite its integral role in selecting a supplier.

“To the best of my knowledge, no minutes have been taken or kept at any Institutional Advisory Council meetings,” Youde told Martin via email.

 

State law requires that any decision-making body keep records of attendance and votes. Maine PowerOptions maintains that the advisory council does not need to keep minutes because it is not a decision-making body.

In explaining the selection process further, Goodwin later said: “This is a member-driven program, with the [Institutional Advisory Council] making recommendations and suggestions for all aspects of the program as well as the selection of the electricity supplier as part of [a request for proposals] process.”

14-year winning streak

The lack of transparency, Martin said, was especially concerning because a single electricity supplier — Maryland-based Constellation New Energy and its corporate predecessors — had won every bid since Maine PowerOptions’ inception. Such a 14-year winning streak at the time seemed a striking anomaly in the competitive electricity market.

The young lawyer’s draft report was scathing: “The rules and procedures that [Maine PowerOptions] follows are self-determined and lack any kind of transparency.” He recommended the program be terminated or overhauled.

His critique prompted Patrick Woodcock, director of the Governor’s Energy Office at the time, to meet with several members of the Maine PowerOptions Institutional Advisory Council in early 2014 to discuss ways to improve the program. Woodcock warned members that transparency seemed to be lacking, but he said the council’s members nonetheless appeared unmoved.

“They felt like, ‘It wasn’t broken, so why change it?’” he said.

Woodcock opted to take the probe no further.

Maine PowerOptions’ Goodwin, in both a written rebuttal letter to Martin’s report and an interview with the center, disputed Martin’s findings, saying the lawyer’s report was flawed and amounted to little more than a witch hunt.

“He came at us at an adversarial position. He had an agenda. They were going after something. We still don’t know exactly what it was,” Goodwin said.

Martin, who no longer works in state government, maintains that he simply wanted to make sure that Mainers were getting the most for their electricity dollars.

“Maine taxpayers usually end up paying more and getting less when state agencies or programs are operated without transparency,” he said.

Few records

Three years later, the center’s independent investigation of the electricity program found many of Martin’s original questions remain unanswered or unaddressed.

In August, the center filed a records request with Maine PowerOptions under Maine’s Freedom of Access Act, seeking “meeting notes, scoring matrices, [Institutional Advisory Council] vote tallies or any other documents describing the process by which Maine PowerOptions selected the winning bidder for its electricity program between 2000-2016.”

Program staff denied much of the request, citing a legal exception to the state’s open records act that allows state agencies to keep confidential the records of government committees that “make recommendations” but have “no decision-making authority.”

In a statement in December, Goodwin clarified: “The [Institutional Advisory Council] is an advisory body. … All decisions are made by the program staff.”

Documents that Maine PowerOptions provided to the center, however, appear to contradict Goodwin’s claim.

In a 2008 letter to World Energy, a competitor that lost the bid to Constellation, program officer Mary Lou Gallup wrote: “The [Maine PowerOptions] Institutional Advisory Council voted unanimously to move forward with Constellation NewEnergy for a three-year contract.” A similar letter was sent to the other losing bidder, Direct Energy.

The only justification for the selection of Constellation for 16 years running — a total of four bidding cycles — were six signed, undated, score sheets from the 2014 bidding process, each recording a vote for Constellation. Yet program staff did not provide records to show how many of the dozen or so council members attended the meeting, what was discussed, whether any in attendance voted against Constellation or whether a quorum was required or reached.

Members of the advisory council acknowledged the group had failed to properly record the process it undertook.

“I know very well that we did not maintain any minutes,” said South Portland Finance Director Greg L’Heureux, who has served on the council since Maine PowerOptions’ inception. “Going forward, it probably makes sense for us to document everything. That’s important in government.”

Where are the savings?

By the time Martin began his investigation in 2013, Maine PowerOptions and its endorsed supplier, Constellation, had successfully signed up more than 279 contracted members. By 2016, the duo was selling 500 million kilowatt-hours through the program, according to Constellation’s marketing materials.

Both Maine PowerOptions and Constellation declined to disclose how much Maine PowerOptions members — the majority of them taxpayer-funded — spend on electricity. But using the average 2016 standard offer rate of 6.92 cents per kilowatt-hour for the medium rate class as a benchmark, Constellation’s claim of delivering 500 million kilowatt-hours amounts to about $34.6 million.

Presuming that is an annual figure — neither Constellation nor Maine PowerOptions would disclose how much electricity Maine PowerOptions members consume — over 16 years that would suggest as much as $500 million of Maine taxpayers’ money had been directed through the program to Constellation.

During this time, Maine PowerOptions has boasted of having saved its members millions.

 

Yet when Martin asked the program officers to provide data to back up these claims, he said they told him they could not.

“Although claims of savings are being made by the program, there is no evidence that this is occurring or has ever occurred,” Martin concluded.

In a rebuttal letter, Goodwin argued that savings were secondary, and that Maine PowerOptions added value by negotiating a contract with terms and conditions that protected members from scams, unnecessary surcharges and bad actors.

In an August 2016 interview with the center, Goodwin cited the group’s high renewal rate as proof of Maine PowerOptions’ value for members.

“The success of the program and the very consistent membership and participation tells you there has to be savings,” he said, but declined to reveal Maine PowerOptions’ renewal rate.

Goodwin said Martin had failed to talk with members and had thus overlooked many of the program’s benefits. Yet he declined to provide the center with a list of the group’s members, citing exemptions to the state’s open records act designed to protect business secrets.

Of the nearly 20 current and past members of Maine PowerOptions that the center was able to identify, opinions of the program varied.

Those who favored the program often cited the advantageous terms and conditions touted by Goodwin, including a lack of surcharges for using too much, or even too little, electricity over the term of a contract.

“With [Maine PowerOptions], I don’t have to guarantee how much power I’m going to buy,” said Ralph St. Pierre, Augusta’s assistant city manager and a member of Maine PowerOptions’ Institutional Advisory Council since its inception. “Usage is a big one for me. If we need to shut a school down, or a library, I don’t want to get charged.”

But some former members, including several former representatives of the group’s advisory council, have struck out on their own.

Leonard Blanchette, general manager of the Brunswick Sewer District, recently switched from Maine PowerOptions to a private-sector broker, Competitive Energy Services of Portland.

“CES put a request for proposals out for us, and we got a better rate,” he said. “For us, it came down to the bottom line. Even a little bit can make a big difference.”

But Blanchette admitted he lacks the expertise to parse out the fine print in either contract.

“We’ll see if it was the right choice,” he said.

A matter of trust

Maine’s top consumer advocate, Tim Schneider, whose office works primarily to help consumers navigate the state’s electricity market, said a state-sponsored program such as Maine PowerOptions carries an added burden of responsibility — including transparency and evidence that it is carrying out its mission — compared to a similar business operating in the private sector.

“There are lots of companies who bring groups of customers together to sell them electricity. But here you have one that comes with the state seal. They’re in statute. That gives them a real advantage in this market,” said Schneider. “We want to know they’re playing by the rules.”

Mark Turner, the public works director for the city of Waterville, said his office has trusted in Maine PowerOptions’ service for years.

“We get calls from other brokers pretty regularly, but I never call them back. I know they’re just out in some remote location brokering out contracts,” he said. “I guess that we just trust that [Maine PowerOptions] is giving us the best price and service.”

Editor’s note: Maine PowerOptions’ law firm, Mitchell & Davis in Augusta, completed the legal review of the center’s request. Jed Davis, a principal in the firm, serves as president of the center’s board of directors. Like all center board members, and in keeping with the center’s policy, Davis had no involvement in this story before publication.

Dave Sherwood is a staff reporter for the Maine Center for Public Interest Reporting, a nonpartisan, nonprofit investigative news service based in Augusta. Email: pinetreewatchdog@gmail.com. Web: www.pinetreewatchdog.org.

 

 

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