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CLC- CVEC Financial Transparency

CLC-CVEC Financial Transparency
CLC-CVEC Financial Transparency
Re: Inadequate Reply of the Cape Light Compact to My Public Records Request and Letter of Inquiry Dated   2/27/2014 Regarding Lack of Financial Transparency and Explanation for Substantial Losses in Trading   Ms. Maggie Downey
Compact Administrator

Dr. Joyce Flynn
Chairman
Cape Light Compact

March 10, 2014

Re: Inadequate Reply of the Cape Light Compact to My Public Records Request and Letter of Inquiry Dated 2/27/2014 Regarding Lack of Financial Transparency and Explanation for Substantial Losses in Trading Renewable Energy Certificates

Dear Ms. Downey and Dr. Flynn,

Thank for your reply to my Public Records Request and Letter of Inquiry dated February 27, 2014 (my original letter and your response attached).

I would like to ask you to clarify parts of your response to make sure that I am understanding you correctly.   I certainly don't want to put words in your mouth.

You say that the Intergovernmental Agreement, as amended in September 2006, grants authority to the CLC Chief Procurement Officer the authority to "select proposals and facilitate the award of contracts on behalf of the Compact with input from members of the Governing Board, Compact staff, counsel, and others, as the Chief Procurement Officer sees fit." 

I understand this to mean that the Chief Procurement Officer may consult all of these parties "to facilitate" the process, but that he would not have unlimited authority to commit the Cape Light Compact to contractual obligations totaling millions of dollars without further formal approval. 

Is it your position that the IGA grants the Chief Procurement Officer virtually unlimited authority to agree to any "proposals" or enter into any "contracts" with whatever "input" from individual "members of the Governing Board, Compact staff, counsel or others" that the CPO chose to consult? 

In other words, if I am understanding your meaning, you are explaining that the Chief Procurement Officer does not require any approval from the CLC Governing Board to enter into multimillion dollar contracts for RECs? 

"From time to time, the Governing Board" may -- or may not -- "engage in discussions regarding REC transactions"; but it doesn't actually have to approve any of them.

Is that correct? 

I would like to let you know that I have read the minutes of the Cape Light Compact Board but, as you know, the Governing Board generally discuss REC transactions behind closed doors (if at all). 

As you also know, when the Cape Light Compact provided the Assembly of Delegates with some (but not all) of the information on the Compact's accounts, including the Power Supply Reserve Fund, there were references to some accounts that had transacted in REC's.  Regrettably, however, CLC redacted all information on millions of dollars of transactions from these reports with a black sharpie pen, including all information on the REC transactions -- so that is really no help either.

I have also read the Audited Financial Statements and all of the footnotes for the Cape Light Compact for the years 2009, 2010 and 2011.  As you are aware, the Cape Light Compact has never published any audited financial statements from its inception through 2008, nor for 2012 or 2013. 

So even if one reads the audited financial statements, they only provide a fragment of the information pertaining to the Chief Procurement Officer's trading activity in RECs.

What is even more unsettling is that the CLC Audited Financial Statements for these three years -- 2009, 2010 and 2011 -- report very substantial reported losses in REC activity for those three years -- even after accounting for the portion of the REC purchases that were used to satisfy the "Compact Green" programs (these are broken out separately.

Under the circumstances, therefore -- knowing from you that the Chief Procurement Officer doesn't really need the CLC Governing Board's approval to trade in RECs; and knowing, as well, that your audited financial statements report such substantial economic losses from trading REC's -- it is disturbing to me to know that there is so little oversight of the Chief Procurement Officer in entering these commitments. 

As you also know from reading the footnotes of the Compact's audited financial statements (but only through 2011, the last year available), the Compact has reported very large forward commitments to purchase REC's in future years at prices that may, or may not, be favorable to the Cape Light Compact.

This naturally raises the question as to whether the Cape Light Compact has realized substantial additional losses in 2012 and 2013; and whether the Cape Light Compact may have substantial additional losses embedded in the forward commitments to purchase and sell RECs?

I know that the Cape Light Compact prides itself on being "as transparent as a clean window" but I cannot find any information on the extent of these possible additional losses, or the risk of potential additional future losses, anywhere on the Cape Light Compact website.

It appears to me, since you did not bother to address these questions in your reply, that you and Dr. Flynn, the Chairman of the Compact, must have inadvertently failed to notice that I have posed these questions on several occasions. 

Here are the relevant excerpts from my letter of February 27, 2014:

Lack of Financial Transparency

As you know, the Cape Light Compact has regularly insisted that the Compact is "fully transparent" regarding its governance and finances -- notwithstanding the fact that the Compact has withheld all information on millions of dollars of transactions and has repeatedly refused to provide a detailed accounting of the receipts and expenditures of the "mil adder" funds that are collected from Compact consumer members through a surcharge on their electricity bills.

More recently, Compact officials have been asserting to its constituent members and to the public that the Compact is "as transparent as a clean window."

Last summer, the Compact provided audited financial statements for the Compact's activities which covered only the years 2009 through 2011 (see audited financial statements for these three years here: http://www.capelightcompact.org/report/other-reports/financialreports/).

Also last summer, at a meeting of the Governing Board, Compact officials noted that the Compact's auditor, Sullivan & Rogers, was preparing the audited financial statements for 2012.

Why have the Compact's Audited Financial Statements for 2012 not yet been provided to the public? 

When will the Compact's Audited Financial Statements for 2013 be provided to the public?

Why does the Cape Light Compact not provide the public with any Interim Financial Statements, instead of providing financial information only after such a long delay?

When will the Cape Light Compact provide a detailed accounting of the receipts and expenditures (as opposed to the current reporting of mere fund inflows and outflows) of the Compact Ratepayer funds that are collected through the "mil adder" surcharge? 

Substantial, Unexplained Losses on the Purchase and Sale of REC's

The audited financial statements for the Cape Light Compact for the years 2009, 2010 and 2011 reveal that the Compact has sustained large, unexplained financial losses through the purchase and sale of Renewable Energy Certificates (RECs) during these years. 

The footnotes to these statements suggest some of these losses may have been sustained in as a result of transactions with the Compact's principal energy supplier, Con Edison Solutions, Inc. but provide no further detail.

The footnotes to the Compact's audited financial statements for 2009 through 2011 also provide a schedule of forward commitments to purchase and/or sell a large dollar amount of REC's in future years, as of the date of these statements.

This raises the prospect that the Compact may have sustained additional large financial losses in trading REC's in the 2012 and 2013.

Additionally, since the schedule of future commitments to buy and/or sell large dollar amounts of RECs extends beyond 2013, far into the future, it is possible that the Compact has substantial unrealized losses embedded in these additional commitments to buy or sell RECs. 

Please explain why the Compact has engaged in such large scale trading in RECs through current and forward years.

Please explain why it should be necessary, or appropriate, for the Compact to initiate and enter into these REC transactions.

I respectfully request that the Compact provide the public with an accurate accounting of the Compact's actual gains and losses in REC trading for each year since inception, along with an explanation as to how these losses were created.

I respectfully request that the Compact provide the public with an estimate of the unrealized losses that may be embedded in the Compact's forward commitment to buy and/or sell REC's in future years (if any), according to a yearly schedule of projected losses, along with a brief explanation of the nature of the trading activity that created the gains or losses.

I respectfully also request that the Compact state whether the Compact continues to trade in the forward market for RECs, if the Compact expects to continue this activity indefinitely, and why this activity is necessary and appropriate in order to further the best interests of the Compact's members.....

As you may know, I continue to be deeply concerned about the magnitude of these financial losses that the Compact has sustained and would very much like to be reassured concerning the propriety of this activity in the context of the Compact's existing municipal aggregation program.

Please be advised that:

--The losses the Cape Light Compact has reported for just three years -- 2009, 2010 and 2011 -- are very substantial

--No explanation for these losses has been provided in the CLC Audited Financial Statements or footnots

--The future commitments to buy / sell RECs are also very large and may have additional unrealized losses embedded in these contractual commitments

--The Cape Light Compact meeting minutes do shed any light on these losses, much less explain them.

--It is not clear from the meeting minutes that the CLC Governing Board is even aware of these losses, or any potential future losses

--The public certainly has no way of understanding the  reasons for this activity, or these losses

--All of the funds collected, and disbursed, by the Cape Light Compact are public funds. 

For all of the above reasons, I think that it is fair to say that the public is entitled to some explanation regarding the nature of this activity, the purpose of it, the extent of it, who presides over it, and some accounting of the cumulative economic effects and future risks of this activity.

Especially since the Cape Light Compact has reported such substantial, as yet inadequately explained, losses from this activity.

I look forward to your response.

Sincerely,

Eric Bibler

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