CVEC Losses Accelerate in FY2014

May 6, 2014

All Interested Parties,

At a meeting of the Cape & Vineyard Electric Cooperative Board of Directors on March 27, 2014, the CVEC Treasurer, Mr. Mark Zielinski, presented the Board with information on CVEC's financial results for the first 8 months of FY2014; projections for the remaining 4 months of FY2014 (through June 2014); and a proposed Budget for FY2015 (see documents attached).

The news was not good. 

The Treasurer informed the Board that CVEC's losses accelerated sharply in FY2014 because CVEC recorded no significant revenue and because CVEC's expenses soared to $608,000 -- 150% of the budgeted amount. 

Legal expenses were projected to reach a staggering $414,000 -- 226% of the already generous budget of $184,000  for legal expense -- and will actually exceed CVEC's entire original budget of $403,000 for all expenses FY2014.

Since CVEC will not generate any meaningful revenue in FY2014 (or for the first seven years since it as founded), CVEC will record an operating loss of over ($600,000) for the fiscal year.

In recent years, CVEC has been hoarding cash (including money received from the Cape Light Compact to fund an appeal of the CVEC / Brewster Wind project which CVEC has long ago abandoned).  But after the massive deficits that CVEC has experienced for FY2014, CVEC's cash hoard will decline from approximately $300,000 to about $100,000 by the end of the fiscal year.

But it gets worse.

The CVEC Treasurer and "Special Projects Coordinator estimate that CVEC's expenses for FY2015 (as described in the FY2015 Budget) will be approximately $403,000 (including $200,000 in new legal expenses). 

Regrettably, however, these CVEC officials estimate that if all of the current projects are built on schedule (which is unlikely since they are already delayed), CVEC will generate revenue of only $170,000 per year (best case).  

Of course, CVEC also expects to generate approximately $5000 per year from aging PV projects installed 5 years ago by Con Edison Solutions, but since CVEC has now taken on all responsibility for the ongoing Operation and Management of these systems -- and since Con Edison has told CVEC that annual expenses are $7000 to $10,000 per year -- and since the lowest bid from three contractors for taking this responsibility from CVEC was a fee of $20,000 per year -- these projects will operate at a net loss. 

CVEC will be lucky to generate net revenue on these projects of $160,000 to $165,000 per year. 

Since CVEC's overhead cost for FY2015 is budgeted at $403,000, this means that CVEC will operate at a loss of at least $240,000 in the coming fiscal year -- and for the foreseeable future -- since CVEC has no new revenue coming on stream, other than the PV projects currently under construction. 

In light of these dire financial circumstances (i.e. the continuation of substantial operating deficits), the CVEC Board elected to continue operating without a General Manager for the simple reason that CVEC cannot afford to pay one.

But it gets even worse.

According to the minutes of March 27, 2014, it has suddenly dawned on the CVEC Treasurer that the completion of a slew of PV projects this summer will create a very large working capital deficit owing to the fact that CVEC may not receive cash settlement from NSTAR for the net metering credits generated by the PV projects until as long three months after CVEC is obligated to pay the developers (the private partners who own the projects) for electricity.

The CVEC "Special Prlojects Coordinator," Liz Argo and the CVEC Treasurer estimate that this is likely to create a rolling cash deficit of $100,000 per month for the three month timing difference between disbursement of CVEC's cash and reimbursement by NSTAR -- which is to say, a permanent $300,000 financing gap for the life of the PV projects.

CVEC simply does not have the financial resources to meet this large working capital requirement because CVEC's cash hoard has been depleted and because CVEC expects to generate significant additional losses in FY2015.

CVEC cannot borrow the money from a bank, or any other private entity, because CVEC is a guaranteed money loser that has will have racked up at least $3.4 million in operating losses since it's inception on September 12, 2007 (see "CVEC's Chronic Losses" attached). 

Of course, there is only one place that CVEC can turn for these funds: the ever compliant Governing Board of the Cape Light Compact.   

As CVEC's minutes for March 27, 2014 make clear, CVEC intends to ask the CLC Board to provide a "short term loan" of up to $300,000 to CVEC.  Despite this misleading characterization, however, it should noted that there is nothing "short term" about the working capital requirement since it is, in fact, permanent.

And as CVEC's "DRAFT" meeting minutes for the meeting of April 10, 2014 now also make clear, Mr. Zielinski, the CVEC Treasurer, and Liz Argo, the Special Projects Coordinator, will attend the meeting of the CLC Governing Board on May 14, 2014 to do just that -- i.e. to ask CLC to provide CVEC with up to $300,000 in loans, over and above the additional "grants" that CVEC requires to replenish its capital after the staggering losses of FY2014 and the additional losses that are forecast for FY2015.

Since CVEC expects to operate at a loss of at least $240,000 in FY2015, according to the Treasurer's modest projections, CVEC will require at least a quarter of a million dollars in additional "grants" to get through FY2015.   Although the CVEC minutes do not specify the amount of the "grant" that CVEC will request on May 14, 2014, it is a sure bet that CVEC will ask CLC to fund its entire budget of $403,455.  

It thus appears that CVEC will be asking the CLC Governing Board to provide it with additional financial resources totaling approximately $700,000 on May 14th, one week from today.

One helpful bit of news is that, according to the CVEC minutes of March 27, 2014, Ms. Margaret Downey, the Cape Light Compact Executive Administrator, actually helped the CVEC President, Treasurer and Special Projects Coordinator to prepare the CVEC Budget that was presented to the CVEC Board (and approved on that date) and which CVEC will now present for the consideration of the Cape Light Compact -- headed by Ms. Downey. 

The fact that Ms. Downey assisted CVEC in preparing the CVEC budget to be presented to officials of the Cape Light Compact, including Ms. Downey, would seem to indicate that CVEC can expect a favorable reception to these requests. 

Although it was not mentioned in recent minutes of the CVEC Board, it is expected that the Cape Light Compact will also continue to keep $100,000 in cash on deposit at an escrow account at TD Bank to guarantee certain financial obligations of CVEC through a Letter of Credit drawn on the bank. 

When all is said and done, therefore, if the Cape Light Compact Governing Board agrees to all of these requests from Ms. Downey, Mr. Zielinski, the CVEC Board, et al, the Compact will have donated approximately $3.5 million in CLC ratepayer funds to CVEC and will have provided an additional $400,000 in financial guarantees and loans to CVEC, since inception (see "CVEC's Chronic Losses" attached). 

All told, after next Wednesday, the Cape Light Compact will have provided total financial assistance of at least $3.9 million to CVEC (that we know of) -- and this does not include additional direct payments of CVEC legal and development costs of CVEC which both CLC and CVEC have refused to disclose.

Just when it seemed it couldn't get any worse.....it gets much worse

Although the CVEC Board deliberated all of these matters in public, at its meeting of March 27, 2014, the CVEC President, Mr. John Checklick, has adamantly refused to disclose ANY of the documents relating to CVEC's financial condition (FY2014 YTD results and projections) or CVEC's FY2015 Budget to the public.

 President Checklick has stated that it is CVEC's intention not to provide public access to this information until sometime in June -- which is to say, after the CVEC Treasurer has approached the Cape Light Compact Governing Board at the meeting of May 14, 2014 to request an additional unrestricted "grant" of $403,000 in CLC ratepayer funds and $300,000 in new loans (in addition to the $100,000 cash escrow backing the existing line of credit for CVEC) to repair CVEC's balance sheet, to fund CVEC's anticipated losses for FY2015 and to provide financing for CVEC's new PV projects.

Mr. Checklick has  insisted that any member of the public who wishes to have access to CVEC's FY2015 Budget, CVEC's interim financial statements or CVEC's projected expenses for FY2014, or any of the other meeting exhibits from this meeting must file a public records request and pay approximately $50 for the documents. 

CVEC has repeatedly refused to post copies of CVEC's approved FY2015 Budget, the sobering interim financial statements and projections provided by Mr. Zielinski, or any details relating to the net metering cash flows from PV projects that have created the massive new working capital requirement to the CVEC website.

As always, any bad news from CVEC is strictly on a "need to know" basis -- and CVEC members, public officials and members of the general public, in the opinion of CVEC, have no "need to know" about CVEC's staggering losses; its soaring legal expenses; its anticipated future operating losses; or its massive new financial requirements, which CVEC hopes that the CLC Governing Board will agree to pay before anyone understands what is actually happening.

--What public body approves a Budget in open session... and then refuses to disclose it to the public?

--What public body reviews a report from its Treasurer in open session, detailing the reasons why the body has exceeded the prior year's budget by more than 150% ... and then refuses to share the Treasurer's report with the public? 

--What public body receives a report from its Treasurer that it is facing a previously unforeseen working capital shortfall of $300,000 ... and then refuses to disclose this information to the public?

--What public body reviews all of the information above and concludes that it will need to seek a combination of additional donations and loans from another public body (CLC) -- with no tangible benefit to the donor (CLC) -- yet refuses to disclose the details of the circumstances that underlie a request to the donor for an additional $700,000 in public funds? 

CVEC -- and CLC -- that's who. 

I urge all public officials and members of the public to spend some time reviewing the attached documents which CVEC has refused to disclose to the public but which have been obtained privately, at considerable personal expense. 

I also urge all public officials and members of the public to consider the attached tables which provide some rudimentary analysis of CVEC's massive deficits and cost overruns and which attempt to summarize the scope of CVEC's accumulated operating deficits and the vast transfer of funds from the Cape Light Compact to CVEC to support CVEC's money losing operations.

Please also find attached a series of bullet points that highlight some of the more relevant data that is contained in, or can be derived from, the financial statements which CVEC refuses to share with the public until after it has a chance to request the substantial additional financial transfers and commitments that are urgently required to pull CVEC back from the brink of insolvency -- again.

Just when it seemed that things were as bad as they could possibly get.....

Although the chronic and alarming failures of both CVEC and the Cape Light Compact to provide anything resembling an appropriate degree of transparency and accountability into their management of public funds has been amply chronicled, the persistence of these failures raises an even more troubling issue -- namely, the profound apathy of the vast sea of public officials -- the Appointing Authorities who appoint the board representatives of the Cape Light Compact and CVEC -- the member Boards of Selectmen and county governments that appoint the officials who, ostensibly, run the organizations -- in the face of such evidence that CLC and CVEC have no interest in meeting their burden to operate in an open and transparent manner or to be accountable in a fiduciary capacity for their management of public funds. 

The repeated and systematic violation of the Open Meeting Law; the Public Records Law; the Conflict of Interest Law; and every other accepted norm of public administration on the part of the managements and boards of CLC and CVEC is regrettable. 

What is even worse, in my opinion, is the profound apathy of the elected officials who have formed the organizations and who, theoretically exercise some control and supervision over their administration on behalf of their constituents and/or ratepayers, through the appointment of their respective board member. 

Shame on you, CVEC Board Members; CLC Board Members; County Commissioners; Members of every member Board of Seletmen; and Members of every member Energy Committee (from whose ranks the board members are typically appointed). 

Shame on all of you for observing these indefensible practices and these unconscionable actions -- such as refusing to provide public access to approved Budgets of Financial Reports -- over and over and over again -- without uttering a peep of protest.

This is as bad as it gets -- because the buck stops with you. 

Sincerely,


Eric Bibler