PMPA MEMO - Why the City of Clinton Voted "No" - was on council agenda Monday.
The City of Clinton is a member of Piedmont Municipal Power Agency (“PMPA”), a joint power agency formed by ten municipal electric utilities in 1979 (the “Participants”). PMPA owns a 25% undivided interest in Unit 2 of the Catawba Nuclear Power Station located in York County, South Carolina (“Catawba”).
The Participants pay an allocated share of the costs of operating Catawba and the Participants receive in return an allocated share of the electricity generated by Catawba. The Participants use the power provided to them by PMPA to operate their respective electric utility systems. Each of the Participants is also party to a Supplemental Power Sales Agreement with PMPA by which it purchases any electricity required in addition to its Catawba power.
Each Participant’s Supplemental Power Sales Agreement can be canceled upon ten years’ notice. Each Participant elects a member to serve as their representative on PMPA’s board of directors (“Board), and Mayor Bob McLean serves as the City’s designated representative to the Board.
The Board convened for its regularly scheduled meeting on November 21, 2019 at the offices of PMPA in Greer. At the meeting, one of the action items for consideration was an agreement entitled, “MEMORANDUM OF UNDERSTANDING RELATING TO PIEDMONT MUNICIPAL POWER AGENCY ALL REQUIREMENTS RATES JANUARY 1, 2029” (the “MOU”). The subject of the MOU related to the possible termination, upon ten years’ notice, by seven of the Participants (the “Remaining Participants”), including the City of their Supplemental Power Sales Agreements. The cities of Rock Hill, Greer and Westminster, each of which is a Participant, gave their 10-year notice of termination of their Supplemental Power Sales Agreements in 2018.
Based on a Resolution of the City Council of the City of Clinton dated November 20, 2019, City Council authorized the Mayor, in his capacity as the City’s representative to PMPA, to consider the terms of the MOU and make a decision as to whether to commit the City to the MOU based on the “totality of the circumstances and in consideration of any advice provided to the Mayor from the City’s professional consultants.” Acting on this authorization and for the reasons provided below, the City elected to reject the MOU.
The MOU was generated in the aftermath of a special-called meeting of PMPA on Tuesday, November 12, 2019. At that meeting the MOU was described as being a forbearance document that would permit the remaining seven participants to negotiate in good faith what would occur after January 1, 2029, without the specter of additional participants providing notices of termination of their respective Supplemental Power Sales Agreements. Thereafter, on Wednesday, November 13, 2019, a draft of the MOU was circulated to the Board. The MOU, in the original form circulated by PMPA, was considered by the City and its consultants and certain amendments and modifications were suggested. As originally proposed, the MOU would bind the Remaining Participants to a rate methodology for all requirements bulk supply power at the 2018 levels for the period beginning on January 1, 2029 through 2034; the MOU would further require forbearance by the Remaining Participants from tendering termination notices on their respective power agreements during the one-year term of the MOU.
While the City and its consultants were amenable to the forbearance provisions, including the consideration to act in good faith, it was not acceptable to agree to a future rate methodology, especially in light of the pending lawsuit filed by the cities of Newberry, Laurens, Easley and Gaffney against the City and the cities of Rock Hill, Greer and Union. The main issue in the litigation deals with interpretation as to utility rates and the method of calculating such rates under the Catawba Power Sales Agreements and Supplemental Power Sales Agreements.
The MOU, as originally presented, attempted to force the City into signing an agreement that was favorable to the Plaintiffs in the lawsuit, while those same Plaintiffs maintained false allegations against the City and the other Defendants - effectively requiring the City to vote on a rate methodology that is in dispute while threatening to terminate their respective Supplemental Power Agreements, a result that could detrimentally affect the City and substantially raise its electric rates.
The Mayor, acting through legal counsel and in concert with the City of Union, offered up certain amendments to the MOU, wherein the parties would agree to work in good faith on the rate methodology issues and still forbear any decision to terminate their Supplemental Power Sales Agreements. The requested amendments were summarily dismissed by the Chairman and the representatives of the other Plaintiffs in the lawsuit and not put to a vote or considered by the Board.
As a result, and based on the Mayor’s authorization to act in the best interests of the City, the Mayor voted against the approval of the MOU and the motion to approve the MOU failed on the basis of a weighted vote which failed to achieve the necessary majority for passage.
PMPA Board ties in agreement vote;
keeping 7 cities together is rejected
By Vic MacDonald
Editor
An agreement that would have kept seven members of the PMPA together after 2029 failed, Clinton Mayor Bob McLean said, “because some of the members dug in their heels.”
The failure of the agreement to reach a majority puts the future of the electricity-selling organization after nine years in doubt. Gaffney will make its decision on Dec. 3 about submitting a notice to withdraw. Rock Hill, Greer and Westminster have given their notice, effective in 2029, to withdraw. A lawsuit that goes to mediation Jan. 20 in Columbia hangs over the entire situation.
“I voted with the winning side,” McLean said. “The other side would not agreed on one sentence.” Asked if Clinton is going to withdraw from PMPA, McLean said, “I am waiting on the advice of legal counsel.”
Union submitted a change to the original, proposed agreement concerning its unique relationship with Lockhart Power Company; no one seemed to have an objection to that.
Another proposed change froze fixed base billing demands in the agreement’s Exhibit A at the levels set by the exhibit. The change was proposed to make the agreement “a forebearance document,” the board was told (in law, forebearance is refraining from claiming or enforcing a right). It was a final portion - 13 words - of one sentence.
That created a division. On a motion to approve the original agreement (and effectively reject the Union proposed changes), Abbeville, Easley, Gaffney, Laurens and Newberry voted “yes”. Clinton, Greer, Rock Hill, Union and Westminster voted “no”.
Because the agreement dealt with rates, the vote was subject to a weighted scale that favors Rock Hill and its ally cities. With the scale applied, the agreement was rejected by a 111.75 to 88.25 vote.
The agreement - a Memorandum of Understanding - would have bound seven PMPA cities together as each would have given up its right to submit a withdrawal letter by the official deadline - Dec. 31, 2019. The withdrawals - Rock Hill, Greer, Westminster and now possibly Gaffney - would be effective in 2029. The 10-year “window” gives PMPA the chance to have consultants work on rates and costs for the remaining member-cities.
“This gives us 10 years to work things out - this thing that has been an albatross for Clinton for many years. We inherited this thing,” McLean said. “Who knows, in 10 years we might have an asset - if we pay down the debt, we might have somebody willing to buy us. We have to entertain these ideas.”
PMPA General Manager Coleman Smoak told the board that Exhibit A in the proposed agreement that he and others drafted and sent to member-cities should not be a stumbling block in reaching an agreement. Newberry, Laurens and Gaffney representatives said, however, if the Union change “throws out” Exhibit A, it was not a move they could accept.
Union’s proposed changes were supposed to have been sent to Smoak last Tuesday but apparently were not sent. Everyone except Union and Clinton seemed to have seen the proposed changes - two sentences in a five-page document - for the first time at the PMPA board’s Nov. 21 meeting.
“We would sign that (original agreement), our council agrees to it. If Exhibit A is out, we are not ready to move forward,” Newberry Mayor Foster Senn said.
“It is frustrating to get an 11th hour change,” Laurens CPW General Manager John Young said.
Even if the board had passed the agreement as modified by Union, each member-city’s representative would have had to sign the modified agreement.
Some members who voted “yes” for the original agreement indicated they would not sign the modified agreement.
On Nov. 20, The Clinton City Council gave McLean authorization to make that decision, yes or no. The Newberry City Council and the Laurens City Council (for Laurens CPW) have given their permission for their representatives to leave the PMPA supplemental power agreement, if leaving were in those cities’ best interests. In Union’s case, the matter would have had to go back before the city council for final action. Now Gaffney has announced its Dec. 3 target decision date.
Final action is not necessary by the cities now, since the 10 member-cities could not reach an agreement that would have kept 7 member-cities together in PMPA after 2029.
That’s not necessarily a bad thing, McLean said. “Now, we can get serious about fixing rates. ... We could become like Greenwood and Seneca that left PMPA and now have some of the lowest power rates in the state.”
The PMPA rate is a driver in what the cities re-sell the electricity to customers for - Clinton residential customers have complained for three years that this re-sale rate is among the highest in South Carolina.
The PMPA board will not have a face-to-face meeting in December. Board members will have a conference call on Dec. 17 to authorize a budget number and set a January 2020 meeting date.
