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HomeMy WebLinkAboutmin light commission 03/30/06 . . r Mansfield Municipal Electric Department'n\+.nl ~f~~~V~EgfF tCE Minutes of Light Commissioners - Executive Session '. . -, ..~, . , . March 30, 2006 06 JUN 23 AH II: 26 MANSFIELD Present: Vice Chairman Louis P. Amoruso; Clerk David McCarter; tMniSAGtlYSBTcT1SeI McCue; Director Gary Babin; Financial Assistant Jacqueline Lee and Town Manager John D' Agostino Light Commissioner Meeting The meeting was called to order at 7 :05 in Open Session. Motion: To enter into Executive Session to discuss pending litigation and return to Open Session at the conclusion of the Executive Session. (McCarterlMcCue) Roll Call Vote: McCue, aye; Amoruso, aye; McCarter, aye. Passes 3/0 Calpine Litigation Strategy Attorney Ken Barna from Rubin and Rudman joined the Executive Session to discuss the situation with Calpine. (' Town Manager D' Agostino began by stating that Director Babin, Mr. Barna, Mayhew Seavey from PLM and he had reached a tentative agreement with Calpine to settle the breach of contract by Calpine due to its filing for Chapter 11 bankruptcy protection. Calpine is now willing to authorize the release of funds from the jointly held escrow account to settle the case. Director Babin said that the staff was looking for a vote tonight from the Board to approve the tentative agreement. Mr. Barna first explained that MMED's contract with Calpine had required that money be put into an escrow account in the Mellon Bank by Calpine for MMED once Calpine lost its investment grade rating. He then said that late last summer Rubin and Rudman had begun holding meetings with Calpine clients because it appeared Calpine was in serious financial trouble and it was possible that they would file for bankruptcy. The hope was that Calpine would go bankrupt after October 17,2005 because of a revision of the U.S. Bankruptcy Code where, as of that date, municipalities were defined as forward contract merchants under the Code. This is important because if Calpine were to go bankrupt, the contract with Calpine is a forward contract, MMED is a forward contract merchant and therefore, MMED could legally terminate the contract, which is what it did. r In December 2005, when it was clear that Calpine's bankruptcy was imminent, it was decided that MMED would then go to bid when the bankruptcy occurred and obtain another power supply contract to cover the energy that Calpine had supplied. The Board authorized Mr. D' Agostino in his role as Light Department Manager to enter into a contract to replace the Calpine contract at its December 21 Executive Session meeting. Director Babin and Town L !I (' Manager D' Agostino terminated the Calpine contract on December 28 and executed a contract with Dominion Energy Resources on December 30, 2005. A letter was sent on December 30 to the Mellon Bank requesting that they release funds from the escrow account to cover MMED's market exposure as a result of this transaction but Mellon refused because Calpine disputed the amount that MMED was requesting. MMED filed a motion in U.S. Bankruptcy Court in New York on March 3 requesting that the Court confirm the inapplicability of the automatic bankruptcy stay, in accordance with the contract, in order to force Calpine to authorize release of the funds from the escrow account. A hearing was set for April 11 , 2006. On March 27, however, Mr. Barna and Mayhew Seavey went to New York in an attempt to settle the matter. The first offer by Calpine at the settlement conference, Mr. Barna stated, was for $7.8 million, which was found to be unacceptable. Calpine had used a 10% discount rate in their damage calculations, which Mr. Barna explained was not appropriate for a public entity in Massachusetts. Calpine came back with a counter offer of $9.1 million. Mr. Barna said $9,968,480.47 was the damage amount that Mr. Seavey had calculated using a 1 % discount rate. Town Manager D' Agostino, Director Babin, Mr. Seavey and Mr. Barna determined that a 4.1 % discount rate, reflective of the rates currently in effect for municipal borrowing, was a more appropriate rate and recalculated the damage estimate at $9,521,000. r Mr. Barna then said Town Manager D' Agostino and Director Babin instructed him to ask for a settlement amount of $9.3 million and to accept a midpoint between the two offers of $9.2 million. He did as instructed and Calpine tentatively agreed to pay $9.2 million. Mr. Barna explained that MMED would be getting nearly 97% of their estimated damages under the settlement and if MMED went to court, at a significant cost, MMED would be litigating for only 3% more. He recommended that the Board approve the agreement as there would probably be too much money spent in litigation so the net proceeds may actually be less than the current settlement amount. Further, Mr. Barna pointed out the actual payment would be significantly delayed by the court process, even though he believed MMED would win. Mr. Barna stated that Mr. Seavey had calculated the effect on the ratepayer to be approximately $0.0005 per kilowatt hour, or 25 cents per month for the average ratepayer. Director Babin said that MMED had been using the $3.2 million reserve trust fund at MMWEC in lieu of the Calpine settlement to mitigate the impact of the Calpine situation on rates. Once the Calpine money has been received, MMED will reimburse what has been withdrawn from the reserve trust fund from the Calpine settlement. Mr. Barna stated that the last few months' prices have come down so that the actual amount is escrow exceeded the amount ofthe damages because Calpine didn't keep on top of the escrow fund calculations. Director Babin added that Calpine should have requested a draw down of funds based on market pricing but they were apparently asleep at the switch. (' ~ . (' (' (' Clerk McCarter questioned when would MMED receive the money and where does it go. Mr. Barna answered that settlement papers would arrive either tomorrow, or Monday at the latest, then would be filed early next week. A settlement hearing would be scheduled for April 18, 2006. The motion of inapplicability ofthe stay hearing scheduled for April 11, 2006 wouldn't be put off until MMED filed a settlement agreement and then it would be put off until May 18, 2006, if it is necessary. He also explained that after the April 18, 2006 hearing there would be a 10 day appeal period and if there are no objections, MMED would receive the money sometime after April 28, 2006. He stated that the debtor is in agreement as long as Calpine's Board approves. In answer to the second part of Clerk McCarter's question, Attorney Barna indicated that it was his understanding based on discussions with Director Babin and Town Manager D' Agostino that the money would be put into an interest bearing reserve trust account at MMWEC. Mr. Barna pointed out that Director Babin and Town Manager D' Agostino have been keeping up with and are on top of the market. They had considered contracts with 3 new suppliers through a competitive bidding process and selected Dominion as the best option for MMED. Mr. Barna reiterated that he recommends to the Board that they accept the settlement as presented. Motion: To authorize Town Manager John D' Agostino to enter MMED into a stipulation agreement to settle with Calpine in the amount of $9.2 million (McCarterlMcCue) Roll Call Vote: McCarter, aye; Amoruso, aye; McCue, aye Passes 3/0 Adjournment Motion: To close the Light Commissioner's Executive Session and return to Open Session. Roll Call Vote: McCarter, aye; Amoruso, aye; McCue, aye Passes 3/0 Motion: To adjourn at 7:30pm (Amoruso) Passes 3/0 6\'2\ \ 0 ~ Date of Approval ~ II