Question

4. Discuss, in detail, the controversy surrounding the Municipal Power Plant now known as Cleveland Public Power (CPP). The discussion should include the major players involved and the outcome. (Hint: there was a financial institution involved as well as several others including elected officials)

Answer 1

CLEVELAND, Ohio -- Although city-owned Cleveland Public Power still offers lower rates and fees than its private-sector competitor, FirstEnergy Corp., that margin appears to have shrunken dramatically in the past 20 years, according to one city councilman's analysis.

Councilman Brian Cummins, who compared 15 months worth of his own CPP bills and his mother-in-law's bills from FirstEnergy, found that on average, CPP's bills were about 10 percent lower per kilowatt hour than the competition -- a healthy buffer, but a far cry from the 20 percent savings CPP customers consistently enjoyed decades ago.

In most months, between December 2012 and March of this year, the bills were only a handful of percentage points apart. And during May and August of 2013, FirstEnergy's bills had dipped below CPP's by .25 percent and 1.71 percent respectively.

Cummins shared his analysis with Northeast Ohio Media Group as City Council prepares to consider two ordinances aimed at "resetting CPP's business model" and ensuring that it maintains its competitive advantage, despite prospects of paying above-market rates for power.

Both ordinances, recommended by a city-hired consulting firm, are on Monday's Finance Committee agenda, and NEOMG will cover the discussion live in the comments beginning at 2 p.m.

The first ordinance would allow CPP to offer commercial customers lower rates as incentives to either sign on or stay with the utility over a long-term contract. The piece also would grant CPP the flexibility to help customers budget for spikes in energy costs by spreading payments over the course of a year.

Public Utilities Director Paul Bender told council members during a council Utilities Committee hearing last week that several of CPP's largest commercial customers have threatened to leave the utility if those spikes are not levelized.

The second ordinance would authorize CPP to refinance its current debt and save cash that could be spent on a marketing campaign or service expansion program, city officials said during the hearing.

The consultants, GDS Associates Inc., projected that numerous ill-advised investments and power purchases in recent years mean that CPP will pay more than market rate for energy for the next decade and could lose customers to FirstEnergy.

The consultants added that the two ordinances are hardly a "silver bullet" for CPP's problems, but rather a starting point in redirecting the utility's course.

What more it will take might depend on just how far CPP has drifted, rudderless.

From 'Muny Light' to the Meigs County debacle

Cleveland Public Power, once known as Municipal Electric Light & Power or "Muny Light," was established in 1907 to offer cheaper competition for electricity in a market that had been monopolized by the Cleveland Electric Illuminating Company, now a part of FirstEnergy Corp.

The public utility was nearly sold to CEI in 1978 to help the city avoid default on millions of dollars in loans. But Cleveland voters nixed the sale in a special election and instead overwhelmingly supported a tax increase that allowed the city to meet its debt obligations and keep the utility alive.

However, under the tutelage of Commissioner Ivan Henderson, who was hired to head up CPP in 2006, the utility has made a number of questionable investments that many observers believe could subject CPP customers to rates so high that they would abandon the city-owned utility.  

And late last year, Standard & Poor's downgraded CPP's long-term outlook from "stable" to "negative," based on the staunch competition citywide with FirstEnergy, the public utility's heavy reliance on a small number of commercial customers, and a series of expensive, long-term contracts yielding power above market price.

In 2008, city council hired ION Consulting, a Denver-based firm, to evaluate CPP's plans to enter a long-term contract with the American Municipal Power consortium to build a coal-fired power plant in Meigs County, Ohio.

ION's report told council that intensified community opposition and environmental concerns, increases in construction costs and ever-changing technologies to control harmful emissions had made coal-fired power plants a dicey venture for most public utilities.

ION went on to warn that lenders would finance such a risky project only if the participating communities and utilities sign long-term power purchase agreements that require them to pay, whether or not they receive the low-cost power they bargained for.

Despite the warnings, CPP agreed to the "take or pay" contract.

And as ION prophesied, after several years of protests from environmentalists and a spike in the price of the project to nearly $4 billion, AMP aborted the Meigs County coal plant altogether in 2009.

Cleveland was responsible for $13 million in "stranded costs" to cover plans for a plant that was never built. Agreeing to participate in another AMP-driven deal to build a natural gas plant in Fremont whittled that cost to about $8 million.

Prairie State Energy Campus: Good intentions, disappointing results

In another dicey venture, city officials embraced a plan to build a coal-fired power plant in southern Illinois with the hope that owning a portion of the facility would help CPP control the cost of electricity for its customers in a mercurial market.

But for three months in 2012, CPP –- again locked into a "take or pay" contract -- paid a total of $753,000, though it received no electricity because the plant was inoperative and experiencing technical problems.

And in the plant's first year, CPP paid a rate 42 percent higher than the market price, though CPP's original sales pitch to City Council and the public predicted the plant's rates wouldn't hit that mark until 2025.

A report published by the Institute for Energy Economics & Financial Analysis estimated that, all told, CPP's contract to buy 24.88 megawatts of power a year for the next five decades will, by 2025, end up costing the city of Cleveland $19 million more than the market price for energy.

Other problems with the site could cause additional expenses for years to come.

During a meeting last month with some members of City Council, David Schlissel, director of resource planning analysis for the institute, reported that the power produced at the plant remains far above market price and technical problems persist.

CPP customers have avoided paying the price in the short-term, because AMP uses bond proceeds to keep its member communities' rates manageable, Schlissell said.

CLEVELAND - The class action lawsuit filed against Cleveland Public Power, claiming the public utility charged millions in unsubstantiated environmental charges, from 2007 to 2017, continues to move forward.

Attorney Jack Landskroner, who filed the lawsuit on behalf of more than 80,000 CPP customers, said notices went out to consumers last week, and the next step is the court’s determination on summary judgment in two weeks.

Landskroner told News 5 the court has to make rulings on issues of law, to interpret what the Cleveland codified ordinance allows CPP to do in billing customers.

The Cleveland Municipal Light Plant was the product of Mayor Tom L. Johnson’s vision for a city that owned or controlled all of its own public utilities and public transportation companies. Mayor Johnson’s campaign for municipal ownership was pitched under the banner of the “Three Cent Fare,” which advocated public transportation and other public services be offered to the public at an affordable $0.03 per ride. The approximate rate of 3 cents per kilowatt-hour lasted until 1957, 54 years after Johnson had proposed it. The city broke ground for the new Municipal Electric plant in 1912, with operation beginning in July 1914.

During its first six months of operation, the Municipal Light Plant did two very important things for Cleveland citizens: it offered cheaper competition for electricity in a market that had previously been monopolized by the Cleveland Electric Illuminating Company (CEI), and it immediately turned a profit for the city. This benefit to the city was recognized abroad, with major industrial cities such as New York and Chicago making an attempt to copy Cleveland’s success. The financial success, however, was a threat to CEI, initiating a business battle that would continue long after the Municipal Light Plant ceased operation.

The battle between the Cleveland Municipal Light Plant and CEI came to a boil in 1977, as CEI made an offer to the City of Cleveland to purchase the municipal lighting system in an effort to wrest the city from the large debt that it had accumulated. The mayor at the time, Dennis Kucinich, advocated keeping the municipal lighting system in an effort to prevent CEI from attaining a complete monopoly. In a political battle with the City Council, Kucinich agreed to ask the voters to decide: would Cleveland sell the Municipal Light Plant, or nearly triple the income tax rate of residents? The election was an overwhelming landslide in the favor of Kucinich and the Municipal Light Plant. Though this only worsened Cleveland’s financial situation and prevented Kucinich’s re-election, the decision helped Cleveland maintain its own municipal light system even to this day. (The system is currently called Cleveland Public Power.) Kucinich also used the legacy of his Municipal Light Plant victory to propel his political career into the House of Representatives.

Today the Municipal Light Plant still stands on East 53rd Street, but it functions in a different capacity than originally intended. In the 1970s the plant began to help ease the burden on the power grid during the hours of peak electrical demand. By the time CEI offered to buy the Municipal Plant, it was already a relic left over from Tom L. Johnson. Today, the building stands not only as an important site in Cleveland's history, but as a work of art as well. In 1997, the Municipal Light Plant became the seventy-fifth Whaling Wall, entitled "Song of the Wales," which is a work of art by Robert Wyland. The mural was part of a nationwide effort by the Wyland Foundation, a non-profit organization that aims to raise awareness for aquatic environments and habitats.

CLEVELAND, Ohio – Court records show that city-owned utility Cleveland Public Power recently resumed the practice of charging its customers a hidden fee -- despite public promises that officials would suspend the billing practice until class-action lawsuits on the matter are resolved.

Meanwhile, in a deposition for one of the lawsuits, CPP Commissioner Ivan Henderson acknowledged that for years he decided how much to tack onto customers’ monthly bills and only “mentally” reconciled the amount charged with expenses he deemed to be reimbursable by the fee.

As the class-action cases against the city and CPP enter their second year of litigation, recently unsealed documents, including internal memos and a consultant's report, have hit the docket, shedding more light on why and how CPP levied the controversial fee.

Here’s everything you need to know about the latest in the case and what it all might mean for the 75,000 customers of the utility.