Category Archives: Energy

STR Holdings Fighting To Trade Higher Than Its Bank Account

by Categorized: Energy, Manufacturing, Wall Street Date:

Despite an agreement with a Chinese contract manufacturer to begin production, STR Holdings Inc., the East Windsor-based maker of solar encapsulation materials, is hovering around a rare distinction that all publicly traded companies want to avoid.

STR closed at $150 a share on the New York Stock Exchange Friday, for a total market value of $62.6 million. As of Sept. 30, the last date for which it reported, the company had $62.25 million in cash — with zero debt.

That puts STR perilously close to the Maginot line, where the total value of all its publicly traded shares is less than the cash it has on hand. Basically, it’s the market saying the company’s operations have no value.

Nine times in the 16  trading days of 2014, STR has closed at or below that level, which is $1.49 a share. On Jan. 14, STR closed at $1.33, a market value of $55.5 million, fully 6.7 million less than its Sept. 30 bank account.

This is all the more amazing considering the company listed $132 million in assets as of Sept. 30, including not only the cash, but $10.7 million in inventory and $28.7 million in property, plants and equipment, and just $16.9 million in liabilities, with no debt at all.

Situations like this, sometimes called “negative enterprise value,” are rare, with just a small handful of companies facing it at any given time.

Does this mean the troubled company and its stockholders’ investments are doomed? Not necessarily, and in fact some see it as a buying opportunity — but not for the meek.

STR in 2013 lost its largest customer, First Solar, and closed an East Windsor factory and research center that was just two years old. In November, the company fired four executives at the level of vice president or higher, to save money, after announcing a $6.2 million loss from operations in the third quarter.  It’s closing a plant in Malaysia that opened in 2009.

The company, based in Enfield since its founding in 1944 under a different name, now lists its headquarters as East Windsor.

But this week the company said demand for its latest products in China is picking up, and it reached a deal to hire ZheJiang FeiYu Photo-Electrical Science & Technology Co., Ltd. to make materials under its specifications. It’s also revamping a leased facility in China.

Analyst Houman Tamaddon wrote a report this month in the investor service Seeking Alpha, in which he called STR a “cigar butt,” a reference to Warren Buffett’s 1989 shareholder letter that compared some bargain companies to cigar butts on the street, cheap but perhaps with a few good puffs left.

Tamaddon’s Seeking Alpha report makes the point that STR management has been frank about the problems:

The bullish case for STR is that at the current stock price, the company is very attractive. The poor performance of the company has been mostly due to macroeconomic shifts out of the control of management. A “hiccup” in the environment would drive the stock price considerably higher. If no hiccup materializes, investors can be comforted that loss of their investment is limited due to the company’s strong balance sheet. At current prices, STR, like the house wallpapered with $100 bills, presents an opportunity for investors.

Of course, as he notes, shareholders can’t easily get at all those $100 bills. And it’s possible that STR has less cash on hand, as we’ll find out when the company reports fourth-quarter results.

One way to look at odd situations like STR is through book value — assets minus liabilities. While typical, healthy industrial companies trade at 2 to 3 times book value, STR is trading at barely more than half of its $2.75 a share net worth.

That means one of two things: Either the company is worth more dead than alive, as a liquidation, or it has nowhere to go but up.  The shares went public in 2009 at $10 and reached a high of $27.68 a year later.

For Connecticut, the game is largely lost, as STR, which had 300 local employees in 2011, has just a bare bones home-state staff. One bright note: Although STR did receive $829,000 in federal tax credits, it’s one of the rare firms that did not see any state assistance.

 

 

UConn Report: Wind Turbines Don’t Lower Home Prices In Mass.

by Categorized: Energy, Real Estate Date:

Most people would assume that houses in the shadow of a wind turbine might sell for less money than they would if the turbines were not there, especially if the turbines produce noise or so-called shadow flicker.

That’s what a couple of researchers, including one from UConn, figured they might find in a study of Massachusetts house sales near turbines.  But that’s not what they found, according to the report, released last week by the University of Connecticut and Lawrence Berkeley National Laboratory.

mass turbine study map

The study looked at 122,198 sales of single-family houses within five miles of a built or announced wind turbine, between 1998 and 2012. The authors, Carol Atkinson-Palombo, assistant professor of geography at UConn, and Ben Hoen, staff research associate at Lawrence, said their study was the first to look comprehensively at the effects on prices of urban and suburban homes near small-scale turbines.

Their conclusion:

The results of this study do not support the claim that wind turbines affect nearby home prices. Although the study found the effects from a variety of negative features (such as electricity transmission lines and major roads) and positive features (such as open space and beaches) generally accorded with previous studies, the study found no net effects due to the arrival of turbines in the sample’s communities. Weak evidence suggests that the announcement of the wind facilities had a modest adverse impact on home prices, but those effects were no longer apparent after turbine construction and eventual operation commenced.

Anyone who tries to apply that conclusion in, say, Colebrook, Connecticut, may find an argument. In that rural town, BNE Energy won approval for six turbines totaling 9.6 megawatts in 2011 but that and all other wind farm projects are on hold while state officials review the rules.

Critics will say that the effect on each house is unique, for example, at the historic bed and breakfast a few hundred yards from the proposed Colebrook site. That’s true. But meanwhile, Connecticut remains the only state in the region without a wind farm and three years later, it still has no rules in place. That’s not smart, legal or ethical.

 

 

 

Lawsuit Over Alternative Power Says Esty Overstepped Authority

by Categorized: Energy, law, Utilities Date:

Connecticut’s headaches over two long-term deals for renewable power, including a large contract with a Maine Wind Farm, now include a lawsuit by a New York firm that owns competing solar generation facilities.

Allco Renewable Energy Ltd., based on Wall Street in New York City, submitted bids from five solar facilities when the Connecticut Department of Energy and Environmental Protection sought bids in July for 15-year contracts to sell power to Connecticut Light & Power.  In September, the department awarded contracts to a Maine wind project and a solar project located in Connecticut — but not to Allco.

Allco filed a lawsuit against Dan Esty, the DEEP commissioner, in U.S. District Court in Connecticut, claiming the contracts amount to the state setting wholesale power rates. That’s against the Federal Power Act that gives U.S. regulators the exclusive right to oversee wholesale markets, Allco said in the lawsuit, which was filed Nov. 27 and seeks to have the deals revoked, along with other relief.

Allco’s lawsuit also said the pricing of the contracts was not done properly under federal law, and that its offer was for a lower amount than one of the winning bids.

The most controversial of the contracts is for 250 megawatts, with the so-called Number Nine Wind Project in Maine, which has not yet been built. Critics say that agreement raises concerns about transmitting the power, and could lead the state to ignore renewable energy sources that are based locally.

Allco “will suffer irreparable harm” because its solar facilities “are competing for a limited supply of long-term renewable energy contracts in Connecticut, and the defendant’s interference with the wholesale energy market in violation of the FPA will cause the Plaintiff to suffer substantial economic losses,” the lawsuit said.

The Department said it conducted the bidding and awarded the contracts properly after working closely with the state Attorney General’s office, the Office of Consumer Counsel and outside lawyers.

“We are confident we followed all legal requirements during this process and are eager to advance Governor Malloy’s agenda of bringing cheaper, cleaner, and more reliable energy to the residents and businesses of Connecticut,” said department spokesman Dwayne Gardner in a written statement.

 

Hoping For Pipeline Work, A Union Trains Installers

by Categorized: Energy, Government, Jobs, Labor Date:

We could be years away from a big buildout of natural gas pipelines under the state’s long-term energy plan, but when it happens it could be big.

So on Tuesday, the International Union of Operating Engineers Local 478 flexed some muscle by demonstrating its new training program for unemployed and underemployed workers hoping to get into the pipeline pipeline. The Meriden-based union local would like the work to go to its members, of course, and is offering up $4 million worth of equipment for training, along with experts.

“For over 100 years, Local 478 has been a top provider of highly skilled operating engineers in the state of Connecticut,” said Craig Metz, business manager for the local, in a written release.

The idea, pushed hard by Gov. Dannel P. Malloy, who was on hand Tuesday, and encoded in an energy bill adopted earlier this year by lawmakers, is for the state to take advantage of natural gas supplies by building out a transmission and distribution system that regulators said could exceed 900 miles.

Predictions call for a shortage of crews in a state that now adds just a tiny fraction of that pipeline amount in a typical year. The operating engineers’ training program drew a lot of cheers from labor, construction and political quarters, as Lori Pelletier, executive secretary treasurer of the state AFL-CIO called it a perfect example of government-labor cooperation.

It does look like a good idea and it’s better to be ready than not ready. The danger is that worker training programs are rife with potential pitfalls — especially if the work never materializes. Natural gas could spike in price, the planned buildout could face delays or another shock to the labor market could create a glut of pipeline workers.

But in both energy planning and labor markets, educated guesses are all we have. And for now, we think we’ll need pipeline installers for the next decade.

STR Takes Extraordinary Measure As Partial Meltdown Continues

by Categorized: Corporate finance, Economic Development, Energy Date:

The long, slow meltdown at STR Holdings Inc. intensified Wednesday as the solar materials maker announced it was firing four ranking executives including Barry A. Morris, the chief operating officer.

This isn’t a shakeup. No, in a federal filing, the Enfield-based company said it’s eliminating the four positions “in connection with ongoing cost-reduction measures.” Also leaving next month are the vice president for human resources, the chief technology officer and the vice president for finance.

Remaining executives, including CEO Robert S. Yorgensen, will pick up the slack, the filing said.

Robert Yorgensen in 2010, better times for STR Holdings. Michael McAndrews/The Hartford Courant

Robert Yorgensen in 2010, better times for STR Holdings.
Michael McAndrews/The Hartford Courant

While some people might take pleasure in seeing a company eliminate jobs at the top rather than just laying off rank-and-file workers, this is not a good development for anyone. Cutting four top jobs to save money is the sort of measure that happens at the most desperate firms, and STR has posted operating losses totaling $8.7 million in the first two quarters of 2013 on sharply lower sales.

STR, in fact, had the ignoble distinction of trading at a market value below the level of its cash on hand for a few weeks this summer, according to Forbes. That means the market is basically saying the firm is worth more dead than alive.  On Wednesday, shares closed at $2.26, down just 2 cents, perhaps partly due to its strong, debt-free balance sheet and the fact that Wall Street likes cost-cutting.

Morris made $440,000 in 2012, according to federal filings, including value realized from stock and stock options. The salaries of the other executives were not listed.

The near-demise of STR proves the shakiness of picking winners — by investors and by public agencies that hand out loans, grants and tax credits — even in industries that apparently can’t fail.  There is no record of any backing by the state Department of Economic and Community Development, but in 2010, STR received federal tax credits totaling $829,000 as the government attempted to build up the solar industry.

STR, which had revenues of $288 million in 2008, went public at $10 a share in November, 2009. A year later the shares hit a high of $27.68, as STR, which makes encapsulation materials for solar panels, seemed impervious to the collapse of solar panel prices caused by China’s entry into the industry.

In 2010, with 290 employees in Connecticut, STR decided to move its local plant from Somers to East Windsor, expanding its work force further. But it’s been mostly downhill from there. STR has closed the plant, relying on operations in Malaysia and Spain, and in January of this year, announced it had lost its biggest customer, First Solar.

I couldn’t find the number of employees the company now has in Connecticut — some of the decline was due to the sale of a business a couple of years ago — and a spokesman did not return calls seeking comment.

Sales in the first half of this year fell below $20 million, but as with any public company CEO, Yorgensen  put his best spin on his Aug. 7 earnings release. “Despite continued headwinds, we have begun production-scale shipments of our next-gen EVA-based encapsulants to three new customers in China,” he said in the release.

A Federal Grant With Distasteful Logic

by Categorized: Education, Energy, Health Care, Public finance, Trade Date:

Press releases about federal grants are routine news, but here’s a head-scratcher that came in last week.

Two community colleges in Connecticut — Capital (in Hartford) and Housatonic (in Bridgeport) — will receive a total of $4.5 million to train people in health care, information technology and environmental technologies, according to the U.S. Department of Labor. The grants are part of a $475 million set of national payments, which itself is part of a $2 billion, multi-year program to funnel money for “innovative training programs” at community colleges.

The $2 billion is through the Trade Adjustment Assistance program, which helps workers whose jobs are lost through increased imports or work moving overseas.

Nothing odd in any of that, until we look at the explanation behind the local grants, which my colleague Mara Lee noticed.

Capital and Housatonic are part of a “Northern Resiliency Consortium” of seven community colleges “in four Northeastern states (New Jersey, New York, Connecticut and Massachusetts) that have been devastated by crises and natural catastrophes, including: Hurricane Sandy, the Sandy Hook Elementary School shootings and the Boston Marathon bombings.”

The explanation goes on to say that the community colleges will prepare trade-impacted workers, veterans and others in the three named sectors, which “play a critical role in times of crisis.”
A separate press release said the training could be used for skills in manufacturing, transportation and any science-technology fields.

Huh? Let’s get this straight: Two mass crimes and a weather event created the need for training in a vast range of job sectors?

All told, the seven colleges will receive $23.5 million. This could end up being money well spent, and in fact, U.S. Sens. Chris Murphy and Richard Blumenthal participated in an announcement about the grants in Hartford on Monday. The value of the training is not the issue here.

The point is, the hurricane and the two tragedies are utterly unrelated to one another, utterly unrelated to the need to train workers in those fields and utterly unrelated to foreign trade. This is “innovation” gone amok, creative wordplay designed to look nifty as an excuse to spread taxpayer money around.

Invoking Hurricane Sandy is fine.  But invoking Newtown and the Boston Marathon as a reason to train workers in a vast range of unrelated job skills crosses the lines of bad taste.

Egan Reich, a spokesman at the U.S. Department of Labor, was not familiar with the programs because he was filling in for colleagues out on furloughs forced by the sequester when I called Friday. Irony noted. Reich thought about it and said using the crises might have just been a “flourish of language” in the effort to advance needed training.

“Those sectors aren’t being targeted because they play a critical role in times of crisis; they are because they’re growing,” Reich said.

At Capital Community College, John McNamara, director of institutional advancement, said the training will not be so broad, but will focus largely on emergency medical response, cyber-security and other areas whose need was highlighted in the tragedies.

“There’s no intent to exploit the God-awful stuff that has happened, particularly in our state,” he said. “It’s a legitimate effort to use these monies to enhance and upgrade what we do in terms of training for responses to these disasters.”

Good plan, poorly expressed in the consortium’s 256-page grant application. If we need more training, it isn’t because of Newtown. That tragedy should not become a catch-all reason for spending money.

Here’s a better idea: Let’s just hand out $2 billion to community colleges if that’s what we want to do, and stop forcing these resource-strapped institutions to stretch the bounds of logic in distasteful ways.

T. Boone Pickens In Hartford: CT Is Tops In Natural Gas

by Categorized: Energy, Politics Date:

Connecticut has had some low rankings in various business and economic lists lately, some silly, some serious. But on natural gas policy, energy magnate T. Boone Pickens has declared the state a winner.

T. Boone Pickens, left, with Speaker Brendan Sharkey Dan Haar/The Hartford Courant

T. Boone Pickens, left, with Speaker Brendan Sharkey
Dan Haar/The Hartford Courant

“Maybe the best in the country,” Pickens said on a visit to Connecticut last week. “The state of Connecticut is going pretty damn good, from talking to the governor.”

Pickens, who made his fortune as a corporate raider in the oil and gas industry in the 1980s, in recent years has been the nation’s leading proponent of natural gas, especially for transportation systems, and wind power. He was in town to receive an honorary degree and speak at the Goodwin College graduation, where he talked about creating personal plans and working hard — not about energy, spokesman Lee Sawyer said.

The 85-year-old billionaire had been at Goodwin to deliver a lecture in 2009, when he was in East Hartford with energy ally Rep. John B. Larson.

On Thursday, he stopped in on Gov. Dannel P. Malloy, and on House Speaker Brendan Sharkey in a year when Malloy is pushing hard for expansion of natural gas lines to broaden the fuel’s use for residences and businesses.

It was unclear what, if anything Pickens would like Connecticut to do  — he didn’t answer that question directly when I asked — but he’s also involved in the more controversial liquid natural gas, which has storage concerns.

“It’s going to work for heavy-duty trucks,” Pickens said of LNG.

Workers Petition For Operators’ Union at Millstone Nuclear Plant

by Categorized: Energy, Labor, Utilities Date:

The International Brotherhood of Electrical Workers has petitioned federal labor officials for a vote to create a 450-person union at the Millstone nuclear station in Waterford, which now has no collective bargaining among nearly 1,200 employees.

A vote could happen this summer. IBEW Local 457, which also represents about 700 Connecticut Light & Power employees, petitioned the National Labor Relations Board after collecting a required number of signatures of employees seeking the balloting.

Millstone workers covered under the petition include operations employees, skilled trades, maintenance, testing technicians and others — 25 job classifications at both reactor units that are still active, according to John Fernandes, business manager of Local 457.

Employees have held votes on whether to form a union at least twice in recent years. That gives hope to Dominion Resources Inc., the Richmond, Va.-based company that bought Millstone in 2000 from a group headed by CL&P, that workers will again reject the bid.

“Dominion respects the rights of its employees to organize, but we believe the best way for us to move forward at Millstone is in a non-union environment where we can work together on an individual and personal basis,” Dominion spokesman Ken Holt said in a prepared statement.

This time is different, said Fernandes, whose union lost a bid to organize at Millstone in 2001.

“What they call ‘austerity programs’ are just taking from the workforce,” Fernandes said. “They’ve been stripping from their benefits, the workforce is not as hefty as it once was…they’re making money but they don’t went to share it with their employees.”

Millstone workers approached the union earlier this year, Fernandes said. “They’ve had enough.”

He declined to say how many signatures IBEW collected other than to say it was a “strong majority.” At least 30 percent is required to petition for a union vote.

The main issues are job security and benefits, Fernandes said — same as with other high-skill unions such as the linemen that IBEW represents at CL&P.

Dominion supplements its local workforce with outside contractors, which is fine for specialized work such as repairs, Fernandes said, but he added, “on a regular basis, they should have their own people.”

Most but not all of the affected workers are paid by the hour, eligible for overtime, Fernandes said.  Pay, in general, is not a big dispute at Millstone.

“We have a very talented workforce and that’s reflected in their pay,” Holt said.

The petition represents one of the largest organizing efforts in Connecticut in recent years and it sets up a battle that’s becoming more common in organized labor: highly paid workers concerned not about pay but job security and broader issues.

A hearing is scheduled later this month at the NLRB office to determine whether the 450 employees are properly categorized as a bargaining unit. Holt declined to say whether Dominion would fight to petition — the company has done so in the past, Fernandes said — and if the unit is approved, a vote would be scheduled within 45 days.

The subtext here, which Dominion would probably not say in so many words, is that these workers are not, in management’s opinion, the sort that should be organized in unions. Their jobs in many cases are unique, and they, along with management, must have tremendous flexibility to quickly solve problems. If that means assigning someone to a task that’s not in a job description, so be it — it’s part of the modern economy.

That’s the management argument, and it’s true that flexibility can mean more efficiency. But workers higher up the skill and pay chain may organize into unions when they fulfill their end of the bargain without seeing respect and gaining security from the large companies making the demands.

We’ll see at Millstone whether the equation has changed since the last vote in the mid-2000s, when a different union tried to organize this group.

As Lawmakers Debate Energy Auction, Customers Lose Out On Savings

by Categorized: Energy, Public finance, Utilities Date:

Regardless of whether state lawmakers decide to auction Connecticut Light & Power and United Illuminating retail electricity accounts to private marketing companies as a way of raising cash for the state, the issue will cost money for 665,000 customers.

On July 1, electric customers who buy generation through the “standard service” plan at CL&P — 665,000 households and small businesses, upwards of half the total in Connecticut — were likely to receive a reduction in their generation rates of 5 percent to 8 percent.  That would mean about $2.80 a month for the average customer, or $35 for the next 12 months.

Now that price cut isn’t going to happen. The power companies, which buy electricity under state supervision, were unable to lock in lower rates because they were unable to guarantee energy traders that they would still have all those customers in the second half of this year.

The result: Generation rates will remain where they are come July 1, rather than taking advantage of lower market prices. Ironically, it’s all because of the threat of an auction that would, its supporters say, bring the benefits of free-market competition to customers.

“Even with just the specter of this auction being there, we lost all of our buying power for 2013 and into 2014,” said Jeff Gaudiosi, the state’s power procurement manager, an employee of the Public Utilities Regulatory Authority who oversees CL&P and UI power purchases.

The auction itself might or might not be a good idea, but Gov. Dannel P. Malloy is pushing hard for it to happen because it would raise an estimated $80 million to $100 million, a one-shot boost for the state budget.

That’s not a good enough reason to do it. If the auction would bring lower rates to customers, let’s do it.  If not — and there are strong arguments on both sides — then it would be a potential disaster.

In fact, the state taking the proceeds of the auction is a cash grab, in effect a tax. That asset — the value of your retail business — rightly belongs to you as an electric ratepayer. Since the private marketing firms are willing to pay $100 or more per account, it makes sense that the ratepayers should see some of that money.

Put another way: If I get, say, $50 or $75 for allowing the state to auction my CL&P account to some company I never heard of, I might be a lot more willing to play ball. Then if Malloy and lawmakers must raise taxes or cut services somewhere else to make up for it, we’ll have an honest debate.

Here’s how the auction issue shapes up: In 2000, the retail market for electricity was moved from the power companies, under state price regulation, to private marketing firms. Dozens of those marketers are trying to sell power to customers at rates they say are better than the standard offer, and so far 47 percent of customers have gone that route.

Anyone who doesn’t switch remains with CL&P or UI, and pays a rate that’s overseen by the state based on a state-approved buying strategy. That’s what the standard offer is, and it now totals 7.615 cents per kilowatt hour at CL&P, down sharply in recent years.

Either way, you pay one monthly bill to CL&P and UI, and all customers pay the same distribution rate, which is also regulated, and is about twice as large as the generation rate.

The auction, part of Malloy’s proposed budget, would take segments of 100,000 customers and hand them to the highest bidders. There are 800,000 customers under the standard offer, including the 665,000 at CL&P and the rest at UI.

Under the proposal, modified in a new agreement to satisfy skeptical lawmakers, anyone who wanted could opt out of the auction and remain with the standard offer. Malloy had originally wanted all customer accounts sold.

Those marketers would not be allowed to charge a fee for customers switching, and they would have to offer a 5 percent reduction below the standard offer for the first 12 months.

But guess what — that 5 percent reduction was based on the present price of generation, and according to Gaudiosi, the state’s procurement manager, standard service customers were going to see at least that much anyway because of market conditions — and because of a new buying strategy that the state was going to put into effect this year.

Worse, the window for lower prices might be closing, Gaudiosi said.

“Right now they’re at a holding pattern,” he said. “That big drop that we saw over the last couple of years is kind of ending.”

We don’t know for sure what the actual savings would have been. It could have been less than 5 percent in the end. And of course, it’s not unheard of for proposed legislation to affect markets; think military-style rifles. But if the lost savings were, say, 8 percent, we’d be looking at $4.25 a month for the average customer, not $2.80.

Gaudiosi was hired under a restructuring law adopted by the General Assembly in 2011, which put oversight of electricity procurement for CL&P and UI under PURA, the regulatory agency.  For years, the power companies bought most of their electricity in three-year contracts, by law, and the new rules changed that — allowing Gaudiosi and the power companies to go out for 12-month contracts, saving money as cheap natural gas from shale brought prices down.

That new buying strategy was supposed to start in 2013.  UI enacted some of the strategy at the start of this year, and will see some savings. But CL&P did not, because of the looming auction issue and the timing of its contracts.

The loss of savings for customers will anger opponents of the auction. Their argument about the auction itself is that a smaller standard offer pool, with less buying power, will mean higher prices and will not set a low enough bar for the private marketers to meet — as the standard offer does now.  They also say the auction would let some companies take unfair advantage of people who are not equipped or inclined to follow developments and change their service.

Supporters say there are enough private marketers to compete fiercely. The entry of hundreds of thousands more customers into a system with strong consumer protections would make the market all the more robust and would drive down prices further, they say.

It’s hard to say who’s right on that issue. We’ve seen deregulated markets work well for customers (airline prices) and poorly (telecom and cable rates).  But already, electric customers are in the hole.

John Erlingheuser, the chief lobbyist for AARP, is among the staunchest opponents.  He heard about the lost savings earlier this month, and recalled the early days after Connecticut’s retail generation market was deregulated and rates shot up.

“I thought, here we go again, crazy energy policy is affecting rates.”

Electric Grid Operator’s Move Could Fetch $4 Million From State in Questionable Deal

by Categorized: Energy, Public finance, Utilities Date:

ISO New England, the nonprofit business that runs the region’s electricity grid, is in line for $4 million in state assistance for a $39 million back-up control center that’s under construction in Windsor.

The control center would replace a smaller back-up facility in Newington, which ISO-NE — the Independent System Operator, based in Holyoke, Mass. — said will soon be outmoded and can’t be expanded.  It will have 25 employees at first, with room for as many as 145 people in a state-of-the building off Day Hill Road, and it will act as a simulator for the Holyoke control room.

ISO New England’s local expansion is good for the Connecticut economy and it performs a crucial function. But it raises serious concerns.

The state assistance deal, a forgivable loan that could be approved by the Bond Commission as soon as Jan. 25, was uncovered by my colleague Brian Dowling, who also learned from federal documents that ISO will use Connecticut’s borrowing power to finance as much as $36 million at phenomenally low interest rates.

ISO, one of seven regional electric grid operators in the United States, is established and regulated by the Federal Energy Regulatory Commission, which must approve the ISO budgets.  The money comes from fees levied on generators such as Dominion Resources, owner of the Millstone nuclear station, and transmission companies such as Connecticut Light & Power.

Since we pay for all of this through electric rates that are regulated by the state, and since ISO is a regulated, sole-source provider, the company is, in essence, performing a government function.  That’s partly why it’s able to borrow through a quasi-government agency, Connecticut Innovations.  It’s similar to the shadow government that includes such agencies as the Metropolitan District Commission and the Port Authority of New York and New Jersey, although unlike those groups, ISO has an independent board, not publicly appointed.

Using public borrowing power makes sense, since that saves us money. But why should the taxpayers hand over $4 million for an outfit that walks and quacks like a quasi-public agency? The agency should locate its offices where it makes the best sense for us, the region’s ratepayers, without considering greenmail from one or more states.

ISO, in fact, didn’t wait for the $4 million loan through the state Department of Economic and Community Development. It went ahead and bought the land and started the work because Windsor made the most sense under ISO-NE’s own criteria, including distance from Holyoke and highway accessibility.

This is especially nettlesome since Connecticut  state officials — the Public Utilities Regulatory Authority under Chairman Arthur H. House; Attorney General George Jepsen; and state Consumer Counsel Elin Swanson Katz — formally opposed ISO New England’s $165 million budget for 2013, and persuaded FERC to hold a hearing on it.  The budget is up by nearly 10 percent from last year and the payroll has ballooned from 180 in 1997 to a proposed 563 today.  More than half of all staffers earn at least $100,ooo a year, and, the Connecticut officials said, received bonuses averaging 9 percent in 2012.

All of this might be fully justifiable and the Jan. 24 hearing could show that. ISO-NE has the vast role of creating and managing a daily and long-term market for power, a job that became much more complex after 1998 when utilities were forced to sell generation plants. And ISO must plan for and coordinate the region’s electricity needs, all of which it appears to do smoothly.

Still, this business is financially accountable to the public and probably ought to be more so — perhaps with a publicly appointed board, for example, or, as the Connecticut officials suggest, with annual, public budget hearings. And part of that means it does not participate in the sort of corporate relocation greenmail that is unavoidable in the true private sector — and which costs the taxpayers dearly, for better or for worse.

Jim Watson, spokesman for the state Department of Economic and Community Development, said Connecticut was in a competition with Vermont and Massachusetts, and acted wisely by offering the money.

“Our primary focus is making sure that this investment and those jobs stay in this state and not a neighboring state,” Watson said.

The loan forgiveness terms are easy for ISO to meet: It must reach 25 jobs within three years and keep them here for at least a year.  At $160,000 per job, $4 million is a steep price to pay, but Watson and ISO expect the number of employees to rise higher. So, why not set a higher target for the money?

The broader question is whether the ratepayers of New England need a facility that costs $465 per square foot on top of the $6 million in computer equipment that will live there.

“This new facility is needed to ensure we can continue to provide these essential services without interruption and meet federal power system reliability requirements,”  ISO spokeswoman Marcia Blomberg said in an email.

As with ISO-NE’s staffing and budget, that may well be true.  The Newington location is smaller and inferior to all six other ISO back-up sites across the country, ISO-NE  documents show.  ISO-NE is not guilty of hiding its plans, as this has all been filed publicly and has been the subject of open meetings.

Still, it ought to be a more public process, akin to CL&P rate cases.  And it ought to deploy site location methods that exclude greenmail pitting taxpayers against ratepayers.