Opinion ID: 797855
Heading Depth: 2
Heading Rank: 6

Heading: CIP Funding and Repayment on the Loans

Text: 22 Within months of the expansion of the CIP, Minnesota Power and NSP began funding Northern Pole using CIP conservation funds. On September 3, 1999, NSP made a $150,000 payment of CIP funds to Northern Pole. John James deposited the funds into the Northern Pole account. Days later, James made a payment of $110,000 on M & M's loan with Town & Country Bank and a $10,840 payment on the C & J Properties loan. These funds came directly from the CIP funds provided by NSP. 23 On October 20, 1999, Minnesota Power made a $250,000 payment of CIP funds to Northern Pole. Again, James deposited the funds into the Northern Pole account. On October 25, 1999, James used the conservation funds to make a $81,878.82 payment on M & M's loan and another payment of $10,840 on the C & J Properties loan. These funds came directly from the CIP funds provided by Minnesota Power. 24 Although Jennings told James he did not want to know the details of the payments, James and Jennings did discuss the payment status of the loans. Jennings did not tell his business associates that he was making payments on the loans with CIP funds. In late 1999, contrary to M & M company policy and in violation of corporate bylaws, Jennings began signing loan extensions by himself. The extension documents reflected the fact that Northern Pole had made payments to M & M and C & J Properties. 25 Because CIP conservation funds are essentially public funds to be used for the public's benefit, CIP projects must be approved by the Minnesota Department of Commerce. NSP and Minnesota Power did not seek approval from the Minnesota Department of Commerce until after the first CIP payments were made to Northern Pole. The Department of Commerce staff had concerns about the Minnesota Power proposal to provide $250,000 of conservation funds to Northern Pole. Jennings approached then-Commissioner of Commerce Steve Minn about the Minnesota Power proposal and told him that Minnesota Power's funding of the program had gotten ahead of the approval by accident. Jennings requested, and received accommodation. Commissioner Minn approved the Minnesota Power expenditure. 26 In September 1999, a citizen named Gary Olson learned from contacts within NSP that NSP was going to provide grant money to Northern Pole. Olson had a company named Product Recovery, Inc., a company already in the business of providing utility recycling services to NSP. Olson became concerned for his business and began to investigate Northern Pole and the CIP legislation passed in 1999. Olson sought Northern Pole records at the Secretary of State's office and Jennings's disclosure filings. Olson did not find any financial association between Northern Pole and Jennings in the disclosures. Olson began writing letters to the Department of Commerce and legislators complaining that Northern Pole was getting special treatment because of Jennings. 27 In December 1999, Jennings met with Olson. Jennings told Olson that Jennings was not involved with Northern Pole; he claimed he was just helping a constituent. Jennings indicated he had been unaware of any other companies that were providing pole services and assured Olson that Product Recovery, Inc. could get CIP funds as well. Jennings asked Olson to send a letter to the Department of Commerce retracting his earlier complaints. During a telephone conversation that Olson surreptitiously recorded, Jennings indicated that Northern Pole would be receiving approximately $600,000 in CIP funds. Olson drafted a letter retracting his complaints, faxed it to Jennings for his approval, and sent it to the Department of Commerce on December 10, 1999. 28 In early 2000, Jennings learned that the Department of Commerce staff was recommending that the Commissioner not approve NSP's proposed funding for Northern Pole. The staff was concerned that the proposal had no demonstrated energy savings and that the project was basically dreamed up to benefit somebody in Representative Jennings's district. Jennings called the new Commissioner of Commerce, Jim Bernstein, to a meeting to promote the Northern Pole funding proposal. During this meeting, Jennings indicated that Northern Pole was a constituent and that the proposal was important to him. Jennings did not disclose any personal financial interest in the proposal. 29 On March 1, 2000, Jennings wrote a letter to Commissioner Bernstein on Jennings's official House of Representatives stationery stating that, as the author of the legislation, he intended the CIP legislation to permit exactly this kind of funding. On March 7, 2000, Bernstein approved the prior and future funding of Northern Pole from CIP funds. The decision required an open bidding process to permit other potential bidders to receive CIP funds. Ultimately, the only company to receive research and development funds for pole recycling from Minnesota Power was Northern Pole, and the only companies to receive CIP funds from NSP were Northern Pole and Product Recovery, Inc. Product Recovery, Inc. only received these funds for services it had already been providing; not for research or development. No other company ever received any CIP funds for research and development. 30 As part of its decision, the Department of Commerce also required an accounting of the CIP funds Northern Pole had received in 1999. In May 2000, Jennings, James, and Vitalis fabricated a report that purported to account for the expenditure of CIP funds already obtained by Northern Pole. Jennings personally delivered the report to the utility companies. 31 In May 2000, the Town & Country Bank closed due to its insolvency and improprieties. Ultimately, James was indicted and pleaded guilty to bank fraud. Before the bank closed, James and Jennings prepared a letter for the bank examiners, signed by Jennings, regarding the bank loans made to Jennings's entities. James testified that Jennings signed the letter even though Jennings knew it included false information. Shortly thereafter, the FDIC sent loan verifications to M & M and C & J Properties to verify that they still owed $149,000 and $333,951.67, respectively, on the loans they took on behalf of Northern Pole. The loan verifications reflected the payments that were made using CIP funds. Jennings filled out the verifications, confirming the amounts still owed. The FDIC took over the M & M and C & J Properties loans after Town & Country Bank's closure. After the bank closed, Vitalis moved the Northern Pole checking account, and James had no further involvement in the financial affairs of Northern Pole. 32 In the fall of 2000, M & M repaid the FDIC for its loan and was in turn reimbursed in full by C & J Properties. In order to pay off the FDIC for the C & J Properties loan as well as reimburse M & M, Jennings made arrangements for C & J Properties to borrow approximately $425,000 from the Lake Area Bank. Payments were made on the Lake Area Bank loan from both C & J Properties and M & M, but Jennings's business associates deemed the payments to have been made on Jennings's behalf and kept track of how much Jennings personally owed them. 33 In the following years, Jennings persisted in his requests to NSP for further funding. On July 24, 2000, NSP made another $100,000 payment of CIP funds to Northern Pole. The same day, Vitalis wrote a $10,840 check to the FDIC, as payment for the C & J Properties loan. On September 13, 2000, Vitalis wrote a $20,000 check to the FDIC as another payment for the C & J Properties loan. These funds came directly from the CIP funds provided by NSP. 34 On May 4, 2001, NSP mailed a third $100,000 payment of CIP funds to Northern Pole. On June 2, 2001, Vitalis wrote a $15,000 check to the Lake Area Bank. These funds came directly from the CIP funds provided by NSP. Jennings told Secretary/Treasurer Moses to use the check Vitalis had written to pay down the Lake Area Bank loan, which Moses did. At or near the time of the 2000 and 2001 payments, telephone records reflected contacts between Jennings, a NSP lobbyist, and Vitalis. 35 The last payment came on February 14, 2002, when NSP paid Northern Pole $50,000 of CIP funds. On February 22, 2002, Vitalis wrote a $25,000 check payable to the Lake Area Bank. These funds came directly from the CIP funds provided by NSP. Again, Jennings told Moses to use the check Vitalis had written to pay down the Lake Area Bank loan, which Moses did. 36 From 1999 to 2002, Northern Pole received $650,000 in CIP funds from Minnesota Power and NSP. In return, Northern Pole provided the utilities with a three-ring notebook of research. Northern Pole had paid Jessica Vitalis, who was Vitalis's daughter-in-law and had no scientific background, approximately $35,000 to complete the research, 6 which consisted of a survey of research already done in the field. According to testimony at trial, the report had no value to the utility companies. Of the $650,000 of conservation funds obtained by Northern Pole, $284,398 was used to make payments on loans held in the names of M & M and C & J Properties. 7