Sad City History: Hartford, The CRRA, and Enron

Last week we investigated the abundance of mattresses that populate Hartford sidewalks. We learned that mattresses were expensive to dispose of and that Hartford and many other towns waste disposal is handled by the Connecticut Resources Recovery Authority (“CRRA”). While doing some research we also learned some interesting stuff about the CRRA. 

The CRRA was established in 1973 as a quasi-public entity by Connecticut General Statute §22a-261.The goal of the CRRA was to modernize the system of town dumps with a commitment of trash-to-energy and recycling. Today the CRRA website defines its’ misison “is to work for, and in, the best interests of the 96 Connecticut towns and municipalities that it has contracts with.”

Despite this nobel mission, the CRRA has not been without controversy. In the mid 1980’s about 70 Connecticut municipalities entered into an agreement lasting until 2012 for waste disposal. The price of disposal for the towns would be based on estimates of the yearly net cost of operation for CRRA. When these estimates proved to be too high, the CRRA was to apply the surplus to next years budget estimate.

The processing facility in the South Meadows area of Hartford was constructed through the issuance of $309 million in bonds. The plant was working swimmingly and by the mid 1990’s the plant was quite profitable. Unfortunately for the towns, between 1997 and 2004, the CRRA failed to offset over $25 million in operating surplus, causing tipping fees to towns to be higher than they should have been.

It seems problems started for the CRRA when they made an illegal $220 million loan to Enron in 2001. CRRA made the loan after counsel Murtha Cullina LLP and Hawkins Delafield Wood LLP both erroneously advised CRRA that the loan was legal.  The loan called for Enron to make 138 payments of $2.375 million to the CRRA, of which eight were made. This loss caused the CRRA to have an annual revenue shortfall of about $28 million.  This caused an increase in tipping fees to municipalities.

The loan was made from proceeds that the CRRA earned from an energy deal they had entered into. Instead of making the loan to Enron, the CRRA could have used these proceeds to pay off the bond debt remaining from the construction of the facility which was at $202 million. The annual debt service for the CRRA on these bonds was $26 million.  The CRRA subsequently had to borrow $20 million from the State, and its’ Board of Directors was replaced.

Despite losing over $200 million from the Enron loan, about $150 million was recovered through litigation against Enron, Enron’s legal representation, Murtha Cullen, and Hawkins Delafield Wood.  The CRRA did not apply any of these funds to provide reimbursement to the towns for the increase in tipping fees as required by their agreements and the towns continued to pay the increased costs.

When this was discovered 70 municipalities filed a class action suit against the CRRA for the reimbursement of the over charges. The court agreed with the towns on the basis that the CRRA had been unjustly enriched by not applying the $150 million recovered from the Enron loan to revenues. The municipalities won a $35 million judgement against the CRRA.

Today the CRRA has an entirely different Board of Directors and we are told by sources that the CRRA runs an above board operation. Enron is of course well remembered, and in the wake up the financial scandals that unfolded over the next decade, history may regard Enron as being the first collapsing part of a tremendous house of cards that was the economy. At the time of Enron, we were told its collapse affected millions, here we see how it effected taxpayers and towns all around Hartford.