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Pedernales Electric Cooperative, Texas

Concerned members website: www.pec4u.org

What was wrong:

• Members were denied access to financial information. The utility refused to allow state auditors access to their financial records.

• The board had the ability to utilize a cooperative member’s vote via proxy for a “board approved” slate of candidates, thus undermining the cooperative members’ potential to affect any change at the board level.

• June 2008 – rates were raised for the second time in four months, for an increase of about 22% on the typical bill.

• Disclosures in the lawsuit revealed $700,000 from 2002 to 2006 charged by Pedernales executives and board members for expenses such as first-class airfare, stays at top hotels, spouse travel, concert tickets, and other items.

• A former general manager obtained $1.4 million of a deferred compensation package in the year prior to his departure, in addition to his annual $390,00 salary. A survey showed that Pedernales pay at the upper echelons was largely out of line with other member-owned cooperatives in Texas.

• Destruction of some co-op files and information appeared to be intentional during the course of the court case and criminal investigation.

• Pedernales began paying capital credits for the first time in 2007, and its previous refusal to do so was an issue in the lawsuit that eventually led to the Navigant Consulting (see below) review.

• The review by Navigant Consulting, released in December 2008, documented the former general manager’s authoritarian management style, a complacent board that rubber-stamped his decisions, and a lack of budget controls. It also detailed a systemic pattern of questionable payments, transactions and business ventures that drained the co-op of tens of millions of dollars and put the co-op at risk, with its members having little to no knowledge of what was going on. “No one was minding the store except the general manager, and no one was minding the general manager.”

• Sen. Troy Fraser said during a 2008 Senate hearing: “Most of what we are looking at goes back five years, but we have reason to believe that these abuses go back 40 years.”

What members did: A member’s complaint and request for investigation in 2007 led to the Texas attorney general eventually joining a local prosecutor in a criminal investigation against the utility.

End result:

• Texas Attorney General has convened a grand jury to investigate the mismangement at Pedernales.

• The co-op officials apologized for past mistakes. E. B. Price, longtime co-op director who became president in January, 2008 said, “There are several things we could have done better, that we were wrong … and for that I am sorry for not speaking up and taking a more active role. But I stood back in the crowd and watched everything go by, and for that I am truly sorry.”

• General Manager and board President resigned.

• A settlement was reached in May 2008 whereby Pedernales agreed to pay approximately $23 million in bill credits over a five-year period. Although Pedernales contested the settlement, they moved forward with the credits. $4.7 million in bill credits were paid out the first month.

• July 2008 - Co-op board cut their pay by more than 40%.

• January 2009 – Board of directors reduced their number from seventeen to eleven.

• January 2009 - Board approved a new communications policy that sets limits on when co-op resources can be used to issue public statements. It deleted some of the previous controversial provisions, including one that required directors to use positive language when speaking publicly about the co-op.

• The state auditor’s office is overseeing a review to look at the utility’s past ten years of operation as part of the settlement agreement.

A bill has been introduced by Texas legislators that will, if passed, restore and protect the rights of three million Texans served by more than sixty electric co-ops.

Main points:

• Provides guidelines for use of proxies in board elections

• Sets forth provisions for open meeting requirements

• Allows for executive sessions of board members, but makes all final actions, decisions and votes public; requires that written/audio records be maintained for two years

• Sets forth provisions for open record requirements

• Requires co-op boards of directors to adopt written policies for travel expenditures, reimbursement, conflicts of interest, whistleblower protections, procedures for third party professional services, and a committee to audit actions of the co-op board

• Requires annual, independent financial audits of all co-ops

• Authorizes state audits by the state auditor if approved by the Legislative Audit Committee

• Sets forth complaints process for co-op members including an initial review by a co-op’s general manager and a right of appeal to the Public Utility Commission

• Requires all co-ops to notify the Public Utilities Commission (PUC) when creating a business entity not related to its core purpose of generating, transmitting or distributing electric energy

Sources:

http://www.statesman.com/news/content/region/legislature/stories/03/28/0328pec.html

http://www.patrickrose.com/headlines/pedernales-electric-cooperative-co-op-issues-bill-credits/

http://outside.in/Austin_TX/tags/pedernales%20electric%20cooperative

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