Coop Litigation News

Tracking Legal Events involving Electric & Telephone Cooperatives
Home
News
Cooperatives
Criminal
Issues
Buyouts
Capital Credits
Criminal
Democracy
Economic
Environment
Taxation
Tort
Lawyers
Litigation
Legislative
Opinion
Resources
Scholarship
States*
Support Groups
Current Coop Litigation Issues



Here we attempt to highlight some of the more interesting and more important issues concerning Rural Electric Cooperatives and Rural Telephone Cooperatives involved in litigation.

Some of these links take you outside of the Coop Litigation News website so we aren't responsible for the content. 



Capital Credits


Capital Credits:
Failure to Rotate

Capital Credits belong to Coop Members and constitute their their equity ownership in the Coop.


Coops are obligated to return these credits to Members over time and the period of time it takes the Coop to repay Capital Credits is known as "Rotation".  Rotation periods of 10 to 20 years are reasonable but Coops that take longer than 50 years to Rotate or repay Capital Credits are excessive and potentially violating state and federal law.


This issue is being litigated with several Coops.


Cobb Electric (Georgia) Litigation


Capital Credits:
Discounting

Coops are obligated to return the Capital Credits constituting Members equity ownership in the Coop.  These Capital Credits belong to Coop Members and are similar to the stock ownership of conventional for profit corporations.


Many Coops do repay Capital Credits but reduce the amount paid to Members for their Capital Credits under the theory that since the Members are getting their money back early it should be reduced or "Discounted".


Some believe that Discounting is appropriate provided that the amount is not excessive and the Members are given notice of what is being done; however, some coops have applied excessively large discounts and failed to fully reveal what they are doing.


This issue is being litigated with several Coops.


CoServ Electric (Texas) Litigation



Democracy


Democracy:
Lack of Member Control

Coops belong to their Members; however, many Coops have management and Boards that have come to believe that it is "their" Coop and the Members should not meddle or participate in any meaningful way in the management of the Coop.


These Coops make it difficult or impossible by requiring Members to obtain the signatures of impossibly large numbers of other Members to even be hear by the Board.


One requires over 30,000 signatures just to place an issue before the Coop membership for a vote.


One Coop requires over 60,000 affirmative votes to pass a resolution at an annual meeting where 2,000 votes are the most ever cast ballots in the 70 year history of the Coop.


Still others impose voting requirements that guarantee the reelection of longtime Board members.


This issue is being litigated with several Coops:


CoServ Electric (Texas) Litigation



Environment


Environment:
Herbicides

Many Coop Members hold strong environmental beliefs and believe that their Coop should not be using chemicals that harms the water, air and earth.


Yet some Coops knowingly use harmful herbicides to control vegetation on its right of ways even though their Members have objected arguing that saving a few dollars is unwise.


This a controversial issue at several Coops.


Carroll Electric (Arkansas) News



Environment:
Global Warming

Many Coop Members hold strong environmental beliefs and believe that their Coop should not be adding to to problem of global warming.


Yet some Coops knowingly continue to fund additional power plants that burn coal to generate electricity which harms the environment and adds to the problem of global warming.


This a controversial issue at several Coops.


Buyouts


Buyouts:
Rejected Buyout Offers

The Coop Litigation News has recently become aware of an extremely interesting turn of events involving Rural Electric Coops. 

A substantial investor has made credible offers to "buyout" or purchase for cash at least two major Coops lock, stock and proverbial barrel.  Both offers involve over $500 Million.

To quote Don Corleone from the Godfather motion pictures these are seemingly "offers that [the Coops] can't refuse." 

Reliable sources have told the Coop Litigation News that the terms of both of the offers are virtually identical:
  • Pay 100 cents on the dollar to current and former members of the Coop for their capital credits.
  • Assume and/or pay all outstanding debt of the Coop.
  • Freeze electric rates for three years.
  • After three years electric rates would be set by the state public utility commission.
  • Not fire any rank and file employees absent good cause.
  • Keep the current Coop board of directors.
  • Keep current management of the Coop.  (Naturally incompetent or corrupt managers like those indicted or facing indictment would not be retained.)
We understand both offers were backed by major institutional investors with billions of dollars in assets willing to purchase these Coops in a matter of months.

Such offers look to be one of those cliched "win win" situations:
  • This would quickly infuse hundreds of millions of dollars into the local economies from out of state investors.
  • Nationwide the average Coop member has over $1,000 -- many have over $10,000 -- in capital credits which they would receive in cash in a few months.  Money that it will take decades for the Coop members to receive under existing Coop management -- if ever.
  • The Coop would become a taxable entity adding millions of dollars to state and/or local budgets.

But for some unknown reason the Boards of Directors of both "Buyout Targets" -- Cobb Electric in Georgia and Pedernales Electric in Texas -- have rejected the offers.

This issue is known to exist at two Coops:




Economic


Economic:
Excessive Compensation

Once Coop management becomes entrenched, they often begin to have a sense of entitlement to excessive pay and compensation.


Clearly employees are entitled to a fair wage for their work but at most Coops management has few responsibilities since they (i) have no competition, (ii) have a monopoly, (iii) are not regulated and (iv) are not supervised by state or federal government and (v) there is no market for the Coop "stock" so market forces do not deter malfeasance.


Other than deciding how much to mark up the electricity they purchase, the most important duty of Coop managers is to decide what color of pickup trucks to buy for the Coop's fleet.  Such responsibilities does not justify compensation of many hundreds of thousands of dollars but still several Coop Managers make nearly $1 Million a year if not more.


This issue is being litigated with several Coops:





Economic:
Management Corruption

Another issue the full extent of which is not fully known is that of plain old corruption.


Entrenched managers and compliant Boards at some Coops have taken actions that have lead to criminal investigations and criminal indictments.


While this may not be widespread, it has surfaced at Coops which have been subjected to the scrutiny of vigilent Coop Members and competent and aggressive lawyers representing them.


This issue is being litigated with several Coops:


This page was last modified on Thursday, January 28, 2010