Coop Litigation News

Tracking Legal Events involving Electric & Telephone Cooperatives

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Pedernales Electric Cooperative (TX)

Pedernales Electric Cooperative ("PEC") is headquartered at 201 South Avenue F, Post Office Box 1, Johnson City, Texas 78636.  It is the largest Rural Electric Cooperatives in the United States and provides electricity to the hill country of Texas near Austin.

PEC was where the first serious litigation involving absence of democratic rule and abuses of capital credits by Coops began in 2007.  At the time PEC was the poster boy for bad Coop behavior.  It's General Manager made well over $1 Million in salary and benefits in the year before the first lawsuit was filed.  Today's he's out of work and under a Grand Jury indictment for multiple felonies.

Today PEC is a model citizen in the Rural Cooperative community posting volumes of information on its website being open and transparent and following democratic procedures to allow its member owners to decide how their Coop is operated.

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


News

Grand jury indicts former Pedernales leader, longtime lawyer

Austin American-Statesman
Thursday, June 18, 2009

JOHNSON CITY -- A Blacno County grand jury handed down indictments Wednesday against the former top executive and former top lawyer for the Pedernales Electric Cooperative.





Many enablers led to indictments in scandal


Austin American-Statesman

Saturday, June 20, 2009


It took a civil case, a criminal investigation and relentless reporting by the American-Statesman to shed light on how the ousted leadership of the Pedernales Electric Cooperative spent ratepayer money.


All of that probing and digging resulted in a civil settlement, a stack of newspaper articles and now criminal indictments accusing Bennie Fuelberg, the former PEC general manager, and Walter Demond, the co-op's longtime legal adviser, of felonies. If convicted, both men are looking at lengthy prison terms.






Pedernales settlement makes sense -- on the whole

Austin American-Statesman
Wednesday, May 7, 2008

State District Judge John Dietz this week approved a settlement in the civil suit against Pedernales Electric Cooperative Inc. that should, on the whole, be regarded as a good one for the co-op's 220,000 member-owners.  The suit accomplished its most important mission, which was major reform of the co-op's governance, even if it fell short in its effort to force out all of the board members and make them and top managers - now retired and gone - pay back some misspent co-op money.





PEC reaches settlement with its former law firm

San Marcos Mercury
Thursday, June 18, 2009

Austin-based law firm Clark, Thomas & Winters will pay Pedernales Electric Cooperative $4.1 million to settle a lawsuit over improper payments to relatives of former cooperative officials.




In the District Court of Travis County, Texas
Worrall et al. v. Pedernales Electric Cooperative et al.
Case Number D-1-GN-07-001434

Brief Summary

This class action lawsuit was filed in the District Court of Travis County, Texas in 2007.  The Plaintiffs sought numerous types of release but primarily the recovery of unpaid excess capital credits.  The case was settled in less than two years and approximately $23 Million ordered paid to member of the Coop in addition to about $7 Million paid to Coop Members earlier as a result of the lawsuit.

For a complete list of all the allegations see the First Amended Class Action Petition.





IRS Form 990s

As non-profit corporation the Internal Revenue Service requires Rural Electric Cooperatives to file an informational return much like a corporate income tax return each year.  These "IRS Form 990s" are public information and Coops are obligate to provide access to copies to interested persons.

A study of these 990s can reveal interesting information about these Coops including things like salaries of executives and ownership of other for profit corporations.  This is a list of the most recently available 990s for PEC:

<<Pedernales Electric 2005 IRS 990>>

Often Coops that are having financial problems or are involved in litigation do not timely file their IRS 990s as the IRS does little to monitor compliance or accuracy.  So, while our list may be complete, some Coops may simply have not filed their 990s.

Buyouts


PEC says co-op 'not for sale'

San Marcos Local News
January 20, 2010

Pedernales Electric Cooperative’s (PEC) board of directors made it clear Tuesday that the largest co-op in America is not for sale.

The board made the declaration after meeting in executive session to discuss an offer made by New Jersey-based Quentin Capital Management LLC to purchase PEC.  Quentin Capital also made an offer to buy PEC in 2008.


“We remain committed to the position — as previously stated by the Board on Sept. 15, 2008 — that this cooperative is not for sale,” said PEC Board President and District 6 Director Larry Landaker.


The board directed staff to create a formal response to Quentin Capital and to develop a policy for board consideration to address any potential future offers. . . .


[Editors Note:  See Terms of Rejected Offer Below.]






Major Texas, Georgia Coops
Reject 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  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. 

Our investigation is ongoing and we'll report what we find, when we find out why the offers were rejected.


Service Area

Rural Electric Cooperatives provide electrical service to customers within a geographical area know as a "Service Area" or "Service Territory".  These Service Areas often look like highly "gerrymandered" political boundaries and occasionally there will be areas or pockets withing the boundary where the Coop does not provide service like a small town or city serviced by another electric utility.

Within these Service Areas the Coop typically has an effective monopoly with no meaningful competition.

According to its website, this is PEC's Service Area:




Coop Website

Most Rural Electric Cooperatives maintain websites but they rarely provide material information about important aspects of their operations.  In fact this failure by a Coop to be forthcoming about its policies involving patronage or capital credits is a red flag that its policies and practices are suspect.

This is PEC's website:




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