REC goes to trial to block member-owner by-law proposals

On Tuesday December 21, 2021, at 9:00 am, the case of Heald, et al. v. Rappahannock Electric Cooperative goes to trial before Judge Joseph J. Ellis, of the Virginia Fifteenth Judicial Circuit, in Spotsylvania Courthouse, VA. The court is located at 9107 Judicial Center Lane Spotsylvania, VA 22553. See links below for prior news coverage of this matter. The trial is expected to shed an unusual amount of light on the generally secret work of the board of directors of Rappahannock Electric Cooperative (REC) one of Virginia’s largest electric cooperatives, and the opaque manner in which REC’s board members control the outcome of all annual board-of-director elections. 

The issue at trial is whether REC’s board improperly refused to give the plaintiffs a form to use to gather signatures for proposed changes to REC’s bylaws. The three plaintiffs, all member-owners of REC, are Seth Heald, a retired Justice Department lawyer; Dr. Mike Murphy, a retired Clarke County school system superintendent; and Brigadier Gen. John Levasseur (US Army Retired), a former member of REC’s board. An electric cooperative, like any consumer cooperative, is owned by its consumers, who are referred to as “member-owners.”

The proposed bylaw changes (which were submitted to REC in April 2018) would require REC to:

  1. allow REC member-owners to observe their co-op’s board of directors meetings,
  2. alter its proxy form in a manner to reduce the likelihood of REC board incumbents controlling all REC board-election outcomes, and
  3. disclose its board of directors’ compensation once a year in the cooperative’s member magazine. 

Virginia law and REC bylaws allow electric cooperative members to propose bylaw changes for co-op members to vote on at the co-op’s annual member meeting. REC bylaws require that a co-op member wishing to propose a bylaw change collect 500 supporting signatures using a form provided by the board. Then the proposed change can be voted on at the cooperative’s annual meeting. Richard Johnstone, former CEO of the Virginia, Maryland, and Delaware Association of Electric Cooperatives, has called voting on bylaw changes at Virginia electric co-op annual meetings “an old-fashioned exercise in democracy that’s both refreshing and resilient, a living reminder of a time when civics was still widely taught in school; when neighbors would gather regularly to catch up on news; and when citizens would get together to make important decisions about their shared welfare ….”

But REC refused to provide the requested petition form, claiming that the plaintiffs’ proposed bylaw changes would violate Virginia law. In a 2020 letter decision the court rejected most of REC’s arguments but said a trial is necessary to determine whether the proposed bylaw changes would “alter the existing bylaws to the extent that the Board could not continue to execute its statutory role.”

Two of the three 2018 bylaw proposals are based on similar proposals that Heald submitted to REC in 2012. At that time there was no requirement that a proposal be supported by any petition signatures. REC refused to put the 2012 proposals on the ballot at the 2012 annual meeting and the board then amended REC bylaws to add the 500-signature requirement.  

Plaintiffs’ challenge to REC’s actions was originally filed at the Virginia State Corporation Commission, but the Commission determined that the case should be brought in a Virginia court, so the case was then filed with the Fifteenth Judicial Circuit Court.

A governance task force of the National Rural Electric Cooperatives Association (NRECA) issued a report in 2018 recommending that electric co-ops:

  1. allow their member-owners to observe board of director meetings,
  2. avoid proxy-voting practices that give board members control of board-election outcomes, and
  3. embrace robust disclosure of board compensation. REC’s president and CEO, John Hewa, served on that task force. For details of the governance report see: https://powerforthepeopleva.com/2019/12/17/release-of-secret-nreca-governance-report-supports-virginia-electric-co-op-reform-groups-efforts-to-restore-democracy-at-their-utilities/

For earlier press coverage of this case see:

“Rapp Electric Co-op hit with legal petition” in the Rappahannock News in August, 2018: https://www.rappnews.com/news/government/rapp-electric-co-op-hit-with-legal-petition/article_b2e9127b-21a8-5c3d-8276-1208eb656f82.html

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