Last month Rappahannock Electric Cooperative (REC) announced an innovative new pilot program. The goal is to change how much and when member-owners use electricity. REC wants to reduce how much electricity member-owners use on the hottest summer afternoons. This is when demand for electricity is highest. REC will pay some member-owners to use less electricity at these times.
REC says reducing demand at these times will save a significant amount of money. REC says the amount it pays for wholesale electricity is not just based on the total amount of electricity it purchases. A significant part of the cost is how much electricity the utility buys during the five highest-consumption (peak) hours each summer. REC passes its wholesale power costs right on to us consumers. REC says the total cost of our electricity will go down if it can lower our total power consumption during peak times.
No one can know ahead of time which five hours each summer will end up being the peak five hours. But utilities have a pretty good idea. They know that they tend to be in the late afternoon on the very hottest summer weekdays. They can use weather forecasts to predict those days ahead of time. REC wants to pay member-owners to reduce their consumption between 4 and 6 p.m. on approximately 15 hot summer days. It says this will reduce REC’s total consumption on what eventually turn out to be the year’s five peak demand hours.
Under the program, REC will notify participating member-owners a day ahead of each of the likely 15 peak days. This will allow those member-owners to voluntarily reduce their electricity consumption the next day during the selected hours. REC will then compare their usage during those peak hours with their average consumption during the same period on the ten previous non-peak weekdays. It will pay the member-owner 75¢ for each kilowatt-hour reduction in usage in comparison to their ten-day average. Participating member-owners can save substantial amounts. But, all REC members will save by the reduction in overall year-long wholesale power costs.
We commend REC for proposing this program. It has the potential to reduce all REC member-owners’ bills, even if they don’t participate in the program. REC’s proposal shows that reducing power consumption on hot summer afternoons saves money for everyone.
Sadly, REC hasn’t acknowledged member-owner installed rooftop solar offers similar benefits. It can also help lower the co-op’s peak summer demand. REC officials and board members have wrongly suggested members-owners who don’t have solar “subsidize” those who do. REC has been reluctant to admit that homeowner solar, and also efficiency upgrades, have a significant role to play in reducing costs for all co-op members.
Other co-ops have figured this out. Arkansas’ Ouachita Electric Co-op and North Carolina’s Roanoke Electric Co-op have. They both have programs to help their members install and pay for efficiency upgrades and rooftop solar. This reduces bills for all co-op members.
This is another example of how REC’s unfair election practices harm member owners. Giving current board members control of election outcomes has kept the board of directors insulated from new ideas and member concerns. The co-op’s new pilot program is a small step in the right direction. REC still has a long way to go to catch up with industry leaders like Ouachita and Roanoke. These cooperatives are reducing members’ bills while increasing the share of clean energy in their power mix.
NRECA’s own Governance Task Force Report supports the key governance reforms Repower REC seeks. An REC vice president was on the task force.
Repower REC has argued for two years that Rappahannock Electric Cooperative (REC) needs reform. Now we’ve learned that a formerly secret report, written by REC’s own trade association and made public last week by a watchdog organization, agrees with us. A National Rural Electric Cooperative Association (NRECA) task force authored the report. NRECA is the national trade association for America’s 900-plus electric co-ops. Its report supports two key planks of our campaign:
REC should reform its board of directors election process; and
Member-owners should be able to observe board meetings.
But REC’s board refuses to discuss, much less put these reforms in place.
The NRECA task force had 20 distinguished electric-co-op leaders. Their job was to examine governance problems at the nation’s electric co-ops. The NRECA Governance Task Force issued its report in February 2018. It was available to all electric co-op board members and managers. It is reasonable to assume REC board members and senior management have been aware of its recommendations since early 2018. REC Vice President John Hewa was a member of the task force.
REC’s blank proxy election practice allows REC’s board to determine election outcomes. Member-owners who leave their proxy ballot forms blank are deemed to have delegated their vote to the board itself to cast for them. This gives sitting board members the power to assign the member-owner’s vote as the board sees fit. As a result, the board’s controls several thousand blank proxies each year.
The board has used these blank proxies to alter election results three times in the past four elections. Three times the board-favored candidate failed to receive the most direct votes. But these candidates still won election because the board cast thousands of blank proxy votes for the board’s favored candidate.
The NRECA report recommends against giving incumbent boards a large number of proxy votes. It says this “may give the perception that the board controls or improperly influences director elections.”
At REC it’s not just a perception. It’s the reality.
John Manzari ran for a board seat this past August. He ran on a platform seeking reforms that we now know NRECA recommends. He received the majority of votes cast directly by members. But he still lost the election because the board cast more than 2,000 blank proxy votes for the incumbent.
REC employees solicited and collected many of these blank proxies from member-owners. They did so when member-owners came to the co-op’s offices to pay a bill in cash or resolve a payment issue. REC employees talked up the prizes these co-op members could win by signing the form.
The employees said it was okay to leave the form blank. They insisted the form be returned on the spot to the employee. This leaves the members no time to inform themselves about the candidates.
The employees’ action ran counter to the stated rules of the election. Member-owners were to mail their ballots to an independent election administrator. The REC employees’ irregular practice prevented members from informing themselves about candidates. Worse, it encouraged member-owners to cast blank proxies only to have a chance to win a valuable prize.
By allowing these election practices incumbent REC board members are rigging the system. They’re allowing their favored candidates to hold on to well-paid positions for many decades. They want board members to do so without real accountability to the co-op’s member owners. These favored candidates are usually sitting board members themselves.
NRECA’s governance task force recommended another reform Repower REC seeks. Repower REC has urged REC to open its board meetings to co-op member-owners. The Task Force said open meetings “facilitate transparency and openness.” Further, the Task Force argued open board meetings “strengthen the democratic nature of cooperatives.” Many electric co-ops around the country allow this. REC’s board has fiercely resisted it.
This has forced Repower REC to go to court. We’ve done so to demand the board allow us to petition for a member-owner vote to change the board’s unfair practice. REC contends member-owners don’t have the right to vote on whether their co-op’s board meetings should be open for member-owners to observe.
The REC board’s refusal to consider these issues in a dialogue with Repower REC is unjustifiable. Even more disturbing, REC’s board accused Repower REC’s co-founders of lacking “good faith” for even proposing these two reforms.
We now know these are same reforms REC’s own trade association recommended. Further, an REC vice president served on the task force that made them.
We don’t know why REC’s board has so strongly resisted common-sense, democratic, NRECA-recommended reforms. These needed changes would bring our co-op in line with best governance practices.
It’s hard to avoid the conclusion that board members don’t want to compete on a level playing field in fair elections. Nor do they want their constituents to know what board members are doing. REC’s board must end the undemocratic blank proxy system that allows the board to control election outcomes, and to open board meetings.
Rappahannock Electric Cooperative held its annual meeting last month and announced the results of the board election. While all three incumbents won, a full tally of the voting shows the vote was close. Importantly, but for the board’s use of its unfair blank proxy balloting system, a reform candidate would have won!
This is the first time in at least a decade that an incumbent’s challenger has earned more of what we call “real” votes than an incumbent. By “real” we mean votes other than blank proxies that the board uses to control elections.
Many REC members spoke about the confusing and unfair proxy ballot system during the meeting. They raised concerns about the level of transparency and accountability at REC as well. We knew from the beginning it would take a multi-year campaign to build strength to bring transparency, accountability, and fair elections back to our cooperative. It’s hard to win an election when your opponent has a 2,700+ vote head start.
The election results are a good time to highlight the many ways our reform campaign has already succeeded. We’ve gotten REC to disclose board compensation, audited financial statements, and election vote tallies. This information was not available to co-op members when we started. They could only get it if they knew to ask for it. They then had to sign an onerous form agreeing to pay damages to REC for unauthorized use of the information.
Now co-op members can find all this on REC’s website. We’ve also seen the Board back on its heels about its unfair proxy balloting system. This includes Board Member Chris Shipe making unfounded claims that the process is approved by the Virginia’s State Corporation Commission.
In the wake of the election, area media has continued the drumbeat of questions to the way REC operates. Check out these two pieces from the Winchester Star:
Today REC reform candidates Andrea Miller, Mike Biniek, and Jack Manzari sent a letter to the Rappahannock Electric Cooperative (REC). The letter asks REC to restore time for candidate speeches during next week’s annual meeting. REC announced this change to candidates via a letter to board candidates. Not allowing for candidate speeches limits the ability of member-owners who attend the meeting to make an informed choice.
REC’s decision to cancel candidate speeches this year is another example of the lack of transparency and accountability with which REC often operates.
The board denied three co-op members’ right to start a petition that would allow for a vote on changes to the bylaws that govern how REC and its board operate. These changes would make board elections more fair and give member-owners a clearer understanding of how the electric cooperative is spending our money.
We’ve also been disheartened to learn that REC employees are soliciting on-the-spot, uninformed proxy votes from cooperative members who visit REC offices to pay their monthly bill. This practice encourages the signing of blank proxies and stacks the deck in favor of incumbent board candidates. Urging a member-owner to vote with little or no information about the candidates greatly increases the likelihood they will sign a blank proxy just to be entered to win a prize. The REC board’s unusual practice is to treat blank proxies as a delegation of the member’s vote to the board itself. In practice, this provides incumbent candidates with a 3,000-plus vote leg up in the election. No wonder well-paid board members often stay on the board for 35 to 40 years or more.
If you are an REC member-owner who has not yet voted, there’s still time to take action to reform our co-op. You can do so through your online account through Monday, August 19 at 5 p.m. Vote for Andrea Miller, Mike Biniek, and Jack Manzari to restore accountability to our electric cooperative.
In 2014 Rappahannock Electric Cooperative began holding annual “Get Connected” events each May. These were open to all co-op members and featuring free dinner and entertainment such as bands and dancers. The food is good, the entertainment is top-notch, and the dinners are often very well-attended. REC rotates the Get Connected locations around the co-op’s service territory each year. And each year the co-op promotes the event heavily in the area surrounding the dinner location. REC has also always announced the dinner a month or two ahead of time in Cooperative Living, the free monthly magazine that goes to all REC members.
This year there was a subtle but important change that most REC members likely didn’t notice. The event, held on June 6 outside Winchester in an area with many thousands of REC members, was moved a few weeks later to June. And while REC promoted the dinner heavily in a few counties around Winchester, there was no advance notice in Cooperative Living.
What else was different about this year? For the first time in more than a decade (and likely much longer) all three REC board seats up for election this summer have candidates challenging incumbent board members, What’s more, three of the challengers are running a coordinated, issue-based campaign. That hasn’t been done before. The proxy form/ballots arrive in all co-op members’ mailboxes in just a couple of weeks with the July issue of Cooperative Living, on or around July 1. Votes can be cast by mail or online as soon as the forms arrive. So June is prime board-campaign season.
We’ve written previously how the REC board’s unusual and unfair election practices allow the incumbent board members to all but control election outcomes. And that no doubt plays a significant role in why handsomely paid incumbent board members tend to stay on the board for decades, if not life. Because of REC’s failure to announce the Get Connected dinner in Cooperative Living this year the challenging board candidates did not know about it, and thus had no opportunity to attend and mingle with voters in the upcoming election. All three incumbent board members running for re-election did attend the dinner and no doubt did plenty of meeting and greeting. Given the good food and quality entertainment, and with 1,000 people attending this year, it’s likely that this Get Connected dinner cost the cooperative $15,000 or more. (We asked REC a year ago to tell us how much the co-op spends on the Get Connected dinners. It refused to tell us.)
When asked why REC failed this year to follow its five-year practice of always announcing Get Connected dinners in Cooperative Living, an REC spokesman said “space was limited” in the magazine. Even accepting that explanation at face value, one wonders why no one in REC management or on the board notified the four challenging candidates of the dinner. The event was obviously planned months ahead of time. Management and board members knew about it well in advance. And senior management and incumbent board members recently met with the four challenging board candidates.
As a matter of basic fairness, transparency, and democracy, the four challenging board candidates should have been told of the dinner. One of the challenging candidates, Mike Biniek, even lives in REC Board Region I, in which the dinner was held. Yet he too was not notified, and REC did not promote the event in Biniek’s portion of the heavily gerrymandered Board Region 1.
At last August’s REC annual meeting, REC CEO Kent Farmer was asked about the co-op’s practice of having incumbent board members control board election outcomes by controlling thousands of “member undesignated” proxy votes. In trying to defend the co-op’s unusual election practice Farmer said that trying to overcome the 3,000+ vote headstart given to board-favored candidates “is the responsibility of the [challenging] candidate.” Farmer pointed out that to be successful, challenging board candidates should be “showing up at social events or civic events to let [co-op] members know, ‘hey I’m so-and-so and I’m running for a seat on Rappahannock’s board. I’d like your support and these are the things that I’d like to bring to the board.’”
No doubt REC’s three incumbent board candidates did just that at the June 11, REC-financed dinner for co-op members. The four challenging candidates didn’t have the chance.
REC still has a long way to go in living up to the core cooperative principles of genuine democracy and fair election practices. We need new board members committed to those principles, who will ensure that REC management commits to them too.
Click here to learn more and how you can help bring accountability back to the Rappahannock Electric Cooperative.
Over the past year we’ve pointed out many undemocratic and unfair practices at Rappahannock Electric Cooperative (REC). These practices result in REC’s generously paid board of directors being more accountable to co-op management than to consumers. Yet we consumers, who are member-owners of REC, are supposed to have input into the operation of our cooperative. We deserve a board of directors that is accountable to us, and looking for innovative ways to bring us affordable power.
One consequence of the REC board’s lack of accountability is that many REC members are paying more than they need to for electricity. We recently reported how REC locked itself into paying above-market rates for wholesale power, thanks to a 45-year contract REC’s board approved with REC’s power supplier, ODEC. This means it’s all the more important to look for ways to reduce customers’ bills. In fact, REC’s trade association recently acknowledged that many rural electric cooperative consumers in Virginia are having trouble paying their electric bills.
REC does offer advice to members who know to ask for it, but a look at what innovative rural electric co-ops are doing elsewhere reveals that REC could be doing far more to help all co-op members lower their bills. Many REC members could reduce energy usage (and bills) significantly with upgrades to major appliances and heat pump/AC units. Many more could reduce bills even further with home improvements such as better insulation, new windows and doors, duct sealing, and the like. But consumers who are struggling just to pay their monthly bills can’t easily afford these energy-saving options.
In Arkansas, Ouachita Electric Cooperative has a program called HELP Pay As You Save (PAYS). With PAYS the cooperative does a free comprehensive home energy audit to determine the best ways to reduce electricity usage. Then the co-op pays for the upgrades needed to make consumers’ homes more energy efficient. The cost is then recovered through reductions on the member’s monthly bill. Part of the reduction goes to the co-op, to reimburse it for the upfront costs. But there’s still enough overall reduction in energy costs to lower the consumer’s monthly bill even after paying the co-op for the upgrades. Even better, once the co-op recovers the upgrade costs, the consumer’s monthly bill goes down even more.
rec board a ‘no show’ on member savings programs
Ouachita’s video on PAYS notes that electric cooperatives, because they are nonprofit and member-owned, are uniquely well-suited to help their members reduce bills with programs like PAYS. Ouachita General Manager Mark Cayce gave the keynote speech at the ACEEE rural energy conference last fall. He explained that PAYS not only helps consumers reduce their bills, but also helps the co-op reduce its expenses for high demand charges at peak usage times. That helps lower bills for all co-op members, even those who don’t take advantage of PAYS. Board members from other rural electric cooperatives attended the conference and gave Cayce a standing ovation, but no Rappahannock Electric Cooperative board member attended.
Roanoke Electric Cooperative in North Carolina has a similar program to reduce its members’ bills, called Upgrade to $ave. In a video, Roanoke’s CEO Curtis Wynn explains how Upgrade to $ave helps co-op members lower their bills with home efficiency improvements paid through bill reductions. Wynn is a nationally recognized electric cooperative leader. In fact he was recently elected president of the National Rural Electric Cooperative Association. As with PAYS, Roanoke’s program is available to all co-op members, but is especially helpful to those who can’t afford to pay the upfront costs of home energy improvements. These programs aren’t just for homeowners either; renters can also take advantage of them. South Carolina electric co-ops offer similar programs. But not REC.
federal money left on the table
Last year the US Department of Agriculture made $100 million available through its Rural Energy Savings Program to help electric co-ops implement energy efficiency programs. So why doesn’t REC offer an option like PAYS or Upgrade to $ave to its members? We don’t know, because we don’t know what happens at REC board meetings, and REC’s board doesn’t want us to know. The board won’t even allow REC members to vote on making board meetings open for members to observe.
What we do know is that REC’s board has a go-along-to get-along culture that discourages challenging REC’s management. It’s time for REC to catch up with co-ops like Ouachita and Roanoke and bring real efficiency and lower bills to all REC members. That will require electing new board members willing to push for consumer-friendly programs like PAYS and Upgrade to $ave.
One year ago, three longtime REC members submitted proposed bylaw changes to the Rappahannock Electric Cooperative (REC) with the goal of restoring member-control and financial transparency to our cooperative. The three simple changes were intended to improve REC governance and ensure fair board elections by:
Allowing co-op members to observe REC board meetings where important decisions are made regarding member utility rates, capital credit retirements, and customer options;
Requiring REC to publish each board member’s total annual pay once a year in Cooperative Living magazine, the publication that goes to every co-op member; and
Clarifying the proxy ballot form in REC board elections to reform the current practice where the board uses blank “member-undesignated” proxy forms to effectively control election outcomes. For an example of how this abusive practice works, look at the 2017 board election tally form, which shows how thousands of the blank “member-undesignated” proxy forms were used to change the outcome of a board election in which General John Levasseur (US Army, Retired) won by a wide margin among those who voted for a specific candidate.
REC’s bylaws and Virginia law give electric co-op members the right to propose bylaw changes for members to vote on at the co-op’s annual meeting. But before a proposal can be voted on by the full co-op membership, the proposing member must obtain 500 signatures on a petition form issued and approved by REC’s board. For over a year now REC’s board has refused to provide the petition form needed to collect the signatures.
Last July, the three REC members, after first trying unsuccessfully to engage in dialogue with REC’s board about the issue, asked Virginia’s State Corporation Commission (SCC) to require REC to provide the petition form. Earlier this year, the SCC ruled that it did not have jurisdiction to hear such a case, and said it should instead be brought in a state court.
Last week the three REC members re-filed their action in the Fifteenth Judicial Circuit Court for Spotsylvania County, asking the court to order REC to provide the petition form. We’ll keep you updated as the lawsuit proceeds in court.
In the meantime, as our campaign grows, and with your support, we’ll continue to seek to hold REC accountable to the standards of transparency that cooperative members deserve. We’ve already been successful in getting small democracy and transparency reforms. We won’t stop until REC members can exercise our right to propose common-sense bylaw amendments, observe board meetings, and participate in fair elections.
It’s unfortunate that this matter has to be resolved by litigation. REC’s own magazine, Cooperative Living, has published editorials in recent years describing how a co-op member’s right to propose bylaw changes for a vote at the annual meeting is at the heart of the democratic process that makes a cooperative a cooperative. REC talks a lot about the supposed “cooperative difference,” but the talk is often empty.
A recent editorial in The (Charleston) Post and Courier that supports a bill for more transparency in electric cooperatives is a must-read for the following people in Virginia: electric co-op officials and their well-paid board members, legislators, and news reporters.
Our co-ops in Virginia are far from transparent. Help us take back our electric co-op by demanding more transparency and democracy from Rappahannock Electric Cooperative. Check out our upcoming community events and get involved.
Given the past few tumultuous years for South Carolina’s electric utilities one lesson seems more pertinent now than ever: The more sunshine, the better.
Nearly 30 concerned co-op members attended our Repower REC community forum Feb. 2 in Madison. Many thanks to Rural Madison for helping to spread the word before the meeting. Among those attending were five members of REC’s board of directors – a sure sign that our push for reforms is being heard.
Repower REC co-founder Seth Heald focused, with aid of a slide presentation, on the serious lack of financial transparency and democracy problems at our electric co-op. Heald explained how REC fails to tell its members key details about the $400 million in capital credits that are retained on the co-op’s books in individual accounts with co-op members’ names on them. It’s our money, but the co-op won’t tell us its policies on when we can expect to get it back. More on this issue and its importance to every REC member is available here.Click here to download the presentation.
Another issue that resonated with the audience was our explanation of how REC’s board uses thousands of blank “member-undesignated” proxy forms to control board-election outcomes. Much of this happens in ways that the co-op has not disclosed to its members in the past.
Our push for genuine transparency is shining a much-needed light on this unfair practice. When the board itself controls election outcomes, and well-paid board members stay on for decades if not for life, the voice of cooperative members is not being heard in board elections. Democracy isn’t working.
REC board chair Christopher Shipe, responding to our presentation, acknowledged that the co-op needs to improve its transparency. He said the co-op this summer will — for the first time ever — allow board candidates to post a campaign video on REC’s website to help voting co-op members be more informed about their choices. It remains to be seen whether REC will try to control the content of candidates’ messages to keep them from discussing issues facing the co-op, as REC has done in the past with candidates’ written statements.
Shipe also mentioned that the board at some point imposed term limits on itself. Heald pointed out how the board keeps that secret, by not putting the term limits in REC’s publicly disclosed bylaws. Nor do the board’s secret term limits appear to have any teeth, seeing as how last summer REC’s longest-serving board member was re-elected after being on the board for the last 37 years.
We’re making slow but steady progress as we grow our support to bring full transparency and genuine democracy to REC.
Repower REC is pushing Rappahannock Electric Cooperative to be more transparent about its finances and board policies. As co-op members, we – and you –own REC. A business’s full financial transparency with its owners is essential. Without complete information from the business we own, we can’t tell whether REC board members are living up to their responsibility to look out for our best interests.
Complete information is especially important concerning capital credits because REC has nearly $400 million of its members’ funds – our funds – retained as capital credits. These amounts are allocated in accounts at REC with our names on them. But REC won’t tell us how much is in each of our individual accounts unless we know to ask. That’s unacceptable. We’ve been asking REC to put this basic information about our total investments in our co-op on our monthly bills. But so far REC has declined to do so.
And REC won’t even disclose its policies on retiring capital credits. One of Repower REC’s co-founders, a long-time REC member, asked for that information last year, but REC refused to provide it to him. A National Rural Electric Cooperative Association (NRECA) task force report recommends that electric co-ops keep their members well informed about the co-op’s capital credit policies:
Every cooperative should have a communications plan for educating members about capital credits and the cooperative’s capital credits policies. Every director and each employee should understand the policy and be able to explain how it works and why it was adopted to members who have questions.
But when a longtime REC member (and Repower REC co-founder) last year asked the co-op to disclose its capital credit policies, REC dismissed his request by saying that Virginia law does not require it to do so. We wonder how many of REC’s board members have read, or even know about, the NRECA recommendation that all U.S. electric co-ops be fully transparent about their capital credit policies. And how many current board members are able and willing to explain those policies to co-op members? We’re still waiting for that explanation.
What are capital credits, and why should REC members care about them?
So what are capital credits? They’re probably the most important aspect of what distinguishes a nonprofit electric cooperative (like REC) from a for-profit, investor-owned utility like Dominion Energy Virginia, which is owned by shareholders.
Generally speaking, the amounts REC receives each year in excess of expenditures are called “margins.” As a nonprofit, tax-exempt electric cooperative, REC can’t just keep these funds for itself. Rather, it allocates annual margins to the co-op’s members in proportion to those members’ patronage of the co-op during that year. Then, each year, REC’s board decides how much of the total accumulated capital credit allocations – about $400 million in 2018 – can be retired (returned) to REC members that year. The board doesn’t just decide how much will be returned, it also sets policies that determine how long REC will hold on to members’ funds that aren’t returned, and what methodology will be used to determine which members get what amounts, and when. These decisions have significant impacts on REC member-owners, yet REC’s board makes them in near-total secrecy. The lack of transparency is stunning and entirely unwarranted.
Why should we care about capital credits? Because the amount involved is huge – $400 million – and it’s our money. Most REC members care a lot about how high (or low) their electric rates and bills are, and rightly so. But as business owners with significant amounts invested in our co-op, we should also care about our investment in the business, especially when our combined investments total hundreds of millions of dollars. By keeping us in the dark about REC’s capital credit policies, REC makes it hard for us to see how important capital credits are.
Now it’s perfectly appropriate and normal for REC to keep a large amount of our patronage capital for its use, invested for a time, in the co-op’s business. That’s how co-ops work. But for how long a time? And when can a member expect to see his or her investment returned? Those are the important policy details that REC fails to disclose to us. Of course, some of those details depend on the financial condition of the co-op. Our investment in our co-op, like any investment in a business, depends on the financial condition of our co-op. But the co-op should still have goals and policies. And it should disclose those to its members, as the NRECA task force recommended over a decade ago. REC’s failure to do so is disturbing.
Last November REC announced that it was “retiring” – returning – $7.8 million in capital credits to its consumer-members, in the form of credits on their bills. REC’s announcement of these capital credit retirements said that REC was “investing back in members through these credits.” But that’s misleading. REC isn’t “investing” in its members at all. In fact, the truth is just the opposite – REC members invest in REC. And when REC retires members’ capital credits the co-op is simply returning a portion of members’invested funds to them.
To know whether REC’s $7.8 million in total retirements/refunds of capital credits last year was a fair amount requires some context. Unfortunately, REC and its board of directors haven’t given REC members that context, which would require disclosure of REC’s capital credit policies and goals.
The $400 million of members’ funds currently tied up and invested in capital credit accounts at REC is about double the total amount members had invested in the co-op a decade or so ago. As co-op members we deserve (and need) to know what policies REC’s board is following in determining when we REC members can expect to see our investments in REC returned to us, and how the board is making that important determination.
Many U.S. electric co-ops publish their capital credit rotation policies and practices on their websites. A rotation schedule gives a goal of how long a co-op expects to hold on to its members allocated capital credits. For example you can see the policies of Pedernales Electric Co-op in Texas here and here (goal of a 30-year rotation, meaning all margins retained 30 years ago will be refunded this year, financial conditions permitting), the policies of Webster Electric Co-op in Missouri here (“well within the [NRECA-recommended] standard 20-year rotation”), and the policies of Oconto Electric Co-op in Wisconsin here (“It is [the] goal of the board to keep capital credit retirements on a 20-year rotation”).
REC fails to disclose this basic capital credit information to its members.
The co-op’s board of directors is supposed to be looking out for the interests of co-op members. Board members should be knowledgeable enough to challenge REC management on this issue if it is management that is behind the lack of transparency. But as we’ve explained elsewhere, it appears that most or all board members don’t view their jobs as entailing challenging management on matters of policy. Or perhaps they simply don’t understand capital credits well enough to make an informed challenge.
We honestly don’t know whether REC is retaining excessive capital credits, because of REC’s lack of transparency about its affairs. Each year when credits are retired, REC mentions the total amount retired in Cooperative Living magazine. But REC focuses almost exclusively on the amount that is retired, rather than the much larger total amounts of members’ capital credits that the co-op retains and accumulates (i.e., the amount that is not retired). In fact, neither Cooperative Living nor the REC website reveal how much in total capital credits are allocated to members’ accounts each year, or the total accumulated capital credits that are on the co-op’s books. One has to find and examine REC’s financial statements to unearth that information.
Each REC member is told on his or her November or December bill how much his or her individual credit allocation is for that year, and how much his or her retirement amount is for that year. But the bill does not list the member’s total accumulated capital credit balance. Nor is that total accumulated balance included on REC’s password-protected online Smarthub account, where co-op members can see all sorts of other information about their accounts.
For elderly, longtime co-op members, and for large users, those accumulated capital-credit balances can be quite substantial – many thousands, or tens of thousands, of dollars. It’s hard to avoid the conclusion that REC withholds easy access to that information from co-op members because it doesn’t want them to be thinking about or asking questions about how much of their capital credits are being retained by REC and for how long. That’s not how a co-op should work. We deserve better and need a board that is fully committed to transparency.
What we can do?
There are two things REC members can do to work for greater transparency on capital credits. First, they can join Repower REC in pushing REC’s management and board to comply with NRECA’s transparency recommendations.
But it’s clear that the current REC board, or at least a good portion of it, isn’t up to the job. Some board members have served for 30 years or more. They have had access to NRECA’s capital credits task force report for 15 years, yet failed to ensure that REC implemented the task force’s transparency and education recommendations.
The second thing is to vote for board candidates who will pledge to work to make REC fully transparent on capital credits. We need new board members who are committed to and accountable to the co-op’s membership, and committed to full financial transparency at the co-op we own.