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.
Last week, the hearing examiner issued a report in the case before the State Corporation Commission (SCC) brought by three REC members who seek reforms to bring more transparency and fair elections to REC. The hearing examiner asked the three SCC judges to consider whether the SCC has jurisdiction over the case. We won’t likely see a decision by the three judges until February or later. Should the SCC decide it lacks jurisdiction the three members would still have recourse to bring the matter in a state court. The jurisdictional issue has delayed the case, but it will eventually get resolved, either by the SCC or a court.
We’ll be sure to keep you informed as the process continues. Whatever the SCC judges decide, we’re glad that this process will bring future clarity for Virginia co-op member-owners seeking to reform their co-ops.
Our friends at Appalachian Voices featured our campaign to bring transparency and member control back to Rappahannock Electric Cooperative in the latest issue of The Appalachian Voice.
Here’s an excerpt:
In April 2018, the group informed Rappahannock of their intent to put three bylaw amendments up for a vote at the co-op’s 2019 annual meeting. The amendments would open board meetings to the public, reform board election procedures and allow the public to see how much board members were paid.
But when Repower REC asked the co-op for the necessary paperwork to begin collecting the required 500 signatures to put the amendments on the ballot, the Rappahannock board of directors refused.
So, in August, three Repower REC members filed a petition with the Virginia State Corporation Commission, alleging that the co-op was breaking state law by withholding the form and by requiring the signatures at all.
These last few weeks have allowed us to connect with our supporters around Rappahannock Electric Cooperative (REC) territory, with dozens of REC member-owners joining us for a community gathering in Sperryville and a night of free tacos and good conversation in Berryville. These events have hardened our resolve to fight for transparency and member control in our co-op!
We’re excited to continue holding community events throughout REC territory in coming weeks and months. If you’d like to help us organize a small or large event near you, please contact us at email@example.com.
SCC hearing postponed
Previously, we’ve let you know about the planned hearing before the State Corporation Commission (SCC), originally scheduled for December 11. However, the hearing has now been postponed. Here’s why.
The case was filed with the SCC by three REC members—who are co-founders of Repower REC—way back in July. The petition before the SCC simply seeks to allow REC members to put bylaw proposals on the ballot for the co-op’s 2019 annual meeting. However, while both the petitioners and REC contend that the SCC has jurisdiction over the matter, the SCC staff recently filed a report arguing that the SCC actually doesn’t.
The staff’s recommendation is not the final word in the matter. The hearing examiner must also make a recommendation and ultimately the three SCC judges make the final decision.
But in light of the new issues raised by the staff, the hearing examiner decided to postpone Tuesday’s hearing, while he considers the arguments about jurisdiction. While the delay is disappointing, the three REC members are determined to continue fighting the case until there’s a resolution—either from the SCC or in a state court if the SCC determines it lacks jurisdiction (or in a settlement if REC’s board becomes willing to engage in dialogue with the petitioners).
What we’re fighting for
It’s worth remembering what the three petitioners and Repower REC co-founders are seeking. Virginia law and REC bylaws say that electric co-op members have the right to propose changes to co-op bylaws, for a vote by the co-op membership at its annual meeting. The proposals at issue seek three simple, modest reforms: (a) full disclosure to all co-op members of total board of director compensation, (b) allowing co-op members to observe board meetings, and (c) clarification of the proxy form used in board elections to make it clearer and ensure that voting members’ intent is reflected in election outcomes.
Because of these recent delays, co-op members will now most likely not have a chance to vote on these reforms at the 2019 annual meeting (because the 500 petition signatures must be submitted around February 1). But we hope that this will be resolved to get the reforms on the ballot in 2020.
In the meantime, we’ll keep you informed about the many other ways that Repower REC and our growing community of supporters can push for much-needed reforms at our co-op.
A new report released today reveals that Rappahannock Electric Cooperative (REC) pays above-market rates for the wholesale power it buys from Old Dominion Electric Cooperative (ODEC). REC, one of the largest retail electric co-ops in Virginia, provides retail electric service to more than 150,000 meters spread across 22 counties and 11 towns. When a retail co-op pays above-market rates for wholesale power, the higher costs are generally passed through to consumers, in this case REC’s member-owners. Over the last two years, REC customers have been paying 1.5 to 2.5 cents/kWh more for power purchased from ODEC than they would have from purchasing power directly from the wholesale electricity market.
The report, by the nonprofit Institute for Energy Economics and Financial Analysis (IEEFA), compares REC’s wholesale power purchases from ODEC to what REC could buy directly on the wholesale market from the PJM electric grid, which serves Virginia and other mid-Atlantic states.
Financial statements made public by REC this year reveal that in 2009 REC signed a contract with ODEC obligating REC to buy at least 95% of its wholesale power from ODEC for 45 years—through 2054. The IEEFA report states that for the past several years the cost of wholesale power from ODEC has been as much as 50% above the cost of wholesale power available from the PJM grid. The report further states that wholesale PJM grid power prices are expected to remain flat for the next decade, suggesting that REC’s contract with ODEC may require REC to pay above-market rates for years.
“Our research indicates that Rappahannock Electric Cooperative’s long-term power contract with the Old Dominion Electric Cooperative has locked it into high power prices for the foreseeable future,” said IEEFA energy analyst Cathy Kunkel. “We hope that REC will begin to question ODEC’s above-market prices.”
An electric co-op’s board of directors is elected by the co-op members, and is supposed to be accountable to those members. But many electric co-ops across the country have effectively unaccountable boards because of the co-ops’ lack of transparency, which make it impossible for co-op members to know what their boards are doing.
Seth Heald, a co-founder of Repower REC, a campaign of REC members urging democratic reforms and greater financial transparency at REC, said “electric co-ops are supposed to educate their members about important issues like the cost of wholesale power. But in my reading of REC’s magazine over the past decade I don’t recall seeing any mention of REC’s 45-year contract with ODEC, much less any explanation of why REC’s board approved that contract. This is why it’s essential that REC’s board institute reforms to make the co-op fully transparent and to ensure fair board elections with fully informed co-op members.”
Repower REC is part of a growing grassroots movement of electric co-op member-owners in Virginia and across the nation seeking to increase member control. For instance, members of Powell Valley Electric Cooperative in Tennessee and Virginia have banded together to form a grassroots group called PVEC Member Voices seeking to reform their own co-op to increase transparency and member involvement in decision-making.
Repower REC is calling on REC member-owners to join the effort to restore democracy and transparency at Rappahannock Electric Cooperative by visiting RepowerREC.com and signing up to get more information. Repower REC can also be reached on Facebook at @RepowerREC and by email at firstname.lastname@example.org.
The REC Board of Directors is made up of our fellow member-owners and is meant to be a source of member control over important co-op decisions. However, current board practices—such as providing little information about board candidates and using blank proxy ballots to swing board election outcomes—make it nearly impossible for REC members to exercise meaningful control over the board through fair and transparent elections. Until we’re able to fairly elect representatives to the co-op board, we won’t have real member control over REC.
The Rappahannock Electric Cooperative (REC) Board of Directors is made up of member-owners from each of the nine co-op regions. They are supposed to be elected by their fellow REC customers to work on their behalf and represent the interests of co-op members in important matters like hiring co-op staff leadership, approving financial decisions, and establishing co-op policies. They are not required to be expert in utility matters, but are expected to pursue education to make sure their decision-making is in the best interest of co-op members. You can read the full explanation of board member expectations and qualifications on REC’s website.
The Board of Directors is meant to be a source of member-owner control over the co-op, protecting our interests with accountability secured through regular elections. In practice, however, the board members tend to hold onto their seats for decades with little accountability, and recent actions have raised questions about whose interests they are really serving. Questions about fairness in the process of electing our board are at the heart of the Repower REC campaign to bring transparency and member control back to our co-op.
At REC’s annual meeting last month three long-time board members were re-elected for additional three-year terms. The board has nine members, three of whom are up for election each year. As the 2018 vote tally from this year’s election (which REC released on its website, in a move seemingly responding to our requests for greater transparency) shows, no race was close. Two members ran unopposed and won by default. But the vote count in the third race reveals the board’s near-ironclad ability to decide election outcomes.
As we’ve previously discussed, the blank proxy ballots sent in by members who don’t select a specific candidate but still want to be included in the prize drawing at the meeting (classified as “Member Non-designated” in the vote tally) are treated as votes delegated to and controlled by the board. Out of a total of 6,024 votes cast in this board race, 3,250 were blank proxy ballots, and thus ultimately cast by members of the board.
Simply stated, no matter how impressive a board candidate may be, or how hard he or she works to get elected, the board itself effectively controls the outcome of board elections by way of the blank “member non-designated” proxies, or at least has done so for the ten years that we’ve been observing these elections.
In 2017, the board’s use of these blank proxies even changed the outcome of an election (see the final vote tally below or download the pdf here). Gen. John Levasseur, a co-founder of the Repower REC campaign and sitting board member at the time, handily won the vote of co-op members who specified their vote, but REC’s board swung the election by giving 3,648 blank proxy votes to Jesse R. “Randy” Thomas. Unlike the 2018 tally, REC didn’t publicize the 2017 results—no doubt because co-op members who could see the tally form would be able to see how the board overrode the wishes of co-op members who chose to vote for themselves. REC also fails every year to put the election vote counts and final tally form in Cooperative Living magazine, which would be the best way to ensure that a substantial number of REC members saw the totals. This year was no exception, with the just-out September 2018 issue failing to provide this basic information to the co-op’s members.
What’s more, REC’s board acts in secret when making its determination how to vote the blank “member undesignated” proxies. All the blank proxies are voted for one candidate, as determined by a majority board vote. But that board vote is held in secret, is not observed or recorded by the CPA and election tellers who certify the final tally form, and REC members are never told how each board member voted on this all-important matter. A less transparent procedure for controlling board-election outcomes would be hard to imagine.
The board’s opaque and largely secret control of election outcomes is a major reason why so many REC board members stay on the board for decades on end, often until they die. Just last year, two board members died in office, having served 35 and 40 years on REC’s board. Two of the board members re-elected this year have served on the board for 34 and 37 years. Earlier this year, the board filled a vacancy by appointing the son of a previous board member who had served for 34 years! REC did not mention that detail in its announcement of the appointment.
Until we REC members have a fair say in who sits on our co-op’s board, it will be hard to bring the meaningful reforms we need to ensure transparency and member control. Our proposed bylaw amendments are a step in that direction. Mobilizing more support for Repower REC to push for transparency and real democracy is also crucial. In future posts, we’ll explore some of the key questions about board compensation and co-op finances that are the driving force behind our reform campaign.
Last week REC held its annual meeting in Fredericksburg, and voted on three board positions. You can watch the video of the meeting on REC’s website. Two incumbent board members, Chris Shipe and Darlene Carpenter ran unopposed and were thus re-elected. In the one contested race, William Frazier, who’s been on the board for 37 years, was re-elected for another three-year term. Carpenter has been on the board for 34 years and Shipe for eight years.
While the election results may appear to be business as usual, there were some noticeable changes to this year’s meeting that indicate some early results from our Repower REC campaign to bring transparency and member control back to our co-op. Unfortunately, these changes are largely superficial and cosmetic. For example, several of the board and management speakers talked about how transparent and democratic the co-op is, and said the current proxy form is good because it’s similar to what large corporations do. Never mind that there was little if any substance to the claims of democracy and transparency, or that the co-op’s magazine frequently claims that electric co-ops are better because they’re not like big corporations. We still have a long way to go before we see meaningful reform leading to real transparency and democracy at REC.
One of the more noticeable changes this year came a few days after the Annual Meeting, when REC published the vote totals for the 2018 board elections. One would think that publicly posting vote tallies would be a routine and normal practice for a cooperative. An engaged pro-member board of directors would have insisted on this practice long ago, but in fact REC did not publicly post the final vote tally until this year. Posting the tally was one of the requests we made to the board on June 20, when we met with the board and (incredibly) it told us it would not “engage in dialogue” with us.
While the vote tally remains incomplete because it doesn’t include abstentions, it provides an important window into the power dynamics at play in REC board elections. As you can see in the voting table, the largest voting block is labeled “Member Non-designated,” far outweighing “Member Designated” and “Members Voting in Person at the Meeting.” This means that that the votes controlled by the board—proxy ballots sent in by REC members to be entered into the prize drawing held during the meeting but left blank—essentially give the board the power to decide the election outcome. And for at least the past ten years every board election outcome has been controlled by the blank proxy votes that the board controls. As we’ve previouslydiscussed, the double-whammy of board-controlled blank proxy ballots and the lack of meaningful information on board candidates for voters removes any real power of democratic decision making from REC member-owners.
Another sign of our pressure getting results was discussion of capital credits at the Annual Meeting. As we pointed out last April in our detailed memo on REC’s transparency problems, the co-op fails to tell members what their accrued capital credit balance is. REC has this information and could easily include it on every member’s monthly bill.
When Repower REC’s Mike Murphy asked about this at the annual meeting, REC CEO Kent Farmer said the co-op used to disclose this information to members, but stopped doing so because people wanted to get their money back. This was a stunning admission that the co-op withholds important information from members in order to keep them from asking questions. Farmer said the co-op will consider at least making this information available to members who are signed up for an REC Smart Hub online account.
The fact is that REC members, and the board members who represent them, should be asking for the co-op to give back as much of the capital credit balances as possible as soon as possible. While the co-op needs to hold onto some of these funds for a period of time, the capital credit policies—how it decides how much to keep, how much to give back, and when— should be clear, detailed, and made known to all REC members. Other co-ops do this; there’s no reason why REC couldn’t too. This is one major reason why REC board meetings should be open for all REC members to observe. We have a right to know what (if any) efforts our elected board is making to ensure that the co-op’s capital credit policies are pro-member. We recently asked REC for a copy of its policies on capital credits. REC refused to provide them. That is unacceptable.
So while REC continues to give lip service to the seven Cooperative Principles, we are asking that our co-op actually operate by those principles. Across the nation, other electric co-op member-owners are doing the same, banding together to take back control of their electric utility. Just this month in South Carolina, more than 1,500 co-op members turned out for a meeting for Tri-County Electric to vote out the scandal-ridden sitting board and place new rules in place to protect members from future abuse.
Our movement is just getting started, but Tri-County demonstrates the kind of mass participation and engagement that we need if we want to bring real transparency and democracy back to our co-op. Please join us in the fight for a co-op that makes decisions in a fair, open, and transparent manner while putting the needs and interests of co-op members first.