Brown is required to retire from the EMC by the terms of a settlement agreement between the utility and dissident shareholders as well as by a decision of the Cobb Superior Court.
The column reports that the board of Cobb EMC has hired Tom Perdue, longtime political consultant to ensure re-election of incumbent EMC board members or election of sympathetic candidates. Sources speaking to the MDJ said that the board was considering spending $1 million of ratepayer money to fund the campaigns of favored board members.
I believe it's time to consider another approach: the Georgia General Assembly should consider putting Cobb EMC under the regulation of the Public Service Commission for at least two to three years.
The economic justification for treating EMCs differently from for-profit utilities like Georgia Power is that in an EMC, the ratepayers own the utility and thus the economic interests of shareholders and ratepayers are exactly aligned, and ratepayers need no protection from management and shareholders. In a for-profit utility, a structural conflict-of-interest exists between shareholders seeking to maximize profits, and ratepayers who need to be protected from a monopoly firm.
Under Dwight Brown, Cobb EMC de-coupled the interests of management from those of ratepayers by transferring nearly 100 percent of Cobb EMC's operations to Cobb Energy and paying Cobb Energy a management fee equal to a percentage of revenue. Cobb Energy was a privately-held for-profit corporation and the 35-count indictment against Brown alleges that Cobb EMC ratepayers subsidized Cobb Energy while systematically moving revenue from the EMC, which would have benefitted ratepayers, to Cobb Energy to the benefit of Brown and other shareholders.
In 2007, EMC shareholders filed suit against Cobb Energy and Brown, and since then election of board members has been stalled out with Brown's hand-picked board remaining in office. Throughout the litigation, the EMC Board has sought to write the rules governing the election of new board members in a way designed to perpetuate their control over the EMC.
For 14 years, the structure of Cobb EMC and Cobb Energy has had more in common with a for-profit utility corporation than a member-owned cooperative and ratepayers have been abused financially.
Courts are not the most efficient way of supervising an ongoing business and hold elections. Courts cannot decide issues prospectively, generally requiring that the harm occur before the court can step in. A state superior court also has limited resources and little subject-matter expertise, and in Metro Atlanta will have a full docket of other cases.
On the other hand, the Public Service Commission is quasi-judicial and quasi-executive, with experience in overseeing utilities over many years. It has a staff containing both subject-matter experts, and an adversary staff well-versed in protecting ratepayers' interests. It has demonstrated its abilities to balance the needs of utility management with the protection of ratepayers.
As long as the current board remains in power, there will be continuous disputes over voting rules and it appears that the board is prepared to spend considerable ratepayer dollars to perpetuate its hold. This board has proven that it cannot be trusted to protect the interests of the ratepayers to whom they own a fiduciary duty.
Absent drastic action, it appears that the litigation will continue into the foreseeable future, fueled by the rightful mistrust of the ratepayers. To add insult to injury, the shareholders who brought suit and have been successful, have been forced to bear the expense of litigation and all ratepayers have paid for the legal defense for the board. They may also be forced to pay for expensive campaigns for the very board members who actions have led to the litigation.
To be clear, I am not advocating that any other EMCs be put under jurisdiction of the Public Service Commission. The EMC model of power generation and distribution has shown itself to work very well for ratepayers in the vast majority of cases in Georgia and there's no need to mess with their success. But Cobb EMC has shown itself incapable of governing itself for the benefit of ratepayers and something must be done to stop the abuse of the 193,000 members who have no other options for electric service.
A two-to-three year timeframe will allow the Commission to oversee elections and ensure that ratepayers do not continue to be abused during the process. Once fair elections have been held, a succession plan for the CEO and plans for the next round of board elections are under way, and rules are in place to ensure the ongoing protection of ratepayers, Commission oversight should eventually be curtailed, but an inability to accomplish these goals would extend Commission oversight.
Regulating an Electric Membership Corporation should be seen as a drastic measure, not to be undertaken lightly, lest we impose additional regulatory costs on the EMCS who serve their members well. But 14 years of shenanigans and shareholder derivative litigation for the foreseeable future should prompt a strong measure by the legislature.
Todd Rehm is a Republican political consultant from Atlanta and writes for PeachPundit.com. He has worked for a former Chairman of the Georgia Senate Ethics Committee and the Chairman of the Georgia Senate Regulated Industries Committee. He attended Emory University, graduating with a degree in Political Science, and Washington & Lee University School of Law.