Todd Rehm: EMC’s recent record points to need for PSC oversight
by Todd Rehm
Guest Columnist
July 31, 2011 12:00 AM | 3842 views | 6 6 comments | 17 17 recommendations | email to a friend | print
The July 23 Around Town column in the MDJ suggested that indicted former Cobb EMC CEO Dwight Brown or members of his inner circle on the EMC Board are plotting to retain control over the EMC by funding professionally-run election campaigns for incumbent board members.

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.
Comments
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Bob Bummer
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August 03, 2011
Not sure if the PSC could have prevented what happened at Cobb EMC but I could have seen them making it worse. If Brown had his way Cobb Electric Membership Corporation would have been nothing more than the biggest paying customer of Cobb Energy Management Corporation. Can we please remove the Cobb Energy name from that venue in Atlanta and retire the controversial name?
EMC Monopoly Member
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August 01, 2011
Hello Guard EMC,

Oversight is definitely needed, but any "oversight group" or advisory group is subject to, secrecy, corruption, fraud and deceit as suggested with the current Cobb EMC Leadership, so what do you suggest ? I think the best way to gain the oversight is to bust open the bylaws, meetings, and operations to light of day to the members. That's the essence of oversight for co-ops or any association are leadership team. The members can prevail at the ballot box to regain control of their EMC. Yes, I believe there are many organizations that are truly managed to enhance the benefits of it's membership and I have been involved with many. Some are HOA's, some are churchs, and some are youth sports groups. I think there was a time in the past when Cobb EMC had a trustworthy Board and CEO. I think that PSC oversight would be nothng but a lobbyist dream, like it is today.

Representative Parsons and his gang are more than a little fearful of sunshine.
Guard EMC
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August 01, 2011
To EMC Monopoly Member- I do believe you are an unrealistic optimist and looking through rose colored glasses if you think the EMC members can trust ANY new Board and CEO EVER to go back to the days of old, when the Board and CEO were doing what is best for the members. Just look at any elected politician and any corporate CEO & CFO today. Most are out for themselves or they can be turned to the dark side at any time.

Mr. Rehm is correct when he asserts there needs to be some type of outside oversight. Look how long the EMC members have been fighting Brown, his Board and his followers. There should never be ANY need for such a fight, especially over even having a co-op meeting. Never mind an election, audit or access to secret Board meetings. I started asking several years ago at the EMC headquarters what Cobb Energy was. The best I could get was that it was just an umbrella name. Some umbrella, with a whole for the money and the control of Cobb EMC going right to Brown and his follower's bank accounts.

I find it extremely hard to believe that some of these Board members were that ignorant, dumb, stupid and/or blind to Brown's ways. And if they were and still are, Heaven help us!
Duty
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August 01, 2011
"But 14 years of shenanigans and shareholder derivative litigation for the foreseeable future should prompt a strong measure by the legislature."

Please. The words "strong measure" and "legislature" should not be used in conjunction if talking about the Georgia legislature. And, didn't the Cobb EMC Board just attempt to hire someone who serves on the PSC? That single act tells me that those who serve on the PSC are not the ones to oversee it. Like many regulatory agencies, those who work there are lothe to bring the ax down on the companies they hope will hire them later.

EMC Monopoly Member
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August 01, 2011
Interesting NEW approach, but the OLD approach worked just fine until the likes of Dwight Brown and his Board decided that the Cobb EMC was their personal piggy bank for self-enrichment. The Georgia PSC currently has it's hands overloaded and the EMC mess is far to far along for any help from Stan Wise and his collegues. I think Judge Schuester will provide the proper and necessary direction for the members of EMC to take back their co-op in spite of the attempts at high jacking and shenanigans by Brown and his Board. It's up to the members to rise, vote in a new board and take back their co-op !
Pat H
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August 01, 2011
Don Parsons represents a district enslaved by the Cobb EMC because of where their houses are and is head of the subcommittee that will hear legislative action. Good luck getting him to do anything the EMC lobbyists don't want.
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