Cobb EMC CEO Dwight Brown may or may not be guilty of fraud and racketeering, as charged in a 31-count indictment. Brown may or may not have been unfairly demonized for his controversial tenure at EMC and his masterminding of its now-defunct spinoff, Cobb Energy.
But what is not in doubt is that Brown, his board and his lieutenants are about as transparent as a lump of West Virginia coal.
For that matter, they've shown about as much transparency and responsiveness toward the desires of co-op members and the public as Egyptian strongman Hosni Mubarak has to his countrymen now protesting in the streets of Cairo. EMC officials like to boast of the company's "transparency." The facts tell a different story.
IN THE PAST FEW WEEKS MDJ readers have read letters to the editor from Brown's spin doctors ballyhooing the alleged transparency of the co-op, especially regarding its three-year-old plan to help build a controversial $2.1 billion coal-fired power plant in Sandersville. The plant was the brainchild of Brown, who meanwhile has been under fire for the past several years for his involvement in the creation of Cobb Energy. He and his wife reaped huge stock windfalls from setting up Cobb Energy.
Brown's indictment is an outgrowth of the suit filed by several co-op members alleging that he used the EMC as a piggybank to fund Cobb Energy without the approval of the co-op's members, as required in the EMC's bylaws. The creation of Cobb Energy was approved by Brown's rubber-stamp EMC board, however.
Brown and that board also have come under heavy criticism for refusing to allow EMC board elections and for unconscionably using EMC funds to pay his huge legal expenses. And though the EMC has an in-house PR team headed by Senior Vice President Sam Kelly, Brown also is making heavy use of an Atlanta PR firm - no doubt on the co-op members' dime. But here's some advice: Whatever they're paying for PR is money down the drain.
Kelly wrote a letter to the editor published Jan. 25 boasting that Cobb EMC has been "transparent and forthright in its involvement with the coal-fired plant." Oh really? Then why all the dancing around this week?
In Wednesday's MDJ Kelly and Brown confidant Dean Alford tap danced all round what was a simple, Reporting 101 question: How much of the coal-fired plant would Cobb EMC own? They contend the matter has yet to be decided, declining to offer the public even a ballpark estimate. In other words, they're saying Cobb EMC is preparing to spend millions of dollars on the plant without having any idea what they're getting in return. R-i-i-i-ght. And that their members have no right to any such information. Yes, that's "transparency" for you.
You'll recall that when the EMC's involvement in the coal plant was unveiled back in January 2008 by Alford - not, for some reason, by Brown - that Alford said Cobb EMC would be the largest owner, with 25 percent. But that was before about half the other EMC partners around the state dropped out - and before Brown was indicted. That unveiling came at a press conference at Cobb EMC headquarters. Alford, who did the talking about the plant, was identified as a plant consultant. No mention was made of the fact that he, like Brown and his wife, owned $750,000 worth of insider-held Cobb Energy stock which paid a whopping dividend of more than 8 percent on a company hemorrhaging red ink.
Also in Wednesday's MDJ, readers were treated to Kelly dodging another Reporting 101 question: Does Brown plan to honor the December 2009 settlement agreement that ended the co-op members' suit, an agreement that specifies he announce his retirement by the end of this month? The tight-lipped Kelly would only say "a process" is in place and that the board is "seeking internal and external resumes." Such evasive answers fuel speculation that the agreement to end the lawsuit was not a "good-faith settlement" on the part of Brown and his board.
In fact, the EMC is a posterboy for a "good governance be damned" corporation: It is run by a rubber-stamp board, it has refused to hold new board elections, it has tried (with some success) to manipulate the court system, and it has made it near impossible for co-op members and the public to get a straight answer to significant questions.
COMMUNITY-ORIENTED, usually gregarious Dwight Brown won well-deserved plaudits as a utility executive in the 1990s for renegotiating the EMC's wholesale contracts at lower rates, allowing it to be more competitive.
But Brown has been poorly served by his board, the legal team that defended him on the Cobb Energy scheme and by his PR team. Thanks to those self-inflicted wounds, their credibility is shot. Moreover, Brown's board has abandoned the fiduciary duties it owes to co-op members. Instead, it has stonewalled, refused to listen to critics and failed to make badly needed corporate governance changes, further offending already disgruntled members.
After three long years of playing "hide the ball," it is unlikely that, absent any court-ordered legal intervention, that there will be any changes in corporate governance, or any move toward true transparency, as long as Brown and his rubber-stamp board continue to run the EMC.
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It's true, anonymous. Commenters on both sides of the argument have used pseudonyms. But, as my mom used to say, "We're not talking about them, we're walking about you." Disclosure of identity lends credibility, and (so far... these may be Famous Last Words...) I haven't seen a downside. I've been criticized before and it's relatively painless.
I appreciate that, because I used EIA statistics, you felt compelled to use some too. But yours don't address the point I was making by using them: Demand is expected to be nearly flat (a 1% increase over the next 20 years), while generating capacity is expected to increase by nearly 8%.
We're not talking about swapping coal for nuclear and any resulting iated rate increases. We're talking about new statistical data that gives ample reason to seriously question the need for ANY additional generating capacity.
This flies in the face of the sweeping, fear-mongering statements Dean Alford has been fond of making:
"If we don’t do everything we can to keep the costs of energy controlled, we’re going to impoverish the citizens of the state." (quoted in "The Question of Plant Washington", October 14, 2009, Flagpole Magazine)
"Due to population and demand growth, there is a great need for additional power generation in Georgia generally, and especially in the areas served by the co-ops involved in this project." (quoted in "Coal Plant set to come to WaCo", January 23, 2008, The Sandersville Progress)
"Have we already forgotten what it was like to pay $4 for a gallon of gasoline? Without Plant Washington, that's where we're headed with future electric rates." (Opinion column by Alford, The Savannah Morning News, October 14, 2009)
Content analysis: High drama, negligible substance.
"As envisioned, Cobb Energy was created as a separate, for-profit entity to market home-centric services such as natural gas, home security, tree cutting and pest control among others to Cobb EMC members and the general public."
Really? Why, then, pray tell, were all of Cobb EMC's operational infrastructure and assets transferred to it?
There is one rare moment of truth, though, that puts the spotlight on an separate half-truth. According to this disclosure, at the height of the "let's drain the co-op" party, there were 234 shareholders (233 plus Mr. Brown) of Cobb Energy preferred stock, AND 475 shareholders of common stock.
Please turn with me now to the recent two-page spread in the MDJ purchased by the EMC so that the Board could reassure us as to its altruistic behavior. In the second paragraph, Cobb EMC is referred to as Cobb Energy's "sole shareholder." What's not said in order to mislead readers is that it only regained that status as a result of the civil settlement, when the EMC had to buy back all the shares that had been handed out like party favors over the previous 7 or 8 years.
This is typical. I'm not sure some of these folks would know how to actually tell the truth if their lives depended on it. They should run for Congress.
According to the Institute for Energy Research: "The EIA has projected the cost of generating electricity from a new nuclear plant in 2016 to be 10.73 cents per kilowatt hour, 34 percent higher than a natural gas combined cycle plant, and 13 percent higher than a conventional coal plant." Time magazine notes that nuclear plants’ capital costs are “out of control”.
I can only imagine that the delays in permits for Plant Washington, the moving target on labor and material construction costs following those delays, among other factors, make the costs hard to project and quantify. Nuclear plants have a history of construction delays and escalating costs throughout the project. Those costs would be passed on to EMC members like me, making my bill triple what it is today.
I did. It isn't. What's more, While Mr. Wilson is clearly trying to understand where the money has gone, will be going, and at what relative percentages, the responses latch on to use of the word "ownership" and "construction" when the intent is clearly to understand ongoing member liability.
Just more sidestepping and deflection, then the usual attack against credibility. So I'll ask Mr. or Ms. "The True Story" (curious, by the way, that EMC defenders rarely use their real names here...) the same question in a different way:
Since you imply that you DO, unlike us poor unwashed masses, understand the incredible complexities involved, what present and ongoing commitments has Cobb EMC made to Power4Georgians for ANY COSTS related to Plant Washington and Plant Ben Hill?
The final insult to our intelligence is the suggestion that no one has done any budgetary forecasting that includes projected contributions to ongoing development, construction, and maintenance of two multi-billion dollar facilities. (Of course, if it's really true that it hasn't been done, then we should be even more concerned.)
I'm just a member, not part of any related industry or special-interest group, so I have no "hidden agenda" -- so don't try to pin anything like that on me. But when I see a proposal for anything with such a high price tag and I share even a tiny fraction of the liability, I expect to see not just "trust me" assurances but real data supporting the need for the project, its cost, and the basis for selecting this option over others.
Where is that data?
According to the latest Energy Outlook Analysis from the US Energy Information Administration, residential energy consumption in this part of the country is expected to increase by less than 1% between now and 2030 (.9162%, actually). At the same time, generating capacity is expected to increase by 7.8%. This hardly jibes with the "Oh, no -- we're going to run out of electricity if we don't build these plants" fear-mongering we have gotten from proponents of these effort.
I think Cobb EMC does a very fine job with day-to-day operations and provision of electricity. Their reliability over the last decade has been exceptional and I know that these last few years must have been very difficult for the employees who actually make it all happen. This is an executive management and Board issue, and that's a very important distinction. Cobb EMC employees should not be punished for the illegal actions of executives or the Board, and I appreciate their ongoing attention to providing reliable service in the face of a very demotivating environment.
That said, I think they WILL feel a negative impact, indirectly, before this is over, because smelly, unpleasant substances just always roll downhill, and there are several dump truck loads of it in this case.
But thank you for reminding me that I needed to say this.
This really did not just start and Dwight Brown is an incompetent if he could not make supposedly legal activities look at least half-way appropriate....I know, I know---it's complicated!
The chosen words of combat for every thief trying to convince someone not to believe their lying eyes.
Simply put there is not a plant to own at this point.
Georgia's wholesale electric market is a complicated business. I am not convinced that those who are reporting here have an understanding of the market's complexities.
In this article it says, "Brown and that board also have come under heavy criticism for refusing to allow EMC board elections...."
Cobb EMC has wanted to hold elections, but when they tried to make the voting process as democratic as possible, the plaintiffs took them back to court. Seems the plaintiffs thought making it easier for people vote via mail wasn't going to enable them to take over Cobb EMC like they are trying to do.
Just sayin'
Here are some of the electric cooperative accounting expert's key findings:
Noting (page 8) that Cobb EMC's own ByLaws clearly state that "members of the Board of Directors shall 'not be employed by, or financially interested in, a competing enterprise or a business selling electrical energy or supplies to the cooperative…'", he concludes "there is no question that the Officers and Directors of the EMC that are, or have been, financially involved with Cobb Energy would be in violation of both the letter and spirit of Cobb EMC's own by-laws, the NRECA guidelines, and the EMC’s Policy Manual.... When deciding any substantive issues dealing with Cobb Energy, the Cobb EMC Board was conflicted by the participation of Mr. Brown and Mr. Chadwick who have, or had, substantial financial interests in Cobb Energy and stood to economically benefit from the Energy/Cobb EMC transactions."
"In my 27 years of EMC audit work I have never seen a structure like this and I am unaware of any Board of an EMC ever approving these types of conflict of interest transactions. In my opinion this would constitute a lack of ethics and a departure from the letter and spirit of the entire EMC movement."
The most eye-popping section of the document, though, is Mr. Middlebrook's detailed accounting of Cobb EMC's declining ownership interest in Cobb Energy.
The 1998 consolidated audit report shows that Cobb EMC owned 100% of Cobb Energy common stock.
A year later, it owned 49.67% and the report shows the issuance of 204,000 new shares of PREFERRED stock to a lender and to board member Lee McKinstry.
By 2001, ownership had inexplicably crept down to 44.4%, with no accounting of the missing value in the audit report.
By 2002, Cobb EMC owned only 32.99%. When it was last actually reported in 2005, it had fallen to 29.43%. (2006 and 2007 reports don't even state the ownership interest.)
We have to go to other court documents to find out where this value went: Dwight Brown and spouse: 120,000 shares of preferred stock (annual dividend of $265,000; bought through a $3 million loan that was then gradually forgiven). Anis Sherali, CEO of the energy buyer used by Cobb EMC and a business partner of Brown's: 53,400 shares. Board member Lee McKinstry: an additional 36,000 shares. Dean Alford: 30,000 shares. Bob Elsberry, who so eloquently defended the Board in his guest column, 12,044 shares. Lonnie Hale, EVP of Cobb Energy: 7,017 shares. According to the documents, at least 17 additional unnamed shareholders owned smaller amounts.
Cobb EMC insisted that, as part of the 2008 civil suit settlement, the EMC must BUY BACK all that stock, effectively being forced to repurchase the ownership interest that had been quietly stolen from it. This, remember, is on top of the hundreds of thousands in dividends that had already been paid out to these shareholders.
In closing, the CPA notes that the reason for creating Cobb Energy, as stated in Board minutes, was "to lower Cobb EMC's cost." ... "A payout of approximately $27M versus a noncash return on investment of $166K does not appear to satisfy the original reason for the creation of Cobb Energy. It appears that Cobb EMC has been subsidizing Cobb Energy during Cobb Energy’s existence. We can only assume that the shareholders of Cobb Energy have been the
ultimate beneficiaries of this subsidy.
Chilling.
Thank you for this excellent summation of one important facet of the Cobb EMC situation.
In the interest of true transparency and in the hope that EMC members will continue to research and think for themselves on this issue, I would like to call attention to a powerfully convincing and damning document that strongly underscores the merit of our District Attorney's indictment of Mr. Brown.
You can find it as a link on the CobbEMCTruth website, which is cobbemctruth dot com. I can't include a link within a comment, but the link name on the site's home page is "Affidavit of EMC Accounting Expert Middlebrooks – Redacted by Court Order (08/08)"
It's an official court document, an affidavit from a CPA who was retained during the civil suit to examine 11 years worth of Cobb EMC and Cobb Energy audit reports, minutes, and other internal documents to determine whether, in his expert opinion, there had been wrongdoing during the process of standing up and operating Cobb Energy.
This CPA has spent the majority of a 30-year career auditing electric cooperatives and public utilities. At the time of the affidavit, he had conducted successful, approved audits of over 1300 electric co-ops and utilities across 10 states. As he puts it, he has "comprehensive
knowledge of the financial operations of EMCs including applicable accounting standards and procedures."
Here is a man whose career will unceremoniously end if his expert opinion is found deficient.
(In my next comment I'll tell you what he found...)
All retirement monies should be withheld for anyone who retired after Cobb Energy was incorporated.
Any subsidiary company of Cobb Energy also should be stripped of funding and retirement payouts.