The national trade association for electric cooperatives commissioned a report urging its members to embrace transparency reforms, but the association has kept its findings a secret for the past two years.
The National Rural Electric Cooperative Association (NRECA), the national trade association for electric cooperatives, and the National Rural Utilities Cooperative Finance Corporation, which finances co-ops, commissioned a task force to examine co-op governance in 2017. The task force completed the report in February 2018, but never published it; each page has a disclaimer saying that the report is “For NRECA and CFC Voting Members Only.”
EPI obtained a copy of the report because an electric cooperative posted it to its website, seemingly inadvertently.
Cooperatives provide electricity to over 19 million homes and businesses in the U.S., according to NRECA. In most states, cooperatives’ boards of directors determine electricity rates without oversight by public utilities commissions. Despite the fact that those boards of directors affect the electric bills of millions of Americans, their actions are sometimes kept hidden from the public.
In a 2017 article on the NRECA website explaining the creation of the task force, NRECA CEO Jim Matheson said: “As member-owned, not-for-profit entities, electric cooperatives benefit from open and transparent governance and the positive involvement of the communities they serve.”
NRECA did not respond to questions about why it has kept the report secret.
The report was referenced, but not published, in an investigation last year of corruption at electric cooperatives in South Carolina by The State:
Also, an ethics task force, formed last year by the National Rural Electric Cooperative Association, advised against paying their directors’ medical insurance benefits, saying those policies can increase costs, cause incompetent trustees to remain on a board for years and attract negative attention from customers and the media.
The task force’s secret report — obtained by The State newspaper after the national co-op board refused to release it — also opposed using board pay and benefits to recruit potential board candidates, saying that “could result in nominees motivated solely by the compensation.”
Following the investigations by The State, the members of one South Carolina co-op, Tri-County Electric, fired the co-op’s entire board of directors, and the South Carolina General Assembly passed new legislation requiring greater transparency and regulatory oversight of electric cooperatives. Last month, the former Chairman of the Board of Tri-County Electric was indicted for using his office for personal gain.
“Electric cooperative governance has received increased attention”
The report explains that “Governance is a critical part of an electric cooperative’s operations. In recent years, electric cooperative governance has received increased attention from members, the media, legislators, regulators, and others.”
The report highlights dozens of good governance and transparency practices for electric cooperatives that were endorsed by the task force, which are categorized under several topics including: board responsibilities, director qualifications, director nominations, director elections, director compensation, board of directors composition, board of directors meetings, and member access to information.
For example, under the topic of “member access to information,” the report states:
Providing General Information to Members. The Task Force supports an electric cooperative posting on its website or sending all members the following information and documents: (1) articles of incorporation; (2) bylaws; (3) board of directors meeting minutes or summaries; (4) Internal Revenue Service Form 990; (5) general and non-confidential financial and operational information; and (6) strategic plan or plan summary.
The report also makes clear that the task force supports providing co-op members with information about the co-op’s policies:
Providing Policies to Members. The Task Force supports an electric cooperative making available to its members relevant operational, financial, governance, and similar policies directly involving or impacting members, like capital credit, line extension, member attendance at board meeting, director role and responsibility, vegetation management, and similar policies.
Under the topic of “Board of Directors Composition,” the report states:
Encouraging Director Diversity. The Task Force supports an electric cooperative board of directors that reflects the diversity of the cooperative’s membership. Recognizing the practical limitations of obtaining a diverse board, the Task Force encourages cooperatives and boards to solicit diverse individuals to seek election to the board, and to consider diversity when filling vacant director positions.
A 2016 report highlighted dramatic racial and gender disparities on the boards of directors of electric cooperatives in the Southeastern U.S.
“Confusion often arises regarding the federated director’s fiduciary duty”
The task force report also discusses the confusion and conflicting responsibilities that can arise for co-op directors who also sit on the boards of directors of generation and transmission associations, which sell power to electric cooperatives.
When an electric distribution cooperative director or chief executive officer serves as a director of a federated entity, confusion often arises regarding the federated director’s fiduciary duty. Because the distribution cooperative selects the federated director, it may feel the director owes a fiduciary duty to act in its best interests. When serving and acting as a federated director, however, the director owes a duty to act in the federated entity’s best interest. On the other hand, when serving and acting as a distribution cooperative director or officer, the individual owes a duty to act in the cooperative’s best interest. At times, these duties may involve conflicting obligations of disclosure and confidentiality.
Because of the confusion and complications involving a federated director’s fiduciary duty, the Task Force supports explaining and emphasizing this duty to the federated director, as well as to the distribution cooperative board of directors. While a distribution cooperative board may ask its federated director to communicate its positions to the federated entity board of directors, the Task Force opposes the distribution cooperative board seeking to dictate how its federated director votes when serving as a federated director.
In filings with the Colorado Public Utilities Commission last month, two electric cooperatives explained how this fiduciary duty to the generation and transmission association undermines claims by Tri-State Generation and Transmission Association that it is governed by its member cooperatives:
If a system’s interests conflict with Tri-State’s interests, then, according to Tri-State, the “dual director” must either recuse from the vote or resign from one or both boards. Id. The dual director therefore may not represent and vote their home system’s interest in the precise situation when it would be most critical to do so. The notion that these dual directors “represent” their home systems—a common plank in Tri-State’s advocacy platform—is a myth.
Here’s the full Electric Cooperative Governance Task Force report.
More information and resources on electric cooperative governance, transparency, and reform: