Thursday, December 31, 2009

PART IV - Beartooth Member Editorial

This is the final installment in a four-part opinion series written by Arlene Boyd, a member of the Beartooth Vigilance Committee. Parts I, II and III are here, here and here.
Part IV: Can BEC members get their co-op to live up to cooperative principles, improve business practices, and deliver affordable power?

It’s been nearly a year since Beartooth Electric Co-operative members were hit with a steep rate hike, and some members still question the decision-making that led to the increase. This is the final installment a four part opinion series exploring concerns about electricity rates, power generation, and the future of rural electric cooperatives.

By Arleen Boyd
Beartooth Vigilance Committee

Approximately 4500 Stillwater and Carbon county residents own the business that provides their electricity, Beartooth Electric Cooperative (Beartooth).

Beartooth members share ownership of Southern Montana Electric Generation and Transmission Cooperative, Inc. (Southern) that provides wholesale power. Soon, if financing comes through, Beartooth members will help carry well over half a billion dollars in debt to build a power plant for a profit-making corporation, SME Electric Generation and Transmission Cooperative, Inc. (SME).

With electricity bills that may be the highest in Montana and plans to add financing for a power plant to their monthly charges, responsible Beartooth members are going to have to step up and exercise the democratic control that a successful co-op depends on. They have to demand transparency and sound business practices from Beartooth, Southern, and SME.

Owning a power plant without an investment evaluation?

If SME’s power plant receives financing, Beartooth members will pay for it for at least 30 years. With no prospectus, no return-on-investment calculation, and no vote members will make a huge investment in a highly volatile, capital intensive industry.

Members do not know why they are investing in a for-profit corporation, SME. There is no evidence that they will even use the new plant’s power.

Beartooth members must demand that SME provide all members standard investment information including:

A prospectus for the proposed plant.

Withheld information including bylaws, financial documents, annual reports, and board minutes.

All contracts and agreements between the co-ops and SME.

A detailed cost analysis of the projected project including likely increases in natural gas prices, full gas and electricity transmission rate analysis, and estimates for complying with CO2 regulation which the Montana Board of Environmental Review is preparing for projects emitting as little as one tenth of that expected from this plant.

Information and transparency: standard business practice, a co-op obligation

Electric non-profit cooperatives are a hybrid form of business that, unchecked, is subject to manipulation and secrecy. Transparency allows members to track board and staff activities and protects the co-op from conflict-of-interest and other business irregularities.

Information about the co-ops that are spending Beartooth money has been hard to get. Southern will not release its bylaws or annual reports and SME operates in complete secrecy.

Members can insist on improved transparency and tell Beartooth to:

Provide access to all corporate documents and financial reports.

Release financial audits and prospectus information on affiliate investments, land investments, and, if allowed at all, for-profit investments.

Give members up-to-date information including board agendas and minutes through mailings and a regularly updated website.

Inform members before major board decisions are made.

Respond openly to member inquiries.

Continue to survey members and hold informational meetings.

Provide monthly reports from Beartooth’s representative on the Southern and SME boards.

Creating a culture of transparency and democracy

A co-op fails as a democracy if it accepts elected board members as the only source for decision-making and the board releases information to justify their decisions rather than to improve them with input. Beartooth members can create a democratic, member-driven co-op starting with the bylaws and the annual meeting.

Bylaws establish the rules and contract between the cooperative and its members. A committee of members at large and board members is rewriting the Beartooth bylaws and will submit their revisions at the 2010 annual meeting. Members should read the current bylaws, call their representatives on the bylaw committee, and ask them to:

Make greater transparency and member involvement the primary mission for bylaw revision.

Review legal issues like conflict-of-interest in light of the unusual three-tiered co-op structure Beartooth currently supports.

Distribute proposed bylaw revisions to all members before the annual meeting, ask for input, and weigh suggestions before completing a final draft.

Distribute the final draft before discussing and amending it at the annual meeting.

Annual meeting and elections
Beartooth Board members and management call the annual meeting the opportunity for members to exercise democratic control. Democracy with informed voting will happen when:

Annual meeting agendas are circulated to members before the meeting with a request for additions and amendments.

Motions by members at large are accommodated, on the floor of the meeting or through prior submissions.

Information on all aspects and from all sides of important issues is circulated in advance and given equal time at the meeting.

Members are encouraged to ask questions and comment on issues.

Voting for board members at Beartooth annual meetings is controlled by management and the board. To ensure fairness the co-op must:

Provide incumbents and challengers equal time at the meeting and equal opportunity to present their qualifications at the meeting and in mailings.

Allow all members to vote, with mail-in ballots counted along with those cast at the annual meeting. Encourage nominations from the floor according to bylaw stipulations.

Engage an independent election consultant to evaluate Beartooth procedures.

Get the information, check the facts

The financial risk associated with the planned SME venture in power generation and the fact that it is being carried out in secrecy make it the most vivid example of what happens when cooperative principles and transparency are ignored.

There are many other examples of misleading statements that have caused Beartooth members to ignore important issues, accept poor decision-making, and cast uninformed votes.

Statements calling the current BBB bond rating for the new plant “investment grade” and “very favorable with a very positive impact on the interest rate that will be realized” are not accurate, but imply that plans for a new plant are financially sound.

To justify the original over-scaled and badly planned Highwood venture members have been told repeatedly that the RUS (Rural Utility Service) lied – they “reneged” on a “letter of commitment” because of environmentalists. There was no letter of commitment. The rejection letter listed four reasons for denial including the fact that 40% of the plant’s capacity was not needed by members. RUS finances plants to serve members, not to market electricity.

With real transparency and information, members who pay attention can challenge inaccurate statements. More importantly, they can work together to make Beartooth a co-op that lives by the cooperative principles, employs sound business practices, and delivers affordable power.

Sources of information and copies of reports cited in the series are available from the author or Beartooth Vigilance, 962-3815.

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