Senator Fraser & Representative Rose File Electric Cooperative Reform Legislation
"We are strong supporters of electric cooperatives," said Fraser and Rose. "The beauty of the electric cooperative system is that members are able to determine how best to run the system through the election of a board of directors. The 3 million Texans served by co-ops need the protections provided in our legislation to have earnest and lasting local control."
- Prohibit proxy voting by board committees at PEC;
- Set forth guidelines for the use of proxies in board elections at all other co-ops;
- Prohibit the use of prizes as incentives for providing of proxies in board elections;
- Require that PEC elect board directors by district and prohibits at-large directors;
- Set forth provisions for Open Meeting requirements at all co-ops;
- Allow for executive sessions of co-op board of directors but make all final actions, decisions and votes public. Also require that written/audio records of executive sessions be maintained for two years;
- Set forth provisions for Open Records requirements at all co-ops;
- Require co-op boards of directors to adopt written policies for: travel expenditures, reimbursement, conflicts of interest, whistleblower protections, procedures for 3rd party professional services, and a committee to audit actions of the co-op board;
- Require annual, independent financial audits of all co-ops;
- Authorize state audits by the State Auditor, if approved by the Legislative Audit Committee;
- Set forth complaints process for co-op members including an initial review by a co-op's General Manager and a right of appeal to the Public Utility Commission (PUC);
- Prohibit PEC from generating electricity without prior approval by the PUC, and
- Require all Texas co-ops to notify PUC when creating a business entity not related to its core purpose of generating, transmitting or distributing electric energy.
During the legislative interim, light was shed on problems concerning management practices at the Pedernales Electric Cooperative (PEC). Those practices included the lack of transparency by the board of directors and senior management in both meetings and records and the lack of fair elections.
While the law governing electric cooperatives establishes a rough framework for organization and operation of the entities, the bylaws adopted by the board have the biggest impact on how an electric cooperative functions and how board members get elected.
This was evident in the case of PEC. The board had the ability to utilize a cooperative member's vote via proxy for a "board approved" slate of candidates, thus undermining the cooperative members' potential to affect any change at the board level.
"If members do not like the policies set by the board of directors, they can and should vote them out of office," said Fraser.
In theory, a democratically elected board should act and vote in a manner that best suits not just the cooperative, but also the membership of the cooperative. While the current statutory framework harbors good intentions, its delegation of much of the authority to the board through the establishment of the cooperative bylaws provides an avenue for manipulation and malfeasance.
That is ultimately what happened at PEC. A dictatorial general manager paired with an impotent board of directors led to excessive compensation to the general manager and those board members, as well as a board whose membership perpetually remained the same.
There were also other important issues that arose during the PEC investigation, such as excessive compensation to both board members and other officers of the organization, and a failure to return capital credits. A lawsuit is currently pending in district court and Texas Attorney General Greg Abbott has convened a grand jury to investigate the mismanagement at PEC.
"We are committed to ensuring that what happened at PEC does not happen again - at any electric cooperative. Our legislation will require electric cooperatives to hold open meetings, to have an open records policy, and to have open and fair elections."
Electric cooperatives are authorized in statute and their service areas are protected statutorily, but they are not subject to regulation at the PUC.
"It is important for Texas consumers that our energy market includes public power. For the long-term viability of co-ops, we must ensure that local control truly exists," said Rose. "In the absence of PUC regulation, co-op members should be empowered, through open meetings, open records and fair elections, with preserving their success."
SEN. TROY FRASER represents Senate District 24, District 24, Bell, Blanco, Brown, Burnet, Callahan, Coleman, Comanche, Eastland, Erath, Gillespie, Hamilton, Kerr, Kimble, Lampasas, Llano, Mason, McCulloch, Menard, Mills, San Saba and Taylor Counties. He is Chairman of the Senate Committee on Business & Commerce.
REP. PATRICK M. ROSE represents House District 45, Blanco, Caldwell and Hays Counties. He is Chairman of the House Committee on Human Services.
Sen. Fraser and Rep. Rose represent the Pedernales Electric Cooperative headquarters in Johnson City.