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March 27, 2008 (512) 463-0300

COMMITTEE ADDRESSES CO-OP ABUSES

(AUSTIN) -- The Senate Business and Commerce Committee met Thursday to consider serious allegations against the largest electric co-operative in the country. The Pedernales Electric Co-operative (PEC) serves more than 220,000 customers in central Texas. In 2005, customers filed a civil suit against the PEC Board of Directors, alleging a lack of transparency and public involvement in board decisions and elections. This suit revealed numerous alleged abuses and misuse of co-op funds, and sparked a criminal investigation into board members' wrong-doing. Lawmakers heard testimony Thursday relating to these alleged abuses and possible remedies, and to consider whether or not these abuses are limited to the PEC.

Committee Chair Senator Troy Fraser of Horseshoe Bay began the meeting by reading a litany of abuses by PEC board members. General managers and presidents were hand-picked by the board, said Fraser, and public members were never given the option to either run for nor select these offices. He said the investigation revealed that the board president, in addition to receiving a $300,000 salary, paid himself another six figure salary as an employee of the co-op, including full medical benefits for him and his family. Board members were offered lavish retirement packages, with full benefits and a $1500 a month stipend.

In 2004, the board allegedly falsified a tax report to the IRS in not disclosing executive salaries. Multiple trips to a health spa in Dallas, each more than $2000, were charged to the co-op by board members and their families, as well as first class travel and accommodations on trips around the state. More than $700,000 in credit card charges were run up by board members, including multiple thousand dollar restaurant and bar tabs and $20,000 in furniture that cannot be accounted for. Large contracts were awarded without bidding by contractors, and board meetings were closed to the public. Fraser said he himself was denied access to a board meeting when he tried to attend one earlier this year.

This abuse of co-op funds, said Fraser, could be the reason for a recently requested 11 percent increase in electric rates to PEC customers. The PEC does an excellent job of providing service to its customers, said Fraser, but the co-op must make its governance more transparent and accessible to members. PEC General Manager Juan Garza testified that the board is already moving toward a more open governance system, moving its meetings into a public space and complying very closely with the state's Open Meetings Act.

While the board of directors has made moves toward transparency, Fraser was irked that the board has not taken more action to reduce administrator and board member perks and salaries. He advised Garza to not only allow members to elect board members, but also set their salaries. This is the only way, he said, to restore faith in the governing board among customers. "Those issues have got to be addressed and they've got to be addressed quickly," said Fraser. "I'm extremely offended that you've refused to take care of the one thing you should've taken care of on day one. I can tell you that until that's addressed, you're not going to get any credibility with the public."

Session video and all other webcast recordings can be accessed from the Senate website's audio and video archive pages.

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