Flat Tires And Red Lights

Opinion

By Linda Kaye Rogers

PEC members have received a letter outlining the settlement reached by the PEC Board of Directors and the plaintiffs in a class action lawsuit. Many members are feeling it is a fine example of the wheels of justice going flat and a checkered flag for the named Defendants to run all red lights with a get out of jail free card.

While many of the goals sought in a class action lawsuit filed against the PEC last year have been met, and some are still in the process of resolution, the proposed settlement bypasses the mismanagement of PEC affairs by Board Directors, Advisory Directors and upper management. In fact, it exonerates them from any wrongdoing by simply not addressing the charges against them.

In July 2007, four PEC members (ratepayers) refiled a lawsuit that had originally been filed by Lee Beck Lawrwnce. That suit was dismissed due to a technicality. PEC members John Worrall (Round Mountain), Linda G. Evans (Driftwood), Glenn Van Schellenbeck (Lago Vista) and Joseph R. Krier (who later withdrew), are the Plaintiffs in the current suit.

The suit specifically names General Manager Bennie Fuelberg, Asst. GM Will Dahmann, Bud Burnett as President of the Board, each Director and Advisory Director, and charges them “individually and in his/her capacity as” named position on the Board. Fuelberg, Dahmann, and Burnett have all “retired” or otherwise left the Board. The remaining 13 Defendants remain on the Board. (Board members Price and Adair are not running for re-election this June when their terms expire).

The suit alleges that the Defendants have breached their fiduciary duties in their operation, management and administration of the PEC. It further alleges the breach of fiduciary duties in the accounting and management, investment and disposition of the “Patronage Capital.” The suit alleges excessive compensation, possible breach of the Articles and By-laws of the PEC and possible failure to report financial information, accounting records and financial reports. (The full lawsuit is available for reading on the PEC website.)

Plaintiffs in the suit clearly state that the “classs action suit is not intended to harm the PEC or its service to its members, and neither is it aimed at the rank-and-file dedicated employees. Instead, this lawsuit seeks to place responsibility on the officers, directors and advisory directors for a variety of wrongful practices, to recover on behalf of the member/ratepayers for the damages caused by these wrongful practices, and to reform the organization so that it operates democratically, transparently and in the best interest of its members as envisioned….”

Clearly one purpose of the suit was for the Defendants to be held responsible and accountable for their alleged wrongful actions. The proposed settlement does not do this. Instead, it allows the Defendants to continue on the Board and make no personal recompense either to the co-op or for legal costs of the settlement. These are the very same people who have received millions in co-op dollars, disallowed patronage capital refunds to co-op members, had extravagant travel expenses, and possible yet–to-be-uncovered payments and perks.

There are several facts to review, not the least of which is that the Board (named Defendants) has been overseeing the litigation on behalf of the co-op. State Senator Troy Fraser, a co-op member from Marble Falls, has characterized this as “the fox guarding the hen house.”

Another very interesting fact is that the PEC’s insurance provider, AIG , is not covering the cost of the entire settlement of $4 million. Instead, they are paying $2.6 million, leaving $1.4 million to be paid by co-op members (that’s us, the ratepayers). Again, the named Defendants will pay only the same amount that all other co-op members pay – about $7.60.

Sen. Fraser has expressed concern over the settlement terms. He stated, “It is customary for an insurer to pay the entire claim, in this case it would be $4 million less the $125,000 deductible. The fact that PEC’s insurer refused to pay the $1.4 million of the claim sends a message that the insurer found sufficient wrongdoing to deny paying part of the claim.”

Sen. Fraser additionally stated, “The PEC directors were quick to agree to pay the $1.4 million with the member’s money and none of it coming out of the director’s pockets. Why should the cooperative members have to pay for any part of this settlement? Either the insurance policy should pay the entire amount, less the deductible, or the Board of Directors and former General Manager Bennie Fuelberg should personally be responsible for paying the remaining portion. The cooperative members didn’t do anything wrong, but they are the ones being penalized for a Board of Directors that is attempting to indemnify themselves for potential wrongdoing. Someone needs to convince me why this settlement isn’t a rotten deal for the cooperative members.”

Sen. Fraser has hit the nail on the head.

Another portion of the settlement agrees to hire a private consulting firm out of Chicago, Navigant Consulting, Inc., to do an independent, comprehensive review of PEC’s business, management and financial practices over the past 10 years with close attention to the activities of the past 5 years. The review will also cover corporate governance, compensation, expenses and investments.

(One of the really rotten apples in this barrel, PEC subsidiary Envision, was initially purchased in 1990 (50%), another 25% in 1995 and the final 25% in 2000 for a total of $10 million. Fuelberg was advised against this purchase, but moved ahead anyway. Both he and Burnett serve on the Board of Envision. The subsidiary has consistently lost money).

While Senator Fraser and the Senate Business and Commerce Committee agree that the State Auditor’s Office (SAO) should conduct the review, the SAO is unavailable for several months. Therefore it was agreed that Sen. Fraser would specify areas to be included and give parameters for the Navigant audit. PEC has also agreed that the SAO will review the Navigant audit report. If necessary, Senator Fraser can introduce legislation that would place PEC under the regulation of the Texas Public Utilities Commission or call for a SAO audit in a year. New General Manager Juan Garza has been given complete control of the audit and estimates the cost to be somewhere between $250,000 to $450,000, again at PEC expense. Senator Fraser has been very positive regarding Garza’s cooperation and management of the audit. Preliminary reports are expected to be available for PEC’s June annual meeting.

But the question arises: What if the audit finds further wrongdoing by the Defendants? If the current suit settlement is accepted by members, it releases the Defendants of any further legal action against them. The legal jargon in the proposed settlement says, “Plaintiffs will release all class action claims arising from or related to those alleged in the Petition….” and PEC agrees to do same. This says that the Defendants (PEC’s board members and top management) will no longer be held responsible for any wrongdoing that we now know about or learn about in the future. In other words, they get off scott free now and forever. And they can remain on the Board until they decide to retire or the member/ratepayers decide to vote them out. Some of the current board members have two years still remaining in their term.

The Plaintiffs in the lawsuit are willing to make this settlement because they feel many of the objectives and goals have been reached. They also have concerns that continuation of the suit could cost the members more if the litigation continues and the court rules against them.

The Senate hearings are not complete and there is additional legal action against the specific Defendants being considered by parties other than co-op members. Criminal charges may yet be filed pending this currently active investigation.

PEC’s ratepayers are clamoring to be heard. We ratepayers have been hoodwinked and bamboozled for decades. Now we have a chance say to PEC's management, “you've been running a lot of red lights, now it's time you get fined!”

I urge all PEC member/ratepayers to take the time to object to the proposed settlement as it is currently structured. The proposed settlement letter from the PEC instructs members what to do: If you do not agree with the proposed settlement, write a letter to the court saying so. You must identify the case: WORRALL, et al. v. Pedernales Electric Cooperative, Inc., et al: Cause No. D-1-GN-07-002234 in the 353rd Judicial District Court of Travis Co. TX.

Send your letter to: :
Amalia Rodriquez-Mendoza
Travis County District Clerk
P.O.Box 679003
Austin, TX 78767-9003

Copies must also be sent to:

William Ikard
Ikard Wynne LLP
515 Congress Ave. STE 1320
Austin, TX 78701

David C. Duggins
Clark, Thomas & Winters PC
300 West 6th St, 15th Floor
Austin. TX 78701

Stephen E. McConnico
Scott, Douglass & McConnico
600 Congress Ave. 15th Floor
Austin, TX 78701

PEC’s web site, www.pec.coop, has the full settlement posted. Good luck trying to understand all the legalese. The settlement and objection letter received by members state the important highlights, but there is no real insight into how or why this settlement was reached. This proposed settlement has several bumps and corners that will be covered in a forthcoming column.

Linda Kaye Rogers grew up on a small family farm in the Rio Grande Valley. She received her BA and Masters of Science in Social Work from UT Arlington. She has taught smoking cessation, communication skills, stress management and parenting in hospitals, corporations, community groups and churches. Linda Kaye moved to Wimberley in 2000 where she built a straw-bale cottage and immediately established a rainwater collection system as her water supply. That same year she began volunteering at the Katherine Anne Porter School and has worked in various capacities at the school. She is an avid organic gardener, animal lover, conservationist, and environmentalist. In 2005 she spearheaded efforts to defeat a road bond that would have benefited a developer and cost Woodcreek North residents a dramatic and 20-year tax increase. Linda Kaye is a member of PEC4u, the group of PEC members who initiated the investigation of PEC Board governance and practice.