27 June 2008
Congressional committee hears testimony on Pedernales

Filed under Investigation

By <http://www.statesman.com/news/content/news/stories/local/06/27/mailto:cgrisales@statesman.com>Claudia Grisales
AMERICAN-STATESMAN STAFF
Friday, June 27, 2008
WASHINGTON — A top U.S. House investigative committee cited troubles at Pedernales Electric Cooperative during a Capitol Hill hearing Thursday as it considered whether other member-owned utilities are plagued with similar problems.
“If you think Pedernales is the only electric cooperative scandal in America, then you believe there can only be one cockroach,” said Rep. Jim Cooper, D-Tenn., a member of the U.S. House Oversight and Government Reform Committee. “If such abuses can happen at the country’s largest cooperative, then I think it can happen anywhere.”
Meanwhile, two men at the center of the Pedernales’ controversy were absent despite being subpoenaed to testify. The committee could pursue contempt of Congress charges — a rare action — against former board President W.W. “Bud” Burnett and former General Manager Bennie Fuelberg, but members gave no indication they planned to do so.
Committee Chairman Henry Waxman, D-Calif., said the two “declined to appear voluntarily … and they have evaded federal marshals who tried to serve them with subpoenas.”
One of the witnesses was “hiding in a remote New Mexico ranch,” Waxman said. Burnett owns a 14,000-acre property in Duran, N.M. On Wednesday, Fuelberg was in Dripping Springs, where he personally paid his electric bill at a co-op office, according to the co-op.
Fuelberg and Burnett “aren’t reflecting the co-op’s proud history by refusing to explain their apparent self-dealings,” Waxman said. “There is compelling evidence that the Pedernales co-op used its customers’ equity as a private piggy bank.”
More than a year ago, some Pedernales members began challenging the co-op for refusing to pay capital credits (akin to dividends) to its members; paying its 17 directors large salaries and failing to disclose other compensation and financial information. A member-led lawsuit helped force revelations that Fuelberg and Burnett, along with other board members, were spending extravagantly on the co-op’s credit cards.
Details of stays at Ritz Carlton hotels, costly meals at top steakhouses, thousands spent on Godiva chocolates and purchases of Celine Dion concert tickets in Las Vegas were recounted multiple times by lawmakers during Thursday’s four-hour hearing.
Waxman said Cooper brought the issue of co-op practices to the committee’s attention. Cooper’s father helped start a rural cooperative, he said, and the congressman authored a critical study of the co-op industry that was published in the Harvard Journal on Legislation this week.
There are 930 nonprofit electric co-ops in the United States, serving 17 million customers and controlling $30 billion in member equity, according to Cooper.
Cooper and other committee members raised concerns that Pedernales isn’t alone in having sanctioned questionable practices. They cited some Tennessee co-ops that haven’t paid capital credits; a member-led lawsuit to force financial disclosures at Georgia’s Cobb Electric Membership Corp.; and an Alabama co-op that hasn’t had a board election in decades.
Glenn English, CEO of the National Rural Electric Cooperative Association, defended co-ops. He said most of the industry doesn’t engage in questionable practices and that for most co-ops, the democratic process is working.
“We all want a fair and open process,” said English, whose testimony triggered the most contentious exchanges of the hearing.
“You are only as good as your weakest link,” U.S. Rep. Bruce Braley, D-Iowa, told English.
Pedernales members John Watson and Carlos Higgins told lawmakers that co-ops might need federal help restoring governing power to their members who own them.
“Please do not accept assurances that the State of Texas can take care of its problems,” Watson said.
Enforcing federal regulations, such as Internal Revenue Service tax requirements to report executive pay, could be a step in the right direction, he said.
Until 2007, Pedernales for years had failed to accurately report compensation for its general manager, several committee members noted.
State Rep. Patrick Rose, D-Dripping Springs, told the committee he is prepared to file legislation that would make co-ops subject to the state’s open records and open meetings laws as well as Public Utility Commission review. “I am committed to reforms that strike a balance between statutory oversight and local control,” Rose said.
State Sen. Troy Fraser, R-Horseshoe Bay, said he would also pursue open records and meetings requirements, as well as new limits on co-op investments outside of their core business of providing electricity.
“We are not asleep in Texas. This happened once and I’m going to make sure it doesn’t happen again,” he said.
After a pointed exchange between Fraser and Cooper over disclosures of capital credits to members, Fraser said he had talked with Pedernales officials who said the co-op would begin disclosing details of such accounts to members in the coming months.
Juan Garza, who joined the co-op as general manager in February, said the co-op has turned over a new leaf.
Last week, the co-op’s membership elected five new directors to the 17-member board, unseating one incumbent. The race drew an unprecedented 58 candidates.
“This has been a difficult year for the PEC,” Garza said. “But when you step back and look at the relatively rapid change in policies and the results of our historic election, I want this committee to know that the co-op system of member control works.”
cgrisales@statesman.com; 912-5933

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2008-06-27  ::  admin