[Watchdogs] PEC opts to mail distributions to members [Jodi Lehman, Horseshoe Bay Beacon]

[Milton Hawkins]

Friends,

This story appears in the Nov. 5 issue of the *Horseshoe Bay Beacon* newspaper.
Add to the $300,000 + (the cost of distributing by paper check) the cost of
the initial October 19th letter, which set off the confusion, and we're
talking real money here. It's a rather expensive way to try to educate the
membership.

Milton
 ------------------------------

PEC opts to mail distributions to members

*Checks to serve as tangible proof of cooperative benefits*



By Jodi Lehman



The Pedernales Electric Cooperative will again make a capital credit
distribution to members this year of approximately $4 million.  But unlike
the $4.6 million distributed last year as credits on members’ 2008 October
electric bills, most of this year’s distribution will be in the form of a
check mailed to eligible members.  PEC estimates the average capital credit
distribution will be $20.

            The PEC incurred no cost last year in distributing the capital
credits electronically on members’ bills.  Mailing checks to members this
year will cost the cooperative $1.50 per check, or about $300,000, according
to PEC General Manager Juan Garza.  “It’s not a question of cost, but of
what we need to do to better communicate with members,” Garza said in
response to questions by PEC board member James Williams at last Friday’s
special board meeting.

            There’s a short answer and a long answer to why PEC is
instituting a costly means of distributing capital credits this year.  The
short answer was repeated by board President Larry Landaker and Garza at
Friday’s meeting as well as by PEC spokespersons in interviews after the
meeting.  “The reason checks are being issued is so that members have
tangible evidence of their economic participation in PEC and begin to
understand the distinct benefits of the cooperative business model.”

            The long answer begins with grasping the distinction between a
capital credit *allocation* and a capital credit *distribution*.
Allocations are bookkeeping entries.  Distributions are funds returned to
members at the discretion of the board.  Distributions are subtracted from
members’ allocations.

            At its meeting on September 21, the PEC board authorized up to
$4 million in capital credit distributions to members using a credit on
members’ bills.  Then a letter was mailed to PEC members on Oct. 19, 2009
over the signature of PEC’s CFO Michael E. Vollmer.  The letter contained a
chart showing each member’s 2008 capital credit allocation and total capital
credit allocation, but also informed members that they would be receiving a
capital credit “distribution in the form of a credit on their bill rendered
in November” which “will be deducted from the total balance of the member’s
capital credits.”

            If you didn’t fully understand the purpose of the Oct. 19 letter
or grasp the distinction between allocations and distributions, you are not
alone.  PEC received 6,227 calls from members who were confused by the
letter, and on Oct. 28 called a special meeting of the board for Oct. 30 to
re-consider the method of capital credit distributions.

            “Were callers in favor or against distributing capital credits
by applying credits on members’ electric bills?” asked board member Williams
at Friday’s special meeting.  General Manager Garza said callers did not
complain about receiving capital credit distributions as a credit on their
electric bills. “They wanted clarification of the letter,” answered Garza,
explaining that most callers incorrectly thought the capital credit
allocation dollar figure shown on the chart in the letter would be the
amount of distribution they would be receiving.

            Williams asked PEC staff how much the cooperative spends on
advertising in a year.  The answer was approximately $400,000.  Williams
argued against spending almost as much as PEC spends on annual advertising
to mail checks in the absence of member complaints about disbursements
posted as credits on their bills.  He questioned how receiving a check in
the mail will make members better understand how cooperatives function.

            The board passed the resolution to mail checks by a vote of 5 to
1, with Williams the lone nay vote.  Board member Kathryn Scanlon was not
present at Friday’s meeting.

            Anne Harvey, PEC spokesperson, further explained the situation
this week. “After the (Oct. 19) letter was issued, it was clear to us that
some members were not aware of the benefits of their membership in PEC and
not aware of the difference between a capital credit allocation and a
capital credit distribution, so we are working to try to clarify the issue.
Capital credit distributions return a portion of a member’s allocation to
the member.”

            PEC has been allocating capital credits to members for decades
but only began distributing capital credits to members in 2008 after the
class action lawsuit was filed.  PEC agreed in the settlement of the lawsuit
to distribute $23 million in capital credits to members over a five-year
period if the distribution was financially feasible.  The settlement also
specifies that the distributions will be by credits on members’ bills.

            The Settlement Agreement sets out a formula on how to calculate
each member’s capital credit distribution.  Basically, PEC determines how
much money it can financially afford to distribute each year, then works
backward from that figure (which is “up to $4 million” for 2009) using the
formula to calculate how much each member will receive.

            “We continue to review the formulas, but our current estimation
is that approximately 206,000 accounts will be eligible for capital credits
refunds and we will return $3.99 million to members,” explained PEC’s
Harvey.  About 1,000 members who are slated for distributions under $1 will
receive credits on their November bills rather than a check in the mail.

            At Friday’s special meeting, board member Patrick Cox said
mailing checks would further one of the seven principles of cooperatives –
members’ economic participation.  The National Rural Electric Cooperative
Association defines this principle as “members contribute equitably to, and
democratically control, the capital of their cooperative.”

            Board member Cristi Clement said mailing checks would be
“another opportunity to have a dialog with members” by enclosing a letter
educating members about capital credits.  Clement said many members might
not notice the capital credit distribution if it were merely a credit entry
on their bills.

            Landaker said PEC’s “mission today is to bring clarity to
members” and help members better understand capital credits.  He likened
capital credits to corporate dividends, saying “the more efficiently we
operate, the better the margins.”

            Capital credit distributions will be made to all eligible
accounts, even those in arrears.  Eligible accounts include those that were
i) active in September 2009; ii) billed for electricity use in November;
and, iii) have a positive capital credit balance.

            Checks, unlike credits on member bills, can get lost, misplaced
or eaten by the dog. In response to questions from *The Beacon *about the
possibility of lost or un-cashed checks, PEC’s Harvey said the checks will
be void after 90 days and PEC is considering “providing members who do not
cash checks within 90 days with a credit on their bill.”  Since checks will
only be mailed to active members who receive bills in November, Harvey said
PEC does not expect many checks to be lost or remain un-cashed.

            Although several members of the PEC board have on other issues
championed “green” concerns at the cooperative, no mention was made of the
environmental impact of choosing to mail checks to 206,000 members rather
than using a paperless method. According to payitgreen.org, the cutting,
transporting, milling and mailing of paper checks uses fuel and adds
greenhouse gases to the environment, problems that are avoided by use of
electronic payments.

            Members can expect their “tangible evidence of their economic
participation in PEC” around Nov. 16.



##



*“The reason checks are being issued is so that members have tangible
evidence of their economic participation in PEC and begin to understand the
distinct benefits of the cooperative business model. Obviously there are not
printing/mailing costs associated with a bill credit, but PEC would also
miss the unique educational opportunity.”*

            -- PEC explanation of why spending $300,000 to mail checks to
members is beneficial



##



*“How will a check make them better understand how a cooperative works?”*

            -- PEC board member James Williams, the only vote against
spending $300,000 to mail checks to members



##



Timeline of Events



Sept. 21, 2009:  PEC board authorizes distribution of up to $4 million in
capital credits to members via a credit on their bills.



Oct. 19, 2009:  PEC mails letter to members showing dollar amount of each
member’s capital credit allocation and informing members that up to $4
million will be distributed via credits to members’ bills in November.



Oct. 20 – 29, 2009:  PEC receives 6,227 calls from members confused by the
Oct. 19 letter.


Oct. 30, 2009:  PEC decides to mail distribution checks to members with an
explanatory letter, rather than use an electronic credit on bills, at an
additional cost of $300,000.

-- 
Milton Hawkins
P.O. Box 1502
Johnson City, Texas 78636-1502
830-868-9075
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