[Watchdogs] Policy on Sale of the PEC

Wed Jul 21 17:23:15 CDT 2010

July 21, 2010

Member/owners and employees of the PEC:

Our PEC Board just adopted a policy for considering any offers made to purchase our co-op.  Someone went to a lot of time and trouble to write this lengthy policy.  Who wants it or needs it?  Who actually wrote the initial draft? You really should decide for yourself whether any of us need this at all, and if we do, does it really say what it should?  I think some of the provisions are troublesome.  You should not rely on a summation by the Board or by the PEC staff or by me.  You should read it for yourself.

The new policy is available to you on the PEC WEB page, but I have included it here for your convenience.  Also included for your convenience are the provisions governing the sale of the PEC that are in the Bylaws and the Articles of Incorporation.  These are copied from the PEC WEB page.

I have highlighted a few sections of the new policy, and expressed my concern about what is included in the policy - as well as what is not included.  Again, though, I urge you not to rely on my view of the policy, or the views of anyone else.  Read it and decide for yourself whether this is a good policy.  Please send me just a brief email and let me know what you think about it.

Respectfully,

Carlos Higgins

Austin, TX     PECMem at sbcglobal.net

THE POLICY ESTABLISHING PROCEDURES FOR DISPOSITION OF ALL OR A SUBSTANTIAL PORTION OF THE COOPERATIVE'S PROPERTY 

Here are my concerns for your consideration:  

(The order in which these provisions are presented does not reflect any order of priority or importance.  They are merely presented in the order in which they appear in the Policy,  The Page numbers refer to the attached Policy in its entirety.  They are included here so that you may readily find the cited provisions in the body of the Policy.)

The questionable provisions are underlined, followed by my opinion.

(Page 2)          The Cooperative's objectives in establishing this Policy are . .. . ..to determine whether a sale of the Cooperative's assets under the terms of the proposal would be in the best interest of the Cooperative and its members.  

My Opinion:  I think we have an obligation to consider not only current members, but what the value of this co-op will be to future generations of PEC members, and not sell it off to their detriment for whatever gain it might bring to us who happen to be members now.  This would be another case of stealing from our grandkids.

(Page 2)          1. . . . the .following Policy  . . . . . .shall be followed unless, by an affirmative vote of two-thirds (2/3) of all of the Directors comprising the Board, the Board determines that an exception is required by the particular circumstances;

(Page 2)          3.          That this Policy shall not be amended or repealed, except by an affirmative vote of two-thirds (2/3) of all of the Directors comprising the Board. 

(Page 3)          II.          RULES AND PROCEDURES . . . . .the following rules and procedures will be applicable and adhered to except as may otherwise be put into effect by the Board because of its determination that particular circumstances so require:

My opinion :  Whatever safeguards there might be in this policy can be eliminated almost any time by a 2/3 vote of the Board, and the membership would have nothing to say about it.  Even worse, the Board could change this policy to make it easy for someone to buy  the PEC, and make those kind of changes without the consent of the membership.  And they could change the policy to match "particular circumstances" which could mean special accommodations for a particular buyer.

(Page .4)                contain an agreement by the Interested Party not to issue press releases or discuss the Qualified Offer with the media without prior written notification to the Cooperative, 

(Page 6)           b.          Communications.  The Interested Party shall not communicate or discuss the proposal with any Member of the Cooperative  other than the designated individual[s]. 

My opinion: If the Board is giving serious consideration to selling off the PEC, I think the owners ought to be among the first to know.  Instead, this policy makes sure we'd be kept in the dark until the Board has pretty much decided to sell.

(Page 7)          (2)          Cooperative Information.  If requested, the Cooperative shall provide additional information to the Interested Party regarding the Cooperative's finances and operations, subject to the Interested Party's execution of a confidentiality agreement in form acceptable to the Cooperative.  

My opinion:  What!  Our Board would hand over just about any and all information about our co-op to an interested buyer, while it's like pulling teeth for us as the owners to get basic information.  But the prospective buyer would have to promise not to reveal that information to others - such as us, the owners of the PEC.

(Page 10)          (3)          that all existing employees of the Cooperative are offered continued employment for at least three (3) years upon terms at least equal to those enjoyed by the Cooperative's employees at the time the Qualified Offer was submitted to the Board with the employment terms to be considered to include wages, salaries, severance benefits, insurance and pension benefits, fringe benefits, rank and job title, place of employment, and residence;

(Page 10)          (4)          that the total consideration to be paid by the Interested Party will be paid directly to the Cooperative or its account; provided that a Qualified Offer of merger may provide for issuance of stock to the Cooperative's members in exchange for their capital credits and membership interests;

My opinion:  This should be a red flag to all of us.  Frequently, in major corporate buy-outs or mergers, the buyers not only skim off huge amounts of the money or other resources of the newly acquired company, but they also restructure it so that many of the employees of that company lose jobs or lose their pensions or both.  Here, the employees get a guarantee as part of the sales agreement that their jobs are safe for three years, but nothing certain beyond that.  As to pensions and other benefits, such as health-care, those are things to be "considered" in the sale.  No guarantee at all in this policy.

The other red flag is the ability of a buyer to pay off member/owners in newly issued stock for their accumulated capital credits and for their ownership interest.  That's another common ploy in buy-outs and mergers.  The buyer relies heavily on debt to pay for the acquisition, and that debt is then owed not by the buyers, but by the new company, so payment in the stock of a company suddenly deep in debt may not be such a good bargain for us as the sellers.

(Page 10)          (8)          that there will be a call of a meeting of the members for the purpose of acting on the proposed transaction contemplated by the Approved Definitive Agreement, consistent with Part II.10 below; and

(Page 10)          c.          upon execution by the Interested Party of the Approved Definitive Agreement incorporating the foregoing elements, notify the members that a proposal has been received constituting a Qualified Offer and that has been determined by the Board after the two-phase evaluation process to warrant submittal to the members for their review and determination

(Page 11)          a.          The Board shall promptly fix the time, date and place of the meeting and shall prescribe the wording and method of disseminating, collecting and counting the written ballots to be employed in the voting. In fixing the date of the meeting, the Board shall have due regard for the ability of the members to become fully apprised of the Approved Definitive Agreement so as to enable them to make an informed decision through their votes submitted in connection with the meeting, which shall in any event be called and held in compliance with the Cooperative's applicable Bylaw provisions.

My opinion:  But only after the sale is pretty much a done deal would we know anything about it.  And along with the news, we'd probably learn that all we have to do is vote for the sale, and we'd get some stock in the new company and cash for our capital credits.  The bait would likely be high enough to convince enough member/owners to eagerly await a chance to vote for the sale and collect the freebies.

(Page 12)          b.          If the Board determines that false or incorrect information is being disseminated by one or more persons, whether in favor of or opposed to the proposed transaction, and that such information may materially affect the outcome of the meeting and election, the Board may abort or withdraw the call of the meeting. . . . . . . . . and/or the Board may take any other action it deems appropriate in the circumstances.

My opinion: If the sale runs into some sort of hitch in their gitty-up, the Board will be able to say Whoa long enough to fix whatever needs to be fixed in order to get on with a successful election and sale.

(Page 14)          13.          Results of Valuation Assessments.  The results of the reports concerning the value of the Cooperative.  Although the Board shall consider all such information and opinions, it shall have the final responsibility to make the Cooperative's official determination of value and whether acceptance of the Qualified Offer is in the best interests of the Cooperative and should be presented to the members for approval.

My opinion:  What we could get is the Board's final valuation, along with little else, or with selected supporting data, with no opportunity to challenge the valuation.

Finally, there is nothing in the policy that would deter a member of the Board from being well rewarded for cooperating with a buyer in promoting a sale of the PEC.

I would include an explicit prohibition for any Board member or officer of the PEC to directly or indirectly accept anything as an inducement or compensation in connection with the sale.

My interest in the PEC

I'm Carlos Higgins, a PEC member since 1974, but a member with enough interest in PEC activities to pay attention and speak up when something just does not seem right at the PEC.  My concerns about "what's going on" at our electric co-op took a big jump in December of 2007 when the extent of wrongdoing at the PEC began to get more publicity, and again in 2008, when I to read the court-ordered Settlement of the lawsuit initiated by PEC4U and others against the PEC under General Manager Fuelberg and his compliant Board of Directors.  In my opinion, that Settlement was somewhere between awful and outrageous from the perspective of any fair-minded member/owner of the PEC, yet it was supported by the PEC leadership.

In my opinion, the PEC leadership reached another low point in 2008 when it supported legislation (House Bill 3820) that was decidedly against the interests of the member/owners of electric co-ops in Texas, including the PEC.  For example, it would have allowed member/owners to attend board meeting of their own co-op only long enough to make a statement to the Board, but then leave, and not be able to monitor the Board's discussion and deliberations on any issue.  I believe that anyone who professes to support openness and accountability in the operation of a co-op could not and would not support that legislation in good faith, if they actually understood the repressive provisions in the Bill.

More recently, I spoke to the PEC Board to express my concerns about the firing of the General Manager.  Although I supported the Board's action, especially on the basis that this would be the first time in decades that a Board composed of members actually elected by the membership would have the opportunity to hire and work with a General Manager of its own choosing, I condemned the Board for not voting for or against the firing in public view, and not even publicly revealing how Board members voted on the issue after the action was taken.   I strongly believe we member/owners have a right to know how our elected Board members stand on issues at our co-op, especially on an issue as important as the firing of the General Manager.

Now, our PEC Board has come up with their policy on considering offers made to buy our co-op.  I believe most PEC members have no interest at all in selling the co-op, and I am not aware of any request by members for the Board to develop a policy that goes to great lengths to say how an offer will be handled.  Nonetheless, our Board developed and adopted exactly such a policy.  

I have pointed out what I consider to be serious deficiencies in the policy, but the important thing to you is this:  Do you consider them to be serious deficiencies?  Do you believe it should be enough to merely say the PEC is not for sale, or at the very least, say that no offer will be considered unless and until two-thirds of the membership petition the Board to consider an offer?  If you believe the Board is going in the wrong direction with this new policy, you really need to speak up.  Otherwise, this policy will remain in place as an open invitation to well-financed investors to look upon the PEC as a "bird nest on the ground," ripe for raiding at the expense of current and future member/owners of the PEC. 

In my opinion, developing this policy to consider offers to purchase the PEC does in fact send a message that the current PEC leadership is receptive to offers.  I do not suggest that our current Board members have any inclination to sell our PEC, nor do I believe any of them would have visions of arranging a sale for their own personal gain by cooperating with a buyer.  But I do believe our Board has written a policy that opens the door for a crafty buyer to lay the groundwork for acquiring the PEC, by first arranging for some accomplices to be elected tothe Board.  With the help of enough "bought and paid for" Board members, the stage could be set for us to lose our co-op.

I believe the only policy we need on selling the PEC should be one that unequivocally states, "The PEC is not for sale.  The policy could be expanded just slightly to state that any purchase offers received by any PEC Board member or the General Manager will not be given any review or consideration by the Board unless and until a minimum of two-thirds of the membership petitions the Board to consider an offer.  And that kind of policy should be one that cannot be changed by any Board.  It should be one that can be changed only by vote of the owners of the PEC, and that's the entire membership.

Respectfully,

Carlos Higgins

Austin, TX     PECMem at sbcglobal.net
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