Let There Be Light Part 5: I Own This Little Electric Cooperative In Alabama …

August 30, 2016

This is the fifth and final in an ongoing series on local electric companies, compiled in 2015 and published now for the first time in The Dade Planet.


Onstage, a woman is talking about the Second Coming.


“It’s gonna be better when Jesus comes back,” she says.  “He’s gonna rule and reign and things will be right.” Backed up by a gospel band behind her, she launches into song.​


She sings to a full house.  Easily a thousand people sit in the auditorium or mill in and out from the lobby and the steps beyond, where the candidates are. There are men, women and children, people carrying babies and people pushing older people in wheelchairs.


Practically all the ones standing clutch 10-inch cast-iron skillets, spanking new and with tags dangling; practically all the ones sitting have skillets tucked underneath their chairs.


Out in the lobby there are tables marked VOTE next to tables marked PRIZE REGISTRATION. The prizes will be given away in a drawing, but the skillets are just for showing up.  Everybody gets a skillet.​

Now, back to the auditorium.  The gospel band is taking a break, ceding the stage to an emcee who is calling out ticket numbers for the door prizes.  Here are a few of them. 

  • A Blue-Tooth Sound System

  • A Go-Pro Camera

  • An X-Box 360

  • A 19-inch all-in-one personal computer

  • A 3.3-cubic foot refrigerator-freezer

This is not a complete list.


In the lobby, the skillets have run out and registrants are being given camp chairs, the kind that fold up into long canvas sleeves.  Then the chair supply goes dry, too, and latecomers get big silver buckets instead.     


The atmosphere is part tent revival, part game show. The phrase "bread and circuses" keeps occurring to the culture-shocked observer. What is this?  Here’s a hint: Grand prize winners at the drawing (two will be chosen) will receive free electricity for a year.


Yes. This is the annual meeting of the Sand Mountain Electric Cooperative (SMEC), the 75th-anniversary meeting, in fact. Three of the nine-member board of directors are to be elected today. 


“To have a quorum, we have to have 3 percent present, which is about 700,” Mike Simpson, SMEC’s chief executive officer, had explained earlier. “We normally have about 1400, so about 6 percent.”


Electric co-ops are member-owned.  One of the questions this series seeks to answer was:  What does that mean? 


Simpson answers that question:  “Basically, it means that you do have a chance to vote for directors.”  


Co-ops employ business executives like Simpson to manage their day-to-day operations. Simpson’s title is CEO while at DeKalb’s other co-op, Marshall DeKalb Electric Cooperative (MDEC), the boss, James Stewart, is called “general manager.”  But the cooperative management structure is such that the boss’s boss is supposed to be the owner-members. As a practical matter, this means Simpson and Stewart report to boards of directors elected by co-op members at meetings like this one.


The rural electric cooperative was born in the 1930s, and grainy black-and-white photos of the time show those original members gathering in their overalls and straw hats to discuss co-op business. Co-op critics – notably Rep. Jim Cooper (D.-Tenn.), who has become a kind of watchdog on the industry – say that doesn’t happen anymore. Modern co-op members have day jobs and little idea of, or interest in, the privileges and duties of membership, Cooper wrote in The Harvard Journal On Legislation; anyway, they are less voluntary co-op members than helpless consumers paying whatever is asked for a vital commodity in a monopoly market.  “Co-op managers and employees have too often become the de facto owners of the co-op,” he wrote.  


Rep. Cooper didn’t say anything about skillets.


SMEC’s Simpson acknowledged that some attendees probably do show up at annual meetings for the swag – “We give away prizes to get people to come” – but said contested board races also had something to do with this year’s crowd.  


He later supplied the information that at this year’s meeting, held on April 18, 1383

 members had registered, 1265 voting in one board-of-directors race, 1239 and 1161 in the others. 


Asked for a budget for this year’s appliance-heavy gala, Simpson first replied by email that that number was not immediately available, with this disclaimer:

“First thing you should understand is that SMEC is not a government agency or

affiliate. SMEC is a publicly owned private company. And as with any other private

company SMEC is not subject to sunshine or open records laws or requirements.”


In a subsequent phone interview – reminded that the interviewer was in fact a 14-year co-op member-“owner” – he said he estimated the figure at around $20,000.


SMEC’s Simpson was more generous with time and data for this series than the managers of the other two electric companies in DeKalb. James Stewart of MDEC answered written questions only, while Danny Brisendine of the Fort Payne Improvement Authority not only declined to be interviewed but declined through the FPIA attorney.


But none of the three companies parted with information about their CEO’s salary, the two that responded saying only that CEO compensation was commensurate with that of similar positions in the region. 


SMEC ceded the information that the nine members of its board of directors were paid $250 apiece per monthly meeting and were eligible for the same health insurance coverage as the co-op’s employees, but no travel pay. 


MDEC said its board of-directors did not receive health coverage but did get travel compensation. MDEC acknowledged its board members received a fee for each meeting but would not say how much.


So does member-ownership in a co-op mean slightly more access to its financial information than that of co-ops one is not a member of?


Rep. Cooper argues that what ownership should mean is: ownership; that co-ops should compensate members for their equity with “capital credits” – as in, money. Probably most local co-op members would expect nothing of the kind, but some co-ops elsewhere do indeed make such payments, and on the website of the National Rural Electric Cooperative Association (NRECA) is the rule:  “… the co-op must, with few exceptions, return to consumers-member revenue above what is needed for operation.”


In its latest summarized financial statement, SMEC listed under “Memberships and Members’ Equity – with, beneath it, the notation, “Reinvested in the system” – the sum of $57,190,105.


For year 2014 revenues, the report listed $75,781,643, and for expenses $73,529,994, leaving a margin of 2 million-plus.


Asked about capital credits, Simpson and Stewart both replied that their co-ops’ contracts with TVA specifically forbade refunds of that nature.  Simpson added that making such refunds would require raising rates.


See the sidebar article below for a discussion of TVA’s regulatory role of the co-ops.


The Role of TVA 

One warning that industry watchdog and Tennessee Congressman Jim Cooper makes about electric co-ops is that they are underpoliced; because they are “member-owned,” governments are disinclined to monitor them, and they are exempt from regulation by state public service commissions.  “In theory, electric co-ops are continually self-regulating,” wrote Cooper.


Asked for this series “who watches over you,” both SMEC’s Mike Simpson and MDEC’s James Stewart replied that their co-ops are audited yearly by an independent auditor and periodically by TVA.


Duncan Mansfield of TVA corporate communications in Knoxville elaborated on that.  “Every local power company has a 20-year power contract with TVA, and TVA has regulatory authority over the execution of that contract,” he said. “We are serving the same purpose that a public service commission does in a state.” 


But what does TVA audit for, specifically? Mansfield says it’s mostly a matter of fulfilling TVA’s own mandate to provide electricity to all consumers in its territory evenhandedly and as cheaply as possible. “We’re following the electricity as it goes through the system from us to them and then how they’re selling it,” he said. “We’re auditing to make sure that the consumer is being charged a nondiscriminatory rate, that all consumers are being treated equally,” he said. 


This means reviewing proposed rate increases but it also gets into policy, said Mansfield.  “For instance, we’ve had cases where a local utility was allowing people who were delinquent on their bills to be reconnected to the power system without paying the charges, and we said that was wrong because ultimately everybody had to pay for them,” he said. “That discriminated against paying customers.”


Mansfield had been asked to provide information about TVA’s regulatory role, but since TVA’s generational costs directly impact local electricity bills, he was also asked to comment on that. 


Mansfield began with a little history: that TVA was created as a “federally-owned corporation,” one with some government functions but with the agility and scope of a corporate entity, in order to accomplish a number of goals.  “It was a multipurpose agency,” he said.  “It wasn’t all just for electricity but it was to provide economic development for an impoverished area.”


Over the decades, TVA has been required to become financially independent.  “We haven’t received federal funding for our power programs, which is the dams and the nuclear plants and that sort of thing, since 1959,” said Mansfield.


Besides a small percentage that comes from such incidental amounts as user fees at campgrounds and so forth, he said, TVA’s income all stems from power sales.  But with power sale proceeds, it is required to pay for its other functions.


“We do other things we call non-power programs, which is the land stewardship, environmental management, economic development,” said Mansfield.  “We haven’t received any funding for that since 1999.”    


So, while fulfilling the requirement written into the TVA Act to set its rates “as low as feasible,” TVA must pay its way like a corporation and at the same time provide services like a government. “We see it just as part of our mission to offer those things besides just making electricity,” said Mansfield.



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