Are we connected?
Bossier Rural Electric Membership Cooperative is no more. It's gone. It didn't happen overnight--it took nearly 12 years.
Why did this cooperative fail? In a short two-word answer, "high rates." With a 50 to 60% rate disparity much of the time, the cooperative's board, manager and employees simply wore down. Why did they want to sell out? After 12 years they were tired of the fight and in the end they were offered some incentives by the investor-owned utility who purchased the cooperative.
Once you start down the long death spiral it's hard to change course. Somewhere in BREMCO's 12-year death spiral, rate disparity caused the board to make some bad choices. These choices were in the area of cutting expenses for customer service, member relations and communications. At the press conference announcing the sale of the cooperative the board president stated that he had been working for the sale for about 11 years. That may or may not be true. One fact that is without dispute is that if you don't offer outstanding service, not just excellent service, but outstanding service; if your member relations and communications are not outstanding; if you are not involved in your communities and if your attitude is we will only sell electricity, we don't want to get in any other business, you are going to have a hard time surviving and if you have a large rate disparity on top of those things, I predict you will not survive.
Anytime you have a failure you look back and ask yourself, what could I have done? What signs should I have seen? Should I have known this was coming? In the case of BREMCO, there were not a lot of advance signals. The cooperative was attractive to the investor-owned utility because its service area encompassed a prime economic development area of the state. Their service area surrounded a major military installation. It ran along the Red River that had just been made navigable to barge transportation connecting it to the Mississippi.
The first clue we missed that signaled a sellout might be in the works or something unusual was happening at the cooperative was when it did not take advantage of an incentive economic development rate offered by our G&T to attract new commercial and large power loads to its service area. Even though this rate was as low or lower than the rate being offered by the investor-owned utility. Another clue was that the cooperative allowed a small town where their franchise had just expired to be taken over by the investor-owned utility with absolutely no fight or resistance by the cooperative.
We didn't pick up any of the signals because we simply didn't think their cooperative was for sale. What could have prevented the sale? Well, in Louisiana, we are not different from most of you. We think merger discussions are great. They are a good thing, as long as they don't include our cooperative. This cooperative might have been saved, if a merger had been considered years before the actual sellout offer was made.
At the time the press conference was called to announce the sale of the cooperative, it was fairly obvious that discussions had been going on for some time between the investor-owned utility, the Public Service Commissioner in that district and the cooperative president and general manager. After the press conference, the cooperative president and general manager were literally ready to hand the keys over to the IOU and let them take it over. The IOU immediately announced that rates for the cooperative would be the same as those for other customers served by the investor-owned utility. Within one day they met with cooperative employees and assured them that they would all keep their jobs, that their wages would be higher than they were with the cooperative and that their benefits would at least be comparable. Employee morale at the cooperative was extremely low because there had been many employee layoffs and their wages had been cut over a period of years. There was no support from the employees to prevent the sale.
The terms of the sale were never really discussed with the membership. The membership really didn't care what they were. They were interested in a 50% rate reduction. Capital credits of the members were never a serious issue during the weeks that followed--lower rates were. We contacted former directors of the cooperative and other members with which we had had contact. We could not find one person that was willing to stand up and help form a member committee to oppose the sale of the cooperative. We were asked time and time again, what are you offering? Simply the possibility of a merger that might reduce our cost of power about half as much as the reduction being offered by the investor-owned utility? One director of the cooperative who was on the fence concerning the sale made a trip with us to Washington to discuss the sale with REA. When he returned home he was blasted by the rest of the board and the news media for trying to sabotage the sale of the cooperative and the reduction of rates for the cooperative members. He and his wife actually received threats and he quickly began to support the sale of the cooperative.
The members of the cooperative never knew if they got full value for their cooperative because a fair appraisal of the system was never made. The board avoided this by calling a special member meeting by mail ballot and making several bylaws changes. The members only wanted lower rates and the changes passed overwhelmingly. Negotiations for the sale of the actual distribution assets were between the cooperative board, the investor-owned utility, REA and the Public Service Commission. The investor-owned utility assumed the debt of the cooperative to REA and CFC and agreed to pay the members capital credits through the cooperative policy as death benefits. No general retirement of capital credit was made; only if you die the money is paid to your estate. The remaining distribution cooperatives in Louisiana and Cajun Electric were made whole in the process by REA. The investor-owned utility actually bought out the BREMCO portion of Cajun's contract with a cash payment made up front with additional contracts to purchase power from the G&T in future years. At that particular time the leadership of REA was more interested in how many dollars they could get out of the sale of BREMCO than they were in helping a cooperative survive. We still feel that REA somewhat subsidized the sale of BREMCO to the investor-owned utility and was unwilling to do more to help retain its identity as a cooperative.
Our last hope to prevent the sale of the cooperative was if they failed to get the required number of votes at the sellout election. We felt that we had a very good sellout law in Louisiana. BREMCO had 9500 members. Our state laws say that you cannot use a mailout ballot to sell assets of a cooperative. However, the cooperative did have a proxy provision in their by-laws that allowed for a 2 for 1 proxy vote. Our state laws required that 4,751 votes, that is 50% plus 1, would need to show up at the meeting to make the quorums and 4,751 votes, that is 50% plus 1, would have to vote in the affirmative to sell the cooperative. Certainly these were numbers that would be hard to achieve for a cooperative that normally had only 100 to 200 members show up for its annual meeting. The day of the election 8,119 ballots were cast out of a possible 9500. Eighty-one hundred ballots were in favor of selling the cooperative; 19 were against.
What did the board, the manager and the employees get from the sale? The manager got a job in the public relations department of the investor-owned utility, a salary increase, a new car and extremely good fringe benefits. The employees all got jobs at the investor-owned utility and most of them received substantial raises as a result of the transfer of the ownership. The board of directors are getting $300 per month for two years and their medical insurance paid for the rest of their lives.
Could the cooperative have been saved? The only way would have been years ago, at the time that the board made some bad choices about cutting funds for service, member relations and communications, if it would have merged with another cooperative to substantially reduce its rates. Even though their rates would not have been as low as the investor-owned utility, they perhaps would have been at an acceptable level if the cooperative was providing outstanding service and good member relations. I honestly don't believe that at the time the sale was announced there was anything anyone could have done to prevent the sale of Bossier Rural Electric Membership Cooperative. There was absolutely no member support, the rate disparity was enourmous, the attitude of REA was "let's take our money and run." Are we worried BREMCO no longer exists? You bet we are. Did we discuss the possibility of the Domino Theory when BREMCO was sold? You bet we did. What has happened in the months since the cooperative was sold? The power company that purchased BREMCO is joining every civic organization and chamber of commerce in the neighboring cooperative service area that adjoins them. A second cooperative that adjoins the BREMCO service area is having petitions passed throughout its service area asking its board or the Public Service Commission to call a special election to sell the cooperative so it too can lower rates. A second investor-owned utility seeing how easy REA made it to purchase an electric cooperative is putting out feelers around the state to the cooperatives.
I do not feel that we have fought the last battle for a cooperative in Louisiana. But in the future the outcome will likely be different. Our boards are acutely aware of what happened at BREMCO. They are ready to fight for the survival of their cooperatives. And of the greatest importance, there is now a new attitude at REA. An attitude that they are there to assist rural electric cooperatives work out some serious problems; not just to act solely as a banker and facilitator of the sale of a cooperative. I hope I never appear before you again on a panel to discuss the sale of an electric cooperative, but if I do, I hope it's to tell you about a victory and not to explain a terrible defeat.
Paul Wood is executive director of the Association of Louisiana Electric Cooperatives in Baton Rouge, a position he has held since 1983. Paul has been employed in the rural electric industry for 28 years. Prior to joining the Louisiana Statewide Association, he was with East Central Oklahoma, Clairborne Electric Cooperative in Louisiana, and was general manager at Dixie EMC. Mr. Wood has served on the NRECA Management Advisory Committee and Procedures Committee. He is a 1964 graduate of Northwestern Louisiana State University.
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|Title Annotation:||sale of an electric cooperative in retrospect|
|Author:||Wood, A. Paul|
|Date:||Mar 22, 1994|
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