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Power struggle

Carroll County co-op board bad actor, lawsuit says.



Carroll County Electric Cooperative Corporation has been plagued by recent controversy — an unflattering documentary, a series of member-initiated lawsuits and recently, on Dec. 5, a formal complaint lodged with the Arkansas Public Service Commission against the cooperative's latest bylaw change.

On Oct. 27, Carroll Electric amended its bylaws to include an arbitration clause forbidding any member of the cooperative to "participate in a class action or putative class action against the Cooperative." The timing was suspicious. Just three months earlier, cooperative members Gordon Watkins and Dane Schumacher filed a class action suit against the co-op, alleging that the utility's bylaws and herbicide program are illegal and that the utility has denied members access to records, including financial records about member-owned funds.

According to their attorney, William Ikard of Austin, Texas, the bylaws amendment is unenforceable under the doctrine of unconscionability — meaning that one party is subject to oppressive terms, with no recourse or means of negotiation. "A member may not even know she was named in a putative suit. All Carroll Electric members are named in this suit, so they would all be in violation of the bylaws," Ikard said. The amendment "is ridiculous," he said, and "inappropriate for a member-owned, democratic co-op."

Because Arkansas law mandates utility monopolies, anyone with a business or residence in Carroll Electric's service area — portions of Benton, Newton, Madison and Carroll counties — has no choice but to join the co-op.

Watkins and Schumacher, organic farmers and members since 1973 and 1998, respectively, were alarmed by the lack of information surrounding the utility's use of herbicides.

In May 2008, members were notified by the Carroll Electric board that crews would be coming on property to control brush growing under power lines. "The first notification we received didn't even have the word 'herbicide' in it," Watkins said. Notification was staggered, so that many members learned of the program mere days before the crews were scheduled for their neighborhood.

A couple of weeks later, the federal Environmental Protection Agency sent Carroll Electric instructions to send out new notices identifying the "applicators" crews would use as herbicides. The associated controversy spawned an award-winning documentary, "The Natural State of America," featuring Arkansas naturalist Kent Bonar.

Though there was an "opt-out" process, Watkins found it confusing and unreliable. "I needed no-spray assurance in writing to keep my organic certification. Carroll Electric couldn't supply it," he said. Some members opted out, but their property was sprayed anyway.

After they were thwarted in their attempts to obtain a copy of the vegetation management plan, which was implemented without the permission of the member-owners, Watkins and Schumacher became suspicious of the utility's financial behavior.

"Members couldn't attend board meetings, couldn't see the minutes, couldn't speak at the annual meeting, couldn't bring cameras to the meeting," said Watkins.

Carroll Electric formed in 1937 under New Deal legislation, drafted to provide rural communities with electricity. Its 88,117 members pool funds to finance infrastructure. Anything left after operating costs is to be returned to members as a capital credit.

Since 1973, Watkins has only received three checks from Carroll Electric. The largest was for a couple hundred dollars, even though he has about $6,900 on reserve. According to Nancy Plagge, director of communications for Carroll Electric, funds awarded in 2010 were for credits accumulated in 1983 because of the 25-year distribution cycle. In 2012, members will receive checks for credits accumulated in 1985.

Perhaps in reaction to a class action lawsuit filed by member Joe Capps in Benton County District Court in 2009 for a portion of the more than $170 million in capital owed to Carroll Electric members, the board changed the bylaws in January 2011, removing the language about when members would be notified about their funds. Prior to that, bylaws specified that patrons were to be notified of their reserve funds "within reasonable time after the close of the fiscal year."

Other financial discrepancies are mentioned in Watkins and Schumacher's suit. According to Plagge, the nine board members receive a $550 per diem per monthly meeting. But tax forms show that in 2007, an emeritus board member was granted $12,000, and in 2009, a former board member also received $12,000. In 2007, fees paid to board members totaled $289,707, which comes to $2,700 per meeting for a nine-member board.

The Times' inspection of the cooperative's 2010 tax returns found that board members received on average $1,826 per meeting.

Watkins and Schumacher did eventually receive a copy of the vegetation management plan, 10 months after they initially filed the request. They were also allowed to view truncated minutes from board meetings, but they had to go through Carroll Electric's lawyer. "So we decided that we would elect someone to the board who might truly represent our interests," Schumacher said.

Marci Brewer, a joint accountholder with Schumacher, decided to run. She needed 690 member signatures, including at least 250 from her district. By March 2011, she collected 1,300 signatures, but Carroll Electric disqualified Brewster's petition, alleging only 242 signatures came from her district. Plagge said that signatures by anyone other than the account holder didn't count.

One of the disqualified signatures belonged to Brewster's 85-year-old neighbor — a member for decades. Her signature was disqualified because the account was still in the name of her deceased husband.

October's bylaw changes also included a new ballot nomination requirement for potential new board members. All nominees must first be approved by a board-appointed official, who then submits qualified nominees to the nominating committee. Only candidates who don't make it through this committee are allowed to submit a nomination by petition.

"This change was just to streamline the process," said Plagge, who maintains that Carroll Electric has one purpose: to provide reliable, cheap electricity to its members. The cooperative accomplishes this goal. Carroll offers residential electricity at eight cents per kilowatt per hour. The state average is 9.54 cents.

Schumacher, Watkins and the dozen members who have filed public comments on the PSC docket in support of the class action case represent less than 0.1 percent of Carroll Electric's total membership. But to Schumacher, that's just more reason to fight. "Most members don't understand the terms of the co-op or their rights, and they may not have Internet access to help navigate the maze. They may not even understand what herbicides mean," she said. "Carroll Electric operates like a for-profit corporation with an appointed, rather than elected, board."

But Plagge said the bylaw changes are in the interest of all members. "Since we're a co-op, when you sue us, you're suing yourself. You pass the costs of the litigation along to all the co-op members. We can't allow members to continue to use up our capital this way."

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