Judge to Cobb EMC: Open up

Cobb EMC must make the election of its board of directors more democratic, a Cobb County judge ruled Monday.

Superior Court Judge J. Stephen Schuster also signaled that he wants greater transparency from both the electric co-op and its management firm, including disclosure of profit-and-loss statements and the names of stockholders.

Schuster gave the co-op up to 60 days to develop a procedure allowing the co-op’s 190,000 members to vote for new directors electronically, or by written proxy delivered in their monthly electric bill.

“Maybe this is a better way to give the members an opportunity to vote,” Schuster said, adding that he’s open to other suggestions. “Democracy is not a bad thing.”

Schuster’s ruling delays the election of new directors, scheduled for the co-op’s Sept. 4 annual meeting. The judge said the co-op could proceed with the meeting but board elections may not be held.

If the ruling stands, the co-op would have to drastically revise the way in which it has elected directors over the past 70 years. In the past, fewer than 1,000 members have attended the annual meetings at which directors were chosen.

Last year, co-op leaders directed employees to attend without wearing clothing or badges that would indicate they worked for the co-op, said Pitts Carr, an attorney representing co-op members who are suing the EMC and its for-profit management company, Cobb Energy.

Carr had pushed to postpone the election until more information surfaces about the co-op’s finances. The suit alleges that the 10-year financial relationship between the two companies has enriched co-op executives at members’ expense.

Three of the co-op’s 10 board members face opposition from challengers pledging stronger oversight of the Marietta-based co-op, one of the nation’s largest. A fourth board member is running unopposed.

Lester Tate, an attorney representing two co-op directors, said he might appeal Schuster’s decision.

In Monday’s hearing, Schuster urged the parties to the lawsuit, filed last fall, to redouble their efforts to reach a settlement. Mediation talks broke down without resolution earlier this month.

“I still believe you all can reach a solution,” Schuster said. “I would ask you to continue to resolve this.”

While stopping short of a formal ruling, the judge said he expects the co-op to post its audited 2007-08 financial statements on its Web site by Tuesday afternoon.

Schuster also said he expects Cobb Energy to make public 10 years of profit and loss information about itself and all of its subsidiary businesses. Attorneys for Cobb Energy agreed to do so.

The judge said co-op directors could not make informed decisions about the co-op’s financial relationship with Cobb Energy without knowing if the businesses were making or losing money.

Schuster specifically referenced the fee that the co-op pays Cobb Energy to operate the utility. Since 1998, the fee has risen from 2 to 11 percent of the co-op’s operating cost.

A special committee retained by the co-op to examine the merits of the customer lawsuit found that the most recent increase in 2005, boosting the fee from 6 to 11 percent, wasn’t properly approved by the co-op’s board. The committee said the co-op should recover about $10 million from Cobb Energy, representing the difference between the two percentages over four years.

Before considering such fee increases, Schuster said, “I would hope a director of EMC would know whether Energy is making or losing money.”

He also urged attorneys for Cobb Energy to consider dropping objections to the release of a confidential portion of the litigation committee’s report, which contains the names of some preferred stockholders.

Schuster signaled that he wanted to make the information public within a few days, although he reserved the right to withhold select portions.

Carr, the attorney representing the suing customers, said in court Monday that nearly all of Cobb Energy’s senior management held stock in the company, a wider pool of stockowners than was previously known.

Dwight Brown, who serves as CEO of both the co-op and Cobb Energy, owns $3 million in Cobb Energy stock. At least three members of the co-op’s board of directors owned stock at one time.