Cobb EMC should collect more than $13 million from its business affiliate, Cobb Energy, and clean up conflicts of interests between the two entities, a special committee reported Monday.

The committee found the electric utility's board never properly approved increasing a management fee paid to Cobb Energy in 2005. The fee was raised from 6 percent to 11 percent that year.

The co-op should recover the difference between the two percentages, about $2.5 million per year, for four years, the committee said.

The panel also found what it described as an accounting discrepancy that resulted in Cobb Energy mistakenly writing off a $3.3 million debt to Cobb EMC. Cobb Energy's financial statements reported the debt as forgiven, but the co-op never took that action, the committee found.

The committee's findings came in a lawsuit alleging that Cobb Energy had illegally siphoned off assets belonging to the co-op's 193,000 members. The nonprofit utility created the for-profit company in 1997 to run its affairs and expand into other businesses.

Dwight Brown, the co-op's CEO, also serves as CEO of Cobb Energy and collects dividends on $3 million in stock in the company. Each company pays him a $300,000 annual salary.

Parties to the lawsuit disclosed Monday that they will begin settlement talks soon. If they reach no agreement, a trial is set for October.

Six co-op members filed the lawsuit in October after The Atlanta Journal-Constitution reported on financial ties between the two companies. Cobb EMC formed the committee, comprised of three board members, to look into the lawsuit's claims.

After investigating them for three months, the committee found many to be too old to have legal significance, because of a four-year statute of limitations in Georgia corporate law. It said others were done in good faith and on the advice of professionals.

Among those transactions were the co-op's decision to give Cobb Energy its work force in 1997 and its electric meters in 1998.

"Stripped of innuendo and hyperbole and submitted to analysis of facts," attorney Tom Cauthorn, the committee's attorney, told the court, "very few of the plaintiffs' claims merit further review and relief."

But the committee did call on the co-op to quickly eliminate overlapping duties between the two entities.

Several executives work for both Cobb EMC and Cobb Energy. Three Cobb EMC board members also serve as directors of Cobb Energy.

The committee said such relationships created a potential for conflicts of interest and recommended that they be eliminated.

"This practice must end," Cauthorn said.

In the case of Brown, however, the committee said Cobb EMC would have to pay too much to break his employment contract, which expires in 2011. If unchanged, that recommendation would allow Brown to remain at the helm of both the co-op and Cobb Energy.

In the interim, the committee recommended that a special management committee, independent of Brown, handle financial transfers between the two companies.

The committee's recommendation on the fees to be refunded to Cobb EMC represented an about-face for the co-op, which initially said the 11 percent management fee was legitimate.

But the committee said the higher fee was only adopted by a board subcommittee and never the full board as required by the co-op's bylaws.

Minimizing the significance of the oversight, Cauthorn described the action as a "procedural formality."

Under terms of the committee's creation, Cobb EMC must accept the recommendations. But Michael Weinstock, representing Cobb Energy, said he would evaluate whether it was in his client's interest to repay any money to Cobb EMC.

If the two companies can't agree on repayment, the committee recommended that the co-op pursue the claims through the lawsuit.

The committee's report was filed under seal and discussed in court Monday. Portions of the written report could become public later this month, but the committee asked that its "findings of fact" be sealed permanently.

Pitts Carr, the attorney representing the suing EMC customers, said he was surprised that the committee went as far as it did, given that two of its members are defendants in the lawsuit.

The committee agreed with many claims in the lawsuit, Carr said, "including conflicts of interest in the management team and the improper layering of corporate governance," he said.

Carr also cheered the recommendation that Cobb EMC should be refunded more than $13 million from Cobb Energy.

Still, he said the recommendations didn't go far enough.