Cobb Energy must come clean with co-op members

Having for years thumbed its nose at its customers — the ratepayers of Cobb EMC — Cobb Energy is now thumbing its nose at Superior Court judges in Cobb County.

The judges overseeing Cobb Energy’s messy lawsuit with several Cobb EMC members have been pushing the company to release important financial information to EMC members. But Cobb Energy has stonewalled those judges.

(Cobb EMC is a member- owned cooperative; Cobb Energy is the private company EMC executives spun off to operate the utility under a 40-year management contract.)

The company has yet to make public its 2007 financial statements despite assurances to Judge J. Stephen Schuster that it would do so weeks ago. The financial statements have assumed enormous importance because Cobb EMC directors are weighing a plan to purchase Cobb Energy and buy out the company’s preferred shareholders. But it can’t make that decision responsibly without access to the company’s books.

The deal, which could potentially cost the co-op tens of millions of dollars, would return ownership of Cobb Energy to Cobb EMC, where it resided before Cobb Energy opened itself up to outside investors.

As Cobb Judge Michael Stoddard pointed out in court this week, without accurate financial information the co-op’s customers have no idea if Cobb Energy is “solvent or headed south down I-75 to bankruptcy court.”

At a hearing in August, attorneys for the company said 10 years of Cobb Energy’s financial statements would be posted to the Cobb EMC Web site within a matter of days. Now attorneys are telling the court that the 2007 statements can’t be released because Cobb Energy’s auditors haven’t signed off on them. That’s a bogus argument.

Public companies, for example, release unaudited financial information all the time — quarterly income statements, preliminary annual reports, to name just a few examples. Nothing precludes Cobb Energy from releasing figures without the official stamp of auditors.

Most public companies also manage to put out this information within 30 days of when their books close for the fiscal year — 60 days at the outside. On its 2007 statement, Cobb Energy is now at 290 days and counting.

The company’s refusal to provide the information lends credence to legal claims, as yet unrefuted by Cobb Energy, that Cobb Energy is hemorrhaging money from its portfolio of for-profit subsidiaries.

Indeed, the most current financial information about Cobb Energy is 22 months old. Would anyone buy a company based on financial information that stale?

Cobb Energy also appears in no hurry to make public the names of its preferred stockholders, which the court has also ordered it to do.

The company claims to be protecting the privacy rights of shareholders. But ample evidence exists that preferred shareholders, who earned pricey dividends of 8.85 percent a year, included co-op insiders whose stock ownership may have potentially compromised their fiduciary responsibilities to the co-op.

Dwight Brown, CEO of both entities, owns $3 million of preferred stock, paying $265,500 in annual dividends. At least three directors of the public co-op owned preferred stock in the private company at one time or another, including Larry Chadwick, the co-op’s chairman of the board.

Co-op members have a right to know who Cobb Energy’s other preferred shareholders are, particularly since they may be footing the bill to buy them out.

Lack of financial transparency has been the hallmark of Cobb Energy’s relationship with Cobb EMC almost from the beginning.

When the co-op created Cobb Energy in 1997, ostensibly to protect the co-op from a hostile takeover and allow it to branch into nonelectric services, the co-op’s management trumpeted the arrangement in newsletters and annual reports.

But as financial ties between the public co-op and its private spin-off deepened, financial information about the arrangement evaporated. Even co-op members with a degree in financial accounting could not have made heads or tails of the co-op’s annual financial statements, particularly with respect to business transactions between the two entities.

Brown’s stock deal was a classic example: In a footnote to financial statements in 2002, the co-op disclosed that it had negotiated a new compensation package with Brown, without spelling out terms. Another footnote disclosed a $1.5 million charge for “executive insurance and retirement program,” without naming Brown.

Only this year did members learned that Brown received a $3 million, interest-free loan from both companies, which he used to purchase 120,000 shares of Cobb Energy’s preferred stock. Treated as compensation, the loans don’t have to be repaid so long as Brown remains in charge.

That aura of secrecy continues to infect the public co-op. This year, Cobb EMC posted its financial statements on its Web site, a convenience to members. But it did so after members attended its annual meeting, too late to allow them to use the information to question the EMC’s directors.

Presiding Judge Schuster and Judge Stoddard, the special master assigned to the lawsuit, are right to keep the pressure on Cobb Energy. Co-op members have a right to know what they are buying and just who may be collecting their money.

Ken Foskett, for the editorial board (kfoskett@ajc.com).