Three years after suing Cobb EMC, customer-owners may get chance to choose its board

“Who are we in bed with? I want to know,” Maddox said to Dwight Brown, the head of Cobb EMC, an electric membership cooperative and the monopoly power supplier to nearly 200,000 customers in Cobb, north Fulton, Cherokee, Paulding and Bartow counties.

The question came at an annual election of co-op board members and kicked off a long season of turmoil at the customer-owned, nonprofit cooperative.

Three years later, Brown, the co-op and the for-profit company that used to operate it have been the targets of two customer lawsuits and an ongoing criminal probe of possible theft and racketeering by management. That management -- including Brown and the co-op's board --  remained in charge through all of that, despite a court order that should have allowed the co-op's customers to begin ousting it last year if they chose.

Continuing litigation blocked board elections. Cobb EMC customers haven't elected a board member since 2007.

That may change soon.

The Georgia Supreme Court could rule any day on whether to allow a 21-month legal fight over Cobb EMC board elections to continue. The co-op wants the court to hear an appeal of a spring appellate court ruling on the elections process. If the court decides not to hear that appeal, the co-op's board elections could go forward for the first time in more than three years.

It won’t be soon enough for some co-op members.

“They haven’t done a thing,” Cobb EMC customer Pavittar Safir said angrily when contacted about the co-op's saga. “I have no idea why the judge didn’t throw them all in jail for not following the court’s decision.”

Cobb EMC said through its public relations firm that it did not want to comment. Attorney Pitts Carr, who represented suing customers, also had no comment.

Jane Hansen, a spokeswoman for the Supreme Court, confirmed that the Cobb case was on the court's September term calendar, but she said that doesn't necessarily mean a decision is imminent. She said the court only rarely chooses to take up appeals court challenges.

The Atlanta Journal-Constitution first raised questions about Cobb EMC in a series of articles in late August 2007 based on arrangements that appeared to create financial conflicts of interest.

The first lawsuit was filed the next month.

As outlined in the AJC articles, and later fleshed out in court, the co-op had turned over its work force and its electric meters to a for-profit company called Cobb Energy in 1998, giving that company a 40-year contract to operate its electric business.

Cobb Energy charged a markup, which rose from 2 percent to 11 percent. It also started ventures -- including mortgage brokering, private security and pest control -- far outside its core electric business. Most of the ventures lost money, court documents said. The for-profit's bread and butter was the operating contract with Cobb EMC.

Brown was CEO of both companies, drawing a $300,000 annual salary from each.  He also was a preferred stockholder in Cobb Energy, having purchased $3 million worth of the company's stock using loans from the co-op and Cobb Energy. The $3 million loan is being gradually forgiven.

Add his salary, the $265,000 per year he received in Cobb Energy stock dividends and the loan forgiveness, and Brown's annual compensation was about $1.2 million.

Some of the co-op's "volunteer" board members were also well compensated, receiving $107,000 to $130,000 in retirement benefits upon joining the board. Some co-op board members also owned dividend-paying preferred stock in Cobb Energy. The co-op, which owned roughly 30 percent of Cobb Energy's stock, received no dividends.

Even a committee of co-op board members later questioned one of Brown's actions, a 2005 decision to nearly double the markup the co-op paid Cobb Energy without co-op board approval. The hike took effect five days after Cobb Energy announced that it would pay $20 million for naming rights at the Cobb Energy Performing Arts Center.

Maddox filed the first lawsuit against the co-op and its affiliate in September 2007, then withdrew it to join a second lawsuit, filed the next month by Cobb County businessmen Edgar "Bo" Pounds and Butch Thompson and others.

The lawsuit was settled in December 2009 under terms that galled some plaintiffs even as they signed off on the deal. "I wanted Mr. Brown gone," Pounds said then."But this is the best we could do."

The settlement required Cobb EMC to pay $47 million to buy out Cobb Energy shareholders, including Brown; assume Cobb Energy's liabilities; and buy out Cobb Energy's contract with Brown. In exchange, it got back $112 million in assets and got out from under the 40-year contract that would have cost it $170 million over time.

The agreement allowed Brown to stay as Cobb EMC's head. His contract expires early next year. But the deal also set a schedule of 2009 elections that would potentially allow co-op members to oust most of the co-op's Brown-friendly board by the end of last year.

Both sides signed the deal in early December 2008.  But the peace didn't survive the month.

The deal called for the plaintiffs to draft language to be put before members for the first of the ordered meetings, asking whether they wanted to allow mail-in voting for board members and limit board compensation.

Instead, the co-op board quietly amended its bylaws to create a new method of voting that appeared to favor co-op management. It also restricted customers' ability to participate in annual meetings. Spokeswoman Carol Cookerly said then that the changes would open up voting and rein in disruption at meetings. She said the board was confident that "the truth will prevail that these (incumbent) directors are the very best people to protect the ratepayers. "

The fight was back in court by New Year's Eve, putting elections on hold. A few months later, Cobb County sheriff's deputies served search warrants on the co-op and the homes of Brown and three board members. In its 2009 annual report, the co-op said the investigation is focused on alleged theft and racketeering.

The elections battle continued, with the co-op winning one round and the plaintiffs two. In April, an appeals court ruled that the co-op had violated its settlement agreement and ordered elections to go forward as that agreement spells out.

Cobb EMC asked the state Supreme Court to consider taking up that ruling in May.

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