After reforms, is electric co-op transformed?

More than five years after Pedernales Electric was engulfed in scandal, co-op leaders say things have changed. But some critics say more work needs to be done.

Criminal convictions for two top executives. Congressional and state legislative inquiries into excessive pay for utility executives, their relatives and no-show employees. A 17-member board that selected its own members and collected exorbitant salaries for little work.

Those were the headlines that dominated the story of Pedernales Electric Cooperative, the country’s largest member-owned utility, after a small group of members ignited a 2007 revolt to end secret dealings at the Johnson City-based utility.

These days, things are very different at Pedernales Electric, the co-op’s leadership says.

As the co-op marks five years of being led by a democratically elected seven-member board, co-op members and leaders say the utility’s governance and political system is more transparent. The utility also fixes outages faster, requires fewer employees per meter and per customer, and — perhaps most pertinently — reports that after years of turbulent times, its customer-satisfaction rating ranks in the top 25 percent among the nation’s electric utilities.

“The co-op is in much better shape than it was back when (former General Manager) Bennie Fuelberg and his self-perpetuating board were feasting off the members by overpaying themselves and having all these perks,” said John Watson, one of the key leaders of the revolt. “We are far better off.”

But while there might be consensus that things have improved at Pedernales Electric, some of its critics — including key state lawmakers — say it remains a work in progress and that more improvement is needed.

“They fixed 99 percent of the things people were concerned about,” said state Sen. Troy Fraser, a co-op member who played a key role in the reforms. But the co-op’s cost of power “is still higher than the statewide average,” Fraser said, “which implies to me that there is still excessive overhead.”

The Horseshoe Bay Republican also says the revolt didn’t make Pedernales Electric elections as open as some say.

“The elections are being rigged by their interest groups,” Fraser said.

‘Breeding ground for corruption’

The reforms at Pedernales Electric came about due to numerous allegations of misspending and poor governance at the utility. Many of the allegations involved Fuelberg and then-Chairman W.W. “Bud” Burnett.

A flash point came in the summer of 2007. At the annual meeting for the utility, Watson and a key group of co-op members stood with signs in a hot, dusty parking lot at the co-op’s training center to take a stand against Fuelberg and his cronies. Among their demands: The end of a self-perpetuating election system that had kept a challenger from unseating a sitting board member since 1976.

Within two years of that confrontation, the utility charted a new course, rowing against its troubled past.

“This was an organization that was previously very insular and very closed off from any transparency,” said state Rep. Tony Dale, a longtime co-op member who has since become a state lawmaker pushing for new co-op reforms. Pedernales Electric “was clearly not accountable to folks and obviously it was a breeding ground for corruption and waste.”

Within months of that first member showdown, along with additional pressure from a member-led lawsuit and two key lawmakers, the co-op’s long held secrets began to unravel.

Fuelberg, then considered one of the country’s highest-paid electric utility executives, had been quietly awarded a five-year, $2 million deferred compensation package on top of his annual pay. The co-op had made more than $510,000 in unexplained payments to the now defunct Austin law firm Clark Thomas & Winters, which in turn paid some of the money to co-op relatives, including Fuelberg’s brother.

A co-op related $565,000 dormant bank account was discovered for a defunct operation known as Texland Electric Cooperative Inc. An “emeritus” program offered retired directors lifetime pay and benefits, while certain workers who hadn’t been seen at the co-op in years continued to collect pay.

And from 2002 to 2006, some executives and their spouses helped rack up about $700,000 in co-op credit card charges that included first-class airfare, five-star hotel stays, steakhouse meals, liquor and even Celine Dion concert tickets in Las Vegas.

The revelations drew the attention of the Texas Rangers, the Blanco County district attorney’s office, the Texas attorney general’s office and congressional and state legislative leaders

By the summer of 2008, Fuelberg and Burnett resigned along with many of the board’s 10 voting and seven advisory directors.

Also that summer, a new era of democratic elections dawned at the co-op as three new members were elected as voting directors and headlines of criminal indictments against Fuelberg and the co-op’s former outside general counsel, Walter Demond, began to appear.

In 2010, Fuelberg was convicted by a Gillespie County jury of theft, money laundering and fiduciary misapplication of property. The following year, Demond was found guilty of felony theft, money laundering and misapplication of fiduciary property for helping arrange secret payments of co-op money to relatives of Pedernales officials.

For more than four years, both fought the charges through state appeals courts. The 3rd Court of Appeals last year tossed out Demond’s conviction for theft, reducing his jail sentence from 500 days to 320 days.

And a final appeals maneuver was recently rejected for Fuelberg, his lawyer, David Botsford, said. Fuelberg could now finally face his sentencing terms, which included 300 days in jail.

“His appeal is done and over,” Botsford said.

‘Restore the financial integrity’

Co-op Chairman Patrick Cox was among the first wave of reform board members who ran for office. He was elected during the utility’s 2008 open elections.

Today, Cox says, he’s planning to retire because the co-op has accomplished many of its needed reforms. For example, he says, the co-op has issued more than $65 million in capital credits back to members since 2009.

“We inherited not only a financial train wreck, but we also had to confront the economic downturn of 2008, 2009 simultaneously,” he said. “So, in order to restore the financial integrity of the organization, we have done a number of things. We instituted a budget, which had never been in place at PEC.”

The co-op has also downsized its workforce from more than 800 in 2007 to about 730 today.

“I think we have moved out a lot of the dead wood in the management sector,” said board member Larry Landaker, who was elected in 2009 and is running for re-election this summer. “So we have a leaner, smarter and probably more forward-thinking workforce.”

Some statistics suggest the transition hasn’t been smooth. The average time taken to answer a customer call rose from 8 minutes in 2005 to more than an hour in 2012 before dipping to 19 minutes in 2014, an increase the utility attributes to a spike in call volume that accompanied a new software system.

Other measures suggest marked improvement. In 2005, Pedernales fixed the average power outage in 72.6 minutes. It now takes 38.4 minutes, which the co-op says places its reliability in the top 10 percent nationally among co-ops.

In one important measure of efficiency, Pedernales Electric improved from 280 meters per employee in 2005 to 358 meters per employee last year — significantly better than the national average among co-ops of 304 meters per employee. The bottom line for customers: Rates are 4 percent lower today than they were a decade ago, and its average customers’ bill has dropped $6 over that period, to $145 a month, the utility says.

The utility has also included measures in its charter to guarantee open and fair elections, it passed a member bill of rights and hosts open meetings and access to records that were previously off limits.

And this summer will mark five years of the co-op being led by a fully democratically elected board. Since the utility hosted its first democratic election in 2008, it took several years for new directors to replace the lingering old guard members. By the summer of 2010, a completely new guard had taken the reins at the co-op.

“We were mired, in the first couple of years, in governance issues,” Landaker said.

Stigma lingers

Still, some critics say the Pedernales Electric story isn’t one of democracy triumphing and happy endings.

Russ Mortenson and his wife moved to the outskirts of Marble Falls for retirement in 2010 after living in the Dallas area for more than three decades. Mortenson said the proposal of Pedernales Electric board member Chris Perry to consider opening the utility to deregulation made sense to him; he said he paid lower rates in McKinney, which he said was due to competition that allowed him to change electric companies six times in a decade.

Perry’s suggestion touched on a national debate — whether deregulation of the electricity market is better or worse for customers. Mortenson said he was “appalled” at the rest of the board’s reaction. It included stripping Perry of his post as the board’s secretary-treasurer on grounds that an op-ed article he wrote violated the board’s code of conduct, communications policy and statutory fiduciary duties.

“This was a flag to me that something deeper was wrong at PEC,” Mortenson said. He noted that language in the bylaws was changed from providing “safe, reliable, low-cost energy services” to providing “safe and reliable energy services at a competitive price.”

“Competitive to whom, in a monopoly?” Mortenson said.

During this legislative session, lawmakers again have taken aim at the co-op, filing legislation that would force single-member districts for the utility’s board rather than let at-large elections continue. It marks the fourth session legislators such as Fraser have pushed for the change, saying at-large elections let special interests control the utility.

This session, Dale is carrying the bill, which is currently in a House committee. The co-op’s board has opposed the plan.

“I don’t see my bill as any sort of attack on people,” said Dale, R-Cedar Park. “I think it’s the natural continuation of the reforms that we went through for several years now. I do have high confidence on the operational side, but I think that if you have more say in how the board members are elected, they are going to be more responsive to members, and that’s a good thing.”

Fraser has sponsored similar legislation three times since the 2007 revolt to no avail. The single-member district model follows the change for Austin City Council elections this past year.

“The only way to do a fair election is do what the city of Austin did: single-member districts,” Fraser said. “They are going to look back at a very historic election cycle, and it is going to change the way Austin operates. I would say the same about Pedernales. They are never going to have a co-op that operates correctly until they have fair elections.”


The original article was first published in the Austin American Statesman on May 2, 2015.