After corruption scandal, SC lawmakers push changes at electric cooperatives
- February 18, 2019
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Feb. 17--COLUMBIA, S.C. -- Months after South Carolina's electric cooperatives were rocked by a corruption scandal, the not-for-profit power companies are working with state legislators on wholesale reforms of the rural utilities.
A proposed law -- sponsored by state Rep. Russell Ott, D-Calhoun -- aims to protect the 1.5 million South Carolinians who get their power from co-ops and restore trust in the customer-owned utilities. The proposal would require more state government oversight of co-ops, and stricter ethics, nepotism and transparency rules for co-op boards.
The bill, H. 3145, follows The State's reporting last May that part-time board members of the St. Matthews-based Tri-County Electric had enriched themselves with high pay, expensive benefits and inappropriate perks. Those costs were charged to the co-op's rural customers, who pay some of the highest electric rates in the state.
Three months later, Tri-County's customers rose up and overthrew the co-op's entire board in a historic vote. But the episode raised questions about South Carolina's 20 other little-understood and scantly regulated co-ops. Their leaders also have enjoyed higher pay and better benefits than their co-op counterparts nationally.
"What Tri-County showed us is that the possibility existed for customers to be taken advantage of," Ott said. "We're trying to remove the ability for that to ever happen again."
Ott's bill would give the state's utility watchdog, the Office of Regulatory Staff, authority to audit individual co-ops for the first time.
The agency could notify a co-op board of any red flags, such as improper spending or practices that break state law. If the board won't fix the problem, Regulatory Staff could take its concerns to the S.C. Public Service Commission -- which regulates large investor-owned utilities -- for a ruling.
Regulatory Staff would have no authority to question or change a co-op's electric rates. But lawmakers hope the added oversight could snuff out the next scandal before it happens.
"What we're trying to accomplish is just making sure these elected board members always know there's going to be a higher level of scrutiny," Ott said. "There's going to be multiple opportunities for people to look and be involved in the process, which was clearly lacking before."
The co-ops' statewide trade group, the Electric Cooperatives of South Carolina, has worked with Ott and more than a dozen other legislators for months to fine-tune the proposal, including its new ethics rules for co-op directors. Ott said he has been "overwhelmingly impressed" with the trade group's cooperation.
Bipartisan support and the co-ops' backing give the bill a good chance of passage.
State Reps. Gary Clary, R-Pickens, and Gilda Cobb-Hunter, D-Orangeburg, have signed on as bill co-sponsors. One piece of Ott's proposal also was pulled from an ethics bill for larger utilities, filed by state Rep. Micah Caskey, R-Lexington.
"It's an excellent sign" that the co-ops are on board, Clary said. "They realized they needed to take a closer look at the way things are being done, that so much of it was being done behind closed doors and without proper notice and without real transparency."
The co-op bill is set to be debated for the first time in the House Labor, Commerce and Industry Committee later this month.
Mike Couick, chief executive of the Electric Cooperatives of South Carolina, said co-ops -- founded in the late 1930s to bring power to rural South Carolina -- have changed their practices in the wake of the Tri-County debacle.
Part of that process has been making co-ops more transparent and accessible to their customer-owners. Another part is enacting stricter rules so co-op directors can't abuse their utility.
Tri-County directors, for example, had a penchant for expensive group dinners, paid themselves $450-a-meeting allowances for an extraordinary number of brief meetings, and pressured co-op staff to install their power lines and perform landscaping work for free.
The policy changes in South Carolina could send ripple effects across the country.
Couick said co-op trade groups in 10 other states have invited him to discuss the Tri-County debacle.
"What happened at Tri-County was regrettable, unfortunate, never want it to happen again," Couick said. "But the real story is going to be what comes out of it."
Among its changes, Ott's bill would:
-- Require co-ops to post on their websites details of their boards' per-meeting pay; total compensation; fringe benefits, including health and life insurance; and breakdowns of their travel, hotel and conference expenses.
In the case of Tri-County, customers were surprised to learn last year their co-op's directors were making $52,000 a year, on average, for their part-time jobs.
-- Require co-ops to notify their customer-owners of board meetings 10 days in advance and publish minutes of meetings for customers to review.
Before last year, that information rarely was available on co-op websites.
-- Make it easier for co-op customers to vote in board elections by holding early voting and requiring polling machines to stay open for at least four hours on voting day.
-- Prohibit board candidates from campaigning within a certain distance of a co-op's annual meeting.
During Tri-County's annual meeting last May, some board members passed out misinformation to customers about a proposal to limit their own pay, persuading customers to defeat the proposal by a razor-thin margin.
-- Prohibit co-op directors from filling board vacancies themselves.
In the past, S.C. co-op boards have had a tendency to replace board members with their relatives. If Ott's bill passes, those seats could be filled only by co-op voters or, in certain cases, a nominating committee that can't be influenced by current board members.
-- Steer co-op boards away from self-dealing by prohibiting directors from having a business relationship -- such as working as a contractor -- with the utility they govern. The bill also would prohibit co-op directors from hiring their own family members as co-op staff or appointing them to co-op committees.
At Tri-County, the nine-member committee that nominated candidates for board elections included six relatives of the existing board members, giving directors influence over who could challenge for their seats.
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