Recent lawsuit filed against Cobb EMC
lacks merit
Since it’s founding in 1938, Cobb EMC has been led by a board of directors whose primary mission is to assure that members are provided with reliable electricity at the best possible price.
As you may be aware, a lawsuit has been filed against Cobb EMC regarding capital credits of former members and we believe that all of our members should have an explanation of this lawsuit.
What is this lawsuit all about?
Lawyers, claiming to act on behalf of all former members of Cobb EMC, are suing to recover capital credits assigned but not distributed to its members.
Why hasn’t Cobb EMC returned capital credits in recent years?
Cobb EMC’s bylaws charge the board of directors with determining when to pay capital credits so as to offer the greatest benefit to the co-op. This includes using margins to build distribution infrastructure and purchase equipment necessary to maintain electric service for members and to meet the community’s growth.
That is precisely how Cobb EMC was able to expand its power distribution system from what it was in the mid 1970’s, when it had about 30,000 members, to what it is today where it serves almost 200,000 members. In addition, every dollar that Cobb EMC borrows to meet the growing demand, requires the co-op to yield a margin that exceeds the debt. Thus, retaining patronage capital reduced borrowing costs which reduced costs charge to members. It is not only required by creditors, but such actions represent good business judgment that is a prudent practice throughout well run corporations, for-profit and non-profit alike.
Cobb EMC’s attorneys have stated publicly that the suit is meritless. Why?
Cobb EMC’s bylaws, terms of service and case law are clear that the decision to allocate capital credits rests solely within the business judgment of the board of directors.
During times of historic, explosive, growth at Cobb EMC, when membership grew from a handful of members in 1939 to approximately 200,000 today, and the cost of equipment to service these members increased to hundreds of millions of dollars, it was certainly reasonable business judgment that guided the boards of directors to reach their decisions to retain capital. These decisions helped keep rates down and the level of service high. There are several lawsuits against other co-ops that are nearly identical to this one which have been filed in courts around the nation and plaintiffs have not prevailed in a single instance.
Is there a difference between a capital credit and a rebate?
Yes. When revenues exceed all expenses the cooperative earns a “margin.” Margins are generally assigned as capital credits. Under some circumstances, certain expenses may have been overestimated (for example, the fuel adjustment may have been overestimated) and at the end of the fiscal year, the board of directors may, at its discretion, vote to rebate that excess.
When are capital credits returned to members and how does that work?
There are instances where capital credits can be returned to members. Specifically, when the board of directors determines that all capital needs have been met and future monetary needs are budgeted adequately, if there is money left over, it can be paid out to members at the discretion of the board. However, capital credits are usually paid on a “first in, first out” basis. This means that if capital credits were paid today, capital credits allocated during the late 1960s would be retired. Many of the members taking service in the late 1960s have moved away or died, making it costly for Cobb EMC to locate them. For those the co-op could not locate, the law permits that Cobb EMC could, after five years, make a charitable contribution in the amount of their capital credits.
If I have capital credits in my account, does that mean I own part of the EMC?
Not in the same sense that you might own stock in a publicly held company. Capital credits bear no interest, have no market value, aren’t transferrable, have no due date, and are only paid at the discretion of the board. However, the dollars that make up your capital credits are invested in the company, at the discretion of the board of directors, in the form of lines, poles, bucket trucks, etc. essential to providing electric service. If the cooperative is ever liquidated you are entitled to return of that capital account after all creditors have been paid.
What rights do I have as a member of the EMC?
When you become a member of an EMC, you have: the right to receive electric service; the right to vote at annual meetings; the right to have the allocation of patronage capital; the right to receive proceeds, after every creditor is paid, if the cooperative is ever liquidated.
