The Junction General Manager’s was well attended (or much better than in Georgetown) by some 15 or so members, another ten employees and two candidates, David Hall and myself. I purchased a current copy of the Junction Eagle while driving into town and found two references to the forum, one on the front page and the other was my letter to the editor asking members to attend to learn more about the opportunities facing PEC.
The meeting format was very similar to the other GM meetings that I have attended. It was another opportunity to meet the local district manager and his staff followed by Juan’s presentation of recent key events and his plan for taking us into the future. Of course it ended with a Q&A session. Since Juan’s message was so similar, I won’t bore you with those notes but I did want to present what I learned from his answers to some of my questions.
First we discussed the election and the voting practice of one meter – one vote instead of what most of us assumed would be the one member – one vote policy as stated in IRS 501 (c) (12). I specifically was interested in if he was an advocate of the one member – one vote policy. He was non-committal in his response in that he would answer only by saying that he felt it should be looked at by the board. I replied that it was very apparent that the board takes his comments very seriously and that his stance on the issue is important as he can sway the board with a word. He once again was unwilling to take a side indicating to me that from a business standpoint he would not like to lose the revenue that is paid by the owners of multiple meters. My understanding is that each meter has its own associated member fee. If PEC were to change the policy, there is every expectation that the meter v. membership dues situation would have to change as well. This should definitely be looked at by the board at their first opportunity.
Next up was the LCRA contract status. As recently as two weeks ago, Juan stated that he hoped to present to the board the LCRA contract for review and approval by the annual meeting. When I asked if he was still confident that the contract was progressing to a June closure, he replied that they had hit some snags in the negotiations. PEC is aligned with the Wholesale Power Alliance and it appears that this alliance is slowing the contract proceedings down. Juan did not appear happy with all of the alliance’s objectives prompting me to ask why we would continue to be a part of something that may not be working in our best interests. Juan answered that they wanted to continue with trying to work through it with them for a while longer. A while longer seemed to be into late summer, early fall. My statement would have to be that any alliances that don’t make our (PEC) considerations a top priority is a bad alliance.
We discussed the Navigant report briefly. I asked Juan if PEC would consider a continuation of the Member Comment/Vote page that is on the website now to allow the members to express with a vote or comment their feelings of satisfaction or dissatisfaction with how the company was being run. He answered that PEC is indeed going to set this up on their website but that it may not be for voting purposes—only for comments. I would like to see it expanded to include possibly an annual “Say on Pay” opportunity. This is something else for the new board to consider following the elections.
Juan has been very complimentary of the renewable energy programs offered by Austin Energy. I asked him how many of these they were bringing to us at PEC. He responded that AE is positioned differently than PEC in that they are profit driven whereas PEC is not. He reiterated that the cost of renewables is more expensive than traditional. I responded that it is obvious that there are some members more than willing to accept the additional cost. He told a story about AE and the quick sale of alternative energies that just confirmed my statement regarding the market for renewable energy. I also asked if we could bring more balance to the power supply from LCRA and AEP to include more wind energy than what we are getting now from AEP. He was non-committal on this point as well. When I asked about rebates he once again said that AE was in a better position than PEC to offer rebates due to their different mission objectives but that they could explore it with LCRA. I thought this was a good idea so I asked if that was part of the on-going negotiations at this time. He replied that it wasn’t. Overall he did not come across as very encouraging regarding renewables in this meeting. He wanted to emphasize conservation. Conservation is absolutely a great subject but I personally don’t think it’s wise to discount the renewables as easily as he did last night. Too many of the members feel very strongly about it and we are uniquely positioned at this time to make a move in providing more clean power. Why wait? Why not make the move? As I said, it was disappointing discussion.
There was significant discussion about capital credits as well. But it was more to do with the 5 year payouts of the $23 million and the future plans regarding the retirement of the credits and the continued infrastructure maintenance and development. Nothing new here that wasn’t already placed on the website.
As a note, Juan said that although the website hasn’t been updated and that the customer service department hasn't been briefed on it, PEC does buy power back from at least two member-suppliers of wind energy. He said they paid full price. So there is a little hope for the interested parties out there who have indicated that they want to consider placing the turbines on their properties.
Friday, May 30, 2008
Wednesday, May 28, 2008
Article in the Marble Falls Newspaper (05.27.08)
Meters, not people to determine PEC board
By
One person, one vote is not the way it works in The Pedernales Electric Cooperative.
In the midst of its first wide-open board election ever, the PEC has acknowledged that its 222,524 "members" are actually meters - with 47 entities controlling 99 or more meters, each with a vote.
The sprawling electric co-op's customers consist of 203,592 individuals and 18,932 meters on commercial property, causing some candidates to court those who have the largest number of meters.
Anne Harvey, spokesperson for the PEC, said the members with the largest amount of votes (meters) include developers/home builders, schools, government entities, multi-family housing and utilities.
The most votes one member has is 566 votes; however, it is believed Time Warner Cable is one of the largest PEC customers and may have as many as 1,700 votes. The PEC would not identify the various groups and the number of their 'meters.'
This was my response to the Editor at the Highlander.
Dear Editor,
Is this how we as PEC members should be measured? As a meter? PEC continues to take one step forward and two steps back. How can PEC ever re-establish the missing and/or damaged trust that has occurred due to the years of board neglect if we continue to see these types of examples of inadequate and maybe even illegal policies? The time is now to make a difference. Please speak out with your vote and elect candidates with relevant experience and qualifications to set PEC back on the right path. With energy prices sky-rocketing we cannot afford three more years of this type of oversight.
James E. Williams, PEC District 2 Candidate.
Thursday, May 22, 2008
Navigant - "Say on Pay"
I have many observations and concerns with the Navigant Compensation Report and will address them in multiple postings. This first posting is about the Compensation Committee Principles that were espoused on page 3 of the provided document. The very first principle stated that director compensation should be determined by the board and disclosed completely to members. While I agree in large part with the statement, it got me thinking about a recent segment on KUT 90.5 about “Say on Pay”.
“Say on Pay” is a buzzword for the practice of allowing members, shareholders or stakeholders the opportunity to vote on what a board of director’s compensation package should be. The purpose of “Say on Pay” is to hold directors accountable for their performance and then to tie their pay to the value that they provide. It is typically non-binding but I believe it to be more effective than symbolic based on my research.
The Navigant Report stated on page 15 that compensation was increasing at a rate of 10% per year for the last 5 years. I believe that for most people in the workplace a 3-4% increase in their salaries is considered normal and anything above that would be part of a promotion package or a result of some pre-defined and documented goals contract. I also found it ironic that the average total compensation packages for the PEC directors decreased in 2007. Is this because of the increased scrutiny from the members and the media? And why would Navigant include the aforementioned statement in the report anyway? Did they do that specifically to ensure that their “normalization” algorithm would be accepted? As I have discussed in earlier posts, compensation issues have become increasingly political and controversial due to the incessant upward trend of director compensation despite the national trend of stagnant worker wages.
There are a number of companies worldwide that are allowing shareholders to voice their opinions on compensations. Just this year, Aflac became the first company in the U.S. to allow the voting to occur. The stockholders overwhelmingly gave a strong show of support of the directors and their respective packages…probably due the fact that the stock price and values were at an all-time high.
Some believe that once the chairman of the compensation committee understands that when their decisions are subject to a membership vote of confidence, they will try harder to get it right. Conversely, there are others who caution that the members should not be given the right to usurp board authority on issues. I, personally, am in favor of allowing membership vote on compensation. If the board presents objective, accurate, and relevant data and then makes justifiable decisions, then there should be no concern about membership feedback. If this is a concern then maybe it is in the best interests of all to let their votes count at election time by removing the directors who are not making the grade and allowing membership feedback to factor into their decisions.
Although we at PEC are not truly in a “Say on Pay” situation we do have the opportunity to voice our opinions of the board, their salaries, and their respective performances through the Navigant feedback section on the PEC website. I believe that “Say on Pay” is potentially a great tool. It can be valuable way of measuring member confidence and PEC should adopt this method not just now, but for the future. So, please, go to the PEC website and leave a comment that reflects your beliefs on compensation. And then put your board election vote to work by electing directors with relevant experience, who will make changes for the better, and who have leadership skills that will work for you.
“Say on Pay” is a buzzword for the practice of allowing members, shareholders or stakeholders the opportunity to vote on what a board of director’s compensation package should be. The purpose of “Say on Pay” is to hold directors accountable for their performance and then to tie their pay to the value that they provide. It is typically non-binding but I believe it to be more effective than symbolic based on my research.
The Navigant Report stated on page 15 that compensation was increasing at a rate of 10% per year for the last 5 years. I believe that for most people in the workplace a 3-4% increase in their salaries is considered normal and anything above that would be part of a promotion package or a result of some pre-defined and documented goals contract. I also found it ironic that the average total compensation packages for the PEC directors decreased in 2007. Is this because of the increased scrutiny from the members and the media? And why would Navigant include the aforementioned statement in the report anyway? Did they do that specifically to ensure that their “normalization” algorithm would be accepted? As I have discussed in earlier posts, compensation issues have become increasingly political and controversial due to the incessant upward trend of director compensation despite the national trend of stagnant worker wages.
There are a number of companies worldwide that are allowing shareholders to voice their opinions on compensations. Just this year, Aflac became the first company in the U.S. to allow the voting to occur. The stockholders overwhelmingly gave a strong show of support of the directors and their respective packages…probably due the fact that the stock price and values were at an all-time high.
Some believe that once the chairman of the compensation committee understands that when their decisions are subject to a membership vote of confidence, they will try harder to get it right. Conversely, there are others who caution that the members should not be given the right to usurp board authority on issues. I, personally, am in favor of allowing membership vote on compensation. If the board presents objective, accurate, and relevant data and then makes justifiable decisions, then there should be no concern about membership feedback. If this is a concern then maybe it is in the best interests of all to let their votes count at election time by removing the directors who are not making the grade and allowing membership feedback to factor into their decisions.
Although we at PEC are not truly in a “Say on Pay” situation we do have the opportunity to voice our opinions of the board, their salaries, and their respective performances through the Navigant feedback section on the PEC website. I believe that “Say on Pay” is potentially a great tool. It can be valuable way of measuring member confidence and PEC should adopt this method not just now, but for the future. So, please, go to the PEC website and leave a comment that reflects your beliefs on compensation. And then put your board election vote to work by electing directors with relevant experience, who will make changes for the better, and who have leadership skills that will work for you.
Friday, May 09, 2008
Education and Training
It does not have to be costly to provide training and continuing education for a Board. Although there are various training classes held at fine organizations such as NRECA and others that are worthwhile, and possibly necessary, there are also options within our own cooperative for training and continuing education.
No one should ever say that training needs to be an overnight trip or that it must be given by some professional training organization. Board training can occur at the conclusion of meetings…it can be 15-30 minutes. Training can be led by the General Manager, Human Resources Manager, or one of the many Advisory Board members in an area of expertise. A member could volunteer their time to support these sessions by providing training for the Board in an area of relevancy. These local training sessions would have relatively little to no cost impact to the membership, and still serve the same purpose of increasing the knowledge level of the Board members as those expensive sessions we have been hearing so much of for the last few months.
These days, with the increased scrutiny towards boards from various special interests and other interested parties, many boards are heading into board education out of fear. Unfortunately, it appears that the PEC board misused their own opportunities for training by turning them into opportunities to stay at 5-star hotels and attending concerts. Who knows what good could have happened if they had actually taken advantage of the education opportunities--with proper training perhaps some of the more grievous errors leading up to the lawsuit would have been mitigated or altogether eliminated.
It is true that the board who does not know what it needs to know is indeed walking in a minefield. That is because your board is accountable--whether board members are acting accountably or not, the buck stops with the board. If your board does not understand that, or only vaguely understands it, that minefield is just waiting for someone to make the wrong step. We would all agree that there have been a multitude of missteps in the very recent past.
But fear of that minefield is not the best reason to add training to the board agenda. The best reason is that we may soon find these sessions will become the part of the meetings that folks are still talking about; long after the meeting is over. The discussions that arise will be about the most critical parts of your mission, the most critical parts of what it means to be on a board. In my opinion, a knowledgeable and informed board is a productive and effective board.
No one should ever say that training needs to be an overnight trip or that it must be given by some professional training organization. Board training can occur at the conclusion of meetings…it can be 15-30 minutes. Training can be led by the General Manager, Human Resources Manager, or one of the many Advisory Board members in an area of expertise. A member could volunteer their time to support these sessions by providing training for the Board in an area of relevancy. These local training sessions would have relatively little to no cost impact to the membership, and still serve the same purpose of increasing the knowledge level of the Board members as those expensive sessions we have been hearing so much of for the last few months.
These days, with the increased scrutiny towards boards from various special interests and other interested parties, many boards are heading into board education out of fear. Unfortunately, it appears that the PEC board misused their own opportunities for training by turning them into opportunities to stay at 5-star hotels and attending concerts. Who knows what good could have happened if they had actually taken advantage of the education opportunities--with proper training perhaps some of the more grievous errors leading up to the lawsuit would have been mitigated or altogether eliminated.
It is true that the board who does not know what it needs to know is indeed walking in a minefield. That is because your board is accountable--whether board members are acting accountably or not, the buck stops with the board. If your board does not understand that, or only vaguely understands it, that minefield is just waiting for someone to make the wrong step. We would all agree that there have been a multitude of missteps in the very recent past.
But fear of that minefield is not the best reason to add training to the board agenda. The best reason is that we may soon find these sessions will become the part of the meetings that folks are still talking about; long after the meeting is over. The discussions that arise will be about the most critical parts of your mission, the most critical parts of what it means to be on a board. In my opinion, a knowledgeable and informed board is a productive and effective board.
Wednesday, May 07, 2008
Not Over Staying Your Welcome
The issue of term limits is almost as heatedly debated as the issue of compensation. One of the pros of term limits is that it puts a harness on long-term corruption. We should not allow those who are wholly self-serving to stay on our board and term limits are a last resort method of ensuring that their trough feeding will come to an end. Term limits also put a cap on stale methods and doing things just because “that’s the way we’ve always done it.”
Looking at the other side, experience can be a valuable asset in the performance of duties and, typically, persons new to a job or position are not as expert as those with years of practical application behind them. Developing the art of managing, directing, or providing oversight can be hard work if you’re new to a playing field. You can learn a great deal from books and lectures, but you will never learn as much as when you have hands-on experience. The opportunities to learn from others and from your own mistakes are invaluable and are to be prized. Although I have over two decades experience in the electric utility industry, I am not arrogant enough to assume that I know it all. Likewise, it will take some time for me to become fully knowledgeable of the cooperatives inner workings. This time and experience would allow me, over time, to more effectively carry out the fiduciary duties that are assigned to the Board.
As of now, three terms of three years each seems appropriate to me. It would give new members time to get up to speed and then give a healthy number of years of service to the coop in a knowledgeable and efficient manner. I think having experienced members on the board is crucial. But it is also crucial to have fresh insight and unique voices. By limiting board servitude to three terms, PEC could establish a healthy blend of experience and eagerness, and that will be beneficial to us all.
Looking at the other side, experience can be a valuable asset in the performance of duties and, typically, persons new to a job or position are not as expert as those with years of practical application behind them. Developing the art of managing, directing, or providing oversight can be hard work if you’re new to a playing field. You can learn a great deal from books and lectures, but you will never learn as much as when you have hands-on experience. The opportunities to learn from others and from your own mistakes are invaluable and are to be prized. Although I have over two decades experience in the electric utility industry, I am not arrogant enough to assume that I know it all. Likewise, it will take some time for me to become fully knowledgeable of the cooperatives inner workings. This time and experience would allow me, over time, to more effectively carry out the fiduciary duties that are assigned to the Board.
As of now, three terms of three years each seems appropriate to me. It would give new members time to get up to speed and then give a healthy number of years of service to the coop in a knowledgeable and efficient manner. I think having experienced members on the board is crucial. But it is also crucial to have fresh insight and unique voices. By limiting board servitude to three terms, PEC could establish a healthy blend of experience and eagerness, and that will be beneficial to us all.
Tuesday, May 06, 2008
How Much is Too Much…Or Not Enough?
There has been much discussion in the media and among members over the past 12 months regarding the level of compensation for the PEC board members. A quick look through the newspaper or internet search engines indicates that these discussions are not isolated to the Hill Country. So it is safe to say that the question of board compensation is not new. And, unfortunately, the question is still unresolved.
The questions center on the level of compensation paid to a great majority of high profile companies, not just electric cooperatives. Specifically, it focuses on the question of whether some of these board members are paid more than they deserve to receive. (The question of whether some of these directors are underpaid is rarely a matter of controversy!) Many people when asked this question observe that the absolute level of compensation is obscene and without possible justification. It is unfair to members and demoralizing to employees, whose own compensation may only be a tiny fraction of what the directors receive. On the other hand, proponents of these compensation plans draw parallels with the earnings of the board of directors at the more well-known companies (TXU Energy or NRG for instance) and argue that qualified, executive talent commands high prices. As a consequence, they say, a market exists for the abilities of skillful executives, and the compensation they receive is determined by that market.
It should be the Board's objective that, at all times, its membership will be composed of qualified, dedicated, and highly regarded individuals who have experience relevant to the cooperatives operations and who understand the complexities of the cooperatives business environment. This is obviously something that has been lacking at PEC over the last two to three decades. Compensation should be carefully considered and based upon the demands placed upon the respective Board members and should be in line with cooperatives of similar size or companies of similar structure. At a minimum, typical board compensation packages include a per-meeting fee, increases for the chairing of committees, plus reimbursement for all board activity-related expenses. Additionally, it is normally expected that all travel expenses would be covered.
In the face of the current trends in board compensation, PEC needs to evaluate and overhaul their current board structure to determine the correct size of its board and evaluate the compensation programs to ensure that we strike a proper balance between what’s deserved and what’s simply too much. By doing so, PEC will be better positioned to attract and retain qualified and independent directors with sufficient financial, technical and otherwise relevant expertise who are expected to take on a larger role in improving governance.
Based on what has been revealed in the past year, the current board members have not fulfilled the expectations that come with their positions and therefore have been grossly overpaid. Would I feel the same if the board members were conscientious, dedicated, and working for the best interests of the members? Yes, I would. However, I do not feel comfortable giving an exact dollar amount on what the compensation should be. Instead I think it wise to hear what Navigant and any other objective and professional sources have to say on this matter and then make an informed decision. I know that board compensation is a touchy subject right now, and I respect that because there have clearly been abuses. But I strongly believe that the best decisions are made with an informed and objective mind--and this sensitive situation deserves nothing less.
The questions center on the level of compensation paid to a great majority of high profile companies, not just electric cooperatives. Specifically, it focuses on the question of whether some of these board members are paid more than they deserve to receive. (The question of whether some of these directors are underpaid is rarely a matter of controversy!) Many people when asked this question observe that the absolute level of compensation is obscene and without possible justification. It is unfair to members and demoralizing to employees, whose own compensation may only be a tiny fraction of what the directors receive. On the other hand, proponents of these compensation plans draw parallels with the earnings of the board of directors at the more well-known companies (TXU Energy or NRG for instance) and argue that qualified, executive talent commands high prices. As a consequence, they say, a market exists for the abilities of skillful executives, and the compensation they receive is determined by that market.
It should be the Board's objective that, at all times, its membership will be composed of qualified, dedicated, and highly regarded individuals who have experience relevant to the cooperatives operations and who understand the complexities of the cooperatives business environment. This is obviously something that has been lacking at PEC over the last two to three decades. Compensation should be carefully considered and based upon the demands placed upon the respective Board members and should be in line with cooperatives of similar size or companies of similar structure. At a minimum, typical board compensation packages include a per-meeting fee, increases for the chairing of committees, plus reimbursement for all board activity-related expenses. Additionally, it is normally expected that all travel expenses would be covered.
In the face of the current trends in board compensation, PEC needs to evaluate and overhaul their current board structure to determine the correct size of its board and evaluate the compensation programs to ensure that we strike a proper balance between what’s deserved and what’s simply too much. By doing so, PEC will be better positioned to attract and retain qualified and independent directors with sufficient financial, technical and otherwise relevant expertise who are expected to take on a larger role in improving governance.
Based on what has been revealed in the past year, the current board members have not fulfilled the expectations that come with their positions and therefore have been grossly overpaid. Would I feel the same if the board members were conscientious, dedicated, and working for the best interests of the members? Yes, I would. However, I do not feel comfortable giving an exact dollar amount on what the compensation should be. Instead I think it wise to hear what Navigant and any other objective and professional sources have to say on this matter and then make an informed decision. I know that board compensation is a touchy subject right now, and I respect that because there have clearly been abuses. But I strongly believe that the best decisions are made with an informed and objective mind--and this sensitive situation deserves nothing less.
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