TVA, electric co-ops targeted in lawsuit

“They’re keeping money that belongs to their members,” said Doug Johnston of Barrett, Johnston and Parsley, one of two law firms that filed the lawsuit Monday.

Co-op managers, however, say they are keeping rates and debt low to the advantage of their members.

“We think we’ve done a good job,” said Tom Purkey, general manager of the Tennessee Electric Cooperative Association.

Tennessee cooperatives serve about 800,000 people, more than 400,000 of them in Middle Tennessee. Anyone who pays an electric bill to a cooperative is a part owner of the co-op.

U.S. Rep. Jim Cooper, D-Nashville, began asking the cooperatives about their financing years ago, noting that none of the Tennessee Valley cooperatives was returning surpluses to members, as is normal in other parts of the country.

The cooperatives, which buy their electricity from TVA, have said TVA’s contract has forbidden refunds for as long as anyone can remember. The contract instead directs cooperatives to reduce rates.

But the lawsuit says cooperatives have not reduced rates. TVA says the last cooperative to reduce rates did so eight years ago.

“Tennessee’s electric cooperatives are keeping retail electric rates low for their member-owners,” Glenn English, CEO of National Rural Electric Cooperative Association, said in a statement Wednesday.

“As wholesale power costs have risen, Tennessee co-ops have held the line on prices. … At a time when many of the nation’s big power companies have seen their bond ratings reduced to junk status and their sky-high debt-to-equity ratios repudiated by Wall Street, co-op members in Tennessee know that their utilities are managed responsibly.”

Cooper is talking with co-ops about possibly refunding some money that has been collected from members over the years. The co-op managers, however, say refunding money would mean higher rates because the co-op would have to borrow cash for new transmission lines, substations and other infrastructure.

Middle Tennessee Electric Corp., for example, the second-largest electric co-op in the nation, has paid for almost 70 percent of its assets and operations with cash. If MTEC reduced its equity, or the amount members’ own, from close to 70 percent to 40 percent, it would be more in line with the national average. It could mail out refunds worth $366 on average. If it had to turn around and borrow that money, it would have to raise rates by 1.5 percent.

“We operate in a way that has historically proven to be of great benefit to our members,” said Middle Tennessee Electric spokesman Chris Jones. “Our interest now and always has been what’s in the best interest of our members as a whole.”

The first rural co-ops were created in the 1930s to provide electricity to depressed farming communities. Since then, however, some territories have become relatively wealthy suburbs.

Co-ops are owned by their customers, who elect the board of directors. They pay no income taxes, like investor-owned utilities, and get loans at discount rates through the U.S. Department of Agriculture.

The lawsuit, filed in U.S. District Court in Nashville, is seeking class action status and reimbursement to be determined by the court. The other law firm involved in filing the suit is Branstetter, Kilgore, Stranch & Jennings.