Jeff Burns of Eureka Springs is a carpenter by trade and, as he puts it, a paralegal by necessity. Recently he has been protesting outside of the Carroll Electric Cooperative Corp. (CECC) in Berryville as part of his campaign to get the cooperative to return money he said is owed to him and the heirs of his late mother.
Burns, who is disabled, said that CECC owes $3,668 in capital credits to his late mother’s estate and $700 in capital credits to Burns—money he said has been owed him for 20 years. Capital credits are profits returned to members of the cooperative.
“Is this fair to anyone that the money is not being paid in a timely manner?” Burns asks. “I can’t wait another eight or nine years. I’m 63 and undergoing cancer treatments. One brother died of cancer. My mother passed away more than three years ago and the money from my mother’s account is owed to me and my older brother.”
Burns said the money is less important to him than seeing CECC do the right thing.
“It is wrong what they are doing saying they can’t afford to pay it off all at once,” Burns said. “Excuse me, what about this new building? I’m still trying to understand why CECC needed that huge headquarters. I can’t understand the size of that building and why something that expensive was needed. Then we are helping pay for it because we are members?”
Burns said in the 1980 and 1990s, they used to get checks from CECC every year as part of profits due by being in a member-owned cooperative. CECC stopped doing that in 1990 and instead did a capital credits program. The profits for that year were put into a capital credits fund.
“Upon you closing your account, this was supposed to be paid to you,” Burns said. “But because of their bylaws, they can take 30 years to do that and don’t even have to pay it all at the same time. If someone dies, there is no effort to pay their heirs. All I’m trying to do is get reformed so when a member dies it should be settled in a timely manner so the family can move on.”
Burns said CECC should be glad he is not asking for all the interest.
“Just my $700 would have earned $3,000 in interest over twenty years,” Burns said. “They finally sent me a letter that said they would settle my mother’s account, but not mine. They don’t want to pay the whole thing. I just want what is owed to me while I’m still alive.”
He started the protest the last week of September, but had to schedule in daily trips to Rogers for radiation treatments.
“Once those treatments are done, I have nothing but time to sit out here in front of this business,” he said. “I’m going to do this until I get what I feel I’m entitled to. I see nothing wrong with that. Pay me what you owe me for my mother and me, and I will go away. If not, I will run for board of directors.”
Burns is also protesting that the cooperative doesn’t post when, where, or what time board meetings are. He wanted to be at the next capital credits board meeting to see how they decide to handle the credits. “Members have a right to be there,” he said. “One of their staff members said they are waiting for baby boomers to die because they are the only ones who know about capital credits.”
The other side
CECC Director of Corporate Communications Nancy Plagge said they have visited with Burns several times to give him information on the return of capital credits, also known as patronage capital. She provided the following summary:
“As part of this not-for-profit status, the Cooperative assigns profits to each member in accordance with industry standards and in conformance with state and federal laws. Even as a ‘not-for-profit,’ margins are required to satisfy lenders that the Cooperative has the financial health to repay its loans.
“The Cooperative has substations, equipment, about 10,500 miles of power line and other facilities valued at over $620 million. Generally speaking, the Cooperative has equity in about 40 percent of these assets. Rural Utility Service (RUS) and other lenders hold a lien in the remainder. Mortgage agreements require lender approval if the Cooperative does not maintain an acceptable equity position. In other words, it is much like a conventional bank preventing a homeowner from selling off a portion of land because it is used to secure the mortgage on the homeowner’s house.
“The $620 million in assets grow by about $30 to $40 million each year because of the high rate of growth. The Cooperative only has two sources of financing to fulfill its obligation:
- Debt: Loans from RUS and other lenders as described above.
- Equity: The revenue collected from members is what builds equity. Rates are structured to recover the investments into power lines, substations, equipment, etc. over their estimated useful life (about 30-40 years). This same period also approximates the life of the loans, yet patronage capital is refunded in a 25 to 27-year cycle.
“The Cooperative must report any cash distributions of equity or capital credit retirements to the Arkansas Public Service Commission. The Cooperative’s ‘Equity Management Plan’ filed with the APSC targets a 50 percent equity ratio. Our current equity position reflects the tremendous financial strain of serving in a fast-growing region of the state. In short, the APSC understands any equity converted to cash must be replaced by either of these two sources… both of which ultimately increase electric rates. There is a continual balancing act for Carroll Electric’s leadership to provide affordable rates, great service, safe electric facilities, and return equity to members.
“A common misconception is that the Cooperative has this allocation of equity available to distribute in cash. This is simply not true. Carroll Electric did not have positive equity until 1956 (19 years after incorporation) and has since then returned over $47.5 million of patronage capital to members. Each generation of Carroll Electric members has enjoyed certain benefits and faced certain challenges based on the investments provided by previous generations. For this reason, patronage capital is returned on a first-in, first-out methodology meaning the oldest allocations are paid out first.
“We have not forgotten our business model nor the principles on which the Cooperative was formed. Decisions made by the board and management affect all members and are not taken lightly. In 2018, the board carefully studied retiring patronage capital prior to when such capital credits would generally be retired. At that time, they adopted a means by which patronage accounts for deceased members (estates) could be paid out early on a discounted and net present value basis to reflect the time value of money. From a member perspective, the concept of ‘discounting’ is poorly understood. However, any member or former member interested in settling the patronage capital for the estate of a deceased member early, may contact Carroll Electric to discuss this option.”