Midlands man sues utility company, says the co-op violated SC law in their 'excessive cost of doing business'

Midlands man sues utility company, says the co-op violated SC law in their 'excessive cost of doing business'
Published: May. 24, 2018 at 2:16 PM EDT|Updated: May. 24, 2018 at 5:07 PM EDT
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COLUMBIA, SC (WIS) - A Richland County man is suing a local electric cooperative in a class-action lawsuit, claiming that the non-profit broke state law by awarding its 9-member board of trustees "excessive compensation" at the expense of their customers.

Roy C. Smith filed the class-action lawsuit against Tri-County Electric Cooperative, Inc. in U.S. District Court in Columbia on May 22 and seeks to represent all of the customers who paid bills to the co-op from May 22, 2015, to the present date and excludes any board members, trustees, or employees. The lawsuit says that its trustees have been awarded more than $6 million since 2004 to the detriment of its customers as a part of a "compensation scheme."

"The board members are entitled to receive compensation from the co-op but it has to be reasonable and in this case, we believe $6 million dollars over the last 13 years has not been reasonable," attorney Graham Newman, said. "We believe it has been quite unreasonable."

Six of the nine board of trustee members have served continuously since 2004; all six have received an excess of $100,000 in compensation.

Newman said the board of trustees approves its own compensation each year.

"Usually it depends on how many meetings you've attended, if you traveled out of state to different conferences, things like that," he said. "You're supposed to be able to justify your compensation. We haven't been able to see internal documents at this point to be able to verify if that justification is possible."

Smith and others who join the suit are asking for an injunction of trustees compensation to the co-op's board members. The lawsuit says:

As both a non-profit corporation under federal law and an electric cooperative under state law, Tri-County Electric is prohibited from awarding its trustee's excessive compensation.

In fact, federal and state law requires Tri-County Electric to return to its members' revenues earned beyond the electric cooperative's costs and expenses.

However, since at least 2004, Tri-County Electric has been awarding its trustees compensation far in excess of the reasonable needs of the organization's business.

Smith says because the cooperative continues to violate S.C. Code Ann. § 33-49-630 by "awarding its trustees compensation that vastly exceeds reasonable expenses" back to them.

"Tri-County Electric maintains its tax-exempt status 'only if 85 percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses,'" the lawsuit says. "The Electric Cooperative Act also provides for the retirement of 'patronage capital,' which is 'the amount by which the cooperative's electric revenues exceed its costs of doing business.'"

Tax documents from 2017 show the co-op's tax exemption, where they state their purpose is to "provide the best possible electric service to all who desire it within the system area at a reasonable cost consistent within the highest standards of service."

Smith and the other plaintiffs are seeking, through a jury trial, any "incurred monetary damages" they may be entitled to.

Tri-County Electric provides electricity to approximately 13,600 customers in Richland, Lexington, Sumter, Calhoun, and Orangeburg counties. The co-op is headquartered in St. Matthews.

The co-op's CEO, Chad Lowder, issued a statement Thursday afternoon, saying:

As the CEO of Tri-County Electric Cooperative, I and the people who work with me, are committed to doing what's in the best interest of our members. Those members, the citizens of our six-county service area, are the reason we exist. 

We've heard from many of them over the past few days and we hope to move forward in a manner that restores their confidence and trust in us. 

Chad Lowder

CEO, Tri-County Electric Cooperative

You can read the full lawsuit here:

Electrical co-ops are considered non-profits under the federal tax code. Any money left over at the end of the year after costs and expenses are paid is supposed to be returned to the customer in the form of a check or credit against future bills.

"The excessive compensation that was paid to these trustees should have been returned to the customers," Newman said.

Based on tax records, Newman said over the last couple of years the level of compensation has risen dramatically at Tri-County Electrical Co-op.

"Probably $30,000 to $35,000 per year, per trustee," Newman said. "That's excessive."

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