A class action lawsuit filed August 8, against 16 individuals and representatives of Santee Electric Cooperative, Inc., (SEC) has placed the cooperative under the microscope. Allegations stated in the 26 page suit include the board manipulated by-laws and compensated itself roughly $2 million in 2008. The action was initiated by Columbia based attorney Jack Barnes who represents Santee Electric Co-op Members for Change, a watchdog group formed in May 2010. Charles Burgess, Tim Daniels and Tommy Stuckey are currently acting on behalf of the membership.
Barnes’ estimated $2 million was based upon compensation declared in a Form 990 report that SEC filed in 2008. Form 990 is used by public charities (non-profits) who are required by law to submit to the IRS. The IRS uses this form to assess compliance with tax laws. The compensation is linked to a plan, which provided supplementary benefits after a person has been in place over a certain period of time. An IRS 409a Nonqualified Deferred Compensation Plan funded by contributions made from each of the members of the board who were not co-op employees was first implemented in 1989. Eleven of the 16 board members received over $100,000. “That money belongs to the co-op members,” said Barnes. “They were elected as volunteer board members. They are simply public servants for a non-profit organization and yet they give themselves extraordinary compensation and health care benefits and retirement. They treat themselves as employees when the law specifically says they cannot be employees and they cannot be compensated. It wasn’t as if they were investing their own money into a fund. That was money invested over the years paid for by the co-op.”
Sabb would not comment on the allegations relating to that issue, saying it would be litigated in time.
“When you examine that system, you will find that the assets of our institution far exceed the liabilities.”  According to Sabb the payoff associated with the program was roughly $1.7 million while the assets were approximately $3.6 million. “When you have assets from the same program that show a considerable profit I don’t believe that argument is proper under the circumstances. That is the question that looms out there and will have to be litigated and decided is the legality or illegality of the program that began in 1989.” Sabb also considers Form 990 inaccurate since he says the total hours were not reflective of the actual hours the board worked. “When the 990 came out it was a developing document and nobody fully understood it or, I believe, all of what it was about.”
The lawsuit also contains allegations of wrongdoing by board members. One such allegation states the board altered the by-laws to make it virtually impossible to unseat a current member. Sabb said in order to run for the board a person must acquire five percent of the membership through signature petition. Sabb said the procedure is proven but it has its flaws. “Nothing is etched in stone and nobody has the absolute magical formula but that is one of the issues that the membership decides.”
The suit was filed after a July 22, meeting between Barnes, SEC Attorney Ronnie Sabb and Santee Electric Cooperative CEO Floyd Keels. “I understood they were to make some provisions how to handle some things going forward, but they neglected to convey that information to me,” said Barnes. Sabb recalls Barnes conveying there was no urgency as it related to the filing of the lawsuit. “Mr. Barnes indicated that the group was holding area meetings and he anticipated that at some point in time things would reach a point where perhaps litigation would become necessary,” said Sabb.
A lawsuit of this type is not the first of its kind. Several are in litigation and a similar suit filed against Pederanales Electric Cooperative, Inc., in Travis County, Texas was settled in 2008 where that co-op retired $23 million in patronage capital over a five-year period. “Unfortunately electric co-ops are an entity which has not been regulated,” said Barnes. “There are only a handful of states that have regulations for their electric co-ops so there is simply not a lot of oversight. It not only violates the letter of the law, in my opinion, it clearly violates the spirit of the law.”
Sabb sees the suit, which also seeks to remove the CEO and others, as an opportunity for certain individuals whose only goal has been to replace the management team. “In 1999 when Floyd Keels became president and CEO of Santee Electric Cooperative, there were those in our community and quite frankly in our membership who did not believe Mr. Keels should head up this organization,” said Sabb. “I think with any leader, there will be opposition out there to his leadership, for whatever reason and I don’t think those persons have ever stopped in terms of their effort to put at the head of Santee who they would have at the head of Santee. I think those persons in this group are simply trying to use whatever they can to promote the same agenda they had back in 1999.” Sabb declined to name specific individuals but said at some point the persons will be named if the suit goes forward. “We will simply wait because I want to deal with that,” said Sabb.  “I want to deal with innuendoes and speculative notions but we know that force is out there and that force is real and we expect to have the opportunity to sit down at some point and see where they are coming from, at least what they will tell us in terms of where they are coming from.”
Santee Electric Cooperative has engaged an independent firm, Smith and Christenson, who will evaluate the allegations and make recommendations. “Suffice it to say no organization is perfect. We have a good policy of governance, good professional people running the organization but there are always, where our CEO classifies as being opportunities for improvement,” Sabb said, who maintains he was under the impression he had time to respond to the allegations. “This saddens me because it’s really us against us and that’s why I thought there were opportunities to sit down at the table and address issues in a responsible way.”