The board of directors of DEMCO recently opened an internal audit probing the finances behind some of its contracted electrical service jobs and whether unnamed board members received perks from vendors that do work with the nonprofit electrical utility.
Baton Rouge lawyer Steve Irving, a board member and finance committee chairman for DEMCO's directors, said the board agreed last week to open the audit and hire an outside accounting firm after members received allegations in recent months of unproven impropriety.
Two other board members, Leslie Falks and Freddy Metz, along with John Vranic, DEMCO’s CEO and general manager, confirmed the newly opened audit as described by Irving.
Among those making the claims, Irving said, was a terminated employee, who provided board members with a packet of information raising questions about DEMCO's operations and an unsigned letter provided to board members in late January from "We the employees of DEMCO."
The letter, which The Advocate obtained, alleges vendors, which it did not name, have a cozy relationship with a few, unnamed board members and with Vranic that is harming DEMCO’s bottom line.
“Please call employees in your areas and we will tell you. We have no voice and are afraid to even attend board meeting(s) because we know we will be targeted and fired,” the letter says. "You, the board, are our only hope."
The letter acknowledges that most of the board members are not involved in what the letter calls "the current system of corruption and kickbacks."
DEMCO, which stands for Dixie Electric Membership Corporation, is a nonprofit rural co-op serving parts of Ascension, East Baton Rouge, East Feliciana, Livingston, St. Helena, Tangipahoa and West Feliciana parishes.
As a nonprofit co-op, DEMCO enjoys tax advantages compared with private, publicly traded utilities like Entergy Corp., has access to funding from the federal government after disasters and has a fiduciary duty to its roughly 108,000 members, who are the ratepayers.
The co-op utility is regulated by the Louisiana Public Service Commission and also submits annual audits to the Louisiana Legislative Auditor's Office. DEMCO's board of directors is elected by co-op members living in one of 13 districts, bylaws say.
The employee letter notes that DEMCO has run up several hundred million dollars in debt but Irving said that part of the letter displayed a lack of understanding how a nonprofit co-op finances its operations. With less access to capital than other kinds of utilities, the co-op uses debt to help fund the continued expansion of its electrical system, Irving said.
He said that despite the debt load, the nonprofit has more than $700 million in assets, in part, from that debt-financed work. Vranic said some of that work stemmed from a board directive in the late 2000's to improve electrical reliability.
In 2009, the co-op had $229.5 million in long-term debt, which grew by nearly 70 percent to $389.8 million in debt seven years later in 2016, public audits show.
During the same period, however, the value of co-op's hard assets before depreciation, including the electrical systems, rose nearly 40 percent to $652.1 million at the end of 2016.
Irving and Vranic said that DEMCO paid off $16 million of that debt in 2017 and may be in a position this year to avoid having to take out additional debt for a second year in a row.
Vranic added that policy changes at DEMCO in recent years, including regarding how much developers, businesses and others must contribute for their new electrical services, have helped the bottom line and mitigated those costs for ratepayers.
When asked if he denied the general allegations in the letter, Vranic declined to do so directly Wednesday.
"Well, the only thing I can tell you is, basically from the standpoint that we're going to let them investigate all that," he said. "Since it deals with an ex-employee, I cannot really talk about it. We don't discuss personnel issues."
Vranic declined to identify the ex-employee.
The audit comes as Vranic, who has been CEO since 2009 and has worked for DEMCO full-time since 1980, is scheduled for an annual performance review by the board in a special meeting 5 p.m. Thursday at the co-op’s headquarters in Greenwell Springs.
Irving said the performance review is not connected to the audit but part of a regular review. Vranic serves under two-year contracts, and the board decides each year whether to renew it for another year.
“It’s not directed at John,” Irving said of the audit.
“This is directed at looking at something that was brought to our attention,” said Irving, who has been on the board 31 years.
He said the “No. 1 allegation” for the audit to uncover is whether any board members received perks.
Board member Falks declined to comment beyond confirming the broad outline offered by Irving, saying he wants to wait to see the outcome of the audit. Board member Metz shared a similar sentiment.
“Hopefully, it will be a true audit. It may not be good for some people, but hopefully, it’s true. That way we can straighten up and move on,” said Metz, who has been on the board 35 years.
Metz added there have been some terminations and several retirements at DEMCO in recent years that concern him because of the loss of experience.
He added that there is a lack of trust between some board members and management and between the employees and management.
“You will hear different excuses from the management and the board,” Metz said of the departures.
“The board says something. Management says something. Some of the people that retired say something totally different,” he added. “Some of the people, a good many of the people that retired are not going to say a word.”
When asked why those employees wouldn’t talk, Metz said, “Fear and distrust.”