Rural co-ops, which provide electricity for nearly half of Louisiana, are claiming in court that state regulators overstepped their authority in a March order that curbed benefits for board members.

Randy Pierce, the head DEMCO, said Tuesday the cooperatives are not trying to protect director benefits, which are not as lucrative as described by the Louisiana Public Service Commission, but they filed a lawsuit asking the courts to delineate the regulators’ power over the utilities’ business practices.

“A lot of people say it’s about director compensation and I say, ‘No, it’s not.’ It’s more about where are the lines in terms of what the commission can regulate,” Pierce told the Chamber of Commerce of East Baton Rouge Parish. “Right now, as a general manager, I have one set of rules that tells me what to do through our state statue and through our (corporate) bylaws. I have, on the other hand, an order from the Public Service Commission that says many opposite things.”

Sorting out whether co-ops should follow PSC orders or the 80-year-old the Electric Cooperative Law is the purpose of the lawsuit 10 of the state’s 13 utility cooperatives filed with the 19th Judicial District Court in Baton Rouge, Pierce said.

The five elected commissioners demanded changes after learning that the 96 board members serving part-time on rural cooperatives — and who legally can’t receive a salary — collected an average of $26,250 in 2017 from travel expenses, per diem payments and insurance coverage. Health insurance accounted for about half the $2.5 million received by the volunteer board members in 2017, according to a financial accounting ordered by the PSC.

In a rare show unity, the usually quarrelsome commissioners ordered the most sweeping changes to the way cooperatives operate since the 1940s. The nonprofit utilities initially were set up during the New Deal as a way to get electricity into rural areas that privately-owned utilities refused to serve.

The PSC in March told the cooperatives to directly inform their members how much the directors receive in compensation, then hold a vote to allow the members a chance to approve or refuse the amounts. The PSC wanted to approve the voting methods and the ballots the co-ops used, then have the results certified by an accountant selected by the regulators. The PSC would have the cooperatives suspend quorum requirements because so few members attend the annual meetings. Each rural electric cooperative board of director would be limited to six, three-year terms. And if members approve insurance for directors, the policies offered would be at the same level as the utility's employees receive.

That order strayed beyond the PSC's constitutional authority to oversee rates and improperly entered into boardrooms that decide how the businesses choose to operate, Pierce said. Board member compensation has been in every DEMCO filing probably since the cooperative formed in August 1938, so the PSC shouldn’t have been startled to learn that co-ops reimbursed their volunteer directors, he said. The average compensation for DEMCO board members is about $19,000 annually, he said.

Though the 13 cooperatives started out with only a few thousand customers, several have grown substantially as residential developments moved into once rural areas. Dixie Electric Membership Corp., DEMCO, serves more than 100,000 members in Ascension, Livingston and other Baton Rouge suburbs. A $700 million-plus operation, DEMCO has about $230 million in annual revenues.

The lawsuit claims: “The Commission has no jurisdiction, and indeed violates state law, if it attempts to dictate to a privately owned business — such as the corporate cooperatives or common carriers — what shall constitute a board quorum, term limits for board members, and other corporate governance matters that the Louisiana Legislature has rightly vested in the corporate cooperatives’ respective members.”

The five-elected PSC commissioners have not filed an answer to the co-op lawsuit yet, but they voted last week to stay enforcement of their order until the court decides. Nineteenth Judicial District Judge Richard "Chip" Moore, of Baton Rouge, hasn’t scheduled any hearings.

In PSC filings, however, the commissioners argue that their constitutional authority to oversee what customers are charged extends to business practices, such as director compensation, that could figure into rates.

Because electric companies operate as a monopoly within its service area, the state Constitution gives the PSC authority to regulate public utilities. Unlike the big shareholder owned utility companies, like Entergy, which include a profit in their rates, co-ops are allowed "operating margins," or money left over after the electricity is bought and transmitted. It’s from these margins that board members' compensation is paid.

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