Judge to Rappahannock Electric Co-op: "Not as cooperative as it should be."
Allow me to sing the praises of my two newest friends, Christopher Shipe and John Hewa.
Chris is the board chair and John is the CEO of the Rappahannock Electric Cooperative (REC) in Virginia, which happens to be one of the nation’s biggest electric co-ops. As someone who keeps an eye on electric utilities for a living, and also as someone who is deeply committed to the cooperative movement, I’m always eager for face time with people who do what these guys do.
Indeed, both Chris and John have dedicated all or substantially all of their careers to the cooperative movement. I had an especially long and fruitful chat with Chris, who talked of his decades of work as a leader of the nation’s cooperative insurance industry – and of the time and care he devotes to making sure his electric cooperative faithfully serves the roughly 150,000 customers who are the sole owners of the business.
I impressed John by correctly identifying his “Willy Wiredhand” lapel pin and demonstrating my understanding of why Willy is so important to electric cooperatives. He was created as an alternative to Reddy Kilowatt, the mascot created by the very same investor-owned utility industry that refused to wire up rural America and thus gave rise to the nation’s network of some 900 consumer-owned electric cooperatives. As such, Willy Wiredhand is a symbol of all that is noble about the kind of organization that Christopher Shipe and John Hewa lead in Virginia.
So . . . Here is where I confess the, uh, unusual circumstances in which I got to meet these two fellows. It was at the Circuit Court of Spotsylvania County, Virginia. We were all there to testify as expert witnesses in a lawsuit filed against the Rappahannock Electric Cooperative by three member-owners of REC.
Not to put too fine a point on it, we were, technically, fighting with each other. Which is to say that Chris and John were witnesses for REC and I was there to offer expert testimony about cooperative governance on behalf of the three disgruntled members.
Way back in 2018, the trio of REC members – Seth Heald, Michael Murphy, and John Levasseur – had drafted three proposed amendments to their cooperative’s bylaws, hoping to present those amendments to the REC membership for a vote. The co-op refused to allow it. The three members sued and, almost four years later, they got their day in court.
In the grand scheme of things, the proposed amendments don’t amount to much. The first and most important of the three would have required REC to let members attend board meetings to watch their elected directors do their thing. The second one would have required transparency when the board casts proxy votes in the annual board election. The third would have mandated 60 days’ notice to members, and publication in the cooperative’s glossy magazine sent to members, whenever the board proposed to increase its own compensation.
REC’s refusal to allow these proposals to be voted upon by the membership – a ratification process that would definitely have been an uphill struggle -- had been puzzling to me. The consumer owned utility seems to have spent a small fortune of member money on lawyers and legal wrangling, resisting what struck me as a fairly modest exercise in cooperative democracy.
Now I get it.
Chris Shipe, John Hewa, and presumably the rest of the REC board and management team love the idea of leading a cooperative. They earnestly want to do good for their members, whom they love as a group. But when it comes to individual members – actual human beings who might show up at a board meeting – they’re totally and sincerely freaked out.
In his testimony, Chris Shipe openly fretted that anything said at a board meeting, with rank-and-file co-op members looking on, “can and will be used against us.” Everything, he said, would be “taken out of context.”
Think about that for a second – about the use of a phrase from the Miranda warning police officers administer to people under arrest in light of their constitutional right to avoid self-incrimination. In that situation, the arrested person absolutely should be suspicious and hyper-alert. But is that a good attitude for the directors of a cooperative to adopt in their interactions with the people who elected them?
The proposed bylaws amendment on open board meetings would have allowed the board to discuss sensitive subjects in executive session. John Hewa testified that 90 percent of the business that comes before the board – i.e., everything but the routine items placed on the board’s “consent” agenda – would require such treatment, implying that adding open board meetings to the bylaws would be useless. That’s preposterous and I don’t think the judge bought it either.
One odd reality of the trial concerns a report issued in 2018 by a governance task force assembled by the National Rural Electric Cooperative Association along with the Cooperative Finance Corporation. The task force – a blue-ribbon panel of experienced electric cooperative directors and executives – concluded (among other things) that it considered the pros and cons but “supports permitting electric cooperative members to attend board of directors meetings” because such a policy “may facilitate transparency and openness, and strengthen the democratic nature of cooperatives.”
REC fought successfully to keep the report out of the record at the trial. That was understandable. But here’s the odd thing: Hewa was a member of the task force – and somehow he testified with a straight face that the position he laid out in court on behalf of REC was actually consistent with the task force’s recommendations.
In the end, the co-op got off on a technicality. The judge ruled that he had to consider all three proposed amendments as a package, and he concluded that one aspect of the open meetings proposal could indeed prevent the board from discharging its responsibilities. That was the language requiring REC to give members 72 hours’ notice of board meetings.
I have two things to say about that. First: baloney.
The example kicking around at the trial concerned the need for an electric cooperative to respond swiftly to storm-related service interruptions or other operational crises. News flash: Any electric utility, whether owned by investors or a government entity or customers, that needs to convene its governing body to deal with an operational emergency is in big trouble. Responsible utilities have plans in place to deal with emergencies – which are, fundamentally, a matter of operations rather than governance anyway.
Second, zoom out a bit. If the only thing wrong with these proposed bylaws amendments was that they imposed a rigid 72-hour notice requirement for board meetings, then why the heck did this cooperative not simply tell that to the requesting members back in 2018 and negotiate revised language with them? Instead, right from the get-go, REC treated this bylaws initiative as a hostile incursion and worked tirelessly to defeat it by any means necessary. Such a war of attrition, which seemed premised on a limitless trove of member-provided money for legal expenses, was bound to succeed sooner or later.
But does this amount to bad faith? Are the leaders of this cooperative hypocrites for invoking the cooperative principles on the one hand, including the one about “democratic member control,” and on the other hand squashing this initiative – which, after all, was merely an effort to place some amendments before the membership at large for a vote whose success was itself far from inevitable?
Honestly, I don’t know. I’m not inside the heads of Chris Shipe or John Hewa. My best guess is that they sincerely believe in the Cooperative Principles, have earnest intentions when it comes to doing good for the membership, but are scared to the core by anything that looks like member activism.
Should the plaintiffs therefore try to force these cooperators to confront their fears further via appellate proceedings? It’s a tough call and, fortunately, not mine to make.
In these circumstances, perhaps the last word should belong to Circuit Judge Joseph J. Ellis, who presided at the trial and then ruled in favor of REC at the end of a very long day in court. He announced his decision and then, without missing a beat, administered a concise tongue-lashing to the leaders of the Rappahannock Electric Cooperative.
“Let me point out that this is named a cooperative for a reason,” said Judge Ellis. “And certainly the attitudes I’ve heard today express to this court that it’s not as cooperative as it should be.”