Differing View On Compensation

opposing-viewpointsBy Merle Moden

PEC Member, Wimberley, TX

Publisher’s Note:  PEC Truthwatch recently posted two articles in general support of PEC compensation policies and practices. This blog welcomes and encourages informed member viewpoints on any subject related to PEC.  Below is a different perspective from member Merle Moden of Wimberley.

The issue of PEC executive compensation has been addressed in recent posts on PEC Truthwatch.  These posts have been generally matters of opinion regarding whether PEC is compensation is fair and reasonable for a nonprofit electric cooperative.

 

modenmug

Merle Moden

I have not conducted a compensation survey with which to compare the PEC to its peer group — the largest independent electric cooperatives in the U.S; however, I have compared the financial performance of the PEC compared with this peer group with regard to controllable expenses. Controllable expenses are: (1) transmission operation; (2) transmission maintenance; (3) distribution operation; (4) distribution maintenance; (5) customer accounts; (6) customer service and informational; (7) sales; (8) administrative and general operation; and, (9) administrative and general maintenance.

 

The National Rural Utilities Cooperative Finance Corporation (CFC), from which the PEC borrows substantial sums, maintains various statistics on its borrowers, among which are comparative data for annual controllable expenses per consumer for the PEC’s Peer Group – large independent electric cooperatives in the U. S.  CFC Key Ratio Trend Analysis (KRTA) data for the fourteen-year period 2002-2015 show that, by comparison, the PEC’s controllable expenses are way out of line.  The PEC is consistently well-above the median value. In the fourteen-year period 2002-2015, PEC’s excessive spending above the median value of its peers was about $378.9 million in nominal dollars and about $417.9 million in inflation-adjusted dollars for total controllable expenses.  Please note that the CFC considers transmission operation and maintenance expenses to be part of generation and are not included in the CFC’s KRTA controllable expenses data.

It is unfortunate for PEC’s member-owners that the PEC appears to continue to cling to the woefully flawed service delivery model created by former General Manager and convicted felon Bennie Fuelberg.   Why?  The answer, quite simply, is that the philosophy of Bennie Fuelberg is ensconced in the corporate cultures of governance and management at the PEC.  Regarding the philosophy of Bennie Fuelberg, the investigative Navigant Report, December 2008 (see www.pec.coop/Home/Your_Cooperative/Inside_PEC/Coop_Docs/DocArchive.aspx) on p 59 of 390 states “In some respects, the former General Manager’s emphasis on service to the Cooperative’s members regardless of cost fostered an environment in which cost controls, budgets, and expense management were secondary.” (emphasis added).  Over these many years cost-efficiency at the PEC appears to continue to be an alien concept.

To be fair, PEC management in recent years has made some efforts to reduce controllable expenses per consumer.  Unfortunately, the PEC Board has given mixed signals to PEC management regarding efforts to reduce controllable expenses and in at least one case has thwarted such efforts.  The PEC Board continues to compensate generously and award annual performance bonuses to PEC management, despite the PEC’s poor ranking regarding total controllable expenses per consumer.  In the ten-year period 2006-2015 in its Peer Group, the PEC ranked as the worst in 2006-2010 and 2012-2013, and as the second worst in 2011 and 2014-2015.

One wonders about how PEC management receives its generous compensation when its actual performance shows that it wasted at least $417.9 million (2015 dollars) in the fourteen-year period 2002-2015.

 

Advertisements

One thought on “Differing View On Compensation

  1. Thanks Merle. Using Larry Landakers logic, executive compensation should be immediately doubled in order to further increase PEC’s effectiveness. As they say, you get what you pay for.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s