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EMC official responds to lawsuit, attorneys are hired

The general manager of Grady EMC said this week the lawsuit filed by members of the Take Back our Grady EMC committee last week will be “vigorously” defended by the EMC.
“We are disappointed that a lawsuit has been filed against Grady EMC.  We have met with members of the party filing the suit and have made good faith efforts to communicate with them and others who have questions about our business for several months now,” said Grady EMC General Manager Thomas A. (Bo) Rosser Jr.
According to Rosser, many of the claims in the suit are based on a misunderstanding of how Grady EMC operates and others are inaccurate.
“While we don’t intend to try this case in the press, we can assure you that every decision we make is in the best interests of the co-op and its members. We maintain some of the state’s lowest rates. We provide consistent, reliable service. We are conservative with finances,” Rosser said.
The lawsuit against the Grady Electric Membership Corporation, its board of directors, General Manager Thomas A. Rosser Jr., and former general manager Thomas A. Rosser Sr., was filed in Grady County Superior Court last week by members of a group calling themselves the Take Back Our Grady EMC committee.
Members of the EMC Board of Directors named in the suit include Dewey Brock Jr., Caylor Outzs, Lamar Carlton, James Freeman, Lamar Strickland, Robert E. Lee and James Lewis.
The plaintiffs include Gordon Clyatt, Ronald Sellars, C. Seaborn Roddenbery, Jerome J. Ellis and Roy Brock.
The suit was filed in Clerk of Court Debbie Kines’ office Tuesday afternoon, Oct. 7, by Valdosta attorneys George T. Talley and Edward F. Preston, who are representing the plaintiffs.
In the complaint, the plaintiffs claim the Grady Electric Membership Corporation and its directors and officers failed to return profits in the form of capital credits to plaintiff members and the other co-op members.
The defendants are also accused of a breach of various contractual and fiduciary responsibilities.
In the complaint, it is alleged that Grady EMC has improperly retained profits and used the money to make unauthorized and unreasonable investments, make unauthorized loan(s), and pay excessive compensation to some of its officers and/or employees.
The plaintiffs allege that Grady EMC has not distributed any capital credits to members in decades. The suit alleges there is more than $43,500,000 in capital credits allocated to members of Grady EMC at the time of the court filing.
According to Rosser, the EMC will be represented in the lawsuit by Hugh B. McNatt, Josh Archer, and Anne Kaufold-Wiggins of Balch and Bingham. He said that this firm was selected because of their expertise in representing EMCs involved in litigation.
At this time, no separate counsel for individual members of the board, Rosser, or his father who is the former general manager has been retained, according to the current EMC general manager.
The cloud of the lawsuit will be hanging over this Friday’s 76th annual meeting of the membership of the Grady EMC. The meeting, held at the EMC headquarters, is open to all members and registration opens at 8 a.m. on Friday. The business meeting begins at 10 a.m.
At the meeting, General Manager Bo Rosser said he will address questions members might have about EMC operations and the lawsuit.
In advance of the annual meeting on Friday the EMC is mailing to all members a letter in which the EMC updates the members on activities that have taken place during the year. The letter also addresses issues raised by the plaintiffs in the lawsuit against the member-owned utility.
Rosser shared a copy of the letter to the membership with The Messenger. Included in the questions and answers section are the following passages:
“Who approves wages and benefits and how are they formulated?
The Board approves all wages and benefits.These decisions are based on performance and independent industry surveys.  The Board strives to ensure the salary and benefits for Grady EMC employees are in line with other electric cooperatives in Georgia of similar size. The electric business is complex, and transitions are typically carefully managed to ensure appropriate knowledge and background is shared among the team.
What are the current qualifications of Bo Rosser?
He has spent most of his life around the electrical business including working part-time as a groundman and truck operator as well as learning line work. While completing his undergraduate degree in business management, Bo worked in utility construction, and then earned a master’s of business administration from Florida State University.  While earning and obtaining an MBA, Bo spent nearly a decade in the finance and electric industry, gaining experience in risk analysis and maximizing investor returns through sound decision making based on financial and other factors. Last year, the Grady EMC Board asked him to transition Grady EMC into the future, focusing closely on all elements of our business: from generation, distribution, retail sales and ongoing system maintenance and improvement.
Does Grady EMC make financial investments? How and why?
In addition to planned, strategic investments in our own assets, the EMC also from time to time has made targeted investments in community assets that help Grady EMC serve its members. The Board analyzes, discusses and approves all investments.  Where possible, Grady EMC prefers to invest and do business with local vendors.
One such investment that has been criticized was the purchase of stock at the formation of the only local bank in Grady County in 2000.  The investment helped provide a local bank with necessary capital, at the same time it provided Grady EMC a sound, local option for banking services.  In 2004, the Board decided to sell the stock, and former general manager Tommy Rosser offered to make the purchase. The purchase price was determined by an independent appraisal of the stock, which was an increase of more than $125,000 over the original purchase price – a 50 percent return on the investment. Grady EMC financed the purchase, and it made money on the stock sale and on interest from the loan, which Mr. Rosser has repaid in full.

What is member equity, and where is Grady EMC’s $43.4 million?
In the electric cooperative business model, member equity – also known as patronage capital – is the value of members’ investment in the EMC. It is not simply dollars in a bank account. Patronage capital is accumulated this way: in years when Grady EMC takes in more money than it costs to provide electricity to its members, the remaining funds are credited as patronage capital to its members. In a member-owned cooperative, this member equity is used to invest in the physical assets of Grady EMC, including generation facilities, poles, transformers, power lines, trucks, and the like which are necessary to enable us to provide electric service.  Member equity is also used to establish reasonable reserves, to fund future capital needs, and to maintain a reasonable capital structure, which often reduces the need to borrow money to run the business, saving us interest and expense, and helping hold down rates.
The benefit to members is not just when patronage capital is paid, but also by contributing to the ability to provide years of reliable service at lower costs. Unlike investor owned utilities or a city utility, our members receive the same benefits of affordable and reliable service in addition to a benefit that is payable when, in the Board’s judgment, Grady EMC’s financial condition permits patronage capital distributions.  Currently, on a monthly basis, the Grady EMC Board approves the payment of patronage capital to a member estates upon application.
The EMC does not have $43.4 million in the bank.  The $43.4 million figure that has been cited is from the EMC’s balance sheet and represents Grady EMC’s patronage capital and other equities, including the complex system of poles, wire, transformers, meters, other equipment, investments in other cooperatives, and operating cash that ensures you have reliable electric service. With respect to Grady EMC, similar to your personal financial investments, including the equity you may have accumulated in your home, the total amount of your equity in Grady EMC is not all held in cash. It is your share of the value of the assets of Grady EMC.  For example for the Balance Sheet provided in your September 2014 newsletter shows that while $43.4 million is held in patronage capital and other equities, only $1.6 million is held by Grady EMC in cash on hand and temporary investments.

Is Grady EMC involved in large lawsuits?
There are currently two lawsuits involving other EMCs and organizations related to ours.  We are not a party to any of those suits, but will monitor their progress, outcomes, and make any adjustments deemed necessary by the Board in response to these actions.   
On October 7, 2014, Grady EMC was sued by several of its members, who make allegations similar to those made in recent newspaper ads.   We take these allegations seriously, and will address them appropriately. At the same time, we intend to vigorously defend that lawsuit.  
Why does Grady EMC own other LLCs?
Grady EMC along with several partners built a nearly 100 megawatt peaking power plant in Baconton, GA called SOWEGA Power (one megawatt is equivalent to the amount of energy produced by 10 car motors running at the same time).  In addition, Shell Oil teamed with us to build an approximately 200 megawatt peaking plant on the same site.  Upon the advice of counsel and our accountants, the Board approved the forming of several LLCs for these projects.  These plants are maintaining and stabilizing our member rates every day and will continue to for years to come.  This is a unique benefit and an excellent investment for our members.  All related LLCs are owned by Grady EMC and are not paying separate salaries to Grady’s managers or generating profits or capital that is held hidden from members in any way.  Revenues from these LLCs are consolidated into the overall financials of the EMC.
Why does Grady EMC own a tract of land north of its headquarters under an LLC?
Grady EMC purchased a tract of land in a strategic location less than one mile from our headquarters in order to prepare for the future.  Due to our past experience with generation as well as our landlocked headquarters, this tract of land located adjacent to one of our largest substations and two high voltage transmission lines is a perfect location for expansion, a future generation project or for staging crews and equipment in an emergency situation.   
Why was the headquarters building renovated?
The renovations to our headquarters building – originally constructed in the 1950’s — were made for several critical reasons, including addressing a leaking roof and water infiltration throughout the facility; to accommodate technology and security updates; and to enhance customer safety and privacy.  
Every effort was made to ensure that construction was done in a cost-efficient manner. We built primarily on the existing building’s footprint, remained in the building during the renovation and utilized employees to do the construction whenever possible. We estimate that allowing our talented employees to work on the project enabled us to significantly reduce labor costs on the construction project.

How does Grady EMC prove its commitment to open communication?
Each year, we disclose information on our operations along with our financial information. We are subject to annual independent third party audits and are accountable to the USDA Rural Utilities Service.  
Your Board and staff are directly responsible for the operation of the cooperative and for protecting trade secrets and confidential information.  Our critics are not subject to these same responsibilities and obligations.  We want to hear your questions and concerns, as well as ideas to improve your cooperative. Please don’t hesitate to contact us with ideas, questions or comments that can help us achieve our goals at 229.377.4182 or Grady EMC staff and management are always willing to meet with any member and discuss any aspect of our organization.  You have the opportunity to meet with us and share your thoughts at our annual meeting.  Please join us on October 17th and take the opportunity to get to know your Grady EMC. “

Rosser also told The Messenger this week, “We ask for your patience as the truth comes out through the legal process.”
District 3 Director Lamar Carlton and District 6 Director Robert E. Lee are up for reelection this year and the election of directors will be held at the annual meeting this Friday.
Grady EMC serves 13,143 members in Grady, Decatur and Thomas counties.

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