McFerrin to hear Pioneer proposed settlement

Published 12:00 am Thursday, October 20, 2005

Pioneer Electric Cooperative and three of the cooperative's members who filed a lawsuit against Pioneer have reached a proposed settlement, which includes the payment of $1.4 million in attorneys' fees by PEC for the plaintiffs.

While both parties assert in the settlement document that they believe their arguments are valid, both sides agreed that further litigation would not be in the best interests of the cooperative and its membership.

In Feb. 2004, a complaint was filed against PEC, Pioneer Services Corp., Acme Propane Gas Company and its officers by PEC cooperative members Hoffman Rhyne, Kenneth Stallworth and the late Wendell Phelps.

The complaint alleged the mishandling of corporate funds and assets and gross mismanagement of the cooperative.

In August 2004, Circuit Judge Edward McFerrin dismissed all of the motions in the lawsuit except for the allegations brought against PEC.

In March, a third amended complaint was brought against the National Rural Utilities Cooperative Finance Corporation (CFC) and the National Cooperative Services Corporation (NCSC).

One of the proposed settlement stipulations to be heard by McFerrin is that PEC would sell the propane gas distribution business operated by Acme Propane Gas Company, which it did earlier this year.

The gas company was sold to several different buyers for approximately $7 million in net sale proceeds, which were then applied to PEC's outstanding debts to CFC.

According to the plaintiff's attorneys, the gas subsidiary was sold at a &#8220significant loss” to the original purchase price, but since no depositions were taken, they had not determined an actual purchase price.

Also, PEC and CFC have agreed to modify all of PEC's outstanding debts to CFC that will, in part, reduce debt service payments and allow PEC access to funds made available by PEC prepaying certain debts.

Another stipulation that has already been put into place is that REMAC will have two representatives present on the selection committee when it comes time to review the applications to replace outgoing Pioneer Electric general manager Malloy Chandler. Chandler will vacate his position at the company Jan. 5, 2006, but will continue on as a consultant for a period not to exceed six months. He will also receive 18 months vacation pay at his current salary rate and be eligible for company health benefits.

Barry Wood of Industry, and Ronnie James of Tyler in Lowndes County, will join Ted Tindal, Jimmy Gardner and Hugh Strickland of the PEC Board to serve on the selection committee and review the managerial applications.

In addition to these responsibilities, Wood and James would also be able to participate in all board meetings, but they would not be entitled to vote. After 18 months, these two positions will no longer exist.

The lawsuit also stipulates that PEC will pay all of the plaintiff's attorneys' fees, which are approximately $1.4 million.

According to Margaret Pierce, president of REMAC, the cooperative's members won't be the ones paying the attorneys' fees.

&#8220The fees will be paid by the insurance company that insures the PEC board,” Pierce said. &#8220The board and manager are covered by liability insurance.”

According to Pioneer Electric spokesperson Terry Wilhite, insurance will not cover all of the legal expenses of defending the suit.

&#8220Pioneer's members pay all of the cooperative's insurance costs, no matter what type of insurance it is,” Wilhite said. &#8220Plus, insurance does not cover the enormous amount of people hours that have been spent with issues pertaining to this litigation. A claim of this magnitude makes it extremely difficult to get insurance coverage at affordable prices. Plus, all of these worries come at a time when the co-op could least afford them, at a time when the co-op has done a considerable amount of work in order to lower its costs because of wholesale power increases, all the while attempting to do its best to manage costs brought on by rising gas prices.”

Pierce encouraged all of the co-op's members to carefully read the summary of the proposed settlement.

&#8220If there is anything that a PEC member objects to, I encourage them to be present at the hearing and voice their concerns to the judge,” Pierce said.

The settlement hearing is scheduled to be heard by Judge Edward McFerrin at 9 a.m. Nov. 17 at the Butler County Courthouse. Any PEC member who wishes to he heard at the settlement hearing can do so by applying through the Clerk of Court and following the proper procedure outlined in the settlement statement.

Editor's note: a complete copy of the settlement agreement can be found on page 10A of today's edition of The Greenville Advocate.