With the notable exception of Dakota Electric in the southern Twin Cities metro, the state’s electric power cooperatives receive very little oversight from the Public Utilities Commission.
You can quickly see why if you read through the famous seven principles of cooperatives, a brief but inspirational manifesto for a democratic form of business where the customer-members hold the power.
No one needs to look out for co-op members. They are well-equipped to look out for themselves.
That’s the idea, anyway, although it’s now being tested by Crow Wing Cooperative Power & Light Co., an electric cooperative that serves members in three counties with headquarters near the Brainerd International Raceway.
Crow Wing has invested 10 years and least $23 million into trying to develop a manganese mine near the small town of Emily. While that’s certainly odd for an electric utility, it’s not the oddest part of this story.
As reported by colleague Mike Hughlett last weekend, it turns out the insiders had negotiated what’s effectively the personal ownership of 5 percent of the manganese mine and then never got around to disclosing that to co-op members.
Co-op members can’t really look out for themselves when they don’t know what they are supposed to be looking out for.
In talking to people in the power industry last week, the situation unfolding in Brainerd with Crow Wing Power didn’t seem to be all that surprising. The message was that the co-op model works but isn’t quite perfect.
One problem that’s obvious right away is that consumers don’t really choose to be members.
Our state is carved up into electric power service territories. Minnesotans in areas served by co-ops have the option of connecting to a co-op’s electric service or pulling an Abraham Lincoln and trying to do homework all winter by candlelight.
The members don’t have that much say, either, not like public company shareholders who might vote on executive compensation. And so voter participation, the percentage of members who participate in the election of directors, can struggle to get out of the single digits.
One thing that would help is making it really easy to vote. Another is providing enough information about what’s at stake for a member to get fired up about who wins. After all, paying the monthly bill to keep the lights on might be about all a member usually cares about.
That doesn’t mean there’s little reason to stand for election as a director. The board seats at the power company can pay a lot. The pay approaches $50,000 per year for the largest electric co-op, Connexus Energy of Ramsey, according to its most recently available annual federal tax filing. There’s a lot of responsibility in board service and doing it well takes time, but that’s more than our state legislators make.
Cooperatives generally must stick to their knitting, although co-ops including Crow Wing have a record of doing well in ventures besides retail electric power. The manganese mining venture, however, seems more than a little unusual.
The idea of mining this deposit goes back to the 1940s. As a mineral, manganese has several common uses, but the recent enthusiasm comes from its potential in innovative batteries designed by the likes of Tesla. The co-op took over the Emily project late in the last decade and has since put at least $23 million into it.
One of the agreements struck with the former landowners was called a royalty agreement. The agreement included payments that would go to a group that previously owned the land, but about 5 percent of the “net revenue” was to go to a subsidiary of Crow Wing Power.
Of that 5 percent, 2 percent wasn’t assigned to anyone but the rest would go to insiders, including a permanent assignment of 1 percent of the mine profits to Crow Wing CEO Bruce Kraemer. This agreement was expected to remain in effect until the mine was played out.
The company had a couple of explanations for this agreement, one that effectively gave a slice of ownership to executives who worked full-time for the co-op members.
One is that the insiders got their royalty rights not at their own insistence but offered by the former owners of the land, “as an incentive to make the project move forward,” according to Char Kinzer, Crow Wing Power’s public-relations manager.
It’s difficult to see how these payments had no effect on the members. A dollar of profits that didn’t go to the other parties would go to the co-op members if their own executives weren’t standing in line to grab it first. And, of course, Crow Wing executives didn’t work for the family that sold the land.
Kraemer draws a salary from the co-op, about $289,000 for 2016, the most recent information available from digging out the federal tax form, plus an additional $42,000 of pay from “related organizations.”
Crow Wing’s other explanation is that business dealings often are covered by strict nondisclosure agreements. The board of directors knew about this deal and authorized it.
The early optimism for the mine faded after a relatively low-cost mineral extraction method turned out to be a bust. That means agreements related to the mining venture, including having Kraemer and other board members surrender their rights, are all back on the table, according to Kinzer.
Of course, now that it seems clear that 1 percent of the profit isn’t going to be worth anything, there’s nothing lost by giving it up.
There wasn’t a word about any of this in the most recent Crow Wing Power annual report. The mining venture appears to have been included in the roughly $13.3 million of “other” investments on the most recent summary balance sheet.
According to a brief description in a Crow Wing member newsletter, the annual member meeting this summer was all smiles. Everybody got fed by an entertaining pancake flipper, and the kids got to ride horses, thanks to the Crow Wing County Sheriff’s Office.
And not quite 4,800 Crow Wing members voted in the election for directors, or about 12.5 percent of them.