PEC Press Release — Pedernales Electric’s Board of Directors received and accepted a 2007 financial audit from KPMG at a special called meeting Monday, April 6 at PEC’s Johnson City headquarters. KPMG audited PEC’s financial statements, its Employees Defined Benefit Retirement Plan and its Employees 401(k) Savings Plan for the year ending Dec. 31, 2007; the Board accepted all three audits.
PEC Chief Financial Officer Mike Vollmer said KPMG gave the Cooperative an unqualified opinion, which he described as the best opinion an auditor can offer. “I don’t want to underemphasize that,” Vollmer told the Board. “When you have an unqualified clean opinion, that’s not to be taken lightly.”
Prior to receiving the audit, the Board voted unanimously to approve making a voluntary accounting change regarding contributed facilities — underground electric facilities built by developers for Pedernales Electric and then donated to the Cooperative. In the past, PEC recognized these transactions in consolidated financial statements as components of member equity. The Board voted to recognize these facilities as contra-assets, which are accounts that are subtracted from a related account.
The monetary effect of the change is a decrease of $151.3 million on PEC’s 2007 balance sheet. This accounting shift, which did not impact margins, operating income, cash flow or capital credits, was one of the recommendations in the report released by Navigant Consulting in December 2008. Vollmer made it clear that PEC’s previous practice was both accurate and accepted, but the newly adopted practice is more common among co-ops.
“We are moving from one generally accepted accounting principle approach to another generally accepted accounting principle,” Vollmer said. “It will allow us to be more comparable to other co-ops around the country.”
The Board then turned its attention to the audit. KPMG had delayed issuing its opinion on 2007 financials for about a year due to questions about contributed facilities and the Navigant investigation. Vollmer said KPMG decided on its own to conduct additional research on contributed facilities and never was requested to do so by PEC. KPMG has audited PEC for 11 years, and prior KPMG audit opinions have recognized PEC’s accounting of these facilities as within generally accepted accounting practices.
By formally accepting the 2007 report, the Board now can begin the process of hiring a firm to conduct a 2008 audit.
The Board also discussed how PEC General Manager Juan Garza should represent the Cooperative at the state legislative hearings, which began Tuesday, April 7. Texas co-ops are the focus of two pieces of legislation, which will be the subject of committee discussions this week in both the House and Senate. Rep. David Swinford has submitted HB 3820, and Rep. Patrick Rose and Sen. Troy Fraser have submitted identical bills: HB 1390 in the House and SB 921 in the Senate.
PEC Governance Counsel Pete Slover said the Rose-Fraser bill would give the Public Utility Commission jurisdiction over any potential complaints about transparency in co-ops, while Swinford’s legislation would give jurisdiction to the Attorney General’s office. Slover also said the Rose-Fraser bill includes a process known as “bracketing,” which would subject only PEC to different standards because it is the largest in the state.
The Board voted 6-1 to approve a resolution opposing Rose’s and Fraser’s bills and supporting Swinford’s legislation. The resolution states “the Cooperative opposes any regulatory statute that treats the Cooperative differently than other Texas Electric Cooperatives.”