Electric Cooperative Receives Favorable Interpretation Of Excess Revenue Statute And Class Action Dismissal

Christina Schwing and Lawrence Hamilton II are Partners and Laura Beard Renstrom is an Associate in Holland & Knight's Jacksonville office

HIGHLIGHTS:

A federal court's interpretation of an excess revenue statute could bring an end to many capital credit lawsuits brought by current and former members of rural electric cooperatives challenging the distribution of patronage capital and excess revenues. Many rural electric cooperatives around the country find themselves defending allegations that they have violated state statutes that require the cooperatives to distribute excess revenues. In light of this recent decision, electric cooperatives operating in states that require distribution of excess revenues - "unless otherwise determined by a vote of the members" - should analyze their bylaws and ensure proper voting of provisions dealing with distribution of net margins. A federal court's interpretation of an excess revenue statute could bring an end to many capital credit lawsuits brought by current and former members of rural electric cooperatives challenging the distribution of patronage capital and excess revenues.

Many rural electric cooperatives around the country find themselves defending allegations that they have violated state statutes that require the cooperatives to distribute excess revenues. These statutes typically provide a formula for calculating excess revenues and then provide the methods for distributing those revenues, if indeed, the cooperatives have any. Numerous states, from Montana to Florida, have adopted these statutes fashioned after a model statute promulgated by the Rural Electrification Administration (REA), an agency of the federal government established in 1935.

The U.S. District Court for the Northern District of Florida on March 7, 2017, interpreted Florida Statute Section 425.21 ¬- one example of an excess revenue statute - in the case of Robert Simmons and Jan Simmons v. West Florida Electric Cooperative Association, Inc., Case No. 5:15cv321-RH/GRJ. Section 425.21 provides '"unless otherwise determined by a vote of the members," excess revenues - determined under a formula set out in the statute - must be "distributed" to a cooperative's members "as patronage refunds."'

Many electric cooperatives have similar bylaw provisions requiring cooperatives to allocate their net margins by crediting members' individual capital credit accounts rather than paying members in cash. These bylaws and the votes adopting...