Executives at some of Northern Michigan’s rural electric cooperatives have received handsome compensation and pension packages while promoting a coal-fired power plant for Rogers City that state regulators say is unneeded and that an expert study concludes could at least double the electric rates of their utilities’ members.

Research by the Great Lakes Bulletin News Service shows that Wolverine Power Supply Cooperative Inc., in Cadillac, Mich., which is largely owned by four retail electric cooperatives in rural northern Lower Michigan, spent nearly $1 million on compensation and benefits for its two top executives in a single year.

According to Wolverine’s IRS 990 forms, which are readily available online because it is a not-for-profit organization, a former executive of Wolverine, Thomas W. Stevenson, received $533,908 in compensation as a former employee in 2007. Wolverine’s current chief executive officer, Eric Baker, received $294,993 in compensation that year, his first in that position.

The cooperative’s tax filing also lists substantial annual contributions to benefit packages for both executives, more than $80,000 each, which Wolverine refers to as its “health and deferred compensation” plan, as well as payments of $325,000 to Wolverine’s board of directors that year.

The past and current CEOs have been considered driving forces behind the push to build a new coal plant in Rogers City, Mich. When they unveiled the project in May 2006, they estimated that it would cost about $1.2 billion. But a study performed two years ago by T.R. Rose & Assoc., of New York City, found the estimate to be at least $300 million too low at that time. The study, which was commissioned by the Interlochen-based Michigan Energy Alternatives Project, concluded that the project would push co-op members’ utility rates sharply upward.  

This fall, the company asked the Federal Energy Regulatory Commission for permission to collect unlimited amounts of money from its members for the project construction fund. The money would come from members of the four retail co-ops that own Wolverine: Cherryland Electric Cooperative, Presque Isle Electric & Gas Co-Op, Great Lakes Energy, and HomeWorks Tri-County Electric Cooperative.

The request to FERC, some observers say, could indicate increasing financial pressure on Wolverine—and, by extension, its member-owners. It could also reflect the sharp shift in coal plant economics that persuaded American utilities to cancel 110 coal plants over the past few years.

When the co-op unveiled the proposal, Mr. Baker said the plant would protect co-op members from electricity rate spikes by replacing the power his company gets from distant suppliers with power from its own plant. The executive also said that the new plant was necessary for meeting his members’ growing demand for electricity.

Expert studies have since rejected both claims: Almost two years ago, the Rose study, by municipal and utility funding veteran Tom Sanzillo, found that, because all of the new electricity would come from the same expensive, new plant, members’ rates would at least double.

And, late this summer, the Michigan Public Service Commission found that Wolverine does not need the additional electricity from its proposed plant. That regulatory finding was seen as a major setback for Wolverine, and, observers say, was compounded when Wolverine’s demand numbers for September fell a remarkable 14.6 percent from the previous year.

The Michigan Department of Environmental Quality is expected to rule on the plant’s air permit application within weeks, and the agency must consider the MPSC’s finding that the plant is unneeded, as well as determine whether burning coal is the most prudent and feasible way for the company to generate electricity.

Affordability
Despite the financial obstacles and growing evidence that its members will see a big jump in their electric bills if the plant is ever built, Mr. Baker and other Wolverine officials continue to promote their project. The company continues to say that it will bring about 100 new, fulltime plant jobs to the community—and that building the new plant is “all about affordability.”

But the salary level of the directors in Wolverine’s extended family of retail co-ops suggests that affordability has not been a top factor in decisions about executive compensation. The news service found many executives in the nonprofit co-ops and a co-op association who are earning salaries comparable to those in the private sector.

The retail co-op officials’ salary figures include:

• At Great Lakes Energy, in Boyne City, President and Chief Executive Officer Steve Boeckman earned a salary similar to Mr. Baker’s in 2007. Mr. Boeckman received $274,087, and according to the federal forms, an additional $55,913 as a contribution to the cooperative’s benefits and/or deferred compensation plan. His salary increased by $43,000 from 2005 to 2007, and that figure does not include possible annual contributions to Boeckman’s benefits plan.

• The Michigan Electric Cooperative Association, which publishes Country Lines Magazine on behalf of the co-ops and is closely aligned with Wolverine, paid its chief executive, Mike Peters, $223,838 in 2007, along with a $34,000 contribution to his benefits plan, according to the federal filings.

• At HomeWorks Tri-County Electric Co-Op, Chief Executive Officer Scott Braeger received $208,782 in 2007, plus a contribution of $43,765 to his benefits package for that year.

• At Cherryland Electric Cooperative in Traverse City, General Manager Tony Anderson received $133,903 in 2007 and is listed as getting a $45,551 contribution for his benefits plan.

• At Presque Isle Electric and Gas, Chief Executive Officer Brian Burns was paid $130,310 in 2007; his benefits plan contribution was listed at $41,937.

Meanwhile, the regions where the companies do business had median incomes of $35,000 to $45,000 that year—substantially below the national average of $50,233.

The news service was unable to obtain information for 2008 compensation for the executives. The 2007 figures are available at guidestar.org, a Web site that lists salaries of many not-for-profit organization’s top officers, disclosures required by the IRS because the groups receive special federal and state tax considerations.

Possible Public Scrutiny
Mr. Baker, of Wolverine, did not respond to a request from the news service for confirmation of or comment on his compensation for running Wolverine.

Mr. Stevenson, his predecessor, when contacted at his Colorado home, refused an interview but denied receiving the additional $80,000. He then refused to discuss the salary payment of $533,908 and threatened to file a lawsuit if the details of his compensation were published.

The salaries for executives at electric cooperatives can vary widely across the nation. According to a 2001 report from the National Rural Electric Cooperative Association, there is growing interest at co-ops in “flexible compensation” packages like Wolverine’s deferred plan for its executives.

A check of other cooperative salaries shows that at Nebraska Generation and Transmission Cooperative, a manager there was paid $129,000 in 2007 with no contributions to a benefit package.

At Southern Montana Electric Generation and Transmission Cooperative, a manager there was paid $147,000 plus $51,000 to a benefits package. At one cooperative in Iowa, five managers were paid a total of $1 million in compensation in a single year; the president made nearly $300,000.

A 2001 report about executive compensation in Management Quarterly listed the median annual salary for a manager at a co-op at the time as $97,428. The national rural co-ops report said determining executive salary at co-ops should be a deliberate process carried out by boards of directors, and pay should reflect the value individual managers have on operations and the size of the customers the co-op serves.

“There's no single model of manager compensation,” Management Quarterly stated. “This is especially true because of the growing interest in flexible compensation ... Another complexity is the possibility of public scrutiny.”

Investigative reporter Glenn Puit is a policy specialist at the Michigan Land Use Institute. Reach him at glenn@mlui.org