AG: No law allows non-bank deposits by power associations

By Patsy R. Brumfield/NEMS Daily Journal

Public Service Commissioner Brandon Presley wants Mississippi electric power associations held more accountable for their investments and cash reserves.
The former Nettleton mayor has a new state attorney general’s opinion that may change some of their investment plans.
“They ought to be able to have reserves,” Presley said, “but we need to determine what is an adequate reserve.”
The attorney general’s opinion, which comes from questions by Presley, says Mississippi law requires electric power associations to deposit “all moneys” into banks or trust companies.
It also says they have no state authority to invest in stocks, mutual funds or other similar investments.
For example, according to the most recent annual financial reports:
* Alcorn EPA in Corinth has $429,147 in investments but $6 million in cash.
* 4-County EPA based in Columbus has $3.8 million invested, compared with $450,922 in cash.
* Tombigbee EPA in Tupelo reports $1.88 million in investments, with $137,610 in cash.
* Tippah EPA of Ripley lists $142,845 invested, with $3.18 million in cash.
The financial statements for the region’s 10 EPAs shows them with $18 million in total investments and $14.86 million in cash.
While many of the EPAs keep large sums in their regions’ banks, some also hold insurance policies, stocks and non-bank money funds.
EPAs are member-owned cooperatives founded to provide electric power to rural communities. If they have excess funds, state law requires them to return the money to its members by reimbursements or rate reductions.
Tombigbee manager Bill Long says his Tupelo-area district continues to grow and require service, which suppresses Tombigbee’s ability to build large reserves. Its monthly power bill to Tennessee Valley Authority runs about $8 million.
“It’s got to be paid, and when we do, there’s very little left,” he said. Most of Tombigbee’s investments that Long terms its “emergency fund” are in bank certificates of deposit and treasury bills.
Presley said he became concerned for the state’s 46 EPAs and the safety of their funds after the McComb-based Magnolia EPA sank $5.3 million with Stanford Financial Group.
The Daily Journal first reported Magnolia’s investment with Stanford, which collapsed earlier this year under a U.S. Securities amp& Exchange Commission investigation into its certificate of deposit sales.
Ultimately, a civil lawsuit froze Stanford assets and criminal charges ensnared Stanford CEO Allen Stanford, several company executives and an Antiguan regulator accused of effecting a $7.2 billion Ponzi scheme on CD investors.
Thousands of investors lost their life savings. Magnolia recovered some of its investments but still waits on about $2 million.
“They should not have the authority to invest in something like Stanford,” Presley noted. “The commission needs to set up some regulations to ensure that what happened with Magnolia never happens again.”
Barry Rowland, general manager at Monroe EPA in Amory, oversees one example of an EPA with large investments and cash reserves. He says the rural utility needs at least $3 million or so in reserves, depending on plans for capital improvements and other projects.
“We want to build a new headquarters,” he said, referring to moving away from downtown, where the utility is in. Plans were sidetracked in 2005 by Hurricane Katrina’s impact on state highway funding priorities.
Now, he’s waiting as long-scheduled changes occur along Highway 25, where he hopes the new building will be constructed.
Monroe EPA’s $5.81 million in investments anticipates that building project, Rowland says.
Most of the region’s EPAs keep their cash and investments in local banks. An exception is 4-County, with more than $1 million in Merrill Lynch securities and money funds.
Alcorn EPA’s financial picture is the opposite of Monroe – $429,174 invested mostly in life insurance policies, with $6 million in cash in banks.
Eddie Howard, its top financial manager, said Alcorn keeps substantial cash because its monthly power bill to TVA runs into the millions, even if the EPA’s customers haven’t paid their bills.
Pontotoc EPA’s chief, Chuck Howell, says he wishes his utility had more substantial reserves, but he and the board “have always tried to be careful – it’s our members’ money.”
Some of Pontotoc’s money, like that of several other EPAs, is invested in cooperatively owned insurance and lending institutions.
Tombigbee’s Bill Long says complying with state investment restrictions wouldn’t pose any special problems for his EPA.
“We don’t have a high level of excess cash,” he noted.
Contact Patsy R. Brumfield at (662) 678-1596 or patsy.brumfield@djournal.com.

EPA RPT DATE INVESTMENTS CASH
Alcorn 8/10/09 $429,147 $6 million
4-County 5/12/09 $3.8 million $450,922
Monroe 2/9/09 $5.81 million $1.87 million
Natchez Trace 2/27/09 $403,7901 $1.35 million
North East 8/24/09 $705,207 $715,720
Pontotoc 9/09 $391,888 (incl. in investments)
Prentiss County 8/19/09 $4.39 million $246,264
Tippah 9/04/09 $142,845 $3.18 million
Tishomingo 4/16/09 $77,867 $920,122
Tombigbee 8/7/09 $1.88 million $137,610
SOURCE: Annual reports
* To read the full opinion, go to Patsy’s blog, From the Front Row, on NEMS360.com.