The organization and operation of cooperatives and extensions of credit by electric cooperatives

This bill allows a cooperative to have a director that is not a member or member representative (outside director) if the total number of outside directors does not exceed two outside directors or 20 percent of all directors, whichever is less. A person may not serve as an outside director on the board unless a majority of directors who are not outside directors votes to approve the person as a director.

Current law generally provides that only cooperative members may vote at member meetings and each member has one vote, regardless of the member's degree of financial interest in the cooperative. Because a cooperative is formed to provide services to its members, current law also requires a cooperative's board of directors, at least once each year, to distribute the cooperative's proceeds, after deducting various costs, other distributions, and reserves, to members based on their patronage, which means business done with the cooperative. Some or all of this distribution may be retained by the cooperative for future capital needs and credited to a patronage equity account of the member.

This bill allows a cooperative holding company and its cooperative subsidiaries to base members' voting power in whole or in part on members' current or recent patronage activity, or on members' patronage equity in the cooperative, or on a combination of both. The bill defines a “cooperative holding company” as a cooperative that owns or controls subsidiaries operating on a cooperative basis as the primary part of their business and activities.

Current law allows a cooperative to be organized with or without capital stock, but if the cooperative issues stock any dividend on the stock cannot exceed 8 percent per year. Current law also defines a “foreign cooperative" as a cooperative that is incorporated under another state's cooperative law, that has members residing within this state, and that meets certain operating requirements, including that no member of the foreign cooperative who is an individual is allowed more than one vote because of the amount of stock or membership capital the member owns or the foreign cooperative does not pay dividends on stock or membership capital in excess of 8 percent per year.

This bill removes the 8 percent dividend limit for domestic cooperatives and removes the reference to an 8 percent dividend in the definition of “foreign cooperative.” Current law requires a cooperative to keep correct and complete financial records. Upon giving at least one week's written notice stating the purpose for the examination, a member may examine, at a reasonable time and for a proper purpose, any financial records pertinent to the purpose specified in the notice. The board of directors may deny a request to examine financial records if the board determines that the purpose is not directly related to the business or affairs of the cooperative and is contrary to the best interests of the cooperative.

Under this bill, a member's right to examine a cooperative's financial records is limited to financial records covering the current or preceding three fiscal years.

The bill also specifies that this right of examination is subject to any legal duty to preserve confidentiality or protect privacy. The bill further provides that the board of directors may deny a request to examine financial records if the board determines that the purpose is not directly related to the requester's interest as a member in the business or affairs of the cooperative or is otherwise contrary to the best interests of the cooperative. Under the bill, the cooperative may condition examination of financial records on the member reimbursing the cooperative for the reasonable costs to produce the financial records and make requested copies of them.

Under current law, a cooperative's board of directors may not dispose of all or substantially all of the cooperative's fixed assets without the members' authorization. The members may authorize the disposition of all or substantially all of a cooperative's fixed assets if appropriate notice is given and the disposition is approved by a two-thirds vote at the members' meeting.

This bill applies this provision to all assets, not just fixed assets. Also under the bill, a cooperative's board of directors may not, without the members' authorization, dispose of a cooperative's assets 1) other than in the ordinary course of business; or 2) in a manner that jeopardizes the purpose for which the cooperative was created or its financial vitality. The members may authorize the disposition under such circumstances if appropriate notice is given and the disposition is approved by a two-thirds vote at the members' meeting.

Under current law, a cooperative may effect the forfeiture to the cooperative of unclaimed assets if certain conditions are met, including that notice is mailed to the last-known address of each owner and published once in a newspaper. This bill provides that the notice published in the newspaper may consist of either the owner's name and address or an Internet site address where this information is posted, together with a brief description of the reason for the notice.

Under this bill, an electric cooperative's extension of credit to its member or its member's landlord to finance qualifying expenses is not subject to most provisions of the Wisconsin Consumer Act if the electric cooperative enters into a written agreement with the member or the member's landlord covering the extension of credit and if the written agreement satisfies certain requirements, discussed below.

The bill defines “electric cooperative” as a cooperative that carries on the business of generating, transmitting, or distributing electric energy to its members at wholesale or retail. The bill defines “qualifying expenses” as expenses associated with any project relating to energy efficiency, energy conservation, electric safety, or emergency back-up generation (qualifying project). The written agreement between the electric cooperative and the member or the member's landlord may not contain any provision that does any of the following: 1) with exceptions, requires a schedule of payments under which any one payment is not substantially equal to all other payments or under which the intervals between any consecutive payments differ substantially; 2) requires payment of a late charge for an installment payment that is ten or fewer days late or a late charge that is greater than 1 percent of the unpaid amount of the installment; 3) allows a charge of more than $30 for a dishonored check; 4) requires the party who does not prevail in a court proceeding or other dispute to pay the attorney fees of the prevailing party; or 5) authorizes the electric cooperative to confess judgment against the member or member's landlord in any action arising under the agreement. The written agreement must include a provision that grants to the member or member's landlord the right to prepay, without penalty, the unpaid balance of the extension of credit.

The bill also includes provisions relating to the electric cooperative's right to recover costs associated with a qualifying project against the borrower and against other persons. An electric cooperative that extends credit to its member or its member's landlord to finance qualifying expenses may recover the costs, including financing costs and repayment installments, as line item charges on its electric bills issued to the member or member's landlord. The written agreement between the electric cooperative and its member, or its member's landlord with the member's written consent, may provide that costs, including financing costs and installment repayments, must be recovered as a project electric account charge on the account of the member associated with the property where the qualifying project will be completed. The bill defines “project electric account charge” as the charge placed on a member's account by which an electric cooperative may recover costs, including financing costs of qualifying expenses. The written agreement may also provide that project electric account charges will apply to subsequent owners or tenants of the property, except that, if the agreement is with a member who is a tenant, the landlord must also agree and must be given notice, in the agreement, of the landlord's obligation to give notice to future tenants or purchasers (discussed below). If the written agreement between the electric cooperative and its member or member's landlord provides that project electric account charges will apply to subsequent owners or tenants of the property, the electric cooperative may record a notice of electric account charge in the office of the register of deeds for the county in which the property is located. This notice must include certain information, including a statement that the electric account associated with the property is subject to project electric account charges and other information related to these charges. If this notice is recorded and there is a subsequent transfer of ownership or change in tenancy of the property, the electric cooperative may recover the project electric account charge from the transferee or tenant as line item charges on the transferee or tenant's electric bills. If the electric account associated with leased property is subject to a project electric account charge pursuant to a written agreement between the electric cooperative and its member or member's landlord, the property owner must provide notice of the written agreement and a copy of the notice of electric account charge to each subsequent lessee of the property responsible for paying the electric bills issued by the electric cooperative. If a subsequent lessee is responsible for payment of charges and, before entering into a lease for the property, the property owner failed to provide the subsequent lessee with the required notice, the subsequent lessee may deduct from the lessee's rent, for no more than one‐half of the term of the lease, the amount of the charges for which the subsequent lessee is responsible.

Under the bill, an electric cooperative may contract with any third party to perform, on its behalf, a function permitted of the electric cooperative, including the provision of financing, but the third party must comply with all requirements applicable to the electric cooperative.