An open letter to our member-owners —
As the board of directors at Crow Wing Power, we have seen renewed interest in the cooperative’s 2006 sale of Hunt Technologies Inc. that produced millions of dollars for Crow Wing Power and its membership.
For years, Crow Wing Power has pursued for-profit investments to help expand revenue sources and improve service. We believe a diverse portfolio of business ventures, such as Crow Wing Power Credit Union, People’s Security Company and Access Plus, helps minimize risk and control costs for our members. The Hunt Technologies relationship was a similar initiative.
In an effort to answer questions about this successful investment, we are using newspapers in our service area to address our members and the greater community about Crow Wing Power’s management and sale of Hunt Technologies.
Hunt Technologies was an electric meter producer in Pequot Lakes that employed 175 residents and provided equipment for 450 utilities and cooperatives across the country. At the beginning of 2000, Hunt was in deep financial stress after the scare of Y2K, when people feared that computers would stop working on December 31, 1999. Orders for the electronic meters at Hunt came to a halt. The Hunt plant and their large employee base could not withstand the abrupt loss in sales. The company faced bank repossession.
Crow Wing Power leadership recognized that Hunt Technologies could still be a viable company, so the cooperative acquired majority ownership in 2000 and took over management of its operations. The reasoning was simple — the Crow Wing Power Board wanted to save local jobs, protect a supplier that was critical to our operations as we had 23,000 Hunt meters deployed in our system and support other cooperatives and utilities that depended on the Hunt meters.
The Crow Wing Power Board and its executive team, led by CEO Bruce Kraemer, worked together to reboot the struggling company. Kraemer was asked to serve as Hunt’s CEO and President. He was not receiving additional compensation for his work in that role.
Over the next five years, Hunt Technologies re-emerged as a robust and profitable enterprise, and the Crow Wing Power Board saw an opportunity to sell it for a lucrative return for the cooperative.
In 2005, as the board began planning the sale of Hunt Technologies and before the sale price was established, it approved a bonus structure for Kraemer that would be based on a percentage of the gross sale of the company. This was done to recognize his
critical role in the company’s successful turnaround and to reward him for five years of uncompensated work.
In March 2006, Australia-based Bayard Group paid $129 million for Hunt Technologies, producing a net profit of $42 million for Crow Wing Power. It was a remarkable outcome for a near-bankrupt company and produced a tremendous return for our members. Management insisted the facilities at Pequot Lakes and the employees continue on as part of the sale. Here’s how the board reinvested the profits:
l Distributed $12 million in capital credit checks to members (an average of $350 each).
l Completed critical right of way clearing for $3.2 million over a duration of time.
l Built a centralized outpost in Swanburg for $2 million to house equipment and supplies, and to serve our linemen and clearing crews.
l Further, we allocated $24.8 million from the Hunt profits to acquire and develop the North America’s richest-known manganese/iron deposit near Emily. This investment took a big step forward just this week when we signed a Memorandum of Understanding with North Star Manganese Inc (NSM) to further develop the Project. The global market for manganese is expected to grow substantially as it is a critical component in the production of batteries for the electric storage and vehicle industries, medical devices and steel.
It also allowed us to have a cash position to invest $7 million in the USDA’s “Cushion of Credit” program, which provides escrow-like accounts for electric cooperatives to deposit money and earn a steady interest return. Crow Wing Power’s account is currently worth $10.5 million.
We believe NSM will bring the kind of experience needed to develop the mine and bring this project into commercial production to produce long-term financial benefits for our members over the next decade and beyond.
Upon completion of the Hunt sale, board members approved $70,000 for six years of uncompensated board service based on the amount of the sale (seven accepted; two declined). Kraemer, who initiated the Hunt acquisition and directly managed its operations and innovations for six years, received pursuant to contract $1.9 million based on a percentage of the sale price. The percentage was initially based on an external appraisal of the value of $45 million of the company in 2005. No one knew the company would sell so lucratively for $129 million.
These payouts fell under the terms of a non-disclosure agreement with the Bayard Group, which is common among for-profit business transactions. We understand that members may be surprised, or even frustrated, by the bonuses or the lack of details when the sale was completed 13 years ago – your criticism is fair. In hindsight, the Crow Wing Power Board should have insisted that all of the terms of the financial agreement would be open for disclosure to our member owners, although at the time we did not want to jeopardize the sale. For that, we are very sorry.
Most importantly, we want to restate our deep commitment to Crow Wing Power and its 38,000 members. We believe that every decision we make must be in the best interest of the cooperative and the members we serve. The evidence is clear that the Hunt Technologies sale was a great success for our members, and we expect the Emily Project can be even more successful.
We also recognize that as Crow Wing Power’s holdings grow, our communication and transparency with members must improve. In the coming months, we will be working to develop clearer guidelines for managing for-profit ventures and to establish best practices for communicating with members about all of Crow Wing Power’s investments and activities.
We are grateful for your trust and support, and we won’t let you down.
President, Crow Wing Power Board of Directors