KCEC Update and annual meeting

By: Bill Whaley
4 June, 2017

KCEC Rate Increases and Retro-active Billing “Errors”

KCEC (Coop) filed for a rate increase back in Dec. of 2015. Approximately 80 members protested and about seven active Interveners, Arsenio Cordova, A. Eugene Sanchez, Rose Des Georges, Jerome Lucero, Peggy Nelson, Fabi Romero, and Bill Whaley continued to protest and testify at Public Regulation Commission (PRC) hearings during the spring, summer, and fall of 2016. The hearing examiner and PRC granted approval of rate increases for non-residential (commercial and local government) members on about Sept. 7, 2016 and for residential members on about Dec. 7, 2016.

The administrative regulations required that Interveners and KCEC restrict testimony relevant to the “test year” 2014 during hearings. As well the hearing officer, per the statute restricted testimony and evidence relevant to operations of the electricity operations, meaning that the Coop’s diversification program i.e. Call Center, Command Center, Propane, Internet, Broadband, and Soalr Garden operations were off limits.

The Coop and PRC staff as well as hearing examiner and Interveners were tasked with analyzing KCEC’s “consolidated” financial statements, which included not only the costs of diversification but also interest on loans from USDA/RUS (Rural Utility Services) and controversial interpretations of what costs were assigned to electricity operations and what costs were assigned to diversification. Despite PRC mandates to separate electricity and diversification for purposes of financial analysis, the Coop has yet to issue separate profit and loss statements or balance sheets for diversification.

After the initial billing cycle for the approved residential increase in Dec. of 2016, Interveners Des Georges, Lucero, and Whaley filed responses, including Whaley’s “formal complaint” below, claiming KCEC had “retroactively billed” non-residential members for Aug. and Sept. of 2016 and residential members for November and December usage that pre-dated the PRC orders allowing the requested increase.

In response KCEC admitted an “inadvertent error” and met with staff to analyze the extent of the billing errors. The number of members affected by billing errors has grown from the Coop’s initial admission of “6500” to about “16,000” but the entire analysis and summary of errors has yet to be determined, due to claims by KCEC that software difficulties and some meter readings are unavailable or must be estimated. Interveners estimate that the Coop over-billed members, including local government, hundreds of thousands of dollars.

Below, Taos Friction quotes from staff’s June 2, 2017 response to KCEC’s incomplete response, including the timing of notices of rebates due members. Friction also posts the entirety of the staff’s response to the PRC bench request and order.

“Based on the foregoing, Staff states that there are still remaining customers to whom refunds need to be made in both the residential and commercial classes. It should be noted that Kit Carson has indicated its intent to prioritize processing refunds to its residential customers before its commercial customers due to the number of affected customers in those rate classes. Staff is concerned that these errors appear to have occurred due to KCEC’s lack of internal controls and follow-up necessary to comply with Commission orders. Kit Carson did not catch these errors internally, and were only aware they had issued erroneous bills, inconsistent with the Commission’s orders, when they received complaints from the affected customers. This raises a concern with Staff as to whether an independent audit of the refunds should be conducted when the refund process has been completed.”

KCEC Annual Meeting

The Coop has called an annual meeting for members at 9:30 am on Saturday, June 10, at the Taos High School Gymnasium. Registration begins at 8 am. The Coop notice says the meeting will hear reports from officers, trustees, committees and take questions from members.

Here are a list of specific questions that summarize some of the issues raised by the Interveners.

1. Where are the separate financial statements for the diversification programs: a) Call Center, b) Command Center, c) Internet, d) Propane, e) Broadband, and f) Solar Gardens?

2. What real property interest and/or asset was served by the $37 million contractual commitment to Guzman Renewable Energy Partners per the Tri-State buyout?

3. How much does the Coop pay for the so-called purchase and maintenance of Tri-State transmission lines?

4. How much electric-side revenue has and is currently being spent to subsidize the continuing (ARRA) $62 million incomplete Broadband project?

5. What is the total debt owed at this time by the Coop to lenders?

6. Why does the Coop claim that the “$37 million” contractual obligation to Guzman, which ties the Coop’s hands until paid, is not a debt?

7. When will the Coop pay its approximately $37 million in Capital Credits to members?

8. The Coop claims that the members gave approval for diversification at the annual 2000 membership meeting. Yet the only projects considered then were Propane and Internet, and maybe the Call Center. In response to interrogatories, the CEO claims that the 2000 membership meeting is responsible for all diversification, including the Command Center, Broadband, Solar Technology, which serve a few members but are paid for by the entire 28,000 metered members.

9. In answers to Intervener interrogatories the CEO admitted that the Coop had “no business plan” for diversification. Why not?

10. According to Trustees the Coop spent about $500,000 for legal expenses in the 2015-2016 rate case to fight the Interveners and continues to spend an estimated $100,000 to answer Intervener’s formal complaints filed in 2017. Coop management has refused to mediate and mitigate the disagreements thereby saving the cost of legal expenses. The Interveners acted “pro se” or acted as lay persons and hired no legal representation. In effect the Coop today in press releases and responses to the PRC blames the membership and Intervners for their own “inadvertent errors.”

11. Finally, why do the Trustees and management refuse to provide transparent reports of KCEC operations to those 28,000 members who own the Coop?

12. Friction urges members to dedicate this meeting to retiring Trustee Virgil Martinez, who voted against rate increases and raises for the CEO while always considering the effect of Coop actions on its members. Viva Virgil!

Here’s the latest PRC staff response. Typos represent incomplete scanning of PDF to Word Doc. A clean copy can be sent upon request to the editor, bwhaley@newmex.com.

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THE FORMAL COMPLAINT OF BILL E. WHALEY AGAINST KIT CARSON ELECTRIC COOPERATIVE, Case No. 17-00017-UT

STAFF RESPONSE TO SECOND AND THIRD BENCH REQUESTS

Utility Division Staff (“Staff”), by and through its undersigned counsel, hereby respond to the Second and Third Bench Request Orders, issued by the Commission on May 22, 2017 and May 26, 2017 in the above-captioned matter.
Pursuant to the Second Bench Request Order, Staff was required to file a response by noon on May 30, 201? 1 to Kit Carson Electric Cooperative, Inc.’s (“KCEC” or “Kit Carson”)

Status report, filed on May 26, 2017, stating whether KCEC has accomplished all of the necessary refunds to all ratepayers in all classes affected by the September 7th Order Terminating Suspension in Case No. 15-00375-UT (the “September 7’h order”), and whether Kit Carson has accomplished all of the necessary refunds to all ratepayers in all classes affected the

Final Order Adopting Recommended Decision in Case No. 15-00375-UT (the “Final Order”), including a statement as to whether there still remaining customers to whom refunds need to be made.

Pursuant to the Third Bench Request Order and Extension of Time, Staff is directed to provide a response to Mr. Jerome Lucero’s issue regarding whether or not KCEC was required to obtain Commission approval to exist its wholesale power agreement with Tri-State Electric Cooperative (“Tri-State”).

1 The time for Staff to file this response was subsequently extended to 2 pm on June 2, 2017 in the Commission’s Third Bench Request order and Extension of Time, issued on May 26, 2017.

BACKGROUND

The September 7’h Order lifted the suspension of Kit Carson’s proposed rates for Rate Nos. 3, 4, 16, 19, 22, and 29, KCEC’s non-residential rate schedules, and allowed KCEC to Charge its revised non-residential rates starting with the next billings issued by KCEC after the date of the September 7’h Order. September 7’h Order, p. 8, Decrial Paragraph B. Kit Carson has stated that it inadve1tently charged certain non-residential customers the higher monthly Customer service charge for those August-September billing periods that ended prior to September 7, 2016.

The Final Order, issued by the Commission on December 7, 2016, adopted the rates Recommended by the Hearing Examiner for KCEC’s residential customers in her Recommended Decision, and directed Kit Carson to file a revised Advice Notice 60 with revised rates consistent with the Final Order within three days. Final Order, p. 16, Decretal Paragraph D.

The Final Order further directed Staff to review the revised Advice Notice 60 within three days, and stated that unless otherwise notified by Staff, the rates therein would take effect seven days after the date of the Final Order. Id. at 16-17. Kit Carson has stated that an error occurred in the billing parameters for the fixed monthly service charge and the volumetric rates for some residential customers during the November-December 2016 billing period, resulting in some residential customers being billed the new, higher rates for service received prior to the effective date of the new rates.

STAFF’S RESPONSE TO SECOND BENCH REQUEST ORDER

Staff has reviewed KCEC’s Response to the Second Bench Request Order, and has met with KCEC to discuss the information therein. Staff finds as follows:

KCEC has not yet accomplished all of the necessary refunds to all ratepayers in all classes affected by the September 7th Order. According to Kit Carson’s Response to Second Bench Request Order, 2,287 Rate No. 3 (Small Commercial) customers have been identified as affected by the billing error and will be refunded. KCEC has indicated that these customers will receive their refund during the second and third billing cycles in June. KCEC has further indicated that it is working with its billing contractor, South Eastern Data Cooperative (“SEDC”), to identify refunds for its Rate No. 4 (Large Commercial) customers. Calculating refunds to this class of customers is complicated by the demand charge component of their bills.

Kit Carson has not yet accomplished all of the necessary refunds to all ratepayers in all classes affected the Final Order. KCEC has provided the following information regarding the status of these refunds:

According to KCEC’s Response to Second Bench Request Order, there are certain
Residential Rate No. 1 customers for whom the cooperative could not get a meter read as of December 14, 2016 due to meter technology limitations. Kit Carson has determined that it will provide these customers a refund based upon the average refund made to Rate No. 1 customers in KCEC’s first billing cycle, per the recommendation on page 3 of the Staff Response to Bench Request, filed March 15, 2017. These refunds will be made in KCEC’s first June billing cycle, commencing June

5. Kit Carson has indicated that it has completed refunds to all affected Rate No. 2 residential seasonal customers in its second and third billing cycles, and will complete refunds to its remaining customers in its first billing cycle next week. Refunds for customers in KCEC’s first billing cycle were more complicated because that cycle includes both pre- and post- December 14, 2016 usage, requiring the Kit Carson to determine the meter reading on December 14 and calculate the appropriate billing for both.

KCEC has indicated that it will be providing refunds to its Rate No. 17 (Residential Time of Use) customers in its third billing cycle in June. All 353 affected customers are in Kit Carson’s third billing cycle. KCEC has indicated that determining the appropriate refund to this class of customers is complicated by the time of use nature of Rate No. 17, as it must determine the correct on-peak and off-peak usage of each customer before and after December 14 in order to determine the appropriate refund.

KCEC has indicated that it will be providing refunds to its Rate No. 18 (Residential Seasonal Time of Use) customers in its third billing cycle in June. The issues regarding the determination of the refund for Rate No. 18 customers are similar to those for Kit Carson’s Rate No. 17 customers.

Based on the foregoing, Staff states that there are still remaining customers to whom refunds need to be made in both the residential and commercial classes. It should be noted that Kit Carson has indicated its intent to prioritize processing refunds to its residential customers before its commercial customers due to the number of affected customers in those rate classes.

Staff is concerned that these errors appear to have occurred due to KCEC’s lack of internal controls and follow-up necessary to comply with Commission orders. Kit Carson did not catch these errors internally, and were only aware they had issued erroneous bills, inconsistent with the Commission’s orders, when they received complaints from the affected customers. This raises a concern with Staff as to whether an independent audit of the refunds should be conducted when the refund process has been completed.

Finally, Staff is concerned with the minimal level of progress KCEC appears to have made since the Commission’s initial Notice of Complaint and Order Requiring Answer, issued on February 7, 2017, and the initial Bench Request Order, issued on March 10, 2017.

STAFF’S RESPONSE TO THIRD BENCH REQUEST ORDER

Staff does not believe that Commission approval was required for Kit Carson to terminate its wholesale power agreement with Tri-State. As noted by KCEC in its Response to Third Bench Request Order, Kit Carson’s previous power purchase agreement (“PPA”) with Tri-State, as well as the cun-ent PPA it has with its existing wholesale supplier, are governed by the Federal Power Act. See 16 U.S.C. §§ 824, 824d(a) and 824e(a). The United States has long held that the Commerce Clause of the United States Constitution bars States from regulating certain interstate electricity transactions, including wholesale sales (i.e., sales for resale) across state lines. Public Util. Comm’n of R.1 v. Attleboro Steam & Elec. Co., 273 U.S. 83, 89-90, 47 S.Ct. 294, 71 L.Ed. 549 (1927). See FERC v. Electric Power Supply Ass’n, _ U.S. _, 136 S.Ct. 760, 193 L.Ed.2d 661 (2016). As such, those agreements are subject to regulation by the Federal Energy Regulatory Commission, and not by the New Mexico PRC.

This regulatory scheme is acknowledged in New Mexico law as well. NMSA 1978, §62- 15-32, states that [n]othing in the Public Utility Act shall be deemed to authorize interference with, abrogation or change of the rights or obligations of a party under a wholesale power supply agreement, mortgage or financing agreement to which a distribution cooperative utility is a party.” The Commission itself has recognized that its authority does not extend to oversight of PPA involving rural electric cooperatives. In enacting rules for prior approval of PPAs, the Commission specifically exempted cooperatives from its provisions: “[t]his rule applies to the investor owned electric utility operating within New Mexico subject to the jurisdiction of the New Mexico public regulation commission and to purchased power agreements entered into after the the (sic) effective date of this rule.” 17.9.551.2 NMAC (emphasis added). Moreover, for purposes of that rule the Commission expressly excluded cooperatives from the definition of an electric utility: ‘”Electric utility’ means an entity certified by the commission to provide retail electric service in New Mexico pursuant to the Public Utility Act Sections 62-13-1, et seq.

NMSA 1978, but does not include rural electric cooperatives.”

(emphasis added).

Respectfully Submitted,

17.9.551.7(C) NMAC

wro,uc,SION Bradfi ·d A. Borman, Staff Counsel, Legal Division
P.O. ox 1269
Sa a Fe, NM 87504-1269 (505) 827-4048
bradford.borman@state.nm.us

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF THE FORMAL COMPLAINT ) OF BILL E. WHALEY AGAINST KIT CARSON ) ELECTRIC COOPERATIVE, INC

CERTIFICATE OF SERVICE

Case No.17-00017-UT

I HEREBY CERTIFY that a true and c01Tect copy of the foregoing Staff Response to Second and Third Bench Request was served via email on June 2, 2017, to the parties listed

below:

Bill E. Whaley Charles V. Garcia
Laura E. Sanchez-Rivet John Reynolds Bradford Borman
Jack Sidler Milo Chavez
Vincent De Cesare Judith Arner Jerome Lucero

bwhaley@newmex.com; cgarcia:a),cuddymccarthy.com; lsanchez-rivet@cuddymccmthy.com; John.reynolds@state.nm.us; Bradford.Bonnan@state.mn.us; Jack.Sidler

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