Coop News: Taos KCEC in “Technical Default,” Mora-San Miguel Prepares Plan

By: Bill Whaley
2 July, 2012

KCEC in Default

During the controversial request for a rate increase at the PRC hearings last year, the regulators ordered Kit Carson Electric Cooperative (KCEC) to either spin-off its Broadband or non-utility businesses or, in the alternative, to explain to the state regulatory body why it had not.

In a late June filing (2012) at the PRC, KCEC attorneys and CEO Luis Reyes basically summarize why the Coop continues to carry loans and liabilities for Broadband as part of its electric business, saying that Rural Utility Services (RUS), which division of the United States Department of Agriculture services rural coops with low interest loans “will not consider any request by Kit Carson to move the Broadband Project out of the cooperatives at this time due to KCEC being in technical default (my bold) on its minimum financial benchmarks.”

The filing states, “KCEC must obtain written approval from RUS to transfer Kit Carson’s Fiber-to-the-Home broadband project (Broadband project”) to another entity. “ Further, “Kit Carson has completed its review of its 2011 financial results. These financial results demonstrate that Kit Carson, even with the implementation of the approved rate increase in October 2011, has not met its RUS financial benchmarks…. Given the minimum financial benchmarks established by RUS, Kit Carson remains in technical default on its financial ratios required to be maintained under its USDOA and other federal debt obligations.”

In the filing the attorneys and the CEO say they expect to complete the Broadband Project before the 2015 deadline and, meanwhile, see an improvement in the COOP finances. Yet the Coop has failed to compete in non-utility businesses, including Propane, Internet, Public Infrastructure (Command Center), and lost millions of dollars as a result, according to PRC filings during the last decade.

Insider contracts, excessive travel, tree trimming for special members, and unfairly proportioned voter districts continue to hold back progress at the Coop, according to news reports.

The USDA notified Coop President Bobby Ortega of the technical default in its analysis of the Dec. 31, 2011, Financial and Operating Report, submitted on April 27, 2012. At the annual KCEC meeting in June, we understand that trustees engaged in much backslapping and self-congratulations—despite the “technical default.”

See  http://peteradang.blogspot.com for more KCEC news.

Response by Intervener

KIT CARSON ELECTRIC COOPERATIVE, INC.

Applicant

JEROME LUCERO RESPONSE TO KIT CARSON ELECTRIC-S COMPLIANCE REPORT REGARDING THE SEPARATION OF ITS BROADBAND BUSINESS FROM ITS ELECTRIC BUSINESS

In its final order the PRC Commissioners ordered the management of Kit Carson Electric to spin off the broadband business from its electric business in order to isolate the electric members from possible/probable losses that are anticipated from their broadband mission. Since they have failed to comply for whatever reason it seems to me as an interested intervener that an investigation be scheduled and completed as to the reasoning behind its lack of compliance with the issued final order.

Simply stating that the RUS will not entertain any discussion to remove the broadband business from the Electric backbone of the company is not acceptable and the PRC in its role as arbiter should follow through with the determination to protect the Kit Carson membership from a management team that is out of control.. Creating a subsidiary does not separate the business from the Electric members that is just an attempt to keep the assets of the Electric company as collateral for the 19 million dollar broadband loan.

In its current report to the commission there were no letters/correspondence initiated by the Coop even requesting any ruling by the RUS (Rural Utility Services) on this matter so it is apparent to me that no effort was made to pursue this order by the Coop. The Coop did file a motion for clarification and if the PRC did not respond that indicates to me that they felt that their order was clear enough.

I attended the June Board meeting and at that meeting it has become clear that Kit Carson is once again headed downward in its cumulative TIER margins and it is also pretty clear that absent any changes in the day to day operations of the Coop they will have to ask for another rate increase shortly, despite the most recent 13 % increase.

The Electric Coop was also given a requirement to submit a cost reduction plan but were given a year to complete this work. It is clear to me as a former manager at Public Service Company of Colorado and a former Coop Manager in Mora that The management of Kit Carson Electric has little if any regard for the frugal operation of the Coop. I will again identify Trustee trips to conventions in Las Vegas, Nevada at a cost of about $30,000 as well as having two meetings a month when only one meeting is required as examples of the lack of sensitivity to managing the members money.

Respectfully submitted this 2nd day of July, 2012

Protester-intervener

Jerome F. Lucero

4176 NDCBU

Taos, New Mexico 87571

Mora-San Miguel Cooperative

At a recent June board meeting the five trustees for the Mora-San Miguel Cooperative considered a four-year plan for the coop in anticipation of a request for rate increases. Apparently, the 10,000-member coop suffers from an antiquated infrastructure. The lack of growth—an estimated 150 new customers in the next four years—means trustees must try and offset the cost of capital improvements by reducing line loss and creating new efficiencies. (Line loss is the difference between power purchased and power received, a differential affected by old equipment and old or  long electric lines.)

Expectations are high in Mora-San Miguel that Alex Romero, the new manager, who worked some 30 years for the state of Arizona and the federal government in the utility trade, will help improve the Coop’s operations. Romero most recently worked under the aegis of KCEC CEO Luis Reyes. At Mora managers usually last about two years. According to comments by the Mora Trustees, headhunters won’t even respond to requests from their coop.

At the board meeting, members spoke up freely about what they considered excessive travel and dining expenses of the current manager. The figures mentioned, like those objected to by Jemez Coop members in Rio Grande Sun news reports, are singularly quaint in comparison to the expenses incurred by KCEC’s “traveling trustees.” Mora would be bankrupt if they spent $30,000 for a trip to Las Vegas or $100,000 on an annual meeting, as KCEC Trustees have done in the past.

At their annual meeting, a quorum of Mora—San Miguel members voted down several proposed by-law changes that aimed at undermining Mora member influence in favor of Pecos and other outside villages. In the KCEC service area with 28,000 members, Taos area trustees represent an average of 3000 members, while Penasco-area trustees represent 800. A few years ago, Mora—San Miguel redistricted to allow fair representation.

The Mora-San Miguel Coop also adopted the New Mexico Open Meetings Act unlike KCEC, which consistently resists making Coop business public.

At the annual meeting, the Mora-San Miguel members ignored a request to consider helping out the Mora County Courthouse, a $14 million albatross that remains uninhabited and unfinished. In Taos, on the contrary, the town is considering bailing out the KCEC Command Center, an ill-considered folly foisted off on the community and trustees by CEO Luis Reyes.

Mora-San Miguel appears to be a typical northern New Mexico Coop, fraught with problems not dissimilar to KCEC in terms of internecine politics and controversies about travel and hiring. But the trustees refuse to risk the future of the electric coop by investing in non-utility businesses. The Mora-San Miguel trustees are no rubber stamp for their CEO. (Beware Alex, beware.)

Tri-State, KCEC’s and Mora’s G&T provider, is expected to ask the PRC for a rate increase sometime in the fall. Meanwhile, the Tri-State family of cooperatives in Colorado, Wyoming, and New Mexico (Nebraska?) are watching KCEC’s struggles closely due to what Coop insiders call an ill-advised expansion into areas outside the purview of rural cooperatives.

The visit to Mora reminded me of the rural cooperative mission and what the culture was like in the fifties, sixties, and seventies. KCEC could learn something about modesty and frugality from the Mora-San Miguel trustees.

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