Socorro Electric will refinance loans
In the face of financial distress, Socorro Electric Cooperative’s board of trustees voted to enter into an agreement with Cooperative Finance Corp. to refinance long-term loans as a means to save nearly $1 million.
At its regular meeting on Monday, the board heard a presentation by Kathy Buhl-Witter of CFC, who outlined how the co-op could save money by refinancing loans it took from the USDA’s Rural Utilities Service.
Buhl-Witter said CFC has provided the service to 140 cooperatives in the United States, including four in New Mexico, and noted that Socorro Electric had refinanced through CFC in 2003.
Buhl-Witter said her company has the blessing of the RUS to take over the loans.
“You can refinance $8.1 million and reduce the interest rate from 5 percent to 4.25 percent after patronage capital,” she said, adding that patronage capital would be retired each year of the 23-year loan.
Buhl-Witter said there was “no risk” in refinancing. The interest rates would be fixed and locked into maturity. The total savings would amount to $938,986, she said.
“We really want to help Socorro out with this,” she told the trustees.
Buhl-Witter said the board needed to take action quickly to lock in at the rate. The first step in the process is signing a “rate lock letter.” Draft loan documents would then be drawn up, reviewed by the co-op attorney and the final documents would be ready to sign at the board’s next regular meeting on Nov. 22.
The board approved the plan by unanimous vote.
Raising Rates
Socorro Electric has been wrestling with financial issues on several fronts in recent months.
Larry McCraw, field representative for RUS, warned the board in September that the co-op was in danger of defaulting on its loans because profit margins required to maintain the loans weren’t being met. The loans are taken out every five years or so to pay for system improvements.
McCraw said at a special meeting on Sept. 8 that the loans would go into default if the margins aren’t met in two out of three years. Socorro Electric operated at a loss of about $417,000 in 2009, he said then, and the trend was continuing in 2010.
McCraw was on hand for Monday’s meeting and reported the outlook had improved. He said the co-op had been operating above the minimum margins in recent months.
“If it continues like this, you’ll be OK for the rest of the year,” he said, adding that the co-op still needed to focus on reducing expenditures and increasing revenues.
One way the co-op plans to increase revenues is to raise rates. How much they’ll go up hasn’t been determined.
Catt Cobb, a rate analyst who serves as a consultant for the co-op, said at Monday’s meeting that a recent audit investigating financial irregularities delayed the process.
“It’s taking longer than I expected. I was waiting for the auditor’s numbers,” she said.
While the audit was approved at the same meeting, Cobb said it may be necessary for the co-op to make a formal request for federal rate relief.
The rate increase will likely go into effect during the first quarter of 2011.
Payback Plan
While the co-op will be asking its customers to pay more, the rural electric utility owes its customers about $1.6 million it needs to pay back in coming months.
In August it was discovered that the co-op had been overcharging customers for nearly five years. To reconcile the situation, the co-op plans to reimburse customers in the form of capital credits — patronage capital that represents the money customers earn as member-owners of the public, non-profit corporation. Those checks should be distributed early next year, Cobb said.
Richard Lopez, the co-op’s interim general manager, reported that the co-op was working to increase revenues by placing a greater emphasis on collections. He said the co-op collected $35,000 that had been delinquent in the last month and more than $4,000 in debt owed through the weatherization program alone.
While revenues are on the rise, so, apparently, are legal bills. The co-op is currently embroiled in several lawsuits, including two filed this month by former co-op managers (see story, Page 1).
During the expenditure report, trustee Charlie Wagner expressed astonishment that the co-op’s attorney, Dennis Francish, charged $9,726 for a month’s worth of work.
The names of three other attorneys have appeared as counsel for the co-op in recent court filings.
In Other Business
• Lopez reported that the co-op is revisiting its approach to redistricting. Rather than conduct redistricting based on population, Lopez said the co-op was considering dividing districts by the number of meters. He said he hoped to have a report by next month’s meeting.
• David Montoya, who oversees line maintenance and operations management, reported that construction of the substation in Quemado was progressing well. He said 31 miles of double circuit line from Springerville, Ariz., to Quemado was being installed. Four miles of poles have been erected and three miles of line have already been strung.
• Trustee Leroy Anaya, who chairs the bylaw committee, said the committee discussed a draft of a bylaw presented to them by member-owners Thaddeus Bejnar and Doug May. Anaya said the committee wanted the co-op’s attorney to look over the language and be present for the committee’s next meeting on Nov. 18.
The bylaw covers open meetings and inspection of co-op records, something member-owners adopted at the annual meeting in April.
During the public comment period of the meeting, May read a statement urging the board to fully comply with the bylaw.
• The board voted to do away with a policy that allowed employees to borrow from their 401K plans. It’s that policy which was allegedly abused by two co-op managers who have since been fired.
• The question of whether the audit recently completed by BKD LLC was a forensic audit or simply a detailed audit was answered by BKD representative Jeff Roberts … sort of.
Trustee Charlie Wagner posed the question to Roberts after he had presented his report. Roberts responded that BKD employs forensic audit practices and the co-op’s audit had a specific scope, but he added, “You can call it detailed, if you want to.”
• The board set the date of its next meeting for Monday, Nov. 22, at 5:30 p.m.
Contact T.S. Last