Co-op recovering from financial distress
Socorro Electric Cooperative is getting its financial house in order after suffering through a turbulent year in 2010.
Audits turning up numerous material weaknesses and questionable accounting practices and policies, an investigation into financial irregularities that led to the firing of two co-op managers, and the revelation that the co-op owed its customers $1.78 million for overcharges were some of the financial woes the co-op went through last year.
And that wasn’t the worst of it. Things hit rock bottom in September when Larry McGraw, field representative with the USDA Rural Utilities Service, warned the co-op’s board of trustees the public nonprofit was in danger of defaulting on loans it had taken out with the federal government.
The long-term loans are used to pay for projects to upgrade and expand the system that delivers electricity to approximately 10,000 customers. If the co-op failed to “make its margins” — or achieve a certain profit level — in 2010, McGraw said the loans would be in default. A worst-case scenario, he said, would be for the feds to come in and take over operation of the electric utility.
But Interim General Manager Richard Lopez reported during the last board of trustees meeting of the year on Dec. 22 that the financial forecast had improved.
“We had a good month,” he said during review of the RUS Form 7 for November 2010. “We’re going to make our margins, (but) not by much.”
Lopez said he was optimistic that the co-op would meet the requirements of the RUS to maintain the loans and there would still be money left to do projects.
“It’s important that we make our margins, and I’m very confident we will,” he said. “I feel much more comfortable today than I did three months ago.”
Reviewing Rate Hikes
When McGraw delivered the bad news four months ago, he explained that the co-op was required to make enough money to maintain operating margins at a level of about 10 percent two out three years. It didn’t in 2009 and if the same thing happened in 2010 the loans would be in default.
McGraw said the co-op had operated at a loss of about $417,000 in 2009 and the negative trend had continued into the next year. He said the co-op needed to find ways to reduce expenses and increase revenues if it were to make its margins in 2010.
The co-op has since taken McGraw up on suggestions he offered to increase revenues.
One was to file paperwork that would refinance the loans at a lower rate. Another was to raise rates to consumers.
The rate increase will take place this year. The co-op has organized a series of informational meetings to inform customers, who are also member-owners of the co-op, about the rate increase. The first of the meetings will be held in District 1 today, Wednesday, Jan. 12, at 5:30 p.m. at the Northern Socorro County Senior Center in Las Nutrias.
The notice announcing the meetings says the rate adjustment are due to rising expenses, and the 6.95 percent increase “will provide an adequate amount of margins to enable your Cooperative to satisfy its lenders in 2011.”
On Thursday, Jan. 13, two informational meetings will be held in District 5. The first will be held at the Fine Arts Center at Magdalena School at 9 a.m. Another meeting is scheduled for 3 p.m. at the Quemado Community Center.
The meeting for Districts 2, 3 and 4 will take place at 5:30 p.m. on Friday, Jan. 21, at Finley Gym in Socorro.
The co-op’s announcement invites member-owners to attend the meetings so the co-op can discuss concerns and answer questions.
The announcement explains that rates are already “substantially lower than they should be even under the proposed rate structure.”
The proposed kilowatt per hour increase goes from 12.04 cents to 12.50, and the general and residential service charge would increase from $9.00 to $15.00 per month.
“While it has become necessary for the health of your rural electric cooperative to increase the system charge in order to increase margins,” the announcement reads, “it also moves toward providing cost based rate structures to allow its consumers to manage their electrical needs with the appropriate price signals.”
Addressing Delinquents
The co-op has also taken steps to increase revenues by placing a greater emphasis on collecting on delinquent accounts.
At last month’s board meeting, Lopez said the co-op has made strides in collecting from customers who are 60 and 90 days past due in paying their bills.
“We’ve been getting after it,” he said, adding that the staff had done a good job collecting from past due accounts. “Since September, we’ve dropped delinquent considerably.”
Lopez also reported progress has been made in cleaning up the so-called “Red Book,” a ledger used to keep track of financial transactions made between the co-op and its employees and officials and former employees and officials.
The policy, which allowed employees to take loans, was discontinued in wake of the firing of the co-op general manager and accounting manager in August.
“Charges on the employees are getting cleared out,” Lopez said, but he added that accounts for some former employees and officials are not. He said about $37,000 of what is owed is for insurance coverage.
Trustee Prescilla Mauldin asked why former General Manager Polo Pineda Jr.’s name was still on the ledger.
“I believe that’s because it’s tied up in litigation,” said Lopez.
Pineda, one of the managers fired in August, has filed a lawsuit against the co-op for more than $77,000 in wages and unused sick time.
The names of two former trustees also came up.
Trustees asked why Harold Baca and Juan Gonzales, who were defeated in District 3 elections in 2009, were still listed on the ledger.
Though the list was not made public, apparently there are several others who are still on the books.
“It looks like there’s a whole bunch of people who aren’t making payments,” commented trustee Charlie Wagner.
Lopez said office workers had contacted everyone on the list.
“We need to start billing them and calling them in one at a time to make arrangements,” he said.
Co-op Attorney Dennis Francish said it might be best if some of the accounts were written off as uncollectable. He noted that the list contained names of people who became “non-employees” seven or eight years ago.
“I think we should write them off,” he said, adding that the statute of limitations on them had already probably expired.
In Other Business
• Lopez reported the load forecast — which he said projected the amount of capacity the co-op is going to have in the future — was looking good.
Lopez explained the forecast used historical data and factors in a cost of service study from Tri-State Generation and Transmission Association, which sells the electrical power to the co-op.
“The forecast reflects what is known and measurable,” he said.
And what is known and measurable is all positive.
“It’s showing us we’re on a smooth level of growth. Nothing shows we’ll go into negative growth,” he said.
• On a related matter, Lopez updated the board on the progress of the construction of the Quemado substation scheduled to go on-line this year.
The board was treated to a video produced by CommScope, a North Carolina company that manufactures an innovative type of wire being used at the substation. Socorro Electric is featured in the promotional video that extols the virtues of GroundSmart, a copper clad wire that has the characteristics of copper but costs less.
• Trustee Charlie Wagner suggested the board should take another look at the policy regarding patronage capital. He said the current policy doesn’t pay patronage capital to the spouse of a member-owner, or former member-owner who dies. Instead it goes to the couple’s heirs.
“I think we need to revisit that,” Wagner said.
No action was taken.
• Trustee Leroy Anaya will serve as Socorro Electric’s delegate at the National Rural Electric Cooperative Association annual meeting March 3-11 in Orlando, Fla. Anaya volunteered after none of the other trustees indicated they were planning to attend. Some indicated they had already reached the $10,000 per year expense limit member-owners imposed on them at the annual meeting last April.
• Lopez also got approval for him and two other co-op employees to attend the NRECA’s annual meeting.
The board voted 6-3 in favor of sending the trio after some debate over limiting or eliminating employee travel.
• Four trustees were presented with awards during the meeting. Mauldin received an NRECA certificate recognizing her as a credentialed co-op director. Trustees Anaya, Leo Cordova and Milton Ulibarri received certificates for five years of service to Socorro Electric.
• After executive session, co-op President Paul Bustamante said the board had discussed the hiring of a new general manager.
Bustamante said last week that the co-op had offered the job to someone, but declined to say who. He said an announcement could be made this week.
• The co-op held a special meeting Tuesday after El Defensor Chieftain press time to elect officers for the new year.
A petition to recall Bustamante as District 2 trustee was also to be addressed at the meeting.
See Saturday’s edition of El Defensor Chieftain for a report.
Contact T.S. Last