Co-op makes its case on rate hike
Socorro Electric Cooperative this Friday in Socorro will host what will likely be the largest of a series of informational meetings concerning pending rate increases. The meetings are to inform member-owners of the public, nonprofit corporation about a proposed 6.95 percent rate increase the co-op plans to submit to the Public Regulation Commission on Feb. 3.
The Socorro meeting — intended for members of Districts 2, 3 and 4, but any co-op member is welcome — will be held at Finley Gym and is scheduled to start at 5:30 p.m.
The co-op has already held four such meetings and two more may be scheduled for District 5 due to low turnout at daytime sessions held last Thursday in Magdalena and Quemado.
Just three members in District 5 showed up for a 9 a.m. meeting in Magdalena and about a half a dozen attended a 3 p.m. session in Quemado. Co-op officials said more people might attend if the meetings were held after 5 p.m.
By contrast, 37 members turned out for the District 1 meeting at the senior center in Las Nutrias the night before.
Another meeting was held Jan. 11 for large commercial customers. Officials from New Mexico Tech, the VLA, Socorro and Magdalena Schools, among others, attended that session.
Richard Lopez, the co-op’s interim general manager, and Catt Cobb, a rate analyst with SGS Engineering who has worked as a consultant to the co-op since the 1970s, are representing the co-op at the informational meetings.
Lopez said the purpose of the meetings are to explain the rate increases and answer questions from the co-op’s member-owners, who are also its customers.
“We decided four months ago to have community meetings,” Lopez said during the meeting at the Magdalena School’s Fine Arts Center. “We thought it was necessary to get the information to the members on what we’re doing and why we’re doing it.”
The Cost of Business
What they’re proposing to do is somewhat technical. But why they’re doing it is straight forward.
“We need to raise the rate to allow the co-op to pay the bills,” Cobb said.
Some of the bills are payments on federal loans. Cobb said Socorro Electric was in danger of defaulting on the loans if certain profit margins weren’t met. The co-op failed to meet the required margins in 2009 and was trending to do so again in 2010.
In addition, Cobb said the co-op needed to surpass those margins just to keep up with operational costs.
“You need to have working dollars in the general fund,” she said, adding that the co-op has to have money on hand to pay employee salaries, purchase equipment, perform maintenance and upgrade and expand the system.
At the Magdalena meeting, Lopez talked about some of the expansion that was taking place in District 5. He said the Quemado substation currently under construction cost $1.2 million. Thirty miles of double circuit line from Springerville, Ariz., to Quemado costs about $88,000 per mile, he said.
The Quemado substation is needed to relieve the burden on the Magdalena substation, which Lopez said was in need of upgrading.
Lopez said the co-op has used “innovative thinking” to come up with ways to save costs at the Quemado substation. Though building the facility currently shows up as an expense, he said, the improvement in service will eventually cover the cost of its construction.
“What we save from line loss will pay for the substation,” he said.
The 7 Percent Solution
Before getting into the specifics of the rate increase, Cobb and Lopez cushioned the blow.
Cobb noted that Socorro Electric hasn’t raised its rates since 1996. She made comparisons about how much some other commodities have increased since then.
The cost of sugar has gone up 30 percent, she said, while the price of chicken has gone up 37 percent. A can of beans cost 68 percent more and we’re paying 152 percent more for gas.
“So we are asking, in this case, for 7 percent over 14 years,” she said.
While the overall increase is about 7 percent, residential and small business customers will experience closer to a 12 percent increase.
Large commercial accounts get a bigger break for the same reason Walmart can offer lower prices — they buy in bulk.
Rates for large commercial accounts will increase by about 2 percent. Irrigation accounts, which Cobb said made up a very small percentage of users, will see a 7.38 percent increase.
Based on the current rate structure, Cobb said it was determined that residential customers weren’t “paying their way,” and that’s why the bulk of the increases were being absorbed by residential and small businesses customers.
Part of that rate increase is tied up in the cost per kilowatt hour. The proposal increases the charge per kWh from 12.04 to 12.50 cents.
But most of the increase comes from the customer system charge, which is currently $9.00 per month.
Cobb said a $9.00 monthly charge is extremely low — that most of the co-ops she works with charge in the range of $20 per month. Raising it by $6.00 per month would bring it closer to what people next door in Sierra County and in Mountainair are playing, she said. It would also generate enough income for the co-op to meet its margins and pay its bills.
“The $6 should get us there,” she said.
Lopez added that Socorro Electric’s system charge is the lowest of all the 44 co-ops that purchase their power from Tri-State Generation and Transmission Association.
The average customer — one that uses 500 kWh per month — would see an $8.31 increase in their bill, he said.
Lopez and Cobb said customers should be encouraged to use electricity during off-peak hours, because it would improve the load factor and result in a lower rate.
District 5 trustee Jack Bruton interjected that some ranchers and farmers were taking advantage of the cost savings during off-peak hours by installing timers on their wells.
Questions and Answers
Lopez said one of the questions most frequently asked of him, and one brought up at the meeting in Las Nutrias, is: what is the co-op doing to control its expenses?
In response, he said the co-op has taken steps to streamline the operation, cut back on maintenance and placed an emphasis on collecting on delinquent accounts. He said the co-op had set a target of $400,000 as an amount it needed to trim from its budget.
Lopez said the co-op is already about as streamlined as it can be, with 37 employees to cover the 11,500 square mile service area.
Lopez said four months ago, when he took over as interim general manager, the co-op was in trouble. It needed to make its margins to avoid defaulting on its loans but was still operating in the red headed into the last quarter of 2010.
Though the final numbers for December aren’t in yet, the downward trend had been reversed in recent months and he was optimistic the required margins would be met.
“As of last month, it looks good,” he said. “I’m knocking on wood.”
At the Magdalena meeting, one of the few members who turned out complained that his bill didn’t always seem right. Bill Fuller said he’s noticed that he’d be charged more during months when there was no one around to use electricity.
“I’m convinced some months are being estimated and some are not,” he said. “It’s impossible to track usage and that leads to significant distrust of the co-op and its billing practices.”
Lopez referred him to some of the co-op employees who were present. They could tell him when his bill was being estimated, and if there was a problem with his meter it could be switched out for a new one.
Marie Watkins, who resides in District 2, questioned Cobb’s statement that rates haven’t gone up in 15 years. Watkins got Cobb to acknowledge that the system charge increased from $6.00 to $9.00 in 2006, but Cobb explained that it was not a part of a redesign of the rate.
“It was still an increase in the bill,” Watkins said.
Spending Money
Though rates haven’t been adjusted in nearly 15 years, the timing of this rate increase hasn’t set well with some member-owners. It was just six months ago that the co-op filed a lawsuit against all of its approximately 10,000 member-owners in an effort to block three new bylaws that call for the board to increase transparency of governance.
The revelation that the co-op’s board of trustees incurred nearly $500,000 in expenses in 2009 has also been scrutinized by members. So much so that another bylaw was passed to put a cap of trustees’ expenses, thus reducing the board’s expenses by roughly $300,000 per year.
Things got testy during the Magdalena meeting when District 5 trustee Charlie Wagner, a leader in the movement to reform the co-op, spoke out against his fellow members of the board. He said several years worth of mismanagement has contributed to the co-op’s problems.
“The board needs to be financially literate, and that hasn’t been the case. We have missed that,” he said. “We are making up for the board making some very poor decisions in the past.”
Dave Wade, the District 4 trustee who also serves as co-op vice president, took offense to Wagner’s remarks.
“If you want to get down to facts,” Wade said, “Mr. Wagner has insisted on having these meetings and I want you to look around at how many people are at this meeting.
“Where is everybody at? That just goes to show how we’re spending money.”
Wade continued by saying Wagner has racked up more expenses in one year than he had in four years.
“I want it to get out to some of these people, we’ve only got in this shape since (Wagner) was put on the board,” Wade said, adding the co-op will get through these financially troublesome times. “We’ve got a problem, and we’ll get it worked out.”
Some people attending the meeting in Las Nutrias described the atmosphere there as somewhat tense. While the meeting was going on a petition to recall District 1 trustee Leo Cordova was circulating in the room. Reform group members in charge of the petition were asked to refrain from soliciting signatures on the premises.
They eventually went outside and tried to collect signatures as people were leaving.
Contact T.S. Last