Capital credits subject of latest co-op franchise hearing
The Socorro City Council, on Dec. 16, listened to nearly two hours of public comments that will help them develop a franchise agreement with Socorro Electric Cooperative that would allow the utility legal access to alleys and streets.
In this latest round of discussions, private citizens and elected officials expressed their concerns about co-op business practices that they say deprive members of money.
The complaints stem from what the speakers said is SEC’s refusal to let former members cash out capital credits when they leave the co-op. Capital credits are a form of revenue earned by members that are put back into the cooperative for operating costs.
Socorro resident Audrie Clifford told the council she closed her husband’s, Michael Clifford, account after he died because she moved into an apartment that included utilities.
But when she went to cash out the $400 in capital credit attached to her husband’s account, she said co-op officials informed her that only her husband’s heirs and not a surviving spouse could collect the money.
“The money is paid to the heirs of the original member and if that member should have no children one could only assume that the co-op keeps the money,” Clifford said. “I and many of my friends have been in contact with members of other co-ops and without exception capital credits are paid shortly after the account is closed.”
SEC General Manager Joseph Herrera said the co-op retires or cashes out credits in one of two ways: estate retirement or general retirement. An estate retirement allows the offspring of an co-op account holder to cash in the credits after an account holder dies.
The other way a person can cash out co-op capital credit is to wait for general credit retirement. He said the co-op just recently did a general retirement for the years 1978 to 1983.
Besides, he said, since the co-op’s bylaws views husband and wife as joint members honoring such request would open the co-op up to an increased number of credit claims.
“So every time someone’s husband passes away, they are going to say, ‘I want to collect on that patronage (credit),’” Hererra said. “It gets back to the point, the principle — yes she can maybe use the $400 but the precedent is the co-op board has been known, historically, not to make special retirements and that would be a special retirement.”
Clifford said she has tried multiple times to get someone from the co-op to address her concerns, but she was ignored.
“I have instructed all of my kids that when I die, the first thing you do before you even get me cremated is you go get that money from the co-op,” she said resolutely. “It’s just so wrong the way they do it.”
Clifford wasn’t the only one to get the city officials to take note of the co-ops business practices.
Magdalena resident and former co-op member Collette Foard has a similar complaint involving nearly 65 times the $400 Clifford is trying to get from the co-op.
She said SEC owes Trails End Market Inc., the corporation she once owned and presided over nearly 20 years, more than $26,000 in capital credits.
She said she had no idea that the market’s co-op account had amassed such credit until a former business owner briefly explained how SEC works.
“I went down to the co-op and asked for a printout of my capital credits and as you can imagine, I nearly fainted,” Foard said, “when I learned it was over $26,000. I was like holy moly!”
However, she said co-op personnel have repeatedly refused to cash out the credits so she can legally dissolve the corporation, pay of its debt and divide the funds up between her company’s shareholders.
Herrera said SEC by-laws gives the cooperative’s Board of Trustees discretion when it comes cashing out capital credits “upon the death or cessation of legal existence of any patron if the legal representative of his/her estate request that the capital credit to any such patron be retired.”
“It was the view of the board that it would not be prudent to exercise Trail Ends Market capital credits because corporate entities do not die and retirement to a now defunct corporation upon dissolution in an early retirement would be discriminatory,” Herrera said.
He said, to help resolve the matter, the co-op’s bylaws allow Trails End to assign the capital credits to “successors in interest, which it believes includes the shareholders of a defunct or dissolved corporation.”
This move would allow those shareholders to eventually retire the credits through the general retirement process.
Frustrated that no one at SEC was listening to her complaints Foard went on a mission to bring attention to this matter. She filed a complaint with New Mexico Attorney General Gary King’s office.
In the latter part of October, the AG’s office sent a letter to SEC addressed to Herrera urging the co-op to honor Foard’s request, so among other things, she could settle the market’s business affairs.
Herrera said SEC has responded to the attorney general’s request asking someone in the AG’s office to supply the legal source that led to the conclusion that the capital credits should be repaid.
Foard said SEC unwillingness to act on the attorney general’s urging has prompted her to file a complaint that is still pending with the New Mexico State Secretary’s Office.
Public Regulation Commission chairman and District 5 representative Ben Hall said New Mexico legislators took away the commission’s jurisdictional authority to regulate the finances of the state’s 16 rural electric co-ops several years ago.
But, he said, they are still responsible for regulating the service the utility provides to its members/customers.
“The PRC is here to do what we can but our hands are kind of tied. But we are willing to help anybody that needs help,” he said. “I wish I could do more.”
As of January 2011, the SEC capital credit account had more than $19 million, but in 2013 the co-op paid out nearly $1.5 million to cover retired capital credits.
He said although the money is owed to members he “doubts that it is there.”
Hall said it is standard operating procedure for a co-op to take 20 or 30 years to refund capital credits.
All the money that the utility doesn’t return to members, for any reason, is placed in a special account that is used to provide seven $500 scholarships to area students each semester.
Mayor Ravi Bhasker said the council appreciates input from both the community and elected officials.
“We are just trying to formulate this franchise agreement, and we certainly appreciate this kind of illumination and transparency that we aren’t getting from this co-op,” Bhasker said.
The upcoming franchise agreement will replace the franchise agreement that expired in 2009.
Councilor Mike Olguin Jr. said he isn’t certain but he believes the co-op agreement was allowed to expire to give the utility provider time to implement much needed reforms.
The utility recently implemented several bylaw reforms which included a reduction in compensation for trustees and reducing the number of trustees on the board from 11 to five.
Olguin said he supports the idea of drafting short-term franchise agreements as a way of monitoring the utility’s business practices.
“From what I understand of the discussion that is being held at city hall you can do it (draft franchise agreements) for a year to hash out any discrepancies,” he said.
City officials will have to eventually draft a franchise agreement that will allow Comcast and CenturyLink to access public streets and alleyways.
Franchise agreements are necessary because the state’s anti-donation clause forbids the city from allowing private companies free access to public property to conduct business.