‘How do you push a rope?’ PRC tackles SEC non-compliance

The New Mexico Public Regulations Committee (PRC) voted unanimously on appointing Co-Hearing examiners to consider mechanisms for recovering fines accrued by Socorro Electric Co-op (SEC) and proper corrective actions that do not unduly burden SEC members.

“I just want to clarify that the hearing is not to determine whether they have violated the commission orders or how much the fine is, but rather an appropriate way for them to pay back the fine,” Erika Avila Stephanz, associate general counsel of the PRC told the commission.

Commissioner Greg Nibert said he viewed SEC’s actions as a disregard to both the PRC and its member owners.

“It looked like we were trying to say the member customers, i.e., the owners, shouldn’t be penalized for the lack of action on its board,” Nibert said. “Ultimately, we have no authority to replace a board or to demand that the board step down or to replace its officers or take those actions.”

Nibert said he had a strong interest in participating in the hearings and understanding the case, given Socorro Electric’s significant and long-standing violations since 2018.

“I guess what I’m hearing is that maybe our only course of action is to assess fines and let the financial reality of it take its own course and ultimately result in some change, particularly if the member customers, in this case, the owners, don’t take action to replace the people who made those poor decisions,” Nibert said.

Commissioner Gabriel Aguilera said the case was important because it sets a precedent for a co-op refusing to implement commission-ordered rates.

He criticized Socorro Electric’s argument that they could ignore the PRC’s order by filing an appeal.

“In this case, the Commission ordered the co-op here to implement certain rates, and the co-op refused,” Aguilera said. “That’s not the way it works, and this entire paradigm of utility regulation would never work if that’s how the world actually was, where a regulated entity could choose to ignore a commission’s order simply by filing an appeal.”

He called the circumstances of the case unique and egregious and said he hoped they would never see a case like this again.

“I do agree with Commissioner Nibert that they are still the owners here. I do have sympathy. And then that goes away when I reread the arguments that Socorro was making here and really just not showing any sign that maybe they were wrong,” Aguilera said.

Patrick O’Connell said he agreed with the other commissioners and cited two issues.

“One is, what do you do about the rates that were charged when they shouldn’t have been? And then perhaps the bigger issue is, how do you push a rope? you know if a co-op just won’t admit that they treated their members poorly and won’t do anything to fix it,how do we help as regulators, right? So I think the hearing is a good way to explore both of those things,” O’Connell said.

According to the approved order, Christopher Ryan and Jocelyn Barrett were appointed as hearing examiners.

“The Hearing examiners shall determine the proper reconciliation amount and recommend a plan to correct the rates for the period of noncompliance. The Hearing Examiners shall explore the proposals for reconciliation, including the Joint Respondents’ disgorgement proposal, and make a recommendation as to the manner of reconciliation,” said the order.

SEC and PRC History

According to previous articles published in the Chieftain, in December 2018, the SEC filed a notice with the PRC that it would soon increase rates by 5% to raise revenue by $1.25 million. After 33 SEC members objected, the PRC conducted a hearing on the matter.

Ultimately, state regulators rejected the rate-increase proposal, adopting an argument from their hearing examiner that the utility wanted the price increase to advance the objectives of its board of trustees rather than needing it financially to operate.

In June 2024, the New Mexico Supreme Court ruled rural New Mexico utility companies are not exempt from state regulators’ authority over rates. The court rejected an argument from SEC that the state’s PRC shouldn’t be able to change and set its rate proposals. The court’s decision made it clear that the PRC has the authority to take such action with all rural electric cooperatives in the state, as set forth by the state Legislature.

The court’s opinion stated, “The Legislature has not distinguished between rural electric cooperatives and other public utilities with respect to the substance or nature of the Commission’s ratemaking powers.”

Rural electric co-ops, which have a board of trustees elected by cooperative members, work differently from the major investor-owned utilities that serve most of the state. While investor-owned utilities must seek permission from the PRC to enact new rates, rural electric co-ops’ rates generally go into effect as soon as a company proposes them, per the state’s Public Utility Act.

During the PRC’s November 2024 meeting, PRC Commissioner Aguilera said forgiving the fine could “hold meaningful precedent” because it is a rare situation where the commission orders something and a company refuses.

The PRC said it would decide based on three items: provide an accounting of the mis-collected amounts due to the SEC’s failure to file their rates; seek the SEC’s proposed plan to correct those amounts; and lastly, order the cooperative to show why it should not be subject to the commission’s imposed fines.

SEC was given until January 9, 2025, to submit its explanation to the state’s Public Regulation Commission (PRC) on why the fine should be forgiven for failing to comply with PRC’s orders.