Taos Coop: Part IV. KCE Reconsiders Rate Increase

(Oct. 2008, Horse Fly)

Virgil Flies over Wall St.

David v. Goliath Redux

By Bill Whaley

At 9 a.m. on Friday, Sept. 19, while rumors of the massive financial breakdown and bailout on Wall St. circulated, nine trustees of eleven of the Kit Carson Electricity Coop (KCE) sat at the semi-circular dais in the board room on Cruz Alta St. in Taos. They waited, nervously, for Harold “Hub” Thompson, the Chairman of the multi-billion-dollar 44-member Tri-State Generation and Transmission Coop. Tri-Sate is KCE’s Generation and Transmission provider for electricity.

A single item had been placed on the special meeting agenda: reconsidering a previous vote that opposed Tri-State’s 4% rate increase. The rate increase is scheduled to take place Jan. 1, 2009. It had been approved by the 44-member Tri-State Board: 43 to 1 in August. Now, apparently, some trustees were having second thoughts.

KCE is usually the only Coop that votes to oppose increases from Tri-State. For years, KCE has called on Tri-State to provide a “cost of service” study before approving rate increases for the forty-four coop members in Colorado, Nebraska, New Mexico, and Wyoming.

KCE is also one of only two coops that opposed a contract extension with Tri-State to supply electricity from 2040 to 2050. The local Coop has voiced concerns about being locked into contracts during a time of volatile changes in energy, technology, and financial resources.

Though the trustees had unanimously opposed the rate increase at a prior meeting, Coop Chair Ambrose Mascareñas, allegedly at the urging of KCE’s representative to the Tri-State Board, Art Rodarte, called the meeting to change the vote and allegedly mend relations with Tri-State. Art & Ambrose are known as “The Gold Dust Twins” because they usually finish as No. 1 and No. 2 when it comes to winning the annual Coop compensation awards—per diem pay for meetings and travel expenses.

Hub and Ken

Tri-State’s CEO Hub Thompson and its president, Ken Anderson, walked into the Kit Carson boardroom a little after 9 a.m. As they sat down, somebody asked about the flying time from Denver. “50 minutes,” said Hub, the dark-haired laconic boss with a slight western drawl. He was shorter and more wiry than I imagined and dressed casually in working pants and shirt. He could have been from Mora. “King Air, Twin engine turbo prop,” he murmured in response to a question about his ride. Ken Anderson, the big, bulky, blond-haired president of Tri-State, wore a dark suit. He could have been a banker from the Street.

Hub and Ken sat facing the dais. From left to right sat trustees Bobby Ortega, Chris Duran, Toby Martinez, Chairman Ambrose Mascareñas, Luis Mylet, Francis Cordova, Bruce Jassman, Virgil Martinez, and Art Rodarte. Trustees Manuel Medina and Jerry Smith were absent. Slightly back of Ken’s right shoulder, sat Luis “The Rabbit” Reyes, who, if you watch him, vibrates slightly in place.

Trustees Jerry Smith was out of the state and Manuel Medina was reportedly at jury duty, so the ranks of the so-called business faction were reduced to Bobby Ortega, Chris Duran, and Bruce Jassman. The alleged politicos, Toby Martinez, Ambrose Mascareñas, Luisa Mylet, Francis Cordova, Virgil Martinez, and Art Rodarte, appeared to have the votes. But recent votes at the Coop showed how polarization was breaking down and a mood of reform was being forged by a new coalition of reasonable trustees. For instance, the trustees recently voted to try and find a new auditor to reassure themselves of an objective process.

Chairman Ambrose Mascareñas spoke, “There’s a cloud over Tri-State and Kit Carson Electric. We need to work together.”

Former Chair Bobby Ortega said, “I’m not sure what you’re referring to. Relations are professional. Good. Agreeing to disagree is healthy. I’m surprised this meeting was called. For better board relations, it’s good to have Hub and Ken here.”
“At the last meeting, we voted to protest rates, prior to Tri-State’s approval of the rate increase. That’s why we need reconsideration,” said Ambrose.

Trustee Luisa Mylet welcomed Hub and Ken to the meeting, saying such a meeting in Taos was a first during her four-year or so tenure on the board.

Hub responded: “Appreciate that. Busier than heck. Building power plants. It’s our fault (for not being here more often). Past is past. We want a good relationship. Disagreements are okay, majority rules, long as we don’t get into knockdown drag-out fights. Try to treat everybody equal. More rate increases (are coming). We control costs but can’t cut much. Layoffs create a false economy. Understaffed. Want a better relationship because of Wall St. Rating.” Throughout the meeting, Hub and Ken made the point that they couldn’t cut staff and costs without jeopardizing infrastructure.

Regulation and the Market

Hub explained that a KCE protest to the PRC could cause Tri-State to have lower bond ratings on Wall St. and subsequently pay higher interest rates: “As much as 1/10 of 1%,” he said. Ken said, “The market doesn’t like regulation.” (I couldn’t help notice Ken’s ironic remark, given the morning tumult on the Wall St.) Tri-State regularly approaches Wall St. to borrow money to build power plants. Wall St. apparently looks at the Coop balance sheets, regulatory environment, and strength of the organization’s 44-member cooperative relations.

(Horse Fly calculates that on 100 million dollars 1/10 of 1% rise in interest rates adds up to $100,000 spread out over 44 coops and thousands of customers and hundreds of months.)

Whenever KCE mounted a protest, Hub said Tri-State had to spend $50,000 to lobby legislators and the Public Regulation Commission (PRC) in New Mexico. Current PRC regulations require that three coops file protests before a public hearing can occur. Since no other New Mexico coops have joined KCE in filing protests, the local trustees have lobbied legislators—unsuccessfully—to pass regulations reducing the critical number from three to one.

Whenever trustees from Kit Carson lobby the legislature, they say they find representatives from the Colorado-based Tri-State board in the corridors at the Roundhouse in Santa Fe lobbying to maintain the status quo. Tri State reps, including Hub, regularly visit New Mexico Coop annual meetings or statewide coop meetings to keep an eye on their family members, according to the trustees.

Ironically, if a single consumer protests, the PRC is required to hold hearings. But, like all matters regulatory and legal, the litigant with the most money generally wins the battles. A single consumer has neither the money nor the expertise to argue utility regulation questions. From Tri-State’s point of view, as Ken said, state regulatory agencies don’t understand how to regulate regional coops like Tri-State. Goliath Tri-State has member coops in four states. While Tri-State is unregulated by either the states or the feds, KCE is regulated by the state PRC and must conform to the federal oversight.

Hub said his Wall St. bankers complain about our outlaw coop, which threatens to file complaints with the PRC. As mentioned above, KCE has asked for a “cost of service study” to justify price increases. Hub and Ken said outside audits increased the cost of doing business and reflect redundancy.

Former banker and current trustee Bobby Ortega of Questa spoke up and mentioned the positive effect outside audits have on business practices like banks.
As for regulation, Hub claims a 1969 tenth circuit court had decided in favor of Tri-State’s ability to regulate itself. According to a second legal opinion—that nobody mentioned at this meeting—another federal court has ruled that where a gap exists in regulatory environment between the feds and the states, then a state, like New Mexico, can regulate utilities doing business inside its borders. Apparently that case has been tested in an Arkansas area but not in New Mexico.

Anderson explained, “This (Tri-State G&T) is a trim and lean machine. We’re managing risk. The private sector or market preys upon risk. We’re member focused.” During a break, he mentioned to this writer that he had read Naomi Klein’s “Shock Doctrine” and said the coops walked a thin line between the market and regulation. “We have to trust each other,” Ken said, implying that it is better to work within the coop family than with private utilities—like PNM in New Mexico, which had once been an option for KCE.

Between the crash symbolized by Enron in the last decade of deregulation and the current market chaos created by speculators, one can see how getting too close to Wall Street is dangerous. One might speculate that Wall St. lusts after the assets of revenue producers like New Deal era coops not unlike the way big banks shop for rural banks with strong balance sheets. The market, apparently, unlike Kit Carson’s main source of credit at the Department of Agriculture’s Rural Utility Services, is a predatory environment.

Energy Sources

Hub and Ken explained that Tri-State was dependent on coal fired generating plants for their base electricity load. Current growth and extra demand for electricity generation is supplemented by purchasing natural gas. But, according to the conversation, competition for natural gas increases costs. “Nobody else buys coal,” they said.

Under the best scenarios, clean or green energy, so-called renewables, solar and wind will furnish only 15 or 20% of future energy needs. Tri-State plans to use more renewables and will be exploring nuclear options. But King Coal is the mainstay, pure and simple, which raises environmental issues. Though conservation can help individual homeowners and green energy guidelines can help alleviate the expenses associated with the carbon footprint of commercial buildings, ultimately, the effect of green energy or conservation on demand at Tri-State is negligible.

Fear Factor

Hub warned Kit Carson that as long as he was at Tri-State he would lobby the other coops to allow KCE to extend its contract from 2040 to 2050. “But I’m going to retire in two years,” he said. He said he didn’t know how the other coops would feel in the future, raising the spectre of increased rates and increasingly expensive sources if Kit Carson were forced into a competitive environment outside the family fold. Hub’s fear tactics did not go unnoticed by some board members.

According to CEO Reyes, the energy environment is changing and it is exceedingly unlikely that the government would allow KCE to go solo without an energy and transmission source.

History

The meeting continued for several hours. Hub and the trustees re-hashed the history of the 1999-2000 merger of Plains Electric Coop and Tri-State, which changed the dynamics of the relationship between New Mexico coops and their power suppliers. Among other topics, the principals discussed who got charged an extra few million dollars and whether or not the eight-year old deal was fair according to the accountants. Hub insisted that the merger was a good deal, which brought up the inevitable discussion of capital credits.

Capital credits are a return on investments to members, like profits or dividends to stockholders in the private sector. Capital credits can be paid when the coops reach a certain healthy financial threshold or stable economic base. The Colorado, Wyoming, and Nebraska members of Tri-State have seniority. So Kit Carson members, like the members of other NM coops, will be waiting a long time for their capital credits to be paid. Capital credits are allocated first, then paid later. It’s a two-stage process. Who should get paid what and when is a bone of contention for trustees who are regularly confronted by members about the issue. No changes appeared to be forthcoming.

The Vote

Finally, it was time for the vote to reconsider the motion to oppose the rate increase. Three trustees, Toby Martinez, Luisa Mylet, and Art Rodarte voted “yes” to reconsider their opposition to the rate increase. As their theme song, they pleaded for an end to conflict and for the beginning of cooperation with Tri-State, Hub, and Ken. But four trustees, Bobby Ortega, Bruce Jassman, Francis Cordova, and Chris Duran voted “no” against reconsidering support for a rate increase. Without a “cost of service study” or compromise by Tri-State on policy disputes, they were giving notice that the current disagreements with Tri-State would continue.
Chairman Mascareñas votes only in case of a tie.

It was then up to Trustee Virgil Martinez, the man from Cerro, a former Taos County Commissioner to cast the deciding vote. If Virgil voted yes, then Ambrose could break the tie, vote yes, and send Hub and Ken back to Tri-State on the Turbo Prop with a tailwind at their backs. Art and Ambrose possess all the cunning of seasoned politicos, what with their purses full of gold and their pockets full of movidas But the trustee from tiny Cerro, just west of Questa in northern Taos County, is not a man to be trifled with regardless of your jets and movie stars and big bank accounts or political movidas, as Art & Ambrose would soon learn.

When Virgil held the swing vote at the county, he raised hell and tortured staff, blaming them willy-nilly as he did on that Friday in KCE’s boardroom, saying that Mr. Reyes hadn’t given him all the necessary information he needed to make a decision. Virgil voted “No.” Ambrose winced, and KCE, the legendary David, once again, took a swing at Goliath. Despite pressure from the Turbo Props and Wall St. Pirates, the tiny coop reserved its right to fight another day.

Hub’s longtime nemesis Manuel Medina was absent on the day of the vote. Maybe he was with his parking lot cuate Virgil in spirit. Surely he must have laughed when he heard the news. Maybe Hub thought he had the board beaten. But when Virgil picked up David’s shovel, the sands shifted below Goliath’s feet.

Ed. Note: Special thanks to Manuel Medina for responding to an emergency using his crane to replace the lights on the towers high above the football field—at no charge to anybody.