Breaking News: Coop Pledges 100% of Assets on Broadband Bet

(Breaking News) According to a motion Kit Carson Electric Cooperative filed with the PRC and recent reports at board meetings, the local electricity provider is in technical default on its loans. Now intervenors, who are preparing to file more protests with the PRC, say the Coop has mortgaged one hundred percent of its assets, basically betting on the come line that Broadband will come up winners. In the process the CEO and the Board of Trustees have allegedly  violated New Mexico Statutes.

The information related below is way more important than the “ethical” violations related to the “contracts for cuates” program in Taos or the “wood piles” for Penasco supporters  or even the ongoing “traveling trustee” program.

By their own admission the Coop is entering its third year of being in default to its financiers. Now, the trustees and CEO have mortgaged the members’ assets—without their consent—and bet on a service already being provided by a number of experienced and effective vendors—despite a history of losing Coop dollars on other diversified projects.

Read’em and Weep.

Re: Kit Carson Broadband Order: Case NO. 10-00379-UT
Public Regulations Commission:

In the public June 19 filing re: the case above, Kit Carson Electric Cooperative’s (KCEC) CEO asks for the Public Regulation Commission (PRC) to modify and otherwise void a prior order to “spin off” the Broadband project into a separate division. KCEC claims ‘the broadband grant/loan agreements or other financing agreements currently in place with RUS, Co-Bank and other agencies, specifically provided that Kit Carson cannot unilaterally determine to move the broadband project into a separate entity and KCEC must obtain written approval from RUS to transfer Kit Carson’s Fiber-to-Home broadband project to another entity.”

Kit Carson also states that it “remains in technical default on its financial rations required to be maintained under its USDOA and other federal debt obligations.” According to reports from board meetings, KCEC continues—despite a rate increase—to fall below its TIER (times interest earnings ratio) in 2012 for the third straight year. At the end of three years, low-performing coops are subject to stricter federal oversight, foreclosure, re-structuring, etc. So far, Kit Carson says, “RUS determined not to exercise its option under the various loan agreements with KCEC to call-in debt owed by Kit Carson.”

Kit Carson says it has until Feb. 2015 to meet its Broadband project build out in terms of its agreement with the federals. While confessing to the PRC that KCEC “will not meet the minimum RUS benchmarks prior to the completion of the Broadband project,” CEO Reyes says “the Broadband project currently in the utility presents only a minimal risk of potential liability to the utility.”

Intervenor’s Response

The intervenors and members who oppose KCEC’s motion of modification also warn the PRC of the Coop’s alleged “law-breaking,” while referring to the historic lack of success by Coop diversification—not unlike KCEC. KCEC has lost millions in the Propane, Internet, and Command Center fiascos. Here are a few pithy quotes.

“On December 3, 2010, KCEC and RUS (as agent for the United States of America) Entered into an RUS loan/Grant Contract. In consideration of a loan of $19 million and a grant of $45 million to provide broadband service within electric-service territory, KCEC pledged 100% of its assets to RUS (Emphasis added). Interestingly, KCEC has neither alluded to nor attached a copy of this mortgage to any of its pleadings.”

Further, “The law applicable to the operation of side businesses by New Mexico rural electric cooperatives is 62-15-13.1 NMSA. Under that section, it is clear that (a) rural electric cooperative may operate side businesses in the area of telecommunications and communications services and products through a separate subsidiary and (b) under 62—15-3.1(A)(2) “the total…pledges of assets of a cooperative in all of its subsidiaries shall not exceed twenty percent of the cooperative’s assets…”(Emphasis added.)

The intervenor’s filing refers to a Harvard study as well as KCEC’s own history that summarizes the dismal failure of electric cooperatives’ entry into side ventures and how many of them—after huge losses—retreated back to the core business—supplying electricity for their members.

Cultural and Political Ramifications

Newcomers and true believers willingly suspend disbelief when it comes to the ideals of surfing the Internet via Broadband. The project was never vetted during public meetings and members were never given the opportunity to vote and/or approve or deny the project, regarding a service already being provided by local and national companies.

The trustees and the CEO have maintained control of the Coop through gerrymandered voting districts and using the pork barrel to entice support, including advertising contracts and contracts for equipment storage aimed at garnering the support of public officials. The current board, with the exception of Virgil Martinez, Luisa Mylet, and Peter Adang, 3 of 11, is more interested in satisfying their lust for greenbacks than the delivery of electric service in a frugal manner. The Coop’s “Hungry 8” are merely a rubber stamp for a CEO. The trustees have deceived the public, disregarded the facts of arithmetic and sound financial planning, while jeopardizing the future of the Coop itself.