Kit Carson fights Rate Increase

David and Goliath

Watch Dogs Bark

April 25, 2004

That's Manuel's buddy, Hub

The Board of Trustees, on August 27, 2002, i.e. the fiscal watchdogs at Kit Carson Electric Coop, a $64 million dollar outfit “owned by those it serves,” continue to growl at Tri-State, their generation and transmission provider of electricity. Coop CEO Luis Reyes says Tri-State has asked for rate increases well in advance of scheduled projections. The local Coop is one of 44-member coops, who own Tri-State, the $1.9 Billion dollar, a generator and transmission company. Kit Carson became part of Tri-State back in the year 2000 when New Mexico Coops voted to merge Plains Electric with the Colorado-Nebraska-Wyoming electricity coop group. Tri-State instituted a 7% rate increase that are a year or two ahead of schedule. Now Tri-State is asking for rates increases that weren’t scheduled to take effect until somewhere between 2008 and 2009.

KC trustees are asking Tri-State to conduct a “cost of service” survey to “justify” the rate increases. At yesterdays KC board meeting (Aug. 27), KCE trustees said other member coops, including Delta-Montrose, Midwest, Springer, and Jemez coops may also raise the issue at the Tri-State meeting Sept. 5 in Denver. If three coop members from New Mexico protest, the state Public Regulatory Commission in Santa Fe is obligated to hold a public hearing.

KC Trustees say the issue is so serious that the Coop will suspend travel rules so that more Coop members can attend Tri-State and Statewide NMRECA meetings to lobby for support. Currently, KCE trustees receive $150 per day per diem plus travel expenses to attend meetings. TRI-State board members receive $350 from the Denver-based operation plus travel expenses. Tri-State Board Chairman and President, Harold “Hub” Thompson, receives per diem of $437.50 on a 260-day-a-year contract plus expenses. According to current and former Tri-State Board members, trustees who vote with Hub and don’t make trouble receive goodies: Tickets to Rockies’ and Avalanche games, special trips to Washington D.C., and who knows what else.

Hub, according to Trustees, is your man at the center of power in Tri-State. But KC Coop members are beginning to suspect that Hub has not done his “due diligence.” Reyes says the Tri-State budget generally reflects a formulaic $600 million a year plus interest with 3% added on to insure profits. Reyes says Kit Carson is willing to pay their fair share of rate increases as long as the information in Tri-State ledgers reflects the facts about actual expenses. Currently, according to Reyes and the Kit Carson Trustees, the Tri-State reports do not tell the whole story and members don’t really know whether the $1.9 billion dollar operation is meeting, exceeding, or missing budget targets.

Kit Carson Electric itself has contracted with ONCOR, according to “SourceBook Weekly” of SCIENCETECH, Inc. (See sciencetech.com. Aug. 19.) ONCOR Utility Solutions, formerly Texas Electric & Gas, says tech writer, Susan Kellogg, “Offers complete turnkey solutions or individual infrastructure services that include asset management, design and project management, resource management, and emergency preparedness as well as the complete outsourcing of energy operations…ONCOR Utility Solutions would review the operations and processes of KCEC, to assess the services needed to improve the cooperative’s services and hopefully lower or stabilize overall operating costs. KCEC confirmed the contract yesterday that addressed asset utilization, operations efficiencies and energy supply. Luis Reyes, chief executive officer, said the cooperative management was impressed with the track record of success the consulting firm has had in the areas KCEC has identified.”

Reyes says Tri-State may benefit from a similar audit of “best practices” by an independent firm.

Below, Horse Fly has included a letter from the KCEC Trustees to Hub, a board resolution, some public relations history from Tri-State’s Web site, and excerpts from a Jan. 2002 Horse Fly piece by Fabi Romero about KCE and Tri-State.

Letter to Hub

August 27, 2002

Tri-State G&T Board of Trustees
Attention: Mr. Harold “Hub” Thompson, President
P.O. Box 33695
Denver, Colorado 80233-0695

Dear Hub:

At the August 2002 Board Meeting Tri-State G&T Association notified members of a proposed rate increase. Enclosed is a resolution the Kit Carson Electric Board of Trustees approved at a regular Board meeting held August 27, 2002.

The Cooperative is currently opposed to any rate increase in 2003 until any issues are reasonable and justified.

(1) The current proposed rate increase is not based on a current Cost of Service Study. It is our understanding that the last Cost of Service Study was completed approximately 8 years ago. Several things have changed since that time i.e. the Plains/Tri-State Merger. Any rate changes should not be implemented until a new Cost of Service Study is performed.
(2) Capital credits should not be paid to any cooperative when a rate increase is anticipated for the following year; however, in years where there are no proposed rate increases, capital credits should be disbursed as required.
(3) When there may be situations in which there is a lack of Federal hydro power Tri-State should not make a hasty decision. Historically these situations are only temporary. Any rate increases should also be temporary such as fuel adjustment.
(4) Rates should not be increased based on assumptions ie WAPA allocation. Rate increases should be based on factual information.
(5) Rates should be examined to reflect approved Tri-State revenue requirements and not carry over into the next year, i.e. timing and implementation of new rates.
(6) Rates should be re-adjusted annually to ensure that over collecting does not occur.
(7) We feel that at a time when rates are proposed to increase because of an aggressive construction agenda, which is funded by loan funds, a financial policy that aggressively builds equity levels, and the continued payment of capital credits to non New Mexico Cooperatives will be a financial burden on the residential, small commercials, farmers and ranchers who will be paying these higher rates.

It is Kit Carson Electric’s position that Tri-State Association implement an effective accountable cost containment plan where current expenses are maintained or decreased to offset an increase in rates. There may be generation projects that serve non-members that we are not aware of. This study would properly identify where all costs should be assigned. Also, there are some generation projects being built to serve nonmember loads which may be included in the proposed rates. If that is indeed the fact then we believe costs associated to these projects should not be included in our rate base until the generation is fully utilized by the member cooperatives of Tri-State.

We seriously hope that the Tri-State Board reviews and reconsiders its proposed rate increase.

If you have any questions, please do not hesitate to contact me.

Sincerely,

Jerry Smith
President

cc: Tri-State G&T Members
New Mexico Cooperatives
Wyoming Cooperatives
Colorado Cooperatives
Nebraska Cooperatives


Resolution

Resolution from KCEC Board

Kit Carson Electric Cooperative, Inc.

Taos, New Mexico

RESOLUTION


WHEREAS, Kit Carson Electric Cooperative, Inc. (KCEC) is a member/owner of Tri-State Generation and Transmission Association, Inc., and

WHEREAS, KCEC is vitally concerned with the economic well being of its own members, the communities which it serves, and the Tri-State system as a whole, and

WHEREAS, Tri-State is contemplating an additional rate increase in 2003, a year subsequent to the first Tri-State increase in 16 years, and

WHEREAS, the Trustees of KCEC understands that Tri-State has several options available to it as to the amount and timing of the increase, an additional rate increase in 2003 could prove harmful to the economic well-being of KCEC’s members, the members of the distribution cooperatives who are member/owners of Tri-State and inevitably Tri-State itself, and

WHEREAS, KCEC also realizes that Tri-State has not had a cost of service study completed for over eight years and KCEC thinks that the loads and resources of Tri-State have changed dramatically over that period of time and would like to see the revenues of Tri-State track more closely with the expenses, and

WHEREAS, KCEC thinks capital credits should not be paid to any cooperative when a rate increase is anticipated for the following year, and

WHEREAS, when there may be situations in which there is a lack of Federal hydro power Tri-State should not make hasty decisions. Historically these situations are only temporary. Any rate increases should also be temporary such as fuel adjustment, and

WHEREAS, rates should not be increased based on assumptions. Rate increases should be based on factual information, and

WHEREAS, rates should be adjusted to reflect approved Tri-State revenue requirements and not carry over into the next year, i.e. timing and implementation of new rates, and

WHEREAS, rates should be examined annually to ensure that over collecting does not occur, and

WHEREAS, KCEC feels that at a time when rates are proposed to increase because of an aggressive construction agenda, which is funded by loan funds, a financial policy that aggressively builds equity levels, and the continued payment of capital credits to non New Mexico Cooperatives will be a financial burden on the residential, small commercials, farmers and ranchers who will be paying these higher rates, and

NOW THEREFORE BE IT RESOLVED, by the Board of Trustees of Kit Carson Electric Cooperative, Inc. that Tri-State NOT increase rates in 2003 in order to provide one year for the energy markets, the economy, and Federal policies to become clear and more settled, and

BE IT FURTHER RESOLVED that Tri-State proceed with an unbiased cost of service study, to have the rates charged by Tri-State accurately reflect the cost associated with them and that any negative impact to Tri-State’s margins be addressed by cost-cutting measures to ensure a positive margin.

I, Michael Arguello, Secretary of Kit Carson Electric Cooperative, Inc. do hereby certify that the above is a true and correct copy of a Resolution adopted by the Board of Trustees of Kit Carson Electric Cooperative, Inc., at a meeting held on the 27th day of August, 2002, at which meeting a quorum was present.


Michael Arguello
Secretary
Kit Carson Electric Cooperative, Inc.

(S E A L )
RESOLUTION NO. 2-8-02

Tri-State Public Relations
Owned by its 44 member rural electric systems, Tri-State G&T is one of the lowest cost, wholesale power suppliers in the Rocky Mountain region. The hub of the association's four-state (Colorado, Nebraska, New Mexico and Wyoming) network of transmission lines, substations and power plants is its Westminster, Colo., corporate office complex where approximately 300 employees are located.

In addition to staffing the many support functions of Tri-State, which include accounting/finance, communications, engineering, environmental, information systems, legal/land, planning and procurement, the Westminster facilities also include a dispatch and system operations center where the G&T power system coordinators perform load scheduling, monitor generation, coordinate telecommunications requirements and generally oversee all system operations.

Many of Tri-State's employees also are located at Craig Station in northwestern Colorado. This facility is the state's largest coal-fired power plant that employs approximately 305 workers. Following a significant merger in July 2000 with the now-defunct Plains Electric G&T of Albuquerque, N.M.,Tri-State acquired an additional 150 employees, the majority of whom (approximately 120) work at the 250-megawatt, coal-fired Plains Escalante Generating Station (PEGS) near Prewitt, N.M. Most of the association's remaining work force is based at Nucla Station (55 employees) in southwestern Colorado and at the Montrose, Colo., maintenance facility, where about 45 people are employed.

The G&T's other major coal-fired generation is derived from Laramie River Station near Wheatland, Wyo. LRS is a three-unit, 1,650-megawatt, coal-fired electric generating facility operated by Basin Electric Power Cooperative of Bismarck, N.D. Tri-State owns a 24 percent share of this power plant. Tri-State also operates the 100-megawatt Burlington Station in eastern Colorado, an oil-fired combustion turbine plant that primarily provides back-up generation.

Construction of a new generating station in Limon, Colo., was completed during the first quarter of 2002. The two natural gas-fired generators at the Limon Generating Station mark the first new, Tri-State-owned generation to be built in nearly 20 years. Construction of a second Colorado plant, the Brighton Generating Station, should be completed in the summer of 2002. When fully operational, Tri-State will have four generators each capable of producing 70 megawatts of electricity. The generators will use natural gas as the primary fuel source, but have the capability to use fuel oil during price or supply volatility.

Horse Fly January 15, 2002

Kit Carson Coop Battles On

By Fabi Romero

Tri-State provides electric power to four states--Colorado, Nebraska, New Mexico and Wyoming. Forty-four members, one from each of the coops in the four states, sit on the Tri-State Board. Tri-State policy which allows Board Chairman Harold “Hub” Thompson (from a Wyoming Coop) participates in the day-to-day operations of Tri-State and shares equal authority with the general manager. He gets paid a $437.50 per diem (over $125,000 annually) plus a car and expenses.

The first week of every month, the 44 coops send a representative to a
monthly meeting at the Tri-State offices in Denver. Per diem for each coop
rep is $350 per meeting, plus $350 for each travel day (two travel days per
rep, one day each way). Roughly, Tri-State pays out $46,200 every month in per diem. Add expenses (hotel, meals, travel) and the monthly bounty goes over $50,000. From this cornucopia, controlled by Chairman Hub, flow other goodies to reps who play ball. Perhaps a fully paid five or six day trip, which includes $350 per diem for time in the air, to represent Tri-State at the Dallas, TX conference? You're not feeling up to par? Take an extra day to rest or two days to get home, compliments of Tri-State.

In July 2000, Kit Carson plopped down into the midst of that tranquil field of high-flying good ol' boys. It didn't take long for CEO Luis Reyes and Trustee Manuel Medina to understand the lay of the land and report back to the Kit Carson board.

Now, maybe it's something in the water in Northern New Mexico, or maybe IT'S the seeds of battle sown into the bone and blood of the 1848 Taos rebels who tried to fight off the American invasion. Whatever the cause, Tri-State is not happy with the thorny Kit Carson trustee bunch, who persist in speaking out, suggesting changes to Tri-State policies, and asking uncomfortable questions.

For instance, “Why not let the coops set the fee and pay their own reps for sitting on the board at Tri-State? Then the Coops could assure themselves that their representatives were loyal to the coops and less influenced by Tri-State. Why does Tri-State pay dues to environmental groups and others they want to co-opt? Why is Tri-State allowed to take board actions, make major decisions to use member coops' money (such as investing $6,000,000 in fiber optics diversification) during tele-conferences that member coops were not notified of or invited to attend? Why did Tri-State invest heavily in portable generation to sell electricity off the system instead of setting up portable generation in remote locations to serve its members and save transmission construction costs? Why, if Tri-State is being run properly, won't it open its books for public scrutiny? When this reporter asked for the amounts paid by Tri-State to Coop reps, Chairman Hub said he would give Kit Carson CEO Reyes the information but if it appeared in print he would sue Kit Carson. Why? Why did Tri-State refund $7,500,000 in capital credits then raise rates to cover a “claimed” shortfall because of operating losses? Why is Tri-State asking for a rate increase, which is not based on a current Cost of Service Study? Why is Tri-State exempting some consumers, i.e. industrial customers, from the rate increase, even though those consumers will benefit from generation and transmission projects and the distribution of capital credits while New Mexico consumers will receive no benefits?
Asking these questions has made Kit Carson unpopular at Tri-State and with some of the coop reps. The other coop reps like the status quo just fine or fear retaliation by Tri-State. Tri-State uses its power to back
dissident coops into a corner. By contract Tri-State has to supply power to
KCEC for the next 40 years. But there are other ways to retaliate: lowering
the priorities for the Kit Carson coop or attacking the managers and
trustees personally to make them outcasts within the coop culture.
Kit Carson trustees knew Tri-State would be asking for a vote to increase rates by 10.1% at the November meeting in Denver. The Kit Carson board voted against the increase and filed a formal protest at the New Mexico Public Regulatory Commission (PRC). They sent their rep, Art Rodarte, to Denver with specific instructions to vote against the increase. It is unclear what went wrong. Rodarte was recorded as voting for the increase. Six other coop reps walked out rather than cast a vote. Kit Carson trustee, Juan Valdez, said, "We need to have aggressive representation. The whole federation of coops has a problem with having guts" Under Tri-State rules, trustees who are absent or who abstain are recorded as “Yes” votes.


CEO Reyes sent out 200 letters to other coops asking them to join Kit
Carson in protesting the rate increase. Although Reyes received telephone
calls from Colorado and Wyoming, supporting Kit Carson’s protest, alas, none would do so on the record.


At the December 28th Kit Carson board meeting, Trustee Manuel Medina asked Chairman Carlos Cisneros to reprimand Rodarte and remove him as rep to Tri-State. "The board member didn't do what we, the board, told him to do. I think the chair has to do something about it now. The board doesn't have a choice but to replace him", Medina said. Cisneros, who had appointed Rodarte to the post last June, attempted to avoid the bitter cup saying that a “No” vote by Rodarte would not have made a difference in the outcome. Cisneros accused Medina of not liking Rodarte "for political reasons.”Trustee Tim Martinez was having none it. "That isn't the point
here,” said Martinez. “ It's a matter of principle that our member should
have voted `No.’ He should have voted the way the board told him. We have already filed a protest against the rate increase and then our member
doesn't vote against it. We are sending a mixed message".
Trustee Mike Arguello weighed in: "I look at it in the same way. It's going to cost our coop if there's a rate increase. That's why we sent our rep to vote against it". Mike Arguello, Tim Cottam, Tim Martinez, Manuel Medina, Jerry Smith, and Juan Valdez voted to replace Rodarte. Cisneros named Tim Martinez to serve as interim rep until the elections in June.
Expect matters at KCEC to keep on rockin' and roiling as the two
divergent viewpoints vie for dominance. And let’s watch the feisty little
coop from the north SLUG it out, fighting to keep electricity and propane
at a reasonable price for its members, while inviting other coops to join in
but going it alone if necessary. It couldn't just be the water. It must be all those seeds sown into THE very blood and backbone of these guys.
Tri-State board trustees could take lessons in learning frugality from KCE.