I attended one of DMEA's local meetings regarding the upcoming vote in October and have read all of the documents provided by DMEA at the meeting. DMEA's representatives spoke mostly about the positive aspects a "yes" vote would have on DMEA. But there was not much talk about the negative aspects. I'm not an expert in the electric co-op world, nor am I an accountant, so I decided to attempt to educate myself and weigh the pros and cons. In addition to the informational documents provided by DMEA, I also visited the websites from other electric co-ops who are studying their options for a Tri-State buyout.
What I've learned is a "yes" vote will give the DMEA board more flexible financing options by letting the board issue up to 1,000,000 shares of capital stock to investors, including non-member investors, and will allow the board to set the terms and the amount of dividends that would be paid to those investors. DMEA states that with this new financing option it can consider additional investments, power supply alternatives and more local generation. Basically a "yes" vote will allow the DMEA board to find a third-party power supplier to finance a buyout of DMEA's existing contract with Tri-State, without the approval of all DMEA members. The board believes this additional financing could stabilize or possibly reduce member electric rates in the long term, but there are unknown risks and there is NO guarantee that rates would not increase.
Currently, DMEA raises capital by raising electric rates or through cooperative loans. DMEA says that "loans are classified as 'liabilities' while stock is classified as 'equity,' and this difference matters for DMEA's finances." Well, I'm not an accountant, but a loan is a loan, no matter whether you classify it as a "liability" or if you classify it as an "equity" on your financial statements. DMEA also states that they're not aware of any electric cooperative that has issued capital stock to non-members, but like any other cutting edge transaction, issuing capital stock to non-members could pose unknown risks.
Currently, both United Power (Brighton), and Poudre Valley REA (Fort Collins) are studying the issue of withdrawing from their contract with Tri-State. La Plata Electric (Durango), another Tri-State member, studied their withdrawal options and decided not to proceed with a buyout of their contract because "the buyout costs would be substantial and they projected that it could raise their members' rates by 1.5 cents/KWh". In 2016, Kit Carson Electric (New Mexico) bought out of their contract with Tri-State. Kit Carson found a third-party power provider (Guzman Energy) to finance their buyout. After the buyout, Kit Carson proceeded building and installing solar arrays, became an internet provider, lost their largest commercial customer (mine closed), and increased their members' electric rates. Sadly they are now over $100 million in debt and are unable to meet their current mandatory financial obligations.
Perhaps Kit Carson Electric's buyout would be different than what DMEA is proposing, but there are many questions the DMEA board should answer or address prior to any "yes" vote.
Therefore, I'll be casting a "no" on my ballot because of the following uncertainties. The uncertainty of the unknown costs of a Tri-State buyout, the unknown costs associated with a third-party power provider, the unknown costs associated with transmission/distribution lines the third-party power provider would need, the unknown cost for the dividends that would be paid on the capital stock and where the money comes from to pay the dividends, the uncertainty of not being able to guarantee that our rates would stay the same, or go up or go down.
I'll also be casting a "no" on my ballot because of the following concerns. I reviewed DMEA's annual financial reports. Unfortunately, the 2018 annual report has not yet been made public. In looking over the reports, the long term debt continues to rise. In the 2017 report, the long term debt was $90.8 million vs. $71.0 million in the 2015 report, a 27.8 percent increase in two years. I also noted in the annual reports a net operating loss of over $4 million for DMEA Utilities Services (which I'm assuming includes "Elevate"). In the April 24, 2018 board minutes, the board approved an emergency line of credit with CFC (amount unknown). On July 24, 2018, the board approved a $25 million loan facility with CFC (prior to approving this loan, the board had a discussion about the flexibility this loan would provide with respect to when funds may be drawn). More debt ... I wonder what the long term debt is for 2018.
My final concern would be that if this ballot passes, we the members, will have no say in any decision about withdrawing from the Tri-State contract, no say in who the third-party provider would be, and no say in how much debt we, the members incur. The board has the final say. The members will have no voice, and no vote on any of this. I can't believe the Articles of Incorporation do not require a membership vote on such an important issue. So think long and hard before you say "yes." I think this ballot issue has been rushed and I think the DMEA board owes it to the membership to provide us with a better understanding of the issues and concerns, which means also giving the members the worst case scenarios.