Audit: City violated ordinance

A special audit released Thursday found that the city violated its ordinance for setting natural gas rates, overcharging customers by more than $10 million.

However, the independent auditor said the rate-setting decisions were “economically prudent” because of an average deficit of more than $1 million in the natural gas utility for the last seven years.

The state auditor’s office presented the findings during a public forum, with more than 80 people, including many city official and candidates in the March 4 election, attending. The audit didn’t produce any allegations of criminal activity.

The city could have waited until next Friday to release the audit, but Mayor Henry Sanchez said he wanted to hold the forum and get the information to the public as soon as possible.

Jeffery McWhorter, the independent auditor hired by State Auditor Hector Balderas, said the city should have changed its ordinance when it discovered that its formulas didn’t take into account dramatic increases in the cost of natural gas.

At issue is the controversial cost-of-gas adjustment, an addition or subtraction to bills as determined by a required calculation under the ordinance.

The audit showed that the city could prevent the adjustment formula from reducing customers bills during times of deficit. However, it stated that the city couldn’t actually freeze adjustment rates at their highest historic level, as the city has done for years.

When an Optic investigation last year arrived at the same conclusion, city officials denied they had been violating the ordinance. On Thursday, however, Mayor Henry Sanchez thanked the state auditor’s office for its work, saying that the city had learned its lessons.

If the city had followed the ordinance since 2001, customers’ bills would have been more than $10 million less, McWhorter said. At the same time, if the city had set rates based on the formula, it would have put the utility in a deficit by about the same amount, he said.

Last year, the Optic requested public records showing the calculations for natural gas rates, and it took the city more than a month to produce the documents, more than double the time allowed under the state Inspection of Public Records Act.

After the Optic received the documents, City Manager John Avila, who leaves his job today, said they were work product and shouldn’t have been released. However, the New Mexico Foundation for Open Government maintained the calculations were public records.

The documents showed that the natural gas utility performed the necessary calculations but that someone crossed out the results and replaced them with the same number for a year and a half. The city provided no explanation about how it arrived at the resulting rate.

McWhorter said the replacements were at the direction of the city’s former natural gas rate consultant, Michael Slota. He said Slota’s numbers were “economically prudent,” as they got the gas utility out of deficit last summer.

Unfortunately, he said Slota, who wrote the ordinance, didn’t suggest changes to it.

After the forum, the mayor called Slota a “very smart man.”

“We said, ‘What a genius,’ because we couldn’t understand it. His heart was in the right place,” Sanchez said.

The city replaced the ordinance in the fall with one that officials considered much simpler.

Slota’s Santa Fe phone number has been disconnected, so he couldn’t be reached for comment.

McWhorter told the forum audience that the ordinance was complicated, “weird” and “susceptible to error.” He said it didn’t pass rises in natural gas costs quickly enough to consumers.

One issue that didn’t come up during McWhorter’s presentation was the administrative fee, a transfer of 11 percent of natural gas revenue to the city’s general fund, which pays for everything from police to parks, and the 4 percent “in lieu of franchise” fee, which also is transferred to the general fund. But it was on the minds of many in the audience.

After getting questions about it, McWhorter said the transfer went beyond the scope of his audit, but he said the percentage should reflect a breakdown of costs of general fund departments’ services to the utility. He suggested a study of such costs.

He said the audit also looked at the bills of “people of influence” such as city employees and officials and found no irregularities.

Andrew Feldman, a candidate for the Ward 3 City Council seat, said he wanted a yes-or-no answer about whether it was odd that the city has run deficits in the natural gas utility during 80 percent of the months studies.

“I find it unusual,” McWhorter responded.

Another Ward 3 candidate, Joey Herrera, wanted to know the audit’s cost. Balderas said he didn’t know off-hand but would provide the information later.

Mayoral candidate Ramon “Swoops” Montao asked, “How bad were we taken advantage of? Do we expect to get money back?”

Balderas said he didn’t want to “undervalue” the fact that the city violated its ordinance, adding that the city should have modified it.

“He (McWhorter) is not glossing over that, and neither are we,” he said. The city “shouldn’t have just relied on a natural gas consultant.”

Balderas said that in his conversations with city officials, they realize now that they didn’t follow their ordinance.

“I wish I had a silver bullet for you,” he told the audience.

Balderas, who launched the audit because of residents’ complaints, said his office would look into what obligations the city utility had to poor and elderly residents who find their natural gas cut off during the cold months.

“The fact that the community gets riled up about something like this is good for us. Usually, no one cares,” he said.

Councilwoman Diane Moore said afterward that the audit provided the city with answers.

“This should be used as a tool for the city,” she said.

Councilman Tony Marquez, who is running for mayor, said he wasn’t told by the city about the forum until he read a story in the newspaper. He said he wished the audit had provided recommendations for the city, given that the auditor had all the necessary documents.

“If we pay an auditor, we should have recommendations,” Marquez said.