District Meeting Recap of Reports
General Manager’s Report
Debi Wilson, General Manager
This report is a continuation of the June 2019 Manager’s Message.
Broadband Feasibility Study
The board understands the need for high-speed internet in your communities and how the lack of it is impacting your businesses, your children’s education, and your access to information and entertainment.
We have contracted with Pulse Broadband to perform a feasibility study. The analysis, at a high level, will determine necessary equipment, scope of coverage, services offered and cost of construction for the communications infrastructure, as well as back-end office support needed. We must understand the risks, which include that broadband is a capital-intensive business.
McKenzie District Director Kathy Keable, right, presents a “College of Your Choice” scholarship to Vanessa Wilson, who graduates from Oakridge High School this year. Read more about all of this year’s scholarship recipients in next month’s issue.
There is a difference between electric cooperatives and broadband. We currently have a defined service territory with no competition. That would not be the case with broadband. We don’t want to install the infrastructure and then be undercut by competition. The remaining debt to pay would still be owed by our members. It is unlikely lenders will let a broadband business owned by Lane Electric borrow money without our repayment guaranty. You depend on us to make sound financial decisions because these decisions directly affect you—and we take this very seriously.
Results of the feasibility study are only the beginning. It will take time to digest the options. A series of decisions will need to be made. We are meeting with our government representatives at the local, county, state and federal levels who are working to ensure funds are available for broadband investments.
We are also undergoing training for both board and staff to better understand the industry. Chris Seubert, one of your Central District directors, has been elected to the National Rural Telecommunications Cooperative Board and is sharing the information he is learning from other co-ops who are deploying broadband—sometimes successfully and sometimes not. We will provide you with more information as our research progresses.
The board understands how discouraging it is to wait for an answer about what role, if any, Lane Electric will play in advancing this technology within our service territory. There have been questions about our timeline, and the answer is that this is a process more than a timeline. At this point, we are still discovering what our options might be, and each option would have its own timeline.
BPA Rates and Competitiveness
The Bonneville Power Administration is in the midst of its rate-setting process that will be completed in July and will determine what our cost of power will be for the next two years beginning this October. At this point, we’re anticipating a 3% increase in wholesale power.
BPA customers, like Lane Electric, are concerned about the trajectory of BPA rates that are currently higher than market. BPA’s contracts with its customers expire in 2028. While there is tremendous value to the Federal Columbia River Power System as a carbon-free, renewable, firm power resource, it has to be weighed against its cost to ratepayers. We will continue to work with BPA to find ways to reduce its costs, so they are competitive post-2028.
Some costs are somewhat out of BPA’s control. Fish and wildlife costs continue to be one of its biggest expenses and comprise one-third of our wholesale power bill. Many factors influence those costs, including the spill experiment. The theory is that by allowing more spill, more fish will survive passage through the dams. It has no basis in science and has the potential to do more harm than good. The spill regimen is to occur over a three-year period.
This additional spill comes at a cost to ratepayers in the form of foregone revenue from sales to California that help offset costs, and costs associated with the need to acquire replacement power not provided by the hydro system. Lane Electric is charged a surcharge for the fish spill. Fortunately, BPA was able to find sufficient one-time savings so we will not be billed the surcharge this year.
The cost of operating the dams and how those costs are allocated is also of concern. When each of the dams were originally built, the formula for allocating operating costs was determined, and they have never been updated.
Each dam can serve multiple purposes such as power generation, flood control, navigation and irrigation. Costs should be allocated based on the actual purposes it serves and charged to its beneficiaries. Things like flood control are a taxpayer obligation and not a ratepayer obligation. It’s a matter for the Army Corps of Engineers and the Bureau of Reclamation working with BPA to update these formulas. Discussions are ongoing, including with our congressmen and women in Washington, DC.
Financial Report
Cynthia Scoble, Controller
Financial statements are the report card of a business. Lane Electric Cooperative’s 2018 financials were included in the information mailed to you with your voter’s packet in late April. I’m not going to review the details, but there are some notable items.
I’m happy to report that we paid our bills on time, our bankers were satisfied with our financial performance, and we maintained the cooperative’s assets and good name. Your board continues to maintain appropriate oversight with an adopted annual budget, review of monthly financial reports and an annual audit. For 2018, the board retained Aldrich CPAs and Advisors to perform our annual CPA audit, which resulted, again, in a clean, unqualified opinion. That means they didn’t find any material misstatements.
Lane Electric has been the recipient of funds from a lawsuit with BPA since 2008. We are coming to the end of that settlement agreement in September of this year. As of March 2019, we’ve received $4.7 million. All total, we expect to receive $4.9 million.
Lane Electric works to maintain the financial strength of your cooperative through healthy margins and equity. That financial health provides the foundation for future financial stability, and it allows the cooperative to address difficulties that come our way.
In 2018, our margins and equity were healthy. We ended 2018 with $1.8 million in margins. But Lane Electric Co-op is a nonprofit, so our margins get returned to you as capital credits. Recently, the board authorized the retirement of the 2018 capital credits on a present value basis. If you were a member in 2018, most of you will see a credit on your bill sometime in the fall, unless you choose to defer it until later.
We also had a healthy equity ratio. The equity ratio represents the percent of total assets owned by the cooperative (equity divided by total assets). LEC’s 2018 equity ratio was 44%. The other 56% of our assets were financed with long-term debt or borrowing.
But what is a healthy equity ratio? Our lenders reward us with a discount on the interest we pay on long-term debt if we keep the equity ratio at or above 40%. The board has established a range of 40% to 45% as a measure of financial health. That allows us to carry on routine cooperative business, including system improvements and capital credit retirements.
A healthy equity ratio provides opportunity to invest in technology and other advancements that bring value to our members. It provides for risk mitigation— with a cushion for extreme weather events that significantly impact our margins, such as the December 2016 ice storm and the snowstorm of February 2019.
Clean up and accounting in the aftermath of the December 2016 ice storm continued into 2017. Clean up and accounting for this year’s snowstorm will likely continue into 2020. Total damage costs from this year’s snowstorm are estimated at about $5.6 million. After the ice storm of 2016, Lane Electric recovered about 70% of storm costs through Federal Emergency Management Agency reimbursements. The other 30% was financed with margins and debt.
President Donald Trump recently made a disaster declaration for the February storm that included Lane County, so FEMA funds will be available to us. We are working on securing that funding to recover as much of the costs as possible.
Lane Electric has two member assistance programs. MAP was created to allow members to help other members by donating to a special fund that is used solely for member assistance.
The MAP-Plus program allows members to round up their bill to the nearest whole dollar and donate that difference. Those pennies add up. To date, 1,018 LEC members participate in this program. During 2018, LEC provided $24,028 in assistance to 119 members who were in jeopardy of service disconnect. If you would like to learn more about how you can help, please visit our website or call the office.
Distribution System Report
Tony Toncray, Manager of Engineering & Operations
Last year, I spoke about aging infrastructure and vegetation management. This year I would like to talk a bit about the process for pole change-out and wildfire worries with regard to power line safety.
We have nearly 18,000 poles in the system. We mined our data and found that 10,400 of our poles are at least 30 years old, and 8,200 of those are 40 years or older. We have doubled our pole change-out budget this year to replace 300 poles, with the goal to increase to 600 poles a year to get on a 30-year cycle. We have created efficiencies to maximize the number of poles we can replace with our current budget.
The National Oceanic and Atmospheric Association is predicting summer conditions to be warmer and drier throughout the region. According to the Oregon Department of Forestry, years of drought and recent ice and snowstorms have increased fuel load. We have about 728 miles of high-voltage overhead power line. To put that in perspective, Eugene to Los Angeles is about 850 miles. That’s a lot of exposure with a lot of risk.
Gov. Kate Brown has created a Forest Practices Council with Utility Source Ignition at the top of its list of things to look into. We are going to look at ways to mitigate risk, such as new technologies for protective devices and possibly operating our system protection differently during the summer months.
If you see vegetation or dead trees that you believe are at risk of getting into our power lines, please give us a call and we’ll come out and assess the situation. You are our eyes in the field, as we can’t be everywhere all the time.
In closing, I would like to touch on disaster preparedness. I’ve been in the industry 30 years this August, and I’ve been on storm repair in Oregon and Washington during that time. Through the years, storms have increased in intensity. I haven’t seen a storm as devastating as this year’s snowstorm.
Even with as much work as we put into hardening the system, we can’t prevent the devastation Mother Nature imposes on us. In fact, just when I think I’ve seen it all and it can’t possibly get worse, Mother Nature seems to say, “Hold my drink and watch this!”
Please take disaster preparedness seriously and prepare yourself to the best of your ability should something like this last storm occur again.
Legal Report & Director Elections
Chuck Fadeley, Legal Counsel
Lane Electric Cooperative is not suing anybody and no one is suing us.
Two incumbent directors ran unopposed to renew their three-year terms: Hugh Buermann of Row River District and Jack Billings of Central District.
As at past meetings, I would like to share some anecdotes from my time as a county justice of the peace. This year, I’m going to talk about animal violations.
One woman kept getting tickets for not having a dog license on her dog because it wasn’t wearing its collar. She said her dog was not wearing her collar because “the dog did not think the color looked good on her.”
Another person asked if his dog-at-large fine could be waived because his dog spent the weekend in the pound and should get credit for time served.
Lastly, a very nice lady pleaded not guilty to dog-at-large. I asked her if her dog got out. She said, “Yes, but my dog is a Chihuahua. It’s not a large dog.”
That’s a wrap of our 2019 district meetings! Thank you to those who attended. We enjoyed getting to spend an evening with you.
