Your cooperative’s management and directors often talk about planning for system growth, system integrity and long-term system reliability, as well as planning for the future in other ways.
In order to further develop our strategic plan, Orange County REMC retained Alpha Engineering from Indianapolis last year to perform an electric Cost of Service Study (COSS) as a part of its ongoing efforts to maintain fiscal responsibility and ensure fair rates for its electric utility members. Our rate-making goals have always been to establish a fair allocation of costs to all members and equalize the rate of return among all member rate classes.
When the study was complete, we knew we would have three clear data points — analysis of all rate classes, overall revenue requirement analysis and revenue requirement at the various classes of service. I want to update you on where we are at this point.
The COSS did indicate that, based on the 2015 base year information provided to complete the analysis, normalized margins were negative. This means that the cooperative would lose money if it continued to operate status quo. The study suggested a rate increase to address what the data was showing. Taking into consideration the changes that were already in the works, and estimating their impacts, it was decided to continue to monitor this recommendation vs. acting on it.
As 2016 continued to play out, it appeared that the cooperative could make significant enough impacts on those expenses that we could control to offset the negative margins. The 2016 operating margins were significantly increased by approximately 400 percent.
Operating margins are those margins that are affected by the efficiency of operations to include operating revenue, cost of purchased power, operational expenses, depreciation, tax and interest expenses.
To put this in perspective, the cooperative budgeted to make $5,300 in operating margins in 2015. The actual operating margin was just less than $50,000. In 2016, the operating margin result was $243,719. To make such an impact required much work by our staff to look at the programs they were responsible for and ensure each member’s dollar was being fully utilized within the programs. If not, the dollars were reassigned to programs that provide more benefit to the members, or were eliminated from the budget, and those dollars weren’t spent, resulting in additional margin.
The cooperative is utilizing the margins in 2017 to continue to invest in technology. Our goal is to have an automated outage management system by the end of the year. This will allow members to visually see where outages are and be able to get status updates much easier.
Also, in 2017, we plan to add additional phone line capacity to reduce the number of busy signals member receive when calling us. Not to say that busy signals won’t happen, especially when large outages occur, but everyone should witness an improvement.
We are also offering the Co-op Connections® Card beginning in 2017. This card will provide access to discounts locally, as well as with many regional and national stores and significant discounts on prescription medications. Numerous other initiatives are being added as well — each with value to the member and continued positive financial impact.
Remember: The REMC staff is working with the mindset to “always be in beta,” which refers to when a company releases its newest version of a software they offer. As long as Orange County REMC’s mindset is to “always be in beta,” we can do the job incumbent on us, which is to ensure the cooperative operates as efficiently as possible through a willingness and awareness to bring positive change to our membership as necessary.
MATTHEW C. DEATON is general manager/CEO of Orange County REMC.