Sharing the load

Consolidation would bring the best of co-ops together to mitigate risks

Posted on Aug 30 2018 in Kankakee Valley REMC

As Kankakee Valley REMC continues discussing its possible consolidation with Jasper County REMC, KV REMC’s management and directors would like to share some insight on how the consolidation would mitigate risk to both cooperatives.

As shown on the chart at right, the total kilowatt-hour (kWh) sales for both cooperatives are comprised of three segments: residential, small commercial and large commercial. These segments are referred to as our “load” profile. The majority of KV REMC’s load is residential at 75 percent. Small commercial accounts for 25 percent. Your cooperative has no large commercial load. With a high residential load, there is a prohibitive cost of service risk for KV REMC members. Your cooperative lacks the large commercial load to offset that risk.

For a long time now, KV REMC has worked with the local economic development organizations to encourage businesses to invest locally and recruit commercial industry to our service territory. Unfortunately, outside factors often greatly influence the decision to build or locate in the rural areas. For KV REMC, these influences are the low availability of land served by the REMC, and, in some cases, the lack of utilities like water, sewer and broadband.

Although Jasper County REMC has a very similar residential load profile, its risk lies in its 30 percent of large commercial load. Many cooperatives’ large loads are moving to other states or countries. When a plant sits idle, it is not purchasing electricity from the cooperative. This is a concern for Jasper County REMC.

You may have heard the consolidation referred to as “bringing together two financially strong cooperatives.” Although there are differences in our load profiles, these differences bring strength and stability to the consolidation. As stated earlier, high residential load results in a higher cost to serve our members. As you can imagine, one large commercial load requires less service than hundreds of individual homes in a subdivision. Services cost money. Through the consolidation, KV REMC’s residential risk would go from 75 percent to 62 percent. This decrease would benefit all members.

The same is true for lowering Jasper County REMC’s large commercial load risk. Through the consolidation, the combined large commercial load will only make up 13 percent of the total risk instead of the 30 percent that Jasper County REMC experiences now.

So, what does this mean for you? KV REMC’s yearly budget is predicated on kWh sales. If a significant portion of these sales were to disappear with little notice, your cooperative would be impacted. This impact would affect new projects, improvements to infrastructure and possibly the level of support we are able to provide to the community. More importantly, the electrical rates charged to our members would need to be evaluated.

The boards of directors at both cooperatives are committed to keeping rates low and steady for our members. Mitigating risk is a logical way to reach these goals. It is believed that by consolidating the two cooperatives, positives from both systems can lower risks for the new entity.