Cost-based restructuring, higher wholesale costs


Empire Electric Association did not raise rates for our residential class. Empire did restructure rates using a cost-based approach to reduce subsidies flowing from member to member. For our residential class, this required an increase in the facilities charge and a decrease in our energy charge. Ms. Venne's numbers ('The reason for Empire's rate increase,' Saturday, Feb. 23) are accurate.

Along with the cost-based rate restructuring, Empire raised rates an average of 1.61 percent for other rate classes. Justification for the increase is a 4.9 percent increase in Empire's electric bill from Tri-State Generation and Transmission Association (Tri-State). The cost of purchased power from Tri-State constitutes about 78 percent of Empire's cost of doing business. A 4.9 percent increase in this component of Empire's costs is substantial (a little more than $2.0 million over our 2012 budget, excluding our large CO2 customer). If Empire tried to recover the entire 4.9 percent increase, rates would have to be raised on average by 3.83 percent. Cutting expenses and accounting for some large margins from 2012 in 2013, we were able to absorb about 2.22 percent of the rate increase and only require an additional 1.61 percent on average.

There are residential members who use over 672 kWh/month who are on fixed incomes, just like there are members who use less than 672 kWh/month. Why should the members using more have to subsidize those using less? The fairest approach is to eliminate subsidies, which was done by implementing a cost-based rate structure

Future rates will certainly include the cost to finance part of the E&O center. Our first draw on our loan was at an interest rate of around 2.4 percent and the second at 2.7 percent. The loan will be for 35 years so the impact to the rates will be fairly small, not much different than the $3 to $5 million we have to borrow every year to repair, replace, upgrade, and maintain our current electric utility plant.

It has been common practice since the early 1950s for directors serving on rural electric co-op boards across the country to receive medical benefits plus a monthly stipend . About 10 years ago, Empire's board recognized that increasing medical premiums would continue to rise so they changed our policy to stop the practice of director participation in the medical plan and capped the benefit at $875/month in lieu of medical insurance. Empire's board compensation is below the average in the state, and pales in comparison to what investor-owned utilities pay their boards. (Florida-based Nexera Energy pays their 12 directors an average of $195,189 year, for example).

Empire's bylaws provide for indemnification of directors in the performance of their duties, and Empire has secured an insurance policy on their behalf. Our insurance carrier has had to defend cases against directors in other parts of the country in the $8 to $10 million dollar range. Governance on co-op boards is serious business and could bankrupt most directors without this insurance.

Members are always welcome to attend our board meetings.

Neal Stephens

General Manager

Empire Electric Association, Inc.