Savings for both homes and business!
At the November 2014 meeting of the board of trustees, the management team presented the 2015 operating budget. The budget covered all areas of cooperative operations. Developing a budget for a company with $80 million in assets and over $30 million in annual revenues is complicated and it is not a simple task. The management team and trustees take this job very seriously. All costs are reviewed. Virtually all areas of operations are looked at and the simple question asked: Is this necessary and if it is can it be done more efficiently?
Efficiency isn’t about driving our trucks faster to the next location; or turning the wrenches faster; or typing faster at a keyboard; it’s about reviewing our processes and being sure that each step is necessary and adding value to the job. The management team and all employees are charged with insuring efficiency savings are part of the budget process. Cost management always starts with efficiency.
A big part of the budget is a review of our electric rates. A review of rates starts with an update of the cost of service study or the COSS. Our accounting department updates our COSS each year. The COSS breaks down all the investment necessary to serve each rate class, identifies all the costs associated with each rate class and compares it to the revenue being generated by the rates for each class. With the study completed, the board of trustees can review the financial performance of each rate class. After a careful review of the proposed budget and the cost of service study, the board determined that no rate increase was necessary for 2015.
Stable wholesale power prices are the main driver to stable electric rates. Wholesale power is nearly 70% of the cooperatives total expenses; minor changes have major impacts. As I explained to the trustees recently, a 1% change in our expenses is about $45,000; a 1% change in power cost is about $250,000! Since 2007, our wholesale power costs have increased about $800,000 per month. (Yes, I said per month!) That is about $10 million per year that all of us members must pay. This has also been the reason why rates have increased in recent years. Now, with steady power prices; rates to members can be stabilized.
Also, the board recently approved $1 million in capital credits for 2014 and it’s budgeted for 2015 to again approve $1 million in capital credits. Here’s how it works: money remaining after Paulding Putnam’s bills are paid each year is known as margins (it is the margin between income and expenses). This money is used for capital expenditures, such as building or replacing lines, and is not paid back immediately. This becomes your investment or equity in the company. In a for-profit company, this money would be called profit. To be a true nonprofit cooperative, we believe this money should be returned to our members…we call it capital credits.
Your board of trustees, management and employees work hard to deliver electric power that is reliable, safe and cost competitive with our neighboring utilities. Our members can be assured that your Team is working for you to keep your rates competitive while still working to replace aging facilities, increase efficiency and improve our service reliability. To learn more about Paulding Putnam Electric Co-op, please visit www.ppec.coop.
