President’s Reports

President's Report

CEC Rate Increase Likely in January 2020

CEO Dave MarkhamIn July, the Bonneville Power Administration—the supplier of nearly all of Central Electric’s wholesale electricity—announced its record of decision to set rates for the two-year rate period
beginning October 1, 2019, through September 30, 2021. While BPA’s wholesale power rate will remain flat, transmission rates will increase, as well the likelihood of a financial reserves surcharge. BPA’s decision, combined with our ongoing strategic investment initiative, will likely increase Central Electric members’ retail rates beginning in January 2020.

As I have shared with you throughout the year, this development is not unexpected, but it could have been worse. In February, BPA announced the probability of a 2.9% wholesale power rate increase. By summer, after further analyses, BPA decided to forego the increase due to its efforts to hold down program costs and bring in additional market sales revenues. BPA’s transmission rates will increase an average of 3.6% as planned, accompanied by a likely 1.5% surcharge for the two-year rate period to ensure BPA retains levels of financial reserves above the minimum required to remain solvent.

While BPA rate increases have become the norm every two years, CEC has bucked that trend. When BPA raised utilities’ wholesale electricity rates 5.4% in 2017, CEC successfully avoided passing it on to members. This time may be different. Although the co-op continues to maximize the efficiency of its operations and electrical system, components of this electrical system are nearing the end of their lifespan, and technological advancements are required to meet the growing demand for electricity in Central Oregon. CEC’s strategic investment initiative calls for the expenditures of approximately $147 million from 2019 to 2028 to replace and upgrade electrical infrastructure to increase capacity and ensure the continued safety and reliability of the electricity we provide.

While member rates will not change October 1 when the BPA rate increase becomes effective, it is almost certain we will need to increase them in January 2020 to maintain the co-op’s financial strength. The board of directors and management are analyzing the effects of BPA’s transmission rate increase and the financial reserves surcharge.

Through the years, we have successfully kept CEC’s rates low. The latest available statistics show CEC 33% below the national average and 19% below Oregon’s average. I assure you before there is an increase to electric rates, we will take every step to manage costs within our control without compromising the safety and reliability of the electricity we deliver to you. I will inform you of the final decision in December’s president’s message.

President's Report

Cap-and-Trade Fails, But It Is Not Over

CEO Dave MarkhamThroughout this year, I have shared with you my concerns about the Oregon Legislature’s push for an economywide cap-and-trade-bill and our efforts to address the new cost exposure to Central Electric Cooperative of more than $7 million between 2021 and 2030. The prevailing consensus assured us
the legislation would easily pass as Democrats enjoy supermajorities in both chambers. HB 2020 cruised through the House but then ran into a roadblock. Senate Republicans—as a political protest—walked out to prevent a vote, and Democratic leadership acknowledged it lacked enough party votes to pass the bill. Though the bill is dead, it is not over. Gov. Kate Brown recently stated she would bypass the Legislature and use regulatory authority to impose cap and trade. No matter the twists and turns left in this saga, CEC will continue to engage in whatever process lies ahead.

Vegetation Management and Safety
With fire season upon us, I encourage you to read “Preparing for Wildfires” on pages 28-29. The article provides vital tips to prepare and protect your families, homes, and businesses. Central Electric is doing its part. Our crews oversee the removal of hazardous trees and vegetation overgrowth along approximately 2,500 miles of transmission and overhead distribution lines.

The most trying efforts can occur before removal of vegetation along federal rights-of-way. CEC’s service territory comprises 5,300 square miles, 56% of which is federally managed land, requiring us to work closely with the U.S. Forest Service, Bureau of Land Management, Council on Environmental Quality and other agencies. All parties are committed to protecting the electrical infrastructure and preventing wildfires, but the pathway forward is fraught with time-consuming regulatory processes. Months—in some cases years—can pass before permits are issued to perform work otherwise routinely done within days.

For example, CEC identified 30 dead and dying trees along a federal right-of-way and requested approval to remove them. As months passed waiting for multiple USFS specialists to review, the delay raised doubts as to whether we would get the job done this year. Concerned, I raised the issue in May with CEQ and BLM representatives during a trip to Washington, D.C. Upon my return to Oregon, I learned, thankfully, we were permitted to move forward. Removal of these hazard trees took three days.

Congress did approve legislation—four years in the making—to address bureaucratic delays and to streamline the permitting process. The USFS, however, is still in the rulemaking process to codify uniform standards and set stricter timelines. While the process is moving forward, it is not fast enough. When it comes to the safety of our members and the reliability of the electricity we provide you, time is of the essence.

President's Report

Grassroots Efforts Help Mitigate Financial Risk

CEO Dave MarkhamFor the past decade, the Oregon Legislature tried passing various versions of an economywide cap-and-trade bill to regulate greenhouse gas emissions. At the time of this writing, it appears those efforts will finally succeed, with Gov. Kate Brown poised to sign HB 2020 this summer.

As initially drafted, HB 2020 inadvertently exposed Central Electric Cooperative to more than $7 million in new costs between 2021 and 2030. Deeply concerned, and through the collective efforts of the Oregon Rural Electric Cooperative Association, we offered solutions to the governor’s office and legislative members. They listened and took action to address this unintended consequence.

HB 2020 sets an ambitious statewide goal to reduce carbon emissions to 80% below 1990 levels by 2050. The electric, industrial and transportation sectors bear the burden to meet this goal. To financially assist businesses in transitioning to a cleaner energy portfolio, the original bill calls for businesses annually emitting 25,000 or above metric tons of CO2 to receive carbon credits based on their emissions spanning 2017 through 2019.

Thus, the rub. CEC is under the 25,000 metric tons threshold those three years, but due to rapid growth in Central Oregon, CEC’s service load is projected to surpass it in 2020—a full year before the law goes into effect, and after the state distributes the
carbon allowances.

Despite CEC having a 96% carbon emission-free energy resource portfolio, limitations on the hydropower system require buying some market resources—a mixture of solar, wind and natural gas generation. Classified as “unspecified” and therefore carbon emitting, the co-op is forced to exceed the carbon emission threshold in 2020, but not receive any carbon credits to provide financial relief for our members. In comparison, the two investor-owned utilities in Oregon are only required to provide
50% renewable energy by 2040, and this legislation gives them a 10-year free pass on carbon penalties.

To restore some measure of fairness and equity, CEC pushed for amendments to help mitigate the financial risk to our members. Rather than determining issuance of carbon credits solely during 2017-2019, the amendments allow for the state’s newly created Climate Policy Office to also calculate credits on a five-year average post-2021. Under this methodology, CEC would qualify for carbon credits and reduce our financial exposure from $7.4 million to approximately $3 million from 2021 to 2030.

Though not a perfect solution, I am pleased that our effort these past six months produced a more favorable outcome—but the work continues. As the Climate Policy Office embarks on the rulemaking process to enforce HB 2020, we must ensure our amendments are properly adopted.

 

President's Report

Selling BPA’s Assets Ill-Advised; Keep BPA Rates Competitive

CEO Dave MarkhamThis spring, I joined Oregon electric co-op leaders and others throughout the country for the National Rural Electric Cooperative Association’s Legislative Conference in Washington,D.C. This annual trip presents an opportunity to visit Capitol Hill to advocate for our members.

Despite Congress previously rejecting it, the administration once again rolled out an ill-advised proposal in its FY2020 budget to privatize the transmission assets of the Bonneville Power
Administration and other power marketing administrations and impose market-based rates on PMA power sales. Last year, the Northwest congressional delegation demonstrated bipartisan opposition and helped prevent it from getting any traction. After our round of visits with Oregon U.S. Sens. Ron Wyden and Jeff Merkley and our House delegation, I am pleased to report they will again stand united in opposition of this proposal. Our lawmakers recognize that if the federal government sold BPA’s transmission assets to the highest bidder, co-op members would face a significant spike in electric rates and lose millions of dollars of equity they have invested in BPA’s assets through the years.

Selling BPA and other PMA assets is a recycled and tired idea. These proposals date back to Presidents Reagan and Clinton as administrations seek ways to raise revenue to feed ever-growing budgets. Electric co-ops have successfully warded off all attempts, and I am optimistic we will do so again.

Rather than expending energy to defeat the privatization of PMAs, Congress’ time would be better spent keeping power rates of PMA competitive. Unfortunately, we continue to see BPA rates climb. This raises concerns about the long-term economic viability of this resource. As I shared with you last month, BPA has scheduled a wholesale rate increase for October 1, 2019, with an estimated average increase of 2.9% for electricity and 3.6% for transmission services. That will likely result in a need to increase CEC’s rates in January.

A recent sliver of good news from BPA: they will absorb spill costs this year. BPA spilled water past Columbia River hydroelectric dams last year to help salmon migration downstream. Bypassing turbines means less power generation and requires BPA to buy replacement power in the regional market. To recover costs, BPA imposed a spill-related surcharge on Northwest utility consumers; CEC’s costs were $150,684.

Defeating the administration’s proposal and avoiding a spill surcharge this year are examples of the various fronts we must work to deliver this carbon-free renewable resource to you in a cost-effective manner.

 

President's Report

CEC Looks to 2019 and Beyond

CEO Dave MarkhamAt last month’s 78th annual meeting, I highlighted Central Electric’s chief accomplishments made possible by the board of directors’ leadership and dedicated staff. But, as I reminded the audience, the complexity of the issues we are confronted with is growing. Various external pressures challenge our efforts to keep rates low and reliability high.

Since 2009, the Bonneville Power Administration has enacted five rate increases with the sixth going into effect on October 1, an estimated average increase of 2.9 percent for electricity and an average 3.6 percent for transmission services.  While CEC successfully kept its rates at current levels despite a BPA rate increase two years ago, we will likely need to increase member rates in January 2020.

On another front, House Bill 2020—Oregon’s carbon cap-and-trade legislation—poses unintended fiscal consequences which would potentially expose Central Electric to millions of dollars in additional costs between the years 2021 and 2030. The bill calls for a reduction in carbon emissions in the electric, industrial, and transportation sectors. Businesses in these sectors annually emitting above 25,000 metric tons of carbon-dioxide will receive carbon credits, which decrease each year, to assist with their costs of transitioning to a cleaner energy portfolio.

The credits a business receives are determined on carbon emissions over a three-year span; 2017, 2018, and 2019. Due to load growth, CEC will exceed the threshold in 2020—a full year before the law goes into effect but after the distribution of the carbon credits. Ironically, CEC would not receive any carbon credits and would be subjected to financial penalties, despite having a 96 percent carbon emission-free energy resource portfolio.  But, the two large investor-owned utilities in the state get a reprieve—enough credits to cover ten years of carbon emissions and they are only required to be 50 percent carbon-free by 2040.

Recent efforts to educate our governor’s staff and legislators regarding these inequities and to find a solution to minimize the financial impacts has gained traction. But, your voice needs to be heard too. I would encourage you to visit our website www.cec.coop; click on the Community tab; and then ORECA-Action. There you can join your fellow CEC members and other Oregon electric co-ops members to share your concerns about this legislation with policymakers.

A long and challenging road lies ahead of us. But if the co-op’s history is any indication, I am optimistic we will successfully meet these challenges and protect the interests of CEC and its members.

 

President's Report

Governor, Legislature Make Cap and Trade a Priority


The Oregon Legislature is moving ahead with one of the more sweeping and complicated pieces of legislation in modern Oregon history, targeting reductions in the state’s carbon emissions. Governor Kate Brown and the Democratic majority leadership in both the House and Senate are prioritizing passage of cap-and-trade legislation similar to a law enacted in California several years ago. As envisioned by Oregon’s political leadership, cap-and-trade will affect electric utilities along with the manufacturing and transportation sectors and everyone using gasoline, natural gas and propane.

The “cap” on emissions is a firm limit that is reduced over time. The “trade” part is the establishment of market that enables companies such as utilities or manufacturers to buy and sell allowances that let them emit specific amounts of carbon. Supply and demand sets the market price of the allowances.

As you can imagine, this will be complicated business and electric cooperatives such as Central Electric won’t be able to avoid the complexity. However, we will be helped by having an electricity supply that is more than 94 percent carbon emission free, mainly due to our access to hydropower from the Federal Columbia River Power System. I have written numerous times about the value of this renewable resource and the contradictory state policies and actions that undermine its value. I firmly believe that Oregon cannot meet its carbon reduction goals without recognizing the benefits of federal hydropower.

Such policy conflicts are difficult to comprehend. The potential for higher costs imposed on that portion of CEC’s energy supply not produced at the dams only worsens circumstances. CEC will also be impacted further by the likelihood of higher fuel prices since the transportation sector accounts for 40 percent of the state’s carbon emissions. One economic study concluded the cap-and-trade program will increase fuel prices 16 cents per gallon. CEC’s fleet management costs will certainly increase which ultimately impacts your electric rates.

It is too soon to say whether cap and trade will result in unfair or inequitable treatments among utilities.  We do know that with the political will and majority behind it, some form of cap and trade legislation is all but certain to pass this legislative session. A lot of questions still need answers from legislators. I am committed to meeting with legislators and working with the Oregon Rural Electric Cooperative Association to minimize the financial impact of this legislation on Central Electric’s rates as well as those of Oregon’s 17 other electric co-ops.

Central Oregon Hearing
The Oregon House of Representatives is holding four public hearings on cap-and-trade legislation away from Salem. Central Oregon’s opportunity to be heard is Saturday, March 2, at Central Oregon Community College in Bend, Cascade Hall from 9 a.m. to noon. I hope you will be able to attend.

Dave Markham
President and CEO

President's Report

Keeping You Informed of Changes in Your Rates

Photo portrait of Dave MarkhamI encourage you to take time to read the important articles about changes to your electricity rates on pages 28 and 29 of the February 2019 edition of Ruralite. The first article communicates the details of the second phase of our rate redesign program under the five-phase implementation plan Central Electric launched two years ago. The second article advises you that we will likely need to increase kilowatt-hour energy rates in January 2020. While both developments affect your electricity bill, there are important distinctions between the two changes to rates.

Our article on the progress of the rate redesign program explains why we adopted this program two years ago and how each of the implementation steps between now and 2025 will take shape. In summary, the program gradually decreases the energy rate while also offsetting those decreases with increases in the monthly facilities charge. The rate redesign is driven by changes in consumers’ energy choices, the need to treat all members equitably when charging for the services required to serve you, and the benefits of clearly showing members the costs of their energy use and the costs of delivering that electricity to you.

The average consumer’s annual electricity bill is unchanged as a result of these offsetting actions and the cooperative realizes no change in revenues. Ultimately all members pay their fair share of operating the utility system and everyone gets a clearer price signal related the electricity they use.

In mapping out these changes we have avoided speculating about future energy rates, our projections historically have made no assumptions of energy cost increases in an effort to avoid speculating about future unknowns. However, our second article explains such an increase will likely be needed in January 2020 and the reasons behind the increase. This outlook is driven by the October 2017 increase in our wholesale electricity rates charged by the Bonneville Power Administration and another such increase scheduled for October of this year. We also explain that part of the increase is also due to the need to significantly increase the cooperative’s investment in the major parts of the electrical system infrastructure during the 2020 to 2030 period.

I fully understand that most members prefer not to give a lot of time and thought to our electricity service as long as it’s reliable and affordable. Because continued reliability and affordability in an increasingly complex and expensive world are goals of both of these rates-related changes, I appreciate your willingness to spend time learning more about these important developments. All of us at Central Electric place a premium on keeping our members informed of the changes that affect them, their electricity service and its costs.

Dave Markham
President and CEO

President's Report

Washington Whale Recover Plan Includes Spill, Dam Removal Study

Photo portrait of Dave MarkhamActing on the recommendations of his task force for orca recovery, Washington Gov. Jay Inslee has proposed budgeting $1.1 billion to fund recovery efforts for Puget Sound’s killer whale population. While taking steps to ensure the whale’s recovery is critical, I am concerned by the governor’s broad-based proposal’s potential impacts on the four federal dams on the lower Snake River.

I wrote about this issue in November’s Ruralite when it became clear the dams and their operations were on some task force members’ agenda. The task force’s profile skyrocketed when a mother whale carried her dead calf around Puget Sound for more than two weeks during the summer. The world learned of the pod of 74 whales known as the southern resident orcas threatened by dwindling food sources, water and noise pollution, and falling birth rates.

Among the governor’s 26 funding recommendations is $750,000 for the task force to facilitate a stakeholder process assigned to, according to a statement issued by his office, “inform a path moving forward should the Lower Snake River dams be removed.” This is intended to “provide a better understanding of the environmental, economic and social impacts of the dams.” Another $580,000 is dedicated to revising Columbia River water quality standards to allow increased spill at the dams to help salmon migration. This means increasing the amount of water bypassing the generating turbines, thereby requiring purchases of fossil-fuel produced energy to replace the lost hydro production. The action drives up costs and increases carbon emissions for an unproven benefit.

Inclusion of these efforts is not surprising, but it is disturbing how the proposals were included. The task force based its recommendations on public comment gathered largely through an online survey. The statistics behind its responses are telling.

Task force members report there were 12,270 survey responses but only 3,898 had unique IP – internet protocol – addresses, the identification for the origin of a message sent on the internet. This statistic shows 68 percent of the surveys were from the same origin. Three IP addresses were the source of 400 responses and 21 other IP addresses each originated more than 100 responses. Additionally, there were nearly 8,700 comments specific to hydropower but an initial sampling of 800 of those comments revealed repeated verbatim points about increasing spill and removing dams. These two issues generated over 12,500 comments while all other questions averaged about 4,000 responses.

While a certain amount of mass mailing is expected with such surveys, it is disheartening that such an important public decision can hinge on a process vulnerable to easy manipulation.

Dave Markham
President and CEO

President's Report

CEC Electrical Grid Continues to Amaze

Photo portrait of Dave Markham
As much as you hear the word “amazing” these days, I don’t find myself using it very much. It seems all too often the word is used to describe something that really is not that amazing after all. But I never hesitate to use the adjective when I talk about Central Electric’s electrical system and what it takes to keep it up and running.

The electrical grid has been called the greatest real-time delivery machine in human history. It continually balances electricity supply and demand in increments of milliseconds. It links power plants, transmission systems and distribution networks across thousands of miles to homes and businesses with an overall reliability record exceeding 99.999 percent. The electrical system grows even more sophisticated every day. Nowadays, consumers can monitor their electricity use by the hour, day, week or month, as is the case when CEC members use our SmartHub application. Or consumers can connect their own energy production system, usually solar panels, and in a small way actually become part of the grid. What also can amaze me is how much this engineering marvel is taken for granted when just a couple of generations ago it was seen as a life changing miracle.

The care and management of our transmission and distribution system is an around-the-clock responsibility for the employees of Central Electric. Our members frequently praise our lineman for restoring power outages in all kinds of weather, day and night. Few realize that this work is a relatively small share of our crews’ workload. Every day their “normal” work involves projects that expand the size of the system or secure its reliability. They make proactive improvements or replace poles or underground power lines nearing the end of their service life. All is backed up by our engineers’ invaluable behind-the-scenes work. Their designs make sure that the changes made by our crews synchronize with the rest of the system’s technologies and the physics of electric energy.

This dedication and expertise keeps up and running our system of 24 substations, 45,000 power poles, more than 3,700 miles of distribution line, and 185 miles of transmission line, all spread across 5,300 square-miles. This system operates around the clock delivering electricity to you, as much as you need whenever you need it. Some might say such a system is not amazing at all because it does its job, day after day, only being noticed during rare periods of failure. When such instances average less than one-thousandth of a percent of the time, I can’t help but think, “amazing.”

Dave Markham
President and CEO

President's Report

Tying Dam Removal to Orca Protection Stretches Logic

Photo portrait of Dave Markham
It is well known that the orca whale population inhabiting Washington’s Puget Sound is in trouble. Images of a mother whale carrying her lifeless calf for more than two weeks in August made news worldwide. This distressing sight spotlighted this specific population of whales threatened by malnourishment and plummeting birth rates. Marine biologists have determined the primary causes are water pollution, boat traffic noise interfering with
the whales’ ability to locate prey, inbreeding and reduced food stocks, primarily Chinook salmon.

Unfortunately, anti-dam activists are opportunistically linking the whale’s food supply and survival to removal of four Snake River dams, claiming this is the single most important action to help the whales.  A petition based on that premise has gathered more than 500,000 signatures aimed at persuading Washington Gov. Jay Inslee’s orca recovery task force to support dam breaching.

An early October press briefing by the federal agencies responsible for Columbia River System Operations included rebuttals of the activists’ key claims, including overstating the dependence of the whales’ diet on Snake River salmon runs. In reality Snake River Salmon runs are only two of the 15 different Chinook runs making up the whales’ diet and those two runs’ numbers have increased to levels higher than the during the 1960s before the dams were built. Removing the Snake River dams would provide only “an incremental benefit” to the two Snake River runs, according to a U.S. Army Corp of Engineers biologist. Meanwhile, the top priority Puget Sound Chinook runs have shown no improvement, largely due to habitat loss.

The anti-dam forces also characterize the Snake dams’ removal as a quick and low-cost option. Updated removal costs are estimated at $2 billion, not the $80 million activists claim. They also claim the Corp of Engineers has the authority to breach the dams and could do so within five years. The Corps’ chief of civil works explained removal would require an act of the U.S. Congress. We all know approval alone would take years, let alone completing the studies required to carry out any such action.

Finally, the anti-dam groups tell supporters the four dams’ energy production is negligible. In fact, the dams generate enough low-cost, carbon emission free, renewable electricity to meet the needs of Seattle. This should be of great importance to environmental advocates.

These anti-dam activists are attempting to divert the orca task force’s time, money and energy from activities that could provide the whales with the timely help they need.   I hope you agree that this is, at the very least, irresponsible.

Dave Markham
President and CEO

Go to www.westcoast.fisheries.noaa.gov to learn more about the National Oceanic and Atmospheric Administration management of the Puget Sound orca’s dilemma.