President’s Reports

President's Report

Reducing the Threat of Wildfires

CEO Dave MarkhamNearly 50,000 wildfires burned 4.6 million acres throughout the United States last year, with the West hit especially hard.

During the past decade, California’s 20 most destructive fires ignited due to faulty electrical equipment or downed power lines.

Searching for answers, Congress convened a hearing in January inviting utility executives and forest management specialists to articulate what steps utilities and the federal government could take to make electric infrastructure more resilient against future failures.

Invited to testify, I highlighted Central Electric’s experiences, spoke to the practical challenges we face to implement wildfire precautions and ensure system reliability, and discussed how the federal government could lend assistance through improving certain policies and practices.

I also shared that Oregon cooperatives were demonstrating leadership by initiating a unique approach to partner with federal land agencies to implement strategies to reduce the risk of wildfires.

A core effort to reduce wildfire risk, ensure public safety and provide reliable service to our members relies on upgrading utility poles and managing vegetation in utility corridors on heavily forested federal lands. A major hurdle, however, is getting timely authorization or permits from the federal land agency.

For example, Central Electric is seeking approval to replace 131 aging power poles and remove encroaching vegetation along a 13-mile overhead power line route on federal land in the Camp Sherman area. Installing taller poles with wider crossarms will enhance reliability and resiliency and reduce the threat of wildfire ignitions. Central Electric also requested permission to remove all vegetation within the utility corridor, including dead snags, hazard trees and limbs outside of the utility corridor, which could fall into contact with the power line.

Despite submitting our application to the federal land agency in April 2019, we have not been authorized to move forward. The window of opportunity in Camp Sherman to complete this project before the fire season is narrow due to winter snow and spring rain.

While this episode—and others like it—prove frustrating, we highly value our relationships with federal land agencies and want to work collaboratively with them. In that vein, Oregon electric co-op leaders will convene a workshop this spring with the state, regional and district land management agencies to identify actions that can be implemented on federal lands in a timely fashion to reduce wildfire risk within utility corridors and adjacent lands.

The strong support expressed by the federal land management agencies is encouraging. I am optimistic we can develop principles committed to producing an agreement among all stakeholders to more efficiently reduce the threat of wildfires to the benefit of Central Oregon’s citizens, communities and natural resources.

President's Report

Hydropower Essential to Delivering You Clean Energy

CEO Dave MarkhamA recent report by the National Academy of Sciences of the United States of America caught my attention. The nonprofit and nongovernmental organization affirms the cleanest energy in the country flows through the Bonneville Power Administration’s service region.

CEC benefits from this clean energy because it relies on BPA for nearly all its wholesale electricity and, as a result, can claim a nearly 100% carbon emission-free energy portfolio this year.

When you drive Interstate 84, it is hard to miss BPA’s hydroelectric facilities strung along the Columbia River Gorge. However, BPA’s footprint expands well beyond the river. The federal power marketing administration, created by Congress in 1937, has facilities throughout the Pacific Northwest covering 300,000 square miles, which include Idaho, Oregon, Washingon and portions of five surrounding states. BPA’s 261 substations and more than 15,000 miles of transmission lines deliver nearly 28% of the electric power used in the Northwest.

The value of BPA’s hydroelectric power must not be underestimated, especially as policymakers take steps to adopt aggressive carbon-free emission goals. The 24/7 renewable baseload resource does and will continue to play an expansive role in achieving these ambitious goals as BPA’s hydroelectric power backstops intermittent renewables such as solar and wind. The system also provides flood control and irrigation for agriculture, and supports commerce and industry, including large tech companies that want carbon-free, low-cost power.

While CEC benefits from subscribing to BPA’s clean, renewable energy, it comes at a cost. Every two years since 2010, BPA has increased its wholesale power rates to its utility customers. To try to neutralize these rising costs, Central Electric, along with other Oregon electric cooperatives, makes every effort to work with BPA to keep its power rates competitive and ensure the resources’ long-term economic viability.

Yet to quote the proverb, “No good deed goes unpunished,” there has been a significant push in the legislature to adopt an economywide cap-and-trade bill. When introduced last year, the bill initially exposed Central Electric to nearly $7 million in new costs between 2021 and 2030. As the bill wound its way through the legislative process, CEC successfully had the bill amended to reduce the cost exposure to just more than $2.5 million during the same period.

In my view, imposing additional costs proves unwarranted when CEC has an almost carbon-free portfolio. Nor is it equitable when the two Oregon investor-owned utilities must only provide 50% renewable energy by 2040 and get a 10-year pass on carbon penalties.

When the Oregon State Legislature reconvenes for a short legislative session this month, cap-and-trade legislation will once again take center stage. As deliberations ensue, I encourage policymakers not to punish good actors, such as Central Electric, who have demonstrated a commitment and made the investment to provide clean, renewable and cost-effective energy to its members.

President's Report

Unfinished Legislative Business

CEO Dave MarkhamWith a new year upon us, it is important to consider what the state and federal legislatures have in store for electric cooperatives. Will it be a new chapter, new verse or just the same old story? Whatever storyline develops, Central Electric will work diligently to ensure costly and unnecessary legislative and regulatory burdens are not passed on to members.

As the story played out last year, Oregon’s economywide carbon cap-and-trade bill (HB 2020) initially exposed Central Electric to nearly $7 million in new costs between 2021 and 2030. This cost exposure was unacceptable, given the electricity we provide to our members is already more than 96% carbon emission-free. To mitigate this financial risk, CEC met with the governor’s office and legislators, offering solutions which, eventually, were amended to the bill. The amendments reduced our cost exposure to approximately $3 million during the same 10-year period. HB 2020 languished on the Senate floor.

What happens during next month’s legislative short-session remains unclear. Will HB 2020 resurface, or will a vastly modified version be unveiled? Whatever the outcome, fairness and equity should prevail. Central Electric should not be financially punished for its nearly 100% carbon emission-free portfolio, while the two Oregon investor-owned utilities, who are only required to provide 50% renewable energy by 2040, get a 10-year free pass on carbon penalties. I will keep you informed of our efforts as this saga continues.

Unfinished business also awaits us on the federal legislative front. When Congress passed comprehensive tax reform in 2017, from thousands of pages emerged an unintended outcome jeopardizing many electrical cooperatives’ tax-exempt status.

Cooperatives must abide by the 85%-15% income test to maintain their tax-exempt status. That means no more than 15% of gross income may come from nonmember sources. For example, an electric cooperative that accepted grant money to assist with disaster recovery or broadband deployment would have to count the money as income if total monies received exceeded 15%.

The threat of a cooperative losing its tax-exempt status hits close to home. Two Oregon cooperatives, Lane Electric and Douglas Electric, were seriously impacted by last February’s record-setting “Snowmageddon.” While Lane Electric incurred $5.7 million in repairs and Douglas Electric about $10 million, both are eligible to receive aid up to 75% of those costs from the Federal Emergency Management Agency. These co-ops, however, may be forced to choose between keeping their tax-exempt status or foregoing FEMA financial assistance.

The bipartisan RURAL Act (H.R. 2147 and S. 1032) would resolve this dilemma. The Oregon congressional delegation has demonstrated bipartisan support for the RURAL Act, but Sen. Ron Wyden has yet to come on board. We remain hopeful, however, that as a leader on the Senate tax committee he will support and help advance this legislation. Oregon’s electric cooperatives will continue to weigh in with Sen. Wyden’s office until this legislation gets pulled across the finish line.

Our state and federal representatives need to hear your voices. I encourage you to visit our website, www.cec.coop, click on the Community tab and then ORECA-Action. Join your fellow CEC members and other Oregon electric co-op members to share your concerns with policymakers.

 

President's Report

Rising BPA Costs and Strategic Investment Initiative Drive Rate Changes

CEO Dave MarkhamCentral Electric Cooperative will implement a rate increase impacting all customer classes effective January 1, 2020. Though not unexpected, the decision to do so is never welcome but necessary. This marks only the fourth rate increase in the past 20 years.

Two major cost drivers influenced this action. The first, outside CEC’s control, is the Bonneville Power Administration’s continued rate increases every two years. BPA, which supplies virtually all of CEC’s wholesale electricity, raised transmission rates on its customers for the 2020-2021 rate period—a 5.97% increase for CEC. BPA also imposed a 1.5% surcharge on its utility customers to ensure the agency retains levels of financial reserves above the minimum required to remain solvent.

The other cost driver is CEC’s strategic investment initiative, which dedicates $147 million over the next 10 years to strengthen and upgrade its infrastructure to ensure continued safety, efficiency and long-term reliability. This initiative will also help meet Central Oregon’s increasing requirement for more electricity, fueled by population growth and members’ evolving needs.

The strategic investment initiative accelerates the upgrades to CEC’s poles, wires, underground cables and substations. Funding this 10-year initiative will be achieved through a combination of rates and borrowing, and will position the co-op to provide safe and reliable electricity to our members for the next 79 years.

Much analysis and thoughtful deliberation went into the decision to increase rates. When BPA raised utilities’ wholesale electricity rates in 2017, CEC successfully avoided passing it on to you at that time. A recent cost-of-service analysis, however, confirmed we could not absorb BPA’s rate increase again. The COSA helps guide management and the board to understand the financial impact of the BPA rate increase and the 10-year strategic investment initiative.

As a result, the increase in the residential rate is 5.2%. You will see the rate adjustment on your February bill. Despite this action, I am proud to say CEC’s residential rate will remain approximately 18% below the Oregon average and 33% below the national average.

Look for more information about the rate increase in the January issue of Ruralite and on CEC’s website, www.cec.coop.

President's Report

Members Show Giving Spirit

CEO Dave MarkhamThis month, most of us will pause from our busy lives to celebrate Thanksgiving with family and friends. While the holiday reminds us to reflect and express gratitude, it also should serve as a reminder of less fortunate co-op members who, due to causes outside of their control, enter into the holiday season in various levels of need.

One thing I appreciate about electric cooperatives are their set of core principles and values. Of particular importance is the seventh principle, “Concern for Community.” Throughout the year, CEC looks for opportunities to abide by this principle. The holiday season only heightens that sense of responsibility.

Central Electric’s Project Helping Hand plays a vital role in carrying out this mission. The program provides bill payment assistance to members who demonstrate need. Donations are raised by fellow co-op members who agree to round up their electric bill to the nearest dollar. These donations, albeit small, substantially accumulate through the collective effort and, ultimately, make a significant impact in helping needy members pay their electric bills.

Consider these numbers. Since 2010, on average, 1,800 members’ donations enabled CEC to distribute nearly $179,000 in assistance to more than 800 members who needed help with their electric bills. The program keeps going strong. Last year, through the donations of 1,862 CEC members, Project Helping Hand distributed $15,540 in assistance.

But we could do more! If you would like to join those 1,800 members who already contribute, please sign up today. There are three ways to participate. You may elect to have your bill rounded up to the next dollar, add a fixed amount to your monthly bill or make a one-time additional donation. To sign up, go online at www.cec.coop under the community tab and enroll, or call our customer service representatives at 541-548-2144. You may leave the program at any time. All gifts are tax-deductible. CEC will provide you with a summary statement of your donations on your January bill.

Thanksgiving kicks off the holiday season accompanied by shorter days, colder temperatures and higher electric bills. For some members, it will be a season of their greatest need. Working together, we can help make their lives a little brighter.

President's Report

CEC Member Satisfaction Survey Still Open

CEO Dave MarkhamWin a $500 credit off your February 2020 electric bill!

Time is running out, and we want to hear from you.

Central Electric Cooperative places a high value on delivering you, our members, with safe, reliable, low-cost electricity with excellent customer service. One way to measure our performance is to give you the opportunity to take a member satisfaction survey.

The questionnaire—generally conducted every two years—allows co-op members to grade our performance in key areas, including service reliability, rates, quality of customer care and communications. This survey also includes questions to gauge your interest in deploying energy-efficiency products in your home to help reduce energy use and adopting new technologies to manage your account.

Collectively, your responses not only provide critical input to our future planning and decision-making but informs us of how we are performing in real-time. Your feedback can affirm we are on the right track or, if needed, identify areas where we can improve.

This survey went live on September 15 and will remain open through October 15.

Available online to ensure greater participation, you can access the survey by clicking on www.cecsurvey2019.com. You will need to enter your account number to participate. If you don’t know it, please call 541-548-2144 and a customer service representative will assist you. You can access a link to the survey on CEC’s landing page at www.cec.coop. The survey should take five to seven minutes to complete. DHM Research of Portland conducts the survey. All responses will remain anonymous.

For your efforts, completion of the survey will automatically enroll you for a drawing to win a credit on your February electric bill: first place is $500, second place is $250 and third place is $100. If the award amount exceeds your bill, you may roll over the net credit to the following month’s electric bill. The drawing will be in early November, and we will notify the winners then. We will publish the names of the winners in January’s Ruralite.

Though participation is voluntary, your input plays a vitally important role in our efforts to provide you with quality service.

If you have already taken the survey, thank you for your time and participation. Your feedback is much appreciated.

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.