President’s Reports

President's Report

CEC Sells its Telecom Subsidiary

Central Electric Cooperative (CEC) announces that it has sold its ownership interest in LS Networks (LSN). The transaction closed on March 31 with CEC receiving approximately $50 million as its share of the sale proceeds.

CEC helped create LS Networks 15 years ago with a mission to bring top-tier bandwidth and fiber-optic network connectivity services throughout the Pacific Northwest. LS Networks was owned by CEC’s subsidiary, CEC Resources, and three other cooperative shareholders. The carrier-grade network has grown to 7,800 fiber miles serving large and small commercial and individual customers in rural and urban communities, including schools, governments, healthcare organizations and businesses.

“I am incredibly pleased to see the investment CEC made over the last 15 years in LSN prove financially rewarding for the co-op,” said CEC’s President and CEO Dave Markham, former chair of the LSN Board of Directors. “Timing is everything, and now was the opportunity for the co-op to monetize its investment after all these years,” he added.

In 2000, CEC formed CEC Resources consisting of for-profit companies offering propane and telecommunication products and services. Born out of necessity due to energy deregulation, which threatened to up-end the electric utility business model and create financial uncertainty, the subsidiaries allowed CEC to diversify and generate additional income streams.

William B. Keeton, CEC’s board chairman, recalls those early days. Keeton and fellow CEC board member Tom Strand, both board members at that time, stated, “The CEC board made the challenging but right decision for the co-op to invest in LSN.”

Fifteen years later, having stayed the course through some tumultuous times, the board’s foresight and intuition proved correct.

Dave Markham and CEC’s Chief Financial Officer Rawleigh White, who joined the LSN board in 2008, helped guide LSN through its challenging years and, eventually, on the path towards long-term growth and economic viability. They advocated for LSN to reconfigure its business model to aggressively fund and build out a “last mile” network to generate greater market penetration and stability. Over time, the investment and expansion into commercial, government, education, medical and wireless carrier business propelled LSN’s revenue upward over the last three years.

CEC Board Director Bill Rainey, who chairs CEC Resources, lent his 35 years of business and legal acumen to help navigate the sale’s complexities and deliver this significant achievement.

“The CEC Board of Directors’ prudent decision to sell LSN has enhanced the co-op’s long-term financial well-being,” said Rainey. “It was a privilege to take part in this effort.”

 

President's Report

State Legislative Priorities for Co-Op Members

CEO Dave MarkhamThe 81st Oregon Legislative Assembly is underway. Significant bill proposals could financially affect Central Electric Cooperative and the state’s consumer-owned utilities. We will try to work effectively within the legislative process to educate and serve as a solution-oriented leader to provide safe, reliable and affordable service to our members.

Wildfire Mitigation Plans

Senate Bill 287 takes an essential step toward protecting Oregonians against catastrophic wildfires. The legislation’s primary provision requires electric utilities to file a wildfire mitigation plan with the Oregon Public Utilities Commission. CEC believes developing a thorough plan and submitting it to OPUC is prudent and responsible.

Last year, we updated and formalized our existing plan, which will undergo a biennial internal review and revision accordingly. CEC also participated in OPUC’s wildfire workshops to highlight ongoing challenges and the wildfire assessment tools CEC deploys to mitigate wildfire risk.

Clean Fuels Program

House Bill 2188 would undermine local control by imposing a 20% transfer of consumer-owned utilities’ energy credit dollars from the state’s Clean Fuels Program to its Public Purpose Fund, where it would be spent in metropolitan areas to promote transportation electrification.

The Clean Fuels Program requires regulated entities’ fuel sources to comply with an annual average carbon intensity. If they meet or come under the average, the utility receives credits with a financial value.

A consumer-owned utility such as CEC may participate. Since the co-op relies almost 100% on carbon-free hydropower from the federal Columbia River power system, CEC generates credits, which may be sold to private parties looking to offset their carbon-intense energy portfolio. However, the entirety of the financial proceeds should remain in CEC’s service territory to promote transportation electrification and not be redistributed to urban areas at rural communities’ expense.

100% Clean Energy

Environmental and special interest groups are pursuing a 100% clean energy goal by 2050. Proposals in circulation lack specifics. One aims for 100% by 2035 and defers to state agencies to define renewables. The other calls for 100% by 2045.

The paramount concern for consumer owned utilities is how the bills will treat hydropower. CEC can claim an almost 100% carbon emission-free energy portfolio due to this resource.

Yet Oregon’s renewable portfolio standard only considers hydropower renewable under limited circumstances. If the 100% clean energy proposals do the same, CEC would be significantly disadvantaged and out of compliance, forcing us to buy more expensive alternative renewables, such as wind or solar. As these legislative proposals evolve, they must recognize hydropower as a carbon-free and critical resource to reach a 100% clean energy future.

You Can Help

We need your help as the legislative year unfolds. I urge you to join the ORECAAction Network, where we will keep you informed and may occasionally call on you when decision-makers need to hear your voice. Sign up at www.oreca-action.org.

Working together, we can best protect your interests as a co-op member.

President and CEO Dave Markham

President's Report

CEC Formalizes Wildfire Mitigation Plan

CEO Dave MarkhamLast year, Central Electric Cooperative undertook a comprehensive effort to update and formalize its existing wildfire mitigation plan. The plan will undergo a biennial review and be updated as needed or required.

More than 5 million acres burned in California, Oregon and Washington in 2020, marking it the most active fire year on record for the West Coast. In Oregon, extreme windstorms instigated catastrophic wildfires, which burned more than 1.5 million acres, taking human life and thousands of homes. Last year’s wildfires put an exclamation point on a decade in which the West experienced its deadliest and most extensive wildfires in history.

In California, investor-owned utilities came under intense public scrutiny and state legislative oversight. Pacific Gas & Electric—the state’s largest IOU—was proved responsible for igniting the Camp Fire in Paradise and other wildfires.

As a result, California’s governor signed a bill into law in 2018, requiring every electric utility to prepare a wildfire mitigation plan. This was one of many legislative attempts to promote wildfire safety and accountability.

Oregon public utilities and cooperatives are not yet legislatively mandated to file a plan with the Oregon Public Utilities Commission. However, that could change this year because there is a wildfire legislative proposal with such a provision. Gov. Kate Brown supports such a measure and will likely sign it into law should the state Legislature approve.

CEC believes developing a thorough plan and submitting it to the OPUC is prudent and responsible. To ensure the highest standards, CEC worked with a long-established firm in the Pacific Northwest that provides services to consumer-owned utilities throughout the region, including assessments, reviews or the development of wildfire mitigation plans.

The plan takes an active and comprehensive approach tailored for CEC’s service territory with the ultimate objective to minimize CEC’s assets as the origin or contributing factor in a wildfire’s ignition. Goals and metrics measure effectiveness while allowing for retooling and improving it as practices evolve to adopt new technologies when available and feasible.

The plan also includes public safety power shut-offs as a tool to reduce wildfire threats. A PSPS may occur when the National Weather Service issues severe weather warnings for events such as extremely high winds. A recent example occurred on Labor Day when the NWS warned of winds reaching 70 mph on the Cascades’ west side. Thankfully, those winds topped out at 35 mph in CEC’s service territory and did not require the co-op to turn off power to any of its communities. However, there may come a time when such action is required. If so, CEC’s plan lays out general guidelines to follow.

Upcoming Ruralite issues will include information on protecting your home from wildfires, equipping you with emergency preparedness tips and sharing how the co-op will communicate with members should a PSPS scenario occur. For now, go to www.cec.coop/safety-education/wildfire-preparedness/ to read our wildfire mitigation plan and find other helpful materials.

We can anticipate, plan and prepare for the unexpected. With safety as our highest priority, CEC continues to take constructive steps toward mitigating the threat of wildfires in the communities where we live and serve.

President's Report

Governor Should Reconsider

CEO Dave MarkhamUpon hearing Gov. Kate Brown’s intent to sue the federal government over how it manages the federal Columbia River system, I was disappointed but not surprised at her decision. I encourage her to reconsider.

In October, the governor committed to participating with Washington, Idaho and Montana—known as the four-state process—to define a collaborative framework to find common ground to restore a healthy salmon population without adversely impacting affordable electricity and local economies.

Yet right before Thanksgiving, Brown directed the state of Oregon to file a 60-day notice of intent to sue the federal government over the National Oceanic and Atmospheric Administration’s 2020 environmental impact statement. The scientific study examined the potential impacts on fish and wildlife from proposed hydroelectric operations and found the recommended operations were consistent with the Endangered Species Act.

At issue is the governor’s unwillingness to accept the EIS’s recommendations. The three-year study, produced by multiple federal agencies, did not include breaching or removing the lower Snake River dams in Eastern Washington, a critical component of the Bonneville Power Administration’s hydroelectric Columbia River system. The dams produce 1,000 average megawatts of reliable, carbon-free energy annually—enough to power more than 800,000 Northwest homes, including 500,000 in Oregon.

Instead, through her actions, the governor dismissed the EIS before its completion as she publicly released a letter early last year calling for the removal or breaching of the four lower Snake River dams.

Brown claimed removing the dams would “simultaneously address both the orca and salmon recovery dilemma” in the region. However, she chooses to ignore that successful fish-passage technology at the lower Snake River dams achieved a juvenile dam passage survival objective of 96% to Chinook salmon and steelhead, according to a 2017 NOAA Fisheries study.

I have shared in this space before that removing the dams would create the need to replace lost energy at an estimated cost of $860 million to ratepayers. Ironically, the loss of available energy would need to be offset by energy sources with higher carbon content, undermining the governor’s long-term carbon reduction goals.

All parties involved come to the discussions with different perspectives but are committed to finding a consensus on a viable solution. What is so disappointing in the latest turn of events is how the governor’s litigation threatens to undermine the four-state process before it has earnestly begun and stalls momentum for any collaborative dialogue. As a result, the legitimacy of the process may be dead on arrival.

Rather than resort to litigation, I respectfully urge the governor to reconsider and come back to the table for the good of Oregon and the region.

President's Report

A Year Unlike Any Other

CEO Dave MarkhamCOVID-19 unleashed a tidal wave of epic proportions this year, inflicting human suffering and economic hardships, and disrupting social norms. As Oregonians dealt with the ebb and flow of the corona-virus, extreme high winds instigated catastrophic wildfires that took human life and burned homes and 1.5 million acres. The accumulative aftermath will be felt for years, leaving 2020 a year many would like to forget but will always remember.

In unchartered waters, Central Electric took decisive action. Our offices closed in mid-March to walk-in business for our members’ and employees’ safety and health. More than 60% of our employees began working remotely. We postponed the annual membership meeting—the first time in our 79-year history—but con-ducted it via teleconference in early June.

In March, Gov. Kate Brown’s “Stay home, save lives” executive order created a financial hardship for many of our members due to business closures, lost jobs and the resulting economic downturn. CEC was one of the first utilities in the state to suspend service disconnections.

We immediately ramped up our efforts to help members receive financial assistance to pay their electric bills. Thanks to federal aid through the CARES Act and Energy Assistance Stability Coronavirus Relief program combined with a regional organization, NeighborImpact, and CEC’s Project Helping Hand, we helped members receive $215,000 in financial assistance by October’s end. I am proud to report our membership also stepped up to help financially, with a 7% increase in the number of members donating to PHH.

Central Oregon escaped the wildfires mostly unscathed. However, the events further reaffirmed CEC’s ongoing commitment to reduce wildfire threats in its service territory. Those efforts included removing encroaching vegetation and replacing older poles along a 13-mile overhead power line route in heavily forested Camp Sherman.

CEC formalized its comprehensive wildfire mitigation plan, which extensively details programs to adapt our system to evolving fire-related conditions, implementing new technology to detect issues before they arise and enhancing operational practices to mitigation the potential for ignitions.

CEC lent its expertise as a participant in Oregon Public Utilities Commission work-shops to develop and share best practices to reduce wildfire risk. Six years of federal advocacy came to fruition when the U.S. Forest Service issued a new rule to streamline and expedite the permitting process to allow utilities to conduct maintenance and remove vegetation along its rights-of-way on federal land.

While CEC’s office personnel continued to provide quality service while working remotely, the line crews’ fieldwork did not slow down. The region’s significant growth carried over to CEC, and we connected the highest number of new services since 2007.

Implementation of CEC’s Strategic Investment Initiative continued, replacing aged underground cable and power poles, completing upgrades to substations and the transmission system to meet current and future energy needs, and ensuring long-term reliability and safety.

We all have been tested and challenged this year to various degrees. Throughout, CEC and its employees appreciate the privilege of serving you. We wish you happy holidays and best wishes in the new year.

President's Report

Balancing Differences Among Rate Categories

CEO Dave MarkhamIn January 2021, Phase III of Central Electric Cooperative’s gradual rate redesign goes into effect. Residential members will see a slight decrease in the kilowatt-hour energy charge offset by a slight increase in the monthly facilities charge on their February bills. On average, the typical residential bill should remain largely the same.

The transitional rate redesign, which began in 2017 and ends in 2025, addresses an imbalance in the rate structure. Phase III marks the third of five phases—every odd year over eight years.

Historically, the utility industry blended all of its costs into a customer’s energy use charge. The cooperative did too. Born out of convenience, the practice entailed lumping a utility’s fixed costs—such as operations, inventory, maintenance, repair and administration overhead—with the kilowatt-hour charge. This approach created an inaccurate perception among members that the co-op’s services were defined solely by how much electricity they used. While a utility’s expense to buy
energy for its members fluctuates based on weather and the energy markets, its fixed costs
remain constant.

CEC began to address the issue in 1978 when it added a customer charge—later named the facilities charge—to add some stability to revenues. It started with gradual increases—initially, $6.25 a month, climbing to $12.77 before the launch of the redesign in January 2017. However, the charge did not keep pace. CEC’s fixed costs significantly exceeded revenues received and put the co-op’s rate design out of balance.

Various factors contributed to this imbalance. The chief driver of electricity demand is weather. It has become more unpredictable and extreme, creating strong fluctuations in revenue and making business management more challenging. The electric industry has rapidly evolved, with emerging technologies affording customers multiple ways to reduce their energy use through efficiency and rooftop solar. CEC applauds and encourages members’ efforts to reduce their energy use. Nevertheless, the unintended consequences resulted in fewer members contributing toward helping the co-op recover its fixed costs, leaving other members to pick up the balance.

Consequently, it became necessary to separate or decouple fixed costs from electricity use because fixed costs began to exceed revenues. Ten volunteer co-op members representing all customer classes served on a rate design advisory committee in 2016 to create a balanced solution. After studying various options, the board of directors adopted their recommendations.

The committee’s efforts achieved a revenue-neutral redesigned rate structure to bring fairness and balance among the different rate categories. In the end, members will pay for the energy they use and their fair share to operate the utility.

President's Report

California Blackouts Serve as a Cautionary Tale

CEO Dave MarkhamWith temperatures topping 100 degrees and millions working from home due to COVID-19, hundreds of thousands of California homes went dark in August.

The blackouts were not a result of utilities de-energizing lines to prevent wildfires. Instead, there was a shortage of power when most needed. The aftermath left Gov. Gavin Newsom, utility representatives and the state’s bulk electric system operator pointing fingers at each other.

Numerous factors contributed to the blackouts: lack of available power supply internally and from out of state, transmission issues, volatile changes in wind generation and over-reliance on intermittent renewables.

The culmination of the crisis did not happen overnight. California paved the road for such an event long ago. Since the early 2000s, the state legislature passed multiple ambitious clean-energy policies. The renewable portfolio standard and cap and trade were landmark bills held up as the gold standard. They were imitated by other states, including Oregon, to varying degrees.

California’s RPS required electric sales to be 20% renewable by 2017. In subsequent years, the program was accelerated to 33% by 2020, 60% by 2030 and 100% by 2045.

The aggressive targets and expedited timeline forced California to transition away from coal, natural gas and nuclear power in favor of solar and wind. In the interest of developing alternative renewables, large hydropower—a 100% carbon-free, 24/7, flexible and reliable resource—does not count toward the RPS. California’s shuttering of natural gas and nuclear plants left fewer flexible and reliable resources to meet high peak demand.

Wind and solar should play an instrumental role in an all-of-the-above energy resources strategy. Without affordable large-scale battery storage, however, they cannot serve as the backbone to a state’s energy supply. When the wind stops and the sun goes down, these intermittent resources disappear—sometimes when most needed. To replace the lost energy requires expensive spot-market purchases, putting ratepayers on the hook.

Oregon has headed down a similar path. Although it failed in the last decade to pass a California-style cap-and-trade program, the state adopted an RPS in 2014, requiring 50% renewables by 2040. Likewise, Oregon recognizes wind, solar, wave energy and landfill gas as eligible resources, but not large hydropower.

The state legislature should not accelerate beyond a 50% renewable goal anytime soon, but it is considering doing so next year. Nor should there be any continued efforts to undermine the Pacific Northwest’s most significant energy asset: hydroelectricity.

Hydropower is generated along the Columbia, Snake and other major rivers and delivered to eight different states by the federal Bonneville Power Administration. The energy backstops intermittent renewables while providing public safety and regional economic value.

In the meantime, special-interest groups continue to push for breaching the Lower Snake River dams, which would adversely impact the Northwest’s electric grid’s reliability by taking more than 1,000 average megawatts offline and requiring market purchases at a higher cost and carbon content.

Oregon should take heed or find itself in the dark, too.

President's Report

Seeking Solutions to Reduce Wildfire Risk

CEO Dave MarkhamVegetation management helps reduce the threat of wildfires and enhances the resiliency of the electric grid. When the U.S. Forest Service recently announced its new vegetation management rule to improve the approval process, it was met with optimist–albeit tempered.

The new rule seeks to streamline the permitting process to allow utilities to remove vegetation along their rights-of-way on federal land, including dead snags, hazard trees and limbs that could fall into power lines. CEC has experienced lengthy delays and, at times, an unclear process to proceed with routine maintenance. I have shared frustrating ordeals with you before in this space and, more recently, in a national podcast.*

Since 2014, I have testified before Congress and met with federal land agencies’ representatives multiple times to educate and promote solutions to improve a problematic and expensive application process to get approval to carry out routine maintenance on power lines, some of which have been in place for more than 50 years.

For the past six-year, multiple legislative initiatives failed to gain traction. Not until 2018 did Congress pass meaningful vegetation management and fire-prevention measures. The legislation directed federal land agencies to draft new regulations to streamline the permitting process. Here we are two years later.

The new rule raises some concerns. As it reads, local ranger districts have wide latitude to implement the standards at their discretion. There is no guarantee of a consistent or uniform process. This is problematic.

CEC’s service territory covers approximately 5,300 square miles and includes multiple national forests. What the Ochoco national Forest requires to perform vegetation management may differ from Deschutes National Forest resulting in the co-op expending unnecessary additional time and resources to conduct routine vegetation management.

We do, however, have another bite at the apple. In an unprecedented step, the federal land agencies will solicit public input on their new directives before finalizing the
regulations. Historically, they limited public comment before releasing the final rule.

I welcome the opportunity and will work toward solutions to ensure a more consistent and uniform process to allow the co-op to expeditiously remove danger trees and vegetation for the general public’s safety and a more resilient electric grid.

We are not only engaged in the federal but the state arena, too. Earlier this year, Gov. Kate Brown issued an executive order directing the Oregon Public Utilities Commission to conduct workshops to develop and share best practices for mitigating wildfire risk. CEC participated in the first workshop on a panel to highlight the ongoing challenges and the wildfire assessment tools we deploy to mitigate wildfire risk. These practices are being formalized in CEC’s wildfire risk mitigation plan, due for completion later this year.

Partnering with federal and state land agencies and other electric utilities helps ensure we leave no stone unturned when it comes to protecting our members and the general public and strengthening our system to reduce wildfire risk.

*See pages 28-29 for an in-depth discussion excerpted from a recent interview with the National Rural Electric Cooperative Association’s “Along Those Lines” podcast.

President's Report

Energy Efficiency: Extending Today’s Energy Supply

CEO Dave MarkhamAccording to the mantra, energy efficiency is the low-hanging fruit—and history confirms it. Since the 1970s energy crisis, the deployment of federal, state and local energy-efficiency programs have resulted in tremendous energy and cost savings.

The state of Oregon’s 2018 biennial energy report concluded the combined efforts of all efficiency activities throughout the Northwest saved more than 6,600 average megawatts from 1980 to 2017. Oregon collectively offset approximately 1,900 aMW—enough to power more than a million Oregon homes annually.

Central Electric Cooperative has done its part, too. Working with the federal Bonneville Power Administration, CEC has developed a wide range of energy-efficiency programs from which members may choose. In the 1970s, CEC initially offered a weatherization program to help qualified homeowners better insulate their houses. The slate of program offerings has expanded, giving members many ways to save money and energy through home improvements, smart appliance choices and adoption of other technologies.

Today, CEC offers 14 energy-efficiency programs targeting residential, commercial, irrigation and industrial members. Programs range from enhanced new construction standards to high-efficiency heat pumps and water heaters, to irrigation equipment and pump testing to commercial and industrial lighting projects.

CEC members have consistently shown their commitment to saving money and energy by participating in our energy-efficiency programs. In 2019, 589 members implemented energy-efficiency measures that will ave 4,389,480 kilowatt-hours annually—equivalent to offsetting the average annual energy use of 260 homes.

This year, we have showcased member involvement in our energy-efficiency programs across residential, commercial, irrigation and industrial classes. In March, we highlighted how homeowner Randy Schuyler took advantage of CEC’s incentives and exchanged her nearly 30-year-old conventional electric water heater with a heat pump water heater to save both energy and money.

In June, we shared the story of the nonprofit Sisters Habitat for Humanity Thrift Store, which swapped out more than 500 old lights for all LED lighting before moving into its new facility. Savings will go toward helping the community.

Bierly Acres, an irrigation water cooperative north of Madras, installed a variable frequency drive on its pump serving 49 members. Previously, it ran full time at maximum output. Now, technology calibrates the pump to run based on real-time demand. The financial savings will go toward updating the district’s system. For more on this story, please pages 4-5.

Last year, the city of Bend installed highspeed turbo blowers with an integral variable frequency drive at its water reclamation facility plant, which translates into energy savings of about 1 million kWh a year.

It pleases me to see so many members working with us to implement energy-efficiency savings. I encourage you to visit www.cec.coop and check out our offerings. Our energy specialists can also help you select the right program for your needs.