President’s Reports

Central 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.

This 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.

Win 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.

In 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.

Throughout 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.

For 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.

This 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.

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

I 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