The Annual Meeting Speech

Been way too long since we took the the ol' Cullman EC blog out of the garage for a spin around the block. That's good news — sort of — since we created the blog and our other social media outlets to help spread information during power outages. I'm not sure if we've seen more than a passing rain shower in the past 10-12 weeks.

One of the few days where the skies were cloudy and we saw a few sprinkles was on Sept. 25, when the co-op hosted its 74th annual meeting.

We thought this would be a good place to post a transcript of the speech given by Cullman EC CEO Grady Smith. One of the key parts of his talk was addressing the rate increase to the facilities charge (also called the customer charge) that went into effect on Oct. 1, 2010.

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Good morning! Welcome to the 74th annual meeting of Cullman Electric Cooperative. I’m so glad you decided to join us today. This business meeting and the election of three trustees is an example of Democratic Member Control — one of the Seven Cooperative Principles upon which all co-op’s are founded. Education and Information is another co-op principle. I hope over the next few minutes to provide some of both for you.

The co-op annual meeting is like an anniversary party. Today, as we look back on our 74th year of business, we also kick off the celebration of our 75th year of service to you, our members.

After months of knocking on doors to get their neighbors to sign up and pay a $5 membership fee, on May 25, 1936, Cullman Electric Cooperative was formed, becoming the second electric co-op in Alabama.

On August 4, 1936, power lines were energized in the Simcoe area and Cullman Electric became the “first” co-op in the state to provide electricity to its members.

Since that summer day in August 1936 when Cullman EC energized 30 miles of power lines to serve 350 members, your co-op has continued to grow.

Today, Cullman Electric has more than 42,000 members and more than 3,400 miles of power lines across parts of 4 counties covering approximately 1,300 square miles…an area about the size of Rhode Island.

While your co-op’s financial condition is very stable, we find it necessary to have a modest increase starting in October. This increase will generate an additional 2.38 percent in total revenue.

The Cullman Electric Board of Trustees decided the most equitable way to achieve this revenue increase in each rate class would be to increase the monthly “facilities charge.” For residential members, this means a $3 increase on your monthly bill.

As a general rule, a not-for-profit electric cooperative like your co-op should generate margins of 1% to 2% from the operations of the electric system. Those margins are then reinvested into the co-op in many ways such as purchasing new poles, wire, and transformers, along with funding system improvement projects and new technology.

Last year, primarily due to the rising cost of electricity purchased from TVA, that margin was only three-tenths of one percent.

Because of this small amount, it was obvious additional revenue would be necessary to maintain the cooperative’s financial stability.

Your Board of Trustees wanted to make sure this increase was applied equitably across all rate classes.

For as long as electric companies have existed, the bottom line, or margins, has been extremely dependant on the “sale” of electricity. The more kilowatt hours sold, the greater the margins. For decades, electric companies encouraged customers to use as much electricity as they wanted because it was both plentiful and relatively cheap. As we all know, times have changed.

Today, although the price of electricity is going up, it is still a pretty good deal when compared to other items we use everyday.

As a result of the growing concern over environmental issues, especially those related to coal-burning power plants, many conservation programs have been put in place.

TVA recently announced that all or parts of 11 coal-fired plants will be shut down over the next few years. The good news is they are also studying their options to expand their nuclear generation facilities.

Today, electric companies across the entire country are encouraging customers to use LESS electricity. While that is in everyone’s best interest, it doesn’t make good business sense if your financial stability is based primarily on energy sales.

That’s why the Board voted to increase the “customer” or “facility” charge and begin the process of switching the co-op’s financial stability to a stable or fixed revenue source and away from kilowatt hour sales that can fluctuate significantly with the weather or changes in the price of coal.

When we talk about the “customer” or “facilities” charge we often use what we refer to as the “car in the driveway” example.

For anyone to have a working vehicle in the driveway ready to drive, there are certain “fixed costs” — These fixed cost can include monthly payments, tag and taxes, gas in the tank, oil in the engine, inflated tires, and a charged battery — These are cost you incur just to have a working vehicle available whether you use it or not. Think of this “fixed cost” as your “facilities” charge.

To have electricity at your home or business, there are also “fixed costs” — poles, wires, transformers and other equipment, along with routine maintenance such as trimming trees — all necessary to make it possible for you to use electricity when you flip the switch.

In our car example, if you actually drive the car, you have the added cost of gasoline and other operating cost. Some people drive their car to work and back everyday while others use their car as part of their work and drive great distances. And then, there are other folks that hardly ever use their car, so the car doesn’t use much gas at all. The more the car is used, the more gas you consume, thus the more it costs you to operate your vehicle.

The same relationship applies to electricity. The more you “use”, the more it cost. The “fixed cost” of having a vehicle available is separate from the “operating cost” of driving your car.

Raising the facilities charge instead of increasing the kWh charge is a step toward separating the “fixed cost” of having electric service available from the cost for the electricity you actually use.

Over 80% of your co-op’s 42,000 accounts are residential accounts. Some of these accounts are full-time residences while others are part-time or seasonal residences.

By increasing the customer or facilities charge every account will be affected equally without regard to how much electricity is used. To do otherwise would result in those accounts using more electricity to bear a larger portion of the increase.

While implementing an increase is never a popular thing to do, we can still take pride that the rates we pay are lower than rates paid by many of our neighbors here in Alabama and in the southeast.

A story earlier this month in The Birmingham News shared the rates charged by 21 utilities across the southeast. As you can see on this chart, Cullman Electric’s rate is better than some of the biggest energy companies in the country.

That’s an impressive accomplishment when you realize we have an average of only 12 meters per mile compared to our neighboring investor-owned utilities that have higher rates and 35 to 40 meters per mile paying their bills.

That is a direct result of the cooperative not-for-profit business model working as it was intended.

Instead of having a profit motive to make money for investors or stockholders, we’re focused on serving you, the member-owners of Cullman Electric Cooperative. As you have heard me say before, “Our focus is on Main Street, not Wall Street.”

We’ve also worked very hard to make sure the co-op’s operating costs remain as low as possible. The “blue line” on this chart shows how the average cost for a single kilowatt hour has gone up since 2001.

The co-op’s operating costs for that same period is shown in “red.” As you can see the cost to operate your cooperative has remained virtually flat.

During the past year, Cullman EC has completed or started work on several projects aimed at providing you better service, and to help you save money by having more control over how much electricity you use.

Cullman EC has started using the services of ProCore, a customer service call center near Atlanta, Georgia. The phone operators at ProCore help answer calls when the phones are extremely busy so members can be helped faster.

You may have already heard something about the prepay program we are currently testing. The Prepay program will give members the option to pay-as-you-go each month — sort of like putting a few dollars of gas in your car each week — Also, the prepay program does not require a security deposit to be paid.

For a lot of folks the option to purchase some electricity each week might be much easier than coming up with one large payment at the end of the month.

Those who sign up for the prepay option will be able to set up automatic notifications to inform them when they have only a few days of electricity left in their account.

Members in the prepay program will be able to call in anytime 24/7 and buy some electricity before their tank runs dry.

Also, in the near future, co-op members will have the ability to monitor their electricity usage on the internet at www.myusage.com. This website will be available for “free” to all co-op members. The information will show how much electricity you use each day, and what time of day you use the most so you can figure out what activities are costing you the most.

The utility industry is moving to where you the end-user will be more in control of and able to manage your energy usage more than ever before.

I hope each of you have and use one of the Co-op Connections discount cards. There are now more than 120 “local” businesses participating in this program along with hundreds of discounts available at “national retail” stores.

The card also offers a pharmacy discount available at most local pharmacies. This year, our members have used the card on more than 2,200 prescriptions with savings of more than $30,000.

These are challenging yet exciting times for the electric cooperative industry. As we work to find the best solutions, be assured that our focus remains on achieving our goal of providing you the member-owners of Cullman Electric Cooperative safe and reliable electric service at the lowest possible price.

Thank you for being here today. Thank you for listening. I hope to see you back here next year as we celebrate the 75th anniversary of your cooperative.