Financing a Growing Cooperative

December 16, 2015

South Plains Electric hasn’t raised electric rates for our members since 2007. And the overall increase at that time was only 2.28 percent. We’ve spent months looking at the Cooperative’s operating reports and reviewing expert analysis of the Cooperative’s rate structure and financial performance. The South Plains Electric Cooperative Board of Directors adopted a resolution on November 20, 2015, to make necessary rate changes to continue financial viability of the Cooperative.

A 5.67 percent rate increase for our members will be effective February 1, 2016. The Board of Directors agonizes over rate increase decisions, but they realize the change needs to be made to keep the Cooperative financially viable.

The change in rates will represent a less than 1 percent per year increase for the last eight years, but it’s still hard to justify any change because, like it or not, we compete with other local utilities for rates and reputation within the cities, counties and regions we serve.

The increase is in two parts: one is a $4 per meter increase in the customer charge, and the other is an adjustment to the base rate. Again, this is the first rate increase our members have experienced since 2007. How many other products or services have not increased in cost over the past nine years? None that I can think of, so we are proud of the fact that we have been able to control costs while growing our Cooperative system.

Between the years 2001 and 2014, the population of Lubbock County and City increased by more than 16 percent, and people migrated to Southwest Lubbock.

As Lubbock grows, so must South Plains Electric Cooperative. In 2001, we had 39,387 residential, commercial, industrial and agricultural meters. At the end of 2014, we had 51,879 meters.

That’s a 32 percent increase in meters and members—twice the population growth.

It’s difficult to drive down 82nd Street, Milwaukee Avenue or Farm Road 1585 and not see evidence of this expansion.

Expanding communities must have reliable electricity. Without it, developers don’t invest, schools and homes aren’t built, companies don’t move in and jobs aren’t created. 

Energy availability is vital for a thriving economy and healthy communities.

South Plains Electric may have been born a rural electric cooperative, but it has grown up to be a stable, reliable and affordable energy provider.
The Cooperative invested $119 million dollars over the past 13 years while only adjusting rates twice in 2003 and 2007.

Over the last two years alone, the Cooperative invested $40 million dollars into the electric system.
It’s hard to believe that in 2005, Milwaukee Avenue was still a dirt road. 

By 2006, the Walmart was in it’s early stages, and there were many empty spaces that are now covered by thriving businesses. But Lubbock isn’t the only part of our service area expanding.

The City of Childress is also growing into our service area. We serve an apartment complex, several hotels, Walmart, a new gas station, restaurants and a strip mall.

In the rural areas, oil and gas production is increasing, and the Cooperative is investing in the infrastructure to meet those needs.

In our 6,600 square miles of service area, criss-crossed by 9,500 miles of line, we still have rural areas that provide their own challenges.
For example, South Plains Electric serves an average of three members per mile of line; whereas, investor-owned and municipal utilities can average 10 to 15 times more customers per mile of line.

More consumers per mile of line means more revenue for those other utilities. In fact, our rates would have to be 5 to 7 times greater to match their revenue stream.

However, that is not the case. Why? Investor-owned utilities are owned by investors who may or may not be customers of the utility they own. Their stocks are traded on Wall Street and those stakeholders demand a return on their investments. 

And many municipal systems charge rates that generate revenue to help pay for other city services.

South Plains Electric Cooperative operates on a not-for-profit basis and returns any margins back to the members using the service.
Of course, we must generate enough revenue to cover costs, the largest being wholesale power.

Fifty years ago, members paid 2.38 cents per kilowatt hour. 

If the 1955 rate was adjusted for inflation, the cost would be 18 cents per kilowatt hour. That’s a 783 percent increase!Instead, even with the new rates, South Plains Electric members will only pay just over 3 percent more than they did 50 years ago. 

So how has South Plains Electric been able to pay for all of the system improvements while keeping rates low?

Over the years, costs have shifted. In 1957, 26.7 cents went to buy power and in 2014, that amount was 80 cents. Operating and depreciation expenses are actually lower in 2014 than 1957.  Interest rates are comparable, but the biggest difference can be seen in a comparison of margins.
In 1957, the Cooperative made 35.5 cents in margins; in 2014, we just broke even!

This shift in how your dollar was spent over the years is how the Cooperative has been able to fund a fast-growing system while keeping rates affordable.

South Plains Electric plans to continue keeping pace with the power demands of thousands of new and existing residential, commercial, industrial and agricultural members.

The Cooperative accomplishes this through expert planning, design and maintenance, and exceptional member service, that has been completely locally owned and controlled since 1937.

South Plains Electric is growing right along with our communities. And as the number of members grows, so does our commitment to serve the demand for electricity at the lowest possible cost.

No rate change is ever easy, but it is essential to keep your Cooperative financially viable. Your locally-elected board studied all alternatives and made necessary business decisions for the Cooperative’s best long-term interest—and for yours. Please plan to attend one of the member meetings in January to discuss your Cooperative’s finances with the Board and staff. 

 

Official Notice of Rate Change

Notice is hereby given that South Plains Electric Cooperative, Inc., Lubbock, Texas, intends to change rates for electric service pursuant to Texas Utilities Code Section 41,061. The Cooperative’s Board of Directors has adopted a resolution approving the rate changes. The rate changes will be reflected on the February 2016 billing.

The current base rates of the Cooperative have been in effect since 2007.

Based upon a test year ending December 31, 2014, it is anticipated that the proposed rate changes will increase the Cooperative’s annual revenues by 5.67 percent over adjusted test-year revenues. These changes will be reflected in an increase to the customer charge of $4 per month per meter.

In addition, based on the continued downward pressure on natural gas prices, the test-year base rate will be lowered by $.005 per kWh. The Cooperative is currently over recovered in base rate power cost revenues, so the reduction in the test-year base rate will be a cost reduction to the members until the over recovery in base rate power cost revenues is zeroed out. The reduction in the test-year base rate more appropriately reflects the current gas market and for the foreseeable future should be rate neutral to our members.

The rate changes will be applicable to all rate classes, and the percentage changes to each class will vary based on kWh usage and load factor. We will have meetings to discuss the proposed changes at the following locations and times:

Tuesday, January 19
6:00 p.m.
Rolling Plains Division­—Childress Office
1900 Ave. C NW, Childress

Thursday, January 21
6:00 p.m.
Lubbock Division—North Office
110 N. I-27, Lubbock

Friday, January 22
6:00 p.m.
Rolling Plains Division—Spur Office
FM 836, Spur

If you have any questions concerning these rate changes, please call 
Lubbock Division Manager Jon Henson at (806) 775-7742 or Rolling Plains Division Manager Jeff Watson at (806) 775-7512.