General Manager Report
“Brothers and sisters, I want to tell you this. The greatest thing on earth is to have the love of God in your heart, and the next greatest thing is to have electricity in your house.”
--Tennessee Farmer
This simple quote, written in the early 1940s, best describes the importance of electricity to rural areas. Over the last 60 years, we’ve seen a nationwide transformation: Consumers once appreciated having reliable electric service. Now, they’ve come to expect it.
Electric cooperatives have made it their mission to provide affordable and reliable electric service to their members. That service—particularly in rural areas—has come with a price.
This year, I want to share with you some of the economics your cooperative is facing, and discuss an opportunity to align ourselves with a group of neighboring cooperatives to help face that future economic impact.
Mor-Gran-Sou, like neighboring electric cooperatives, has our own set of challenging issues to deal with. Our cooperative faces three major cost drivers when providing services to our members. These include power costs, daily operations, and costs associated with depreciation and interest.
Allow me to touch on these three issues, starting with purchased power. Mor-Gran-Sou does not generate any of the electricity used by our members. We have contracts with Western Area Power Administration (WAPA) and Basin Electric Power Cooperative to provide the electricity you use.
The lack of water in the Missouri River system has greatly reduced the amount of hydropower produced over the last seven years. In order to meet their contract obligations, Western has had to buy power in the open market, resulting in a very high debt to the federal government. Western is forecasting an increase in 2008, which will stay in effect until the debt is retired.
Also, Basin Electric has seen tremendous growth by its members over the last number of years. To handle this growth, it is Basin Electric’s obligation to have generating resources available to meet the needs of its membership, which will result in higher wholesale power rates. Add to these increases the additional costs associated with renewable mandates and environmental regulations, and it becomes apparent Basin rates will be increased at some point over the next couple of years.
The next major cost involves the day-to-day operations of Mor-Gran-Sou. Mor-Gran-Sou benchmarks its internal operating cost using information from two of our major lenders, Rural Utility Services and Cooperative Finance Corporation. From 2005 to 2006, the average day-to-day operating cost per account at Mor-Gran-Sou increased 2.95 percent; and yet was our cooperative was 2.1 percent below the state average in 2005. We have been consistently below average over the years. As we look toward the future we are expecting these costs to increase with inflation. We also expect to remain below the state average on a per-consumer basis.
The last major cost is the payment of depreciation and interest associated with the poles and wires needed to provide electric service to you, the member-owners. The average depreciation and long-term interest cost per consumer remained mostly steady between 2005 and 2006. It went from $383.39 in 2005 down to $382.38 in 2006. The North Dakota Electric Cooperative average was $308.25 in 2005. Since Mor-Gran-Sou has a lower than average equity level (33.2 percent in 2006 compared to the North Dakota average of 45.05 percent in 2005) this difference is to be expected.
So how can electric cooperatives, facing some of the same cost drivers, help each other? In recent months, the board of directors of Mor-Gran-Sou, Slope Electric Cooperative and Oliver-Mercer Electric Cooperative held discussion on how we can work together for the good of our membership.
At separate board meetings in December of 2006 and after months of discussions, Mor-Gran-Sou, Slope and Oliver-Mercer each approved moving forward with the concept of a management alliance between the three cooperatives and began developing legal documents. Two directors from each cooperative were chosen to serve on an Alliance Steering Committee. Their charge is to represent the interest of their respective cooperatives and to continue moving forward on the details of the alliance.
In our recent publications, we have been informing you of this exciting news. However, even with member publications published by all three cooperatives and member meetings held within the Slope Electric service area, members still have questions. Rest assured that you, the member-owner, remain at the forefront of the decision-making process at Mor-Gran-Sou Electric Cooperative. It is important to every director that the trust built within our membership will not be jeopardized; and it is vital that we look toward the future and prepare for it.
As we look forward, let us look back once more and remember the amazement and awe that that Tennessee farmer felt at having reliable electric service. Let us always remember to appreciate just how far we’ve come in 60 years, and let us continue to work together and find ways to reduce costs and improve the economics in North Dakota.
On behalf of the board of directors, management and employees of Mor-Gran-Sou, I want to assure you, the member-owners, that we will continue to look for ways to provide you with affordable, reliable electricity that supports and unites this membership.
(701) 663-0297 :: (701) 597-3301 :: 1-800-750-8212