The CEO’s Desk | Wabash County REMC

Rob Pearson
Chief Executive Officer

Net metering vs. net billing

There’s been much discussion over the last few years regarding the use of renewable energy to help utilities avoid building new power plants. The federal government has taken this discussion to a new level by creating incentives for companies and individuals to help offset the cost of building new renewable energy devices. The reason given for these incentives is to reverse the “so called” effects of climate change by eliminating the generation of electricity using coal. The government is also starting to set mandates on the percentage of renewables required by power generators. For now, it is leaving it up to each state to set these percentages. Indiana has not made it mandatory, but has requested power companies make renewable energy part of each company’s total generation portfolio.

For individuals interested in producing some of their own power requirements, the federal government has set up tax incentives to help offset installation costs. Renewable power is expensive to install and the government knows the only way to get people to install these devices is to use tax money to offset the installation cost. This is great for a person wishing to put one in because he/she will get his/her tax money and cut his/her electric use. Once an individual decides to build a renewable energy device, the issue arises of how the utility will reimburse the individual for the excess power generated. There are very few occasions that the installed device will pro- duce all the power needed by the homeowner or business. But, there are times when the de- vice is producing power when the user doesn’t need it. So the question becomes — “What is that power worth?”

If the individual truly sold power back to the utility the same way utilities purchase power, the rate would change every hour of every day. The metering and billing required to do that would not be cost effective. So the utility has to try to establish an average price based on multiple factors. First, what does it cost to produce the power? Second, what costs are involved in transporting the power? When purchasing power from a wholesale supplier, as Wabash County REMC does, there is not just the cost of moving the electricity from the power plants to the utility’s service area. Also included is the cost of all the poles, wires, etc., the local utility has built to move the electricity to the member’s home. These costs are called “fixed costs.” As a not-for-profit cooperative, we all share equally in the “fixed costs” portion of Wabash County REMC’s system.

The federal government, in its attempt to promote alternative energy, has requested that all investor- owned utilities purchase the excess power produced from these small generators at the same retail rate the utility charges. This is called “net metering.” This, in essence, allows the meter to spin backwards. The government has admitted that by doing this, it is forcing the utility to add more costs to other customers because the fixed-cost portion is not being fairly paid by the small generation customer. The reason large investor-owned utilities can do this is, at the present time, there are not enough generators out there to make a significant impact on rates. So, the utility will let them get by with it, for now. Not only is the government using your tax dollars to help the owner install the genera-tor, but it is also forcing the utility to unfairly give him/her more credit and shift more of the costs to you. You are now paying for that person’s portion of the cost of poles, wires, etc. Since most investor-owned utilities cross many state lines, the states can’t stop this mandate. As for the electric co-ops, we are not forced to unfairly shift costs. Since we are in a state that hasn’t mandated net metering, we can still have “all” of our members equally share in the fixed costs of the utility. By only giving the generating member the “avoided cost” of the power bill, we are truly reimbursing them the actual cost of producing power minus the transportation and fixed costs that the rest of the members share. This is where the term “net billing” comes from. With net billing, we will pay the individual for the excess power produced, but not for his/her portion of fixed costs.

As the country moves forward and continues to push renewable energy, we know it will drive power costs up. But as you drive around the area, understand those devices you see were mostly paid for with your tax dollars and your electric rates. We will do everything we can to make sure our members are treated fairly. We will continue to do what we can to keep rates reasonable and to make sure you are not forced to pay a part of your neighbor’s electric bill.

2011 Annual Meeting CEO Report

As I look back on Wabash County REMC’s 75^th Anniversary year, it’s hard not to take a moment and reflect on the past. If you read the December Electric Consumer, I talked about the difference in families’ lives that was made by bringing electricity to their homes. I also talked about what a difference was made on the farms and what electricity did for helping farmers be more profitable.

In this report, I want to talk about the men and women in this business that made all those advancements happen. Most of you have heard several times about the importance of the development in this country that electricity made and what an impact it has had; but, it is also important to step back and understand the commitment and the sacrifice that was given for all those years by the people that made it happen.

Going in to my 24^th year working in the electric cooperative business, I have had the opportunity to work with hundreds of different people. I have had several jobs in this business at different cooperatives and have dealt with a variety of different personalities. I have also worked at several jobs outside this industry which has given me firsthand experience in the difference of how each business measures success. Sometimes I joke with the people at the REMC about how things get done in other businesses and say, “well out in the real world, they don’t do things like that”. What I am referring to is that companies other than REMC do things in a much different manner. When you work for a privately owned or publicly traded business, everything is about the bottom line. Almost all decisions made come back to “how will it create more profit”? But in this business, it’s about “what can we do to serve our members in a fair way that will treat them all as our owners”? The two key words to that statement were fair and owners. You are the owners of this business, but it is also our task as employees to make sure we don’t do things for one member that will shift cost to the other members, that sometimes is a real balancing act. And that, from time to time, will not make some members happy, but it is always fair.

The people that work here and other cooperatives all across the country are a special type of employee. Understanding the concept of taking care of the members as the main driver of our business is a special mindset. The dedication and commitment that has to be part of the employees thinking is not typical in other businesses. When you watch cooperative employees go about their daily work, you know that no matter what happens, they will get the job done. What I have noticed most about all the people that I have worked with over the years is that it doesn’t matter what personality or age or gender, when their members need help, they are there. Some of the most horrible weather conditions you could think of have created havoc on our system. Thousands of people have been out of power and no one can leave their homes, but the cooperative people are there facing that weather to get to the office and then facing the weather again to get to you or handling your concerns. They leave the safeness of their homes and leave their families behind to serve you. They have missed their children’s birthdays, holiday and school events to serve you. And they don’t do it for the money, it’s just their job. Some people have that commitment built into them and some don’t. Those that do, stay in this business a long time. We just had a lineman retire and at his retirement party he summed up exactly what I have been saying. He said that he enjoyed the time here and enjoyed working with everyone; then. he paused and said “this has been my life”. It wasn’t just a job, it was his life and that is what has made the rural electric cooperative business what it is today. It has made such a huge difference in our country and has helped rural America advance to the level it is at today, but what really has made it all happen are the people in this business that understand and accept that the REMC is their life.

A Look Back, A Look Ahead

The 2010 Annual Meeting CEO Report

Again in 2009, politics and the economy dominated the news. While politics didn’t affect us as much as we expected it might, the economy made a major impact on our business. Both kilowatt-hour sales and revenue were down for the year compared to 2008. Our biggest impact came from the reduction in commercial sales as many of our factories in the county cut back on staff or shut down all together. Combine that with people either moving out of the area or cutting back on their own use and the results were seen in a dramatic way.

With these recent cutbacks and the uncertainty of the economy, we spent a big portion of the year concentrating on where we could streamline our expenses. The staff and employees took a hard look at budgets and made the necessary adjustments to cut back where possible without sacrificing service. We postponed several infrastructure projects and some of our normal community support projects had to be temporarily stopped. We also took a look at some of our incentive programs and made the necessary changes to help our cash flow. These changes will take effect in 2010.

Rates in 2009 increased slightly. During the year, we saw about a 4 percent increase from our power supplier. Due to the fact revenue was down, we didn’t have the ability to absorb the increase. So, it was passed on to our members in our wholesale power cost tracker. Margins for the year remained strong due to some of the expense cutbacks, but cash was down mainly due to the reduction of revenue from our commercial members.

Even with all of this, there are some new things happening in 2010 that will add services to our members and give both them, and us, the tools to increase our energy efficiency and, hopefully, help cut bills. We are beginning to upgrade our metering system to give it the ability to have two-way communications to and from the members’ meters. This will allow our power supplier to communicate directly with the meter and monitor load as well as send out signals to reduce power use when needed. We have similar capabilities now with the load management switches, which a lot of our members have installed; but this new technology will eventually take that control to another level. This is the first step in what many of you have probably heard about — "smart meters." This technology will not only allow us to communicate with the meter, but will allow the homeowner to monitor their own use. It will also give them the ability to install "smart" thermostats. Smart thermostats allow homeowners the ability to see, at any given time, their use and how much it is costing — either directly from the thermostat or from a remote location using the Internet. Two-way metering will also allow us to monitor our system more closely and possibly introduce "time-of-day" rates.

While these changes will take several years to implement, we are very excited about the fact that we will have these options in the years to come. This is another service we feel is important to our members and will give more control to them on the efficiency of their home or business. We are also continuing our energy efficiency programs in 2010 to help our members get the most out of their energy use.

Our hope is that rates will stabilize in 2010. Wabash Valley Power and the Indiana Statewide Association of Rural Electric Cooperatives are both working hard with our state and federal legislature to try to keep regulations and laws from drastically increasing rates. They have both been to Washington, D.C., to talk about the "cap-and-trade" initiative being introduced by the present administration to hopefully stop or lessen the impact. Wabash Valley Power is also looking at new generating facilities and working with existing supply contracts to level out the recent spikes in power production costs. As Wabash County REMC moves on into 2010, we know the industry is changing and the challenges are going to be different than what we have faced in the past. We must continue to stay up to date on technology and increase communication with our members to give them the ability to manage their energy needs. Service will continue to be our main focus as it has been in the past, but the services will continue to evolve into different forms in the future.