Manager's Column

Jim Riddle

Executive Vice President/General Manager

As we leave 2011 behind and look forward to 2012, it is a time many of us reflect on the past and plan for the future. At your Cooperative we do the same. I’d like to share some of the highlights of this past year and our plans for the coming one.

The Electric System

In addition to the typical lightning, wind and winter storms, the region was hit by a rather large storm and subsequent flooding on April 19. Outages were extensive enough we had to request mutual aid from several other cooperatives and contractors. Although not as severe as the derecho of 2009, this storm caused over $300,000 in damage and repairs to the electric system. Fortunately, the southern Illinois region received a Federal Disaster Declaration making us eligible for FEMA assistance. We have received notice of FEMA approval and should be receiving over $235,000 in the very near future. Without that assistance, the costs would have had to be covered in the rates you pay.

In the 2009 storm we learned how important right-of-way (ROW) maintenance is and in 2011 we continued clearing rural ROW and trimming trees in urban areas. Had we not been aggressive in this undertaking in 2010 and 2011, I suspect the April storm may have caused even more damage. Several of our members have sent notes after some of the recent high winds in November commenting that they were sure ROW maintenance in their area prevented outages.

System growth in the Carbondale area continues despite the weak economy, primarily in the area of the Southern Illinois Airport. The National Guard Armory was completed in 2011 and construction continues on the Transportation Education Center by SIUC and a new maintenance facility by the Airport Authority. This new growth required construction of a new substation to ensure we can provide reliable service to the area. The station was energized November 1 and will provide reliable electric service for many years.

In the Cutler area, a new business also required the construction of a small substation to serve it. This business operates around the clock and is a very good load for the Cooperative and our power supplier due to their high load factor (uses a lot of kilowatt-hours for the demand it creates).

We also added a new three-phase feeder out of our Carterville substation. As this is a very populated area, it was installed underground, creating challenges. As expected, our crews did a great job and the feeder is now in service, increasing service reliability for that region.

Financials

As I write this in early December, the year-end financial reports are not available. But I can report that unless a major disaster happens in December, Egyptian should finish the year in a satisfactory financial position with a low margin. There are several key financial ratios our lenders use to determine the Cooperative’s credit worthiness and we should meet each of those at year-end. This is good news for our members and means our borrowing costs are at lower rates than if we did not meet those ratios.  This helps us keep your electric rates as low as possible.

We did not have a general rate increase this past year and the Purchased Cost Adjustment average for 2011 was close to the preceding year. December’s PCA should be one of the lowest we’ve seen for quite some time.

Member Services

We held three area member meetings in early March. Although attendance was low, we had great discussions with those members that did come out.

The HomE Energy Efficiency Rebate program came to a close in early 2011. Nearly 150 members received an energy assessment on their home and over $127,000 in rebates were provided to members who installed high efficient heating and cooling systems and/or additional insulation. The rebate funds for the program came from the American Recovery and Reinvestment Act and did not cost the Cooperative or our members other than staff time. This was a great program and will help many of our members reduce their energy usage.

2012 -- The Electric System

There are several major transmission projects that are planned for 2012. Members in the Boskydell Road area, west of Giant City School, have noticed the recent start of transmission line work. The Jackson County Highway Department is making major road improvements that require relocation of the transmission line and our three-phase feeder line that is underbuilt on the transmission. Most of this cost will be covered by the Highway Department and contractor crews plan to do their best to minimize outages.

To increase reliability northeast of Carbondale, Southern Illinois Power Cooperative (SIPC), who owns the transmission lines, has plans to build a tie-line to our Carterville Substation. Our Carterville and Carbondale East substations are fed by a radial feed transmission line, meaning there is no ‘loop’ to the stations. If the transmission line is knocked out of service by a storm, we have to by-pass those substations and feed the members from other substations. The load on these stations and the ones adjacent to them have grown to the point the ability to do this in severe weather may be in jeopardy. SIPC has plans to tie the Carterville substation to existing facilities to the north, creating a loop to the stations. We’re hoping final plans are completed this year and construction of the tie-line begins soon.

We intend to continue our ROW maintenance program in 2012. As I’ve mentioned in recent articles, we are looking at every way possible to reduce costs in 2012, but ROW maintenance will not be reduced. We will make sure it operates as efficiently and effectively as possible, but reducing or eliminating ROW maintenance would be very short-sited. Other utilities have attempted to reduce costs by minimizing ROW maintenance, but have paid dearly when wind or ice storms hit their system. We want to reduce costs, but we will do so in ways that will not jeopardize your quality of service.

Financials

The coming year will be a tough one financially. I have reported numerous times concerning the impact Prairie State Energy Campus will have on future wholesale power rates. As reported last month, our wholesale rate in 2013 will be lower than this year as Norris Electric Cooperative will begin a contractual purchase of electricity from SIPC at that time. Rather than raise rates to meet our 2012 wholesale costs and then lower them in 2013, we have decided to increase rates to meet only the lower 2013 wholesale costs. This means Egyptian will lose money in 2012. Retail rates will increase for February usage (March bills). Wewill not entirely cover our wholesale power cost increase. We feel this is the best way to minimize the impact of increased energy prices to you.

Member Services

We will continue area member meetings and are planning them for early April. This will be after you’ve seen the new rates on your electric bills and we hope you take the opportunity to come talk with us. We’ll communicate the details of when and where at a later time.

Our state-wide association in Springfield will soon be announcing the FarmE program to assist farms with energy assistance. This will be done through an existing USDA program, the Rural Energy for America Program (REAP). FarmE will assist farmers with the energy audit that is required as part of the REAP grant.

Legislative Issues

A large portion of increased costs for 2012 come from federal mandates dealing with environmental issues. One of these, the Cross-State Air Pollution Rule (CSAPR), replaces the EPA’s 2005 rules. These standards were finalized this past July and go into effect January 1, 2012. SIPC has always attempted to be a good environmental steward, but even with major improvements made to the plant in 2002, will probably not be able to meet the new standards. SIPC must purchase expensive emission credits, reduce operating hours on Unit 4, the largest turbine and boiler (and buy electricity from the grid), or totally shut it down. We are not sure of the full effects of CSAPR at this point, but budgeted estimates are $6 million in new costs to SIPC next year.

The EPA has also made efforts to change the classification of coal combustion residuals (CCR). CCR’s have been regulated for many years, but classified as non-hazardous. This allowed safe by-products, like coal ash, to be reused in products like concrete, sheet-rock and roof shingles. The EPA has made overtures to reclassify CCR’s as hazardous and would require all CCR’s to be placed in certified landfills. If happens, SIPC would have increased operating costs of nearly $11 million per year. Egyptian’s share would be nearly $2 million or another increase of 5.5% in our wholesale power costs.

If there ever were a year I wish I had the proverbial crystal ball and could see the future, this would be the year. I’m not sure I can remember a year that started off with as many challenges ahead. As the manager of your electric cooperative, my comfort and confidence comes from knowing that Egyptian is served by a competent board, staff and employees. These women and men have you in their best interest as they daily face these challenges ahead. With their commitment and ability, I know we will weather what is ahead and soon see better times again.