Board Action Is Proposed
To combat the rising costs of goods and services at the cooperative level board of trustees propose an adjustment to the electric service charge in 2023.
Prices continue to rise, and there is no indication that relief is coming. Families across the country are seeing the cost of everything go up. Basic groceries have seen a 13% price hike . Everything from a loaf of bread to a gallon of milk, even a dozen eggs.
While FreeState may not buy basic groceries, it is buying power and critical supplies to keep the lights on. The rising costs of materials, paired with the supply chain slowdowns, have put the cooperative in a challenging position.
“No matter where we look, costs are going up,” said Chris Parr, FreeState CEO. “As we have faced supply chain issues, shortages, and the recent price spikes, we have continued to operate as lean as possible.”
“Regardless of the situation we’re in, we want to be upfront with our members and provide information that will impact them because it’s the right thing to do,” Parr said.
Supply Chain Challenges
Utilities across the country have been hit with supply chain bottlenecks that have not only made getting material a challenge, but demand has sent prices soaring.
“Right now, our biggest challenge is our operating costs, and that’s just the cost of the parts and pieces it takes to distribute power,” Parr said. “We plan, and we forecast, and we are strategic in how we organize our work plan and how we set up our construction work plan, and that includes our finances, but we could not have foreseen the challenges that we are right now. We are in a situation that we just have no control over.”
While the cooperative’s operations and materials teams are working to secure materials, they are also working to get the best pricing. And that has been difficult.
“When we can get materials, the price is nearly double,” added Parr.
Costs have been increasing over the past decade, but in just one year, the cost of materials has skyrocketed. Transformers that hang from poles are 11% more expensive, while pad mount transformers have increased 60% in just a year. Poles have also seen price increases with 35-foot poles increasing 30% and 40-foot poles going up 84%.
“We don’t want to pull the fire alarm here, but we want our members to know what we are dealing with because it’s going on everywhere,” said Parr. “We want to be as transparent as possible.”
Trustees Seeing Impacts
The FreeState board of directors has been monitoring the cooperative’s financial requirements and is meticulous regarding their fiduciary responsibilities. Jeanine Murphy, board president, says the financial goals of the cooperative are top of mind.
“Each of us in the boardroom is a member, and we see the costs rising at home,” Murphy said. “We’re also seeing it on the cooperative business side.”
“Our planning strategies and how we have been operating have helped to shield us from some of the impacts of the economic climate we’re in, but we are coming to a point where we need to look at some options to keep us here.”
Murphy added that when looking at these reports, they asked, what can we do to help prevent further financial impacts due to the economic climate we are in?
The answer is not a simple one, but effective and immediate.
Plan of Action
Murphy and Parr both said that members should not feel doom and gloom. The cooperative is still in overall good financial shape. Still, the cost of materials and the impact we are seeing from inflation and the uptick in the interest rate means we must be proactive and act now to prevent any hardships.
“If we want to make an immediate, efficient, and significant impact on our bottom line, we need to adjust our electric service charge,” Parr said. “But we also realize the current timing is terrible. We want to make sure that when we adjust, they are incremental.”
“We all realize there is never a right time for us to make any adjustments,” added Parr. “But it’s something we need to do.”
The board is proposing a two-phase adjustment to the electric service charge. In February 2023, members will see a $7 adjustment to the service charge. In February of 2024, an additional $2 will be added.
“It’s not an insignificant adjustment,” said Murphy. “But it is still far from where it could be.”
Murphy also added that members are the priority, but so is meeting the financial goals of the cooperative. Both are top of mind when making these decisions.
“Our goal from day one has been to push that costly Cost of Service Study out as far as we can,” said Murphy. “And, with this adjustment, we can do that for another couple of years.”
Parr said the staff at FreeState, along with the trustees, started looking at costs and making sure the day-to-day business expenses were being managed prudently.
“We still need to do business at a level our members expect,” said Parr. “But our staff scrutinizes costs and follows a detailed budget each year.”
“And those are costs we can control,” Parr added.
More than half of the cooperative’s expenses are not controlled by the cooperative. More than 66% of costs strictly pay the power bill to wholesale suppliers.
“Power and natural gas costs are out of our control,” said Parr. “And they keep rising. Mix those costs with materials, supply chain delays, and even the interest rate, and it’s not getting easier.”
“We want to provide the best member service and experience we can,” Parr said. “We’ll keep doing that, but there comes a time where we just have to adjust to meet our financial obligations.”
Parr said the board and staff understand that members are seeing a lot of uncertainty and are doing what they can to assist members impacted by the current financial climate.
Members facing financial hardships are encouraged to call the office at 800-794-1989 to discuss options to assist members.