The cost of doing business has seen dramatic increases in the past two years, and factors outside FreeState’s control are driving prices up, and no reprieve is coming any time soon.
As a not-for-profit cooperative, FreeState operates as close to cost as possible and continually works to be financially responsible while being progressive and innovative in maintaining a standard of service members expect.
“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.
Utilities across the country have seen demand for basic materials push prices to unprecedented highs.
“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 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 not been easy.
“When we can get materials, the price is nearly double,” added Parr.
Prices rise over time, but material prices have hit an all-time high in just one year. Transformers have increased by 48%, basic wire has increased by 30%, and poles have increased by 10%. While prices are skyrocketing, availability is bottoming out. Utilities across the country have been hit with the challenge of prices soaring. Materials, labor, and wholesale power costs are at an all-time high.
“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.”
Bringing Forward a Proactive Plan
Murphy and Parr both said that members should not feel impending doom. The cooperative is still in overall good financial shape, but it comes down to being as proactive as possible and having a plan of action.
Murphy says that members are the priority, but so is meeting the financial goals of the cooperative. Both are top of mind when making these tough decisions.
“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 our economic climate?
The answer is not a simple one, but effective and immediate.
“The easiest way we can positively impact the co-op’s bottom line is adjusting the electric service charge,” Parr said. “It’s something we can do to help keep us where we need to be and be as proactive as possible because we just don’t know what’s coming.”
“We also know that the timing is terrible, and there is never a good time to adjust a charge,” added Parr. “We all know and understand that, but this is what is best for the overall financial health of the cooperative.”
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 2024, an additional $2 will be added.
Parr said the staff and trustees started looking at costs and ensuring 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 because those are costs we can control.”
The cooperative does not control sixty-six percent of costs. Wholesale power is the most significant uncontrolled cost, and right now, the entire country is seeing an increase in the cost of power due to generation costs rising.
“Wholesale 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.”
Parr said the board and staff understand that members are seeing much 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.