September 30, 2025 • 18 mins
Episode 4 – Inside Midstate Electric Rates
Hosted by Jim Anderson, General Manager and CEO of Midstate Electric Cooperative
In this episode of Power Factor, we take a deep dive into how Midstate Electric Cooperative sets fair, data-driven electric rates as a not-for-profit utility. Our CFO, Jami joins us to explain what goes into the cost-of-service study, how capital credits benefit members, and why a 28% wholesale power hike from BPA results in about a 12% increase on an average residential member's bill. We’ll also unpack the complexity of BPA’s Tier 1 and Tier 2 power costs, the role of demand charges, and how long-term investments shape the future of our rates.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Jim Anderson (00:00):
Welcome to Power Factor, the podcast that takes
you behind the scenes atMidstate Electric Cooperative.
I'm Jim Anderson, the CEO andGeneral Manager, and I'm going
to be your host as we dive intotopics about our industry and
the challenges we face, and themembers we proudly serve.
In today's episode, we're goingto discuss a topic that impacts
every member, electric rates.
Do you ever wonder how electricrates are determined or why
(00:21):
they change over time?
Today you're going to get theanswers straight from the
source.
Joining us is our chieffinancial officer, or we'll
refer to her as the CFO, Jami.
She's going to be here to helpwalk through the numbers,
explain the key drivers behindthe rates, and share how your
cooperative works to keep thepower reliable and affordable.
Welcome, Jami.
Jami (00:39):
Hello.
Jim Anderson (00:40):
So what does a CFO do?
Maybe that's a good place tostart with our membership.
Jami (00:45):
Ultimately, I'm responsible for everything
related to the finances of thecooperative.
Um, I also am responsible forthe customer service or member
support department and ourbilling department as well.
Jim Anderson (00:58):
So do you have a large department that you work
with?
Is this just you?
Jami (01:01):
I have a department of 13.
Jim Anderson (01:03):
13?
Yeah.
That's a large department.
And they're all busy working tokeep the rates down and satisfy
the membership to keep themhappy?
That they are.
Excellent.
So I guess we're gonna startwith the basics.
So at the beginning, we have tolook at where we're going and
what we're doing at the co-op.
So we've got to figure out howto set the rates.
So how do we set the rates atMid state?
Jami (01:20):
Well, every two or three years or so, we have a
consultant do a cost- of-service study.
So they look at the costs by aclass of customer, and then we
determine what revenuerequirement is needed to cover
those costs.
Jim Anderson (01:34):
And the process is probably more complex than just
looking at our numbers.
Jami (01:37):
It's probably a very it usually takes three to six
months total.
They do the cost of servicestudy and then we do rate design
in the board.
Uh, we have a rate committeethat's involved that looks at it
along the entire way and makesa recommendation to the complete
board as a whole, and and thenwe implement the plan.
Jim Anderson (01:56):
So when the board's looking at this and our
consultants are looking at therate structure, what are some of
the key factors that go intobuilding the rate?
Jami (02:04):
One of the main things that they look at at first is
how many kilowatt-hour sales wehave per class of customer or
the max demand per class ofcustomer and just the count
itself.
Um, certain expenses areallocated based on all of those
components to the differentclasses.
Jim Anderson (02:19):
And we're not just looking at residential when we
design rates, we're looking atuh rates across the board.
So we have all sorts ofdifferent rate classes here at
Midstate.
Jami (02:26):
We do.
Jim Anderson (02:27):
Each individual rate class is analyzed and we
try to find out what is the bestrecovery of rate for that
member, being fair and equitableacross uh for everybody?
Jami (02:37):
Fair and equitable, yes.
We look at each one, make surethat each class is contributing,
covering their costs andcontributing to our margin that
we use to uh maintain our plantand pay out our capital credits.
So, yes.
Jim Anderson (02:50):
So one of the biggest things we look at is
Bonneville Power when you'redesigning the rates.
And I know Bonneville Power hasbeen historically good at
saying the average rate increaseis going to be 2% for the
membership.
But that isn't necessarily thecase when it comes to Midstate's
or other cooperatives.
The rates traditionally can behigher.
Jami (03:09):
Right.
And traditionally, Midstatesare higher than Bonneville's
average because we have a largershare in tier two power, which
is power that they have to buyoff of the market.
So we have load growth, andthat ends up giving us a larger
share of their increasehistorically.
Jim Anderson (03:27):
Okay, so that brings up a good point.
Tier one, tier two power.
I know our board has been verygood at looking at the tier one
power allocation fromBonneville or our high
watermark, as they call it.
When we design the rates, wemeld for our residential cup
customers tier one and tier twopower together.
So that actually gives us therate for the membership.
Jami (03:47):
Correct.
Jim Anderson (03:48):
Okay.
Jami (03:48):
Total cost of power.
Jim Anderson (03:49):
Total cost of power.
So with a large commercial loador a large industrial load
moves into the territory andcomes on, we've designed a rate
structure so that it allows thatperson or that business new
member to fairly pay their shareof tier two only and not impact
the tier two blend with theresidential.
Jami (04:09):
You are correct.
Jim Anderson (04:10):
So how's that done?
Jami (04:12):
Again, it's based on so those are the newer classes of
customer that we have, and it'sagain based on the amount of
kilowatt hour sales that thatclass will have.
So the consultant breaks outthe tier one power costs versus
the tier two and makes a directallocation to that class of
customer and not to any of therest of them.
Jim Anderson (04:35):
Well, and I think that's important that the
members know exactly that we'retrying to protect the rates of
everybody and to hold off thesenew large loads that come in so
they don't directly impact theresidential member.
Jami (04:46):
Yes.
Jim Anderson (04:47):
This year, since we're on the BPA topic,
Bonneville came out again with alarge rate increase for
Midstate, it's gonna besomewhere around 28%.
How did the co-op come up withthe rate increase that we're
gonna have this year beingconsiderably less when we hear
28% Midstate's going in withapproximately a 12% rate
(05:08):
increase?
Where do we get that number at?
How do we get to that point ofarriving at where the new cost
is gonna be?
And did we actually leveragethe demand charge to save us
some of this cost?
Where I'm seeing otherutilities going forward with
larger increases year over year,there's a good possibility as
it thinks that right now thatthis will be the last rate
(05:30):
increase our members are gonnasee, unless we have some major
event until October of 2028, ourmembers could see flat rates
with no increases.
Jami (05:38):
Yeah, so our total power costs are normally about 50% of
our operating costs.
And having that new residentialdemand charge that we put in
place earlier this year hasdefinitely helped minimize the
increase that we're going to bereceiving from Bonneville Power
Effect of October 1st.
Jim Anderson (05:57):
Okay, so this comes into that same thing of
being proactive on our planning,looking at how the cost of
service study actually couldbenefit the membership.
Although at the times ratesseem pretty painful and some
changes we're making aren'tnecessarily popular.
In the long run, they'reactually going to be beneficial
to the membership.
Jami (06:15):
Absolutely.
And now we have a demand chargefor every class of customer,
and that is similar to thedifferent components that we
have on our BPA bill thatMidstate pays on behalf of the
customers.
Jim Anderson (06:28):
Okay, so I guess but that gets us into probably
financial stewardship.
Midstate Cooperative is anot-for-profit.
We're a 501 C12 company.
Can we talk about what theboard does to make sure that
they're setting the ratesaccordingly to be financially
responsible given the guidelinesthat we have to operate
(06:49):
underneath?
So when we set the rates, howdoes the board look at that to
maintain our standing with ourlenders or other key metrics
that we have to live up to?
Jami (06:59):
Well, number one is that each customer class pays their
fair share.
Um, and we don't want a oneclass subsidizing another
class's costs.
So they do take that veryseriously.
As far as our lenders go,there's some requirements that
we have in place that ensurethat we have enough margins to
(07:21):
make our principal and interestpayments to them on a quarterly
basis.
We are definitely looking atthat monthly at each of the
board meetings.
Jim Anderson (07:30):
And when the board looks at all this, I know
there's so many drivers takingoff right now between increased
transportation and tariffcharges.
The co-op is actually gettingon some materials coming in,
long lead times, you know, somecases tripling in price.
The board takes that intoconsideration when they're
looking at these numbers aswell.
Jami (07:49):
Oh, yeah.
The board gets a 10-yearconstruction work plan from our
Engineering and Operationsdepartments.
And so we go through all of thecapital projects that are
needed in the next 10 years, andthen we use that information to
then put into a 10-yearfinancial forecast.
That forecasts out our uhexpenses as well as our revenue.
(08:12):
And then if there is a neededrate increase, it will also have
that in there by year.
So they have that on theirradar constantly, and that's
definitely always in the back oftheir minds.
Jim Anderson (08:24):
So this isn't something that just comes
together in a matter of weeks ormonths.
This is a process that'sactually years in the making in
some cases, as we look at therate structure.
Jami (08:34):
Absolutely, it sure is.
Yep.
Jim Anderson (08:36):
Yeah, and things can change really quickly.
If we have a huge uh storm or afire or something happens at
the co-op, that could impact therates going forward as well.
Jami (08:44):
Yes, it could.
Jim Anderson (08:45):
And you've dealt with the board, you've probably
been here, you've been herelonger than I have.
So, as I know, as we sit in theboardroom and we talk about
rates with the board, in youropinion, how difficult is this
for the board to actually gothrough the process?
Is this something that's easilydone or is this a difficult
decision for the board to makewhen it comes to the rates?
Jami (09:04):
Oh, it's very difficult.
They they understand, you know,nobody likes an increase to
their power bill.
So they try to minimize that asmuch as possible, try to get
creative on ways to generatefunds without raising rates.
But we are running a businessand we're trying to cover the
cost increases that we're seeingas well.
So it's just kind of all ofthose things are being
(09:27):
considered before they maketheir final decision.
Jim Anderson (09:29):
And they're still looking at this rate structure
and they're looking at themargins, they're looking at the
budget as we go forward.
And you guys have a, you know,accounting plays heavily into
the budget, making sure thatwe're staying with the
guidelines of the budget as wego forward.
So the rates play into that aswell.
Jami (09:44):
Oh yeah.
The board looks at ourfinancials every month and we
compare those to the budget thatwe have in place that the board
also approves annually.
So they're tracking this on amonthly basis.
Jim Anderson (09:56):
Okay, and then at the end of the year, we kind of
look with the board and true up.
That's that's kind of in thethe past as we look at the end
of the year and see how we'vedone it, see how we're how the
budgeting is done forecastedversus actual.
Jami (10:07):
Mm-hmm.
Yeah, and when we're looking atthe next year's budget, we'll
know if those costs haveincreased so much, we'll we'll
have an idea that we do need todo a rate increase.
And then just try to minimizethat as much as possible, look
at our costs and see if there'splaces we can cut and then go
forward.
Jim Anderson (10:23):
And everything pulls into it.
Midstate's a growing utility,and the and the bigger we get,
there's a lot that happensbehind the scenes of Midstate
with infrastructure and otherthings that go on.
But the board also has to beproactive in planning out uh the
future for you know linebuilding and uh and new
equipment that's needed and howwe're gonna serve the
membership.
And so when we look at therates, that plays into it as
(10:44):
well.
Jami (10:44):
Oh, yeah, absolutely.
That's in that constructionwork plan that I talked about,
and that will tell you what theneeds are each year for the next
10 years, and then capitalitems.
We depreciate capital itemsover the life of the plant
itself.
So what happens with that isthat say a poll, we depreciate
that over 30 years.
So that's gonna hit the rateover a 30-year period of time.
(11:06):
So one-thirtieth of that pollcost is in the rate versus a
maintenance cost, which wouldall hit in one year.
So it does spread out the costof those items.
Jim Anderson (11:15):
Okay, and then that comes back to being each
member paying their fair share.
And I know when we set therates, we're also looking at
being a cooperative.
The current member of thecooperative pays a share of
these construction costs.
But when we look at theserates, we're looking at that
item going out, you know, 20%.
So the current member isgetting the benefit, but the
(11:37):
future member's also payingtheir fair share of the stuff
that's legal forward.
So the rate design takes allthat into account.
Jami (11:42):
It does, yeah.
Jim Anderson (11:43):
So it's it's pretty complex.
Jami (11:45):
It is.
Jim Anderson (11:46):
It is.
It is.
Yeah, definitely keep you onyour toes.
So what happens, and I knowsome of our members are new to
the co-op and they're not uhaware of capital credits or they
hear about capital credits, butthey don't know how this works.
So at the end of the year, whenwe come in with our margins
being high, what does that meanto the membership?
What's that going to mean tofuture members of mid-state?
(12:07):
What can they expect from theco-op?
Jami (12:10):
Sure.
Yeah, so we're not not forprofit.
So any profits that we do uhgenerate are used in the short
term for operating, butultimately are allocated back to
the member the following year,and then they will get capital
credit checks at a future dateregularly once they start
(12:31):
retiring them.
This year we're paying out therest of 2008 and part of 2009.
Jim Anderson (12:37):
Okay, and then that's another decision the
board has to make that impactsthe rate structures, they're
figuring out how to pay thesecapital credits back.
Yes, because that's notactually money that Midstate has
sitting in an account ready togo.
So this is actually capitalthat Midstate has to either
borrow to pay back, or there's amechanism that we can use to
(12:57):
actually get that money back to.
Jami (12:58):
Yeah, we don't we're not holding on to those margins,
we're using them to keep ourcosts down and to reduce the
amount of borrowing that we haveto do.
So that's why we we typicallyhold on to them for you know 15
to 20 years and then return them100% back to the members.
Jim Anderson (13:14):
And historically Midstate has been above the
state average and nationalaverage and paying back our
capital credits to risk.
Jami (13:20):
They sure have, yeah.
Jim Anderson (13:21):
So definitely responsible to the members and
making sure that money gets backwhere it needs to go.
What are you seeing is probablyone of the most difficult parts
of the rates as we go forwardwith the new loads coming on or
with the changes of the climatethat we've had here.
You know, we used to be totallywinter peak, but now we're
seeing more people coming in inthe summer.
(13:41):
What are you thinking isprobably some of the most
difficult things we have toaddress as a co-op?
Jami (13:47):
It seems like the last few years we've had a lot of
increases from Bonneville power,which we're not used to having.
So, you know, like I said,we've tried to minimize those
costs, but ultimately we have topass them through to the
membership.
Bonneville is trying to focusheavily on rebuilding their
transmission lines just giventhe extra load that we have in
(14:07):
our region.
And so that costs money, andthen that ultimately we see that
on our power bill.
So it's kind of a trickle-downeffect, but uh that's the key
driver.
Uh, like I said, it's 50% ofour total cost to Midstate's
rates.
Jim Anderson (14:22):
Yeah, very complex to put it together.
I guess if a member does have aquestion about their rates and
about their bill as a whole,what can they do?
Can they reach out to people onyour staff to answer these
questions?
Jami (14:36):
Absolutely.
Yep.
Just call into Midstate.
One of our member service repswill help you.
They'll take a look at yourbill and see if there's ways to
help reduce usage or offer, youknow, budget billing or the
different programs that we dooffer to help smooth out the
changes.
Jim Anderson (14:52):
Yep.
And I know Midstate is tryingto get our rate schedule set to
match Bonneville's.
I know it's really difficult.
I know the turnaround for somepeople seems pretty quick that
we're having a rate increasecoming in in November, but
that's mainly due to Bonnevilleactually changing our rate at
the end of September.
Jami (15:10):
Yeah, so Bonneville's uh fiscal year is October 1st to
September 30th.
So we knew there was going tobe a rate increase coming.
We did not know specificallywhat Midstate's increase was
going to be until early August.
So we had to quickly do somenumber crunching and determine
what increase we had to thencarry forward to the membership.
Jim Anderson (15:33):
Okay, so and I know our communications uh we're
going to talk to those folkshere in another episode or two
to talk about getting that outto the membership because we
want people to know that whywe're doing it and when we have
to do it.
We're trying not to do it inthe peak of winter.
Jami (15:46):
Yeah, we changed that.
Last time it was January 1st,so we did move it up to November
1st, but we also want to bemindful of the membership, give
them enough notice of anincrease, and hopefully give
them a little time to planaccordingly before we did have
it on their bills.
Jim Anderson (16:00):
Yep.
And I guess one good thing,since we're talking about
planning on the bills, you know,the prepay people, they seem
to, at first with the demand,and I know they've had some
issues where we have to bill allat once based on our current
system.
But we do have a softwarechange, a new program rolling
out for those people, and that'sgonna be in, I believe it's
January or February that that'sgonna be rolling out so that the
(16:22):
new system will actually be amonth lagging on their demand,
so their bills will be steadyequalized across the month.
They won't have these peaks andvalleys going through.
Jami (16:31):
Yeah, yeah, that's gonna be the main difference.
It's going to divide out thedemand daily instead of having
one day peak and then true upfollowing that.
So, and it'll look at themembers' demand for the previous
month to do so.
Jim Anderson (16:45):
Yeah, and I know the other good thing that we
should probably tell everybodythat is on the prepay is that
with the new software programand the advancements Midstate's
making in our systems here, thatthe six dollar fee that
Midstate used to charge to be onprepay is actually gonna go
away.
So that's six dollars that canactually be used on the bill
instead of actually having to goto be on the program.
(17:07):
So definitely some good thingsyour department's doing, trying
to make sure that we'readdressing all the membership
needs going forward and balancethings out.
I know I've tried to cram a lotin here today and talk to you a
lot about rates and we'll getthings stirred up a little bit,
but rates are really importantto Midstate.
They're not easy to set.
The crystal ball always uhisn't exactly clear because we
(17:27):
don't know what's coming downthe pipe with Bonneville.
But there's a lot that goesinto the rate process that
you've talked about today.
Is there anything that wemissed at all that we want to
talk about on the rates?
Jami (17:37):
Boy, I feel like that covered it.
Jim Anderson (17:39):
Okay.
Well, I appreciate you spendingtime with us today.
I appreciate the membershipfor actually taking the time to
listen to this.
And it seems to be the mostfront and center of everybody's
mind is rates.
Things are changing, and wewant to make sure that we're
addressing this as much aspossible.
So if you do have any questionson your bill or the the
process, you can contact theMSRs and Jami's staff, and they
(18:02):
can help you work through this.
Jami (18:03):
Absolutely.
We're here to help you.
Jim Anderson (18:05):
Well, thank you very much for joining us today.
Jami (18:07):
Thank you.
Jim Anderson (18:07):
Thank you for tuning in to another episode of
Power Factor.
Be sure to subscribe or followus on your favorite podcast
application to stay informed onthe latest from Midstate
Cooperative.
We appreciate you listening tous and always stay safe, stay
informed, and stay empowered.
Until next time, thank you.
Welcome to Power Factor, the podcast that takes
you behind the scenes atMidstate Electric Cooperative.
I'm Jim Anderson, the CEO andGeneral Manager, and I'm going
to be your host as we dive intotopics about our industry and
the challenges we face, and themembers we proudly serve.
In today's episode, we're goingto discuss a topic that impacts
every member, electric rates.
Do you ever wonder how electricrates are determined or why
(00:21):
they change over time?
Today you're going to get theanswers straight from the
source.
Joining us is our chieffinancial officer, or we'll
refer to her as the CFO, Jami.
She's going to be here to helpwalk through the numbers,
explain the key drivers behindthe rates, and share how your
cooperative works to keep thepower reliable and affordable.
Welcome, Jami.
Jami (00:39):
Hello.
Jim Anderson (00:40):
So what does a CFO do?
Maybe that's a good place tostart with our membership.
Jami (00:45):
Ultimately, I'm responsible for everything
related to the finances of thecooperative.
Um, I also am responsible forthe customer service or member
support department and ourbilling department as well.
Jim Anderson (00:58):
So do you have a large department that you work
with?
Is this just you?
Jami (01:01):
I have a department of 13.
Jim Anderson (01:03):
13?
Yeah.
That's a large department.
And they're all busy working tokeep the rates down and satisfy
the membership to keep themhappy?
That they are.
Excellent.
So I guess we're gonna startwith the basics.
So at the beginning, we have tolook at where we're going and
what we're doing at the co-op.
So we've got to figure out howto set the rates.
So how do we set the rates atMid state?
Jami (01:20):
Well, every two or three years or so, we have a
consultant do a cost- of-service study.
So they look at the costs by aclass of customer, and then we
determine what revenuerequirement is needed to cover
those costs.
Jim Anderson (01:34):
And the process is probably more complex than just
looking at our numbers.
Jami (01:37):
It's probably a very it usually takes three to six
months total.
They do the cost of servicestudy and then we do rate design
in the board.
Uh, we have a rate committeethat's involved that looks at it
along the entire way and makesa recommendation to the complete
board as a whole, and and thenwe implement the plan.
Jim Anderson (01:56):
So when the board's looking at this and our
consultants are looking at therate structure, what are some of
the key factors that go intobuilding the rate?
Jami (02:04):
One of the main things that they look at at first is
how many kilowatt-hour sales wehave per class of customer or
the max demand per class ofcustomer and just the count
itself.
Um, certain expenses areallocated based on all of those
components to the differentclasses.
Jim Anderson (02:19):
And we're not just looking at residential when we
design rates, we're looking atuh rates across the board.
So we have all sorts ofdifferent rate classes here at
Midstate.
Jami (02:26):
We do.
Jim Anderson (02:27):
Each individual rate class is analyzed and we
try to find out what is the bestrecovery of rate for that
member, being fair and equitableacross uh for everybody?
Jami (02:37):
Fair and equitable, yes.
We look at each one, make surethat each class is contributing,
covering their costs andcontributing to our margin that
we use to uh maintain our plantand pay out our capital credits.
So, yes.
Jim Anderson (02:50):
So one of the biggest things we look at is
Bonneville Power when you'redesigning the rates.
And I know Bonneville Power hasbeen historically good at
saying the average rate increaseis going to be 2% for the
membership.
But that isn't necessarily thecase when it comes to Midstate's
or other cooperatives.
The rates traditionally can behigher.
Jami (03:09):
Right.
And traditionally, Midstatesare higher than Bonneville's
average because we have a largershare in tier two power, which
is power that they have to buyoff of the market.
So we have load growth, andthat ends up giving us a larger
share of their increasehistorically.
Jim Anderson (03:27):
Okay, so that brings up a good point.
Tier one, tier two power.
I know our board has been verygood at looking at the tier one
power allocation fromBonneville or our high
watermark, as they call it.
When we design the rates, wemeld for our residential cup
customers tier one and tier twopower together.
So that actually gives us therate for the membership.
Jami (03:47):
Correct.
Jim Anderson (03:48):
Okay.
Jami (03:48):
Total cost of power.
Jim Anderson (03:49):
Total cost of power.
So with a large commercial loador a large industrial load
moves into the territory andcomes on, we've designed a rate
structure so that it allows thatperson or that business new
member to fairly pay their shareof tier two only and not impact
the tier two blend with theresidential.
Jami (04:09):
You are correct.
Jim Anderson (04:10):
So how's that done?
Jami (04:12):
Again, it's based on so those are the newer classes of
customer that we have, and it'sagain based on the amount of
kilowatt hour sales that thatclass will have.
So the consultant breaks outthe tier one power costs versus
the tier two and makes a directallocation to that class of
customer and not to any of therest of them.
Jim Anderson (04:35):
Well, and I think that's important that the
members know exactly that we'retrying to protect the rates of
everybody and to hold off thesenew large loads that come in so
they don't directly impact theresidential member.
Jami (04:46):
Yes.
Jim Anderson (04:47):
This year, since we're on the BPA topic,
Bonneville came out again with alarge rate increase for
Midstate, it's gonna besomewhere around 28%.
How did the co-op come up withthe rate increase that we're
gonna have this year beingconsiderably less when we hear
28% Midstate's going in withapproximately a 12% rate
(05:08):
increase?
Where do we get that number at?
How do we get to that point ofarriving at where the new cost
is gonna be?
And did we actually leveragethe demand charge to save us
some of this cost?
Where I'm seeing otherutilities going forward with
larger increases year over year,there's a good possibility as
it thinks that right now thatthis will be the last rate
(05:30):
increase our members are gonnasee, unless we have some major
event until October of 2028, ourmembers could see flat rates
with no increases.
Jami (05:38):
Yeah, so our total power costs are normally about 50% of
our operating costs.
And having that new residentialdemand charge that we put in
place earlier this year hasdefinitely helped minimize the
increase that we're going to bereceiving from Bonneville Power
Effect of October 1st.
Jim Anderson (05:57):
Okay, so this comes into that same thing of
being proactive on our planning,looking at how the cost of
service study actually couldbenefit the membership.
Although at the times ratesseem pretty painful and some
changes we're making aren'tnecessarily popular.
In the long run, they'reactually going to be beneficial
to the membership.
Jami (06:15):
Absolutely.
And now we have a demand chargefor every class of customer,
and that is similar to thedifferent components that we
have on our BPA bill thatMidstate pays on behalf of the
customers.
Jim Anderson (06:28):
Okay, so I guess but that gets us into probably
financial stewardship.
Midstate Cooperative is anot-for-profit.
We're a 501 C12 company.
Can we talk about what theboard does to make sure that
they're setting the ratesaccordingly to be financially
responsible given the guidelinesthat we have to operate
(06:49):
underneath?
So when we set the rates, howdoes the board look at that to
maintain our standing with ourlenders or other key metrics
that we have to live up to?
Jami (06:59):
Well, number one is that each customer class pays their
fair share.
Um, and we don't want a oneclass subsidizing another
class's costs.
So they do take that veryseriously.
As far as our lenders go,there's some requirements that
we have in place that ensurethat we have enough margins to
(07:21):
make our principal and interestpayments to them on a quarterly
basis.
We are definitely looking atthat monthly at each of the
board meetings.
Jim Anderson (07:30):
And when the board looks at all this, I know
there's so many drivers takingoff right now between increased
transportation and tariffcharges.
The co-op is actually gettingon some materials coming in,
long lead times, you know, somecases tripling in price.
The board takes that intoconsideration when they're
looking at these numbers aswell.
Jami (07:49):
Oh, yeah.
The board gets a 10-yearconstruction work plan from our
Engineering and Operationsdepartments.
And so we go through all of thecapital projects that are
needed in the next 10 years, andthen we use that information to
then put into a 10-yearfinancial forecast.
That forecasts out our uhexpenses as well as our revenue.
(08:12):
And then if there is a neededrate increase, it will also have
that in there by year.
So they have that on theirradar constantly, and that's
definitely always in the back oftheir minds.
Jim Anderson (08:24):
So this isn't something that just comes
together in a matter of weeks ormonths.
This is a process that'sactually years in the making in
some cases, as we look at therate structure.
Jami (08:34):
Absolutely, it sure is.
Yep.
Jim Anderson (08:36):
Yeah, and things can change really quickly.
If we have a huge uh storm or afire or something happens at
the co-op, that could impact therates going forward as well.
Jami (08:44):
Yes, it could.
Jim Anderson (08:45):
And you've dealt with the board, you've probably
been here, you've been herelonger than I have.
So, as I know, as we sit in theboardroom and we talk about
rates with the board, in youropinion, how difficult is this
for the board to actually gothrough the process?
Is this something that's easilydone or is this a difficult
decision for the board to makewhen it comes to the rates?
Jami (09:04):
Oh, it's very difficult.
They they understand, you know,nobody likes an increase to
their power bill.
So they try to minimize that asmuch as possible, try to get
creative on ways to generatefunds without raising rates.
But we are running a businessand we're trying to cover the
cost increases that we're seeingas well.
So it's just kind of all ofthose things are being
(09:27):
considered before they maketheir final decision.
Jim Anderson (09:29):
And they're still looking at this rate structure
and they're looking at themargins, they're looking at the
budget as we go forward.
And you guys have a, you know,accounting plays heavily into
the budget, making sure thatwe're staying with the
guidelines of the budget as wego forward.
So the rates play into that aswell.
Jami (09:44):
Oh yeah.
The board looks at ourfinancials every month and we
compare those to the budget thatwe have in place that the board
also approves annually.
So they're tracking this on amonthly basis.
Jim Anderson (09:56):
Okay, and then at the end of the year, we kind of
look with the board and true up.
That's that's kind of in thethe past as we look at the end
of the year and see how we'vedone it, see how we're how the
budgeting is done forecastedversus actual.
Jami (10:07):
Mm-hmm.
Yeah, and when we're looking atthe next year's budget, we'll
know if those costs haveincreased so much, we'll we'll
have an idea that we do need todo a rate increase.
And then just try to minimizethat as much as possible, look
at our costs and see if there'splaces we can cut and then go
forward.
Jim Anderson (10:23):
And everything pulls into it.
Midstate's a growing utility,and the and the bigger we get,
there's a lot that happensbehind the scenes of Midstate
with infrastructure and otherthings that go on.
But the board also has to beproactive in planning out uh the
future for you know linebuilding and uh and new
equipment that's needed and howwe're gonna serve the
membership.
And so when we look at therates, that plays into it as
(10:44):
well.
Jami (10:44):
Oh, yeah, absolutely.
That's in that constructionwork plan that I talked about,
and that will tell you what theneeds are each year for the next
10 years, and then capitalitems.
We depreciate capital itemsover the life of the plant
itself.
So what happens with that isthat say a poll, we depreciate
that over 30 years.
So that's gonna hit the rateover a 30-year period of time.
(11:06):
So one-thirtieth of that pollcost is in the rate versus a
maintenance cost, which wouldall hit in one year.
So it does spread out the costof those items.
Jim Anderson (11:15):
Okay, and then that comes back to being each
member paying their fair share.
And I know when we set therates, we're also looking at
being a cooperative.
The current member of thecooperative pays a share of
these construction costs.
But when we look at theserates, we're looking at that
item going out, you know, 20%.
So the current member isgetting the benefit, but the
(11:37):
future member's also payingtheir fair share of the stuff
that's legal forward.
So the rate design takes allthat into account.
Jami (11:42):
It does, yeah.
Jim Anderson (11:43):
So it's it's pretty complex.
Jami (11:45):
It is.
Jim Anderson (11:46):
It is.
It is.
Yeah, definitely keep you onyour toes.
So what happens, and I knowsome of our members are new to
the co-op and they're not uhaware of capital credits or they
hear about capital credits, butthey don't know how this works.
So at the end of the year, whenwe come in with our margins
being high, what does that meanto the membership?
What's that going to mean tofuture members of mid-state?
(12:07):
What can they expect from theco-op?
Jami (12:10):
Sure.
Yeah, so we're not not forprofit.
So any profits that we do uhgenerate are used in the short
term for operating, butultimately are allocated back to
the member the following year,and then they will get capital
credit checks at a future dateregularly once they start
(12:31):
retiring them.
This year we're paying out therest of 2008 and part of 2009.
Jim Anderson (12:37):
Okay, and then that's another decision the
board has to make that impactsthe rate structures, they're
figuring out how to pay thesecapital credits back.
Yes, because that's notactually money that Midstate has
sitting in an account ready togo.
So this is actually capitalthat Midstate has to either
borrow to pay back, or there's amechanism that we can use to
(12:57):
actually get that money back to.
Jami (12:58):
Yeah, we don't we're not holding on to those margins,
we're using them to keep ourcosts down and to reduce the
amount of borrowing that we haveto do.
So that's why we we typicallyhold on to them for you know 15
to 20 years and then return them100% back to the members.
Jim Anderson (13:14):
And historically Midstate has been above the
state average and nationalaverage and paying back our
capital credits to risk.
Jami (13:20):
They sure have, yeah.
Jim Anderson (13:21):
So definitely responsible to the members and
making sure that money gets backwhere it needs to go.
What are you seeing is probablyone of the most difficult parts
of the rates as we go forwardwith the new loads coming on or
with the changes of the climatethat we've had here.
You know, we used to be totallywinter peak, but now we're
seeing more people coming in inthe summer.
(13:41):
What are you thinking isprobably some of the most
difficult things we have toaddress as a co-op?
Jami (13:47):
It seems like the last few years we've had a lot of
increases from Bonneville power,which we're not used to having.
So, you know, like I said,we've tried to minimize those
costs, but ultimately we have topass them through to the
membership.
Bonneville is trying to focusheavily on rebuilding their
transmission lines just giventhe extra load that we have in
(14:07):
our region.
And so that costs money, andthen that ultimately we see that
on our power bill.
So it's kind of a trickle-downeffect, but uh that's the key
driver.
Uh, like I said, it's 50% ofour total cost to Midstate's
rates.
Jim Anderson (14:22):
Yeah, very complex to put it together.
I guess if a member does have aquestion about their rates and
about their bill as a whole,what can they do?
Can they reach out to people onyour staff to answer these
questions?
Jami (14:36):
Absolutely.
Yep.
Just call into Midstate.
One of our member service repswill help you.
They'll take a look at yourbill and see if there's ways to
help reduce usage or offer, youknow, budget billing or the
different programs that we dooffer to help smooth out the
changes.
Jim Anderson (14:52):
Yep.
And I know Midstate is tryingto get our rate schedule set to
match Bonneville's.
I know it's really difficult.
I know the turnaround for somepeople seems pretty quick that
we're having a rate increasecoming in in November, but
that's mainly due to Bonnevilleactually changing our rate at
the end of September.
Jami (15:10):
Yeah, so Bonneville's uh fiscal year is October 1st to
September 30th.
So we knew there was going tobe a rate increase coming.
We did not know specificallywhat Midstate's increase was
going to be until early August.
So we had to quickly do somenumber crunching and determine
what increase we had to thencarry forward to the membership.
Jim Anderson (15:33):
Okay, so and I know our communications uh we're
going to talk to those folkshere in another episode or two
to talk about getting that outto the membership because we
want people to know that whywe're doing it and when we have
to do it.
We're trying not to do it inthe peak of winter.
Jami (15:46):
Yeah, we changed that.
Last time it was January 1st,so we did move it up to November
1st, but we also want to bemindful of the membership, give
them enough notice of anincrease, and hopefully give
them a little time to planaccordingly before we did have
it on their bills.
Jim Anderson (16:00):
Yep.
And I guess one good thing,since we're talking about
planning on the bills, you know,the prepay people, they seem
to, at first with the demand,and I know they've had some
issues where we have to bill allat once based on our current
system.
But we do have a softwarechange, a new program rolling
out for those people, and that'sgonna be in, I believe it's
January or February that that'sgonna be rolling out so that the
(16:22):
new system will actually be amonth lagging on their demand,
so their bills will be steadyequalized across the month.
They won't have these peaks andvalleys going through.
Jami (16:31):
Yeah, yeah, that's gonna be the main difference.
It's going to divide out thedemand daily instead of having
one day peak and then true upfollowing that.
So, and it'll look at themembers' demand for the previous
month to do so.
Jim Anderson (16:45):
Yeah, and I know the other good thing that we
should probably tell everybodythat is on the prepay is that
with the new software programand the advancements Midstate's
making in our systems here, thatthe six dollar fee that
Midstate used to charge to be onprepay is actually gonna go
away.
So that's six dollars that canactually be used on the bill
instead of actually having to goto be on the program.
(17:07):
So definitely some good thingsyour department's doing, trying
to make sure that we'readdressing all the membership
needs going forward and balancethings out.
I know I've tried to cram a lotin here today and talk to you a
lot about rates and we'll getthings stirred up a little bit,
but rates are really importantto Midstate.
They're not easy to set.
The crystal ball always uhisn't exactly clear because we
(17:27):
don't know what's coming downthe pipe with Bonneville.
But there's a lot that goesinto the rate process that
you've talked about today.
Is there anything that wemissed at all that we want to
talk about on the rates?
Jami (17:37):
Boy, I feel like that covered it.
Jim Anderson (17:39):
Okay.
Well, I appreciate you spendingtime with us today.
I appreciate the membershipfor actually taking the time to
listen to this.
And it seems to be the mostfront and center of everybody's
mind is rates.
Things are changing, and wewant to make sure that we're
addressing this as much aspossible.
So if you do have any questionson your bill or the the
process, you can contact theMSRs and Jami's staff, and they
(18:02):
can help you work through this.
Jami (18:03):
Absolutely.
We're here to help you.
Jim Anderson (18:05):
Well, thank you very much for joining us today.
Jami (18:07):
Thank you.
Jim Anderson (18:07):
Thank you for tuning in to another episode of
Power Factor.
Be sure to subscribe or followus on your favorite podcast
application to stay informed onthe latest from Midstate
Cooperative.
We appreciate you listening tous and always stay safe, stay
informed, and stay empowered.
Until next time, thank you.
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