King cites challenges facing Upshur Rural
Apr 11, 2014 | 2052 views | 0 0 comments | 9 9 recommendations | email to a friend | print
President Frankie B. King told the membership of the Upshur Rural Electric Co-op at their annual meeting last Thursday that despite challenges, the co-op continues strong.

He gave a capsule history of the organization.

Seventy-seven years ago, in the middle of the Great Depression, a small group of men in Gilmer decided they wanted electricity.

“They knew if they could get electricity to their rural homes and farms, they lives and the quality of life for themselves and their families would change forever,” he said. “Their city cousins had electricity, but the investor-owned utilities would not extend their lines into the countryside because there was no profit for doing so.”

King said that the $5 membership fee required to join the co-op would buy enough kerosene for a year or feed a family for a couple of months.

“The idea was absurd with times so hard, jobs so scarce, and money so tight,” he said.”But they really wanted this.”

On Oct. 25, 1937, Upshur Rural was born when the State of Texas issued a charter.

A total of 139 had signed up, “and some probably took a whipping from their wives for doing so,” King said.

“And once they got it, saw what a difference it made in the quality of their lives and saw the pleasures and conveniences electricity afforded, they wanted to preserve it and they wanted their co-op to be passed down to their children and grandchildren,” he said.

“And so it has been. From 139 members, we have grown to over 44,000 and from 28 miles of line to over 6,500 miles of line.”

They started in a small room in the basement of the courthouse, and now have the fine large headquarters on Hwy. 154 W. in Gilmer.

“Past success is not a ticket to future success, and that is the thought that stays on the minds of the management and on the minds of the board of directors,” King said.

He referenced a book on management, How the Mighty Fall.

“Am I saying Upshur is a ‘mighty co-op?” he asked. “If you measure an entity by size, financial strength, competitive rates and service, and the return of capital credits, I would say we are.”

He said the book relates the five steps companies go through on their way to bankruptcy.

“The first step is when the management begins to think they had the right to exist,” he said. “Sure, Upshur provides a product and service that would be difficult to live without in these modern times, but simply because our mission is noble and adds to the quality of our members’ lives does not guarantee our success in the future.”

He said an ice storm in February had over 20,000 members without power at one point.

“Fortunately, the cooperative spirit kicked in and several of our sister co-ops sent crews to assist us, and we were able to restore power to most members within 48 hours, but some were out of service for four days,” King related.

He said that they are often asked why they don’t just hire more crews.

“The simple answer is because of the effect it would have on your rates,” he answered. “Can we afford or would the membership be willing to pay the increase in rates for additional crews that are needed only once or twice a year?”

He said that we had gone through one of the coldest winters on record.

“Our office received hundreds of phone calls wanting to know if we had gone up on our rates. We have not. Our rates are the cost of the electricity we purchase to resell to our members, plus our operating costs, made up of salaries, trucks, equipment, maintenance of facilities, and interest on our debt,” he explained.

“This amounts to about 4 1/2 percent more than what we pay for the power, and that percentage has remained constant for several years, which means we are holding costs in line,” King said.

“This year we had 50 percent more heating days than last year, which means your central heat was working overtime to heat your home. Even if you lowered your thermostat a few degrees, with the outside temperatures remaining in the 30s for several days, your units were coming on more often this year than last year.

“The higher electric bills were due to increased electric use.”

He told the audience of about 300 that last November, Upshur Rural converted to a new information and accounting system, having outgrown its older system. During that conversion, they learned that their telephone system would also have to be upgraded.

“These two conversions coinsided with the higher electric bills our members were receiving, and the number of members calling the co-op increased dramatically, up to 1,000 calls a day,” King said.

He said the customer-care representatives had to learn a new process and with 20 percent of them home with the flu, “some technical problems will always arise, and the huge number of calls, a perfect storm was created, and a lot of the members calling in were having a hard time reaching someone to speak to.”

Some calls were dropped and some were placed on hold for long periods of time.

He said general manager Rob Walker reorganized the call center and is adding additional staff. Over 90 percent of the calls are being handled and the hold time is decreasing. He said the system would still be overloaded when 10,000 members lose power or call in at the same time.

“But if you call our automated outage system number during a major event, your outage will be logged and recorded without speaking to anyone by simply entering your phone number,” King said.

King also said that the cost of generating electricity has increased over the past few years.

“For several years, coal provided 60 percent of our power, gas 30 percent, and 10 percent came from our hydro resources.”

He said that the co-op is investing in several new projects, including the Turk plant which runs on coal; Harrison County, which runs on natural gas, a hydro plant on Lake Livingston, and a biomass plant in southeast Texas.

He also said they are looking into wind power to add to the fuel-supply portfolio.

King said they are diversifying because with the Environmental Protection Agency’s restrictions on coal plants, in the future it will be impossible to get a new coal plant built, and the cost of retrofitting older coal plants will be very expensive.

He said they are within two years of having two coal plants paid off, and were looking forward to this lowering costs significantly, “but thanks to the EPA’s ruling that carbon dioxide is a hazardous chemical, our power supplier has to spend millions to retrofit these plants.”

Because of this, most new plants are turning to natural gas.

He said while gas supplies are abundant, as demand increases, the price could increase.

“By its nature, biomass is expensive, and although hydropower is a cheap source of power, it is wholly dependent on rainfall. Prices have increased for everything over the years, and unfortunately, electricity is no exception.”

He said they think rates will stabilize now for the next few years.

“Our investment in new plants is behind us, and hopefully the cost of retrofitting will be offset by some of our older plants being fully depreciated, and although we are still behind on the average of what we receive in hydropower, our allocation last year was more than the previous year,” King said.

“With costs stabilizing, there is still one huge unknown,” he said. “If the EPA’s new rules on existing coal plants, due out shortly, require these plants to capture all the CO2, existing coal plants will most likely be closed. With coal being the least expensive fuel, the EPA, with the stroke of a pen, could add $30 a month to your monthly bill. I guess this is the government’s way of making solar and wind generation competitive with fossil fuels.”

He also said that, while December and January bills were high, Upshur Rural rates are 17 percent below the national average, and among the lowest in the state.

“In closing, our co-op has its challenges, but we are financially strong and our power supply is secure well into the next decade.”

The 2013 annual report, given out at the meeting, shows that 13 percent of the co-op’s expenses are controllable. Seven percent goes to depreciation, and 2 percent to interest. Cost of power is 78 percent.

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