Resilience Of Cooperatives

In the electric industry, we regularly measure success in terms of the good things that happened during the year, like financial gains or reliability. Frequently, we measure success relative to the lack of bad things or undesirable events. The absence of electrical injury to our employees or the public, absence of major outage-causing ice storms, or the absence of retail rate increases are all good measures of success.

I’m happy to report that in all these regards, we had a very successful year. Most importantly, we were able to continue reliable service to our member/ owners without any serious injuries to either an employee or a member of the public. Safety is always our number-one priority and something we never take for granted or take lightly.

As a member-owned cooperative, we are guided by seven cooperative principals, such as open and voluntary membership and democratic member control. One of those guided principals is cooperation among cooperatives, which is the idea that cooperatives are most effective and efficient when working together. We were blessed that the harsh North Dakota winter spared us from major ice storms that have a tendency to impact our ability to keep the lights on. Members of our cooperative family in western North Dakota were not as fortunate. In April, a major snowstorm caused widespread outages and devastated their distribution systems. In a display of cooperatives helping cooperatives, we sent crews and equipment to western North Dakota for four weeks to help our cooperative friends get services restored to their membership. It’s more than likely when, not if, we will need the support of other cooperatives in the future, so we are happy to help out when we can.

To coin a phrase from President Warren G. Harding, 2022 was in many respects a “Return to Normalcy.” We had 12 in-person board meetings and returned to in-person meetings and training. We even tried to have an in-person annual meeting. In many ways though, 2022 was anything but normal. Costs for the materials and equipment we need to extend new services and keep our system operating have skyrocketed, and our supply chain is strained. In many cases, lead times on what were already extended deliveries have more than doubled. In some cases, we are having to order materials we need 18-20 months early without knowing exactly how much it will cost, or when it will arrive. Despite these challenges, we were still able to deliver very strong results and are pleased to enter 2023 as the seventh year in a row without any rate increases. Rate stability is important to us as it helps keep our members’ dollars in their pockets – right where they belong.

Record sales revenue and record kilowatt-hour sales contributed to another robust financial performance. An operating margin of over $4.5 million and a total net margin of just under $7 million helped to keep your cooperative in a very strong position. In May of 2022, your board of directors approved a $3.8 million capital credit retirement, which was a record for our cooperative. With such a strong financial performance in 2022, the board of directors will match that dollar amount for the next capital credit retirement. Our member-owners are once again reaping the benefit of the cooperative business model where all operating margins are eventually returned to the members that created them. That’s the power of ownership.

The strength of our business continues to be our cooperative structure. We are owned by and serve local North Dakotans. We are governed and regulated by people you elect, and who pay a Nodak electric bill themselves. More importantly, they answer to you as ratepayers every day when they see you in the local restaurant, in church, or at a ballgame. The board of directors will always listen to your opinion and act in the best interest of the membership as a whole.

Nodak Electric has operated as a consumer-owned and consumer-controlled business for over 80 years and has done so successfully by keeping our focus on the member at the end of the line. Thank you for your support and patronage over the past year, and thank you for the opportunity to serve you and the cooperative. We hope we will see you at your cooperative’s annual meeting at the Alerus Center in Grand Forks on April 11.

Fall is a busy time, and October is a particularly eventful month with school, community, and sports activities in full swing. It’s also when all cooperatives celebrate National Co-op Month.

When I say Nodak Electric celebrates Co-op Month, it really means we are celebrating you! After all, our co-op wouldn’t exist without you, our members. 

Our core business purpose is to serve as your electricity provider, but the larger mission of the co-op is to help make our corner of the world a better place. “Concern for Community” is one of seven guiding principles that all co-ops share. 

Similar to how our wires run through our service territory, our concern for community flows through all of our decisions – because being a co-op means being a responsible partner and good neighbor. 

Nodak Electric Cooperative works to help our communities thrive through initiatives led by our employees and local board that’s comprised of neighbors who live right here in our communities. Because we’re local, we understand our community’s unique needs and strive to help meet them. 

We’re proud to support local youth through our annual Youth Tour and our Line Worker Scholarship Program. With your help, we offer the Operation Round Up® program, providing assistance to our community’s most vulnerable. We partner with and support the Rural Development Finance Corporation and other business development programs such as the Rural Economic Development Loan Program. 

The word “cooperative” is close to “cooperation,” meaning people working together toward a common goal – mutually benefitting one another and the larger community. That’s the essence of the cooperative spirit. Our employees and member-elected board members are invested in the community in which we live and serve. 

Above all, as a co-op we put our members’ priorities first. As your trusted energy partner, we know that saving energy and money is important to you. That’s why we have numerous programs in place to help, including off-peak electric heat, rebates for electric heating and electric transportation, as well as electric vehicle charging programs.  

We want to empower you to manage energy use at home. If you haven’t already, I encourage you to take a moment and download our app, SmartHub. Through the app, you can conveniently monitor and manage your energy use. And we’re of course here to help, so give us a call if you have questions about your energy bills.

Nodak Electric Cooperative is continuously examining ways to operate more efficiently while continuing to provide the highest level of friendly, reliable service you expect and deserve. After all, we’re your local co-op. We were built by the members we serve. 

As I’ve noted before in past columns, the energy industry is undergoing a dramatic transformation as consumer demand for more renewable energy sources grows, and innovation and technology continue to advance. You’re likely witnessing this energy evolution firsthand. 

In driving across the region, you may have noticed a significant increase in the number of wind turbines dotting the landscape. Maybe you’ve heard about the impending changes in the transportation sector with most major vehicle companies announcing plans to offer more electric vehicles at more affordable prices. 

Consumer interest in renewable energy is strong and growing. In addition, national studies indicate that consumers have an expectation that companies operate in an ethical and responsible manner – including when it comes to the environment.

To borrow a nautical analogy, it takes a long time to turn the direction of a large ship, and changing the energy mix we use to power homes and businesses doesn’t happen overnight. While renewable energy use is increasing, we are still depending on traditional forms of energy to keep power flowing reliably to your home. After all, solar and wind energy are referred to as “intermittent” power since the sun does not always shine and the wind does not always blow. This fact, coupled with the growing demand for renewables, creates its own challenges. That’s why there is real value in maintaining a balanced mixture of fuel types to ensure reliability and resiliency and meet the growing demand for electricity. 

Our wholesale power currently comes from a diverse mix of coal, wind, and hydro sources. From a capacity perspective, that generation portfolio is comprised of 42% renewable sources. Transitioning to even more sustainable sources may be achievable and for some, even desirable, but it would not be done without decades of planning and a significant capital investment. 

In this issue of the Nodak Neighbor, as well as on our website, you will find an article describing the instability of the region’s electric grid. This instability has come about largely due to the replacement of coal, nuclear and natural gas baseload, and dispatchable power plants with intermittent sources. The regional transmission operator has even predicted capacity shortfalls in the region this summer. This article highlights the reality of what we’ve been saying for a long time. If our nation transitions away from baseload thermal sources like coal and natural gas too quickly, reliability will suffer dramatically. At the end of the day, our mission will be to continue to do what we can to provide our member-owners with safe, affordable, reliable electricity.

At Nodak Electric, we have always put the good of our community and our members first. While our primary function is to provide reliable and affordable energy to our members, we are more than an electricity provider. Because we are a co-op, our mission is to enrich the lives of our members and to serve the long-term interests of our community. We feel we’re doing both.

“Concern for Community” is one of the cooperative principles that Nodak Electric is committed to. Our team demonstrated that commitment by helping out the Sertoma Club of Greater Grand Forks. They installed poles for a new archway in Sertoma Park.

2021 turned out to be another year of battling the effects of the COVID-19 pandemic as we adapted and adjusted to a new way of life. Nodak Electric was no different in that regard. While most others were working in a remote work environment, our employees adapted to the new procedures we put in place for employee and member interactions that ensured that our employees’ and members’ safety remained our number one priority. Reliable power is essential to our lives and our livelihood, so our employees embraced change and worked tirelessly to ensure our members received the level of service they have come to expect.

While the safety of our employees is paramount, the safety of our membership is no less important. Despite the widespread availability of COVID-19 vaccines in the early part of 2021, the conditions did not yet lend themselves to public gatherings. Out of an abundance of caution, we decided to cancel our in-person annual meeting for the second year in a row and record messages from our chairman and CEO to our membership. As a result, we employed a mail-only election for our board of directors. Longtime director Paul Sigurdson retired from the board and new director Ryan Benson was elected to serve from District 1. Incumbents David Hagert and David Brag were also reelected to the board.

In a cooperative like Nodak Electric, you are a member-owner of the business. One of the major differences between a cooperative and an investor-owned utility is that through purchasing power from us, you earn an ownership stake in the business called capital credits. These dollars are used by the cooperative to operate our system for a period of time and are eventually returned to you in the form of a bill credit. I’m happy to report that despite the pandemic-related turmoil, your cooperative posted its best year ever with over $10 million in net margin and record sales. Because we had such a successful year, your board of directors increased this year’s capital credit retirement to $3.8 million. Because that level of margin is more than we need to operate, and recognizing the fact that our members have gone through a trying time, the board decided to retire approximately $1.5 million of the total retirement to the current year allocation. In other words, the members who purchased power from us in 2021 will see a portion of their capital credits returned to them immediately and approximately $2.3 million will be retired to the 2003-2004 membership. In all, that totals $11.1 million your cooperative has returned to current and past members in the past five years.

Keeping the price of electricity affordable is extremely important for our members. Our cost to operate the cooperative has remained relatively stable at about 18% of our total expenses. The other 82% represents our cost of wholesale power. These percentages have remained fairly constant over the last several years because of our efforts to contain operating costs, and through the growth of our system.

New loads like the ones featured in this report go a long way toward bringing in the additional revenue needed to overcome the rising costs of doing business. As a result, for 2021 we were able to keep rates unchanged for the fifth year in a row. Our team is committed to keeping our rates as affordable as possible so more of your hard-earned dollars stay where they belong – with you.

2022 holds promise of a return to what we would all consider something more normal. Throughout the pandemic our commitment to you, our members, has not and will not change. Our dedication to serving our member-owners and providing the best energy value in the region is as strong as it has ever been. We are looking forward to meeting the challenges that lie ahead in 2022 and beyond. Our board and management are committed to maintaining a strong cooperative with an emphasis on safety for the public and our employees, and on service reliability and responsive service to our member-owners.

We encourage you to review the information in this report, and we hope to see you at the annual meeting at the Alerus Center in Grand Forks on April 12.

We regularly try to point out that the electricity we sell is a good energy value. Our core mission is to provide our membership with safe, reliable and affordable electricity, but we also take pride in that our commodity remains a good energy value when compared to alternative sources. Natural gas and propane prices have risen dramatically over the last several months. Natural gas prices today are over double what they were at this same time last year, while propane prices are forecast to be about 75% higher than last winter. Fortunately, the cost of electricity from Nodak Electric Cooperative has stayed stable for the last several years and will do so for the balance of 2022. 

These high natural gas prices, coupled with a lingering drought that has reduced available hydroelectric resources, has caused tremendous volatility in the wholesale markets. Last winter, we saw a polar vortex upset the wholesale markets for about a week or so. Today’s high market prices have been occurring with more regularity. To avoid having to purchase high-priced wholesale electricity, our wholesale power provider, Minnkota Power Cooperative, utilizes their off-peak load control system. Over the past several years, the wholesale power market has been relatively low compared to where it is today, so the load control system has enjoyed a period of lesser use. The higher market prices and extreme volatility will certainly mean the value of this system will be realized with more robust use over this winter season.

Some of you may be enjoying the low rates that we offer as part of our off-peak heating program. What you probably didn’t realize is that by being a participant in this program, you are helping all of us enjoy lower rates. By being able to reduce electricity demand through the use of our load control system, Minnkota Power is able to avoid purchasing high-priced energy to meet the peak demand, or alternatively, adding additional generation resources that would only be necessary during the very highest use times of the year. Those cost savings play a large part in keeping our wholesale power costs down, which in turn impacts all our rates. 

On another note, I typically use this issue of the Nodak Neighbor to remind you of the upcoming annual meeting and board of directors election. After two years of virtual meetings, our goal is to finally get you all together in person at the Alerus Events Center in Grand Forks. Our meeting is set for Tuesday, April 12, beginning with supper at 5 p.m. with the meeting to follow at 6 p.m. We will again have three board positions up for election, so if you or anyone you know may be interested in running for a seat on your cooperative’s board of directors, contact us at the cooperative headquarters in Grand Forks and we will be happy to help you through the process.