Line worker profession is a great opportunity

May 2007

We have just gotten through the graduation season, and there are a new bunch of high school graduates who may or may not have plans for their future. We older folks know very well that the decisions they make and things they do over the next few years will have a profound effect on the rest of their lives.

One option for young adults is to consider a profession in the electric utility industry. Little research is necessary to find out that the average compensation in the utility business is very good regardless of where you live.

Opportunities in the electric industry have always been good, but they may be at their best in the near future. This will be especially true if you have an interest in being a line worker, or an interest in working in one of the trades associated with power plant operation.

I will talk mostly about the line worker’s profession, because that is the business Nodak is in being a distribution cooperative. For starters, the opportunities will occur because Nodak and many other electric utilities have an existing workforce with an unusually high average age and years of service. We are a small utility with only 67 full-time employees at this time. Of those 67 employees, 15 have over 30 years of service and another 16 have over 25 years of service. We expect that roughly 50% of our workforce will retire over the next 10 years. In addition, we occasionally have employees leave the organization for other jobs, or because their spouse has found a better job in another location.

The point here is that Nodak is not alone in this situation. Most electric utilities are facing similar succession planning issues, which is expected to put a strain on availability of trade workers such as journeymen linemen. Likewise, the power plant industry also has an aging workforce, coupled with the fact that many new power plants will be built over the next couple of decades.

So, you might ask, “what does it take to be a journeyman lineman?” In Nodak’s case, we generally hire people for these positions who have completed a lineman’s course at a trade school. There are excellent programs available at Bismarck State College and in Wadena, Minnesota. The lineman program takes less than one year and is very affordable. When we hire someone who has completed this course, they begin their employment as an apprentice. The Apprenticeship Program continues for another three years after being hired. During this period, the apprentice line worker’s salary increases until they are certified as a full journeyman lineman.

The lineman’s profession isn’t for someone who wants to always work 8:00-5:00 and never wants to work in inclement weather. If, however, you want a great profession with a relatively modest investment in education, this is it. If you are, or if you have in your family, a young graduate who is looking for a plan for the future, you may want to find out more about the lineman profession. A good start is to go to the Bismarck State College website on the Internet and click on “academic programs.” Follow the path to the Line Worker Program, and you will find information about the curriculum, as well as a contact person. A second thing you might do is find a journeyman lineman and talk with him. We can steer you to one if necessary, and I guarantee you will find they will be more than willing to talk to you about this great profession.

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Electricity is a good value

March 2007

I’m glad three years have elapsed since I had to write a column such as this one. I wish it were longer.

Effective with our April billing period, we will be increasing our retail electric rates by about 5.3%. This will coincide and offset an increase we will pay for our wholesale power from Minnkota Power Cooperative. Our Wholesale Rate is in fact going up by 8.5% at the same time. Since our wholesale power bill makes up about two-thirds of our total operating expense, we can get by with a smaller percentage increase in our retail rate.

The good news today is exactly the same as the news I conveyed three years ago. That is, even though the cost of electricity from Nodak is going up, the increases have been minimal for several decades. If you adjust for the value of the dollar, you are paying considerably less for electricity today than 15 years ago. As an example, a rural residential account using 1,200 kilowatt-hours in a month in 1992 paid $94.80. With our new rate going into effect in April 2007, the same account will pay $103.50. That amounts to a 9.25% increase over 15 years. In contrast, the Consumer Price Index has increased by more than 40% during this same period of time.

We haven’t included a lot of detail about the new rates because the increase is pretty even across the board. That means, each rate class received the same increase, and in fact, each component of each rate class will be increased by roughly the same amount. For that reason, it doesn’t matter how much power you use or which rate class (residential, commercial, or industrial), your cost of power will go up by about 5.3% in April.

We don’t anticipate the need for any further rate changes at least for the next couple of years. In 2009, Minnkota will be phasing in the cost of expensive environmental upgrades on their power plants. We may incur additional wholesale increases at that time, which will again affect our retail rates. Hopefully, the adjustment at that time will again be minimal.

All of our retail rates are available on our website at www.nodakelectric.com. We invite you to visit our website for that information, along with much more about your electric cooperative.

We also invite you to attend your annual meeting at the Alerus Center in Grand Forks on Saturday, April 14, 2007.

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Looking ahead at the Year 2007

January 2007

In a couple of months, we will be publishing our 2006 Annual Report. Along with the financial statements, we will be giving a very positive summary of a year that went very well. I won’t cover all of the details at this time, but I can say that we had a year with no electrical accidents to our employees or the public, no serious ice storms, no rate increases, and we had operating margins above budget. In short, we wish we could clone last year and repeat it every year in the future.

In 2007, we have a number of issues that will need much of our attention. First of all, this is a legislative year, and we may have bills submitted that need our support or opposition. The last four legislative sessions, there have been bills introduced by the investor-owned utilities to change the Territorial Integrity Law and thus take away our service area around cities. In all cases, these bills have been soundly defeated or withdrawn when it was obvious they had no chance of passing.

We expect there will be proposed bills this session that address the development of renewable energy. We are very supportive of further development of renewable energy, especially wind energy, provided it can be done in a responsible manner. To us, responsible essentially means that the risk of higher electric rates for our members is kept as low as possible.

In 2007, we will be required to hold a public hearing to comply with the new Federal Energy Act. During this hearing process, our board of directors must consider adopting net metering and time-of-use rates. During this public hearing, members have the opportunity to intervene and provide testimony in support or opposition to these issues. Notice of this hearing has been published in the newspapers and in our Nodak Neighbor. There is also information about the hearing available on our website www.nodakelectric.com. When you reach the home page on our website, you only need to click on “PURPA Notice” to access this information.

One of the differences in 2007 from the previous years is that we will almost certainly need to have a small rate increase. Our wholesale power costs from Minnkota Power Cooperative will be increasing by about 10% effective April 2007. With no other changes, we will need to increase our retail rates by 5% to 8% to cover the added cost of our wholesale power. It will be our goal to keep the rate increase as close to the 5% level as possible. We will be able to give you better information about this in the March issue of the Nodak Neighbor.

We hope that one year from now we can give you a year-end summary that is at least close to the one we have for 2006. We know already we won’t be able to match the “no rate increase” statement, but there is more to our service than the cost. We hope you will feel our overall service meets your expectations.

Happy New Year and Best Wishes for the coming year.

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The value of scrap metals and stolen copper wires

November 2006

The soaring price of copper and other metals has had a dramatic effect on Nodak in two ways. One of the two is somewhat costly, but mostly annoying. The second is very costly.

With higher costs for metals, the value of scrap metal has increased proportionately. Scrap copper today brings roughly twice what it did only two years ago. Because of this, people are more diligent in salvaging and selling copper and other forms of junk metal. Some are way beyond being diligent in that they are stealing copper wires from uninhabited farmyards. In some cases, the power has still been energized at a vacant farmyard when the wires have been cut down and removed. Needless to say, the thieves are taking some risk by cutting wires that have power flowing through them. Some of the wires being cut down from vacant farms belong to Nodak, while some are wires owned by the property owner. In either case, the cost to replace the stolen property is many times the relatively small value of the scrap copper. This, of course, compounds the frustration for both us and the property owner.

In one case, when a thief was caught by the property owner, he told the owner he was from Nodak and he needed to replace some bad wires. He, in fact, had already cut down some of the wires which were the owner’s property. He said he would return later with the new wires, which of course never happened. In this case, the pickup which the thief was driving was green and looked somewhat like the green vehicles driven by Nodak employees.

The second and more costly impact to Nodak with soaring copper prices is the price we pay for our conductor and transformers. By year-end, we will have installed roughly 1.7 million feet of underground conductor. The price of this conductor is $.70 per foot more than two years ago. As you can see, the added extra cost for conductor alone is over $1 million for the year 2006.

There is nothing you as the public can do about our increased cost of construction due to higher metal costs. There may, however, be things you can do to help with the theft of wires from vacant yards. Keep an eye open for things that look unusual. You may want to especially make note if and when you encounter someone at a vacant yard who seems not to belong there. We don’t want you to put yourself in an unsafe situation, but perhaps you can write down their license plate number if possible. You should then give this information to the local sheriff’s department and let them conduct the investigation.

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20/20 Initiative could be costly

September 2006

It appears the voters in the City of Grand Forks will have the opportunity in November to create a mandate for renewable energy in the city. A group called the Citizens for Affordable Renewable Energy (CARE) has been circulating a petition calling for this issue to be placed on the general election ballot in November. The plan is called the 20/20 Initiative. The voters will be asked to vote “yes” to amend the Grand Forks Home Rule Charter to ensure that 20% of the electricity purchased in the city comes from renewable sources. That percentage is increased to 30% by year 2030.

Nodak is one of two electric power suppliers franchised in the City of Grand Forks. The other is Xcel Energy. If this measure passes, we will need to comply with the mandate in order to have our franchise renewed. As this issue comes up for a vote, it will be our job to provide factual information to the voters about the Initiative. No doubt one of the questions asked will be whether or not this action would have a significant effect on the price of electricity for the residents of Grand Forks. While the honest answer to the question is, we don’t know, we can at least describe what some of the challenges will be to comply with the renewable requirement if passed.

One of the most problematic features of the Grand Forks Inititive is that it creates a mandate that renewable energy be delivered to a specific location, namely Grand Forks, without consideration to cost. Many utilities today, including Nodak’s wholesale supplier, Minnkota Power Cooperative, are generating a small portion of their energy with renewable sources with very little, if any, effect on their retail rates. However, if utilities were required to generate 20 or 30 percent of their energy with renewables, the rate impact would probably be more than most consumers would appreciate. Most research indicates that the public is generally interested in renewable energy even to the point they are willing to pay more for their electricity if it is generated with renewables. The question, of course, is how much more are they willing to pay and are they willing to establish a mandate, which may drive the cost up a little more than they had anticipated.

If this proposal does reach the ballot in Grand Forks in November, the voters will be making a decision that carries a lot of uncertainty. They will not know the final cost of meeting this requirement in 2020 and 2030. They will not know if the cost will have an adverse effect on their electric rates, and if so, the significance of the added cost. Even though there is a growing interest in renewable energy, this proposal will put the voter in a difficult position to cast an intelligent vote.

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Wind Subscription Cost Eliminated

July 2006

Over the past five years, roughly 600 Nodak members have volunteered to pay a slight premium for some of their electricity for the purpose of promoting renewable energy. This month, the extra charge is being eliminated as it is no longer necessary to sustain the program.

In January 2002, Minnkota Power Cooperative, our wholesale power supplier, built the first of two large commercial grade wind generators. The wind turbine is located along Interstate 94 just east of Valley City, North Dakota. The project cost approximately $1.2 million, and the annual output of the 900 KW turbine is approximately 2,800,000 kilowatt-hours. A second turbine of equal size was put up just east of Petersburg, North Dakota later that same year.

The cost of wind energy has become progressively more competitive as technology improves and the size of wind generators increases. Also, the federal government provides a 1.8¢ subsidy for wind generation to help make renewable energy more competitive with other forms of electric generation. Even with these favorable attributes, a wind turbine is very expensive, and the cost of electricity generated in this manner was more than other energy available to Minnkota in 2002. Because of this, Minnkota created a wind subscription program to help pay for the generator.

Nodak and the other 10 distribution cooperatives who buy power from Minnkota advertised for members to participate. We asked members to volunteer to pay 3¢ per kilowatt-hour extra for blocks of 100 kilowatt-hours per month. Each block, therefore, cost $3.00 per month, and the added revenue was used to offset part of the cost of the wind turbine. This was a way of equalizing the cost of renewable energy with the other energy available to Minnkota either from their coal-fired generator, or from the regional energy market.

The first thing Minnkota discovered with their two new generators was that the output exceeded their expectations. With more kilowatt-hours available from the generators to pay for the investment, the subscription rate could be reduced. A more significant finding was that the energy from the wind generators became more valuable each year after they were built. The reason for this was because some of the energy that is made available from the wind turbines comes during periods when Minnkota is forced to buy expensive power from the power market. This may happen during power plant outages, during extreme peak conditions, or other unexpected events.

In recent years, the average cost of power from the market has been on a steady rise. This has caused the “average value” of wind-generated power to be greater. With the above factors considered, Minnkota has twice reduced the wind subscription price for renewable energy. Just recently, it was determined that the subscription charge could be eliminated. Those members who have been paying a little extra for renewable energy are no longer being charged the added subscription price.

First, and foremost, we want to thank those 600 members who stepped up to the plate and helped to make this project work. Because of their involvement, we now have two large wind generators, which we are optimistic will provide competitively-priced energy for many years into the future. Second, this experience gives us reason to believe it may be wise to build more wind generation in the near future. Minnkota is presently studying the feasibility of building several new wind turbines even larger than the ones located near Valley City and Petersburg. We will keep you informed on the development of this project in future issues of the Nodak Neighbor.

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Rate Revisions revisited

May 2006

If you have been paying attention, you are aware we have been making a lot of changes to our General Service Rate schedules over the last five years. We try our best to inform you of not only what changes are being made, but also why the changes are necessary.

There are three primary reasons why you have seen so many rate revisions in such a short period of time. First, we merged two different systems, Nodak Electric Cooperative and Sheyenne Valley Electric Cooperative on January 1, 2000. While the different rate schedules of the two systems were similar, they were not identical. Over a three-year period, we phased out the former Sheyenne Valley rates and moved both members under one of the existing Nodak rate schedules.

Second, we have made a deliberate move to adopt rate schedules which have a higher monthly facility charge and a lower per kilowatt-hour charge. Our Cost of Service studies have shown that under the old rate schedules, small users were not paying their way and were being subsidized by larger users. This change also has been phased in with three different revisions during this period of time.

Third, we needed a small rate increase in 2004 to help offset significant increases in our wholesale cost of power. Fortunately, we were able to absorb most of the increase in our wholesale power and needed only a five percent rate increase at that time.

With all of these changes, I wouldn’t blame you if you were a little bit confused and even if you felt like you have been jerked around. What we do want you to realize is that despite all of these changes, it is unlikely your total electric bill has gone up significantly. This is true not only over the last five years, but in fact over the last 16 years.

The first graph below shows the cost of purchasing 1,500 kilowatt-hours from Nodak under our Rural General Service Rate from 1990 through 2006. As you can see, the total cost has jumped around because of all of the changes we have made. The good news is that you are only paying about $4.00 per month more today than in 1990. Quick math tells you that this is an increase of only 3.5% over 16 years.

As I indicated above, we have deliberately adjusted our rate schedules to have higher monthly facility charges and lower kilowatt-hour charges. The second graph shows how this has affected a customer using only 600 kwh/month over the same 16-year period. While the percentage increase is a little higher, this user is still only paying $7.00 per month more today than in 1990.

The biggest component affecting your electric rates is our wholesale cost of power, which makes up roughly 65% of our total cost. We have been very fortunate to have low-cost wholesale power, which has been generated with coal-fired power plants in western North Dakota. There isn’t a day that goes by that you can’t find information telling you that our future lies in renewable energy. We believe that renewable energy will play a part in our future, but in North Dakota, we are smart if we continue to rely on an abundant source of coal. Coal can in fact be used to generate power in a manner which is kind to the environment and represents our best hope for continued low-cost retail electricity.

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Attend Your Co-op’s Annual Meeting

Most of the people who buy power from Nodak don’t know, or at least don’t think about, the real connection they have with this utility. In the next few months, you will have several opportunities to better understand and participate in your electric utility.

In the last issue of the Nodak Neighbor, and again this month, we are giving notice of the election of three of nine members of the board of directors. You may well know one or more of the candidates running for these positions. Even if you know none of these candidates, it is your right as a member/owner of the cooperative to call them with any questions about the cooperative. It is also your right, and more importantly your benefit, to cast a vote for the person you want to sit on our board of directors and make policy for the cooperative. You don’t even have to leave home as you can cast a ballot by mail after the ballots are sent out with our Annual Report.

On April 8, 2006, you are invited to attend the annual meeting of the cooperative. It will be held at the Alerus Center in Grand Forks. The annual meeting is a short business meeting at which time the current status of the cooperative is reported and time is provided for attendees to ask any questions about the business. The more participation we get at our annual meeting, the better our board of directors and management understand the pulse of our membership. We strongly urge you to attend and participate at this meeting. As a little incentive for your time, we will have numerous drawings for attendance prizes during the meeting, and we will again be serving a great noon meal following the meeting.

During the coming months, we will be issuing capital credit checks based on your past patronage with the cooperative. Each year that you buy power from Nodak you earn a small chunk of equity in the business. You may or may not view this as a great value, but none the less you get this piece of equity quite painlessly. You don’t purchase equity with cash; rather it comes with doing business with the cooperative. I guess it is a little bit like earning airline miles when you use a particular credit card. At a later date, we cash out your oldest equity by issuing you a capital credit check. It’s not an investment on your part, and it does not earn interest. It is simply a tangible benefit that goes along with buying power from Nodak. Keep an eye on future issues of the Nodak Neighbor when we will be notifying you of the next capital credit payment.

In summary, we hope that you always view Nodak as an electric utility that has fair rates and good service. In addition, we hope you have an awareness of the extras that go along with having ownership in the business. These extras include having a voice in the business and earning equity as you buy power from the cooperative.

We look forward to seeing you at the Alerus Center on April 8.

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Rate Structure Revised

January 2006

We had a very good year in 2005, and I would like nothing better than to use this article to talk about it. However, we recently asked the board to do some fine-tuning of our retail rates, and it is more important that we communicate the details of those changes at this time. The rejoicing about our good year will just have to wait until the year-end Annual Report is published later this winter.

The good news about our General Service Rate revisions is that no one will end up paying much more for their electricity than under the old rates. As you will see, many of our members will actually pay a little less under the new rates, and very few will see an increase greater than five percent.

Under our General Service Rate, there are three sub-categories that are referred to as Rural Rate, Urban Rate, and High Density Rate. The first two are pretty self-explanatory as they apply to members served in a rural setting or an urban setting. The High Density Rate applies to developments which are not urban, but in fact somewhat resemble an urban setting due to unusually high density.

The nature and purpose of our revised General Service Rate is to cause all three sub-category rates to have exactly the same charge per kilowatt-hour. The only difference in the new rate structure will be in the monthly facility charge. The reason for different facility charges is because the actual cost to serve accounts varies with different levels of density.

In all three cases, we have lowered the first step of our charge per kilowatt-hour to 6.2¢. This change in itself will result in a lower overall cost for most of our members. We have offset the loss of revenue by increasing the monthly facility charge and moving the lower cost second step out to apply to all kilowatt-hours over 4,000 kilowatt-hours per month.

The accompanying graphs illustrate the percent change under each of the rates for various levels of monthly consumption. For example, a rural General Service account using 1,500 kilowatt-hours per month will see a reduction of about 1.1% with this rate change. Similarly, a rural account using 2,000 kilowatt-hours per month will see an increase of just over 1%. The average monthly usage for our General Service accounts is around 1,700 kilowatt-hours per month, and a large majority of our members’ usage falls somewhere between 500 and 2,000 kilowatt-hours per month.

The second major rate revision we made will increase our Off-Peak Rate for dual heating systems from 3.1¢ per kilowatt-hour to 3.4¢ per kilowatt-hour. The rate for short-term control was increased from 4.3¢ to 4.4¢.

For those who read my article last month, you may recall that the purpose of increasing the Off-Peak Rate is to help curtail the amount of load control from what we have had in recent years. One way to have less load control is to buy power from the regional market in lieu of implementing load management. We have, and will always do this when the market prices are low. This winter, the decision was made to purchase more power from the market, even when the prices are slightly higher, knowing that this action will help to reduce the overall hours of load management. The extra cost to purchase more power from the market in lieu of load control is being passed on to the off-peak customers in the form of a slightly higher Off-Peak Rate. The theory is that to a point it makes sense to charge you a little more for your off-peak electric rates if it results in less control time and consequently, less use of backup fuel.

These changes to our retail rates were approved during our December board meeting and will go into effect on January 20, 2006. In this regard, you will not actually see the effects of these rate changes until you receive your February billing some time in March. If you would like to get more detailed information about the effects of these rate revisions, you may want to visit Nodak’s website at www.nodakelectric.com. After you get to our website, if you look under the section which is headed “About Nodak Electric” and click on “Electric Rates,” you will get comparative information where you can compare the old rate to the new rate for various levels of electric usage.

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Future Changes in Off-Peak Heating

November 2005

If you are one of the 40% of our members who heat their homes using an off-peak system, you will be interested in this article. If you are one of the other 60% of our members who are considering options to heat their home in view of high fuel oil and propane costs, you may also be interested in this article.

The good news to report is that the near-term outlook for Nodak’s electric rates is very good. We are having a good year in 2005 and do not foresee the need for a general rate increase at least through the end of 2006. We do not need an increase in our Off-Peak Rate, and we wouldn’t even be talking about the rate except options exist which can reduce the hours of total load control during the winter heating season.

To understand where we are going with our Off-Peak Program, it is necessary to recall the fundamental purpose of having the option in the first place. Our power supplier, Minnkota Power Cooperative, offers the Off-Peak Rate incentive for the “privilege” of shedding load during times when they exceed their economical generation capability.

An alternative to load control is to buy power from the regional power market. When power is available at a reasonable price, Minnkota will do that. Prior to about four years ago, there was very often cheap power available, and consequently, very little load control was necessary. In recent years, this supply of cheap power from the market has “dried up,” and as a result, the hours of load control have increased substantially.

With the high price of fuel for backup systems, most members want us to keep the total hours of load control at an absolute minimum. As we analyze the market, it appears there are times when it would be better to have Minnkota buy power from the market and add the extra cost to the Off-Peak Rate than to have you burn fuel in your backup system. It gets to be a tradeoff between paying just a little more for your Off-Peak Rate and in turn buying a little less fuel oil or propane for your backup system.

This winter heating season, we are going to move in the direction described above. We have requested that Minnkota purchase power from the market up to a given level if the added purchase means less off-peak control. In rough numbers, they will probably spend between $1 million and $1.5 million, and the added cost will probably increase our Off-Peak Rate by two to three mills. A three mill increase would mean our Off-Peak Rate would need to be increased from 3.1¢ to 3.4¢. We need to qualify this decision as somewhat of an experimental attempt to reduce the overall amount of winter load control hours. The actual amount of the rate increase and the timing of the increase will be announced some time after the start of the new year.

The amount of hours that can be reduced is uncertain and depends partly on the day-to-day price of power available from the market. Based on recent history, we feel we can eliminate 150-200 hours of control with the level of spending that has been set. If we are successful in reducing the number of hours of load control by 150 hours or more, and if the price of alternative fuels remains at the present level, this plan will prove to be a good move for the homeowner. The amount saved in backup fuel will be greater than the added cost of a two to three mill increase in the Off-Peak Rate. If any of the variables are different than expected, we then need to re-evaluate the plan to determine if it is worth continuing.

As always, we are interested in your feedback. Please let us know by mail, by e-mail, or in person how you feel about the concept of a slightly higher Off-Peak Rate in exchange for reduced hours of load control.

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Facility Charge is a Fairness Issue

September 2005

There are about 900 electric distribution cooperatives in the country and they vary greatly in size and demographics. The smallest electric cooperative has less than 1,000 service locations and the largest has over 200,000 service locations. Nodak provides power to about 13,000 members at roughly 16,300 locations.

Each year, we receive statistics which compare our system to all of the other electric cooperatives in the state and the nation. One of the statistics which stands out is our average investment in utility plant per consumer. Nodak presently has an average investment in plant of $6,098 per consumer. This is a little less than the state average, but is much higher than the median investment of all electric cooperatives nationwide. The median investment per consumer across the country is $3,830 per consumer.

So, what does this mean with regard to doing business in North Dakota versus other parts of the country? It means that on average, we need to do a fair amount of business per consumer to simply pay for our investment in distribution plant. For example, if you were to borrow $6,098 at five percent interest over 35 years, the payments would be about $375 per year. If you are in the business of selling electricity with this distribution plant, you need to average $375 annually in margins (growth profit) just to pay for your investment. This provides nothing to pay for labor, taxes, maintenance, and many other operating expenses. Certainly, these statistics are important in understanding the challenge to provide affordable electricity in a sparsely-populated rural service area. It also helps to explain the need for the monthly facility charge which is necessary but not always popular.

The monthly facility charge is a flat fee that is charged to each customer whether or not any power is used. It is frequently the cause of resentment on the part of our customers, especially those who use little or no power on a monthly basis. The reason that a facility charge is necessary is because of equity and fairness among all members of the Cooperative.

An electric distribution system is expensive to build and maintain. We have that cost regardless if anyone buys any power. It would be unfair if some members had access to the system “just in case” they wanted to buy some power while all of the ownership costs are being paid by the other members who are buying power. On this basis, it is appropriate to get some of our needed revenue “up front” in the form of a monthly facility charge with the majority of our revenue coming from the actual sale of electricity.

If we eliminated the facility charge, we would simply need to increase the charge for each kilowatt-hour we sell. The result would be the same for the Cooperative and some members would see very little change in their total monthly bill. However, those who use little or no power each month would be getting a free ride as far as paying for the distribution system that is in place. Their share would be picked up by those members who use more than average amounts of electricity each month at a slightly higher per-kilowatt-hour rate.

The bottom line is that when you pay an electric bill, part of what you pay is to have the delivery system in place and ready to sell you electricity, and part of what you pay is the actual electricity which is delivered.

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Minimum Charge Provision

July 2005

Up until last month, all of our rate schedules included a provision for an annual minimum charge. The large majority of you have never been affected by the minimum charge provision as even a relatively small user of electricity will purchase more than the minimum requirement.

The minimum charge provision was a rather complicated calculation that could affect you in one of three different ways. You had a minimum usage requirement based on:

  1. The transformer size serving your account,
  2. The length of tap line serving only your account; and
  3. The original investment required by the Cooperative to serve your account.

Recently, your board of directors amended our rate schedules to eliminate the minimum charge based on either transformer capacity or length of tap line. The only minimum charge remaining on our rate schedules is that which is based on our investment to serve a new account. We require a new account to be subject to an annual minimum purchase requirement for the first five years after we have made service available. The annual minimum requirement is $800 for a single-phase account and $1,600 for a three-phase account. This gives the Cooperative some protection from someone asking us to make an investment in a line extension and then elect not to purchase electricity at that particular site. Clearly, the requirement is much less than is typically used, and it is not common that a new account is impacted by this provision.

The transformer and tap length minimums also were in place to help ensure that the Cooperative would recover investments to serve specific accounts. However, in recent years, we have increased the monthly facility charge, which actually serves the same purpose. Also, we have tightened our Line Extension Policy limiting the amount the Cooperative will spend on a new account to $4,000 for single-phase service and $8,000 for three-phase service. Any cost over this amount is paid by the owner. This again protects the Cooperative from installing long expensive line extensions which never can be recovered through normal sales of electricity.

The vast majority of Nodak’s service area is rural. Almost all of this rural area is declining in number of active accounts. When we extend lines to a new account, it is seldom that the investment will be useful for a second or third service in the future. On this basis, it is necessary to make sure we do not spend more to serve a new account than can possibly be recovered over time through the sale of electricity. In this regard, we try to deal with the issue up front at the time the line extension is made. One of the results is that we feel comfortable eliminating the use of minimum charges after five years of continuous service.

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