September 15, 2008

Customer-Owned Electric Coops Rival Big Providers in Service, Rates

By Rick Stouffer

PERRY -- Who do you call for satellite-based Internet service? Or for inexpensive land-line telephone service? How about purchasing a new water heater?

If you live in many rural areas of Pennsylvania, chances are your local electric utility can handle those calls -- and even more services.

A total of 13 electric cooperatives, nonprofit power providers owned by their customers, is spread across the state. Western Pennsylvania is touched by three coops, including Central Electric Cooperative Inc., based in Perry, Clarion County, across the Allegheny River from Parker, Armstrong County, which bills itself as America's smallest city, with a population of about 800.

Other cooperatives with area customers include REA Energy Cooperative Inc., based in Indiana, Pa., and Somerset Rural Electric Cooperative Inc., based near Somerset.

"We go out of our way to serve our members," said Larry S. Adams, CEO and general manager of Central Electric Cooperative.

The company serves 25,000 primarily residential member-customers in a seven-county area stretching 100 miles from Tionesta, Forest County, south to below Saxonburg, Butler County, and into Allegheny County. Central Electric's actual geographic footprint resembles a Rorshak inkblot, with service cavities and jagged edges.

A nonprofit organization, Central Electric returns its profits to its members. They are paid an annual credit that's figured in proportion to how much power they used during the year. In 2007, the cooperative's profit totaled about $1.9 million.

Unless they are served by one, most people in Pennsylvania know little about the 70-plus-year-old coop power providers.

"At its heart, a cooperative is a buying club," said Marty Blake, a principal with the energy consulting firm The Prime Group LLC in Louisville, Ky. "A group of people get together to provide a service for each other." Blake is a former commissioner for the New Mexico Public Regulation Commission.

Phil Tack, a member-customer of the Central Electric Coop, said, "In the last 15 years, Central Electric has been very, very dependable. We've been very well served."

Tack works as the administrator of the Sugar Creek Rest, a 15- bed skilled and personal care center, near Worthington, Butler County. The Sugar Creek Rest gets its electricity from Central Electric. And Tack's home adjacent to the personal care business likewise uses Central Electric.

His home is equipped with two electric meters and two separate power services. One set is for regular power service, and the other is used for a power-saving service offered by Central Electric that can cut off electricity in times of high demand. Customers such as Tack who use the power-saving service can pay 40 percent lower rates.

"One meter, they control, and it powers things like the air- conditioner, the dryer, the hot tub, the heat pump, all of the really heavy power users," Tack said. "They actually are able to shut down the use of that equipment, which sometimes can be disruptive, but the rates they offer on that meter are terrific."

Pennsylvania's cooperatives, unlike investor-owned power providers such as Allegheny Power or Duquesne Light, aren't under the jurisdiction of the state Public Utility Commission, which approves electricity rates, or the Federal Energy Regulatory Commission.

"I answer to my board of directors," Adams said. They alone set rates for Central Electric's customers.

The eight directors, who must be members, and Adams determine the cooperative's financial needs. The coop finances capital improvements using federal loans, and it funds daily operational costs from revenue collected from members.

Despite its status as a coop, Central Electric's prices are competitive with investor-owned providers.

Its so-called price to compare, which includes the cost of generation and transmission only is 5.3 cents per kilowatt-hour. Allegheny Power's price to compare is 5.01 cents, Duquesne Light Co.'s is 8.53 cents, and Penn Power's is 11.69 cents per kilowatt- hour, according to the state Office of Consumer Advocate.

The total price for power within the Central Electric territory was 10.9 cents per kilowatt-hour of power in 2007, which includes distribution and service fees. An average member who used 850 kilowatt-hours of electricity paid $92.65 a month. The cost per killowatt-hour this year is 11 cents.

Central Electric is a distribution-only company and owns no generating plants. Along with the 12 other in-state cooperatives plus one in New Jersey, Central Electric purchases power through Allegheny Electric Cooperative Inc., Harrisburg, which buys power from a variety of sources, including nuclear and hydro power plants.

The 13 coops in Pennsylvania own and maintain about 12.5 percent of the power distribution lines in the state, covering nearly one- third of the state's land area in 41 counties.

With little state and federal regulation, one might think the cooperative board could raise prices through the roof, given the company supplies a captive audience. Not true, says analyst Blake.

"If a director votes to raise member rates, he's raising his own rates," Blake said. "Cooperatives probably are a bit more conservative than investor-owned utilities when it comes to raising rates. In fact, it always puzzles me whether the coop's rates are high enough."

Cooperatives long have been known as innovators, he said, and they focus on giving their member-customers more services. They include satellite-based Internet, inexpensive land-line telephone service and even new water heater installation. In rural areas, a trip to purchase, for example, a water heater or heat pump is more than a 10-minute car ride.

In 1985, Central Electric began offering load-management programs involving members' electric water heaters. In exchange for allowing the company to control the tanks during times of peak power usage, members receive a $2.50 monthly credit on their bills. Load management now includes electric heating systems, Adams said.

Members who install what's known as electric thermal storage or dual-fuel heating systems can receive a guaranteed killowatt-hour rate at least 40 percent lower than the standard rate, for a minimum of 10 years.

Central Electric provides long-distance and in-state telephone service, for 5.9 cents a minute and 6.9 cents a minute, respectively, and has signed some 450 members to WildBlue, a satellite-based Internet service. Phone and Internet services are available through the cooperative's partnership with the National Rural Telecommunications Cooperative.

Cooperatives were started because America's rural areas were sparsely populated into the 1930s.

"A lot of cooperatives only have two to 10 customers per mile of wire, while investor-owned utilities generally have around 40," Blake said. "It just wasn't economical for investor-owned utilities because they were adding much more to their costs and little to their revenues going into the rural areas."

In 1935, President Franklin D. Roosevelt created the Rural Electrification Administration, designed to provide low-rate loans to push power where it never had gone before.

But investor-owned utilities still weren't interested in venturing into the hinterlands. So people already living in the areas banded together and formed cooperatives.

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