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Spike in Co-op Revenues? Give Mother Nature Credit

3 min read

A quick look at annual reports from the state’s electric cooperative companies shows a significant spike in 2018 revenue over 2017, but the reason is no mystery, officials say.

The year came in like a deep freeze, for starters.

“Our business is primarily weather-driven,” said Tonya Sexton, vice president of marketing and development at one of the state’s largest distribution co-ops, First Electric Cooperative Corp. of Jacksonville. “In 2018, the National Weather Service reported record low temperatures for almost all of our service area.” The Arkansas heat was also above normal in May, June and July.

Operating revenues were up 7.64% at First Electric, which serves about 95,000 meters in 18 counties in central and southeastern Arkansas. The total, $194.5 million last year, compares with $180.7 million in 2017. Sexton noted that central Arkansas faced near-record cold on New Year’s Day of 2018, and continued bitter temperatures throughout January. “We typically set our demand in the summer with scorching heat,” but 2018’s peak demand was set in January, she said.

Revenue at Arkansas Electric Cooperative Corp. in Little Rock, which supplies wholesale power to the state’s 17 distribution cooperatives, was also up, by nearly 4 percent, to $827.5 million. Again, weather-driven consumption was the cause, said Bill Conine, AECC’s interim president and CEO.

“You have to understand that this business is weather-driven, and we look at that in heating and cooling days,” days when co-op members run air conditioners and heaters. “We can see that this is primarily a result of increased usage, rather than rate changes and such.”

Conine said Arkansas’ cooperatives have some of the most reasonably priced electricity in the state, if not the country.

Electric cooperatives derive their cash flow based on the amount of power they distribute to their customers, who are co-op members. The co-ops, which do not generate profits, return revenue not needed to cover the cost of service back to members. In 2018, First Electric, for example, returned $9.5 million to members in the form of capital credits. Through First Electric’s 80-plus year history, it has returned more than $105 million to its members.

CEO Mark Cayce of Ouachita Electric Cooperative in Camden, where revenue was up 5.6%, says both hot and cold weather drive power use, but cold can contribute more to surplus margins.

“The reason is that we set demand in the summertime, based off what’s usually the highest-use period,” Cayce told Arkansas Business. “So when you have a cold winter, the way the rates are structured, you’ll generate higher margins.”

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OECC also had the benefit of lower costs in 2018, “mostly due to the solar farms installed in our area,” Cayce said. “Those are giving us an added bonus, shaving our peak demand.”

He’ll be showing off the latest solar project at OECC’s annual meeting June 27 at Southern Arkansas University-Tech in Camden, where he’ll throw the switch on a new 1-megawatt solar array. That project was installed by Today’s Power Inc. of Little Rock, a wholly owned subsidiary of Arkansas Electric Cooperatives Inc., which provides support services to the distribution cooperatives in Arkansas.

At Ozarks Electric Cooperative Corp. in Fayetteville, 2018 revenue of $151.4 million was up 10.5%, one of the larger increases, along with an 8.9% uptick at North Arkansas Electric Cooperative in Salem ($69.9 million) and an 8.4% rise at Carroll Electric Cooperative in Berryville ($188.1 million). Ashley Harris, vice president of marketing and communications at Ozarks Electric, said kilowatt-hour sales increased by 9.94%, translating into a 9.49% increase in electric revenue.

“Throughout 2018 there were 200-plus days where the peak demand was higher than 2017,” she said. “If the peak demand is higher, usage, and therefore revenue, will be higher as well.”

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