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CEO Blog

By Michael S. McWaters,

CEO of Wiregrass Electric Cooperative

Email your comments on blog entries.

October 3, 2008

Voting By Mail

As a member of Wiregrass Electric Cooperative you should have received your Annual Meeting registration packet. That packet includes an annual report and information regarding the candidates for trustee as well as an explanation regarding the proposed by-law amendments.

I would like to encourage all of you to vote in favor of the proposed by-law amendments. The majority of those amendments are "house cleaning" measures but one amendment changes the way that you vote as a member of the cooperative. Every year after the annual meeting, we get complaints from members who really wanted to participate in the election of trustees for the cooperative but were unable to attend the annual meeting. Some members were out of town attending a football game, members have to work on Saturday and we have many members who are not physically capable of getting to the co-op to stand in line and vote. As a response to these complaints, your board of trustees commissioned a telephone survery earlier this year to see if the members would like the option of voting by mail. Overwhelmingly the members said they would like this option and as a result, your board of trustees has put forth a by-law amendment that would allow you to vote by mail starting in 2009.

The goal of the board is to open the voting process to as many members as possible. While the cooperative makes every effort to solicit members to attend the annual meeting, we usually have 3% - 5% of our members who actually vote in trustee elections. It is the desire of your board to increase this number significantly. Make plans now to vote at this year's annual meeting which will be held on Saturday, October 18.

September 17, 2008

Cooperative Difference

As we start to get a hint of Fall, we are reminded of the change of seasons. Each season has its own good points (sunny day at the beach) and bad points (power outages due to thunderstorms) but each season is unique. While there are other types of electric utilities (investor owned, muncipal) that each have their own good points, neither is as unique as an electric cooperative. During September and October, members of Wiregrass Electric Cooperative experience two of the major functions of our organization that make us unique. The first is the return of patronage capital and the second is Annual Meeting.

Patronage Capital - Wiregrass Electric Cooperative returns the margins or "profits" that are made by the cooperative to the members of the cooperative on an annual basis. This year marks the third consecutive year that your Board of Trustees has authorized and returned capital credit checks. This years return is approximately $250,000 and will be distributed to those members who were receiving electric service in 1973 and 1974.

Annual Meeting - On October 18, you as a member of Wiregrass Electric Cooperative have the privilege of voting for fellow members who would like to serve on the Board of Trustees. These board members establish policy, set rates and provide the strategic direction to keep your cooperative strong. They must balance their desire to keep rates as low as possible while maintaining the financial strength required by the federal government and the system reliability demanded by the members.

As I think about these two events it makes be even more aware that Fall is a special time of the year.

September 12, 2008

Partnership With Houston County Commission

WEC's Board of Trustees and the Houston County Commission have recently agreed to enter into a partnership that will allow the county to contract with WEC for the billing of sanitation fees. I believe this partnership will prove to be a win-win partnership for the taxpayer and members of WEC. A couple of points that need to be clarified, WEC will not be involved in the operation of Houston County Sanitation. WEC will not set policy or rates for Houston County Sanitation. WEC will simply serve as a billing agent. It is important to know as well, that this service will not be subsidized by the ratepaying members of WEC. This service has been priced in a manner that the cooperative can recover its cost and the county should see a decrease in its billing cost.

This partnership is scheduled to begin on January 1, 2009. In the interim, if you have any questions regarding this partnership, do not hesitate to contact me.

September 3, 2008

Hurricane Gustav

Fortunately for the Wiregrass, we missed the brunt of Gustav. WEC had scattered outages due to wind and rain in the western part of our service territory but we were never seriously threatened from this storm. Unfortunately, our cooperative friends in Mississippi and Louisiana didn't escape damage. The cooperative network is like one big family and as a result Alabama cooperative's responded en mass to our sister cooperatives. Approximately 200 men from 20 different cooperatives in Alabama are currently assisting with the restoration of electric service in those areas impacted by the storm.

On Monday afternoon, 10 WEC employees headed to Kiln, Mississippi to assist Coast Electric Power Association restore service to their numbers. Thanks to the hundreds of additional workers, Coast EPA has its system operational and our employees are leaving this morning for Houma, Louisiana to assist South Louisiana Electric Cooperative Association in their restoration efforts. Please keep our employees in your prayers that their important work will be done safely.

Our employees are living out the cooperative motto of "neighbors helping neighbors."

August 26, 2008

Industry Comments from Jim Sullivan

I recently had the honor of hearing Jim Sullivan, President of the Alabama Public Service Commission, speak regarding the status of the electric utility industry. While Wiregrass Electric Cooperative is not regulated by the PSC, Mr. Sullivan's comments regarding the industry are still relevant to all of us who are members of WEC.

Mr. Sullivan stressed the importance of electricity stating that "electricity is the lifeblood of our economy." I don't think any of us would disagree with that statement which underscores the importance of all consumers of electricity being informed regarding the issues of our industry.

According to Mr. Sullivan, the most pressing issue within the energy industry is our lack of a national energy policy. As a Nation, we are adding cost to the generation of electricity through additional environmental policies and we continue to purchase energy from other countries. As China and India use low cost fuel (coal) to generate their electricity, the cost of manufacturing will become more expensive in the United States and could create the loss of additional manufacturing jobs to those countries with lower energy cost than the United States.

Mr. Sullivan stated five important issues that are facing our country today. I have listed those below for you to review. I would love to hear your thoughts on Mr. Sullivan's comments.

1. Vulnerability of our domestic economy.

2. Relative decline of the United States influence in a global environment.

3. Global competition.

4. Long term access to energy.

5. National security.

August 19, 2008

PowerSouth Rate Increase - Final

You are probably tired of my writing about the most recent rate adjustment from our power supply cooperative but our cost of wholesale power is the single largest factor that influences what you pay for electricity. I want to end this three part entry today by focusing on purchased power. I would also like to thank Gary Smith, President & CEO of PowerSouth Energy Cooperative for providing the information that has been included in these articles regarding PowerSouth's cost of coal, natural gas and purchased power.

PowerSouth’s purchased power costs are comprised of different fixed and variable components. The variable components and, especially, the spot market energy component are having an adverse impact on their energy costs.

PowerSouth is a Preference Customer for SEPA hydro power and pay fixed monthly capacity and energy charges for the SEPA hydro power that is scheduled. Unfortunately, drought conditions in the Southeast over the past couple of years have reduced SEPA’s ability to produce all the power scheduled by the Preference Customers. To make up the difference, SEPA purchases energy to meet the Preference Customers’ schedules and passes the higher energy charges on to the preference customers the next year.

PowerSouth also purchase spot market energy as an alternative to their own generation when the price is better than their cost. The energy spot market prices are primarily driven by the cost of natural gas and will increase as the price of natural gas increases. The following table summarizes changes PowerSouth has experienced in the purchased power markets over the past year:

Purchase Power July 2007 July 2008

On-Peak Spot Market Energy 57.52 96.78

Off-Peak Spot Market Energy 30.00 35.23

Power supply is a complicated issue that will not be solved with one magic bullet. We need to keep every source of energy on the table while investing in new technology that will allow us to meet the increasing demand for electricity, maintain stable rates and be good stewards of the enviroment.

August 6, 2008

PowerSouth Rate Increase - Continued

In my last entry, I talked about PowerSouth's rate increase and the impact coal has on your electric rate. Today, I want to look at natural gas and the impact it has what you pay for electricity.

Natural gas prices have experienced increases similar to those in the coal markets. Although 67% of PowerSouth's projected natural gas burn is hedged for 2008 and 33% is hedged for 2009, natural gas costs in the $12 - $13 per MMBTU range add a considerable cost burden to natural gas production costs for the portion of the natural gas that is not hedged. The following table summarizes the experienced by PowerSouth in the cost of natural gas in recent years, inclusive of their hedged positions:

2000 2008 2008 2009

Natural Gas Actual Budget Pro Forma Forecast

Price per MMBTUs Burned $ 4.00 $ 7.76 $ 8.96 $10.96

Mills per KWH 38.86 60.63 70.97 85.62

PowerSouth’s hedges are projected to save $54 million in 2008 ($20 million more than budgeted) and $25 million in 2009.

The hedges mitigate some of the cost increases in 2008, but the lower percentage of hedging in 2009 will result in higher total natural gas production costs. Natural gas price increase will raise natural gas generation costs by 25 Mills/ KWH higher than the 2008 budget.

July 28, 2008

PowerSouth Increases Wholesale Rate

Why does PowerSouth need a rate increase? The primary reason is the cost of fuel. While almost 80% of our expense is wholesale power, approximately 68% of PowerSouth's budget is related to fuel. PowerSouth primarily uses natural gas and coal to produce the electricity you consume in your home or business.

PowerSouth had an increase in coal cost associated with a coal supplier’s refusal to honor their bids on coal solicitations, the failure of other coal suppliers to meet delivery schedules and an increase in our 2008 coal costs. The following table summarizes the changes experienced by PowerSouth in the cost of coal over the past few years:

2000 2008 2008 2009

Coal Actual Budget Pro Forma Forecast

Price per Ton $32.34 $59.03 $81.33 $72.11

Price per MMBTUs $ 1.38 $ 2.49 $ 3.39 $ 3.01

Mills per KWH 15.18 26.71 37.12 32.96

The current coal prices will increase the 2008 cost of energy from the Lowman Plant by approximately 10.4 Mills/KWH more than was budgeted last November.

July 23, 2008

Fuel Cost Adjustment

Last night at our monthly board meeting, I had to present very bad news to your board of trustees. PowerSouth Energy Cooperative is underrecovered on fuel for the year and will be increasing our wholesale power rates in order to recover the money necessary for PowerSouth to operate. As a result, your electric rates were increased by 11.5 mills. This fuel cost adjustment will take place immediately.

In the following days I will be posting some information regarding these increases and the factors influencing your rates.

July 10, 2008

G-8 Summit

Have you been keeping up with President Bush' meeting with other leaders of the G-8? One of the major topics during the meetings has been the issue of global warming. While a lot has been said and many different ideas have been proposed, we still do not have any set standards at this point. Unfortunately, I believe those standards will be imposed upon all of us before we completely understand the issue. As Billy Pizer, a senior fellow at Resources for the Future, said in the Wall Street Journal this week "the debate over what to do about global warming is about to get a lot more personal for consumers."