Letter from the Board

December 12, 2014

Dear Rolling Hills Electric Cooperative Member:

Mr. Paul Wilson recently mailed a letter to Rolling Hills Electric Cooperative members. He made statements and conclusions that are incorrect and uninformed, although the Cooperative has widely publicized information in member meetings, Kansas Country Living articles, news releases, and on the website. Mr. Wilson’s analysis is flawed. It is misleading to selectively use data to try to prove points one wants to be true. Members deserve to be fully informed.

Cooperative Debt

Mr. Wilson selectively uses Cooperative debt information from 2005 and 2013. However, this period was unusual. The Cooperative experienced numerous devastating storms that destroyed various parts across the system in 2006 to 2010. The Cooperative made and paid for the repairs, then received FEMA reimbursement of approximately 80 percent of the $25+ million in damage.

Federal loans and FEMA grants can be a slow process. Short-term borrowing was necessary to maintain cash flow. The Cooperative has two lines of credit available: one to maintain construction schedules and ensure service reliability, the other for extreme storm situations, which is what we experienced. Both lines of credit were used. This is why selectively “analyzing” one year may show that the Cooperative borrowed more than paid on the principal owed.

Capital Budget Work Plan

Board President Gary Frieling discussed the Cooperative’s capital budget work plan during the April 2013 annual meeting. Rolling Hills is a capital-intensive business. The work plans are necessary projects to maintain service reliability for members. These investments do not generate revenue. The 2010-2013 work plan was $13 million, excluding FEMA work.

The 2014-2017 work plan of $17.1 million was discussed in the October 2014 Kansas Country Living magazine. This work plan is larger, because it includes approximately $3.2 million specifically for transmission system upgrades to the Lovewell and Hunter areas that must be addressed. Funds are borrowed from the federal government at a below-market, fixed interest rate and are repaid over the depreciable life of plant, which is 30 years. 

The Board and management have not let the system degrade. We are very aware of the aging system, the upgrades needed, and the costs to make them. The severe storms of the past few years compounded the need for repairs and replacement.

Central Facility Cost

Mr. Wilson attempts to correlate unrelated work plan numbers to find the cost of the strategic plan central facility. However, the central facility cost is not included in any work plan at this time. The facility design and cost estimate are currently being developed by M+H Architects and Paric Corporation. The Board will review and approve a facility design and cost in 2015. The Cooperative will apply for financing through the U.S. Department of Agriculture RUS.

Strategic Plan Savings

Operating, maintenance, and replacement costs continue to escalate. The strategic plan savings are conservatively estimated to be $1 million per year. The savings will offset other cost increases to keep electric rates affordable for members.

Operating from one central facility with fewer employees will save $750,000 per year in payroll and benefits expenses. Employees are eligible to retire at age 62, but we do not know when employees may choose to retire. Nearly half of our current staff will be eligible to retire within five years. We will achieve this saving soon after the central facility is operational.

Centralization will also eliminate inefficiencies and redundancies estimated at $250,000 per year: location inefficiencies of employees, equipment, and materials; redundant office equipment in three locations; and costs of time and travel between three distant offices.

Existing Facilities Evaluations

An experienced, qualified firm evaluated the existing facilities using ASTM and BOMA industry standards for property conditions and functionality. Trained, experienced professionals used objective assessment tools. Some Rolling Hills members, who are not qualified to assess facility conditions or estimate renovation costs, claim that the existing facilities can be economically renovated or question the validity of the evaluations. In fact, renovations can be very expensive and technically challenging, even impossible. Property conditions and deficiencies make replacement more economical than repair for the Mankato and Ellsworth facilities. Some issues are related to the current location and cannot be solved with renovation.

The Board requested a cost estimate to address the safety, security, and liability issues of existing facilities. The cost to fix current facilities is about the same as the cost of the strategic plan to centralize. Spending money on current facilities does not create the long-term cost savings of the strategic plan.

Selection of CBS-M+H-Paric Design-Build Team

After members approved centralization in 2013, the Board gave full and careful consideration to many project options and firms. The Board decided to use the design-build process and the experienced team of CBS-M+H Architects-Paric Corporation. This team has designed and built 20 electric cooperative facilities.

According to the Design-Build Institute of America (dbia.org), design-build is an integrated approach to deliver design and construction services 33 percent faster and 6 percent lower overall project cost compared to the traditional method. The central facility project will cost less and be operational sooner, saving members money.

Member Access to Information and Meetings

Mr. Wilson claims that Board policies “have taken away some of our rights as members.” Board policies were established in 2002 with the consolidation, based on policies from the three consolidating Cooperatives. The policies have remained largely unchanged. Recent changes have been made to clarify and provide members easier access to information. The policy changes have expanded member rights, not taken them away.

Learn the Facts

It’s easy to make broad statements of attacks on the Cooperative Board and management. Please do not be manipulated by misleading or uninformed claims. Learn the facts. For more information, contact any Board member, manager Doug Jackson, or visit the website, www.rollinghills.coop. The future of your Cooperative depends on informed members.

 

The Board of Trustees

Rolling Hills Electric Cooperative, Inc.

Together We Save