West Oregon Electric Cooperative was created in 1944, carved out of remote rural areas that the encircling for-profit utilities did not wish to take on due to the excessive expense for installation and maintenance.
The Rural Electrification Administration (REA) was created in 1935 to get electricity to rural Americans. The REA program offered low interest federal loans to power companies willing to deliver electricity to rural communities. Most private power companies would not take advantage of the loans offered by the federal government, so rural communities organized cooperatively to get electricity.
In 1936, Congress created the Rural Utilities Service (RUS), formerly the Rural Electrification Administration (REA), offering the low interest federal loans directly to the rural people, often through cooperatives. Today, the use of low-interest, long-term loans continues. This model ensures that cooperative members ten, twenty, thirty years down the line will be paying for the equipment as they use it, instead of a large, insupportable payment coming due at the time of repair, maintenance, or replacement of a big ticket piece of equipment.
Sources: WOEC website and The Not-For-Profit Difference, Ruralite, January 2018 (PDF)
The coop has territory in five counties over 1,224 square miles with approximately 4,500 members. It actually covers two separate but closely located service areas. It was essentially and implausibly formed out of territories no for profit electric utility wanted because they were so difficult and expensive to service and maintain.
Miles and miles of trees over rugged, often nearly inaccessible territory combined with lots of driving time is an easy, yet correct part of the answer.
WOEC’s rates are currently the highest in Oregon. The geography, terrain, low customer to-mile-of-line ratio over most of the territories, and the oddly spread out territory make routine and emergency maintenance and repairs extremely difficult and expensive, both in terms of time and man hours expended. There are no other comparable electric utility territories in terms of the distances covered, the ruggedness of the terrain, the actual size of the territory, and the coverage by trees and density of underbrush. To compare states, according to WalletHub, Oregon is 43rd lowest in electricity costs with an average monthly electricity cost of $107 while South Carolina with an average monthly electricity cost of $176 is the highest.
Also, most electric utilities are able to reduce costs by having major commercial accounts carry a lot of the cost burden, thus cutting costs for residential accounts. It is the norm for heavy industrial loads to make up around 50 percent of a utility’s revenue base. This means all the residential/small farm ratepayers together in a typical utility only pay half the cost of running the utility. At WOEC, it’s 90 percent. It’s 10 percent over the hill in Clatskanie.
Another factor here is the intense weather events that pop up. Big storms cause a lot of damage, and costs are not always covered by FEMA; when they do cover costs, it’s only up to 75% of the actual cost. Storm damage can be big hit to the cash reserves, and one of the main reasons we have to build up this fund every year. Severe winter storms have been a costly annual event for WOEC since its beginning; it is just part of living here.
Touchstone Energy Cooperatives is a federation composed of more than 750 local, consumer-owned utility cooperatives in 46 of the 50 United States serving more than 30 million members.
Among other things, they support training in strategy development and execution best practices. Touchstone gives member engagement resources, advertising, communications campaigns, employee educational opportunities, business development programs, and cooperative performance resources.
Other organizations that WOEC is a member of:
The National Rural Electric Cooperative Association (NRECA). In 1942, America’s electric cooperatives banded together and formed the National Rural Electric Cooperative Association. The organization continues to represent electric co-op interests in Washington, D.C.
WOEC is also a member of ORECA, Oregon Rural Electric Cooperative Association which represents and promotes the interests of electric cooperatives and their members. Their goals:
Protect the legislative and regulatory interests of electric cooperatives to maintain least cost reliable power.
Protect local control for electric cooperatives’ governing boards.
Oppose unnecessary regulation without demonstrated benefits.
Maintain the ability of cooperatives to provide new member services.
Support regional efforts to maintain the benefits to cooperatives of hydro-based power at least cost.
Communicate with and educate elected officials on state and federal legislative and regulatory affairs impacting co-ops.
PNGC: PNGC Power is a Portland-based electric generation and transmission cooperative owned by 15 Northwest electric distribution cooperative utilities with service territory in seven western states (Oregon, Washington, Idaho, Montana, Utah, Nevada and Wyoming).
Our company creates value for its member systems by providing power supply and other management services. PNGC Power is a top aggregator of geographically diverse loads in the region and became the first electric cooperative in the country to receive a power marketing license from the Federal Energy Regulatory Commission. Benefits:
- More buying leverage
- Access to advanced technical capabilities
- Financial strength; backed by $964 million in assets of member-owners
- Risk management capability and increased control
- Ability to meet customers’ power needs in the new era of public power
Investor owned utilities have a primary goal: the need to make money for their investors. In other words, they must make a profit over and above actual operating costs. When electricity was coming to our neck of the woods, no for-profit company wanted our territory with a too few customers to line ratio. Cobbling these orphan areas together created the awkward and disjointed territory WOEC now covers.
A cooperative model solved the problem of supplying electricity to difficult areas while not over-charging so someone far away can make a profit. According to Bob Perry, General Manager, “We’re a $40 million not-for-profit corporation with about $10 million in revenue each year. We’re a business. We have a margin that we have to make, but we’re not going to charge any more than we have to so we can operate at cost.”
The expenses WOEC incurs to operate the utility include repair and maintenance of its infrastructure, salaries for employees, depreciation on equipment and interest on loans. Any profit over those expenses is considered a margin.
The margin WOEC makes may sound like profit—or surplus income—but lenders require the co-op to make a certain margin to ensure repayment of loans. Those covenants are agreements the co-op will have a certain amount of money set aside, and are based on a percentage of the amount of interest the co-op is budgeted to pay each year.
Source: Understanding Capital Credits, Ruralite May 2017 Page 4
WOEC, like all co-ops, is a private, not-for-profit organization that is owned and operated by its members. The co-operative model was created so that rural communities could bring electricity to themselves by using low-interest government loans—a pay-as-you-go model that insures that future members will be paying for equipment as they use it.
WOEC is a “not-for-profit”, not a “non-profit”. Nonprofit and not-for-profit are terms that are used similarly, but do not mean the same thing. Both are organizations that do not make a profit, but may receive an income to sustain their missions. Nonprofits have volunteers or employees who do not receive any money from the organization’s fundraising efforts.
WOEC follows a not-for-profit business model, which doesn’t mean the co-op doesn’t make a profit. It means any profits the utility makes go back into running the utility, or in some rare instances, back to the members.
Member-serving nonprofit organizations create a benefit for the members of their organization and can include but are not limited to credit unions, sports clubs, advocacy groups, and cooperatives.
Another difference between nonprofits and not-for-profits is that nonprofits are tax exempt. While WOEC does not pay income tax on its net income, it does pay some taxes. It does pay a franchise tax to the city of Vernonia where the headquarters is located. All members no matter where located pay a portion of this tax, while Vernonia residents pay the larger proportion of the tax.
According to the CFO, Daniel Huggett, “We do pay a gross revenue tax, which is paid in lieu of property taxes on our infrastructure—our transmission and distribution poles and lines. We do pay property taxes on our land and buildings, but we don’t pay on those other assets that every member owns a part of, that allow us to run the utility. We don’t pay an income tax because we don’t show a net income. We show the margin.” The margin is what’s used to pick up the slack for emergency repairs from bad storm damage, as an example.
Sources: Understanding Capital Credits, Ruralite May 2017 Page 4, and What It Means To Be a “Not-For-Profit”, Ruralite April 2017 P. 4;
The Not-For-Profit Difference; Ruralite, January 2018 Page 28