Valley Electric Association has experienced several changes over the last several months with the most recent announcement of a rise in rates for both broadband subscribers and member-owners’ power bills.
Some of the recent changes have also brought a reduction in staff at the co-op and other cost-cutting measures.
Despite this news, leadership at Valley stated the co-op has moved into a better position.
“What I would like to tell you though is while it seems from the news of last week that it is a horrible situation that Valley’s in, I want to assure you that everything that we’ve taken has really put Valley Electric Association in a better position,” said Angela Evans, CEO of Valley Electric Association, about the announcement of several layoffs at the co-op.
On Feb. 7, Valley reduced its number of employees by 18 from throughout the company.
That action followed a recent reduction of 16 employees through a voluntary separation incentive plan in January.
“Some folks decided to retire,” Evans said. “Some folks decided to continue with schooling. It created a good opportunity for them to follow a life’s calling.”
Overall, Valley Electric and Valley Communications Association employs 138 people.
Evans explained that the recent reductions, driven by a need to help reduce operations costs, were implemented as Valley didn’t meet its target with savings on the voluntary separation plan.
Other cost reductions were related to hiring new employees. Evans said the co-op froze hiring in 2018 and was only filling critical positions. Also, a freeze on raises for employees, executives and management was also implemented in 2018.
Overall, the road to reducing operational costs at the co-op began in May 2018 when Evans was named as the interim CEO following the retirement of former CEO Thomas Husted. Later in 2018, Evans was put into her position permanently by Valley’s board of directors.
Collectively, the cost-cutting measures have reduced the annual operating expenses at Valley by $11 million.
“When we first started looking at the cooperative and operations, it was immediately following the change in management …,” Evans said. She said the board directed her to conduct a thorough review of Valley’s operations at the time.
“It was realigning, defining strategies that are driven by growth, growth in members, growth in revenues, that’s always a good thing, so we wanted to make sure we stayed on track with that,” she said.
Evans said part of that review was also determining what the appropriate staffing levels are for Valley.
“When we compared ourselves to other cooperatives, we weren’t the right size, so to speak, and that causes additional cost pressures for the cooperative,” she said.
Valley also looked at the contracts it had in place with construction crews and consultants.
“In addition to cutting back on all of the contractors, we looked at a lot of our service agreements for consultants, and decided that, you know, we’ve got the talent within the co-op, so we can start performing these services,” Evans said.
Most of the crews being utilized were being used for the broadband build-out, she said.
Fiber rollout
Evans said the former CEO had an aggressive plan to roll out a fiber-optic network in the Pahrump Valley.
Evans explained that when she looked at that roll-out plan, she recommended to the board that it was going to be difficult to achieve from a capital investment standpoint. In addition, she said Valley hadn’t begun looking at capturing subscribers for the service.
“That revenue is important for us coming in, so we modified the fiber-deployment plan,” Evans said. “We focused on areas that were densely populated here in Pahrump and then also Beatty. We were able to, I believe between June through the end of August, install service for 120 additional members in Beatty. That was huge.”
Valley is working on its fiber-optic roll-out in the Mountain Falls and Winery areas.
“We have some other areas based on our 2019 work plan here in Pahrump that we should be starting work on,” she said.
Valley did run into some delays in its roll-out in the Winery region due to the geology of the region. Valley had originally planned to quickly roll out fiber in the Winery area.
“It’s got a lot of rocks so we had planned, do we go underground or is the fiber that we install, would it be aerial, which means it would be attached to our poles,” she said. “Underground creates a huge expense, so that kind of slowed down what we were doing in the Winery, but we’re still working to sign up new subscribers, install new services in the Mountain Falls area.”
Rate increases
In June 2018, the co-op used proceeds from the sale of its 230-kilovolt transmission sale to enter into a new power purchase agreement to keep energy rates stable. The cost of that new agreement was $60 million.
Evans explained that the former CEO took out contracts in 2008, utilizing a methodology called the “blend and extend mechanism.”
“What that means is that you secure your purchase power cost for today,” she said. “But because we’re securing at a lower price, that in future years, you have to pay an escalation charge…”
Those escalation charges began to kick in in 2018.
Evans said they were seeing power costs increase up to $50 per megawatt hour in 2018. That would have increased to $69 per megawatt hour in 2019.
“When we found a new purchase power contract deal, the $35.75 per megawatt hour is the price that we saw being delivered in June 2018,” she said.
Residential rates will be rising as of March 1.
Valley’s basic service charge will rise from $15 to $20 starting March 1.
The energy charge per kilowatt hour will rise from 10.989 cents to 11.956, according to a news release from Valley. That is the first permanent rise in electric rates in over 10 years; a temporary 9.9 percent rate adjustment was reversed in 2017.
“One of the things that I think is important to talk about is that from the period from 2008 to 2018, Valley didn’t increase their rates,” she said. “If you recall, we had a recession in 2008, so we wanted to reduce the impact on our members, so we didn’t increase rates.”
Evans said, “That was a really long period to keep rates stable, especially when you have your cable, your steel, your poles, your fuel costs, all of those increased during that period, and they’re increasing even today, just as groceries increased all of that period.”
She continued saying that now there’s a “huge gap, so we have to shore that gap up and recover our costs.”
“When we started looking at the gap between the revenues that we were bringing in through rates and what our operational costs were in the May-June (2018) time frame, we were looking at a 26 percent rate increase, and that was something that the board and I would not agree to put that kind of burden on our membership, so we undertook all of our costs reduction efforts,” Evans said.
Evans said the co-op conducted a cost-of-service study to determine what the revenue requirements were for Valley and what the cost of service was. Valley also wanted to create a path to achieving its operational cost of service with minimally impacting ratepayers.
“With the results of the cost of service study, we were able to make some decisions, and that’s how we arrived at the rates that we’re currently proposing,” she said.
An increase in rates for Valley’s internet service went into effect as of Feb. 1.
Contact reporter Jeffrey Meehan at jmeehan@pvtimes.com