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2019 Annual Meeting Manager's Report

Who in their right mind would invest 3 billion dollars in power plants, for customers who might change their minds and buy their electricity from somewhere else, and then leave that investor stranded with 3 billion in plant with no customers to sell to?
 

No one in their right mind would make that 3 billion dollar investment.

Electric co-ops don’t have customers.  We have member owners.  And since you indirectly thru Central own this 3 billion dollar investment, at Associated, it was the membership’s decision decades ago to make sure our investments were used by the membership.

 

To assure that, we all agreed to sign 60 year contracts guaranteeing we would only buy our power from Central Electric Power Cooperative, who in turn has a 60 year contract with Associated Electric Cooperative, the power plant co-op that we all own. All 50 co-ops in Missouri, Iowa, and Oklahoma that are part of the Associated family signed those contracts, and right now that contract expires May 31st, 2075.

These contracts enable the planning, building and operation of a reliable transmission network.  Without these agreements in place, it would be difficult to justify and recoup the enormous cost of the physical assets that reliably transmit power through the tiers of cooperative ownership.

 

Because of that guarantee, the rating agencies have given Associated the highest rating of a double A, which allows them to borrow money much cheaper than most other utilities.  That saves millions annually and helps keep rates low.  We currently have one of the lowest wholesale power costs in the nation.

 

So, what kind of power plants did Associated build.  Back in the 60’s and 70’s rural Missouri’s electric loads were growing fast and it became obvious that in order to take care of our member’s needs, we needed to build several power plants.

 

What were our choices in the 1970’s? Wind and solar back then were very expensive and non-reliable when the wind wasn’t blowing or the sun wasn’t shining.  We were already getting all the hydro we could get with the limited number of dams available.

So, we decided to build nuclear and the engineering work was started for Black Fox Nuclear Plant.  But unfortunately, Three Mile Island Nuclear Plant had a partial meltdown in March of 1979, and that put a halt to nuclear plants in the U.S. including our own Black Fox.

 

Well, what about natural gas?  Unfortunately, the Arab Oil embargo put the U.S. in an energy shortage, and politicians passed the National Energy Act which discouraged the use of natural gas and insisted that utilities should increase their coal production to at least 400 million tons over 1976 levels.

So, in the 1970’s and 1980’s Associated along with other electricity producers built coal fired power plants as a result of this government mandate which started in the Carter days. These plants cost 100’s of millions of dollars and Associated built the Thomas Hill plants in the late 60’s and early 80’s and built the New Madrid plants in the 70’s.  None of this could have happened without our “all power requirements contract” with Associated.

So when folks say, “I think Howard Electric should quit buying coal energy from Associated and put up their own solar and wind, well, contractually we can't.  We are contractually bound to Associated.

 

Now with that said, Associated has more wind power than Ameren or Empire in this state.  When Associated buys wind power, they have been very shrewd and selective when signing wind contracts.  They work hard to get the best prices possible and they have done very well in that area.

 

We have signed some unbelievably favorable wind contracts, and we are about to add 450 MW more of wind power at a very good price guaranteed for 25 years.  We are now over 20% renewables and with this new wind contract that could go higher. But when the wind doesn’t blow, which is roughly 70% of the time, you’ve got to have baseload coal or gas to fall back on.
 

Apparently most of you agree.  In our recent survey of our members, 69% of you strongly agreed that we need to have a continued balance approach when it comes to coal, gas, and green power, and 26% were neutral.
      

Well, what about solar?  Associated assures us they are ready and willing to invest in solar as soon as the price falls to a more competitive price with wind, coal, and gas.  Associated takes bids on solar quite often, but so far have not received a bid that was competitive.

 

Keep in mind solar power in the summer in Missouri has a 27% capacity factor.  That means solar is generating on average 27% of the time in the summer and 73% of a 24 hour day it is negligible or it is not generating.  In the winter, solar in Missouri has a capacity factor of 15%.  That means 85% of a 24 hour day on average the solar panels have negligible or are not generating in the winter.  So there must be base load generation to back up wind and solar.
 

These towns that claim they are 100% solar, are generating 100% of the kWh’s that the town needs between the hours of 9:00 a.m. and 5:00 p.m.

 

Since that town can’t use all those kWh’s between 9 and 5, the extra kWh’s (about 70% of them) go out on the grid. The grid has no ability to store these kWh’s.  They must go into homes outside the town in the very same second that it is generated.

 

On a large scale, generators must ramp down coal plants or gas plants when large scale solar is generating.  The ramping up and down of power plants creates more CO2 that just a steady use of power plants.

 

Meanwhile, the town that is “so called” 100% solar, is going to be 100% coal or gas between the hours of 5:00 p.m. to 9:00 a.m., which is 16 hours of the day unless it’s a cloudy or snowy day, in which case this 100% green town could be getting their electricity from coal or gas generation up to 24 hours a day.

 

In the case of wind energy, there has been numerous occurrences when the wind was blowing hard at 3:00 a.m. in a mild month and no utility within 500 miles needed that wind power.

 

Now the utility that is connected to the wind generator is required by contract to take all kWh’s generated by the wind generators whether they need those kWh’s or not, so when the utility can’t find any other utility to buy the kWh’s, they have actually had to pay utilities several states over just to take the kWh’s.

 

Utilities control when coal, gas, hydro, and nuclear power plants generate and they can match that generation up with when the people need the power. Utilities do not control when solar or wind generates, and solar and wind often does not match up with when the people need the power.

 

Being 100% green implies that you no longer need coal, gas, hydro, or nuclear. Nothing could be further from the truth. If you want your lights on, on cloudy days, on snowy days, every day between 5:00 p.m. and 9:00 a.m. the next morning, you are going to want base load power. The only way to be 100% green is with battery technology and right now the cost of that is extremely expensive.

 

One of the 7 co-op principals is cooperation among cooperatives. Cooperatives came into existence 83 years ago when a bunch of farmers got together and said, I can’t afford to bring electricity to my house, but if we all work together we can do it together. That’s why it’s called a cooperative.

 

And then the cooperatives across the state said, we individually cannot afford to build the big power plants that would give us low cost power, but together we can do this and Associated came into being created in 1961. That’s cooperation among cooperatives.

 

And then we realized that it took huge investments in transmission lines to bring that power to each cooperative and for each cooperative that was unaffordable, but then we realized that together we could do this, and Central Electric Power Cooperative was created. Cooperation among cooperatives.

 

And we have done the same with our lobbying efforts or printing the Rural Missouri magazine or training for employees and our board, all under the umbrella of Associated of Missouri Electric Cooperatives, another example of a cooperative being created by this cooperation among cooperatives.

 

500 cooperatives went together to create a software cooperative, NISC.

700 cooperatives went together to create an insurance cooperative, Federated.

 

Stop and think about this. Ameren and Kansas City Power & Light absolutely refused to serve the rural areas back in the 1930’s. That’s why cooperatives were formed in the first place. But Ameren and Kansas City Power & light have 35 customers per mile of line because they primarily only serve urban areas. That means for every mile of line they build, they have 35 houses that can pay for that mile of line.

 

Howard Electric has less than 4 members on a mile of line. So how are we going to compete with Ameren and Kansas City Power & Light with only 4 members per mile of line?

 

Two ways:

We are not funneling our profits off to stockholders that live around the world.

Everything we make belongs to you, is earmarked for you, and since I have managed this cooperative we have returned over 3 million dollars to you our members and our owners.

 

The 2nd way we’re competitive with Ameren and Kansas City Power & Light I’ve already mentioned – it’s cooperation among cooperatives.

That gives us the efficiencies we need to compete.

 

The reason I have gone thru this history lesson, is to hopefully give you an appreciation for what you have created here at Howard Electric, what you have created in this state and in this nation. It’s really something quite special. There will be those that want to break away from those partnerships, especially our partnership with Associated.

 

These long term power contracts are in place for a reason because from a cost standpoint, we can do much better working together than we can separately.

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