December 2024 Board Meeting
PrintSDCEA (Sangre de Cristo Electric Association) Board of Directors Meeting Summary, December 30, 2024
Net Metering – At the beginning of the meeting, the board made a motion to amend the agenda as posted per staff recommendation. The action item, Rate Schedule 6 – Net Metering, was not ready to present to the board due to staff not yet receiving information on the avoided cost of energy from Tri-State G & T.
Depreciation study presentation – The board heard a presentation on a depreciation study conducted by Jeff Wernert of the Prime Group, LLC.
Depreciation is the process of spreading out the cost of an asset over its useful lifetime. When SDCEA makes significant investments, like capital projects or equipment, these items lose their value over time as they are used. Depreciation recognizes this gradual decrease in value and allows SDCEA to recover the cost fairly from those using the electric system over many years instead of all at once.
Retail Rates charged to customers are directly correlated to the level of depreciation expense SDCEA claims each year. Faster depreciation of an asset requires more revenue from customer rates to ensure financial needs are maintained. Slower depreciation of an asset requires less revenue from customer rates to ensure financial needs are maintained.
A service life that is too short places an excessive burden on current members to the benefit of future members by charging current members depreciation expenses that are overstated. A service life that is too long creates a risk that the utility may not be able to recover its costs, creates long-term exposure to risks of realizing stranded costs, and places an inappropriate burden on future members.
The level of depreciation is set based on the rate of depreciation the cooperative decides for each asset type. These rates should be periodically evaluated to determine if they need to be adjusted, which is done via a depreciation study.
Why is Depreciation Important?
Prevents Rate Spikes
Without depreciation, the cost of large investments would be paid in larger sums, closer to the expenditure. This would mean rate spikes for members in certain years. Depreciation spreads the cost over multiple years, ensuring both current and future users share the expense equally.
Recovers the Cost of Service
Depreciation ensures that the costs of maintaining and improving the cooperative are covered appropriately, allowing SDCEA to deliver consistent and reliable service.
Safeguards Financial Viability
By recovering costs gradually, our cooperative maintains financial stability, ensuring we can continue to operate effectively without passing on sudden, burdensome rate increases to members.
Supports Infrastructure Investments
Depreciation creates a reliable way to finance new infrastructure projects like upgrading electric lines, installing modern meters, or purchasing necessary equipment such as bucket trucks. Proper investments in infrastructure safeguard the long-term functionality and reliability of our system.
Example: Imagine SDCEA purchases a new bucket truck to maintain power lines and service. Instead of charging all members in a single year to cover the truck’s cost, depreciation spreads this expense over, say, five years—which represents the truck’s useful lifetime. This ensures rates stay fair and balanced for member service year after year.
The same principle is applied to investments in infrastructure such as millions of dollars in line and poles, meters, and other significant assets our cooperative uses to serve members.
This approach to accounting for investments is critical as SDCEA reviews rates for the coming years. Depreciation helps us accomplish key goals, such as ensuring that rates reflect our actual costs, preventing sudden spikes, and distributing costs equitably among members using our services.
By taking depreciation into account when setting rates, SDCEA can maintain a strong and financially stable cooperative, ready to invest in the infrastructure and services needed to meet the needs of our members today and tomorrow.
Recommendations from the review are minimal overall changes in depreciation expense and a more accurate accounting of depreciation accruals. The study will be further reviewed by staff and by the board and findings will be considered when looking at developing new rates.
Schedule of Fees and Charges: The board approved changes to Policy C-99, Schedule of Fees and Charges. Changes were made to Idle Service & Service Location Retention Fees, Schedule link here.
Charitable Program Funding – The board approved a resolution that designates unclaimed capital credits to fund all, or a portion of, SDCEA charitable programs. Resolution link here.
Financial Report
Year-to-date (November 2024):
- Revenues are 1.1 percent under budget.
- 2024 has been warmer compared to 2023. Kilowatt (kWh) sales are under budget. November was colder than the 20-year average, bringing revenues closer to budget.
- Total expenses are 2.6% under budget.
- Purchase power costs are down because SDCEA is buying less power than budgeted.
- Interest expenses are underbudget.
- A&G expenses are below budget due to open positions and director expenses under budget.
Grant opportunities
- New ERA Funding – Submitted letter of intent for potential solar and batteries for Querida/Kettle substations in Custer County. SDCEA’s grant request was declined. The program received $45 billion in grant requests, though only $9 billion was available for awards.
- Submitted for a $999,000 grant to the Colorado Energy Office for Grid Hardening. Grid hardening means making the electric grid stronger and safer. It involves finding potential problems and fixing them in advance to reduce outages.
- Staff have been searching for Grants that could be submitted for Vegetation Management.
Strategic plan update – The board was updated on work on the four goals of the strategic plan. The reporting process on progress in the plan is going to be refined for future meetings. The plan link may be found here.
Next board meetings: January 30 – 10 a.m. Silver Cliff, Custer County, Tony’s Pizzeria. February 26 – 10 a.m. SDCEA Board Room, pending building HVAC repair completion.
