Highline annual meeting canceled; report available online

For the second year in a row, Highline Electric Association’s in-person annual meeting was canceled due to COVID-19 restrictions.

Highline General Manager Dennis Herman said the cancellations of the annual meetings were the largest departure from normal and that throughout the COVID-19 pandemic, the goal has been to minimize its impact on the service provided to the membership. The annual report was livestreamed April 8, and the recording is available for viewing online at www.hea.coop.

In the report, Chief Financial Officer Jim Jackson said the cooperative purchased 500,207,797 kilowatt-hours in 2020, with the vast majority being from Tri-State Generation and Transmission at 493,492,669 kWh.

These total purchases are an increase of 45 million kWh compared to 2019. Jackson said that both the sale and purchase of electricity are highly dependent on weather, which was warmer and drier than it was in 2019, leading to increased sales in irrigation and increasing operating revenues for 2020 to $52,713,406, which is $2.3 million higher than 2019. Jackson said 469,461,490 kWh were sold to members, which was an increase of 46 million over 2019. Irrigation accounted for the largest share at 54.5% kWh sold. Large commercial followed at 27.1%, residential at 13.8% and small commercial at 4.6%.

Jackson said Highline’s major lender, Rural Utilities Service, allows HEA to defer revenue in years which have exceptionally strong margins and to recognize those in subsequent years. He said they used $800,000 of deferred revenue in 2015, $300,000 in 2018, and $1 million in 2019.

Herman said Highline received increases in wholesale rates from Tri-State in 2016 and 2017, and Highline worked to insulate members from the effect of the increases.

Highline’s wholesale power costs increased nearly 8% between 2015 and 2017. Highline increased retail rates to members by 5% during that same period and by 1% last year, resulting in a cumulative increase of 6% over the last five years. Herman said they’ve been able to keep from passing the entire wholesale increase on to their members through the use of deferred revenue.

Specifically, he continued, they set excess revenue aside in 2013, 2015 and 2020 and supplemented revenue shortfalls in 2018 and 2019. He further explained that it is Highline’s intent to utilize the deferred revenue balance to offset the need for rate increases for the next four years until Tri-State is able to deliver on their goal of reducing Highline’s wholesale rate by 8%. He added that their ability to meet this goal is imperative to Highline’s ability to keep rates stable over the coming years.

Operating margins in 2019 were negative $1,934,906 before the recognition of $1 million of deferred revenue, and they were negative $934,906 after recognition. Operating margins for 2020 were $1,699,074 before the deferment of $1.7 million in revenue, and they were negative $926 after the deferment.

Jackson said the operating margin in 2020, although negative, was enough to keep Highline in good standing with their lenders with help from their nonoperating margins. Highline’s total margins for 2020 were $1,241,691, comprised of Highline’s generated operating margins of $1,699,074, deferred revenue of $1.7 million, $1,139,602 generated by membership in other cooperatives and $103,015 in interest and other nonoperating income.

Capital credits refunded

In 2020, the board of directors approved a capital credit refund that included 73% of outstanding Highline capital credits from 2005, 100% of outstanding Tri-State capital credits from 1989, and 19% of the outstanding Tri-State capital credits from 1999 for a total general retirement of $2,745,833.

Jackson said the member capital credit balance is $54,730,887, which is comprised of $13,098,871 in Highline equity and $41,632,016 in the equity of Tri-State and other cooperatives.

He added that they are currently on a 15-year retirement cycle for Highline capital credits, and as Tri-State retires capital credits through Highline, Highline returns the money to their membership through retiring Tri-State capital credits.

In 2020, Jackson continued, the cooperative ended with $7,851,123 in cash and investments, an increase over 2019 that was mainly due to a loan the cooperative received. He noted their work plan determined a loan was needed to invest in system improvement, and with interest rates extremely low in 2020, the decision was made to enter into the loan.

Herman echoed Jackson about low interest rates, reporting that HEA has advanced $9.1 million on their loan with RUS, and the advance has a 30-year fixed rate of 1.13%. He added that the weighted average interest rate for all of their long-term debt is 2.85%.

Jackson reported that Highline continues to maintain a strong balance sheet. They ended 2020 with an equity level of 45.9%. This measures the extent that members have financed the plant in lieu of borrowed capital. He pointed out that though this represents a decrease compared to previous years, it is still a great level.

Jackson acknowledged that there was a net of zero miles of new line having been built, but this was due to the retiring of four miles of transmission line and the building of three miles of overhead line and one mile of underground line canceling each other.

He reported Highline has 5,170 total miles of line, 10,878 meters and averages 2.1 meters per mile of line. The national average for cooperatives is six meters per mile of line, he said.

He noted that the factors of being a rural system, a mature system and a slow-growing system require rebuilding or replacing a distribution plant as it reaches the end of its useful life. Much of the system plant is new in a fast-growing system, but he said in a mature system like Highline, they budget for upgrades and rebuilds to maintain reliable service.

Jackson said Highline’s utility plant ended the year valued at $112,109,004, which is a $4.1 million increase over last year. He said that in the last six years, they have spent $12.9 million to build and maintain the system plant to meet members’ needs.

In sharing the operating costs, Jackson pointed out that in 2020, these were reduced by a little over $1 million due to being awarded a Payroll Protection Plan loan designed to offset labor costs during the COVID-19 pandemic. Highline has applied for it to be forgiven, which he said it will be if certain criteria are met, and they are awaiting confirmation from the Small Business Administration.

The cost of maintaining the plant and making sure electricity was available accounted for 15% of Highline’s total expenses in 2020, according to Jackson. Depreciation and interest were about 9%, and the cost of wholesale power was about 76% of expenses.

The full article is available in our e-Edition. Click here to subscribe.