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Weekly UpdatesVital Signs, first produced in 1985, is an annual analysis of the data reported by rural electric systems from the end of the previous calendar year. This year's report is based upon 2005 data from 846 distribution systems. All data is treated confidentially and no individual system data is released or published.
The 2005 operating data demonstrate that electric distribution cooperatives continue to have strong financial performance. The financial ratios are favorable and positive. Growth in sales and consumers is higher than for other utilities. While rates have noticeably increased, efficiency and productivity have continued to improve.
Cooperative Sales Growth
Distribution cooperatives sold 364 billion kWh in 2005, an increase of 17 billion kWh--or 5%--over the prior year. Overall co-op sales growth was stronger than the electric utility industry as a whole which saw growth of 2.7% in 2005 according to the EIA Electric Power Annual Summary Statistics. Factors affecting the year to year change in retail electric sales include weather-which strongly impacts residential heating and cooling--and economic growth, which drives commercial and industrial sales. Most cooperative loads are highly residential and are therefore more sensitive to weather conditions.
During 2005, 361 cooperatives reported kWh sales growth of more than five percent; 330 cooperatives experienced sales growth of between zero and five percent; and 90 cooperatives reported a decline in kWh sales for the year.
Strongest Sales Growth
The map below shows the cooperatives that had sales growth of 5% or more. Record summer heat from the Great Lakes to the Southwestern US contributed to strong sales in 2005.
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Sales Growth Varies from Year to Year
Annual kWh sales for utilities vary according to weather and economic conditions. Co-op sales are largely residential and are even more weather dependent than investor-owned utilities. Coming offa low year in 2003, overall sales were up 3.5% in 2004 and up 5% in 2005. Residential sales increased 5.7% in 2005 and commercial and industrial (C&I) sales increased 4%.
Co-op Sales Outpace the Industry
Cooperative sales growth generally surpasses that of the total electric utility industry as a whole and did so again in 2005.
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Co-op Consumer Growth is Strong
Cooperatives now serve 17 million consumers. The rural electric network added over 400,000 new members last year--an increase of 2.6%. Typically, co-op consumer growth is higher than other segments of the electric utility industry. Many co-ops serve new extremely high-growth metropolitan areas. In recent years, a few cooperative have also added new consumers through acquisitions.
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High Consumer Growth Widespread
One third of all cooperatives experienced strong consumer growth (over 2%) in 2005. Co-ops are experiencing high growth in all pars of the country, not just the fast growing regions of the Southeast and West. Retirement migration, recreations activity and the expansion of metropolitan areas have brought many new consumers to co-op service areas. Only 43 cooperatives actually lost consumers in 2005.
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Cooperatives Lead Industry in Consumer Growth
From 2003 through 2005, the rate of consumer growth for cooperatives has been well above that of the total industry. Co-ops grew 2.6% overall in 2005, adding over 400,000 new customers (meters). This is an estimated 900,000 additional people served by the rural electric network.
Average Rates by Class of Service
Cooperative retail rates increased over 7% in 2005, to 7.92 cents/kWh. That was more than the general rate of inflation (CPI). Large increases in the cost of fuels contributed to this increase in rates. Average co-op rates are shown for each class of service.
Electricity Remains a Good Value
Since 2001 monthly residential electric bills for co-op customers have risen 4% per year (light gray). However, adjusted for inflation (black), the increase has been less than 2% a year.
Co-op Rates are Stable and Competitive
Overall retail revenue per kWh has been steady for many years. Between 1994 and 2000, inflation-adjusted rates actually tell (the lower two lines "Constant dollars"). For the last three years, inflation-adjusted rates have been rising, last year by 3%.
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Average Residential Usage
Electricity usage tends to be higher for cooperatives than for other utilities because alternative heating fuels are often unavailable in rural areas. Natural gas and oil are either not available or are more expensive.
Costs for the Typical Distribution Cooperative
With a few exceptions, all 850 rural electric distribution co-ops purchase 100% of their power. The cost of purchased power typically represents two-thirds of a distribution co-op's total costs. Distribution costs make up the other third.
Power Costs Are Rising
Power costs generally declined during the 1990s. Beginning in 1999, however, they have been rising due to the increased costs of fuels. The 2005 increase in power costs per kWh, 10% for the typical co-op, was the largest in years.
Distribution Costs are Moderate and Stable
Distribution costs here are calculated as Total Revenue less Cost of Power, and include operating margins. Distribution costs have been rising at an average of 1% per year. Despite having a relatively low 7 consumers per mile of line ("Density"), co-ops do an excellent job keeping costs down.
Distribution Costs per Customer
Distribution costs have risen on average 2.7% annually on a per customer basis.
Cooperative Equity Trend
Co-ops built equity to strong levels during the 1980s. Equity as a percent of assets leveled off around 43% during the 1990s. Nearly one-third of all cooperatives currently have equity above 50%. Only 93 co-ops have equity below 30%. These include many of the nation's faster growing systems.
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Average Equity per Customer
Equity per customer, a factor often cited as being important in a sell-out attempt, is rising at 3% per year.
Cooperative Margins Remain Strong
Net margins and patronage capital as a percent of total operating revenue has been strong for several years. It did decline 10% in 2003 and another 3% in 2004, more likely a result of moderate kWh sales and increasing power costs. Co-ops' efforts to increase rates to cover power cost increases have stabilized margins.
Times Interest Earned Ration (TIER)
TIER is a key financial ratio used to measure a cooperative's financial health and its ability to meet interest expense on long-term debt. TIER compares the co-op's margins with interest expense. TIER is used by the financial community, by systems in their financial planning, and it is the primary basis used by regulators for setting co-op rates. This ratio declined during the 1990s but has shown much improvement in the last few years. RUS requires a minimum TIER of 1.25.
Customers Per Employee
Customers per employee is a measure of productivity. For the last five years, cooperatives have shown a steady improvement of about 1% per year in the number of customers served by each distribution system employee.
Capital Credits Retirements
Capital credits are the primary source of equity for most cooperatives. Co-ops return these capital credits to their members on a rotating basis a practice unique to cooperatives. In 2005, electric distribution co-ops retired $483 million in capital credits to their member-owners, in this graphic, the lower segment of the bar represents "general" retirements to members. The upper segment represents "special" retirements (generally to estates). Retirements have increased an average of 5% per year over the period shown.
Mike Ganley, Principal for Economic and Policy Analysis, NRECA
Dave Olivier, Manager, Strategic Analysis Information, NRECA
Louise Williams, Map Development Specialist, NRECA
Mike Ganley is NRECA's Principal for Economic and Policy Analysis. Mike joined NRECA in 1987 after more than ten years of service with the Rural Electrification Administration. He is manager of NRECA's Strategic Analysis Unit, which conducts studies and research on a variety of financial and operations policy issues affecting cooperatives.
Dave Olivier is Manager of Analysis Information at NRECA. He conducts data analysis and outside research for NRECA's Legislative and Regulatory staff and membership and manages databases and information vital to NRECA members.
Louise Williams is a Map Development Specialist for NRECA. She is responsible for developing and maintaining the official map of NRECA member systems.
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