Electric cooperatives could and should have a distinct advantage due to their smaller size and reduced layers of bureaucracy, compared to investor-owned utilities (IOUs). I feel qualified to make this statement after spending 28 years in an IOU and the past nine years working in cooperatives.
A lack of bureaucracy can be a huge advantage to utility personnel. Because most cooperatives lack the customer density that exists within IOUs, they have to operate much more effectively and efficiently in order to compete. The average density of a cooperative is six to seven customers per mile, whereas an average IOU's density might be 35 to 40 customers per mile. It is not hard to do the math when building a mile of distribution line costs roughly the same.
Even with this distinct difference in cost, many cooperatives maintain rates that are as or more favorable than rates at IOUs. How can that be? I've found that the really competitive cooperatives average between 375 to 450 members per employee, whereas IOUs more typically have 250 to 300 customers per employee. This leanness in staff at the cooperatives leads to less bureaucracy and should equate to faster decision making. I use the word “should” versus “does” because too few cooperatives take full advantage of this situation.
Perhaps the biggest challenge for cooperatives is to change the culture within their organizations. First, cooperative boards must be committed to bringing in a CEO who is committed to culture change and willing to make tough organizational changes.
Here at Owen Electric, the board faced just such a decision in 2000 with the then-pending retirement of its CEO. I interviewed for the position on a platform for change and was fortunate enough to be selected as its new CEO.
My first challenge was met by having a board that understood the need for change and that supported my initiatives to enact that change. The second challenge was to communicate with our employees openly and often, sharing why we needed to change and how decisions would affect each and every employee. We are now in our sixth year of this change process and have made significant improvements in all facets of our operations. As in any organization, this is a journey that really never ends. We need to continue to challenge ourselves each and every year to keep improving service delivery to our members.
Here at Owen Electric, we are advancing the rollout of automated meter reading (AMR) technology, or what we refer to as advanced metering infrastructure (AMI). This technology is typically being implemented much more rapidly in cooperatives than in IOUs. Here in Kentucky, more than half of the 25 electric cooperatives are in some phase of conversion to AMR, whereas the three IOUs have, to date, done very little in this arena.
Our AMI team was formed in March 2005, and we plan to have our system completely converted by the fourth quarter of 2008. The process was initiated by forming a cross-functional employee team aided by an external consultant. Members of the team visited six to eight cooperatives that were using the various technologies we were considering.
THE PACE IS EXHILARATING
If I were in my former IOU, we would probably still be studying the issue over that same time frame. I don't say that to be critical, but to make the point that cooperatives can move much faster and therefore offset some of the disadvantage we face due to the density inequity. I could cite many more instances where this advantage has been helpful in implementing technology here at Owen Electric.
The other area of great opportunity for cooperatives is in the ability to share services and merge. More than 40% of electric cooperatives nationwide serve fewer than 10,000 members. So much efficiency can be had by cooperatives being willing to share staff and resources. At Owen Electric, we have a shared services agreement with Shelby Energy Cooperative that has and will continue to provide cost benefits to all our members.
I believe that the National Rural Electric Cooperative Association should be highly visible in promoting the concept and use of shared services. It's hard for me to see how many of these smaller cooperatives can survive long term without embracing the concept. The huge hurdle here is to get beyond the egos of the board and CEOs that too often inhibit this type of activity. Interestingly enough, if you look into the makeup of the cooperatives where shared services initiatives are occurring, you'll likely find that the CEOs have an IOU background.
Owen Electric Cooperative is committed to continuing its journey toward implementing change and to do so through a spirit of cooperation. We plan to use our size and leanness as an advantage to accomplish this end.
Robert Marshall is CEO of Owen Electric Cooperative. firstname.lastname@example.org