I have served as the CEO of South River EMC since May 1, 2014, and during my first seven or eight years at South River EMC, wholesale power costs were relatively stable, and interest rates and inflation were historically low. In 2015, we refinanced our debt with the Cooperative Finance Corporation and saved the membership approximately $20 million over the life of those loans, which helped to boost our financial situation. A rate adjustment had taken place in November 2013 and margins were strong.

CEO Chris M. Spears

Under the cooperative business model, excess margins are allocated to the member and returned over time in the form of a capital credit retirement. A limited amount of revenue can be deferred, and it was, but there is not a compelling reason to end up with higher than necessary margins, which may not be returned to the member for 19 years. Because margins were more than sufficient, in 2017 and in 2018, member credits in the amount of $2.9 million and $2.6 million, respectively, were issued. Additionally, in 2019 we implemented a rebate in the amount of $3 million. We also established a hybrid approach to retiring Capital Credits in 2016 and have been returning 20% to 25% of the previous years’ allocation ever since.

Conditions have changed in the last few years. The COVID-19 pandemic was a challenge in and of itself along with causing significant supply chain issues. The pandemic was immediately followed by the highest inflation in 40 years. Interest rates went up and more recently, wholesale power costs have increased much more than expected. In 2023, the Cooperative implemented the Equalizer to make up for smaller shortfalls in revenue. It was adjusted monthly and even reduced to zero for a few months.

In April 2024, the first rate increase since November 2013 was implemented and the Equalizer was reset to zero. Our original plan, which was supported by our rate consultant, was to phase in smaller rate adjustments over a three-year period to minimize the impact on the membership.

Inflation, Interest Rates and Wholesale Power Increases

Inflation has impacted all of us. If you consider how much more you are now paying for groceries, vehicle repairs, housing, insurance and more, compared to what you were paying just a few years ago, it is evident that costs have risen and some of them significantly. Costs have also increased for your electric cooperative. As an example, line trucks have increased from $241,000 in 2020 to an estimate of $540,000 in 2025. The cost of a pole-mounted transformer has increased 80% and a substation transformer has increased by more than 220%.

Your local cooperative is making some major investments in new infrastructure to keep up with growth and to improve upon reliability. Consequently, more money is being borrowed. Several reductions in interest rates were projected for 2024 and those reductions did not happen. Therefore, the cost of borrowing for our Cooperative is estimated to increase by more than $1.6 million in 2025.

Approximately 65% of South River EMC’s operating expenses are directly related to the wholesale power purchased on behalf of the membership from North Carolina Electric Membership Corporation (NCEMC). NCEMC generates approximately 40% of its power and purchases the remaining 60%, primarily from Duke Energy. NCEMC’s costs have gone up more than expected as well. A year ago, it was anticipated that NCEMC would have a 1.5% increase in 2025. However, it is now estimated to be 4.82%, which is considerable.

Furthermore, under the current rate structure, operating revenue is dependent on sales of electricity and weather is the biggest driver of energy sales. Leading up to fall 2024, the weather had been mild for the year, based on average temperatures. This resulted in lower sales and a shortfall in budgeted revenue. This, in turn, led to the need to resume the Equalizer in October 2024.

2025 Adjustments

As we approached the end of 2024, our rate consultant recommended raising the Equalizer from $5 per 1,000 kwh to $11.20 per 1,000 kwh, beginning in January, until a rate adjustment is implemented.

A rate adjustment was expected in 2025, but the recommended adjustment from our rate consultant was higher than anticipated because of the reasons outlined above. Our rate consultant made recommendations for each rate class, based on revenue requirements and the 2023 Cost-of- Service Study. Those recommendations were recently presented to and approved by the Board of Directors.

Conclusion

Our Cooperative is not alone in implementing rate adjustments as electric power providers throughout our state have been making rate adjustments and adding riders to cover increased costs. From 2023, 81% of the NC cooperatives have made rate adjustments. South River EMC is committed to keeping your electric service and affordable and I can assure you that budget cuts have been implemented and that efforts have been made to limit the impact on you. As an example, controllable expenses, such as maintenance, labor costs for employees and contractors along with professional services in the 2025 budget are projected to increase only 1.2%, which is somewhat remarkable in today’s environment when costs are constantly increasing and by more than 1.2%.