NRECA reached out to a group of electric cooperative CEOs from across the country ahead of the recent annual meeting and TechAdvantage Expo to ask them what they see as the biggest challenge facing their co-op over the next five years.
Twenty CEOs responded, and the answers run the gamut from modernizing the aging electric grid and developing a new generation of co-op leaders to increasing the use of renewables and distributed energy resources. To begin this two-part series, here's how 10 of the leaders view the challenges ahead for their co-op. (Check out Part 2 of the series for the remaining perspectives.)
Over the past decade, Kaua‘i Island Utility Cooperative has seen tremendous success increasing the percentage of renewable resources on our grid: from 8 percent in 2008 to more than 50 percent today. During the same period, we've achieved significantly improved reliability and rate stability.
However, many challenges remain. KIUC operates under a state mandate of achieving 100 percent renewable generation by the year 2045. We must continue to develop cost-effective renewable projects in times of rapidly changing technologies and pricing.
Reliably operating a stand-alone grid that is at times fully operating on renewable generation, a significant amount of which is variable solar, is a daily challenge. The demand for increasing amounts of distributed generation requires us to evaluate new rate structures to protect our cooperative financial structure while appropriately reflecting the evolving cost of service.
Climate change forces us to focus on increasing the resiliency of our electric grid and infrastructure. Recent hurricanes in the Caribbean (e.g., Puerto Rico) and the continental U.S. are a stark reminder of our vulnerabilities. The Hawaiian Islands are highly exposed to natural disasters.
Member expectations for recovery timelines are becoming much more demanding. Developing more mini-grids with independent generating sources will enable faster recovery. We are also assessing and relocating or hardening critical facilities with exposure to ocean inundation during storms or tsunamis.
Finally, we continue to evaluate and prepare for the opportunities and challenges associated with likely increased electric vehicle deployment.
We are challenged with adding more and more renewable energy resources, due to regulatory mandates. It's also what our members want. An even greater challenge is finding an energy storage solution that will satisfy our needs for reliability using a proven technology that is cost-effective.
Each type of storage technology, whether long-standing such as battery or newer like compressed air, has its pros and cons. But despite what some may believe, they all have an environmental impact. On one hand, energy storage seems like a perfect idea, but we must also evaluate the environmental issues with any form of energy storage.
For example, the mining process of a single metric ton of lithium requires approximately 500,000 gallons of water. Toxic chemicals, such as hydrochloric acid, that are used in the process have been known to filter into the drinking supply. Then there's the energy used to create the storage systems, and the question about disposal must be addressed.
Our challenge is to make the best energy storage decisions we can today, with an eye to finding a solution that works economically, reliably and environmentally for our members, now and in the future.
Our largest challenge in Minnesota is helping policymakers understand the complexity involved in providing reliable electricity as they aggressively pursue carbon legislation.
Who will be held accountable when there is an interruption to power supply due to an inadequate supply of baseload generation or peaking plants? That answer is us, so it remains our responsibility and our priority to impress upon policymakers a responsible path forward in their pursuit of becoming carbon-free. We are especially worried about this during extreme weather events, such as the polar vortex experienced here in Minnesota in January.
Internal to our cooperative, we face increasing costs to maintain reliability. We are replacing failing underground cable and replacing overhead with underground when possible. We have increased our tree-trimming and right-of-way clearing. We also face the replacement of our obsolete load-control system. Innovative rate design and new service offerings to remain competitive are additional focus areas.
It is an exciting time to be in the electric cooperative industry. Amid the volume of change, there is great opportunity. We are focused on serving our members and remaining their community-focused, trusted energy provider.
The biggest challenge facing PRECorp over the next five years is our ability to dispense hope to our team and to our membership. We are facing unprecedented shifts in the foundational aspects of our business model. These unprecedented shifts are a combination of market realities and accelerating technologies.
Natural gas has become a byproduct of oil development, and market prices, in daily markets and futures, are at all-time lows. This is driving the decline of the Powder River Basin coal industry. It is also disrupting the coal bed methane industry as market prices are at, or often below, production costs of the methane gas produced in the unmined coal formations.
Accelerating technologies such as renewables and storage, artificial intelligence, sensors and communications (IoT), biotech, drones, etc., are poised to create significant disruption to our existing business models—and in our lifetimes.
Rather than sitting back and bemoaning these events, the PRECorp team has stepped up with a new strategy that is based on a more focused purpose, a compelling vision and an inspiring moonshot. Our vision story sums this up in a
Dispensing hope for our future, and charting that path, is our biggest challenge and our biggest opportunity.
The biggest challenge for FreeState is, hands-down, costs.
FreeState spends approximately 68 percent of each member dollar on purchasing wholesale power. That cost, paired with potential legislative mandates, is unpredictable. While it is difficult to foresee, we have to be flexible and, most of all, creative when it comes to finding ways to cut operating costs while still providing first-class programs and services our members expect.
Another challenge is identifying ways to stay member-centered through innovation and bringing value to each member with our offerings in a cost-effective way. This also ties into our commitment of staying on the cutting edge of technology with our cybersecurity efforts. Member data security is vital to our overall strategy of earning trust. We evaluate ways to keep information safe at the member level and the co-op level with our operations and processes.
The FreeState team evaluates challenges and looks to build comprehensive experiences that drive efficiency, both operational and member-centric. Our strategy to address these challenges includes education and communication of the cooperative difference. We value transparency at FreeState, and this allows us to build a relationship that is unrivaled by investor-owned utilities.
We're not just a utility, we're an energy partner.
The biggest challenge facing OEC in the next five years will be incorporating and integrating fiber-to-the-home as successfully as we have provided electric service over the last 82 years.
Like many cooperatives around the country, we are undertaking a huge initiative to provide broadband and telecommunications to our members. The challenge lies in balancing the launch of a new line of business while preserving and advancing electric operations.
Entering a market-based competitive business takes a new approach, but it is important to bring some of the same principles and practices our members have come to expect.
Adding to the challenge, it is important we keep our great internal culture. OEC is a great place to work and as we expand at such an accelerated pace, we have to be very conscious to not lose our identity.
Like many rural electric cooperatives, Tri-County EMC faces a number of challenges: flat or negative load growth, recruiting and retaining a skilled workforce, and keeping up with ever-changing technology, to name a few.
However, I believe the biggest challenge we face in the next five years is beginning the transformation from a traditional distribution cooperative to more of a distribution operator or integrator that serves our members' desire for more than the delivery of kilowatt-hours and a monthly bill.
Our co-op will face new challenges as our members employ different technologies, such as electric vehicles, battery technology and other distributed energy resources in their homes and businesses.
We must ask and listen to our members so we can understand how they will use these resources. Only then can we develop innovative products, programs and services that help improve their quality of life. If we don't, there will be others who will figure out how to deliver those services and become the provider of value to our members.
Our biggest challenge at our co-op over the next five years will be the growth of millennials as a majority generation in the workforce and merging the cultural differences that takes the best of all generational values to create and maintain a highly sought-after and dynamic workplace that meets the needs of the members.
That requires supporting learning and development opportunities for our younger generation, as well as making way for advancement within the workplace. We will encourage our older generation workforce to act as mentors and focus less on being a voice of authority to the younger generation.
We will be compelled to embrace technological advancements and seek opportunities to create a more flexible work schedule. We hope to stimulate our millennials' need to feel a part of something much larger than one's self by educating employees on how cooperatives as a whole represent a human-centered, ethically driven way of doing business.
All employees, regardless of generation, need to know their work matters and contributes to the overall success of our company.
The biggest challenge facing our cooperative in the next five years will be modifying our business model to keep pace with our members' demands for new and innovative products and services.
With advances in clean energy, distributed energy resources and the increasing number of "smart devices" in homes and workplaces, our success is no longer based on increasing kWh sales, but delivering more value to our members for each unit of electricity they consume.
This will have implications for every part of our business: from what kinds of power we supply; to how we manage our delivery grid with more flexibility and resilience; to how we focus on delivering energy services rather than just raw energy; to how we price for those services and still have enough revenue to support the infrastructure needed to do it all.
We will need to respect our past mission of safely providing reliable and affordable electricity, while embracing the responsible transition to a clean energy future in a way that also meets our members' changing needs and demands. It's a big challenge, but I believe that with creativity, innovation and the support of our members, rural cooperatives are uniquely suited for the challenge.
I believe the single greatest challenge facing utility CEOs at this time is uncertainty. It comes in many forms, including technical, regulatory, financial, environmental and business risk. These risks are either new or have become much more dynamic and fast-moving like climate change, cybersecurity and disruptive distributed energy resources.
There are really no recipes or best practices established for managing them. An investment in technology or a business model can be completely disrupted within a few short years, generating losses instead of returns on investment.
Now, perhaps more than ever, internal and external partnerships are becoming essential for surviving these turbulent times. Sharing best practices among utilities facing similar challenges is a powerful tool and, from personal experience, a calming influence.
This is where NRECA, with its Business and Technology Strategies group and the events they host, can help. External partners, including state and federal governments, national laboratories, and industry and trade associations, are increasingly providing support mechanisms and technical assistance programs to help manage the change. So, while the challenges are becoming more complex and moving more quickly, there are now more resources to assist with managing them.