Lake Region Electric Cooperative
These are good questions and they are often asked of me, your directors, and our staff.
The short answer is that while we do pay down a portion of debt each year, paying off all of it would not be the financially responsible thing to do. There are several important facts that must be taken into account.
1 // Lake Region Electric Cooperative is an entity which was designed to serve its members — not just in years past, or today, but also far into the future. Therefore, a broad scope must be the foundation to determining financial strategies.
2 // By its very nature, an electric utility is an extremely capital-intensive business.
3 // Lake Region’s cooperative membership continues to grow.
4 // For continued safety and reliability, we must take steps to improve, strengthen, and expand our physical plant. These investments are usually very expensive.
5 // We make investments in our physical plant with the understanding that they will last 30 – 50 years.
6 // The debt ratios held by Lake Region place our cooperative in the middle of the group when compared to our peer electric cooperatives of similar size. They are not extreme on either end of the spectrum.
7 // Fairness is also a consideration. Who would benefit by paying off all the cooperative’s debt? The membership of Lake Region is constantly changing. People of all ages comprise our membership. Some people stay on co-op lines for many decades while others leave after only a short time. It wouldn’t be fair to have current ratepayers tackle the entire financial burden of co-op debt only to have future generations reap all of the rewards, especially when the debt could be shared among the members well into the future.
Lake Region has an 82-year history. The original loans were paid off after about 30 years. As the cooperative membership has grown and member electric use substantially increased, necessary improvements and expansion has taken place. New plant investments require funds since the cost of infrastructure equipment is so expensive. However, Lake Region doesn’t borrow the entire cost of these expenditures. For every $1.00 we spend on such items as electrical equipment, conductor and power poles, we only finance 45 cents.
Think of it this way: Thirty years ago, you purchased a home. As your family grew you needed more space, so there have been remodeling projects and the addition of a bedroom or bath over the years. The roof needed to be replaced, too. Most families pay for these types of improvements over time, funding the work with loans so they aren’t over burdened with the costs. Financing these projects makes them affordable. It’s much the same with your cooperative’s electric grid. Part of doing business the co-op way is to share the burden.
Our cooperative is in great financial shape and our goal is to keep it that way. Part of our long-range fiscal strategy is to continue paying off debt in a responsible manner, while also building and beefing up our grid for the future.
