Southern Power District 2007 Annual Report

President's Report:

While technically the ice storm that caused $45 million in damage to the District’s electric system occurred at the end of 2006—leaving customers without service for up to 21 days—much of 2007 was dedicated to dealing with the aftermath of that storm. The cleanup of poles, line, and hardware alone continued until May 1st. Specialized crews were utilized to pick up transformers and clean up oil spills. With all the storm activity we considered canceling the construction of new irrigation wells that customers had not confirmed with their payment for the extension charges; however, our personnel felt they could keep their promise of service. It was just another way of illustrating that the employees of the district really are keenly focused on the customer. Restoring electric service to irrigation wells was completed after all residential customers were restored, because their use was not expected until June at the earliest. Crews continued to work overtime to complete irrigation rebuilds as soon as possible, in case of an earlier demand for irrigation. I don’t believe anyone who wanted their electric well to run for the summer of 2007 was unable to do so, and irrigation customers were also able to start their wells ahead of schedule. 

The storm battles continue on through the Federal Energy Management Agency (FEMA) reviews of District records, with about 25% of the total damage-eligible reimbursements not received at the year’s end. Funds were acquired through the sale of bond anticipation notes as a temporary measure to provide the capital needed to acquire materials and labor to complete the restoration.

Very little tree trimming was done during 2007, because we utilized our temporary tree crews to assist with construction projects. Extensive work in prior years seemed to be effective in keeping our tree-contact outages from increasing. As the summer load increased, there was plenty of reason to be nervous. A little more than six months prior, we had wondered if the severe damage could be repaired in time for our peak season. Once repairs were complete, we then wondered if we would find any problems that had been missed during the course of restoration. The good news is that although we were concerned with the quality of the work done during the storm conditions, facilities actually held up very well with only a few problems. As one of our Area Managers said, “We always have a few problems when we hit peak load days”. Some work could not be completed in time and was carried over into 2008. Our system has multiple feeds in many areas which enabled us to isolate certain line segments and to complete the repair on those the following year.

Our system held up well during peak loading days and we handled the increased load growth coming primarily from irrigation this year very well. We set new records for peak levels and pushed substation loads to near capacity in some areas, and these loads will be addressed in 2008.

  While dealing with storm issues dominated 2007, the financial results from operations fell short of expectations. Irrigation use was much lower due to increased rainfall, something the district hadn’t seen in over five years. While the irrigators’ bills were lower, the District’s wholesale power bill often contained the same or higher demand levels while kWh sales were down. This created an increase in our overall cost per kWh for wholesale power and resulted in lower revenues while expenses increased. These were the operating results heading into a rate adjustment by our supplier. Original rate track estimates had predicted something less than a 4% increase in wholesale power; however the actual increase developed for 2008 was 12%. Our power supplier experienced increases in fuel and transportation costs which were not foreseen. The District subsequently performed a retail rate study, which was completed at the end of 2007. The District’s estimate of kWh sales expected were developed with a more conservative approach, providing a much better chance of meeting margin goals for 2008. It is hoped that the effect of the ice and wind storm will have all been worked through by year-end and that 2008 will show that the rates enacted will bring a fair rate of return back to the District.

Other information inside the 2007 Annual Report