Sometimes businesses merge to overcome the weakness of one or both of the entities being joined. Others, however, combine operations to capitalize on past successes to set the stage for an even better future.
That's the case with the pending combination of Humboldt County Rural Electric Cooperative and Midland Power Cooperative. These financially robust co-ops are setting a course that leaders at both say will produce even greater strength in the years ahead.
"We are financially sound," said Steve Long, general manager of the Humboldt County REC. "We're both financially sound. ... We're doing what we feel is best for the members in helping to keep their rates down. ... It's not a crisis or anything. It's having proactive boards doing what they can to benefit our members and trying to keep costs down, but yet still continue to provide reliable power."
Shown are the service areas of Humboldt County REC and Midland Power Cooperative. The co-ops are planning a 2013 merger that is expected to strengthen both, according to officials.
The boards of both co-ops have strongly endorsed a merger. Long said a vote by the members is expected to take place in March 2012. For the merger to proceed, at least 50 percent of the members of each co-op must participate in the balloting and 66 2/3 percent of those voting in each organization must cast votes in favor of the plan. If the members support the merger, the transition to the combined organization will take place Jan. 1, 2013.
The process that led to the decision for Humboldt County REC to explore a merger began at a strategic planning meeting.
Fast facts about the Co-ops (as of 2010)
Humboldt County REC
Number of board members: 7
Number of employees: 14
Miles of line: 952
Annual electric revenue: $5.6 million
Midland Power Cooperative
Number of board members: 9
Number of employees: 38
Miles of line: 2,934
Annual electric revenue: $31.4 million
Source: Humboldt County REC August newsletter
"We had a strategic planning session about three years ago," Long said. "That's probably when we first started discussing the possibilities."
Long explained that at that time the ramifications of the upcoming retirements of seven of the co-op's 14 employees were of particular concern as the participants analyzed the organization's future.
"That's a big hit," he said. "We felt that that was a time to at least go out and visit with the neighboring electric cooperatives."
Long said he and Kevin Rasmussen, of Goldfield, the cooperative's board president, began a dialogue that ultimately led to discussions with board members and officials at Jefferson-based Midland Power Cooperative. The conclusion was that the Humboldt-based co-op and Midland were excellent candidates for a merger.
In a statement provided to The Messenger in September, Rasmussen said the cooperative philosophies of the two organizations are similar and the board members work together well. That same view was echoed by Jack Runge, of Radcliffe, Midland Power Cooperative's board president, in a statement posted on the cooperative's website.
Long said compatible governing philosophies are of crucial importance.
"That's key to a merger working out," he said.
He emphasized that if the proposed merger becomes a reality, the qualities that have made Humboldt County REC a success story will be preserved.
"(That's) providing energy at a reasonable cost in the safest manner possible and continuing our reliability," Long said.
He said the retirements at Humboldt County REC will make it possible to effect economies through leaving some of the administrative posts unfilled. Long said executing this merger at this time makes it is possible to achieve a major reduction in administrative overhead without layoffs.
That is a key selling point that was underlined by longtime board member Larry Tilton, of Livermore, in the October issue of the Humboldt County REC's newsletter.
"The proposed merger will eliminate duplication of efforts and reduce costs, which will help us in remaining competitive," Tilton wrote. "A merged system will be in a better position to deal with future changes expected to impact the electric utility industry. Our studies show that a merger could reduce the combined operating cost by $5.5 million in the first 10 years."
Long said combining with the larger Midland Power Cooperative will help ensure that members of both cooperatives will be guaranteed being part of a stronger organization as the 21st century unfolds.
Long's cooperative primary serves members in Humboldt County and southern Kossuth County. He said farms represent the overwhelming majority of its accounts. Midland distributes power in portions of 13 counties and has more commercial accounts as part of its service mix.
Long said having greater member diversity would help achieve more stable electric rates.
"A co-op such as ours that is mainly rural residents, our sales pretty much track with the weather," he explained. "If it's cold ... we sell electricity. If it's hot in the summer, we sell electricity. If the weather is ideal, our sales are down."
The new entity
The plan calls for offices to remain open in both Jefferson and Humboldt. The combined cooperative will operate under the Midland Power Cooperative name. Initially, there will be 16 board members (the combined total of the existing boards). After three years that will decline to 12. Bill McKim, who has been the general manager at Midland since January 2008, will be at the managerial helm. He said he will spend significant time in the Humboldt office once the co-ops are one. Long, who has been with the Humboldt-based cooperative for 37 years and its general manager for the last 11, is one of the Humboldt County REC employees who will be retiring.
McKim said both organizations will benefit from efficiencies possible in a larger, combined cooperative. He expressed excitement about the merger and said it is a win for both co-ops, stressing that the boards and staff already work well together and share similar philosophies.
Long said staffing reductions will be in the administrative arena. No downsizing in the staffing for the outside crews responsible for maintenance is presently contemplated.
Being part of a cooperative that spans a broader geographic area could even prove an advantage when storms hit.
"If they get hammered down there, maybe we won't and we can send crews down there and vice versa," Long said.
Contemplating how electric cooperatives will evolve in the years ahead, Long said more consolidations are likely.
Contact Terrence Dwyer at (515) 573-2141 or firstname.lastname@example.org