The local, regional, and national economy is experiencing a period of rising interest rates; rising costs of essential services, equipment and goods; a shrinking experienced labor force; and a predicted recession.
In these times, Powder River Energy looks out for the best interests of its members by utilizing various financial strategies to maintain stable electric rates while delivering value to the members.
In 2022, PRECorp benefitted from three financial revenue events linked to its wholesale power supplier Basin Electric Power Cooperative (Basin).
In November, Basin paid out the first of two bill credits. In addition, Basin passed along a wholesale power rate decrease, giving PRECorp tools to deal with some of the challenges.
Careful consideration of these financial benefits resulted in the following actions. PRECorp’s Board of Directors determined that the first bill credit would be passed along to its members in their February 2023 power bill. As noted in the December 2022 PRECorp News, capital credits were paid out in December.
“We have some agility to use all the tools in the toolbox. We want to make sure that money is working for all of the members and capital credits can be returned after an appropriate amount of time,” said PRECorp Chief Financial and Administration Officer Bill Mertz. “Part of our strategy is looking ahead. There are some larger years coming with some larger capital credit allocations.”
PRECorp continues to manage value to the membership, and the more tools available, the more opportunities there are to sustain that value. A common-sense approach would be to leverage the second Basin bill credit to avoid a near-term rate increase altogether.
Revenue Deferral
Revenue deferral is unique to cooperatives being they are a non-profit industry. It is a one-time opportunity to take operating margins from the most recent year and leverage those margins for future needs. This helps avoid taking immediate financial actions such as a rate increase for a year or more  into the future.
In this case, bundling the credits from Basin and PRECorp margins, there is up to $11.5 million available for a deferred revenue strategy. “We’ve heard clearly and respect what our members have shared that abrupt change is not ideal,” Mertz added. “By assembling these financial tools such as revenue deferral, PRECorp is now well positioned to execute a strategy that will help stabilize rates in a more predictable way over the coming years.”
Basin’s increased revenues were non-commodity sales and not related to power sales to Basin members. Instead these are excess margins from enterprises with Dakota Gasification Company’s fertilizer sales, and power sales out of market in the West. Basin’s Board has chosen the option of passing it along to its member systems. The PRECorp Board has determined that a revenue deferral program is the option that best serves the membership with stable rates over the next three to five years.
Utilization of that deferred revenue will be strategic and responsive to absorb further sudden changes in market prices for raw materials, specialty products and services. 
Supply chain strategy
To complement the revenue deferral plan, PRECorp has developed resources to adapt and adjust to shortages in the general supply chain and inflationary conditions being faced across the industry. PRECorp Team members have developed a business intelligence tool to analyze the rapidly-changing landscape for supply chain. They are also engaging with direct conversations with suppliers and contractors to solidify key relationships. These efforts give PRECorp real-time visibility into supply chain; the ability to share data with key suppliers to make data-driven decisions possible. This includes prioritizing work projects based on supply delivery; and anticipating upcoming shortages and crisis points by creating “storm stock” in the warehouse for unforeseen weather events.
“This gives us confidence in making informed and effective  decisions,” said Mertz. Overall, the revenue deferral creates a shock absorber for rate stability. At the same time, the supply chain strategy leaves no stone unturned when it comes to controlling costs and delivering value to the consumer members of PRECorp.
“There will be years when our base rate or basic charge needs to reflect the actual costs of delivering reliable power. If or when those basic charges are adjusted, our members can know PRECorp has done its homework when it comes to prioritizing the work and controlling costs and maintaining value as much as possible,” Mertz said.