Chugach Consumers (Ray Kreig) presentation to Chugach Electric Board — March 20, 2002
COLLECTIVE BARGAINING UNIT CONTRACT EXTENSIONS

Chugach Consumers is extremely concerned to see that the IBEW Union proposal for a three year labor contract extension has been recommended for passage by the Finance Committee. It appears to only save Chugach $200,000 to $300,000 a year. I will demonstrate here that there is much higher potential for savings and we think the board should enter into full negotiations with the IBEW at the appropriate time to obtain them. We think the membership expects you to negotiate and not simply accept IBEW’s first offer.

Chugach Electric has extremely high IBEW Union labor costs (both in terms of compensation levels as well as restrictive and archaic work rules embedded in the three labor contracts).

HOURLY WAGE LEVELS - The average hourly wage of all Chugach employees (union and non-union) in 1992 was 68% higher then the average of all 861 electric distribution coops. That was 68% higher even after cost of living differences were adjusted out. Chugach wages are not just at the high end of the national continuum of hundreds of co-ops; Chugach was an extreme outlier near the top of a high wage pinnacle on this graph. Other Chugach benchmarking revealed similar variations from national cost efficiency norms.

CHUGACH GOALS - Chugach has adopted the goal of being in the top 10% of all electric utilities nationwide in economic efficiency and delivery of value to its customers. Now that’s an excellent goal, the best in the state. But if it is to be a serious goal...to be more then just empty words we have to climb down off the pinnacle on that graph.

Lets look at some other comparisons/benchmarking to other utilities,

DISTRIBUTION MARKUP - This compares the charge made by 848 co-ops to distribute one kwh of electricity over their wires. Most prices range from one to five cents. The black line is the average for different customer densities. You can see that it costs more to distribute in rural areas because more miles of line need to be built for each house. Chugach is over here with the highest customer density of all the co-ops (42 customers per mile of line) and Chugach was charging almost double the normal distribution cost. To get in the top 10% of economic efficiency we are going to have to get down here on the chart (big cost reductions necessary).

Here is some early Chugach benchmarking,

SEVEN CONSTRUCTION & MAINTENANCE ACTIVITIES (NRECA - UMS GROUP) - This was from the first National Rural Electric Cooperative Association benchmarking of about 20 large electric distribution co-ops.  We got Chugach added to this group when I was Board president.  This particular chart covers a number of activities that the IBEW contract plays a large part in:  Line design & planning; underground and overhead construction and services installation; line maintenance and trouble calls.  Those co-ops (plotted as dots) in the higher part of the chart have been able to deliver at a high service level to their customers; those on the right side have been able to do it at low cost.  We want Chugach to be in the upper right quadrant (LOW COST - HIGH SERVICE LEVEL!!).  Seven of the co-ops are there but not Chugach.  It could not even be plotted on the page and was off the lower left quadrant in an EXTREMELY HIGH COST - LOW SERVICE LEVEL area.  This was early Chugach benchmarking but is the only one released and available to our members.  Of course there has been some progress since then.  Chugach in this case may not be so far off the page but is still on that left (HIGH COST) side of the page.  To be in the top 10%, again, we have to move to the upper right quadrant. 

[AT THIS POINT CHUGACH LAWYERS STOPPED MY PRESENTATION AND DECLARED THE INFORMATION X'ed OUT BELOW CONFIDENTIAL]

XXXXXXXXXXXXXXXX ESTIMATED ANNUAL SAVINGS - [turn to Board away from audience with the chart to preserve data if still confidential]. This chart summarizes the line by line analysis of potential savings from xxxxxxxxxxxxxx reported by xxxxxxxxxxxxxxx. You can see the numbers - look at that blue total - and that is every year...and that did not include any savings from operation of the Full and Open Competitive Bidding Bylaw.

Has the general manager provided the Board with a 2002 update of these numbers? Has he provided you with a forecast of the additional competitive bidding savings? There is now lots of information, bid history, the Northrup-Thieblot study on the interties. It would be irresponsible for the Board to extend these contracts, to accept this offer without a complete update of the xxxxxxxxxxx numbers.

XXXXXXXXX COMPARED TO XXXXXXXXX MEMO - [remain turned with this next chart to Board away from audience in case the data is still confidential].  Look at the difference!  Is Chugach serious in attaining its 10% efficiency goal?  Or is it just public relations talk?

May I turn around and show the audience this chart?

[if no objection make sure by saying "I don’t want any information that is properly still confidential to be revealed"]

[if there is objection then ask how this data might be described to give the audience and the members the correct idea of the choices before the board...]

SUM UP

So..I’ll sum up by stating the obvious from this last chart. Accept the IBEW offer as is and you might as well abandon the goal of being in the top 10% in any realistic time frame. That goal was adopted in 1995.

Indications are that our community and state have some hard times ahead. Already Alaska has made a stunning fall from having the highest per capita income in the country to now below average. Chugach Electric Association as a member owned cooperative and provider of a basic service that affects everyone's cost of living and the competitiveness of our state has an important obligation and the membership's trust to do everything it can to be as efficient as possible.

There is plenty of time to properly consider these labor contracts. There is absolutely no reason to rush through their extension almost a year and a half before they even expire on 7/1/2003.  

And continuing board members will recall that xxxxxxxxx xxxxxxxxx xxxxxxxxxx xxxxxx xxxxxxx.  At the top of the list!  It makes no sense to do a 180 now and throw that goal away by extending this contract to 2006. 

Thank you for your attention.

I’ll be happy to take any questions you might have.

MORE INFORMATION

Ray Kreig 276-2025 ray@kreig.com

Chugach Consumers website: www.chugachconsumers.org

Please send comments or questions to Chugach Consumers