MEOTA GAS CO-OPERATIVE ASSOCIATION LTD.
BOARD OF DIRECTORS’ 2014 REPORT TO MEMBERS
March 30, 2015
SUMMARY - SIGNIFICANT EVENTS OF 2014
Alberta’s economy made a U-turn in mid-2014. Nevertheless, since Meota is in the gas distribution business,
it continues to experience a considerable level of stability in our core business of delivering natural gas. It is
influenced more by weather on a year over year basis than the economy. The winter of 2013/2014 was colder
than normal and a cold last two months of 2014 positively impacted our operating revenues. New
construction activity remained at very low levels. We implemented strict cost controls to reflect this tighter
environment. In early 2014 there were significant staff changes. Reluctantly, we had to implement changes
to our basic rate structure 2014, after five years of holding the line on increases.
Gas losses in 2014 were unacceptable for the second year running and this triggered extensive investigative
and corrective measures to identify and repair failures in our aging infrastructure. Most of the leaks have now
been located and remedied, but this has set the stage for a “new normal” in terms of system integrity
management. This experience re-emphasizes the important of our members reporting the smell of gas anytime
it is detected. 800 noses are far better than 2 or 3.
Details of 2014 events are summarized below.
1.
FINANCIAL HIGHLIGHTS
Meota operates on a not-for-profit basis on behalf of its members.
Meota remains in a solid financial position, particularly from an operational perspective. The Financial
Statements are circulated at the Annual Meeting and addressed in detail by our Auditors, the firm of
Heywood Holmes. .
The number of active customers increased by 13 to 873.
.
As always, weather has the greatest influence on our revenues from year to year as reflected directly
in volumes of gas sold. As the result of a relatively severe winter in 2013/2014 and a cold fall of
2014, gas consumption increasing by 16.5% from 2013. However, we also suffered significant gas
losses in 2014 due to several mainline failures.
2012
Gas sales volumes were
-
2013
203,486 GJ
2014
204,535 GJ
226,576 GJ
Generating sales revenue of
$
813,877
$
917,286
$ 1,351,780
Gross revenue was
Comprised of:
Gas sales gross margin
Monthly gas charges
Service calls
Interest income
Other income
Flood Relief funds
Operating Expenses
$
503,744
$
466,345
$
528,675
$
$
$
$
$
231,528
207,010
16,487
3,633
45,086
$
$
$
$
$
171,476
211,261
31,369
3,308
48,931
$
539,035
$
549,519
$
$
$
$
$
$
$
204,874
228,323
22,253
2,826
47, 657
22,745
516,643
$
0
$
12,032
Adjustment for future Income taxes (non-taxable status)
$
0
Net income (loss)
$
(52,831)
$
(95,630)
Assets total
$ 2,649,658
$
2,525,692
$ 2,579,991
1
Current liabilities total
$
217,351
$
201,877
$
236,088
Cash on hand – year end
$
47,672
$
16,368
$
156
Accounts Receivable –year end
$
308,645
$ 308,592
$
361,257
Reserve Fund (restricted)
$
135,442
$ 138,442
$
140,728
Capital Maintenance Fund (unrestricted)
$
118,962
$
$
113,211
(2,163)
63,471
Short Term Debt (Revolving Line of Credit –year end)
$
0
$
Long Term Debt – year end
$
0
$
$
0
0
The gas component of your monthly bills for 2014 reflected the actual market price of natural gas.
Prices in February 2014 spiked due to abnormally cold temperatures across North America. This
price spike in 2014 gas prices resulted in the highest annual gas price in six years.
Our budgeting process is designed to achieve a break-even position for the year as we operate on a
not-for-profit and non-taxable basis for our members. However, our costs escalate each year
generally in line with the Alberta inflation rate. A significant portion of the operating revenue is
volumetrically based through our Volumetric Charge.
In June 2013, Meota suffered flood damage to its facilities in proximity to the watercourses in our
service area... Remedial work continued in 2014. Meota applied for and received flood relief
financial assistance and it partially offset the loss experienced in 2013. The recovery is
approximately $22,800.
In 2010, we established a Capital Maintenance Fund to create a fund for predicable future capital
expenditures. This includes items such as replacement of service vehicles, construction equipment,
major distribution system replacements, etc. Excess revenue is deposited into this fund as available
in addition to regular monthly deposits to ensure adequate advance funding is available for future
large cost items. We continued to fund this account through 2014 and initiated a re-examination of
the forward looking cost expenditures forecast for the next 20 years.
Meota has a line of credit in place with the Royal Bank of Canada, which in the past was used
primarily to cover short term cash deficiencies that arose with respect to payments for monthly gas
deliveries to Gas Alberta before receipt of trailing month customer payments. This loan facility was
used during the winter months and the amount of the borrowing was also dependent on the cost of
natural gas. To reduce borrowing costs, Meota now has the option to access the internal funds held in
the Capital Maintenance Fund on a short term basis only to cover the temporary cash shortfalls
previously covered by borrowing from the bank. This can be a cost saving measure achieved by
better utilizing of our internal financial reserves. The yearend balance for the bank credit facility
represents the very small draw to cover year-end gas payment timing differentials.
No delivery charge increases were implemented for 2009, 2010, 2011, 2012 or 2013. Commencing
in April 2014 the monthly fixed charge was increased by $2.00 and again in December by $4.00
reflecting both the accumulated and ongoing increases in costs from inflation, the costs associated to
upgrading our system to Automatic Meter Reading (AMR) and for upgrading our aging
infrastructure.
.
Our construction activities are a significant contributor to our revenues and this normally allows us
to minimize increases in monthly or volumetric charges from year to year. Nevertheless, the
continuing reduced level of new construction activity during 2014 also limited our construction
income.
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2.
STAFF MEMBERS
Our current staff contingent is as follows:
Erling Nielsen
Dave Gardiner
Kelly Johnson
Michelle Runge
Karen Langejans
3.
General Manager
Field Manager
Apprentice Gas Fitter and Serviceman
Office Manager
Office Assistant
OPERATIONAL ORGANIZATION OF MEOTA
Erling Nielsen assumed to role of General Manager on April 1, 2014. You will recall he was our
General Manager from 2006 to 2012. Welcome back.
Bruce Gordon, a member of your Board of Directors assumed the role of Interim General Manager
from mid-January through to March 31, 2014.
Dave Gardiner, our Field Manager since 2009, continues in that role.
Kelly Johnson, our apprentice gas fitter, is now completing her final year of her 3 year apprentice
program and works with Dave in the field operations.
Michelle Runge is our Office Administrator and has principal responsibility for our accounting
systems and customer relations.
Karen Langejans has joined our staff as Office Assistant on a part time basis in the fall of 2014.
Meota’s office hours to the public continue on the basis of five days per week from 8:00 AM until
noon. After hours calls are referred directly to Meota staff from the Meota’s call service.
4.
OPERATING CHARGE STRUCTURE FOR 2014
In prior years, we outlined the basic structure of your delivery charges. It bears repeating here. Your
Co-op is in the business of delivering natural gas to you. As such, it gets paid only for the delivery
service, not for the supply of natural gas that you use, although we act as the billing agent for that
supply to you. Your natural gas is actually supplied by Gas Alberta Inc.
Meota’s costs of delivery are covered by two specific charges for this service, both of which appear
on your monthly bill. These are:
(a)
A Monthly Fixed Charge
This is a fixed amount charged every month, irrespective of the actual amount of gas
delivered. In 2008 this was set at $20.00 per month and has remained unchanged in 2009,
2010, 2011, 2012 and 2013. On April 1, 2014 this was increased by $2.00 per month
reflecting cost increases from inflation. In December, 2014, we increased the monthly
charge by $4.00 to cover system upgrades and the roll-out of the AMR program.
(b)
A Volumetric Charge
This is a usage charge. It is tied directly to the amount of gas used in a given month. In
2007 this was set at a rate of $1.20 per GJ and has remained unchanged since then. Our
revenues from this charge are highly dependent on the weather and therefore variable from
year to year. Revenues in 2014 were higher than budgeted due to a severe winter heat load
in 2013/2014 and in the fall of 2014.
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The sum of these two charges provides the majority of the distribution revenues collected to run your
co-op on a day-to-day basis.
Any other changes you experience in your monthly gas bill will be the result of changes in the cost
of natural gas itself, (which is a pass through item) and your consumption, and that in turn, is largely
weather driven.
Meota, like all businesses, experiences ongoing increases in the cost of providing its services to you.
To better reflect ongoing cost pressures due to inflation, we moved to an annual review of all of our
other services charges and now make small changes to a variety of these service charges and rates on
an annual basis. For 2014, we have made theses annual adjustments to our service rates.
Once again in 2014, Meota’s charges for gas delivery were less than that charged to ATCO
customers by comparison. With continuing very low gas prices in 2014, the average Meota
consumer’s annual saving was approximately $134.21 (2013- $106.00).
There is another point that merits repeating again this year. In 2008, your Board, in reviewing areas
for increased efficiency and reducing costs, implemented a revised penalty charge structure for
members who failed to record their monthly gas consumption. This was not instituted as a means to
collect more revenue but rather, to try to voluntarily reduce our costs of meter reads and better
balance with our gas purchase accounts. Surprisingly, in spite of monthly meter read reminders and
the increase in non-read fees, a significant number of members are still not reading their meters. In
2009, 2010, 2011, 2012, 2013 and again in 2014, Meota collected more penalty charges than
anticipated. We continue to urge all members to read their meters at the beginning of each month. As
discussed below, full implementation of our Automated Meter Reading (AMR) by 2016 will
eliminate the need for customer reads.
We have also implemented a monthly meter reading service that should be very attractive to many of
our members in particular who like to head south during the winter. In addition, we offer direct debit
for the convenience of those customers who wish to pay their bill automatically. Another significant
cost saving option is to receive your monthly billing statement by e-mail rather than by mail. We
encourage all members to use this service as it saves all of us money given the high postage rates
now in effect.
Your Board continues to pursue options for increasing revenues through other services offered. In
2015, service enhancement will continue to be an important objective. As noted previously, this now
includes annual furnace inspections and minor repairs, water heater replacement, secondary lines,
barbeque hook-ups, taps for gas fireplaces and installation of natural gas powered back-up electrical
generators.
5.
OPERATIONAL ACTIVITIES
(i)
New Construction
As in previous years in this Report, we note that continued growth in the Calgary region is having a
direct impact on your Co-op. In 2014, the number of new infills was fourteen (2012 – 11), bringing
the number of customers up to 873. These additions are important for two reasons; the increased
number of customers helps support our basic operations, and revenues from new construction help
subsidize our basic operational costs. The slowdown in new building activity first seen in 2009 has
continued through 2014. We anticipate the new construction activities will again be slow throughout
2015, now the result of the economic slowdown in addition to the MD of Foothills’ restrictions on
subdivision.
(ii)
Flood Repairs
No major construction activities were undertaken in 2010 through 2014. However, in both 2013 and
2014, we did have to replace and restore some facilities near creeks following the floods in June
2013. The damage was not as severe as in 2005 and 2007, due in part to the remedial actions we took
following those earlier floods.
4
Nevertheless, we are continuing to implement a number of minor system upgrades to provide
improved supply back-up to certain sections of our system.
(iii)
Gas Loss and Line Pressure Monitoring
Gas loss in 2013 and 2014 has been unacceptable. As part of our gas loss detection and prevention
program, now a key part of our system integrity management system, we continuing to expand and
improve our pressure monitoring throughout the system to provide better identification of areas
where supply improvements will be necessary to meet future demand. This includes the installation
of additional block valve assemblies to better monitor and control gas flow in several areas of
system. Our coldest day readings this winter again indicate we can meet anticipated peaks in demand
for the foreseeable future.
(iv)
AMR
In 2013, we initiated a trial project using Automated Meter Reading (AMR), electronic units added
to your gas meters. The primary limiting factor had been to ability to read these meters remotely, due
to our hilly terrain. The test was successful.
We have commenced the process of upgrading and replacing meters with a target of 2016 for full
implementation. At the end of 2014 we had 135 new meters installed with AMR capability. The
2015 program should see an additional 240 units installed.
(v)
Line Walking
Our gas loss experience in 2013 was a wake-up call. Much of our backbone system is more than 40
years old. This raised serious concerns with respect to leakage at old fittings and at junction points.
In 2014 we instituted an aggressive line walking program to confirm the integrity of our backbone
system. With the assistance of two summer students we were able to walk, test and GPS 101km of
our system in the sections of our system were significant gas losses were experienced. In 2015, we
will aggressively continue this line walk program.
More specific details of our operations can also be found in the Manager’s 2014 Report.
6.
LONG TERM PLANNING FOR YOUR CO-OP
As we have noted before, due to our proximity to Calgary, Meota, throughout its franchise area, will
continue to feel the pressures of increased development and subdivision activity over time. In spite
of the slowdown in 2009 through 2015, this trend will continue for years to come. In response, in
2005, your Board initiated a multi-year process of assessing the rate and likely course of increased
density of residential development within our franchise area. As the gas distributor, Meota is
obligated to and must stand ready to serve these new customers as they require service.
Initially, we believed that at some point, growth would entail upgrading of our backbone pipeline
system in progressive increments in future years. Our internal process is designed to identify these
requirements and implement these system expansions on a measured and incremental basis in
advance of these increased demands for service, thereby minimizing the risk of any rate shocks to
our members.
However, slower growth over the past several years has reduced the urgency for this upgrading
program. In 2010, the MD of Foothills implemented its new Regional Municipal Plan. This current
plan appears to have some impact on the continuing slowdown in building activity. This plan was
reviewed in 2014. Over the near term, new construction activity continues to be reduced and this
continues to provide a longer lead time window for our assessment of future system upgrades and
expansions.
Our experiences with significant gas loss in 2013 and 2014 have caused us to revisit this entire long
term strategy. Inspection and repair of a number of the leaks we have experienced leads us to the
conclusion that we must now also incorporate replacement or twinning of certain portions of our
existing system, particularly in areas where the existing pipe is now over 40 years old. As this could
be an expensive exercise, we are developing a plan for implementing these upgrades and
replacements over a number of years to avoid significant rate impacts for our members.
5
As part of this review and based on events and issues that arose during 2013, early in 2014, we
expanded this general mandate to include other aspects of long term planning for Meota. These
include staff requirements, scope of service offerings with additional sources of revenue therefrom,
training and qualifications, recruitment, succession planning and training, flood preparedness, system
integrity and replacement, together with long term capital requirements. Changes have already been
implemented.
7.
FUTURE GAS PRICE OUTLOOK
New technology to exploit vast shale gas reservoirs in several areas of North America continues to
dramatically impact the supply and pricing for natural gas. This has resulted in a surplus of supply,
even in the face of increasing industrial and electrical generation demand, that has led to significant
oversupply and this in turn has continued to depress the price for natural gas throughout all of 2013.
However, the unusually severe and prolonged cold during the winter of 2013/2014 has severely
strained the gas supply, storage and distribution networks primarily in eastern North America. This
caused the severe price spikes in February and March 2014.
Many expected this shortfall in supply might be repeated again this year and many suppliers re filled
their storage to capacity as protection for the winter demand of 2014/2015. The industry also
responded by significant new drilling to increase delivery capacity, particularly in the eastern US. As
a result, the supply situation for the winter of 2014/2015 was robust. Then winter arrived. While
much colder than normal for much of eastern North America, the supply availability has proved
more than adequate. As a result, gas prices this winter have not peaked and are now on course to be
at the lowest levels in several years.
Gas prices for 2015 and 2016 are expected to remain at low levels.
Again, we note that from Meota’s perspective, we are revenue-neutral to gas prices as our revenues
are impacted by gas consumption (largely weather driven), not by price. Meota does not mark up or
profit from the price of natural gas. We provide your pipeline access services and act as a billing
agent for your actual gas consumption.
8.
MEOTA 50TH ANNIVERSARY UPDATE
Meota Gas Co-op was the first natural gas co-operative in Alberta. Its formation predated the
Government mandate to develop rural gas co-ops by 10 years. We celebrated our 50th Anniversary in
2012.
The Federation of Alberta Gas Co-operatives, of which Meota was a leading force and founding
member, celebrated its 50th Anniversary in 2014. They produced an informative video of the role and
importance of rural gas co-ops which also featured Meota’s involvement. You can view this video
again at our web site.
As part of Meota’s celebration in 2012, Gwen Blatz began compiling a comprehensive history of
Meota’s first 50 years. This has proved to be a daunting task.
Gwen has now completed this book to commemorate the first 50 years. It will be available shortly.
9.
GOVERNANCE
Your Board is committed to good corporate governance practice. Commencing in 2010, your board
required all members of the Board and the Manager to participate in formal governance training.
This initiative was to ensure that all members of the Board had training in the principles of proper
governance and were equipped to apply them to ensure good management oversight and direction for
your co-op.
This initiative was particularly timely as our world has changed. There is increasing oversight of
your co-op’s operations in many areas including:
6
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
risk assessment and insurance requirements,
pipeline integrity management,
environmental compliance,
customer privacy issues,
training standards and certification
workplace safety requirements and
workplace bullying.
The principles of good governance were severely tested on several fronts through 2013. By careful,
measured assessment and response to a number of serious breaches of good management and HR
practices that came to the Board’s attention during the year, we responded and rectified the issues
that became contentious, polarizing and counter-productive to Meota’s day-to-day operations. There
were staff changes as a consequence.
I am pleased to report to you that based on the experience of 2014, the internal operations of Meota
are now on a solid footing., staff morale is up and new procedures have now been implemented to
ensure a much better workplace environment with increased productivity, together with a much
improved risk assessment and management program, all of which will lead to better service and cost
efficiencies for you, our members.
In early 2014, we also adopted a detailed Code of Ethics for your Board Members, which each
member is required to sign and adhere to.
Our commitment is to strive to do better each and every day. This is an ongoing work in progress.
10.
THANK YOU TO THE MEOTA BOARD MEMBERS AND STAFF
This is my most important function. On your behalf, I would like to thank our 2014 Board members.
All of us are members of your community and we carry strong convictions and beliefs that a locally
owned and managed rural gas co-operative can best serve the interests of our community. We are all
pleased and honoured to contribute our time and efforts to support Meota.
This is also the appropriate place to publicly recognize and thank certain individuals whose
contributions during the past year have been exemplary.
In particular, I want to recognize and thank Gwen Blatz and Lloyd Prefontaine who took on the
additional responsibilities for our staff committee to address a number of the serious issues that arose
with office administration and HR management during the 2013. Part of their mandate included
designing a new HR framework for the future.
Unfortunately, in June, Lloyd Prefontaine had to resign from your board as he moved to Edmonton for
personal reasons. Lloyd was a strong supporter of Meota and an incredibly hard working member of
your board. He will be sorely missed. Thank you, Lloyd.
I am pleased to announce the appointment of Brian Hayes to fill the vacancy created by Lloyd`s
departure. Meota is extremely fortunate to recruit Brian. In very quick order, he assumed major
responsibility for revising and updating the HR policies with Gwen and together with being new insight
to the task, he has been a tireless volunteer in ensuring it gets completed and implemented. Thank you,
Brian.
In addition, I want to publicly thank Bruce Gordon for stepping up to act as Interim Manager in
January through to the end of March 2014. Bruce’s efforts were key to restoring and maintaining an
atmosphere of stability during this difficult transitional phase. Thank you, Bruce.
I would be remiss if I did not also acknowledge the enormous effort of Gwen Blatz in completing the
research, assembly, editing and completion of the book for Meota’s 50th Anniversary that is the
cornerstone of our recognition to those of our community who had the wisdom, the fortitude and the
raw determination to start and build Meota from scratch.
7
This book of our history should become one of the endearing records of what it took to build this
province and make it the place we call home today. I encourage you all to read it and to reflect on what
you too can do to continue to build a better community for our future. These are the stories of ordinary
people who achieved exceptional things. We, today, are the beneficiaries. Thank you, Gwen.
With sadness I also wish to acknowledge the passing in December of one of our strongest builders
during those first 50 years. John Ogilvie was our Chairman for 20 years. I had the privilege of serving
with and working closely with John for my first few years on your board. He stick handled several
difficult tests that faced Meota, first with the attempted sell-out to ATCO in the 1990`s, then the
proposed amalgamation with Cochrane Lakes Gas Co-op and later with Sunshine Gas Co-op. He also
served as Zone 7 Director on the Federation of Gas Cooperatives of Alberta and was made a Lifetime
Member for his contributions. He was a builder, and Meota is fortunate and much indebted to his
tireless efforts on behalf of Meota. John was 94.
This is also the place to recognize and say thank you to all of our staff. Our field service side continues
to be ably run by Dave Gardiner and Kelly Johnson, our apprentice gas fitter. With our small staff,
responding to and maintaining our system in top shape is a challenge that requires dedication and
commitment. Thank you for your efforts and your support.
Michelle Runge keeps our office running, our billing up to date and our accounts in order. Fortunately
for Meota, Michelle survived the turmoil of 2013. Thank you for sticking with us.
As your Chairman over this past year, I am glad the turmoil of the 2013 and early 2014 are behind us.
We have emerged stronger and better. I am particularly grateful and extend my personal thanks to
both your staff and to your Board members for their time, their effort and the support.
You are privileged to have such a strong, capable and dedicated Board and staff to manage Meota’s
affairs. Without their time and dedication, Meota’s day to day operations could have been seriously
compromised.
In closing, Meota began as a community-based organization and it remains as such. 52 years and still
going strong.
On behalf of the Meota Board of Directors.
Richard Hillary, Chairman
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