Midwest Energy, Inc. is a customer-owned energy company. Midwest Energy has repeatedly achieved greater economies of scale, benefiting its members through low and stable rates. The company has been enriched by employees with a broad range of experience in many predecessor companies. Our employees have become versatile and highly skilled. Midwest Energy has crossed the boundaries most would have drawn around a small rural electric cooperative. As the Company has grown, it has brought the values of member-ownership to tens of thousands of customers who had no voice.
From small, early steps to provide rural customers with affordable, reliable electric power, Midwest Energy has moved to broaden the services it provides and promote the development of western and central Kansas. With a growth-oriented, entrepreneurial outlook, Midwest Energy has thrived in a challenging environment. These achievements were driven by some special people, the General Managers, board members and employees who have been and are Midwest Energy.
It all began when Central Kansas Electric Cooperative was incorporated in 1939. Its mission was to provide electric service to customers in the rural areas surrounding Great Bend, Kansas. W.J. Groh managed the cooperative from 1940 to 1951. Mr. Groh worked with nine board members. From its earliest days, CKEC focused on growth, innovation and tenacity to provide good service and affordable prices to rural customers. Economies of scale began to take hold during World War II. The company purchased The Utility Service Company (USC), of Hoisington, Kansas on February 25, 1944. USC, a private entity, had obtained the first REA loan in Kansas on July 1, 1937. Interestingly, USC would not connect rural customers until they had an electric water heater, range and refrigerator. For several years thereafter, customers on the former USC lines consumed considerably more electricity than other customers. Other early acquisitions included Cities Power Company in the Hanston and Kinsley, Kansas areas, parts of Kansas Power Company northwest of Great Bend, Kansas, and portions of rural properties operated by the towns of Ellinwood, Seward, LaCrosse and Hoisington, Kansas. These acquisitions set the small coop apart from others throughout the country.
In 1951 Jack Goodman was named Manager, and served the cooperative until 1992. Mr. Goodman was born in Topeka and was a 1943 Graduate of King's College/London University in London, England with a degree in civil engineering. He spent two years in the Army before returning to Topeka to work for Flora Engineering. In 1946 he was named General Manager of Leavenworth-Jefferson Rural Electric Cooperative in McLouth, Kansas, working there until he joined Central Kansas Electric Cooperative.
In 1952, Lavern Becker was elected to the Board of Directors. Mr. Becker's election was a milestone in the company history. Mr. Becker was a successful and widely respected farmer stockman and oilman. He and Mr. Goodman used their diverse business expertise to build a shared vision of efficient operation, expanding the customer base and expanding the services provided customers. They recognized that growth and cost control could be pursued together, capturing greater economies of scale and benefiting all customers. Mr. Becker was named Chairman of the Board in 1972 and held that office until 1991.
CKEC paid rigorous attention to cost control. As an example, for many years its service trucks were painted yellow like the trucks of almost all other Kansas electric cooperatives. But in the 1970's, an astute operations superintendent changed the trucks to white (as Midwest Energy's are today). The reason for the difference: factory-delivered vehicles were already painted white, saving the cost of a paint job.
CKEC also understood the value of partnerships, and the need to periodically change the way it does business. In the early 1960's CKEC relied on a service bureau for a variety of its data processing needs, realizing it was too small to provide such functions for itself. Later in the decade, CKEC as lead partner joined with three other customers to acquire ownership of the service bureau. Through the 1970's, the partnership prospered. Then, to meet the increasing needs of its rapidly growing customer base, CKEC took full control of the service bureau, converting it into the Information Technology department.
CKEC's greatest accomplishment under Messrs. Goodman and Becker was the acquisition of an investor-owned utility, Central Kansas Power Company (CKP), for approximately $17.5 million. CKP had been serving customers as a subsidiary of United Telecommunications, Inc. and its predecessors since 1924 and was a successful growth story in its own right. (United Telecommunications was more commonly known as United Telephone, and today is known as Sprint Corporation.) Although a Sale Agreement was signed on October 19, 1977, the transaction did not close until February 16, 1981. The form of closing resulted in CKEC merging into CKP, with the surviving corporation being renamed Midwest Energy.
Part of the delay was driven by opposition from other cooperatives who either wanted to purchase the CKP properties themselves, or who thought it was improper for a cooperative to buy an investor owned utility. The disgruntled coops took their grievances to the Rural Electrification Administration, putting that agency in an awkward situation. The REA ultimately blessed the acquisition, but the company learned a lesson about the dangers and obstacles of being government-funded.
Post acquisition there were several other obstacles to overcome for the new company, including operating a natural gas division (becoming only the third known cooperative in the United States to enter this business), combining two workforces into one efficient entity, locating and purchasing electricity for the larger customer base and moving the corporate headquarters to another city. Most significantly, the company had tripled in size. At the time of the acquisition, CKEC had only 7420 customers and 62 employees, compared to the 15,580 customers and 170 employees of CKP.
The acquisition also created new opportunities. Beyond the economies of scale in operation, Midwest Energy was now large enough to attract the interest of a variety of wholesale power providers. Indeed, a driver for the acquisition was Mr. Goodman's perception that CKEC's existing provider, a forerunner of today's investor-owned utility Aquila, was overcharging it. Today, Midwest Energy routinely buys electricity from at least a half dozen different suppliers to supply its 308 MW peak load.
This acquisition was only the beginning for the new company now named Midwest Energy, Inc. Mr. Goodman and the board grew the company through a series of small acquisitions during the mid-to late 1980s. In 1986, the electric distribution system and generators in the City of Ellis, Kansas was purchased. Four employees and 1,000 electric customers were added. Midwest Energy already provided natural gas service in Ellis. In 1988, the assets of Great Plains Electric Cooperative in Colby, Kansas, were acquired. This brought nearly 4,000 more gas customers and 20 employees into the organization. Over the next 10 years, rates paid by former Great Plains customers dropped by over 40%.
Two more natural gas systems, Producers Gas Equities and Rural Gas Equities, were purchased in 1990 at a cost of $551,000. While adding only 2000 customers and seven employees, these acquisitions nearly doubled natural gas throughput. Their primary load was engine driven oil field pumping units that normally run 24 hours a day.
At this time the company decided to focus on energy delivery services. To sharpen that focus, the company decided to decommission about two thirds of its electric generating capacity. This decision was necessary because the old power plants would have required $15 million in upgrades to continue to operate. Even though by now there were two generation and transmission cooperatives in the state, Midwest Energy chose to remain independent. The costs of energy from the G & T's were more expensive than costs under independently negotiated contracts. At the time of decommissioning, Midwest Energy secured an additional 60 MW of capacity from Westar Energy to replace the retired generation. Affected employees were offered equivalent positions with Westar Energy, providing them with new opportunities for career advancement. Midwest Energy retains 31 MW of generation for emergency and peaking use.
In 1992, Gene Argo became President and General Manager. Mr. Argo had already enjoyed a distinguished 23 year career with Pacific Gas and Electric Company, and had worked from the ground up to several senior management positions. Mr. Argo worked in partnership with the Midwest Energy Board and Chairman Ken Braun to professionalize the Company's business planning processes. Mr Braun had joined the board in 1983 and had succeeded Mr. Becker as chairman in 1992, serving in that role until 1999. Mr. Argo provided utility operation and management expertise while Mr. Braun brought a business and accounting perspective to the Board of Directors. Mr. Braun retired from the Board in 2002. Mr. Argo retired at the beginning of 2004.
An example of a business focus was Midwest Energy's declaration of independence from the Rural Utilities Service (successor to the REA) by refinancing all of its RUS debt with a private lending institution in 1995. Almost 20% of rural electric cooperatives are now "independent borrowers" like Midwest Energy, and enjoy greater management flexibility and speedier decision-making as a result.
During Mr. Argo's tenure, Midwest Energy doubled in size. The company purchased another small natural gas company in 1997, serving Wilson and Dorrance, which added another 500 customers. Then in April of 1998, the company purchased the Kansas natural gas distribution system from KN Energy, Inc. of Lakewood, Colorado for $24 million. This was by far the largest single purchase in the company's history. Nearly 31,000 new natural gas customers in western Kansas were added. With this acquisition, 57 employees were added to the workforce.
More growth occurred in the summer of 2003, when Midwest Energy purchased certain assets from Westar Energy, Inc. These assets included transmission lines, as well as distribution lines that fit logically into the southeastern portion of the Midwest Energy service territory. 10,000 customers were added to Midwest Energy, along withg five former Westar Energy employees. The company hired 10 additional employees to replace those who left the area after the acquisition.
The constant addition of new employees from other companies allowed Midwest Energy to remain fresh, innovative and entrepreneurial. This versatile and highly-skilled workforce combined with continued, innovative deal making allowed the company to serve more customers with electricity and natural gas service at lower rates. Midwest Energy's natural gas delivery rates are now the least expensive of all natural gas companies in the state. On the electric side, a small increase (less than one percent) was granted in 2003, the first electric rate increase in 13 years. Midwest Energy's average electric rate of 7.6 cents per kWh compares very favorably with the average 8.51 cents per kWh rate charged by all Kansas cooperatives.
Midwest Energy retains the look and feel of a local cooperative across its 41 county service territory. The company provides customer service through representatives at ten local offices throughout the service territory, and maintains operating personnel at over 30 locations. All of this is accomplished with 274 employees, an average of 321 meters per employee.
Safety is the number one priority for both employees and the public and a prerequisite for everything else that is done. Midwest Energy has a nationally recognized safety record, due in no small part to employee and public training programs. The natural gas operating group in Hays has completed 15 years of operations without a lost-time accident. The company has received numerous safety awards from state and federal agencies and 11 annual Safety Awards from the industry group called the Midwest Energy Association.
Midwest Energy's Vision Statement is "to be the preferred supplier of valued and innovative products and services which continually enhance the quality of life." This has drawn Midwest Energy to be a leader in bringing satellite television, propane, PCS telephone and natural gas marketing services to customers throughout central and western Kansas. The satellite television business was at the forefront in the 1980's and has since been sold.
The gas marketing subsidiary, Midwest United Energy, provides natural gas marketing services for both large users and residential customers. Based in Lakewood, Colorado, MUE supplies natural gas across a four state region: Colorado, Kansas, Nebraska and Wyoming. MUE is one of the largest suppliers to residential and small business customers in Wyoming.
In late 1999, Midwest Energy and Pioneer Communications in Ulysses, Kansas formed an L.L.C. subsidiary to provide digital PCS telecommunications service to western Kansas. The company, called WestLink Communications, became operational in mid-2000, and is run today by a former Midwest Energy lineman. In 2003, Midwest Energy sold its share of WestLink Communications to Pioneer Communications, using the proceeds from the sale to add to the core business of electricity and natural gas.
In mid-2000, Midwest Energy and eight farm cooperatives formed another L.L.C. subsidiary to provide propane services to rural customers in western Kansas. The company is known as WestLand Energy and provides propane, leak checks on customer systems, safety information and contracting services.
Midwest Energy's non-utility business interests are housed within its wholly-owned subsidiary, Midwest Development. This subsidiary has a broader charter to promote economic development within Midwest Energy's service territory.
Midwest Energy's history, like that of Kansas, is the story of triumph over adversity. Depression, depopulation, drought and the decline of oil and gas production present a never ending series of challenges that bring out the best in people. The company is a compilation of many different companies, but still thrives today as one of the best managed companies in the state. This is evidenced by the recognition of the company with the 1999 Kansas Governor's Award of Excellence, honoring one of the state's outstanding existing businesses, and presented by Kansas Governor Bill Graves. This recognition is very unusual for a utility.
The Midwest Energy of today would be unrecognizable to the founders of CKEC 65 years ago, but its focus remains the same. It is the largest electric cooperative in Kansas and believed to be the largest natural gas cooperative in the nation. Yet Midwest Energy exists only for its customers, and to improve their lives. Earnie Lehman, President and General Manager effective January 2004, brings 27 years of electric and natural gas utility experience in Kansas, Texas and Washington, D.C. He works with Midwest Energy's nine member Board of Directors to carry the Company forward. As we reflect on the company's past accomplishments, we see bright prospects for its future.