The pace of change in the utility world is unprecedented. We continue our efforts to maintain a reliable, affordable, safe and resilient energy delivery system despite significant headwinds.
Federal disaster funding has diminished since our 2024 report, at least in the near term. A slow-down in FEMA reimbursements to Midwest Energy for severe storm damage is easing, but as of year-end, a backlog of nearly $28 million in FEMA receivables remained. Decreased funding for future events remains a possibility, but suggestions of complete elimination of FEMA have generated broad opposition across the country..png){kind=icon}
Transmission reconstruction supported by the $97 million Grid Resilience and Innovation Partnerships (GRIP) grant announced in late 2023 is underway, with two substation upgrades energized and the first 25-mile segment of rebuilt 115 kV line from Ness City to Nekoma completed. Work on the Colby to Atwood segment will begin this year, along with work in two substations. Federal 'Build America, Buy America' requirements complicate materials purchasing under this grant because some line and substation components are not available from U.S. suppliers.
Total electric load in the Southwest Power Pool is forecased to double in 10 years, driven by new data centers, electrification of large oil pumping loads, and re-shoring of manufacturing to the U.S. The SPP's 2025 Integrated Transmission Plan included a directive for Midwest Eenergy to rebuild about 16 miles of 230 kV transmission line. A late-year change in SPP's cost allocation methodology results in customer benefits, even with estimated costs near $45 million. Changes in transmission cost allocation have been a Midwest Energy advocacy priority for several years.
Rapid electric growth in the SPP region increases the likelihood of higher energy and capacity costs. Midwets Energy successfully extended a capacity agreement with favorable terms last September, allowing more time to consider longer-term alternatives. Review continues on other generating capacity arrangements. Voluntary reduction of custoemr loads in exchange for bill credits is one means to reduce total generating capacity needs. A 2025 pilot program involving 305 irrigation accoutns demonstrated teh ability to beneficially modify load shapes. That program continues in 2026. A number of improvements continue on generating units in Colby and Hays to maintain their availability as the SPP enforces Performance Based Accredidation and continues to increase planning reserve margin requirements.
Natural gas customers have the potential to be negatively impacted by growing electrical loads for two reasons. More natural gas fueled generating plants are consuming available interstate pipeline capacity. Thus, we expect more demand for existing and new pipeline capacity, which will likely resluts in higher interstate pipeline rates. Likewise, the additional demand for natural gas as a generating fuel will increase the price of the commodity. On a positive note, we expect construction to start this year on the 68-mile distribution pipeline replacement project in Barton, Ellsworth and Russell counties, funded by an $8.08 million grant from the Pipelines and Hazardous Materials Safety Administration.
Management's proposal to increase electric revenue by $14.7 million was approved last November. To mitigate bill impacts, for the first time the Board opted to phase the increase in over three years. Electric rate design continues to evolve based on the costliness of system capacity, including generation, transmission, and distribution facilities. Midwest Energy's billion processes were modified with the rate change to take advantage of the State's sales tax exemption for delivery services, which now provide total savings of about $2.5 million per year combined for electric and natural gas customers.
Midwest Energy implemented two technology options for our members' convenience in 2025. An update to the online billing and payment portal includes the addition of digital wallets for payments including PayPal, Venmo, Apple Pay and Google Pay. An online voting option was added for the 2025 Board of Directors election.
Cybersecurity efforts continue as a critical busienss requirement. Readiness assessments completed in 2025 include two tabletop exercises, a third-party penetration test and a disaster recovery exercise. Security advancements were made in vulnerability scanning, password protection, firewall audits, network segmentation, device patching and on/off boarding processes for employees.
We are grateful for the diligence of our employees, who continue to perform with your interests in mind in all situations. Midwest Energy takes its obligations seriously as a critical public service provider. Without electricity and natural gas, the economy we enjoy would not exist. It is our privilege to serve you.
Patrick Parke, CEO
Dale Unruh, Board Chair