Inland Power & Light Co., the Spokane-based electric cooperative, says its net margins—equivalent to net income—fell about 30 percent to $3.2 million last year, due partly to sharply higher service-related costs because of severe winter weather.

It boosted its revenue, though, by nearly 6 percent to a record $52.9 million, added 600 new customers, and refunded $1.5 million in what are called capital credits to its members, which was $250,000 more than it refunded in each of the four previous years.

"We had a pretty good year," says CEO Kris Mikkelsen.

Mikkelsen says, though, that she expects slower power-sales growth this year, due partly to the stagnant housing-construction market within the multicounty Inland Northwest area the co-op serves, and adds, "We're continuing to see increasing costs in virtually every area of our business, not the least of which is power supply."

Inland Power will be forced to raise its rates either later this year or early next year, depending on the size of an anticipated increase in the wholesale price the co-op pays the Bonneville Power Administration for power, Mikkelsen says.

Inland Power is what's called a "full requirements" customer of the BPA, meaning that the BPA, which markets the electricity generated by the Northwest's federal dams, provides all of the co-op's power requirements at cost-based rates.

The BPA announced last month that it likely will need to raise its rates Oct. 1—its first rate increase in six years. Initially, it projected a wholesale power rate increase of 9.4 percent, but the proposed increase is subject to an extensive public review process, and the percentage of the rate increase might change before the BPA makes a final decision on it in July. Mikkelsen says that since releasing its initial estimate, the agency has been suggesting rates potentially could rise 15 percent or more.

In a letter sent to its customers last month, the BPA says that due to the economic downturn, it now expects to take in just $100 million from surplus power sales in the 2009 federal fiscal year that began last Oct. 1, down 75 percent from the $400 million it projected at the start of the fiscal year. It uses revenues from those sales to keep rates low for its Northwest customers.

Meanwhile, though, Inland Power has decided to participate in a nonfederal power pool through which it hopes to meet at least half of its future energy needs, Mikkelsen says. The group forming the pool is approving organizing documents now, and the pool should be up and running by next month, she says. Members of the pool hope to achieve economies of scale by buying power jointly.

Inland Power's annual net margins have fluctuated over the last six years, but haven't slipped below $3 million during that time. Mikkelsen says they were hurt last year by about $1.5 million in unforeseen expenses related to heavy winter weather in January 2008, which downed numerous power lines and caused substantial outages, and then additional high costs in December.

She says the co-op's $2.8 million in higher revenue was due partly to record power sales, up nearly 4 percent over 2007, and also because 2008 was the first full year of a rate increase that went into effect in April 2007.

The $1.5 million in capital credit payments that Inland Power's board refunded to members, after a review of 2008 operating revenues, is the largest amount it has paid out in its 71-year history. Capital credits are sums returned to members in the form of checks out of any revenue surplus above what the co-op needs to cover operating expenses and capital expenditures, and can be seen as similar to the dividends investor-owned utilities pay to shareholders.

In regard to how the latest refund amount was set, Mikkelsen says, "There is no exact science associated with this. The board's decision was based on a desire to continue to provide our members with meaningful refunds to reinforce the cooperative business model. The checks we send each year are the best tool we have to remind our members that they are served by a cooperative."

Meanwhile, Mikkelsen says Inland Power expects to move its administrative offices in August into a new headquarters building it's constructing on the West Plains. Its administrative offices currently are located in a 20,000-square-foot building at 320 E. Second, which it has occupied since 1951.

It has been seeking to sell that building and a smaller, adjacent building at 355 E. Third, most of which Inland Power leases to Horizon Credit Union, for about two years, but due to the soft real estate market, it now is willing to lease the property out instead, Mikkelsen says.

Inland Power has about 37,800 members, located mostly in rural areas. Its total assets at the end of last year were $129.3 million, up 12 percent from $115.1 million at the end of 2007.