Inland Power & Light Co., the Spokane-based electric cooperative, posted net margins of $2.1 million last year, down sharply from $5.8 million in 2011, when it had a one-time beneficial change in how it's billed for the power it provides.

The co-op said a revision in how Bonneville Power Administration charges Inland Power provided an unusual boost to net margins in 2011 as compared with the previous year.

Inland Power also had higher administrative costs last year that affected its net margins. For the nonprofit co-op, net margins are the equivalent of a for-profit company's net income.

Chad Jensen, the co-op's CEO, says Inland Power had a good year overall with reported operating revenue of $61.1 million, up 3 percent from $59.3 million a year earlier. Also in April 2012, Inland Power implemented a 6 percent rate increase to cover the cost of a wholesale power rate increase that BPA enacted in October 2011.

"We have no rate increases planned for 2013," Jensen adds.

However, he says the co-op's administrative costs jumped significantly, up to nearly $9 million from $5.4 million in the prior year, in part due to higher costs for employee medical and retirement plans, which rose more than 11 percent and 8 percent, respectively. The co-op has slightly more than 100 employees.

Also, Jensen says Inland Power is expensing more of its costs against the books in the current year, rather than applying an accounting principle that allows some expenses to be spread out over several years, he says.

For example, he says government regulations require that the co-op fully fund its retirement fund by 2017, meaning it would have enough in the fund at one time to pay for the retirement of all its employees.

"What it required was a contribution to the fund, because the fund had been underfunded," Jensen says. "We could have expensed that over the next 10 years. We chose to expense that this year because we see other expenses coming up for the renewable energy standards. We want to bring rate stability and minimize rate increase to our members over the next 10 years."

Inland Power's total cost of electric service in 2012 was $59.4 million, up 10 percent from $53.8 million in the prior year. The co-op's total assets at the end of last year were $151.5 million, up about 1 percent from $150.2 million a year earlier.

The co-op added 285 new customers and completed some equipment upgrades, Jensen says.

Jensen says Inland Power invested $8.5 million in poles, wires, transformers, and equipment needed to transport electricity from its substations to customers. Of that amount, about $3.5 million went toward building a Day Mount Spokane substation near the road by that name in Mead that became live last August, he adds.

"That will give us a lot of reliability up in the northern part of our system," Jensen says.

He adds, "We invested $1.2 million in general plant, vehicles, power tools, and safety equipment."

In December, the co-op refunded $1.25 million in what are called capital credits to its members, which is the same amount it had refunded the year prior. Its overall membership is at 38,640, Jensen says. Capital credits are sums returned to members in the form of checks out of any revenue surplus above what the cooperative needs to cover operating expenses and capital expenditures.

The co-op 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.

Jensen says the co-op expects the rate it pays BPA to go up by this fall, although the exact percentage increase isn't known yet. "The rough number they're telling us is in the high single digits."

He adds, "Our wholesale rate will probably increase in the fall. We are not going to pass that along right away. We'll look at the impact and whether to pass that on in April 2014."

He says that Inland Power is bracing for cost impacts from the renewable energy initiative Washington voters passed in 2006, requiring larger utilities in the state to obtain at least 15 percent of their power from certain renewable resources, such as wind, solar and biomass, by 2020. It cost Inland Power $208,000 last year to buy renewable energy credits from a wind developer, to meet a 3 percent threshold required by 2012, Jensen says.

For 2013, its renewable energy cost is projected at around $210,000. By 2016, with a 9 percent renewable energy requirement, "We project that cost will jump to $1.2 million," Jensen adds.

By 2020, with a 15 percent renewable power requirement, it projects a nearly $2.2 million cost, he adds. He says the co-op is working in Olympia, "trying to get some relief from some of the renewable energy requirements. That's going to impact rates in the future."

"We're getting ready for these increasing costs, so we chose to expense the retirement costs last year," he says. "We've implemented a task force to take a hard look at how to reduce future costs of medical and retirement that are rapidly going up."

He adds, "Construction is down, but our expenses are still there. When we aren't building as many services as we have in the past, then we expense those expenses now rather than capitalize them over many years."

Jensen became CEO in May, after serving as vice president of Lower Valley Energy, an electric cooperative in Afton, Wyo., where he worked for 22 years. Kris Mikkelsen, Inland Power's longtime CEO, retired in spring of last year.