SHARING GENERAL MANAGEMENT SERVICES -- LESSONS LEARNED.

• Author: Tirpak, Michael D.

I have just completed a two-year chapter of my life that was without a doubt the most challenging period of my career. I would like to share some of the highlights of this experience and identify some of the lessons I have learned along the way that may be of benefit to others who follow on a similar path.

Background

Two years ago in January of 1998, news traveled quickly that a sister cooperative in Pennsylvania, Southwest Central REC (Southwest) in Indiana, Pa., was in search of a General Manager due to the resignation of the incumbent. My board of directors at Northwestern REC and I had been talking for some time about working closer with other cooperatives to hold down future costs. Contact was made with the Board President of Southwest and interest was shown in the idea of sharing a General Manager. Opportunities were discussed and negotiations proceeded which resulted in the development of a General Management Services Agreement (GMSA) which began in April 1998.

The GMSA retained me as an employee of Northwestern and as a contracted "GM" for Southwest.

The year 1998 was a critical period for Pennsylvania electric utilities due to the January 1, 1999 implementation of Act 138, the Pennsylvania Electric Competition Law. Compliance with the new act required serious attention and considerable efforts from employees, management and the boards. In addition, the Pennsylvania cooperatives G&T, Allegheny Electric Cooperative (AEC), was in the midst of intense negotiations with the Rural Utility Service in Washington, DC, over its future long term debt repayments for a nuclear generation plant.

These issues plus the growing pressures to diversify our distribution business proved 1998 an ideal time to enter into a GMSA.

Pros

The pro arguments for the GMSA are as valid today as they were two years ago when we completed our negotiations for this new relationship.

Cost savings was near the top of the list as sharing salary, benefits, and expenses would result in a positive cash flow for both cooperatives. Southwest would have more first-year savings because of the ability to ayoid the extra costs of a management search and the associated first-time costs of hiring a General Manager.

Time savings was another very important issue for Southwest as I would be able to hit the ground running at full speed, where a management search would have taken many months of valuable time to complete while the countdown to electric competition was looming larger by...