The 99th “Rest Of” Power Plant Post
Originally posted 7/25/2015
Many years ago in my earlier days as a Power Plant Electrician while working on Relays at the coal-fired Power Plant in North Central Oklahoma, Ben Davis, a plant electrician and True Power Man introduced me to one of his favorite Rock and Roll Bands, the “Dire Straits”. One of their hit songs is “Money For Nothing.” About 14 years later, the Power Plant Men learned exactly how to make “Money For Nothing” and other “Money Matters”!
Albert Einstein was once asked what the greatest miracle known to man is, and he replied “Compound Interest”.
One day at the Power Plant our timekeeper Linda Shiever invited a Financial Planner to come to the plant and talk to the Power Plant Men about the importance of planning ahead for your retirement. This may have been the first time many of the Power Plant Men had ever heard of such a thing as “Compound Interest”.
To a Power Plant Man, “Compound Interest” sounds more like “paying close attention when you pound something with a sledge hammer”.
The Financial Planner explained to the Power Plant Men that it is important to begin planning for the future early in your life. He gave us a sheet of paper titled “Put the Magic of compounding to work for you.” It showed how someone 25 years old investing in the stock market (S&P 500 which averages 10% annually over time) by putting $2,000 in something that gives you a 10% return for 8 years, and then stops, while another person waits 8 years until they are 33 and spends the rest of their life putting $2,000 into the same stock market they will never have as much as the person who only put in $2000 for 8 years beginning when they were 25 years old.
Let me explain this a little more: Using compound interest at 10% rate for his example (since that is what you receive in the S&P 500 over time), he showed that the person that invested $16,000 beginning at 25 years old and adding $2000 each year for only 8 years will have a net earnings of over $1,000,000 by the time they are 71 years old. Yet the person that waited 8 years and invested $78,000 by adding $2,000 each year until they are 71 will only have a net earnings of $800,000. The importance was that compound interest works best when you start early.
This is a great lesson to learn. The problem was that the majority of the audience was already well over 40 years old. There may have been one person in the room that was 25 years old, and that was only because they weren’t telling the truth about their age.
On Friday, September 6, 1996 a group of us from the plant were told to show up at a hotel conference room not far from corporate headquarters to attend a meeting that was called “Money Matters”. The other phrase they used to describe the meeting was that it was a “Root Learning” class. The reason it was called Root Learning was because the company that put the class together for the Electric Company was called Root Learning.
When we arrived, we were told which table we were going to sit. Bruce Scambler was the leader of the table where I was appointed to sit. When we were assigned seats, it was in a way that the Power Plant Men were spread out across the tables, so that we were each sitting with people from other departments in the company. I supposed right away that this was so that we could maximize the spread of the Power Plant culture to others.
This turned out to be a class about how the company has problems that need to be resolved. When the class began the leader placed a poster in the middle of the table. It showed a picture of a canyon. The workers were on one side and the leaders were on the other with the managers stuck in the middle. It was very similar to this picture:
This was an ingenious representation of the problems the company had with the management structure. The poster we had was customized for our particular company.
We talked for a couple of hours about how we could bridge the gap between management and the workers. What were some of the barriers in the tornado that kept destroying those bridges…. etc.
The following year on September 24, 1997, we attended another meeting in Enid Oklahoma where we learned about Shareholder value. The leader of my table this year was a young man from HR at Corporate Headquarters (I’ll mention this guy in a later post). This topic made more sense as it really did talk about Money this time. This time the maps they showed us had race cars on it which showed the different competing electric companies. Something like this:
Being the main electric company in the state, our truck was on the Regulated track. Some of the electric providers had figured out a way to go the unregulated route. Our company kept looking for ways to get on the unregulated road by offering other services that were not regulated. After looking at the poster that looked similar to the one above for a while and talking about it, we moved on to the next poster:
Even though the chart is the main part of this picture, most of the discussion took place around the “Expense Street” section in the picture. There was an added pie chart that was on a card that was placed on this street which showed how the expenses of the company were broken down.
The main expense for the company was Fuel. I want to say that it was close to 40% of expenses. Taxes was the next largest expense for the company. It made up somewhere around 30% of our total expenses. The rest of the expenses were the other costs to run the company. Employee wages made up around 8% of the total expenses for the company.
It was the job of the leader at the table to explain that the cost for fuel was pretty well fixed, so we can’t do anything about that. We also can’t do anything about how much taxes the company pays. We didn’t have control over the supplies and other costs the company buys. So, the bottom line was that the little sliver of expenses for the company that represented “Employee Wages” was really the only thing we can adjust to increase shareholder value…..
What? Run that one by me again? We were a 3 billion dollar revenue company. We had around 3,000 employees which we had reduced to around 2,000 employees when the Corporation Commission cut how much we could charge for electricity, and now you’re saying that the only way to keep the company afloat is to “adjust” employee wages because 92% of everything else it “out-of-bounds”? I think you can see why we spent a lot of time discussing this… This turned into a pretty lively discussion.
Learning about the “Time Value of Money” can be very helpful. I had a financial calculator that I kept at the plant. One day one of the Power Plant Men came to me and asked me to figure out how they could buy a Harley Davidson Motorcycle. Earl Frazier said that he could only afford something like $230 per month and the wanted to buy this motorcycle. How would he do that? The motorcycle cost something like $38,000 or more. I don’t remember the exact details.
Sounds complicated doesn’t it? How does a Power Plant Man buy a Harley Davidson for only $230.00 per month with only a four year loan? Earl had heard that I knew all about the “Time Value of Money” and that if there was a way, I would be able to tell him how to do it. His parameters were that the cost of the motorcycle was $38,000 (I’m just guessing as I don’t remember the exact amounts), and he could only pay $230 each month.
Well. Even with a no interest loan, it would take over 13 years to pay for the motorcycle. So, my only option for solving this problem was to pull out my financial calculator:
This calculator allowed me to find the monthly payment quickly for a loan at a specific interest rate over a specific number of months. So, I worked backward from that point. I told Earl to come back in a couple of hours and I would let him know his options.
When Earl returned, I had his answer…. I told him this…. Each month he needed to begin putting his $230.00 into an annual CD at the bank for 5% (yeah… they had those at that time). In two and a half years, he would stop doing that. And just put his money in his regular checking account. Then 9 months later, he takes the money in his checking account and buys the Harley Davidson. This way he would put 10% down up front (because CDs would have been rolling into his account also).
Then, each month, as his CDs became available, he would roll part of them back into another year, leaving out a certain amount each time to supplement the $230.00 he would still be paying each month for his motorcycle, since his payments would be significantly higher than that. Then exactly after 4 years, he would have used up all of the money in his account just as he would be paying off his motorcycle. This would only work if he could get a loan for the motorcycle that charged 3.7% interest rate or less which was a reasonable rate at the time.
Earl responded by saying, “You mean I will have to wait 3 years before I can buy the motorcycle?!?!” Yeah. That was the bottom line… and by the end of it all, he would have to pay for the motorcycle over a 7 year period when it came down to it. He wasn’t too happy about having to wait, but that was the only way he could do it for $230 monthly payments.
Here is a side story… A few years later when I went to work for Dell, we also had Root Learning classes there as well. Here is one of the posters we used during the class:
In this picture, Dell is the big boat at the top. When I walked into the class I recognized the style of the poster right off the bat. Oh! Root Learning! This will be fun. These types of classes were a fun way to express the realities of the business and the obstacles they have to overcome to achieve their goals.
I still remember the leader at our table 13 years later. His name is Jonah Vaught. I worked with him about 5 years after that class. I acted like I knew him, and I could tell that he was wondering where we had met. So, I finally told him…. “You were the group leader when we were doing that Money Matters class back in 2002.”
End of Side story….
Now when I listen to the Dire Straits’ song “Money For Nothing” (like Paul Harvey’s “Rest of the Story”) you know what goes through my mind… First sitting in the switchgear working on relays with Ben Davis listening to Rock and Roll on the radio (see the post: “Relay Tests and Radio Quizzes with Ben Davis“).
Secondly, I remember the Power Plant Men learning the “Time Value of Money” in a fun way that kept them interested.
Thirdly, I remember Charles Lay finally realizing when he was 63 years old that he was going to have to work the rest of his life because he hadn’t been saving for retirement…. See the post “Pain in the Neck Muskogee Power Plant Relay Testing“). Some times when you learn about the Time Value of Money…. it’s too late to do anything about it because time has already run out.