— by Don Webster —
Remember OPALCO? It was that friendly, financially conservative San Juan electrical Coop that did such a great job of supplying our electricity at rates below much of the nation. It had the foresight to take the initiative to bury most of its transmission lines to improve reliability and also to include fiber optic cable in its main lines. Somewhere along the way its leadership and BOD decided to become the big fish in the direct-to-consumer provision of broadband services here in the islands and to do so without member support.
Back in early 2013, OPALCO made a proposal to utilize its broadband infrastructure to allow improved broadband connectivity. OPALCO would provide the backbone and the ISP businesses (such as Rock Island and Orcas Online) would deliver the service to islanders. Early adopter sign-ups were solicited to determine the interest amongst OPALCO members. Approximately 900 members or 8% of the membership committed to the program. This commitment level was massively short of the startup criteria (5100) and the plan was abandoned. But wait! Although the vast majority of members did not support this internet proposal, the OPALCO BOD and management continued to toil away on an internet development.
In November 2013 the OPALCO BOD decreed: “OPALCO shall accelerate expansion of our local member-owned, robust and reliable high-speed data infrastructure to provide Internet, phone and emergency communication services to our members”.
2014 and the OPALCO BOD continues on its track of questionable decisions. The BOD selects Mr. Hildreth as the new OPALCO General Manager after concluding that it did not need to do an Executive Search to find the best candidate for the position. There is nothing wrong with promoting from within but it should not have been done without undertaking the prudent due diligence of soliciting outside candidates and interviewing them prior to making a selection. This is particularly important when you have a small organization like OPALCO.
OPALCO also hires a Senior Consultant, Mr. Gerry Lawlor. His role was “Leading the business plan development and the go-to-market strategy for Island Network, a division of Orcas Power & Light Cooperative”. The Internet Business plan, dated December 31, 2014 envisages working with the local ISP businesses such as Rock Island and Orcas Online but also concludes that the ISP providers could not, on their own, roll out the program at the rate the OPALCO management and BOD desired. OPALCO decided that it needed to be a direct seller, a competitor to the local ISP businesses. Of course that means that OPALCO will shoulder more of the business risks. Note also that the Business Plan has a very vague Exit Strategy section with no apparent triggers or the projected cost to the membership if this new business should fail! Just a hand-wave at bottom-line risk management!
On February 19, 2015 (less than 2 months after the Internet Business Strategy was published), OPALCO suddenly announces it has purchased Rock Island Communications. Talk about something out of the blue! A deal put together in secret, without any public or member input. Certainly not something contemplated in the 7 week old Internet Business Plan. One may ask why the secrecy?
Why did OPALCO decide to be a direct seller in competition to the ISPs and later suddenly decide to acquire Rock Island? Lofty goals had been set for the number of subscribers that were required for the financial success of this broadband enterprise. First they made the decision to become a direct seller and compete with the local ISP businesses. More recently they recognized that even with direct sales by OPALCO they could not achieve their targets. To quote from an email I received from Mr. Lawlor defending the OPALCO actions “This is a service level that could not be met by any of the local ISPs including Rock Island without the investment been made by OPALCO. The subsequent decision to move ahead with a purchase of RI was driven purely by the economics and need to hire the necessary staff to support the client base.” That really doesn’t sound like an OPALCO comment. It sounds more like something CenturyLink would say.
So over time, OPALCO has morphed from a failed proposal to supply the high speed broadband backbone to local ISP businesses, to becoming a direct ISP competitor and ultimately buying the largest ISP in the San Juan Islands. What does that really mean to the remaining smaller local ISP businesses? Only time will tell but it is likely to diminish their ability to compete against the financial resources and marketing that OPALCO can muster. Competing against local private businesses doesn’t sound like the OPALCO I used to admire.
“to Morph”: To change gradually and completely from one thing into another thing usually in a way that is surprising or that seems magical. (Merriam-Webster Dictionary)
The “Morphing” of OPALCO. Surprising to me, certainly! Magical? I think not.
The OPALCO BOD has made a series of poor decisions starting when they decided to ignore the minimal member support (8% of members) for their original 2013 internet program.
• They simply found a new way to move forward, using in part monies from rate increases they have unilaterally levied against all members. Later they decided that rather than just supplying the high speed backbone they would become direct business competitors of the existing ISPs.
• The OPALCO BOD concluded that they did not need to see if any better candidates existed for the General Manager’s position. How do they know that if they don’t look at others? This is the top leadership role in OPALCO. Ultimately Mr. Hildreth is one of the two individuals (the other being Mr. Lawlor) credited by the OPALCO BOD with coming up with the Internet Business Plan.
• They hired a Senior Consultant (Mr. Lawlor) to develop the Internet Business Plan. The December 2014 Business Plan puts much of the financial risk on the back of OPALCO (and therefore its membership) instead of experienced broadband businesses. It lacks any meaningful exit strategy or risk assessment for the Cooperative.
• They decided to buy Rock Island Communications. That was not part of the 7 week old Business Plan but apparently their plan was already in trouble. They needed the resources of Rock Island to help them achieve their growth targets.
• The BOD loved the Business Plan enough to hire the Senior Consultant (Mr. Lawlor) as Executive Vice President of the newly acquired Rock Island. Sweet deal. Mr. Lawlor has assured me that “The community is desperate for an alternative for both data and voice service”. Now I am not certain how Mr. Lawlor measures desperation but to my knowledge there are only two data points. 8% of our membership was willing to sign up in the 2013 program. The 2014 OPALCO member survey which indicated that only 34% of the participating membership was dissatisfied with its current internet service. Neither data point is an indication of a “desperate community” on my scale and certainly not a mandate or endorsement by the membership to launch this program.
There is nothing magical about the morphing of OPALCO. The BOD, management and consultants are pushing ahead with their plans creating an undisclosed financial risk to the COOP without any indication of support from the majority of the members or a robust exit plan.
It is both sad and irresponsible. I believe at its heart most of OPALCO is still predominantly those hard-working, friendly folks who provide us reliable electricity. It has been taken over by a BOD and management who have their own agendas, ambitions and ignore the reality of what the membership wants and is willing to pay for. We, the members, are and will continue to be footing the bill when it fails.
All this member can do is vote with my wallet and my membership at the Annual Meeting. I won’t be signing up for the OPALCO internet offering and I will vote against any current incumbent Director who is up for re-election. I urge others who do not like the current OPALCO direction to speak up. Together, we the members own OPALCO. The BOD and management should be responsible to its members.
I work with OPALCO and so will be circumspect with my remarks. It always troubles me when a Board of Directors acts like God. While the board has the legal power to do whatever it wants it is wrong to do what they just did. How arrogant and egomaniacal. The better approach would have been purchasing Century Link. Well you might say it wasn’t for sale and you would probably have been right. However, if the legislature had mandated as a condition of operating in the state the same level of internet speed as Seattle they would have sold in a heartbeat. Our Internet problem was political.
Prior directors managed the utility as if it were a Plymouth. We were not flashy but the job got done. We now have a Mercedes Benz and are paying for it. A Mercedes Benz is better than a Plymouth but they both will take you to Island Market. The staffing levels are probably double what they were under Doug Bechtel. The rates are through the roof because our capital was squandered on a shiny new car we did not need which most of this board signed off on. Randy was an extremely capable manager but the money that was spent on unneeded infrastructure with a small customer base to pay for it was unconscionable. The biggest reason we have less outages has been the under grounding which was happening anyway with the Plymouth. I have no doubt that many “high rollers” have lousy Internet speeds. The fact that many of these people have friends on the board was not a reason to shove this down our throats and force your house cleaner and landscaper to move because they can’t afford to live here any more.
My comment about “high rollers” was not meant to be disparaging. Wealthy people on this Island are extremely generous. The support they give the Orcas Center, The Chamber Music Festival, the school and numerous other contributions does not go unnoticed by me. But encumbering the working class to support the well off is; well I guess that’s the American way.
I have been to Board meetings. The Board members are intelligent and deliberative but this should have gone to the members for a vote.
I agree with Don Webster. This Board should not be reelected.
I am VERY pleased with the morphing of OPALCO. The current board and management have shown amazing backbone in taking decisive action to give the residents of San Juan County what they need and want. Good Internet access has become a necessity for most people and it has heretofore not been available to most of us with no hope in sight. Until recently OPALCO board and management had shown themselves to be indecisive. The offer to county residents of fiber networking a super majority paid $100 up front with nothing to show for it was doomed to fail. I paid my money, but it was clear that only an entity that wanted to fail would offer that as a deciding factor.
The resolution shown by the current board and management is very impressive. They have my whole hearted support and I hope other citizens of San Juan County will stand up and show them their support.
Martin Taylor
Martin, I do not know if you are the “well heeled” or just “medium heeled” but I am sure you are not the working poor or almost poor or someone working three jobs to get by. My complaint with this process is not because I can’t afford it, I can but the way this was rammed down the throats of people who can’t. Maybe everyone who will benefit big time from this should double what they owe when they pay their bill to subsidize the working poor. I am sure plenty of chest thumping Americans thought Bush/Cheney were decisive when they killed hundreds of thousands of innocent people, destabilized a huge chunk of the middle east and drove gas prices through the roof.
Being decisive is not a virtue if you are wrong.
Don Webster says, “…when [the Opalco plan] fails.” It won’t fail! People of Orcas are so sick of Centurylink’s terrible service, and are very happy that there will now be a solution to that problem!
Harvey’s comment “I have no doubt that many “high rollers” have lousy Internet speeds. The fact that many of these people have friends on the board was not a reason to shove this down our throats and force your house cleaner and landscaper to move because they can’t afford to live here any more…” is spot on.. it is this same cabal that literally bought and paid for the advertising and man-hours spent cold calling voters which resulted in we house cleaners and landscapers to ante up $21 MILLION to the fire department.
The fire department was operating just fine with a chief that was earning $85,000/year. This new “two headed chief monster” being handed $250,000/year is not providing any better service than we already enjoyed.
The “high rollers” are biting off their noses to spite their faces because one day they will be cleaning their own 2nd and 3rd houses or flying in help from the mainland as is done on Nantucket…
Dan
Everyone loves to kick CenturyLink as a company and there are a lot of good reasons to do so. That said, getting connected to OPALCO’s system is going to be costly for the homeowner. When they see the capital contribution, I predict a lot will say “well I don’t like them but I am not spending that much money to connect”. That is why I am saying it is likely to fail.
Maybe I’m missing something, but I’m not under the impression that OPALCO’s venture into broadband is impacting electric rates much at all. We have seen small increases in kilowatthour rates related mostly to wholesale increases from Bonneville, and a larger increase in the basic charge related to infrastructure costs. OPALCO has explained each of these changes in detail, and I have accepted their explanations. I don’t personally have the time or inclination to delve into the financials, but would be interested in thoughts from anyone who has. Bottom line for me is that we still have very low overall electric rates here.
There’s no doubt that OPALCO’s board is making a major commitment. I think this will fill a huge need in our community and benefit everyone. The internet, and access to it, gets a little more important every day. You don’t have to use it directly to get benefit from higher speeds and greater penetration. All of the businesses and government entities you deal with are using broadband extensively (if they can get it) and they can be a lot more efficient with higher speeds. Take a look at who’s already connected to OPALCO fiber over here in Friday Harbor for a better picture of this. A huge number of kids are now assigned daily homework that they do online. I don’t drive on I-5 much, but almost all of the goods and services brought to me come over that highway, hence I am using it.
OPALCO has stated that they intend to make broadband a stand-alone entity that supports itself and pays back the investment made. I believe they can do it. I won’t be surprised if there are hiccups along the way, but my gut feeling is that it will work out well in the end, and that it will be a huge benefit, one that no one else is going to provide. There is enormous interest over here on San Juan Island, with entire neighborhoods signing up to have fiber installed. The folks who can afford to pay for this now will probably be footing the majority of the bill for getting this venture off the ground, and for that I thank them.
I have read comments in various places about how OPALCO is competing with private-sector ISPs. That’s fine with me. OPALCO is a member-owned rural co-op, and as such exists to provide goods and services at low costs to members. OPALCO is not the government. I would much rather buy from OPALCO than CenturyLink, and I shop at the food co-op and the farmer’s co-op too. What OPALCO is doing is perfectly fine in this regard.
Disclosure: my company has a small business relationship with OPALCO that has nothing to do with broadband.
We have heard from the OPALCO Spokesperson that the OPALCO members only elect the BOD and they (the BOD) make all of the decisions for us. It seems that there are virtually no limitations on the decisions that the OPALCO BOD can (and will) make. As I indicated earlier this approach seems to be the direct opposite of:
“OPALCO is organized and aligned with the Seven Cooperative Principles (as per the OPALCO website) wherein it states.
” Democratic Member Control—Cooperatives are democratic organizations controlled by their members, who actively participate in setting policies and making decisions.”
Those of us who are complaining about the BOD venturing off into expensive and risky business areas and significantly ramping up the fixed and kwh consumption rates are basically being told that we do not understand and that the OPALCO management and BOD are doing the right things.
There is a simple solution here that is fair and creates real decision making authority for the members. The members should act to amend the OPALCO Bylaws to limit the current virtually unrestricted authority of the BOD. An amendment to the Bylaws can be initiated by as few as 50 members and ultimately would be put to a vote of the entire membership at an AGM. Such a Bylaw amendment would require affirmative votes by a majority of the members should the BOD recommend any of the following actions.
•Consumption rate ($/kwh) increases that are in excess of 4% over the previous year’s rate.
•Facility charge increases that exceed 4% of the previous year’s rate.
•Entry into any new business or altering the business model (i.e. from wholesale broadband to retail)
•Acquisition by OPALCO of any business entity be it by purchase or merger
If the BOD believes that OPALCO should undertake any of the above identified actions then they can explain it to the membership at the time. If their plan and course of action is well thought out and generally supported I am sure the members would applaud their recommendation and approve them. Whichever way it goes, the members have spoken!
In this way, the management and BOD continue to guide the COOP but the members retain the right to decide major issues such as substantial rate increases and moving into new areas of business.
That would fit the COOP concept of “Democratic Member Control” much better than the current situation.
Don,
No body likes a rate increase. That said, revenue must equal expenses, or the co-op can’t pay the bills, OPALCO’s impeccable credit rating is hurt, etc.
Given that, if maintenance of the grid required an increase in the facility charge greater than your 4%, and the membership votes no, how would you want OPALCO to pay for the maintenance?
If the cost of electricity goes up requiring an increase in the usage rate greater than your 4%, and the membership votes no, how would you want OPALCO to pay for the electricity?
Jay
Get serious. I believe our membership is responsible and that they would approve increases that were being passed on to OPALCO from its energy sources. Ditto maintenance that is essential to delivery and reliability. On the other hand if wholesale power rates are going up 3% and OPALCO is seeking 6% because it wants to add some jobs, maybe play with some new power meters because the technology is sexy etc. they might well say no.
I don’t think they would block rationale increases, Just excesses.
More importantly, if OPALCO’s BOD does not trust its members to do the right thing, why should we trust the BOD to do the right thing?
Don, I respect and trust that you care about the co-op as much as I do. Your ad hominem attack, suggesting I am not serious, is uncalled for.
My question still stands. You said: “I don’t think they would block rationale increases, Just excesses.”
People have different definitions of rational. I get that you don’t think people would vote NO on increases. But if they did, how would you pay for it?
Jay
1) Hypothetical questions lead to hypothetical answers because it really depends on the situation. Is OPALCO not going to be able to pay for its BPA power and the lights are going to go out. I will say that I have faith that the majority of our members are not going to let that happen. On the other hand, the rate increase is more than just incremental wholesale cost but instead is viewed by the majority of members as being “nice to have but not necessary” then it could be turned down. Perhaps that would cause OPALCO to do some belt tightening and still be able to live with the increase the members are willing to accept.
2. I notice you did not address my last point. If what you are saying is that the BOD does not trust the membership to do the right thing for the COOP when it is presented with the pertinent information how do you explain that? Is OPALCO not able to present adequate justification or is there a difference of views between the BOD and the members as to what OPALCO “needs” to be doing?
Don, Regarding your last question, I think Suzanne said it well in her previous comment:
“The way democratic control works in our cooperative is that we, the members, elect our Board of Directors and they make policy. A membership vote is not required and very few decisions outside of board elections and bylaw amendments have been put to a vote of the membership throughout our 77 years. We, the members, can also participate in policy discussion by following issues published in board materials and attending board meetings. That said, the board is very interested in what our membership wants and needs and commits resources and staff time to get member input regularly. The 2014 member satisfaction survey provided key feedback and support for the decisions made this year. This culture of listening will continue with regular surveys and other tools to collect member input. I recognize how much information we are all exposed to – it’s hard to keep up. The best way to stay apprised of what’s going on at OPALCO is to sign up for our email newsletter – and you can do so online at opalco.com.”
The Board is the elected representative of the membership and therefore is empowered to make decisions and be accountable to the membership. That’s my view.
We saw this principal in action during the OPALCO board election last year, where some of the candidates ran on the platform of stopping OPALCO from making fiber internet available to its members. Those candidates all lost. Members voted.