— from Bill Appel (Waldron Island) —
In any small community personal judgments and personalities arise in disagreements and obscure the issues. But no matter how strongly we feel, in the case of OPALCO, the rules of economics are inexorable:
- An electric utility is like a farmer; weather as well as the economy has a major and unforeseeable impact on both rates (Warm or cold winter heating? Hot or cool summer air conditioning and refrigeration?) and reliability (Ice storm? High winds? Tree down? Underwater cables over rough underwater terrain in a corrosive environment?).
- No matter how folksy a co-op may be, its fundamental obligation is to stay in business. It must charge whatever it takes in order to cover costs. OPALCO can negotiate for materials and salaries, and seek to negotiate with BPA on rates at long intervals, but neither BPA nor OPALCO can control the cost of power when OPALCO’s members’ power needs exceed the fixed-price contracted amount under the OPALCO-BPA power purchase contract. BPA’s reliance on hydropower makes it a farmer too.
- Looking at OPALCO’s rates and expenses (and looming deferred maintenance costs), its rates have been kept artificially low to avoid further damaging an already anemic county economy. OPALCO borrowed from its internal reserves in order to make up that shortfall. This wasn’t the result of prolificacy; it was to reduce the burden on its member-ratepayers. Now, in technical violation of a loan covenant, it has no choice but to raise its rates.
The coincidental announcements of rate rise with acquisition of Rock Island, Inc. jolted a membership whose first reaction violates the fundamental axiom that correlation does not imply causation. That acquisition, whatever its economic merits, alerted the membership that the board acting alone could put OPALCO into, and assess its members for, virtually any lawful business the board might choose. This was authorized by the addition of Article II section (f), when OPALCO’s articles of incorporation were amended in 1998.
Stock prices have returned to 2008 levels; real estate prices and transaction numbers are returning to something like “normal,” but wages have not. Further attention is needed to the struggling sector of our economy. OPALCO’s virtual monopoly providing electric power imposes a social as well as service responsibility.
Renewables and conservation are both challenges and opportunities for OPALCO and for its members. They’re part of every utility’s plan, but they should be kept in perspective. They are not a panacea for a situation that OPALCO and its members must meet head on for their mutual welfare. We who are off-grid are cheering you on!
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Bill Appel, as always, makes several good points when discussing this issue.
Interestingly, the need to raise rates that were deferred due to economic weakness here in the Islands, and the acquisition of Rock Island have resulted in numerous comments at the recent candidate forums which suggest a lack of transparency by the Board, and a deteriorating level of trust toward OPALCO directors.
I am concerned that the recent “purchase” (?) of Rock Island has greatly complicated the financial condition of OPALCO as an electric co-op which has a primary responsibility to provide power to our community.
I would ask, for example, if OPALCO, today, were solely our power company, what would the rates need to be to meet the capital needs of the business plan to replace such infrastructure as the submarine cables. Given that OPALCO is projecting a net cash flow from the broadband business, those rates might need to be higher.
Which begs the question, “how did the financial status of the power company become so precarious?” Not having access to the detail of budget issues, I certainly can’t answer the at question, though there is a need for some answers.
The underlying angst that I have heard at the candidates meetings is that the co-op’s members feel uninformed, that transparency is not evident.
I think that the members deserve more answers, more complete explanations for the rationale that resulted in recent decisions to expand OPALCO’s activities into a different, highly competitive market.
Too, I am wondering if Washington State actually allows a non-profit
501-12-c cooperative to engage in any aspects of a profit making business/subsidiary.
The upcoming Annual Meeting on May 2 will provide OPALCO leaders with an opportunity to answer these questions.
co-operative
Hi Ed, let me address a couple of your concerns. First, your concerns about the precariousness of OPALCO finances. OPALCO is committed to managing the finances in a way that make it possible for the Co-op to borrow money from its government lender to finance big projects. That means that if we have extraordinary events, such as those in 2014, we are challenged to keep our keep our margin, or what the for-profit world sees as its profit, in a healthy range. If we don’t, we are asked to take corrective measures to improve that, just as OPALCO has done.
As for your concern about the rules in Washington state, where we are organized as a corporation, and the federal IRS rules governing 501(c)(12) entities, of which we are one, engaging in profit-making enterprises, the regulations are clear. OPALCO is not organized to make a profit, but the federal IRS regulations don’t prohibit us from owning a for-profit business, and does limit the percentage of our revenues that can come from a profit-making enterprise. We are routinely audited by Moss Adams, a leading CPA firm with a lengthy portfolio of national non-profit clients. The accounting firm, Nth Degree, is working separately with Rock Island Communications to correctly establish their for-profit business here in Washington.
As an OPALCO member, you have access to all the past budgets and Board meeting packets. You’ll find online at http://www.opalco.com all the Board meeting notes including the Cost-of-Service study that led to the Board’s approval of the 2015 budget, the rate increase, and the rate restructuring. Those documents are not restricted to Board members, and all members are invited to review them.