— by Chom Graecen —
If you find the electricity rate increases, 12% this year and 41% by 2019, alarming (see orcasissues.com/guest-column-opalcos-price-increases), what’s behind the rising rate is worse.
Given OPALCO’s broadband busy-ness lately, how much of the rate increase is due to broadband? OPALCO’s answer is only an average of $3/member/month for 24 months , roughly $1 million total.
So what explains the sudden need for 41% increase in revenues or $28 million in accumulated total by 2019? The explanation we often hear from OPALCO is 1) warming temperatures and 2) the submarine cable between Lopez and San Juan.
By OPALCO’s estimate, warmer temperatures 2014 caused a $1.4 million revenue shortfall, a tiny sum compared to $28 million. The $15 million price tag for the submarine cable is a big surprise compared with earlier estimates of $3.5 million, but when amortized over 30 years at 3%, contributes only $759,000 to OPALCO’s annual expense. In contrast, the increase in revenue requirement in 2015 is $2.7 million.
What else lies behind the rate increases? The answer, I believe, is “grid control backbone”, OPALCO’s code word for fiber optics infrastructure. The obscure terminology is a convenient tool in diverting attention away OPALCO’s foray into broadband, portraying the rate increases as an unavoidable need on the electrical side.
A close inspection of OPALCO’s 2015 budget reveals curious patterns. “Electrical business” items on OPALCO’s capital projects budget happen to skyrocket or suddenly manifest in tandem with the startup of the broadband business (see graph). For example, “underground cable replacement” (read: fiber optics trenching) expenditure in 2014 quadrupled that of pre-broadband years. The appearance of new line items such as “Headquarter facilities” (office expansion) or “Computers/servers/software” coincided with OPALCO’s venture into broadband. And so did the $7.5 million expenditure on “Fiber/microwave infrastructure.” These items add up to over $25 million, dwarfing the $15 million submarine cable.
Selected capital expenditures of OPALCO. The appearance or increases of these costs coincide with OPALCO’s venture into broadband but are booked as “electrical expenditures” and paid for through the increased electricity rates. (Data source: OPALCO 2015 Budget Report, Graph by Chom Greacen)
Besides capital expenditures, the “electrical” operations budget is also skyrocketing. “Member communications” (PR machine) expenses have more than doubled and will triple, and so will “Grid control communication design” expenses. Two Communication Technicians positions and an apprentice were just added to the (electric) Operations Department this year.
Perhaps these rising costs are partially justified and cost-effective from the electrical perspective. Still, questions remain. How much of these budgeted costs are beyond electrical necessity? And will there be more to come?
OPALCO’s attempt to hide its charitable but costly act of “facilitating” broadband under the “electrical” rug not only causes hardships on membership, but also violates our trust. The cost of OPALCO’s current broadband adventure seems not that different from the failed broadband plan that OPALCO put forward to the membership two years ago. The key differences are: two years ago, we at least had a chance to see the business plan with known impacts on the rates ($15/member/month across membership plus additional fees for subscribers), and we were given the opportunity to vote yay or nay with our checkbook. Now, there is very little transparency of information regarding OPALCO’s broadband costs, plans and rate impacts. The electricity fixed charges have been approved to rise to $78/month by 2019, an increase of $50/member/month from 2014. Worse, the member-owners have no say this time: it’s either pay up or have electricity disconnected due to unaffordability.
What is more alarming is that rising costs and investments, including OPALCO’s provision of a $7.5 million loan to the new broadband company, have pushed OPALCO financially close to the brink. For the first time in four decades, OPALCO was unable to meet a loan interest coverage ratio (called “TIER”) and thus violated its loan covenants. It took OPALCO 40 years to bring TIER up to above 5 (very healthy). To let TIER slide below the required minimum of 1.25 in 3 years is quite a blunder[i].
OPALCO’s Times Interest Earned Ratio (TIER) over time. TIER is a measure of solvency or ability to service debt. It took OPALCO 4 decades to slowly build up its TIER to above 5 levels (very healthy), but only the past three years to plunge the co-op below the minimum of 1.25 required by the loan covenants. (Source: OPALCO)
To appease its lender, the OPALCO Board approved a “cost recovery charge” mechanism[ii] whereby future shortfalls in revenues will be calculated monthly and recovered through increases in the monthly fixed charge on every members’ bill. Doesn’t this seem like a “blank check”? OPALCO is on a dangerous, slippery slope. In hindsight, it was no surprise two financially savvy directors resigned from the board a few years ago.
Has the OPALCO leadership of the past three years essentially led the co-op astray? Has the membership been kept in the dark, fed partial truths, excluded from important decisions, brought to a financial cliff edge, and now “asked” for a blank check? Affordability of electricity service, financial prudence and good governance have been main stays of OPALCO management, but are now tossed aside. For what? For whom?
The point here is not to question the merit of broadband or OPALCO’s role in its provision. The issues are transparency, accountability, risks, and future of our electric co-op. It is time members ask questions and demand straight answers from the board and management.
Come and attend the OPALCO Candidates Forums: Tuesday April 7th, 5 p.m. at LopezLibrary and Thursday April 9th, 7 p.m. at Orcas Library. For the upcoming election of two OPALCO board positions and Annual Meeting on May 2, make your vote count and voice heard.
[i] OPALCO, “2015 March Board Meeting Finance Overview Introduction” a set of presentation slides (see slide 7).
[ii] See page 26-27 of OPALCO’s March 2015 Board Packet. Available at https://www.opalco.com/wp-content/uploads/2015/03/March-2015.pdf
When Big Tobacco and Big Oil want to slow down action on public health or climate change, they create FUD (Fear, Uncertainty and Doubt). FUD is the tactic those who can’t make a cogent argument resort to, to appeal to fear. Control through Fear.
Chom, Rhea and Islands Energy Coalition have always been forthright in their opposition to OPALCO providing fiber internet to the community. Now that that opposition has failed, and full-scale deployment of fiber to neighborhoods throughout the county is underway, the FUD slinging begins.
I hope OPALCO will invest the time in responding to Chom, yet again, to correct her misstatements. Here are a few to think about until then:
1. Chom refers to a 12% “rate increase” – she confuses rates and revenue. The rate increase depends on if you are residential or commercial. Residential for example, is about 9%.
2. Chom says the revenue increase is “$28 million in accumulated total by 2019”. Not even close. It’s $9.1 million. Referring to the OPALCO budget, https://www.opalco.com/docs/2015-budget-report-with-updated-rate-chart/ and go to page 23 line 6, starting with 2014, before the rate increase, and add up the incremental increase each year, through to 2019.
3. Chom then uses the FUDsters favorite phrase “skyrocket” while bending over backwards to conflate and inflate broadband investments with regular electrical side projects. She provides no evidence, cites no sources, simply does the FUDsters trick of raising doubt. For example, Chom tries to get your to conflate “underground cable replacement” with “fiber optics trenching”, while supplying no evidence to support that innuendo. She made it up. The major reason undergrounding “skyrocketed” in 2014 was for replacement of a failing submarine cable with a new underground conduit and cable, using very expensive horizontal drilling techniques designed to avoid sensitive environmental and archeological shoreline zones. There is a picture of that rig in action, at about 5:20 into the video at the link in the next comment down.
Back to the budget. If you read nothing else, read page 23 of the budget (linked above), which discusses “Notable Drivers” of the revenue increase. If you want to understand why rates are going up, that’s it.
4. Ignoring the actual drivers of the rate increase, Chom moves on to the TIER chart. That chart is critical to understanding co-op economics. Note how over the years, TIER has gotten more volatile. As much as Chom would love you to believe that that is because of broadband, it is not. Not even close. Allow a moment for a bit of critical background info.
OPALCO (and most utilities) have, for years, under-charged for Infrastructure/Facility. In the residential example, OPALCO’s Facility charge has been only 26% of the monthly bill. That’s less than half of the true Facility cost. The more revenue depends on Usage, the more the TIER rockets up and down, depending on if winter was very cold or warm. On a cold winter, your bills are much higher, OPALCO makes more revenue, and the TIER improves. When temperatures are warm through the winter heating months, OPALCO revenue drops and the TIER is degraded.
Chom has insisted OPALCO raise rates at a number of board meetings last year. But she wanted Usage-related rates, not Facility, to go up. She has argued for a demand charge and for higher rates for heavy users. And she finally gets all that in the new rates. But, the big important thing that OPALCO did was to hold usage rates for small and average full-time residents essentially unchanged. Instead, OPALCO increased the Facility charge, which is good for the TIER level, improves co-op finances, and helps smooth out the gyrations between summer and winter billing. If Chom genuinely cared about a healthy TIER, or understood the esoterics of finance, she would know that favoring Facility over Usage improves economic stability of the co-op.
You are encouraged to check the facts, as Chom should have done. If you let Chom interpret OPALCO finances through the lens of her own agenda, then you lose sight of what OPALCO has done to keep the books open, the public informed, and the Co-op evolving in service to its member owners. Chom’s tactics of fear have no place in the serious work of delivering reliable Electricity and Internet services to our rural community.
Note, I work with Chom on Islands Energy Roundtable and love the passion and great work she brings to helping the community save energy. The views I express here are informed by the work I do with OPALCO, consulting on energy efficiency and community solar initiatives.
As mentioned above, Chom tries to get your to conflate “underground cable replacement” with “fiber optics trenching”, while supplying no evidence to support that innuendo. She made it up. The major reason undergrounding “skyrocketed” in 2014 was for replacement of a failing submarine cable with a new underground conduit and cable, using very expensive horizontal drilling techniques designed to avoid sensitive environmental and archeological shoreline zones.
There is a picture of that rig in action, at about 5:20 into the video
here: https://www.youtube.com/watch?v=fT-fj-_ha_Y&feature=youtu.be
Hi Jay,
I appreciate your correction of facts if I misunderstand something but you do not need to personally attack me. I am truly concerned about the financial risks that our co-op is exposed to so I tried to read as much as I could the documents posted on OPALCO website (kudos to OPALCO for doing so). Despite my efforts, I do not know as much as you or OPALCO do and never claim to anyway. I hope by raising issues, members-owners of OPALCO will learn more facts from OPALCO and hopefully have a healthy, civll discussions. No need to get personal here.
I’ll respond specifically to Jay’s “corrections of my misstatements” above.
1. No confusion on my part. I am a member too and I personally experienced a 36% increase in rate this Feb. The allocation of the 12% overall rate increase was such that some were fortunately enough to get a 9% increase, while others a lot more. Smaller users get the jackpot of higher rate increases. But all in all, the total expected increase in revenue from the rate increase is 12%, not 9%.
2. I’m sorry if my use of the phrase “$28 million in accumulated total by 2019” was not clear. What I meant was the accumulated increase of revenues from the approved tariff structure that the board decided to adopt at the Jan 2015 meeting, compared to the 2014 revenue. I got the number from the same document, OPALCO 2015 budget report. Compared to 2014, the additional revenues from the new rate structure in 2015, 2016, 2017, 2018 and 2019 are $2.6, $4.1, $5.7, $7.3, and $9.1 million, respectively. These add up to about $28 million total. (Calculation based on info from line 6, page 22 of the budget report.)
3. I didn’t make up any numbers. All the capital expenditures are from “Capital Projects Budget) page 27 of the 2015 budget document (Jay provided the link above and I also hyperlinked the sources of OPALCO documents in the article above as well). Other numbers about the increasing costs are from “OPALCO statement of operations” on page 23 and “Notable Drivers” on page 24. It is true I do not know what different items such as “Underground cable replacement” and “Fiber/microwave infrastructure” refer to exactly. Why don’t you tell us? How are the costs of laying down fiber optics backbone or fiber optics “middle-mile” accounted for on OPALCO’s book? And my main questions still remain unanswered: How much of these budgeted costs are beyond electrical necessity? And will there be more to come?
4. IF you take a look at page 26 of OPALCO’s March board packet, you’ll see that OPALCO violated a loan covenant because its TIER fell to 1.13. Thus OPALCO had to submit a “corrective action plan” to RUS (its main lender) to make sure that TIER would never fall below the required 1.25 in the future. If the dangerously low TIER was caused by warm temperatures as Jay/OPALCO claimed, how come warmer years prior to 2014 didn’t bring down TIER to below the required level for the past 4 decades? What else caused TIER in 2014 to drop to a level such that a “corrective action plan” was required? No one can control the weather or the climate. OPALCO’s plan is mainly to get more revenues through increasing fixed charges. I’m trying to point to costs (being more prudent) as another possibility to consider.
Lastly, I am not in opposition to OPALCO providing fiber internet to the SJ community. I want broadband but whether I can afford it is another matter. As stated in my article, the issues at stake here is not the merit of broadband or OPALCO’s role in providing it, but rather governance, risks and the future of the co-op.
I had no intention of “raising fear” but it seems the issues I raised did raise some fear. Well, let’s talk about it in an open, civil manner.
Hi Chom,
I’m not attacking your personally, just your methods.
It’s not just your packing your opinion piece with FUD words like: “alarming,” “big surprise,” “skyrocket,” “dwarfing,” “brink,” “dangerous,” “slippery slope,” “cliff edge,”…
You are not simply asking questions, and raising issues.
You are misstating important numbers. You are accusing OPALCO of malfeasance when you say thing like “OPALCO’s attempt to hide its charitable but costly act of “facilitating” broadband under the “electrical” rug.”
I love what you do for helping people conserve energy. Your Broadband FUD and bad math. Not so much.
Chom Greacen’s post is detailed, but looking at the budget itself, I question the interpretation of several items. Ms. Greacen attempts — as have others like Mr. Hudson in the past board election — to paint a picture that broadband expenditures are being “hidden” in other items, and not fully disclosed.
She says, for example:
“A close inspection of OPALCO’s 2015 budget[1] reveals curious patterns. “Electrical business” items on OPALCO’s capital projects budget happen to skyrocket or suddenly manifest in tandem with the startup of the broadband business (see Graph in the attached document). For example, “underground cable replacement” (read: fiber optics trenching) expenditure in 2014 quadrupled that of pre-broadband years. ”
Here, Greacen attempts to imply that “underground cable replacement” is somehow really fiber optic trenching. This does not appear to be true. The budget line item in question, #608, is replacement of underground POWER distribution cables, a program which has been ongoing but certainly has accelerated. It is true that power distribution cables are being replaced ALONGSIDE fiber installations, because whenever the ground is open it makes financial sense to do so. This is occurring in our own neighborhood right now, as a matter of fact.
But the 1.168 million dollars in the 2015 budget is for power line replacement, and as far as I can tell, is not a shadow fund for fiber installation. The overall tone of this piece and others in the local press lately seems to ASSUME that something is being hidden, and then attempts to find evidence in the budget for it. This is unfortunate and does not help the membership in deciding how our Coop should proceed into the 21st century.
It is true that this board and this OPALCO is not the sleepy board and coop of yesteryear. But neither do we live in yesteryear.
I see this as a budget which balances some difficult realities and takes on some important challenges for the membership, and I continue to commend the board on its efforts to take on the many challenges of aging infrastructure, complex undersea cable upgrades, changes to our relationship with BPA, climate change, and the increasing transition of broadband service from a luxury to a utility.
On another online media channel, Chom had asked me about if my views are mine or am I speaking for OPALCO. Here’s my reply…
Hi Chom,
I am commenting as an OPALCO member. And the analysis I provide is informed by the work I do with OPALCO on energy efficiency and community solar. I am not a spokesperson for OPALCO.
When OPALCO has things to say, they say so. It is usually Suzanne or Theresa, with member communications.
Like you, I really care about this stuff. It’s complicated stuff, and I try to help us all sift the wheat from the chaff. I do this on my own time.
I think my FUD comment was inappropriately personal. I am sorry for that. We both share a common interest in climate action and the use of FUD by climate deniers is legend. When I first read your opinion piece, and saw your use of all the fearful terms, I was struck by the irony. Hopefully you are not doing it intentionally. Either way, I won’t make it personal again.
In my experience, the board and management team are excellent, visionary leaders and don’t deserve your accusations.
We all have bigger fish to fry. I look forward to the day when we can move forward arm in arm, with agreement that Electricity, even with the new rates, is the best deal in town, and so much cleaner. An all electric home, business and car has lower energy bills and much cleaner energy than propane, heating oil, and gasoline. And OPALCO investments and contributions to low-income, renewable energy, and Energy Efficiency are second to none, especially compared to the local energy fossil fuel alternatives. If we can stand tall and work together on reducing CO2 emissions. We all win.
I find this rancorous battle between some of the pro solarites and those supportive of OPALCO/Rockisland’s Internet project to be very draining and sad. We need the Internet access improvements and I think 95% of the citizens of Orcas would agree. So I laud OPALCO for their strength in moving forward with the county wide network project and the visionary purchase of Rockisland the venerable local grown Internet Service Provider. There are some moderate up front costs to start that but over tine the service will more than pay for itself. I am also very supportive of any efforts to make the Island more self sufficient in energy production and more energy efficient. That also will have extra costs in the near term but eventually be worthwhile. I don’t understand why there is conflict involved. I don’t always agree with what the OPLACO management and board do. I have often been a critic of their lack of progress in making their network infrastructure available in an affordable way. They have only recently had the vision and strength to move forward in a meaningful way. But I would never slander my fellow Orcas citizens and accuse them of lying, cheating or fraud. I have faith in OPALCO as an institution and in my fellow Islanders that work for it. I laud their transparency. If it were not there I would demand it. And no matter whether I agree with them, I do trust them and have faith they are working for our common good.
There is some moderate cost in boot strapping the network program but over time that will pay for itself as the electricity supply program does and has to. There are obvious major costs to replace the undersea infrastructure and there are painful pricing issues to deal with as energy usage declines while the fixed costs of bringing power to the county stay the same or increase. The costs of the infrastructure repairs must be paid. It seems like the only issue really is whether to reflect the actual structure of the costs in the tarifs, i.e. raise the fixed component in the tarif or to spread those fixed costs over the per kWH charges. Effectively moving more of the infrastructure costs to the higher users. Should your tarif be fair and equitable on a per user level or should it be more socially fair by moving the costs to those that can afford it from those that cannot. Personally I think the tarif structure should reflect what you want to achieve while protecting those that cannot afford to pay. That is what you should take to your OPALCO board members and management. Not accusations of criminal intent.
I would ask those assaulting the network project and accusing OPALCO of crimes to back off. I would ask OPALCO to seriously reconsider their recent tarif offerings. I want the off peak variable rate tarif changed to REALLY motivate the use of off-peak electricity. There is clearly kickback that is not unreasonable to the elevation of the base fixed part of the tarif. If that means you must charge the users more overall in the short term to cover the irregularities in usage, so be it. Any over charge is eventually returned to long term Islanders anyway if it is not re-invested in infrastructure. We want people to use electricity as the primary power source. It is like money an efficient exchange medium between different suppliers and consumers. It allows people to buy and to sell energy. So we want everybody universally connected which means it has to be affordable to all. We want people to use power at night to even out the demand curve. To charge their cars and heat water and storage heaters and run refrigerators at night. We want people to buy or lease clean micro power generation infrastructure. So motivate that with tarifs that reflect the intent. Just like you have recently come up with network tariffs and incentives that motivate community clusters within the larger county community to build out local pieces of the fiber Internet.
I think it is pretty basic: Electric users do not want to subsidize Broadband Internet, and the Co-op members are pissed because OPALCO was not upfront about the real financial costs of their broadband network, AND did not inform the public that the electric users rates were going to be used to subsidize the Internet infrastructure.
Hello?
Jay, thank you for changing your tone and clarifying your role. Apology accepted.
I find it interesting (and somewhat amusing) that someone with a last name of “Verbano” can say in 56 words what is the core issue at stake here, while others are spending hundreds of words beating around the bush. Until I read Chom’s guest column, I was under the (mistaken?) impression that the planned Broadband expansion was going to cost us only another $3 per month in the facility charge if we chose not to buy into this plan and remain with our CenturyTel service. But if she is correct, it’s going to cost us much more.
This is a question for the OPALCO Board to answer, not Jay or Martin or even the communications team but Foster Hildreth. Are our electrical rates going to be used to subsidize Broadband expansion?
Foster?
OPALCO’s board of Directors has voted to implement a new rate structure that has never been tried before. They plan to increase the cost of electrical service by over 40% in the next four years. And they are almost exclusively doing this with a fixed flat rate that we will all pay. Whether you believe that this enormous increase in cost is warranted or not; you should be concerned about how this increase is distributed among the membership. Using a flat fee that all users pay (regardless of how much power they consume) is not fair. The cost of ‘facilities’ should not be equally born among all members any more than we should all pay the same electric bill. How would you feel if you had to pay the same electrical bill as your neighbor who was using four (4X) as much power as you were? Would you be outraged? Well this (despite all the smoke that OPALCO’s new PR engine may be throwing up) this is exactly what you will be asked to do with the new ‘facilities charge’ this charge will be same for you and your neighbor that might be using 4x the ‘facilities’ that you are. No matter how they try to spin this, this is the truth. The cost of facilities is very real but it certainly should not be apportioned equally to everyone regardless of what burden they may be placing on the facilities, yet OPALCO will begin charging you the same as your neighbor that requires four times the ‘facilities’ that your house might. This is a very real issue and used to be addressed by charging people who used more power more, We will now be placing all the increased costs in the new OPALCO budget on everyone without any regard to how much the consume, how much conservation they employ, or how much peak electrical strain they place on the system.
One simple way to properly apportion the increased costs of facilities would be to actually charge for the facilities, just like we used to charge for how much power we actually used. Makes sense doesn’t it?
Initially there is one very simple way to do this and that would be to charge according to the “Main Breaker” size in the home. Some homes have 100 amp main breakers others have 200 amp or 400 amp. A home with a 100 amp breaker places a peak burden on the system that is ¼ of that for a home with a 400 amp breaker. This is the exact ‘facilities infrastructure’ that OPALCO wishes to charge for. When a home has a 100 amp breaker it only requires OPALCO to have 100 amps + a safety margin worth of facilities to support it. The 400 amp home requires four times as much. This would be a very fair way to apportion the cost of facilities, at least far, far fairer than charging you for your neighbor’s facility usage?
A few open questions, ultimately related to tariff and broadband, for the OPALCO Board and management after reviewing published financial reports.
Long term debt has increased considerably.
2011 $14,318,323
2012 $15,462,363 7.9% yoy increase
2013 $17,558,365 13.5% yoy increase
2014 $24,987,266 42.3% yoy increase
How much of the 2014 debt is broadband related? (balance sheet not annotated)
Leveraging like this is going to materially impact your ratios…TIER is already in trouble. How are you mitigating cost of capital risk for upcoming undersea cable infrastructure, etc?
Operating Revenue
The narrative is that revenues are down due to warmer than expected winters. But operating revenues were actually up yoy in 2014. It’s the forecasting that was a miss.
2011 $21,169,199
2012 $20,418,225 3.5% yoy decrease
2013 $21,413,278 4.8% yoy increase
2014 $22,029,025 2.8% yoy increase
BUDGET 2014 $23,421,819 forecast 9.3% yoy increase
BUDGET 2015 $24,697,141 requires 12.1% increase from 2014 actual to hit
The 2014 actual yoy increase appears reasonably stable given recent history. On what basis was an aggressive 9.3% increase forecast?
Note that the 2015 budget requires 12.1% growth from 2014. With the new tariff structure in place, are you on track to hit this?
Broadband
Arguably the best indicator of success is progress against OPALCO’s own metrics. OPALCO has also said more than once that broadband is forecast to contribute to the utility side in time. So how are things proceeding according to the plan?
The October 2014 Business Plan approved by the Board forecast the following launch schedule:
Cattle Point 70 members, 2 LTE sites, November 2014 launch
Doe Bay/Eagle Lake, 50 members, 1 LTE site, November 2014 launch
Deer Harbor, 75 members, 2LTE sites, January 2015 launch
South Lopez, 50 members, 1 LTE site, January 2015 launch
SJ West, 30 members, 2 LTE sites, February 2015 launch
Aggregate forecast from above, launched by Q1 2015
275 members in service, 8 LTE sites in service
Actual Progress, basis 10 March 2015 Board update
10 connections in Lopez Village*
*n.b. The 10 March board update is written as a narrative, rather than a report against forecast. But it is clear that while progress is being made, the initial launch plan has clearly been a miss, and not an insignificant one.
How can a Board approved plan, dated October, with active launches scheduled the very next month, miss on execution so significantly?
Is the Board using any kind of dashboard or metrics to monitor progress beyond narrative updates?
Do you still plan to hit your 1,000 installed members goal by year end?
Two examples:
Cattle Point
October Forecast: 70 active members by November 2014
10 March update: 84 connections with most work orders signed…last mile design began 10 March. Progress, yes…but a far cry from a November 2014 launch.
Eagle Lake
October Forecast: 50 active members by November 2014
10 March update: 36 connections…target date for service is expected April/May.
But while operational execution is lagging, operational expense is headed the other direction.
Subset of operating expense:
Island Network
Employee Expense
2013: $0
2014 forecast: $0
2014 actual: $87,565
Executive Expense
2013: $60,579
2014 forecast: $102,711
2014 actual: $154,610
Planning Expense:
2013: $0
2014 forecast: $0
2014 actual: $89,500
Engineering Consultant:
2013: $51,835
2014 forecast: $78,588
2014 actual: $179,025
Total, these line items:
2013: $112,414
2014 forecast: $181,299
2014 actual: $510,700 (!)
Overall 2014 Broadband Operating Expense
Forecast $392,354
Actual: $739,907
I think that Chom is saying that when new buried cables are going in that they include fiber optic strands and this is an increased cost. In addition, I believe she is saying to take a look at the historical buried cable replacement costs. These buried cable costs are projected to increase at a significantly higher rate than has been the recent norm. And that there is a significant unexplained increase in cost here. From one vantage point it appears that buried cable replacements were postponed creating a backlog of buried cable replacements. These may all be going in now but with fiber being laid at the same time. This added fiber increases the cost of the buried cables. Some have suggested (not me yet) that these cable replacements were specifically delayed so that when they were done, they could include fiber all the way to end users. A good example is the new cable out to Roche that has (I recall) 96 fiber strands. This is clearly broadband infrastructure that we are all paying extra for. OPALCO is not delineating the added cost of the fiber or explaining if they purposely have delayed deployment of new buried cable replacement. The fact is that we are all in the dark about the degree to which the new fiber infrastructure is responsible for these costs since OPALCO does not break them out and it is hidden in the new increased cost of buried cables that Chom points too. See this as a doubling and tripling cost in the burnt orange colored section of Chom’s first graph.
Hi Chom – I’m just curious, after you came up with your list of questions that you’ve posed in the article, did you contact anyone at OPALCO via phone, e-mail or letter to see if they could help you figure out the answers to your questions? I’m inferring, maybe incorrectly, from your comment that “[I]t is time members ask questions and demand straight answers from the board and management,” that you either asked and received no response or received an answer that didn’t respond to your questions.
If you didn’t contact them, why? Here’s the reason I’m wondering, you’re using words like “dangerous”, “skyrocket” and “blunder” to describe OPALCO, yet apparently your research into appropriate TIER calculations comes from a nine sentence entry on Wikipedia, originally posted by someone named “Decant”. I’m sure Decant is a fine fellow and all, but a blanket statement that it’s a warning sign when TIER falls below 2.5 doesn’t really make any sense unless it’s specific to a particular industry. I’m surmising that Decant probably isn’t an expert in utilities.
I’m not either, but I am an expert in financing affordable housing, an industry that I’ve done consulting in for nearly 25 years. Affordable housing financing uses a benchmark closely related to TIER – Debt Service Coverage Ratio. For all practical purposes, they’re the same calculation. In affordable housing land, if you submitted an application for low-income housing tax credits to a state showing a forecasted DSCR of 2.5, you’d probably be turned down for credits since a DSCR that high shows you could service additional debt financing. A recent study showed that the median DSCR in affordable housing projects is in the range of 1.2 to 1.45, depending on location and other factors. That conclusion is similar to my own experience in reviewing financing structures for hundreds of affordable housing projects over the years.
The point of my story is simply to point out that a blanket statement that TIER should be higher than 2.5 doesn’t mean anything without more context. And, as I say, I’m not familiar with financial ratios for utilities. We’re all fortunate that we have a resource in the county that is familiar with utility financing – OPALCO. Did you contact them before posting your article to get their take on TIER? Maybe they could have pointed you toward some industry reference besides Wikipedia.
Not meeting a loan covenant is serious, but if the lender waived the covenant for the 2014 period, then apparently the lender was satisfied with OPALCO’s plan. Did you ask anyone at OPALCO about that waiver?
Similarly with your other questions – you claim that OPALCO leadership has “led the co-op astray”, that the members have “been kept in the dark, fed partial truths”. OK, did you ask anyone at OPALCO to comment on your question for example about what costs were included in grid control backbone costs? If not, why? If you did, what was their answer?
One reason I’m asking is that the few times I’ve had questions about broadband issues, I’ve called Suzanne Olson at OPALCO and she’s been very responsive answering my questions. If you didn’t give them a chance to respond, why?
I, for one, will feel differently about your post if you didn’t at least give OPALCO a chance to clear up any misunderstandings or questions you had before you posted. Because if you didn’t, your post comes across more like a hit piece designed to elicit a public reaction than a legitimate series of questions.
Which is it?
On a positive note, I ran in to Eric Youngren on the ferry. He had just picked up 10 solar panels for installation on Orcas High School, as part of the joint OPALCO, San Juan Island Conservation District, and Bonneville Environmental Foundation community solar for schools initiative.
Schools on all four ferry served islands (Orcas, San Juan, Lopez and Shaw Islands) will have solar installed along with teacher training and educational curriculum. Students will be monitoring the solar power generated at their schools and learning about energy efficiency.
To learn more, see https://sanjuanislandscd.org/community-solar-in-the-schools/
I appreciate all the information everyone is providing, but now so much info has confused me about how it will affect me personally. I am a (very) senior citizen of limited means whose expenses are rising more rapidly than my income, and I am a summer resident (for 18 years now) in my condo at Driftwood. I keep the power on during the 8-9 months I am gone so my pipes won’t freeze. I don’t want to leave Orcas and my many, many dear friends there, but this sounds like a flat rate I can not possibly absorb in my budget. Is there any way I can find out what to REALLY expect so I can determine whether I need to ready my condo for sale?
Hi Annette,
In general, this document is the gold standard for understanding the rate change:
https://www.opalco.com/docs/rate-change-materials-12215/
There are three parts to the rate change: The Facility Charge, the Usage Charge, and the Demand Charge. The Usage Charge is actually going down over the next few years. The Facility charge is a flat charge that is increasing $10.30 per month this year, then slightly smaller amounts next year through to 2019.
So, your bill this month will be $10.30 more than last year, assuming you had about the same usage.
If you look at the last page of the link above, you will see how the typical monthly bill lays out, now, through 2019, for residential, low-income, commercial, … members.
And if you need financial support, go to the OPALCO website and search for Project PAL, funded by OPALCO and members was created as a vehicle for Co-op members to help their fellow members to pay their electric bills.
Hi Annette,
A correction to a typo in the my reply above.
The Facility charge is a flat charge that is increasing $10.30 this year. NOT per month.
A member noted, elsewhere, the irony that, despite falling revenue due to warm weather and increasing costs of submarine cables, OPALCO still invests in energy energy efficiency, local renewable energy, and other things that reduce energy sales.
Here was my reply…
OPALCO is working with the San Juan Island Conservation District (SJICD) and a variety of local nonprofits and folks interested in accelerating Energy Efficiency and Community Solar in the islands. This is known as Policy 28. See: https://www.opalco.com/wp-content/uploads/2013/09/Policy-28-Collaborating-with-Nonprofits-to-Accelerate-Energy-Efficiency.pdf
The goal is Zero Load Growth. While energy is important to everyone, there is a lot of wasted energy. We want to get rid of that waste. It is so important, Energy Efficiency is viewed by OPALCO as a “generator” just like hydro, wind, solar, tidal, …
And Energy Efficiency is the lowest cost generator, about 2¢ per kWh. That’s why OPALCO Energy Savings department works with members to make sure they know about rebates, and techniques for reducing wasted energy.
So, despite the irony that reducing waste reduces revenue, OPALCO sees energy WASTE as a bad thing. OPALCO’s Energy Efficiency programs have been so effective that they are reaching out to other co-ops that are less motivated about energy efficiency, to get their funds (provided through BPA) transferred to OPALCO. This brings more money into the islands and helps stimulate the local economy – Doug Poole, and the rest of the energy-retrofit folks that help us save energy.
OPALCO’s goal is to continue to deliver the cleanest most reliable electricity, at lowest possible cost, when you need it, while reducing waste – regardless of growth.
And though energy sales are reduced through energy efficiency, warming weather, and the investments OPALCO makes in local renewable generation, OPALCO electricity is still lower cost and much cleaner than the fossil fuel alternatives in the county (propane, heating oil, gasoline).
So as members are looking to save money, they are steadily transitioning over to electric from the fossil fuel alternatives. Electric heating and water heating has the largest and growing market share for good reason. And, as Doug Poole will tell you, the new state of the art electric heat pumps and heat pump water heaters are radically more efficient compared to any fossil fuel form of heat.
By the way, as part of the Policy 28 work with SJICD, we are going after a $5 million award from the Georgetown University Energy Prize competition. To learn more see: https://sanjuanislandscd.org/georgetown-university-energy-prize/
The San Juan Islands have been selected to advance to the Semifinal round. Stay tuned…
I like John Mottl’s suggestion of a facility charge based on the amperage of the connection to the grid, for its clear that the demand placed on OPALCO will scale accordingly. This is like EWUA charging 50 percent more if a member has a guest house. Even better would be for that “facility charge ” to include some baseline kWh usage, just as the EWUA quarterly fee includes 15,000 gallons, with the per-gallon (or per-kWh) charge going up after that baseline has been exhausted. This would encourage conservation, which the current rate structure discourages.
John, I like what you say in your second comment, too. There are clearly some broadband costs being included in these capital investments. How much is another matter. It would aid discussions if OPALCO could at least try to make a reasonable estimate of the cost breakdown, electrical vs. broadband service. I know, there’s a lot of overlap, but a serious attempt at doing so would be appreciated by an important segment of the membership.
Not all seniors with milder-climate winter homes to escape to are wealthy, yet those residents still count on OPALCO to keep the lights on throughout the year. Even if our part-timers aren’t occupying their island homes and don’t require substantial winter heating, OPALCO is built for and obligated to keep the energy flowing. Even part-time residents still owe and pay their island property taxes regardless of how many days they spend in their island home.
Also, it’s important to not confuse a reasonable usage rate with a service rate increase. The facility charge that captures costs for needed capital projects, distribution system maintenance, and yes, even pieces of the broadband expansion, are part of what it takes to build out and run this complex system, separated as it is from the mainland and generation source by large expanses of water.
Conscious of our seniors and people with disabilities who are living on shrinking incomes, OPALCO has a program to help those who need assistance. If you are in that category, let us help. If you are among the lucky folks who own multiple homes and have the means to assist those who need help, please do so. That’s the Co-op way.
I don’t see how charging those who use more electricity less per KWH is promoting conservation. IMO those that use more should pay the same, or even more as the rest of us. The rationale being that by doing so would be both promoting conservation, and OPALCO would be getting more financial return at the same time.
There is seemingly a self-reinforcing feedback loop being created by a system that reacts to a decrease in electricity usage (due to warmer weather and/or the increased use of alternative energy) by increasing our electric rates. That is– as the cost of our electricity increases people will naturally strive to both use less electricity while at the same time invest more in alternatives. Common sense tells me that this will mean less electricity usage (less revenue), which will then lead to further increases in our electrical rates, which will then lead to further efforts to conserve, which will then…. Keeping in mind at the same time that the prognosis is for a warmer future.
I would feel more secure seeing OPALCO investing my money on researching and pursuing alternative means of electrical production in a warming climate instead of the broadband venture.
And, I would feel more secure if “we the people” had a say in future ventures that OPALCO wished to embark upon, (like we use to). In short, I would feel more secure knowing that OPALCO was maintaining their focus on providing electricity to the community… not on enhanced computer speed, or cell towers, or used cars, etc.
Hi Michael Johnson,
You said “those that use more should pay the same, or even more as the rest of us.” They do. Referring to Page 2 the rate table:
https://www.opalco.com/wp-content/uploads/2015/01/Rate-Change-Materials-1-22-15.pdf
Note that light to average users pay about the same as last year. Medium users pay 13.5% more, and heavy users pay 34.5% more. As you point out this helps encourage conservation.
In addition, by leaving the usage rate low for the light and average users, it keeps the cost of electricity used for heating less than the fossil fuel alternatives. there by encouraging people to favor very clean electric over propane or heating oil.
Hi Michael,
You bring up good points that I’d like to help clarify. The OPALCO leadership supports alternative generation through investments in and administration of the Member Owned Renewable Energy group (MORE). We also have two Community Solar initiatives underway, with the innovative Community Solar for Schools program, and forthcoming Community Solar for Homes and Businesses program. Both are OPALCO partners with the San Juan Islands Conservation District, and both provide local jobs.
None of that work or focus stops with the broadband acquisition. In the coming years, the fiber network will help the distributed local member generators optimize power delivery to the grid to ensure continued reliability of service. In fact, broadband work that has been underway since around 2001 is designed to provide efficient monitoring of our electrical grid and allow communications in remote reaches of the islands for our linemen. And we increase safety, reduce fossil fuel use and administrative costs of dispatching crews needlessly because our fiber backbone gives us more visibility across our electrical grid.
Finally, as for your concern that “we the people” did not have a say, I’d just point to the last two years’ worth of Board and public meetings in which business and community members pleaded with OPALCO to step up and do something about the lack of reliable broadband Internet services in the islands.
Sparked by the 2013 fiber cut, OPALCO began the process of creating an Internet entity, and in the process make use of our installed fiber backbone. Initially planned as a startup, the Board and leadership recognized the long-term value of acquiring an existing ISP, Rock Island, to speed rollout of services so that OPALCO could continue to concentrate on our core business, that of providing safe and reliable electricity to our owner members. As it’s been stated elsewhere, Internet is the utility of the 21st century, and our Board and leadership has willingly taken the heat to step up to the plate on this critical service.
Again to Michael Riordan (and John Mottl), the new OPALCO rate structure has fairness at the core. Those who had a better deal before, at a cost to other members, are now paying their fair share for the energy infrastructure.
Though no one likes a rate increase, it’s important to not confuse the facility increase with the actual rate that is still reasonable and among the lowest in the nation. The facility charge rightfully captures the significant costs of capital projects, operations and maintenance of our 20-island energy grid.
What the amperage-scaled connection rate that you ask for doesn’t address is that smaller amperage panels belong to some far heavier energy users than high amperage panels. For example, a large home that has a 400-amp panel to service many outlets throughout the house may not necessarily have all of those in use. And a 200-amp panel in a smaller home may give service to a family of five, what with kids running electronics, a washer and dryer running around the clock (that would’ve been the large family I grew up in), doors and windows open despite heat concerns, that on average uses more than the home with the larger 400-amp service.
Like the roads we pay for with our taxes, regardless of heavy or light use, the grid is there to handle the needs of each and every member. The usage rate is kept low for light and average users, and increases smartly for heavy users. This keeps clean electricity costing less than the fossil fuel alternatives.
And as a solar sales guy, John, you know how valuable the grid is for those who can afford to install grid-tied solar, which lets them avoid the cost and hassle of expensive batteries and generators, or burning expensive and dirty fossil fuels.
OPALCO energy serves the many needs of members, and continues to be a remarkable value.
I’m glad to see that the usage rate increases with consumption, thus encouraging conservation. But I continue to think that Johns suggestion on the facility charge is a good one. It’s not perfect (nothing is), but it’s better than a flat charge for everyone, regardless of usage and grid connection. A similar observation pertains to EWUA’s policy on guest houses.
Hi Jay & Theresa. Thanks for your attempted clarification to me on areas of interest / confusion. I don’t remember OPALCO asking my vote on the broadband issue… just don’t remember it– that’s all. I remember them asking for up front money from those who were interested as a show of support… but nothing more. That’s where I was coming from in my comments above.
I looked at the chart you offered Jay in your April 10 response to my concerns. To be honest with you I found it a tad confusing. As a low-income small homeowner (1006 Sq. Ft.) in one of OPAL’s super-insulated homes, (who has both electric & propane heat), I use on average less than 600KW per month. I sometimes have trouble making it thru the winter, and have sometimes gotten behind on my bills. To see that the facility charge I am to start paying now will within the next three years itself total more per month than I now pay on average for my electrical use is indeed frightening. Did I mention that I already have trouble paying my electric bill? Everything is going up except for my paycheck. I’ve lived in the San Juans for many years, and would like to retire here… but I fear the writing is on the wall for myself, and for others like me.
That being said know that I gratefully acknowledge the service that OPALCO offers. I honor the men in the field whenever there’s an outage and I know they’re out there, and also the support staff that is there too… words cannot begin to express the appreciation.
On a slightly humorous note I was talking to Vern Coffelt one day some time ago. He told me the story of the early days of OPALCO… his first job was to go around the community and explain to folks what was coming, and try and gain their support. Evidently there had to be a certain amount of support for the venture, or it wouldn’t take off. He said that he at first thought that his job was going to be an easy one. He said he never realized how hard it was actually going to be. He said that many folks looked at him with bewilderment in their eyes after he explained the program to them, and say things like, “What in the world would we need electricity for?” Ha! I from time-to-time think about the conversation I had with him that day, and I sadly ponder our loss of so many members of what is possibly one of the last do-it-yourself generations.