Revenue forecasting and debt the real reasons for OPALCO increase | Guest Column

By Alex MacLeod

Special to the Journal

A day after the OPALCO board approved an emergency 10 percent increase in our electric rates, effective at the start of this month, its management issued a press release announcing the “Temporary Revenue Recovery Add-On.” In it, General Manager Foster Hildreth “explained” that the emergency increase was needed because “Members have not been paying their full share” of OPALCO’s costs.

It is hard to imagine a less honest or more brazen, blame-the-customer reason for our electric rates having been increased 10 percent just four months after having been increased 12 percent, and these on top of sequential 6 percent annual increases. The real reason is that OPALCO has so badly mismanaged its spending that it needed this latest increase to try to get right with its primary lender after violating terms of its loan agreements.

While OPALCO’s board described the latest increase as temporary, it is working on a new rate plan for 2016 which would increase rates as much and as often as necessary to cover any and all expenses, a move required by a “corrective action plan” to satisfy its lender.

OPALCO’s financial problems are the result of bad revenue forecasting, huge increases in debt to finance its entry into the Internet/broadband business and significant increases in operating expenses, which have produced budgets over the past 18 months that have tumbled into the red and led to the violation of its loan agreements.

Members, on the other hand, have been paying our bills in full and on time, even though those bills now include the cost of creating the infrastructure for OPALCO’s Internet/broadband venture.

When OPALCO began making these Internet/broadband investments, which it said were necessary to upgrade the electric-grid “backbone,” it said they would more than pay for themselves. In fact, management calculated those “savings” down to the penny — $29.42 per member per year. However, electric-distribution expenses instead rose 18.6 percent  in one year and while its administrative expenses rose 19.4 percent.  And those are called savings?

If this weren’t troubling enough, OPALCO soon will need to begin borrowing upwards of $45 million to replace submarine electric cables. These are really important, as you might guess. But rather than position the cooperative to be ready for that financial impact, the board chose instead to spend millions to jump into the Internet/broadband business, to serve perhaps one-third of its members, and in the process violated its loan covenants.

One might presume the board, under these circumstances, would attend more closely to its oversight of management, or at least its access to the membership who showed up in big numbers to complain at the board’s June 18 meeting. But no, it’s gone on vacation until Aug. 20. Having blamed its problems first on “global warming” and then on its electric customers, this may give management time to come up with a new excuse for its own failures.

– Alex MacLeod is a longtime OPALCO member who lives on Shaw.