Make OPALCO Power Affordable Again.

Huge Increase in OPALCO Debt Tells the Story

By Alex MacLeod

February 22, 2016

Tracking the financial hole that OPALCO has been digging for itself, and which is resulting in significant rate increases for its electric customer/members, can be daunting

 

If you listen to OPALCO management and its board, rates have been rising so rapidly because they were kept artificially low during the Great Recession, or that global warming has depressed energy use and thus revenue, or that we are having to pay the extraordinary cost of replacing the submarine electric cable from Lopez to San Juan.

 

There is some truth to each of those explanations, but they fail to explain how the hole has gotten so deep and the rate increases so steep.

 

The real explanation can be found by analyzing the enormous growth in OPALCO's debt, which has nothing to do with anything other than its ill-advised, go-it-alone foray into the broadband/Internet business.

 

From the time the OPALCO board decided to enter the Internet business, it's debt had jumped from roughly $18 million to nearly $39million.

 

Of that $21million increase, only $4.4 million went to the submarine cable project. The balance - $16.6 million - went to the Internet business: approximately $5 million in the startup money directly to Rock Island and roughly $11 million to expanding the "electric" grid and buying Vulcan's wireless spectrum to support the Internet business.

 

So, when you step back from the public-relation gloss you can see pretty clearly that OPALCO has spent roughly the cost of the submarine cable on its Internet business. And it has done so knowing that it also would have to replace the cable, the major expanse of which is to come due this year.

 

Among other things, the impact on rates from this investment has been clear. Absent this investment, OPALCO most likely would not have violated one of its loan convenants in 2014, despite the warmer-than-predicted weather that year.

 

The annual cost of all this debt has risen to about $1.4 million from about $790,000. an increase of nearly 80 percent. At least half of that increase is the result of the Internet business, yet it is the electric rate-payers, not Rock Island's new broadband customers, paying for it.

 

While OPALCO swears that the grid-infrastructure improvements were to modernize the electric system, it is clear from the language of its own board resolutions - most particularly the seminal one in November, 2013 - that the goal was for OPALCO to be an "infrastructure provider" for Broadband "connections to the home." That was the resolution that authorized the purchase of Vulcan's wireless spectrum for the same reason, even though minutes of the meeting make clear that then-general manager Randy Cornelius said it had no real value to OPALCO's electric business.

 

What's worse, in making those "grid-infrastructure" investments, OPALCO said they would produce direct and indirect annual savings to each member of - yes, down to the penny - $29.42. Raise your hand if you've seen those savings. I thought not.

 

Actually, costs have risen, not dropped. There have been no savings, direct or indirect.

 

Those of you who have grown concerned about the big increases in your power bills have a right to know the real reasons why. OPALCO's Board and management have a moral - not to mention fiduciary - duty to be honest with us about the debt it has taken on, what most of it really had been for and why we should be paying for it as if it is connected to our electric service.

 

The reality, at this point, may be that we're just stuck with this bill, and the ones sure to follow, but it might be less annoying if OPALCO and its board would just be honest with us.

Make OPALCO Power Affordable Again.

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