Make OPALCO Power Affordable Again.

The OPALCO Hole Deepens

By Alex Macleod

Monday, January 11, 2016

As 2016 begins, and yet another OPALCO rate hike kicks in, it is worth looking back at 2015 to see how OPALCO's go-it-alone Internet business is doing.

 

For starters, Rock Island Communications has blown through nearly $5 million of what was to be a three-year, $7.5 million "startup" loan from OPALCO. And what does it have to show for it? As of its December report, it had about 400 fiber customers and almost no LTE connections, in total less than half of what it projected through the year.

 

On the broader expense side, OPALCO has spent as much as $11 million to expand what it calls the "electric-grid backbone," virtually all of which, in truth, is for its Internet business. It spent more than another $1 million to buy and make active Paul Allen's wireless spectrum, and this year plans to increase the staffing of Rock Island to about two-thirds of the total staffing of the core electric business.

 

Meanwhile, the "electric-grid backbone" investments, which were promised to produce actual savings in operating expenses, have produced none. Instead, expenses continue to grow and grow, from $13 million in 2009 to a budgeted $22 million this year — and that doesn't count another $3 million in operating expenses for Rock Island.

 

The result has been predictable.

 

In 2015, the board raised everyone's base charge 36% and raised overall rates by 12%. Then in July it tacked on a 10% surcharge on energy use to keep on the right side of its lender. This was after raising rates 6% in each of the previous two years. This year, the rate increase is 5%, but that doesn't count a new charge on everyone's bills to raise more money for the many county residents who can't afford to pay.

 

On top of that, the board last month cut in half its annual return of "profits" (in non-profit terms "profits" are called "margin") to longtime members and said it would continue that for several more years. It blamed that more on the added borrowing costs to replace underwater electric cables; the reality is there would have been plenty of money to finance that debt had OPALCO not chosen to go into the Internet business.

 

The saddest part of this story is it didn't have to be this way. OPALCO had a deal with CenturyLink the would have delivered at least 10 mbps service to at least 75 percent of all island households at virtually no cost to OPALCO. CenturyLink would have paid almost all of the cost of extending OPALCO's fiber network to existing CL hubs. The resulting speed would have been adequate for most households; others could pay, as they have in the past, to connect directly to OPALCO's fiber network.

 

By comparison, OPALCO's go-it-alone plan, even if all its goals are met, will provide faster Internet to just 25 percent of island households, yet all will pay the infrastructure costs to get there.

 

So, why did the OPALCO board choose to do all this on its own?

 

Greed is probably the simplest way of putting it. The board saw being in the broadband business as a goose that would lay unending golden eggs of profit. Never mind that it had no experience in running anything other than a sleepy monopoly, nor undertook any meaningful assessment of risk before taking the plunge.

 

While any other entrepreneur would have to go into the market to raise capital, OPALCO could rely on its federal loan program. And why care about risk when, as a monopoly suppling people essential electricity, you could just fund anything simply by raising rates — as we've come to learn.

 

I have written many times about the financial burden the OPALCO board has been dumping on its members only because the board and management have not be straightforward — some might say honest — about what it is doing.

 

All along, I have told OPALCO and members of its board to show me that I am wrong and I will stop writing. Instead, it public-relations people chastise me for my "strong opinions," the board advises members to rely on it for information and not mistake my writing, or anyone else's, "for the real conversation."

 

The bottom line is that OPALCO is going down a path where the many are paying for the benefit of the few, the financial risks to the cooperative are becoming increasingly clear and the board has committed to its lender to raise rates as often and as much as it needs to avoid default.

 

The pit is bottomless, so brace yourselves.

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