Financial Information for editorial (12-27-12)

Hi Tom,

"What did the $750K study actually find?"

I was told by staff there are no written reports produced from this expenditure.
One consultant was paid over $200K. Another $ .75MM is budgeted for the broadband initiative / study this year (2013). Of course we are paying for this in part through the two 3 percent rate increases over the last year. I have the breakdown of those expenses up to EOY 2012 and was given permission to post this as an answer to a similar question on Mike's forum. I agreed to redact the names of the consultants. I just haven't had the time and quite honestly have been hoping OPALCO would do it.

"Why is the OPALCO board being so non-transparent?"

Could be a number of reasons. I do not think this board is by nature trying to keep the owners in the dark for nefarious reasons. These are very good people and I feel fortunate we have them as board members.

There is the potential for great tension between owners and boards when owners are kept in the dark. Boards have financial duties to reveal to the cooperative owners the financial risks of and capital expansions into new lines of business. There have been lawsuits over this sort of thing. My hope is that will not occur here.

As to reasons. One intimation from staff is the notion that it would reveal too much information to our competitors. Understanding broadband costs is hardly a dark art to CenturyLink (CTL). Some of the largest costs in terms of capital investment have to do with ditching and fiber extensions. Something CTL understands as well as our co-op. In fact both companies regularly throw cables into the same ditches. Both OPALCO and CTL have sniffed each other out pretty thoroughly in terms of capabilities.

The only people behind the curve in terms of understanding the costs are the owners of our co-op.

The board and staff admit the numbers are "challenging" and "tight." It may be a tacit indication that the numbers may not work. Quite honestly they went from $23MM to $30MM to $34MM on the estimate in a short period last year. So I think there may be a lot of capital expansion built into the $7MM per year and that way they don't have to pin down the capital costs up front.

I calculate that a little over $2MM per year over 25 years will go to pay off the debt on the $34MM capital expansion. So that leaves about $5MM per year going to O & M, which presumably includes the cost of our mainland backhaul and Internet connection POP. If there is capital expansion in that additional $5MM per year we have not been informed what that is. BTW, that $5MM per year is more than what we pay annually for the O & M on our entire distribution grid O & M.

I am not confident that the current $34MM estimate is correct because OPALCO does not have answers to some very straightforward questions that have been asked on Mike's forum. Many of which I have asked before his forum existed without ready answers being provided. This gives reason for some to think the estimate is a huge WAG. I think it is not quite that bad, but as owners we are being given no evidence to suggest otherwise.

The big question we don't know is how much does the WISP and broadband consumer tech support portion of supporting the proposed network cost. I believe the O & M costs for running a wholesale broadband backhaul (open network) would be far cheaper in O & M costs than what is being proposed. However, what would our co-op have to charge to the WISP, CLEC or ILEC retailer and provider of the consumer products in order to cover the wholesale open network approach?

We don't know and yet the board and staff claim they have done the financial analysis and the only way it works is to provide the entire consumer solution. However, when the 3 members of the board (team broadband) asked to meet with me last January it became clear during the 3-1/2+ hour meeting they had not really figured out what the costs would be to wholesale. So I'm not sure how they can aver that the wholesale solution doesn't work for our co-op.

Tom, give me a call and we can bounce around some ideas on how to better inform our owners.

Thanks for your words of appreciation. I had similar thoughts shared by folks on Lopez.

Gray