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OPALCO is in good financial shape and has been for several years. It is this financial condition that allowed us to absorb a $1 million submarine cable repair project without drastic long-term effects on OPALCO. Prior to the cable repair, we had saved about two-thirds of the cost of the repair, and a remaining one-third will come out of the 1996 budget. The electric utility industry has entered into a time of unprecedented change. None of us are exactly sure what the industry will look like in five or ten years, and it is this unknown that will challenge us as we try to maintain the financial strength of OPALCO. The generation of electricity in the United States was deregulated almost twenty years ago. Since that time, a large number of non-utility power generators have evolved, many of which have a cost of electricity that may be one-half to one-third as much as the cost of power out of an old utility power plant. Today, federal regulators are requiring that utilities owning transmission systems open these lines to anyone desiring to transport power from one point to another. The regulations require that the utility owning the transmission lines charge other users no more than they themselves pay. No longer are utilities like OPALCO constrained to buy their power from the Bonneville Power Administration because it owns the transmission lines. Whether we buy power from BPA or someone else, the cost to deliver it to the San Juan Islands will be the same. The future will bring "retail wheeling", which is deregulation of the local distribution facilities. A few years into the future, you are going to have the option of buying power from OPALCO or several other potential suppliers (like you can do with long distance telephone today). You can use our power lines to move the power to your home or not, as you see fit. It doesn't make a lot of difference to OPALCO if the power that you use at your home comes from BPA or another supplier. What is crucial to us is that you use our submarine cables and our overhead and underground power lines to get the power to your home. To do this, we have got to make sure that the amount we charge our members to deliver the power is as low as possible and competitive with other potential distributors of power. Our electric rates and the revenue they produce are the single largest contributor to the financial strength of OPALCO. During 1996, we are going to perform a cost-of-service study to ensure that our costs will be recovered under the new Bonneville rates and that each class of consumer (residential, commercial, etc.) is paying their fair share of OPALCO's costs. Once this study is completed, we are going to develop a ten-year financial plan which will lay out OPALCO's financial expectations over that period. I am anxious to begin looking at this because of the far ranging implications to OPALCO. Next time we will talk about the third of our strategic objectives.
Doug Bechtel
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