As you may recall, in the 2003 Annual Report mailed last April and at the Annual Meeting in May, I discussed the need for a rate increase in the near future. I recently asked the Board of Directors to approve an increase in our electrical rates, and I thought I would briefly share with you some of the reasons why OPALCO needs to raise its rates.
There are three issues that are driving this rate increase: the increasing costs for OPALCO to do business, an $8.8 million work plan which includes a $2.4 million submarine cable project, and a projected 30% increase in our wholesale power rates beginning October 2006.
Just like in your homes, the cost of doing business here at OPALCO increases yearly. This comes from such things as increases in insurance premiums, property taxes, fuel costs, employee salaries and benefits, and the materials and equipment needed to maintain our system. In an effort to hold down operating expenses, management has pledged to limit each department’s operating budget to a 3% increase per year for the next three to five years.
OPALCO is a federal borrower, which means that we borrow funds from the Rural Utilities Service (RUS), a division of the U.S. Department of Agriculture, for capital improvement projects. As a result of this, OPALCO is required to submit board approved three-year work plans to RUS. The 2003-2006 work plan calls for $8.8 million in system improvements. The projects that made it into the work plan are necessary to provide adequate and dependable service to our members. The engineering department uses sound design criteria to prioritize the projects within the work plan - projects such as the replacement of failed and aging submarine cables, 12.5 miles of failing underground (URD) cables, 240 poles, and equipment such as transformers, regulators, and sectionalizing devices. OPALCO’s risk management plan is to have two submarine cables in each crossing; therefore, the above-mentioned $2.4 million submarine cable project (scheduled for 2004) will replace a failed cable between Decatur and Blakely as well as failing cable between Orcas and Blakely which was installed in 1951. In addition, we will remove abandoned cables and install fiber optic cables between Lopez and Shaw as well as Shaw and Orcas. The fiber optic cables will complete our fiber optic backbone, which the board approved some years ago. The remaining projects within the work plan will be extended out over the next four years in an effort to minimize any future rate increases. In regard to the URD replacements, 85 of the 174 power outages we experienced last year were related to aging underground cables.
The final issue impacting our rates is Bonneville Power Administration’s projected increase in our wholesale power rates beginning October 2006. The board of directors certainly showed their wisdom when they signed our full service power sales agreement with BPA in September of 2001; this contract runs through 2011 and locks in our wholesale power cost until 2006. Our full service power sales agreement has protected OPALCO members from the three cost recovery adjustment clauses - or rate increases - that triggered when BPA needed additional revenue; some of our neighboring utilities were not so fortunate. In 2006, we will have to negotiate an adjustment in our rates; although OPALCO is contractually guaranteed the lowest priority firm power rate that BPA has established over the 2001 to 2006 rate period, BPA is predicting an increase of at least 30%. If OPALCO were to buy the same amount of wholesale power in 2006 as it did in 2002, a 30% increase means we would have to pay an additional $1.3 million for that same power.
As a result of these issues, the board has approved a 10% increase in our electrical rates, a 5% increase in our base charge, and a 5% increase in our demand charges with an effective date of November 1, 2003. OPALCO will use the funds to prepare for the 2006 rate increase, to improve our cash flow and cash reserves position, and to fund our efforts to complete our work plan. This rate increase will cost our average residential member, who consumes approximately 1,000 kWhs per month, about $6.50 extra per month.
Thank you in advance for your understanding regarding this issue. I want you to know that we at OPALCO are all doing our best to run a tight, efficient business. I am continually impressed by the employees at OPALCO – they work hard and do a great job, and they do this with the attitude that our members always come first.
I would also like to tell you how much I enjoy living in San Juan County and
working at OPALCO. Dottie and I would like to thank all of you for including
us in this wonderful community.
