OPALCO Debt and Equity in Good Shape

At the March 17, 2016 board meeting in Eastsound, staff presented the 2015 year-end financial report. In a nutshell, OPALCO’s finances are in good shape: expenses were reduced, revenue met the adjusted target and TIER is back to a conservative 2.51. Read below for more information on debt and equity, and the full year-end financial report presentation is available in our Resource Library.

Throughout OPALCO’s 79-year history, the total amount of debt the Co-op has had to take on has steadily risen, in relationship to steadily rising costs of capital construction projects. Debt has increased at a rate of one percent per year since the Co-op first began to take on debt. Our equity as a percentage of total capital is healthy at 53% (as of year-end 2015).  Our lender, USDA/RUS, holds us to a standard of between 30-60%.

Our debt and equity positions have exhibited the ebb and flow consistent with major capital projects – and especially expensive submarine cable projects. Our lowest historical equity position was -11% in 1955 and it remained negative through the 1960’s as we installed the first submarine cables. It took until 1986 to reach greater than 30% equity, dipping again in 1992 following the undergrounding projects of 1990-1991 and a submarine cable installation.  We reached our peak equity in 2006 at 75%. This ebb and flow pattern will continue as we expand our infrastructure, replace aging submarine and underground cables and then recover from each major capital project.

Co-op membership growth flattened out in 2008, and has been stable ever since. What does a business do when fixed costs continue to rise and growth is flat? Without greater numbers of members to share in rising power and operational costs, rates must go up and we must seek innovative solutions for new revenue.

In November of 2013, the Board made a conscious and unanimous decision to accelerate the expansion of our grid to serve our membership with broadband services and to use equity and rates to fund that expansion. Since the adoption of a business plan to provide our membership with broadband (Internet services), debt has increased $17M.  Of this, $8.8M was used for OPALCO capital spending on the electric distribution system, $3.2M for modernization and expansion of our communications grid, $1M on our transmission side for the Submarine Cable Project and $4M in the form of a loan to Rock Island Communications for start-up operations.

Our current debt (as of year-end 2015) is about $35M. We project debt of about $48M by year-end 2016, which includes $6M (2016 expenditures) for the Submarine Cable Project.  Once the Submarine Cable project is complete in 2018, we project the debt to be around $52M and capital spending will taper off.  At this point, OPALCO will refinance the loans to Rock Island Communication away from OPALCO and reduce overall capital debt financing down to a target of approximately $46M debt by 2019.