Ballot measure would eliminate utility's debt ceiling

Posted: Sunday, April 29, 2001

Diversification is among Homer Electric Association's strategies for providing the lowest possible rates, managers say, and proposed changes in company rules could allow HEA to take advantage of new business opportunities.

But some consumers are wary of the proposal to eliminate a $150 million cap on HEA debts from the utility's articles of incorporation.

"I just don't like the idea of a totally open thing," said Hal Rohlman, a retired school teacher who lives in Sterling. "I'd just rather have the membership have a say."

Roy E. Hoyt voiced similar views in a recent letter to the Homer News.

"It is utterly foolish to allow the corporation to have an open checkbook," he wrote.

The proposal to eliminate the cap is Proposition 4 on the HEA ballot. The cooperative's members will vote during the HEA annual meeting May 5 at Tustumena Elementary School in Kasilof.

Lunch is at noon, followed by the business meeting at 1 p.m. HEA has mailed ballots to its members, who also can return them by mail or drop them at HEA offices in Kenai and Homer. The deadlines for hand-delivered ballots are May 4 by 3 p.m. in Kenai, or by 5 p.m. in Homer.

Members also will elect three people to the board of directors and vote on other propositions. Propositions 1 and 2 are housekeeping measures to eliminate bylaw clauses no longer relevant to HEA operations, said Sandra Ghormley, manager of marketing and member relations.

Propositions 3 and 4 would allow HEA to take advantage of new opportunities, she said.

"There's really nothing on the horizon. There's nothing pending," she said. "The cooperative is looking to the future regarding what in the bylaws could hinder or obstruct participation in new business opportunities."

She said the cooperative wants to eliminate the debt ceiling so that it can move quickly to take advantage of new opportunities. It is clear from remarks that have been made that some members do not have enough information about HEA, she said.

Rick Eckert, manager of finance and new business development, said HEA debts now total about $60 million. Its assets -- power poles and lines, substations, transformers, fiber optic lines and equipment, vehicles and offices -- total about $138 million on a cost basis or $124 million in net book value, which includes depreciation.

HEA has a debt-to-assets ration of 41 percent and an equity-to-assets ratio of 42 percent, he said.

"The directors established a plan some years ago in which they maintain an optimum amount of equity," he said.

HEA has joined with Unocal and Enstar Natural Gas Co. to explore the feasibility of building a $45 million natural gas pipeline between Homer and Kenai. That could make south peninsula natural gas available to Kenai, Soldotna and Anchorage, and open the doors for natural gas service to south peninsula consumers.

The feasibility study will examine the supply of natural gas and look more closely at the cost of a pipeline, she said, and with a project that big, it is conceivable that the HEA debt ceiling could come into play.

Cooperative members should not fear elimination of the ceiling, she said, since even without it, no bank would loan HEA more money than it judged the utility could repay. Before HEA could borrow, she said, it would have to produce a sound business plan and demonstrate that it is a viable organization.

Proposition 3 on the HEA ballot would eliminate a clause from the bylaws that requires a vote of cooperative members before HEA can join or buy stock in any other organization.

An exception in the bylaws does allow HEA, with approval from its board of directors, to join or buy stock in a nonprofit corporation organized to further rural electrification or to engage in activity allowed under the Alaska Electric and Telephone Cooperative Act.

"The amendment would authorize the cooperative to participate as a member or shareholder in for-profit organizations and nonprofit corporations offering nontraditional services," the ballot measure says. "The requirement of submitting each venture to the members for approval is unrealistic in today's business environment and effectively precludes opportunities for the cooperative in some instances to partner with other organizations."

Hoyt's letter urged members to reject Proposition 3.

"The membership should not give up their right to vote on affiliated memberships of the cooperative," he wrote.

Rohlman took a different view.

"Proposition 3 was allowing them to join other organizations, things that would help the organization," he said. "I'd like to give the board as much leeway as possible. As we grow, we're going to have to work with other groups with like interests."

Eckert said passage of Proposition 3 would allow HEA to become part of a limited liability corporation, and that could offer tax advantages. Proposition 3 conceivably could come into play if HEA ever partners with another entity to build a fiber-optic cable between Kenai and Anchorage, he said.

Partners studying the potential gas line to Homer are studying several possible business structures, he said, but Proposition 3 conceivably could play a part in that enterprise, too.

"We'll look at scenarios for that project and choose the one that gives the lowest cost and the highest benefit to cooperative members," he said. "That's the driver. ... If for some reason the board didn't participate in an opportunity that would bring reasonable rates for our members, that's bad. We have an obligation to get those better rates for them."

HEA aims to provide the lowest rates possible to its members, he said.

"Also, the board has decided that diversification has to be part of the formula," Ghormley said. "This has got to be changed in our bylaws to continue moving toward that strategic goal of diversification."

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