HEA seeks to up debt cap

Posted: Tuesday, August 17, 2004

Homer Electric Association has launched an education campaign to encourage its electricity customers to approve in-creasing the amount the co-op can borrow to $450 million.

As members of the co-op, customers must vote to approve any changes to HEA's articles of incorporation and bylaws. The articles currently limit the debt to $150 million.

Ballots will be mailed to co-op members Sept. 9, and people may vote on three proposals by mail or in person at a special membership meeting Dec. 10 at the Kenai Visitors and Cultural Center.

HEA members are being asked to allow Homer Electric to raise the limit of its indebtedness by $300 million from $150 million, a limit which had been set in 1977.

To change the articles requires approval from two-thirds of the voting members.

Members also will be asked to approve electing HEA board directors by representative districts rather than at-large and to approve establishing term limits for the board directors.

Homer Electric's management is endorsing the proposition involving the debt limit, according to General Manager Brad Janorschke, and HEA Board President Dave Carey said the board supports the measure unanimously.

As of Dec. 31, 2003, HEA's total liabilities were $143 million, which is just $7 million short of the current debt limit, according to Carey.

"If we had a major disaster a major storm or a volcano eruption we could not rebuild 'cause we don't have the ability to get loans," Carey said.

When the association first incorporated in 1945, the debt limit was set at $5 million. Members voted to raise the limit to $40 million in 1954 and again, in 1977, members raised it to $150 million.

HEA's current level of indebtedness includes $38 million for electricity generation, $15 million for transmission, $77 million for distribution and $13.5 million for operational needs.

Janorschke said the $450 million limit being sought is based on normal anticipated plant growth over the next 10 to 25 years.

"If we need to build our own generating station within 10 years, we would be able to," Janorschke said.

Currently HEA purchases electricity that is generated by Chugach Electric Association.

In a printed brochure HEA will be distributing to members, the utility states that without the increased indebtedness ceiling, it would no longer be able to provide long-term financing for line extension projects, consumer loan programs, additional generation facilities, maintenance work, system improvements and emergency repairs due to natural disasters.

Rather than paying for those types of expenses over an extended period of time by getting low-interest loans, HEA would need to pay up front, placing more of a financial burden on the cooperative.

Projections show that members would face an overall rate increase of 35 percent by 2010 without the raised debt limit.

Carey said if members approve raising the liability limit to $450 million it would give the HEA board the "ability to lessen the amount of rate increases."

The board has not taken a position on the proposed changes to the bylaws affecting voting by district and term limits, Carey said.

The education campaign already has begun with a public presentation to the Soldotna Rotary Club, according to spokesperson Joe Gallagher.

Other presentations are planned for the Kenai, Anchor Point and North Kenai chambers of commerce and the Homer Rotary Club.

The proposition will be publicized in the newspaper and on radio, Gallagher said, and HEA will have an information booth on the topic at the Kenai Peninsula State Fair in Ninilchik.

Additionally, HEA employees are conducting a grass-roots campaign to publicize the proposal among friends and neighbors, according to Gallagher.

For more information, people can visit the utility's Web site, www.homerelectric.com.

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