HEA members will benefit by increase in co-op's debt cap

Posted: Friday, August 27, 2004

The board of directors of Homer Electric Association is unanimous in encouraging members of the cooperative to vote "yes" on a special election ballot proposition that would increase the co-op's debt limit from $150 million to $450 million.

The proposal makes good business sense for several reasons, not the least of which is an increase in the debt limit is needed to ensure HEA can meet the needs of its members and at the same time keep rates low for now and the foreseeable future. In other words, an increase in the debt cap will allow HEA to continue with expansion and planned upgrades without placing a financial burden on members.

While the word "debt" has some negative connotations, the increase is not so HEA can go on a $300-million spending spree and then pass the cost along to its members. Rather, it is being sought to cover normal anticipated growth over the next 10 to 25 years.

HEA is nearing its current debt cap of $150 million, with total liabilities now listed at about $143 million. Without an increase in the cap, it's estimated that the utility is about a year and four months away from reaching its limit. HEA officials predict members will be hit with a rate increase of 35 percent by 2010 if the proposal is not approved. That means an estimated annual increase of $294 for the average residential member.

The issue is so important that HEA officials decided it could not wait until the annual meeting in May. That's why a special meeting has been called for Dec. 10. Ballots are being mailed to HEA members early next month. Don't toss them. This is an issue that affects your pocketbook. HEA members need to vote.

It's worth noting that the debt limit has remained the same for the past 27 years. During that time, the number of electric meters in HEA's system has increased more than 75 percent and approximately 700 miles of line has been added. In1950, HEA serviced its first 56 members; today, that number has grown to almost 28,000.

In 1945 when the cooperative was just being formed, the debt cap was established at $5 million; nine years later, it was raised to $40 million; in 1977, it was raised to $150 million.

Without another increase, HEA members will feel the pinch. Here's how utility officials explain it: "Without the option of obtaining low-interest loans, Homer Electric 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. These costs would have to be paid up front, creating an unacceptable financial burden on the cooperative. Instead of paying off low-interest loans over an extended period of time, the cooperative would be forced to recover costs immediately through significantly higher rates and increased fees."

And that's just bad business for everyone. Financing through long-term loans helps keep rates low.

As long as the lights come on when the switch is flipped and as long as rates are reasonable, most people don't give much thought to electricity. HEA officials make a convincing case that this issue needs some thought if the reliable power system that we've come to depend on stays that way.

Two other propositions are on the ballot that will arrive in the mail next month. Proposition No. 2 is a bylaw change that would elect board members by district rather than at large as they currently are. Proposition No. 3 would limit directors' service to three, three-year terms.

Those two proposals are at the request of members and they have merit. Electing by district means better geographic representation on the board. Limiting terms gives more people the opportunity to get involved. Term limits, whether in government or HEA or some other board, also places a responsibility on board members to mentor others so they are prepared to step into positions of leadership.

HEA members should take the time to study the issues and then vote yes on all three propositions.

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