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April 5, 2001 By Janelle Holden No capital-credit checks are likely to be cashed by members of the Empire and La Plata electric associations this year. The associations’ joint private telecommunications venture, REAnet, declared Chapter 11 bankruptcy on Tuesday — leaving Empire and LPEA with REAnet’s $15 million guaranteed loan to repay in August. By law, the associations cannot raise electricity rates to make up for a loss from a diversified business, but they can use the available cash on hand, such as capital credits. Spokesmen for both of the associations said that the amount of capital credits returned will be determined at the next board meetings. "It’s my understanding that you simply can’t raise rates to recover losses from diversified businesses," said Empire general manager Neal Stephens. "However, we’re going to have to obtain some kind of a loan from one of our lenders to pay the loan back if REAnet is not successful in their reorganization," he said. "At one time the (Rural Electric Association) required that we maintain a general fund level of 8 percent of our total plant. If we were at that percentage we wouldn’t have any problem." Last year, Empire issued $800,000 in capital refunds to its 13,000 customers. Dave Potter, chief executive officer of LPEA, predicted its members wouldn’t see a refund. "There won’t be a cash refund this year, and our bottom line will be negative because we will write off the $7.5 million. We’re just going to write it off and get it behind us," Potter told the Durango Herald. Empire and LPEA originally started REAnet because U S West refused to build a fiber-optics network in the area, and as an attempt to diversify before the electrical market was deregulated, Stephen said. "Looking back, I think the board made the right decision to try and provide something for the community," said Stephens. "Now in 20/20 hindsight, the beauty of that is I wish that we would have not adopted the strategy of trying to build out part of this network, but more of going out to the investment community with the plan and obtaining the financing first before we built it out." Both Waller and Stephens said the association’s boards would be wary of investing in diversified businesses again. "I think it was just the times, and it’s not over yet. But, no, I don’t think we’ll be going into another venture like this," said Empire and REAnet board member Faye Kautz of Cortez. According to Raymond Keith, REAnet’s acting CEO, the bankruptcy will keep REAnet’s creditors at bay until the company reorganizes and collects its assets. Keith blamed the company’s financial problems not on management, but on a business plan that was too large for the financing available. "We’ve stopped now to reassess where we are and downsize the business plan," Keith explained. REAnet hired Gartner Consulting, a leading consulting firm, to help reduce the scope of its business plan. "Because of the investment climate now for telecommunications, it’s just harder and harder to find that kind of money, so we need to scale the plan back to something that is more likely to be financed and something we can operate locally," Keith said. REAnet’s former business plan included providing the infrastructure for high-speed fiber-optic services throughout the Four Corners, and was recently expanded to include the entire Western Slope. Keith said that although it’s too early to tell, the new business plan’s core would likely only include Montezuma and La Plata counties. "We believe it’s still a good idea, but it’s just tough at this point in time to raise the money necessary," he said. LPEA and Empire, the principal stockholders of REAnet, have been trying to sell their shares to other investors, but have yet to find a buyer who is financially solvent. David Waller, spokesman for LPEA, said it would take $4 million or $5 million to finish out the current business plan. REAnet’s former CEO, Kelly Bloomer, resigned to form a company of investors he promised would buy REAnet for $200 million. But the money was never produced, and LPEA had to open up the competition to other investors. According to papers filed in U.S. Bankruptcy Court in Denver on Tuesday, REAnet owes $20.6 million to its creditors. Besides Empire and LPEA, the 20 creditors holding the largest unsecured claims includes the Mountain Plain Distance Learning Partnership. Mountain Plain gave REAnet a $300,000 federal grant in October to construct a fiber-optics network between schools in Montezuma and Dolores counties that would support distance-learning programs. Construction of the network was expected by the beginning of the school year. REAnet also owes Western Energy Services of Durango, another subsidiary of LPEA, $2.3 million for construction services and materials. Other creditors include Nortel Networks in Englewood at $1.9 million for merchandise, and D&K Telecom Consulting of Colorado Springs at $324,520 for construction services and material. The list of creditors did not include any businesses in Cortez. The creditors plan to meet in Denver in a month to six weeks to review the company’s operations, said REAnet’s attorney, Harry Sterling. A committee of the unsecured creditors may be formed to streamline the process and meet regularly with the company. Keith said REAnet planned to continue employing its nearly 50 workers in Colorado, New Mexico and Utah, and provide Internet services to its 15,000 customers. |
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Copyright © 2001 the Cortez Journal.
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