REAnet failure may cost local electric

REAnet failure may cost local electric-users

Dec. 22, 2001

By Janelle Holden
Journal staff writer

Despite earlier statements to the contrary by Empire Electric Association officials, REAnet’s bankruptcy may contribute to an increase in electric rates this spring.

Electric rates are expected to rise in March because Tri-State Generation and Transmission Association, which provides wholesale electricity to Empire, is raising its rates by a little over 10 percent.

But because of REAnet’s bankruptcy, Empire is now responsible for $7.5 million of REAnet’s $15 million credit line, $300,000 in interest on a loan to pay the credit line off, and $710,000 in startup costs.

When the bankruptcy occurred, Empire and La Plata Electric Association, who partnered to form the telecommunications subsidiary in 1998, said that state and federal laws prohibit them from raising electric rates to pay for lost investments of for-profit subsidiaries. They said the money would have to come from the unrestricted cash reserves of the co-op, and no member rebates, or capital credits, would be issued until the debt is paid.

Neal Stephens, Empire’s general manager, said the association is now asking whether raising rates based on the loss is legal.

"I’ve actually asked for a legal opinion, from our counsel, to find out if that is indeed legal or illegal and then we’ll have to figure out how to deal with that issue once I get the legal opinion," said Stephens.

La Plata passed a rate increase this week, but spokesman David Waller said it was only a "pass-through" increase based on Tri-State’s rate hike.

"We will not be raising any rates based on any losses from REAnet," said Waller. "We have always staunchly opposed that, and our opinion has always been that we can’t do it."

Stephens said Empire has hired a consulting firm to conduct a cost-of-service study before it raises its rates. The study will determine the percentage of the rate increase, how it will be distributed between residential and commercial users, and how to pay back nearly $800,000 a year in principal and interest on Empire’s loan.

The rate increase will be the first in 10 years for Empire, which currently charges residential users 6.28 cents per kilowatt-hour and small commercial users 7.195 cents, which Stephens says falls somewhere in the middle of national electric rates.

"Now that we’ve got the increasing expenses, along with the wholesale rate of Tri-State, it’s a must," said Stephens.

Tri-State’s rates make up 65 percent of Empire’s cost of doing business. Its rate increase was the first in 17 years, and Tri-State points out the current average rate is still lower than the 1986 rate — which was approximately 4.6 cents per kilowatt-hour.

Rising costs have also affected Empire’s employees, who saw only a small increase in wages this year. Stephens said the staff was able to cut budgeted expenses by $1.3 million this year, and the association is trying to cut down on the number of employees through attrition.

REAnet’s assets are still tied up in bankruptcy court, but LPEA invested an additional $1.8 million in the fiber-optic infrastructure REAnet built before its bankruptcy to provide wholesale broadband services in the Four Corners, beginning with Farmington.

Waller said that LPEA’s new subsidiary, FasTrack Communications, has tied a Farmington fiber loop into the fiber backbone that runs from Albuquerque to Grand Junction. The fiber tie-in is in the final testing stages, and FasTrack hopes to sign up customers in the next 30 days, said Waller.

With the profits from Farmington, LPEA plans to connect and light fiber-optic strands from Farmington to Durango and Cortez.

Empire refused to donate any more funds to the project, but agreed to give up part of its assets. Stephens said Empire owns 25 percent of FasTrack.

REAnet was created to bring high-speed telecommunication services into the Four Corners and generate profits to help the rural electric co-ops survive electric deregulation.