YVEA shows subsidiary slumps

Local electric utility butting heads with Xcel Energy over fuel adjustment costs

A failing Yampa Valley Electric Association subsidiary and pending arbitration against Xcel Energy could overshadow the positive financial reports announced Saturday at the local utility's annual meeting.

President and general manager Larry Covillo described 2002 as "an excellent year."

"We haven't seen sales increases like this since the 1970s," he said.

YVEA reported a sales increase of more than 7 percent, and an outage level less than half the national average. It refunded $2 million in patronage capital to its members.

After delivering the good news, Covillo announced that a deal to sell HighSpeed Communications, a YVEA subsidiary, had fallen through.

YVEA had tried to dump the company because, according to Covillo, "the Internet operating company was supposed to be self-sufficient. That didn't work out."

YVEA member Dave Gilmer said the YVEA board of directors has become distracted by the problems with the subsidiary instead of focusing on running the electric company. He said YVEA should focus on electricity, not diversifying into areas in which it has no expertise.

Gilmer asked the board to consider changing the bylaws of the company to prohibit future boards from attempting to diversify. He implored the board to "stick to the knitting."

Covillo said the proposal is something the board could entertain. He admitted the board was not anxious to repeat this attempt at diversification.

The decision to diversify came about when electric utility deregulation hit California. According to Covillo, the National Rural Utilities Cooperative Finance Corporation (CFC), which helps rural utilities obtain financing, convinced co-ops to diversify because these small utilities would have trouble surviving if the deregulation trend continued.

"A lot of co-ops looked at ways to diversify," Covillo said. "The more items you can offer a customer, the less likely they are to leave."

YVEA teamed up with three other Colorado cooperatives to purchase licenses to operate local multipoint distribution service. This wireless broadband technology offers extremely high-speed Internet access, voice and video transmission.

Currently, HighSpeed Communications, a YVEA subsidiary, offers local multipoint distribution service to customers in Hawaii, California, Oregon and Washington, but not Colorado.

YVEA was not able to secure financing to continue to build that company, Covillo said.

YVEA is left holding licenses to a technology it cannot afford to deploy.

Covillo also discussed the pass-along of fuel costs from Xcel Energy, YVEA's major supplier of electricity, to YVEA customers. He announced that Xcel Energy filed on June 19 another rate increase effective August 18.

"We're not happy with the fuel adjustments," said Covillo.

YVEA has joined Holy Cross Energy and other electric cooperatives in arbitration against Xcel Energy that could result in refunds into the millions of dollars.

The hearing by the Federal Energy Regulatory Commission is scheduled for August.

Covillo said a cost of service study shows that Xcel Energy is overcharging YVEA for the electricity it purchases from Xcel Energy.

Jim Chappell, manager of consumer accounts, said YVEA is challenging the method used to calculate monthly fuel cost adjustments.

Previous rate increases by Xcel Energy caused YVEA in 2002 to begin adding pass-through charges to its customers' monthly statements.

Covillo said last year's pass-through charges amounted to about one-third of a cent per kilowatt-hour.

Despite the pass-through charges and losses incurred by subsidiaries, YVEA still offers consumers a competitive electricity rate, Covillo said.

Irlan Neas, YVEA board member and former chairman, said Saturday that YVEA's rates are the third lowest among state co-ops.

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