Island Network Business Plan Executive Summary

(1)

Island Network Business Plan

(2)

A Brief History of Broadband in San Juan County

2000

2005

2010

2015

Average Broadband Speed

in North America

17.6 Mbps, 37% CAGR

Average DSL Speed

in San Juan County

OPALCO installs first fiber optic cables

Critical Needs Task Force report

CenturyLink submarine cable blowout

Grid Control expansion funding approved

2020

Board broadband directive to use equity and rates Fiber to OPALCO Eastsound office Island Network provides broadband to government, schools, libraries,…

OPALCO starts broadband feasibility study

Interim Rates Design and construction start

(3)

Board Directive: Broadband Directive

November 21, 2013 Board Meeting

!

Broadband Direction:

!

The Board agreed that the Broadband Vision is to extend OPALCO’s fiber optic and communications infrastructure in support of electric system and for the benefit of our

membership by allowing data service providers access to our infrastructure. Our intent is to pay for incremental growth in communication infrastructure through user fees and leases service agreements. It was agreed that the Direction is:!

A. OPALCO is to isolate its communication infrastructure for the electric system. This means that there will be some capital improvement projects on OPALCO's communication system to isolate OPALCO's capacity/SCADA systems.!

B. OPALCO will be taking an “infrastructure provider” approach for providing members with access to OPALCO’s communication infrastructure. The main areas for potential deployment include, but are not limited to, fiber optic backhaul support for ISPs (e.g. CenturyLink, Rock Island, Orcas Online, Island Network, etc.), wireless infrastructure and direct fiber optic connection (FTTP).!

C. New infrastructure will be built to RUS standards (pre‐engineered, environmental issues addressed, post project inspection and sign off).!

D. Future deployment will be based on paying back the incremental cost of capital infrastructure through lease agreement s. The lease rates are not to include backbone allocations.!

E. Lease arrangements are to be non‐exclusive in nature with OPALCO retaining ownership of this infrastructure.!

F. Staff will continue “open” dialogue communications with our membership while honoring confidentiality agreements.!

Directives:

!

A. CenturyLink: Authorize staff to negotiate lease agreements with CenturyLink based on the above!

parameters.!

B. Spectrum: Purchase of the 700 MHz licensed spectrum as a backbone infrastructure component based on the terms and conditions outlined in the initial term sheet, with language modified regarding maximum interference thresholds.!

C. System Design: Authorize staff to move forward with backbone communication infrastructure design, with expansion capability for backhaul fiber optic, wireless and FTTP deployment.!

D. Island Network; Position Island Network as an ISP and lift the moratorium once designs and rate structures are completed and approved by the Board.!

E. Broadband Manager: Approve a new Broadband Manager staffing position and have staff initiate the hiring process.!

Motion made by Hall, seconded by Lett:

!

“Our Island communities are suffering economic damage and safety issues caused directly by inadequate phone and internet infrastructure. Therefore, OPALCO shall accelerate expansion of our local member‐owned robust, reliable high‐speed data infrastructure to provide internet, phone, and emergency communications services to our members.

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(5)

BPA

Future demand will be met

through well managed

energy e

ﬃ

ciency and

distributed local and

regional energy

sources

ALCO Member T

otal Ener

gy Requir

ements

1900

1950

2000

2050

2100

(6)

Internet

OPALCO Grid Control Backbone

OP

ALCO Grid

LTE Wi-Fi Supervisory Control and

Data Acquisition (SCADA) Substation 1 Substation 16

•••

Automatic Meters Automatic

Meters Automatic _Meters

Automatic Meters

•••

ROIP OPALCO Crew Communications

•••

14,000 meters 60 down-line devices 16 substations Fiber DLD 1 DLD 60 Notes!

Substations Controls distribution of energy throughout   grid and member homes and businesses

DLD Down Line Devices - interfaces OPALCO 

fiber to grid control elements including 

voltage regulators, switches, system 

diagnostics, etc.

• Expanding grid control down-line devices (voltage regulators, switches, system diagnostics) from 23 to 60

• Upgraded automatic meters from daily to hourly reads to help members who use SmartHub for energy use insight

• Adding LTE wireless to improve crew communications in dead zones

(7)

Steadily Improving Reliability

Hours or Occurr

ences

0

1

2

3

4 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14

SAIFI (Average Outage Occurrence per Service) SAIDI (Average Outage Duration per Service)

CAIDI (Average Outage Duration per Occurrence)

• Under-Grounding Program Improves Grid Reliability

!

•

70+% reduction of outage occurrences

!

•

20+% reduction of outage duration per service

!

• When an outage occurs

!

•

30+% increase of outage duration per occurrence

!

•

Because underground failures are more difficult to

 

repair than above ground

!

• Comparables: SAIFI

!

OPALCO:

!

2.1 occurrences

!

NRECA:

!

1.3 !

!

CA:

!

2.1 !

!

• Comparables: SAIDI

!

OPALCO:

!

1.6 hours

!

NRECA:

!

2.1 !

!

CA:

!

2.4 !

!

• Comparables: CAIDI

!

OPALCO:

!

0.6 hours per occurrence

!

NRECA:

!

1.6 !

!

CA:

!

1.1 Occurrences

Duration per Occurrence

Duration

✔

(8)

“Where member owned infrastructure

can serve members, it should.”

(9)

Internet

Community

OP

ALCO Grid

Schools Libraries Government

Homes Businesses ISPs

Homes Businesses

Island Network

LTE Wi-Fi

OPALCOcares Supervisory Control and

•••

Automatic Meters

•••

Police Remote Homes and Businesses Ferry Terminals

•••

14,000 meters 70 down-line devices 16 substations Notes!

LTE An advanced wireless voice, data and cell phone network - Long Term Evolution

ROIP Radio Over Internet Protocol - improves first responder communications in “dark” areas ISPs Internet Service Providers such as Rock Island, Orcas Online, etc.

Fire/Rescue

County Fiber

DLD 1 DLD 70

Notes!

diagnostics, etc.

ALCO Grid

Schools Libraries Government

Homes Businesses ISPs

Homes Businesses

Island Network

LTE Wi-Fi

OPALCOcares Supervisory Control and

•••

Automatic Meters

•••

Police Remote Homes and Businesses Ferry Terminals

•••

14,000 meters 60 down-line devices 16 substations Notes!

LTE An advanced wireless voice, data and cell phone network, Long Term Evolution

ROIP Radio Over Internet Protocol - improves first responder communications in “dark” areas ISPs Internet Service Providers such as Rock Island, Orcas Online, etc.

Fire/Rescue

County Fiber

DLD 1 DLD 70

Notes!

diagnostics, etc.

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• Strong Interest

• 1300 Requests for Service

• Countywide

• Significant demand for fiber

• Home Owner Association (HOA)

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Island Network Member Growth - 2014

Request For Quote (RFQ)

0

240

480

720

960 1,200

IN Subscribers & Scheduled

0

20

40

60

80

100 JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

IN Subscribers

Installation Scheduled

RFQ (right scale)

IN moratorium lifted

ISPs

!

38 !

commercial

!

7 !

residential

!

•

90 locations

!

•

Currently adding about 3 accounts per month

!

• 834 members within 200’ of fiber

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Island Network Business Plan

• IN Business Outline

• Advantage of Grid Control • Market Overview

• Member profiles • Competition

• Cooperation • Product Overview

• Service levels and pricing • PAL heat map

• Operation – Description of Support of Customers and Net Monitoring • Deployment – Community Based/Incentive Structure/Product Offering • Schedule

• Structure - Self Sufficient/Wholly Owned Subsidiary/etc.

• Finances – Summary of Capital Funding/Summary Expenses/Revenue • Income statement out to 2020

• Coop Justification for Investment

• Coop Finances and Risk from Investment • Low-income services

Busin

ess P

lan

Ov

erv

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Vision

Establish subsidiary that becomes financially viable and sustainable

within 3 to 5 years. Minimize risk exposure by capping short-term

investment and tracking budget to actual break-even metrics.

!

Initial Subscriber Target Market

Rather than deploying infrastructure to 100% of service territory,

concentrate on dense neighborhoods (e.g. HOAs) in 25% to 35% of our

service area, in close proximity to OPALCO’s grid control infrastructure

as it expands.

!

Break-Even

Given a market of 8,000 potential subscribers, it will take 3 to 5 years to

connect 2,000 to 3,000.

!

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Connection Incentives

Subscription Incentive

• $1,500 to cover initial construction cost

• Repaid in monthly service charge

• Available for

• Direct

• Seasonal

• Non-Active service categories

• $4.5 million for first 3,000 connections

!

Discount Incentive

• Member fully funds their construction upfront

• $20 monthly discount on service charge

(16)

IN Direct Product Offering

Service Category

10Mbps

25Mbps

50Mbps

100Mbps

Data/VoIP

$95

$105

$145

$195

Data ONLY

$80

$90

$130

$180

Data/VoIP Seasonal*

$45

Data/VoIP

$75

$85

$125

$175

Data ONLY

$60

$70

$110

$160

Data/VoIP Seasonal*

$25

Non-Active w/ Sub Incentive

$25

Subscription

Incentive

Discount

 

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Growth Strategy Example

Co-Mo Connect

• Similar territory to SJI, in MO

• Rural Electric Cooperative

• 32,000 member meters

• Neighborhood HOA approach

• Neighborhood priority by take rate

• Pilot 32% take rate, growing to 55+%

• Low churn

• 64% added phone service

• 4,000 miles overhead fiber ~$2/ft

• 130 miles underground ~$7/ft, 6” to

24” deep

• Competition: CenturyLink and AT&T,

(18)

HOA Targets:

Phase 1

Area

Homes

Goal

FTTP

LTE

Start

Cattle Point,

 

Cape SJ

194

70 Yes

 

50/6

2 Sites

Nov 2014

Doe Bay,

Eagle Lake

60

50 Yes

1 Site

Nov 2014

South Lopez

86

50 Yes

1 Sites

Nov 2014

Deer Harbor

120

75 Yes

2 Sites

Jan 2015

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Deployment:

Phase 2

Widespread demand and broad

engagement county wide

!

30+ HOAs and Urban Cores

Areas that are moving quickly on

engineering and costs estimating:

• SJI - Mineral Point/Highlands

• SJI - Greater Roche Harbor Area

• LOZ - Greater Lopez Village/Whiskey Hill

• ORC - Victorian Valley

(20)

Target HOA’s

HOA

#

Boundary Bay Water Project

65 Bright Water

11 Brown Island

47 Cattle Point

167 Cayou Valley

21 Cessna Loop

393 Channel Road West

52 Crane Island

50 Eagle Lake

42 Eliza Rd

27 Foster Point/Shag Rock

56 Gear Lane

30 Golf Course/ ES Shores

81 Grindstone Harbor

22 Harney Park

30 Mount Dallas

59 HOA

#

North Beach

134 Orcas Highlands

97 Pole Pass

68 Portland Fair

103 RH Resort

38 Rosario

184 SJ mineral Point/ Highlands

62 South Lopez

86 Spring Point

97 Sunset Acres

24 Sunset Ranch Water Assoc

42 View Haven

42 Vusario

15 Whiskey Hill

56 White Point

163 Yacht Haven

142

• Expressed interest

• Will have cost estimate to

all HOA’s on this list by end

of 2014

• 32 HOAs (2,506 members)

• 834 members within 200’ of

(21)

Low/Fixed Income Broadband PAL Program

PAL Funding

Pool

Low Income

Power

Members

Independent

Volunteer

Council

Review

Member Bill

Roundup

Community

Broadband

Fundraising

Broadband

PAL Funding

Pool

Low Income

Broadband

Members

$

Approval

Application

$

Approval

Source! PAL

National School Lunch Program member request

Investigating Low Income Service Package

e.g. 3 Mbps internet + Phone

PAL

BPP

B

roadband !

P

AL!

P

rogram

Application

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Financing

2014-15

2016

2017

2018

Sub-Incentive

$1,500,000

$0

Working Capital

$1,400,000

$600,000

$0

IN Backbone

Expansion

$1,000,000

$0

Total

$2,900,000

$3,100,000

$1,500,000

$0

(23)

Finances

Consolidated OPALCO Financials

Creating such a stand-alone entity will require the support

of OPALCO through cash, equity, and rates.

!

• $1.5m through year end 2014 for entity formation,

staffing, equipment/material procurement, capital

infrastructure for subscriber connections (200).

!

• In order to level Tier and equity targets, we estimate

each member will pay approximately $3 per month,

for 24 months

(to be further reviewed at budget time)

.

(24)

Grants

FCC’s Connect America Fund Phase II

• Investigating opportunities

• OPALCO was among over 1,000 organizations that

submitted an Expression of Interest to participate in trials

• FCC’s current stance is incumbent has priority

• Working with NRECA to get FCC to allow co-ops to apply

• It’s a long shot, but we are working it.

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OPALCO Capital Projects Plan

Managing a Growing Portfolio of Services

(26)

Industry Key Ratio Trend Analysis (KRTA)

2013 Rural Electric Cooperative Financial Condition

Median system’s equity as a percentage of assets: 43%

Median times interest earned ratio (TIER):

2.62

!

Source: National Rural Utilities Cooperative Finance Corporation

(27)

Capital Projects:

Managing an Expanding Portfolio of Services

Equity Level

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

2014

2015

2016

2017

2018

2019

2020

OPALCO without IN Forecast

OPALCO with IN Forecast

• Grid Control Backbone with IN Expansion

!

• While initially increasing debt, within 3

years it becomes cash-flow positive, with

compelling margins

!

• Those margins will quickly rival and

surpass declining energy margins

Submarine

Cable

(28)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

1956

1966

1976

1986

1996

2006

2016

OPALCO Debt Per Meter Connection

(29)

Steadily Improving Reliability

Hours or Occurr

ences

0

1

2

3

4 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14

SAIFI (Average Outage Occurrence per Service) SAIDI (Average Outage Duration per Service)

CAIDI (Average Outage Duration per Occurrence)

• Under-Grounding Program Improves Grid Reliability

!

•

70+% reduction of outage occurrences

!

•

20+% reduction of outage duration per service

!

• When an outage occurs

!

•

30+% increase of outage duration per occurrence

!

•

Because underground failures are more difficult to

 

repair than above ground

!

• Comparables: SAIFI

!

OPALCO:

!

2.1 occurrences

!

NRECA:

!

1.3 !

!

CA:

!

2.1 !

!

• Comparables: SAIDI

!

OPALCO:

!

1.6 hours

!

NRECA:

!

2.1 !

!

CA:

!

2.4 !

!

• Comparables: CAIDI

!

OPALCO:

!

0.6 hours per occurrence

!

NRECA:

!

1.6 !

!

CA:

!

1.1 Occurrences

Duration per Occurrence

Duration

✔

(30)

Capital Projects

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

2015

2016

2017

2018

2019

2020

Grid Control Network

Submarine Cables

All Other

Underground Distribution (URD)

Distribution - all other

IN

• Objectives

!

• Maintain URD replacement

!

• Ensure transmission submarine cable

redundancy

!

• Shift overhead to underground

conversions on as needed basis

!

• Reliability driven

!

• Improved Grid Control Backbone

allows for much better monitoring and

proactive dispatch of problems

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