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Frequently
Asked Questions
about
Proposition No. 1
PROPOSITION
No. 1:
Shall Article VI of the Articles of Incorporation
of the cooperative be amended to read as follows:
Article
VI. The
highest amount of indebtedness or liability to which
this Corporation shall at any time be subject is
$450,000,000.00.
1) Why
have a special meeting for consideration of the
question to amend Article VI?
This issue is very important to the
cooperative. Rather than wait until the annual meeting
in May 2005, the HEA board of directors and management
believe it is necessary to resolve this issue as soon
as possible. The board of directors is strongly
encouraging members to vote “YES”
on Proposition No.1.
2) What does Article VI of the Articles of
Incorporation currently state?
“The highest amount of indebtedness or liability to which this
corporation shall at any time be subject is
$150,000,000.00.”
Under the Articles of Incorporation filed on
December 17, 1945
, Article VI set the limit on debt at five million
dollars. Article VI was amended by a vote of the
membership in 1954, increasing the limit to $40
million. In 1977, HEA members voted to amend Article
VI, increasing the debt limit from $40 million to $150
million. If Proposition No. 1 is approved, the limit
of debt that HEA can incur, with board approval, would
be $450 million.
3) Why does Article VI
need to be amended to raise the debt limit to $450
million?
The debt limit has remained the same for 27
years. During that time, the cooperative has grown.
The number of meters in the system has increased by
more than 75 percent and Homer Electric has added
approximately 700 miles of line. Under the current
situation, Homer Electric will soon be at the debt
limit imposed by Article VI and unable to borrow
additional money. By raising the debt limit to $450
million, Homer Electric can continue to plan for
future projects without putting a financial burden on
the existing membership.
4) What will it mean to the cooperative if
Proposition No. 1 fails and the debt limit remains at
$150 million?
The inability to borrow additional money will
have an adverse effect on the cooperative. Projections
indicate if the debt limit remains at $150 million, by
the year 2010 members will experience an overall rate
increase of 35 percent. It’s likely the retirement
of capital credits to members would cease. 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
members of 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.
5) What
is the current level of Homer Electric’s debt?
As of
December 31, 2003
, Homer Electric had total liabilities of
approximately $143 million, which is just $7 million
under the debt limit.
Under current projections, Homer Electric would
exceed the limit late in 2005.
6)
What are the major components of Homer
Electric’s debt?
The current debt breakdown is $38
million for generation; $15 million for transmission;
$77 million for distribution; and $13.5 million for
operational needs. The majority of Homer Electric’s
debt is tied to its mortgage notes with the
cooperative’s lender, National Rural Utilities
Cooperative Finance Corporation (CFC).
These loans include financing for power
generation facilities such as the Nikiski Cogeneration
plant, line extensions for consumers and developers,
transmission line extensions, system upgrades needed
to accommodate load growth, and maintenance and repair
of power lines. According to our lender, if Homer
Electric was an investor owned utility, we would be
“A or AA rated” in the bond market.
We are considered a very low credit risk and
therefore benefit from low interest rates.
7) Are there independent controls on the amount of
debt Homer Electric can incur?
Yes. Homer Electric’s primary lender, CFC,
has strict lending practices in place that prevent the
cooperative from borrowing above and beyond its means.
CFC maintains high credit standards and
ratings, based on its successful administration of a
loan program that serves over 1,000 electric
cooperatives around the country.
8) Is
my vote important?
YES!
One of the primary benefits of being a member
of Homer Electric is the ability to cast a vote in the
cooperative elections.
As owners of the cooperative, the membership
sets the goals and priorities of the association.
Please take time to cast your ballot and help
your cooperative plan for a successful future.
9) What
are the voting deadlines?
Ballots will be mailed to Homer Electric members
in mid-September. Your mail-in ballot must be received
in the Homer office of HEA no later than
5:00 p.m.
on
Thursday, December 9, 2004
. You can
also vote in person at the special meeting of the
membership on
December 10, 2004
at
4:00 p.m.
, at the Kenai Visitor and
Cultural
Center
located at
11471 Kenai Spur Highway
,
Kenai
AK
.
10) Questions????
Please call Homer Electric at
1-800-478-8551 for additional information on this very
important subject.
Prop.
No. 1 Prop.
No. 2 Prop.
No. 3
Special
Meeting Home Page
Proposition
No.1 FAQ's
Management
Statement on Prop. No.1
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