In response to the letter by Jack Phillips in the last issue of Vernonia’s Voice, I would like to provide the facts about West Oregon Electric Cooperative (WOEC) and Columbia Broadband, Inc.
There is no contradiction for a not-for-profit entity to own a for-profit subsidiary. It’s done all the time to keep the two entities completely separate in their goals, objectives, accounting, tax implications, and so forth. Cooperatives throughout the U.S. have wholly owned subsidiaries like us that provide services such as propane, water, sewer, telephone, telecommunications, and other for profit businesses. The subsidiaries allow the utility to own and operate businesses that are designed to either offer services that the membership wants the utility to provide because they know and trust the utility to provide it for them, at a better price, or provide a service that is not provided in their area by anyone else.
Co-ops must adhere to an 85/15 rule, which in essence stipulates that only 15 percent of the Co-ops revenue can come from non-member related business or they jeopardize their Co-op tax exempt status. To keep from doing so, Co-ops create a wholly owned subsidiary that is for profit, and then can bring in revenues to the Co-op that keep them at the 85/15 threshold. This is exactly the reason WOEC created its wholly owned subsidiary West Oregon Services, Inc. Under this umbrella, we can and have created a for profit business venture called Columbia Broadband, Inc. It was in March of 2001 that the WOEC membership participated in a special meeting/election to approve a change to the bylaws that allows the cooperative’s board of directors to consider other business opportunities that it deems beneficial to the membership. The special meeting of the membership was held March 20, 2001 and the mail in ballot election results approved the bylaw amendment by a tally of 451 to 194.
Then in March of 2002 it was officially announced that the board of directors in keeping with WOEC’s strategic vision to enhance the rural lifestyle and diversify the co-op’s business opportunities, approved participation in the NoaNet project (which is now Light Speed Networks) to provide improved telecommunications service through fiber optic cable. WOEC made this decision with two goals in mind: 1) To hopefully bring broadband to our service territory for our members and, 2) to hopefully generate revenues that would be able to help stabilize or reduce rates in the future. The Board of Directors made the decision to do just that and invest in a for profit business to accomplish these two goals.
To do so WOEC loaned Columbia Broadband, Inc the money to buy shares of what was then called NoaNet, which has been restructured into the present Light Speed Networks (LSN). The money for Columbia Broadband, Inc came from a settlement from PGE, not from members’ rates. Back in 2002, the decision was made to invest the settlement money in a way that could provide long term benefits to the membership, not just a one-time reduction in rates. Columbia Broadband, Inc has had no affect on WOEC rates as they are separate entities. The reverse is true however as we used $10,000 from the Columbia Broadband, Inc subsidiary to purchase renewable energy certificates (RECs) from Chelan PUD for our West Oregon Electric Cooperative Renewable Energy Portfolio.
I was saving this announcement for the Annual Meeting, but since the question was brought up I will go ahead and announce it now. Columbia Broadband, Inc owns a 12% share of LSN. With our $1.3 million investment we now own a 12% share of a rapidly growing high tech company. While LSN is closely held and does not publish its financial results, we can say that by common financial measures, LSN is about twice the size of WOEC and at current growth rates is expected to grow in the next 2 or 3 years to the point that our 12% share in LSN exceeds the value of the rest of WOEC. Not a bad return on our investment. LSN now has at least some service in every county in the State of Oregon and about half of Washington State. Backbone facilities touch most of the populated areas in Oregon and significant portions of Washington. Additional information about LSN may be found on its website at “http://www.lsnetworks.net”. Presently LSN is growing far too rapidly to monetize its value and make substantial payment to stockholders, but is expected to be able to do so the next few years.
As to the other goal of providing broadband to our service territory, due to a successful grant process which again meant no ratepayers funds were used, construction began on June 3rd at our WOEC Headquarters on a Point of Presence (POP) site in Vernonia. We dedicated a storage/office space to house the equipment. The grant was obtained to provide service to the Mental Health Clinic in Vernonia through the Oregon Rural Healthcare Grant Program. The Co-op will be able to acquire internet service through the POP site itself for hosting the site in our office, and additional business entities will be able to subscribe to the broadband service once the clinic service is in place.
A few have been seriously advocating that WOEC pursue a path that incorporates distributed generation and other fads of the day. At the present time Bonneville Power is and is likely to continue to be for some time the least costly alternative to power supply (even though its prices are rising), however, this may not always be the case. However, EVERY distributed generation solution to power supply requires the implementation of a ‘Smart Grid’ solution to manage and operate it. In turn every ‘Smart Grid’ has to start with a broadband POP such as the one that is being built deep inside WOEC headquarters at this very time.
Though it has taken some time since our initial investment, our patience is about to pay off and the original goals and objectives will be reached. The membership will shortly be receiving the benefits of the business strategy of WOEC forming the wholly owned; for profit subsidiary Columbia Broadband, Inc and we did so without using rate payers’ money to accomplish the goal.
Marc Farmer, General Manager
West Oregon Electric Cooperative