Island Network Business Plan Executive Summary

Transcription

1 Island Network Business Plan Executive Summary

2 A Brief History of Broadband in San Juan County Design and construction start Average Broadband Speed in North America Interim Rates Island Network provides broadband to government, schools, libraries, Grid Control expansion funding approved Board broadband directive to use equity and rates Fiber to OPALCO Eastsound office CenturyLink submarine cable blowout 17.6 Mbps, 37% CAGR OPALCO installs first fiber optic cables OPALCO starts broadband feasibility study EDC report Critical Needs Task Force report Average DSL Speed in San Juan County

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. Deployment will be supported and funded by OPALCO assets, including equity and rates. After a lengthy and thorough discussion, the motion carried unanimously.

4 Grid Control Network

5 OPALCO Member Total Energy Requirements BPA Future demand will be met through well managed energy efficiency and distributed local and regional energy sources Energy Source Trends Increasing diversity - wind, solar, micro-hydro, tidal Local and regional High and low quality Firm and intermittent Predictable and unpredictable Efficient and inefficient Low and high cost Revenue Source Trends Less energy needed in a warming region more efficient use less waste Energy sales are leveling off, margins are falling Revenue will come from a diverse portfolio Energy Broadband Energy Storage, Broadband Essential to managing diverse energy portfolio Essential to community economic wellbeing Broadband revenues will be the engine of growth in the 21 st century Beyond initial buildout, broadband margins will rise, leading to a shift in member capital credit sources from energy, toward broadband

6 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. Automatic Meters Automatic Meters 14,000 meters Automatic Meters Automatic Meters OPALCO Grid Supervisory Control and Data Acquisition (SCADA) 60 down-line devices DLD 1 DLD substations Substation 1 Substation 16 OPALCO Crew Communications OPALCO Grid Control Backbone Internet Fiber LTE Wi-Fi ROIP 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 Exploring Radio over IP to improve crew and First Responder communications

7 Steadily Improving Reliability Hours or Occurrences Occurrences Duration Duration per Occurrence SAIFI (Average Outage Occurrence per Service) SAIDI (Average Outage Duration per Service) CAIDI (Average Outage Duration per Occurrence) 0 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14 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

8 Where member owned infrastructure can serve members, it should.

9 Notes Substations Controls distribution of energy throughout grid and member homes and businesses Supervisory Control and Data Acquisition (SCADA) Automatic Meters Automatic Meters 14,000 meters Automatic Meters Effective March opening grid control backbone up to homes and business DLD Down Line Devices - interfaces OPALCO fiber to grid control elements including voltage regulators, switches, system diagnostics, etc. Working with ISPs too (Roche Harbor Resort, etc.) Substation 1 Substation 16 Automatic Meters Pilot testing LTE wireless for homes and businesses in areas with poor broadband options Opened up ferry terminal wi-fi to members for free access with SmartHub subscription 70 down-line devices Exploring improving dead zone communications with first responders, using LTE wireless and Radio Over IP (ROIP) DLD 1 DLD substations OPALCO Crew Communications OPALCO Grid Control Backbone Community OPALCO Grid Internet Fiber LTE Wi-Fi ROIP Schools Homes Businesses ISPs Remote Homes and Businesses Ferry Terminals Police OPALCOcares Libraries Island Network Businesses Homes Fire/Rescue Government 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. County

10 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. Automatic Meters Automatic Meters 14,000 meters Automatic Meters Automatic Meters Supervisory Control and Data Acquisition (SCADA) 60 down-line devices DLD 1 DLD substations Substation 1 Substation 16 OPALCO Crew Communications OPALCO Grid Control Backbone Community OPALCO Grid Internet Fiber LTE Wi-Fi ROIP Schools Homes Businesses ISPs Remote Homes and Businesses Ferry Terminals Police OPALCOcares Libraries Island Network Businesses Homes Fire/Rescue Government 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. County

11 Strong Interest 1300 Requests for Service Countywide Significant demand for fiber Home Owner Association (HOA) and individual requests

12 Island Network Member Growth IN Subscribers & Scheduled IN Subscribers Installation Scheduled RFQ (right scale) IN moratorium lifted 1, PROJECTED Request For Quote (RFQ) Request for Quote (RFQ) 1300 requests for quote 95% residential Currently adding about 10 to 15 RFQ s per day Scheduled for Installation 16 accounts 4 commercial 12 residential Currently adding about 5 accounts per month About 250 accounts within HOAs ready to be installed, pending board action IN Customers 51 accounts 6 ISPs 38 commercial 7 residential 90 locations Currently adding about 3 accounts per month 0 JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC members within 200 of fiber

13 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 Business Plan Overview Coop Justification for Investment Coop Finances and Risk from Investment Low-income services

14 Island Network Business Plan Overview 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.

15 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 Subscription Incentive Data/VoIP $95 $105 $145 $195 Data ONLY $80 $90 $130 $180 Data/VoIP Seasonal* $45 $45 $45 $45 Discount Incentive Data/VoIP $75 $85 $125 $175 Data ONLY $60 $70 $110 $160 Data/VoIP Seasonal* $25 $25 $25 $25 Non-Active w/ Sub Incentive $25 $25 $25 $25

17 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, with minimal competitive response

18 HOA Targets: Phase 1 Area Homes Goal FTTP LTE Start Cattle Point, Cape SJ Yes 50/6 2 Sites Nov 2014 Doe Bay, Eagle Lake Yes 1 Site Nov 2014 South Lopez Yes 1 Sites Nov 2014 Deer Harbor Yes 2 Sites Jan 2015 SJI West Yes 2 Sites Jan 2015

19 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 ORC - Channel Rd West/Pole Pass

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 HOAs (2,506 members) 834 members within 200 of fiber

21 Low/Fixed Income Broadband PAL Program $ $ Member Bill Roundup PAL Funding Pool Low Income Power Members PAL Approval Application Community Broadband Fundraising $ Approval Broadband PAL Funding Pool Independent Volunteer Council Review Application Low Income Broadband Members BPP Broadband Investigating Low Income Service Package e.g. 3 Mbps internet + Phone Source PAL National School Lunch Program member request PAL Program

22 Financing Sub-Incentive $1,500,000 $1,500,000 $1,500,000 $0 Working Capital $1,400,000 $600,000 $0 $0 IN Backbone Expansion $1,000,000 $0 $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.

25 OPALCO Capital Projects Plan Managing a Growing Portfolio of Services

26 Capital Projects: Managing an Expanding Portfolio of Services 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 65% 60% 55% 50% 45% 40% 35% 30% 25% Submarine Cable OPALCO without IN Forecast OPALCO with IN Forecast 20% 15% 10% 5% 0% 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

28 OPALCO Debt Per Meter Connection $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ (inflation adjusted)

29 Steadily Improving Reliability Hours or Occurrences Occurrences Duration Duration per Occurrence SAIFI (Average Outage Occurrence per Service) SAIDI (Average Outage Duration per Service) CAIDI (Average Outage Duration per Occurrence) 0 1/12 4/12 7/12 10/12 1/13 4/13 7/13 10/13 1/14 4/14 7/14 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

30 $16,000,000 Capital Projects $14,000,000 $12,000,000 $10,000,000 $8,000,000 IN Grid Control Network Submarine Cables Objectives Maintain URD replacement Ensure transmission submarine cable redundancy Shift overhead to underground conversions on as needed basis Reliability driven $6,000,000 $4,000,000 $2,000,000 $ Improved Grid Control Backbone allows for much better monitoring and proactive dispatch of problems All Other Distribution - all other Underground Distribution (URD)

31 Thank You