Attorney says telecom petition claim debunked

Nadel says complete misunderstanding of depreciation accounting

    HARLAN – An attorney for the Harlan Municipal Utilities explained last week that a petition asking for a public vote to discontinue and dispose of the HMU communication utility is based solely on a misunderstanding of general accounting practices regarding depreciation, and in the end could cost ratepayers due to legal steps required of HMU once the petition was presented.
    Steven Nadel, Ahlers & Cooney,  Des Moines, said the assertion that the HMU Communications Utility has under-performed financially is false, and was the main premise for the filed petition.
    “This community may incur substantial expenses to go through a process for an election driven largely by a misunderstanding,” said Nadel.
    Harlan residents Mike and Aaron Anliker presented the petition with 113 signatures to the City of Harlan earlier this year.  It asked for a public vote of the citizens via a special election to discontinue operation of and dispose of via sale the HMU Telecommunications Department.
    The petitioners’ argument is that the utility has been losing money from operations annually, and has been subsidized via intra-utility loans from the electric department.
    Nadel, who addressed the city council Tuesday, March 16, wanted to set the record straight.
    “That appears to be based on a fundamental misunderstanding of the role of depreciation,” he said.  “Depreciation is a non-cash event.  Does not affect the operations or the cash position of an entity.”
    Audited financials show that when depreciation is added back in, the communications utility has been operating in the black for all of the five years in question, Nadel said.
    “The assertion that they’re operating at a loss was false, if you look at the depreciation effect,” he said.  “The perception was a false perception of under-performance.”

Irony of it
    In fact, just the filing of the petition will in effect cost the utilities, Nadel said.
    “The one actual economic impact received upon the utility was the petition itself,” he said, “because of the statutory process required to conduct the election.”
    HMU is required to conduct multiple appraisals and audits, and there’s the cost of the election and legal consultation.  “In the whole twist of things, the assertion of poor operation was false, but there actually is an economic impact resulting from the misunderstanding itself,” Nadel said.
    HMU must complete the petition process, which will result in an election, per Iowa law.  It’s a process that is now required.
    The irony is even though there will be an election, it’s not required the utility be sold even if the voters ask for it.  There’s nothing in the election process that mandates a utility be sold, it just provides for the authority to do so, said Nadel.
    “It doesn’t matter what the outcome of that election is,” he said.
    As for the intra-utility loans, HMU Chief Executive Officer Ken Weber said making and forgiving those loans has occurred multiple times over the years at HMU.
    However, there are new restrictions from the state level, and HMU is moving forward with the mindset to make each utility a “stand alone” operation financially.
    While forgiving those loans has been done in the past, Weber said forgiving loans has never been discussed during his tenure.
    Intra-utility loans haven’t been used for operating expenses, Weber said, but rather for capital projects such as the fiber optics and digital upgrades.
    He said it’s no different than any other private or competitive business taking out loans to grow, expand or upgrade.
    “All that has been done is convert electric operating reserves invested in low-yielding savings accounts or cds into higher-yielding inter-utility loan funds,” Weber explained.

 

 
 

 

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