Harold Depriet editorial board meeting with the Times Free Press
EPB plans to spend $230 million to modernize its electric system while at the same time using the upgrade to catapult the utility into the residential telecom business, officials said Tuesday.
The $230 million bond issue will pay for fiber-optic lines and other equipment to help EPB control and communicate with its electric grid more efficiently, officials said. The utility estimates the upgrades will save $300 million through operational efficiencies.
“This is strictly an electric issue, unrelated to whatever transpires with the cable and Internet business unit,” said Greg Eaves, EPB’s chief financial officer.
Construction of the residential telecom service, which would operate through the upgraded electric system, would be financed by loans through the electric system, Mr. Eaves said.
EPB’s board Tuesday authorized staff to arrange the loans for the telecom plan, but the utility has not yet established the loan framework, Mr. Eaves said. Such a loan would not exceed $60 million and is permitted by state law, according to EPB documents.
The financial arrangement is different from what EPB announced in August when it launched its fiber-to-the-home plan. Then, EPB proposed issuing two series of bonds. One series, totaling $169 million, would pay for the electric system components. The second series, worth about $50 million, would pay for the fiber-optic system.
EPB officials said it changed the bond issue because of market volatility and the increased cost of bond insurance, among other factors.
“They have not thought this through,” said Stacey B. Briggs, president of the Tennessee Cable Telecommunications Association, which is suing EPB to stop the fiber-to-the-home plan. “Electrical efficiencies can’t make up for a bad business plan. It’s an enormous debt for the electric system to take on. If they have this money, the consumer should be concerned why electric rates are not lower.”
A lawsuit by the group seeking to stop EPB’s fiber-to-the-home plan is still pending. Davidson County Chancellor Ellen Hobbs Lyle on Jan. 8 ruled the lawsuit could move forward. EPB has filed an appeal asking the chancellor to reconsider her ruling and dismiss the case. The chancellor is scheduled to consider the appeal on Friday.
The cable association contends that state law forbids EPB from using electric system revenue to build a telecommunications system. EPB also contends the lawsuit should have been filed in Chattanooga, not in Nashville, and that the lawsuit should have included the city of Chattanooga, which owns the utility.
Ms. Briggs wrote a letter Monday to Chattanooga Mayor Ron Littlefield and the City Council attacking the plan.
“It is astonishing and, we believe, highly irresponsible, for EPB to go forward with this bond issuance given the fact that EPB’s motion to dismiss the suit was denied last month,” Ms. Briggs wrote. “Unfortunately, it seems that EPB’s public venture is going down the same path to failure as the city-owned Chattanoogan hotel and conference center, which was financed by $129.2 million of city-issued bonds.”
EPB wants to install more than 3,000 miles of fiber-optic lines to upgrade the electric system as well as offering residential high-speed Internet, cable television and telephone service. The utility currently offers telephone and high-speed Internet service to businesses.
The upgrade would help consumers use less electricity during peak demand times, when electricity costs more to generate or buy from outside the Tennessee Valley Authority’s network, said David Wade, senior vice president of the electric system. The fiber-optic system also would provide for automatic meter reading and reduce theft of electric services, as well as help EPB restore service faster after outages, he said.
using the cash infusion
Out of the $230 million that EPB borrows, Mr. Eaves said, $162 million would pay for the fiber-optic network; $39 million for other electric system equipment, such as transformers; $26 million would go toward interest payments over a three-year period; and the remainder would pay for loan transaction costs. The interest rate should be about 4.5 percent, he said, with a term of 25 years.
Ms. Briggs questioned why EPB couldn’t improve its electric system by issuing a request for proposal to buy excess fiber-optic services from outside providers. Such a method may save money, she said.
“We have excess fiber networks,” she said. “Why not be creative and benefit the consumer?”
The Tennessee Valley Authority has approved EPB’s plan to offer cable, telephone and Internet service to residential customers, said EPB President Harold DePriest.
Staff Writer Michael Davis contributed to this report.
The Chattanooga City Council must approve EPB’s interdivisional loan agreement. Then, EPB must obtain quotes for the bonds. The board of directors would approve the bond price, then send the proposal to the City Council for final approval.