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Chattanooga: EPB to lend itself millions

By: Jason Reynolds
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Harold DePriest

EPB expects to use $26.5 million in electric revenue over the coming fiscal year to launch the utility’s fiber-to-the-home plan, an official said.

“You would be approving an interdivisional loan of monies from the electric system to our new broadband system,” EPB President Harold DePriest told utility board members Tuesday.

The board is expected to vote in June on lending electric system revenue to launch fiber to the home. Of the $26.5 million, nearly $22.8 million would pay for capital costs like electronic controls while the remainder would finance operating costs, EPB Chief Financial Officer Greg Eaves said.

The board also will vote on the 2008-09 fiscal year electric, telecom and broadband system budgets. The fiscal year starts July 1.

Meanwhile, the Tennessee Cable Telecommunications Association is running commercials through Comcast cable’s service and broadcast television attacking the viability of EPB’s fiber-to-the-home plan.

EPB’s plan to lend electric system revenue to launch a residential telecom system puts public money at risk since EPB is owned by the city government, said Stacey B. Briggs, president of the cable association.

However, Mr. DePriest said that “Everybody understands when you start a new capital-intensive business you will always lose money for several years. This is in line with our business plan.”

The residential broadband service will become profitable with positive operating cash flow four years after its launch, Mr. Eaves said.

EPB officials previously have said the first homes could receive Internet, video and phone service by the end of this year.

The $22.8 million loan is separate from $61 million in capital costs the utility expects to spend in the coming year to build a smart grid, or upgrade of the electric system that would form the backbone of fiber to the home, Mr. Eaves said.

In addition to the TV ads attacking fiber to the home, the cable association is operating a Web site, theyfailwepay.com, that provides information on what it says is fiber to the home’s shortcomings. The city of Memphis failed in a similar venture, the Web site states.

“It’s an unlawful cross subsidy of public electric funds,” Mrs. Briggs said. “We felt it important that the public be aware of all the facts. Public money is at risk.”

Comcast is suing EPB to block fiber to the home, and TCTA is appealing the dismissal of its lawsuit against EPB.

EPB’s plan is different from Memphis’ failed telecom network, EPB officials said, and the cable association is using inaccurate information.

“We feel this is another example of how they take information and manipulate it,” said Danna Bailey Cannon, EPB vice president of marketing.

Staff File Photo By Kelly Wegel -- Dillard Smith Construction Co. employees Grant Barker, front, and Cory Wade fasten old cable together to prepare for when they will pull Electric Power Board's new fiber optic cable across the Tennessee River.

Comcast donated the commercials’ air time cost, Mrs. Briggs said, and TCTA bought the broadcast air time. Mrs. Briggs said she didn’t have an estimate of the campagin’s cost.

The Web site states that EPB’s commercial telecom division has yet to repay $28 million it borrowed from the electric system for the phone division. Mr. Eaves said EPB has been using its positive phone system cash flow to first pay outside debt.

Ms. Cannon compared the phone repayment decision to a homeowner paying a mortgage. Although a mortgage is a long-term debt, she said, that doesn’t mean the homeowner is in financial trouble.

“It’s a healthy level of debt,” she said.

The cable industry is fighting EPB because it perceives fiber to the home as unfair competition, Mrs. Briggs said. Cable companies compete with satellite television providers and wireless phone companies for telephone customers, she said.

“It’s about following the rules,” she said. “It’s about fair competition.”