Chattanooga’s electric utility has built the nation’s biggest municipal telecom service over the past five years, attracting nearly 74,000 Internet, cable and telephone customers in a venture that netted a profit of nearly $17 million last year.
EPB reported Wednesday that its fiber-based telecom service generated $118.2 million in revenues in the fiscal year ended last month – the most of any municipal utility in America, and a net income of $16.9 million. EPB continues to sign up about 150 more customers a week for its telecom services and this week attracted even more attention from Wall Street investors eager to finance the utility’s blazingly fast Internet and fiber optic-based smart grid.
Despite initial investor concerns about an electric utility venturing into the competitive telecom landscape, EPB was able to attract more than three times as many investors as needed to fund a $260 million bond issue priced Tuesday in New York. With $870 million of investment lined up for the EPB issue, those handling the bond sale said Wednesday they were able to gain an attractive average interest rate of about 3.2 percent, well below the existing average rate of about 4.38 percent for EPB.
The lower rates are projected to save EPB more than $25 million in interest expenses over the life of the bonds, or a present-day savings of $19.8 million.
“Overall, it was a a very successful issue and I’m pleased with the results,” said Dan Hartman, managing partner for utility financing at PFM. “The fiber optic system for EPB is somewhat of a two-edged sword. It’s allowed EPB to keep its electric rates lower and has certainly been a positive. But investors had some initial concerns because some other utilities have had to subsidize their fiber systems and they have not worked out as well.”
EPB Chairman Joe Ferguson said once Fitch bond rating agency representatives and other financial advisors understood how EPB’s telecom is doing, they saw the additional utility service as another asset for EPB, not a risk for investors. Fitch upgraded EPB’s bond rating ahead of this week’s issue to AA-plus and Standard & Poor’s reaffirmed its AA rating for the Chattanooga utility.
No other U.S. utility has a higher rating, Hartman said.
“The fiber system has proven its value and is helping to not only provide a valuable service for EPB customers, it is also keeping electric rates lower than they otherwise would be (without the fiber system),” Ferguson said.
EPB directors Wednesday approved the issuance of $260.1 million of bonds to refund EPB’s existing debt and to provide an extra $30 million in new capital. The bond issue is the biggest in the 76-year history of EPB.
EPB expects to close on the bonds it priced this week on Aug. 18, EPB Chief Financial Officer Greg Eaves said.
EPB financed most of its fiber optic system a decade ago when it issued $229 million in bonds. That issue, combined with more than $111 million if federal stimulus funds, allowed EPB to string fiber optic cable throughout its service territory and to build both a smart grid and a gigabit-per-second Internet link to all homes and businesses served by EPB.
Chattanooga boasts the fastest citywide Internet links in America and EPB has capitalized on its service by labeling Chattanooga “the Gig City.”
Comcast this month launched a service to provide 2 Gig service to Chattanooga, but the service requires $1,000 to be paid in connection and activation fees, plus monthly charge from $159 to $300. By comparison, EPB offers its Gig service – now subscribed to about 5,900 of its 74,000 telecom customers – for $69.99 a month.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.