Board Members present: Mike Dyer, Dorothy Anderson, and Peter Bartel. President Smith and Commissioner Bishop were absent and excused.
Others present: Roseanna McArthur, Ken Beeson, Terry Bequette, Deborrah Brewer, Tom Buckhouse, Sandra DeLuna, Jim Origliosso, Dick Varner, Debra Wright, and Krista Hince of the EWEB staff; and Daniel Lindstrom, Minutes Recorder.
Vice President Dyer called the Work Session of the Eugene Water & Electric Board (EWEB) to order at 5:45 p.m.
TELECOMMUNICATIONS PROJECT PHASE I REVIEW
Telecommunications Project Manager Ken Beeson reported that he had convened a meeting of EWEB managers to review the Telecommunications Project Phase I Business Plan and develop a set of plan objectives for the next twelve to eighteen months. He said he would review the status of the construction and cost of the Project and discuss the objectives during the Work Session.
Project Construction and Cost
Mr. Beeson stated that his memorandum distributed with the agenda of the meeting dated July 26 provided details of the status of construction in Phase I of the Telecommunications Project. He said it was going well - on schedule and within cost estimates. He said he expected completion by January 24, 2000.
Mr. Beeson reported that Outside Plant Construction was currently affected by late delivery of fiber optic cable. He said pole attachments and "pull rope" were being installed in preparation for installation of the fiber. He reminded Commissioners of the commitment that installation would have only minimal impact on trees and said that, in certain areas, clearing and removing of some limbs had been required.
Mr. Beeson reported that all electronic equipment to be installed during Inside Plant Construction was completed, being tested, and would arrive on schedule in September. He also reported that bids for creation of the Network Operating Center (NOC) would soon be opened and that the work would begin in September. He said both the Inside Plant and NOC Construction could be completed before Thanksgiving, ahead of schedule.
Mr. Beeson said that most of the EWEB preparation work for Phase I of the Project was completed and that workers were currently accompanying installation contractors to learn techniques of installation and maintenance.
Mr. Beeson referred to a spreadsheet of financial data entitled "EWEB Telecommunications Project Phase I - Project Cost Summary" attached to his memorandum. He reviewed estimated and actual cost to date of various elements of the Project.
Commissioner Bartel asked what was involved in the permit costs identified in the spreadsheet. Mr. Beeson replied that railroad crossing fees were more expensive than anticipated and would likely total $60,000 for the project. He said the permits would be required to be renewed after a period of years, but that additional fees would not be required. Facilities Services Director Tom Buckhouse added that a court case currently being litigated was intended to determine whether railroads had the right to charge crossing fees for land which was not owned.
Project Business Plan Objectives
Mr. Beeson reviewed Telecommunications Project Phase I Business Development Objectives and Initiatives, as follows:
1. Complete construction of Phase I core system by January 2000.
Mr. Beeson said it was likely that, immediately following construction of the Project, operating and maintenance requirements would be provided by an outside contractor, but that EWEB Electric Craft Workers were rapidly learning about such requirements and would take on responsibility for them as soon as possible.
Commissioner Bartel asked if those performing tasks related to the Telecommunications Project would receive a pay differential. Mr. Beeson replied that it was being assumed that such a differential would not be needed. Commissioner Bartel suggested that telecommunications industry pay standards be reviewed before making such a decision.
2. Reduce financial risk by licensing a portion of the dark fiber.
Mr. Beeson said research had shown that lease rates for dark fiber licensing should be calculated as a charge per fiber per mile per month. He explained that initial feedback from potential users and the practices of other systems indicated that a rate of $150-$170 might be accepted. He said presumptions to be made in determining proposed rates included that a total of 24 fibers would be made available for licensing, that an individual lessor would be limited to six fibers, and that there might be different rates for various areas.
Commissioner Bartel suggested that a license rate differential taking into account the City of Eugene's growth management strategy which encouraged development in the downtown area would mean that a lower Telecommunications Project rate should be provided in that area. Commissioner Anderson said she believed the suggestion was attempting to achieve a social goal, which may not be appropriate in rate setting, and would require policy discussion by the Board.
Mr. Beeson reported that an Offering was being prepared in an attempt to determine what rate charge would be accepted by potential users. He said local exchange carriers and long distance service providers (possibly as many as 100 "content" providers) would receive the Offering. He said no commitments regarding leases would be made by EWEB or respondents in the Offering.
3. Provide community benefit by developing a public agency dark fiber Offering
Vice President Dyer asked why different license rates would be established for public and private subscribers. Mr. Beeson replied that the value of dark fiber leases was unknown, that private lease rates were being established on the basis of what would be accepted by potential users, and that it was assumed public agencies would be unable to pay such rates. He said the bulk of revenue from the Project would come from private lessors and that public agency subscribers would be expected to pay a rate covering the cost of developing and operating the system estimated at $25-$40.
Vice President Dyer said he recognized that private subscribers would use the Project for revenue generation and that public agencies would use it to transmit information in the public interest, but that he did not believe private subscribers should subsidize public agency use. Mr. Beeson replied that EWEB did not intend to follow the practice of some system developers and provide free use of telecommunications fiber to public agencies.
Commissioner Bartel said he would appreciate receiving information about the rate practices of other fiber optic telecommunications systems before being asked to make decisions about setting rates. Mr. Beeson said he would provide available information to Commissioners.
Vice President Dyer said he was concerned that a significant difference between private user rates and public agency rates was being considered. Mr. Buckhouse replied that doing so would be a way for EWEB to provide a service to the community. Mr. Dyer observed that private industry was an element of the community and should not be required to pay unfairly high rates.
Commissioner Bartel said he needed a "context" in which to engage in the current discussion and asked for additional information regarding the practices of other telecommunication systems.
Vice President Dyer said he believed different telecommunication rates for private and public users was no different that charging differential power rates. Mr. Beeson replied that the private rates under consideration had been developed in response to feedback from local businesses that such charges were reasonable.
Commissioner Anderson stated that she believed public agencies should be charged a rate which would recover EWEB costs and that private users should be charged a higher rate because they would use the system to make a profit.
Vice President Dyer suggested that the Dark Fiber Offering be phrased in a way as to state that EWEB "believed a range of rates that the price should be was appropriate." Mr. Buckhouse replied that representatives of local business which were potential users had already indicated the proposed rates were likely acceptable. He said establishing rates was difficult because no industry standards were available.
Vice President Dyer said he was concerned that if the Offering set minimum rates, EWEB would "shoot itself in the foot." Mr. Beeson said a high level of response to the Offering was anticipated and that he would incorporate the concerns and suggestions of Vice President Dyer in its documentation. Treasurer Jim Origliosso added that the proposed rates had been calculated to enable recovery of debt and operating expenses through the leasing of 24 fibers.
Risk Manager Debra Wright pointed out that the Board would be involved in decisions regarding all contracts to be established for licensing of Telecommunications Project fiber and that discussion of rates would be involved. Mr. Beeson added that responses to the Offering would not include commitment to rates by EWEB or respondents.
The discussion resulted in general consensus" that staff would proceed with the Offering on Dark Fiber to content providers to determine the level of interest in wiring the EWEB network.
4. Develop telecommunication organization and competencies
Mr. Beeson stated that it was being concluded that the Telecommunications Project would require engineering/operations and marketing competencies. He said it was likely that Telecommunications would remain a department in the Electric Division and would require two to three full time equivalent employees.
5. Develop capability to provide broadband services
Mr. Beeson said broadband service capability and fees would be developed in parallel with Project work on dark fiber.
6. Phase II Development
Mr. Beeson said Phase II development was included as a near-term objective to maintain awareness of the full intent of the Telecommunications Project.
The Work Session adjourned at 7:20 p.m.
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Assistant Secretary President