Board Members present: Dorothy Anderson, Peter Bartel, and Patrick Lanning. Susie Smith arrived at 6:35 p.m., and Sandra Bishop arrived at 7:05 p.m.
Others present: Dick Helgeson, Ken Beeson, Tom Buckhouse, JoAnn Andersen, Marty Douglass, Cathy Hamilton, Jim Origliosso, Debra Wright, Jim Wiley, and Krista Hince of the EWEB staff; Joyce Ogden, City of Eugene Minutes Recorder; and members of the public.
President Anderson called the Work Session of the Eugene Water & Electric Board (EWEB) to order.
She announced that Commissioner Bishop and Commissioner Smith would join the meeting after 6:30 p.m.
TELECOMMUNICATIONS PROJECT PHASE II - BUSINESS DEVELOPMENT REVIEW
Ken Beeson, Telecommunications Project Manager, presented an overview of the Telecommunications Project Phase II - Business Development Review. He explained that staff was seeking consensus from the Board to re-direct the Phase II Telecommunications Business Plan development work to allow for development of a feasibility analysis and business case for a smaller scale metropolitan network. Mr. Beeson said staff estimated this work could be completed in four months and within the original budget allocated for the Phase II Business Plan development work.
Debra Wright, Telecommunications Project, summarized why staff wished to redirect the business plan development effort and focus on a smaller scale metropolitan network. Ms. Wright described the key issues that had emerged as staff had worked to determine feasibility of development of a new telecommunications system deployed on a near-term universal basis through the metropolitan area:
Mr. Beeson provided a summary of the business planning work conducted over the last several months.
He described the marketing research analysis conducted by R. W. Beck and by Vectron Communication Services (VCS) in August and September 2000, and the primary conclusions:
Mr. Beeson explained that research results on potential third party service providers who might lease capacity on an EWEB system revealed there was very little interest from those providers. He said this lack of interest caused staff to study the possibility of EWEB offering the services.
Mr. Beeson stated that research on types of network architectures revealed that hybrid fiber coaxial (HFC) was the predominant technology used by the cable companies around the country. He said the research concluded that the premise equipment allowing for deployment of a fiber-to-the-home architecture continued to be expensive.
Mr. Beeson said that several cost estimates for alternative configurations of HFC systems had been prepared. These alternatives estimates, which ranged from $100 million up to $240 million, included different assumptions on provision of services, ranging from EWEB providing all services to EWEB providing cable and leasing capacity to others for provision of voice. The higher estimates contained some conservative construction assumptions including that the system would be built on a not-to-exceed cost basis. He concluded that staff believed a capable, effective, HFC system with a 240 customer node size and with EWEB providing cable service could be constructed at a cost of $100 million.
Mr. Beeson reviewed the project financing analysis that staff had completed. He said, based on input from the underwriters, staff estimated that a 20 percent equity contribution would be required to complete a project revenue based financing for $100 million. Mr. Beeson said staff had determined, in reviewing the possible electric utility applications, that the net value of those applications over a ten-year period would be about $10 million or about half of the necessary $20 million needed for an equity contribution.
In reply to a question from Vice President Bartel, Ms. Wright responded that if EWEB moved forward with an HFC system, the incumbent provider might expedite the upgrade to its system. Jim Origliosso, Treasurer, also pointed out staff expected that future technology would improve speed up to three times its current rate. Mr. Beeson emphasized that there was a good deal of activity in the technology field at this time to bring fiber to the premise. He stated it was his belief that before a decision was made to spend $100 million, it would be prudent to wait for these upcoming changes. He added that members of the Technology Group EWEB had convened shared that view.
In reply to a question from President Anderson, Ms. Wright responded that the Technology Group had seven members: representatives from the City of Eugene and the Lane Council of Governments (LCOG), and five public and private individuals who were experienced in the technology field. She added that the Citizens Group would convene on February 22.
In reply to a question from Vice President Bartel, Ms. Wright said that specific motivations played a part in other communities implementing HFC systems; e.g., a dislike of the incumbent system or a loss of revenue to the utility. She emphasized, based on the marketing analysis, there was not significant dissatisfaction with the current system in this community and therefore EWEB would need to compete on a price basis for consumer services, which could be quite risky.
Mr. Beeson then used a decision tree that staff had developed to review and summarize the staff's
Mr. Beeson explained that for all of these reasons, staff had concluded that development of a telecom system that satisfies EWEB's telecom development objectives, including universal access throughout the metropolitan area, does not appear to be feasible or cost effective at this time. He added that this conclusion had also led staff to want to redirect the business plan development work to examine a smaller scale metro network and look at the universal build over a longer time frame.
Mr. Beeson then summarized for the Board four alternatives (Plans A, B, C, D) for development of the telecom system.
He said that Plan A describes the universal build over the short term and represents the alternative that staff has been reviewing with the Board and working on since August. This alternative does not meet the EWEB Telecommunications Development Vision and Objectives.
He said Plan B allows for the universal build over a longer term, estimated at about 10 years. Plan B also provides for development in the next few years of a limited scope fiber intensive metropolitan network (the "MetroNet") that would provide point-to-point connectivity for business customers. This initial development would also serve as the foundation for a longer term universal build out of the network. Mr. Beeson told the Board that staff wished to work on determining the feasibility of this alternative during the next few months. He also indicated that a premise of Plan B was that the economics of fiber-to-the-home architecture would be more favorable in several years. He said that the remainder of the work session would be devoted to reviewing the Plan B work in more detail.
He explained that Plan C represents development of the MetroNet concept and no additional universal development.
He explained that Plan D represents working with the Phase I core system installed in 1999 to maximize its value and continuing work on the Public Agency Network. Plan D assumes there is no universal build out of the system or any development of the MetroNet concept.
Commissioner Smith arrived at 6:35 p.m..
Mr. Beeson summarized the development alternatives by stating that it was the recommendation of the staff that Plan A not be an option at the present time and that Plan B be further studied over the next four months. He explained that if staff determined Plan B was not a viable option, Plans C and D could be addressed.
Mr. Beeson summarized Plan B as follows: (1) develop the Metropolitan Area Network (MetroNet) in years 1-3; (2) assume a modern universal system build out over 10 years and assume approximately $100 million in cost for that build; (3) assume cable TV (or equivalent) by EWEB in years 6-10; (4) assume voice by third party providers; (5) system to provide platform for Internet Service Providers; (5) assume connection to NoaNet system; (6) continue Public Agency Network (PAN) development; and (7) satisfy all EWEB telecom development objectives.
Ms. Wright then presented an overview of the MetroNet concept which would be designed to provide point-to-point connectivity for business customers. Ms. Wright said that a significant goal of this system includes connecting the MetoNet to sites where the most people would be impacted, such as schools and libraries. She explained the proposed products and services which would offer greater versatility and speed to customers.
Ms. Wright also presented an overview of the Northwest Open Access Network (NoaNet), the proposed connection to the regional communications grid that could be offered over the MetroNet. She commented that staff would discuss this network with potential customers.
Discussion and questions from Board Members
In reply to a question from Vice President Bartel, Ms. Wright responded that the City of Santa Clara, California had implemented the systems as outlined in Plan B. Mr. Beeson added that a list of municipalities which had implemented the systems, as well as some characteristics of those systems, would be assembled.
In reply to a question from Vice President Bartel, Mr. Origliosso responded that each plan was a subset of the one above it. He said that Plan A required the most work and effort and Plans B through D required incrementally less.
Mr. Beeson emphasized that the early development of Plan B was more focused and smaller in scope. He reiterated that staff was clear on the next steps to identify potential customers and products, as well as the building of a business base.
In reply to a question from Vice President Bartel, Mr. Beeson responded that staff would need to verify the staff assumption that the Plan B and the proposed MetroNet could fill a gap not currently offered in the community and also would allow EWEB to hold in place the vision and objectives to implement the universal build out if economically feasible. He added that implementing a system which different providers could tap into would be effective and ultimately technology would allow a single infrastructure to handle that.
In reply to a question from Vice President Bartel, Mr. Beeson explained the speed and value of "Ethernet" service. Mr. Origliosso conceded that residents currently might not have a need for that type of service; however, he stressed that the technology of normal voice communications would gradually "catch up" at which time a high speed connection would fill a need for the average customer.
In reply to a question from Commissioner Lanning, Mr. Beeson responded that in order to keep within the objectives of EWEB, the first three to four years would be devoted to implementing the MetroNet and building the foundation for the build-out, followed by another decision-making process in the year five or six, with a consideration of the changes in technology.
Ms. Bishop arrived at 7:05 p.m.
In reply to a question from Commissioner Lanning, Mr. Beeson responded that in assessing feasibility of the build out over a three-year period, staff determined it could not implement a system that was much different from the one already in place, whereas a 10-year plan would offer the potential of a better system at a more advantageous economical pace.
In reply to a question from Vice President Bartel, Mr. Beeson responded that the interconnection capability of the proposed TelecommLocate building in Eugene would allow a number of providers to come together at a single point.
Vice President Bartel voiced his concern that he did not want to see a system implemented that was utilized by only one client. Mr. Beeson said that staff planned a thorough outreach to attain a sound customer base.
MetroNet Work Plan and Schedule
Mr. Beeson presented the MetroNet Work Plan and Schedule, a process that would begin in February and end in June 2001. He reviewed the market analysis, the network design, the EWEB requirements, the Electric Utility Applications, the Financing, the Due Diligence, the Business Case and the Final Review/Approvals. He stated that within two months, at minimal cost, staff should be able to ascertain if they should proceed further. Mr. Beeson continued that if staff determined it was viable to continue with more formal design and business case development, the entire cost to fund this feasibility analysis was approximately $400,000.
Commissioner Bishop voiced her concern that action by the Board could not take place within the structure of a Work Session. President Anderson voiced her disagreement with that rationale.
Vice President Bartel questioned why EWEB would be the leader in this plan. Ms. Wright responded that the infrastructure in place at EWEB lent itself to this type of service.
Mr. Beeson commented that it would be advantageous to have further discussions about some of the available technology at a future Board meeting.
In addressing Commissioner Bishop's concerns, Commissioner Smith stated that staff was not requesting additional funds to proceed with the work plan and schedule; rather they were proposing to complete the business plan within the original budget. She said it was a project re-direction only and that she was comfortable in providing this direction to staff. Commissioner Smith emphasized that the process of providing direction to staff was provided by the Board on an on-going basis in Work Sessions. She concluded she was cautiously in support in Plan B and was relieved that staff had recommended that Plan A be shelved.
Vice President Bartel requested two critical components for further discussion: (1) a clear understanding of what systems other jurisdictions had in place; and (2) a technology update.
Commissioner Bishop stated that she supported the utility applications as a component of the universal build out. She said that without that component, it would be difficult for her to maintain her continued support. Commissioner Bishop stressed that a large amount of funds would be needed to ascertain the viability of the system and that adequate notice had not been provided to residents so that they may offer comments, expertise, needs and concerns. She said she was hesitant to offer direction to staff with the information that had been provided. Commissioner Bishop concluded she would appreciate being advised what the Board needed to do to provide the appropriate meters to residents and small businesses to ascertain how much power they were using.
Ms. Wright stated that Item 10, the Interim Funding for the Telecommunications School Lateral Project, had been removed from the Agenda and would be included as an agenda item at the next Board meeting.
The meeting adjourned at 7:25 p.m.
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Assistant Secretary President