Present: Dorothy Anderson, Peter Bartel, Susie Smith, Patrick Lanning, and Sandra Bishop.
Others present: Randy Berggren, JoAnn Andersen, Tom Buckhouse, Ken Beeson, Marty Douglass, Roseanna McArthur, Jim Origliosso, Debra Wright, and Krista Hince of the EWEB staff; members of the public and Kris Aanderud, City of Eugene Minutes Recorder.
President Anderson called the Special Board Meeting and Public Hearing of the Eugene Water & Electric Board (EWEB) to order.
EWEB TELECOMMUNICATIONS BUSINESS PLAN
Staff Presentation
President Anderson reviewed the historical process and objectives for the telecommunications program over the last several years, including the voter approved Charter Amendment which granted EWEB authority to provide advanced telecommunication services within this market. She noted that the new business plan would be presented tonight.
Debra Wright, EWEB Telecommunications Manager, spoke about the Telecommunications Phase II plans, which were illustrated on a large Board presentation posted within the meeting room. She reviewed a PowerPoint presentation, copies of which were available for EWEB Board members and others, which included discussion on the following issues:
Vice President Bartel asked for more information on the work anticipated with the City Council for an amended Joint Resolution. Ms. Wright said that the initial joint resolution was passed in February or March of 2000, which allowed the ballot measure to be placed before the voters. The resolution provided some restrictions, or opportunities, for City Council to work with EWEB on future plans. This dealt primarily with the ability to use existing funds, the requirement for a future vote, and how new funding will be addressed. The resolution that was proposed to be authorized tonight, asks the EWEB Commissioners to approve the MetroNet project subject to the development and approval of appropriate financing.
1. Public Hearing
President Anderson opened the public hearing.
David Klindt, 2034 Cal Young Road, Eugene 97401, representing Willamette Net and himself, testified that while he was against the original concept of this program, he was an extremely staunch supporter of the current MetroNet proposal. He spoke to the significant difference in pricing for current service and that there was no requirement for Qwest to provide fiber. He said that if this project proceeds, his transport costs will be reduced approximately 30 percent, a significant reduction. He added that he did not believe this was a telecommunication project, but a transport project and that EWEB was a transport provider. He said that this was a foundational point which he requested the Board to consider.
Dale Smith, Director of Network Services for University of Oregon, spoke in support of the proposal. Mr. Smith addressed the historical work done by the University, including Internet II services throughout the State of Oregon. He said that the University has worked with service providers in the past and that they supported the MetroNet project for services which were not provided by other service providers. Mr. Smith noted that on June 15, University of Oregon President Dave Frohnmayer sent a letter of support for this project to Mayor Torrey. Mr. Smith outlined specific points included in Mr. Frohnmayer's letter.
Paul Harrison, 440 West 23rd, a Board Member of Eugene Free Network (now Oregon Public Networking), spoke in support of the proposal and in support of the Universal Service build plan. Mr. Harrison read a letter from Ruth Ann Howden to Mayor Torrey on the MetroNet plan, which supported the proposal.
Larry McMullen, 42050 Holden Creek Lane, Springfield, Telecom Project Manager for Springfield Utility Board (SUB), spoke in support of the project. Mr. McMullen spoke to the users of fiber extended by SUB for City of Springfield services, Springfield School District and Willamalane Park District. He said that SUB has worked with EWEB staff on the MetroNet project and suggested that the projects of both utilities be linked. Mr. McMullen read from a prepared statement:
"Good evening commissioners. I'm Larry McMullen, telecom project manager for the Springfield Utility Board. As many of you know, the Springfield Utility Board has, like EWEB, constructed a fiber optic backbone system in Springfield. SUB's vision is to use this system to encourage and facilitate the provision of high speed, broadband telecom services in our city."Advanced telecom services are one key element of the infrastructure needed to attract and retain businesses so the Springfield economy remains strong. Currently, we use our fiber to manage our water and electric systems. We have also given the use of six strands out of our total 96 strand fiber count to three important entities in our city; city government, the school district and the Willamalane Park and Recreation District. We have been exploring additional ways to expand the use of our system by working to facilitate advanced telecom services for businesses and when it becomes economically possible, for residential locations too.
"One such way is the work we have started to do with EWEB on the MetroNet concept. There is a lot of activity between our two cities and any improvements on advanced high speed telecom services will help both of our communities. There is a lot of value in our two fiber optic systems and it's important that we leverage them together as strongly as possible.
"And the opportunity to be part of EWEB's citizen advisory committee was a great experience and showed me just how broad the interest is in advanced telecom services. SUB's view is to act like a wholesaler and develop partnerships with telecommunication companies that are prepared to invest in Springfield.
"The synergy of SUB's resources - rights of way, pole and underground infrastructures, fiber optic backbone, construction capabilities and daily contact with our customers - make it a natural for SUB to partner and cooperate with industry telecom experts as they bring their resources to our city.
"Such partnerships and the competition they can bring, will lead to increasingly better and more cost effective Internet, high speed data and video services for our community. In this information age, advanced high speed telecom services give the cities that have them a tremendous advantage over the cities that don't.
"Your local utilities are in a perfect position to be the catalysts that help propel our metro area forward and ahead of the many other communities that are also striving to retain existing companies and attract new businesses to keep their local economies strong.
"Thank you for the opportunity to speak at this meeting."
Dennis Gabriel, 3359 Saint Kitts Avenue, owner of a local telecommunications consulting and training business in Eugene, spoke in support of the MetroNet. Mr. Gabriel also served on the EWEB Technical Planning Group and offered six reasons for his support: 1) existing telecommunication structure is woefully inadequate, 2) high tech companies require high-band infrastructure, 3) this project is the type of competitive enterprise which was envisioned with the Telecommunications Act, 4) the proposed technology is a step ahead of the incumbents (technology which is not offered today), 5) MetroNet will spawn new industry, and 6) broadband services are as important in this century as water, electricity and roads have been in the past century. Mr. Gabriel said that EWEB was the appropriate agency to provide this service to the community.
Ben Doty, 1135 NE 7th, Newport, Oregon, CIO for NoaNet, a 501(c)(12) non-profit organization, providing cost-based telecommunication services to the public, spoke in support of the MetroNet plan. Mr. Doty said that they serve 19 members which were publicly or cooperatively owned electric utilities. Mr. Doty said that MetroNet was envisioned to be one of the key content providers for the rest of the network. He said that it has been a privilege to watch this project develop over the last two years and that EWEB was the right agency to facilitate this project.
Sheryl Steinke, 2405 Blacktail, spoke both as a citizen of Eugene and as the Library Services Coordinator for Eugene School District 4J. She said that the services proposed in MetroNet were essential for the community. As an educator, Ms. Steinke spoke about the technical expertise of today's students, described as a "digital child." She read from a letter from Tom Layton, which described the need for technology for students. Ms. Steinke said that schools have high speed access, but do not have the hardware to support such access, while students at home may have better computers, but do not have access to high speed service. She said that high-speed fiber access was required for the video information and other current technology used by students and used to teach students today.
Kevin Behr, 875 Wilson Street, Eugene 97402, spoke in strong support of the MetroNet proposal. He said that he works with large providers on a daily basis, but that it was impossible for these companies to provision the type of services being proposed in MetroNet. As the proposal is designed, it will allow businesses to have a unique position in the marketplace. He said that emerging technologies may be tested and released in the Eugene area as a result of this project. He said that telecommunication companies have almost universally cut their capital investment plans and funding and that the services planned to be provided through MetroNet will be a benefit to the community. Mr. Behr said that EWEB was the right agency to provide the services of MetroNet.
Mark Bunnell, 151 West 7th Avenue, Suite 440, Vice President of Communications for Rio Communications, spoke in support of the MetroNet plan. He said that Rio Communications was a competitor of Qwest, but that Rio could not provide competitive services for infrastructure. He said that the "last mile" of service was always provided by Qwest, which puts Rio and other competitors at a disadvantage.
Ron Schwada, 787 Bailey Hill Road, Eugene, 97402, read a statement on behalf of Lane Electric Cooperative (LEC). LEC uses the NoaNet project and offered support for MetroNet, which will benefit LEC and other providers. A copy of the letter was made available.
Vice President Bartel asked if the public record would be kept open beyond tonight. President Anderson said that it would depend on the EWEB Board and if any action was taken tonight on the resolution.
President Anderson closed the public hearing.
Board Discussion and Consideration of Resolution
President Anderson reviewed the resolution before the Eugene Water and Electric Board. Ms. Wright reported that there would be an amended resolution with the City of Eugene. This resolution allows staff to move forward with MetroNet, subject to the development and approval of appropriate financing. Ms. Wright said that the details around the financing and financial considerations would be brought back to the Board as developed.
Vice President Bartel asked if MetroNet would provide cable television services to businesses or would it preclude providing those services in the future. Ms. Wright said that in the initial phase, EWEB would not be providing services, but would be providing the "pipe." The future for the Universal Service Build model did not preclude providing services, but that would take additional Board action.
Vice President Bartel asked how this proposal gets EWEB closer to a Universal Service Build. Ms. Wright said that this was a critical first step. She said that in addition to benefiting businesses, individual citizens may benefit from services provided through or for businesses.
Vice President Bartel asked how EWEB's plan interfaced with the adopted TransPlan and the Eugene City Council strategy for nodal development. Ms. Wright said that the development of strategies focused on the placement of current businesses. She said that a firm was hired to provide the data, and that a large percentage of the businesses in the area would be served by the plan included in MetroNet. She added that TransPlan was also consulted and the areas identified in MetroNet line up with the nodal development areas identified in the TransPlan.
Commissioner Lanning asked if there has been public involvement in the planning process. Ms. Wright said that there has been public involvement in both the Technology Advisory Group and the Citizen Group, which was chartered during the initial discussions and has been involved throughout the project. There was also significant public involvement in the Charter Amendment process and that she anticipated continued public process and involvement. Commissioner Bishop noted that it was reported by Libby Henry, EWEB's lobbyist, during the last legislative session that there have been 17 public hearings or opportunities for the public to be involved to date.
Commissioner Lanning asked for clarification of the language regarding appropriate financing in the resolution. Ms. Wright read the relevant resolution language and explained that there were bond proceeds remaining from Phase I, which EWEB would like to use for the MetroNet process. She said that it was believed that the Joint Resolution with City Council will require that EWEB return to City Council to get their concurrence on using the remaining bond proceeds. She said that there was remaining bonding authority, which may need a subsequent vote upon Board approval. She said that staff did not have specific details, but that it was time for the further development of financial details.
Commissioner Bishop commented that in the future, the decision of provision and services was still to be made. She added that the financing was non-recourse financing, which does not jeopardize the economic standing of the utility.
General Manager Randy Berggren responded that the initial Phase I bonding does have a connection with the electric utility, but that future phases will not. Commissioner Bishop thanked Mr. Berggren for the clarification.
Vice President Bartel asked what risks were associated with the financing. Ms. Wright said that there could be a risk that EWEB would be unable to negotiate the use of bond financing. There may also be a risk in securing the financing&emdash; that it may be difficult to find non-recourse financing given that there was no track record. There may also be risks centered around the cost of funds.
Vice President Bartel asked for customer count assumptions used in the plan. Ms. Wright reported that in year one, 127 customers were calculated; in year two, 15 new customers; and in year three, potentially 45 new customers.
Vice President Bartel asked if EWEB was investing in the electronics to service customers before customers were committed to purchasing the service. Ms. Wright responded that the deployment strategy was to put fiber in the public right-of-way, which will require some capital investment. The cost for connecting customers at their premises will not be obligated until the customers have been secured. She added that this was an investment and that there would be opportunities for the Board to monitor the progress of the business operations.
Vice President Bartel asked how a service provider competes for specific territory. Ms. Wright said that each company will compete openly and that no specific territories would be awarded. EWEB will own the infrastructure. EWEB would provide the infrastructure but not the services. It would be EWEB's customers which would be service providers. Customers choose which business they want to use.
Commissioner Bishop spoke to the Universal Service Build-out. She said that she supported this proposal and the ultimate goal of having a Universal Service Build. She asked for clarification on the potential timing for a decision point for Universal Service Build. Ms. Wright said that the decision for Universal Service Build has little to do with the development of MetroNet. She said that the plan included the Universal Service Build in year six, but it could easily be moved to year three. She said that there were a number of issues that would have to be taken into consideration, including economics and availability of content.
Commissioner Bishop asked if MetroNet would be solvent at year six. Ms. Wright said that MetroNet's turning point was year seven. By year ten MetroNet should be generating cash. About half way through the Universal Service Build model, MetroNet would be providing significant revenue.
Commissioner Lanning asked if the packets would be light traveling through the fiber. Ms. Wright said that was correct. Commissioner Lanning read from a statement from Mayor J.D. Matlock, who served around the turn of the century, which spoke of the importance of light. "In my mind, water is associated with health, and light with learning, and it is our aim that each child, however poor or obscure, shall have at the minimum of cost these two fundamentals of civilization." He said that this concept hits home with MetroNet.
Vice President Bartel asked about any risk to the ratepayers. He asked why EWEB should have to ask City Council to spend EWEB's own money. Ms. Wright said that it was a conservative position. Mr. Berggren said that at the time the issue was being considered for the ballot, it was agreed that this would be an appropriate time for consultation with the City. Ms. Wright said that at its inception, there was no consideration for a phased approach and language was not drafted to anticipate it.
Vice President Bartel asked if there was additional investment, above the $3 million, needed in the first year. Ms. Wright said that the initial investment was approximately $2.7 million for capital investment. Vice President Bartel said that if, at the end of the first year, there were not 127 customers, could the project be stopped? Ms. Wright said that this was a tight operation and that quarterly reports could be provided to the Board. She said that to manage a start-up entity means that staff will be reviewing information monthly and that if targets were not met, the project could be amended or stopped. Vice President Bartel said that 15 new customers in the second year seemed modest. Ms. Wright added that capital costs for subsequent years were projected to approximately $1 million annually.
Vice President Bartel asked what position EWEB would be in if the venture collapsed completely. Jim Origliosso, Treasurer and Finance Director of EWEB, responded that in 1988 EWEB borrowed $15 million to fund Phase 1 of the project. This phase, as well as other phases of the project, have come in under budget. The remaining bond proceeds have been used for a number of different purposes, including payment of interest on the $15 million, the Public Agency Network (PAN) investment and the Light the Apple Project, all with Board approval. He said that clarification was not sought on the use of bond proceeds for those projects, as they were envisioned at the time the Joint Resolution was executed. He added that more money may be available for the project if the PAN and Light the Apple Project come in under budget.
Another unknown factor was the timing of the joint resolution approval by both EWEB and the Eugene City Council, which would determine when the first customers were on-line. Mr. Origliosso said that the initial $15 million bond issue was backed and fully supported by the electric rates. He said that the debt service on the bonds amounts to approximately $1 million annually. To date, there has not been the need to raise customer rates to fund the debt service because the bond proceeds have been sufficient to pay the interest.
Mr. Origliosso said that the MetroNet business plan did not envision that MetroNet would pay the entire $1 million debt service on the bonds, but that it would rent space/fibers and would pay the electric utility at arms' length for the amount of fibers used in the backbone. The decision to build the 70 mile backbone was a utility decision and continues to be an obligation of the utility. He said that there was substantial overcapacity in the network today. In the event of a collapse of the market, EWEB would have excess fibers which were presumed to have some commercial value. Concluding, Mr. Origliosso said that four plans have been considered, including Plan A - Universal Service Build, Plan B - the proposed MetroNet plan for a phased approach, and Plans C and D, which put EWEB in an asset management strategy if the project were unsuccessful.
Mr. Berggren said that should there be no value in the remaining assets, the risk would be $1 million, about one percent. Mr. Origliosso said that three-quarters of the $1 million has already been allocated to the backbone, the PAN and Schools Project. The MetroNet component would be approximately $250,000 in incremental annual debt service.
Vice President Bartel said that the $15 million bonds were backed by the electric utility. He asked if the joint resolution with the City would take the place of the original pledge made by EWEB. Mr. Origliosso responded that the resolution was irrelevant; that there were contracts executed in 1998 with the bond holders. The security for those bonds was the electric rates.
Vice President Bartel asked why the City Council would have any input on the use of the original $15 million. Ms. Wright said that there was a resolution in place and that it has been the intent to work through the process to include the City. Vice President Bartel said that ratepayers know that EWEB has the right to use the money, but that this was an agreement with the City Council that EWEB was trying to honor. Mr. Origliosso said that certain legal certifications were needed from legal counsel that the bond proceeds can be used for MetroNet, which was not anticipated at the time of the resolution. He said that additional clarity was needed with the City Council, now that there was a new business plan in place.
Commissioner Bishop said that a resolution between two government bodies, was not legally binding but was a resolution of agreements between the bodies. She said that a resolution regarding future indebtedness would be needed. She suggested that the remaining $3 million of the original $15 million was not sufficient to proceed with MetroNet. Mr. Berggren said that it was not clear if there were sufficient funds to get through the initial one to two years through the initial authorization.
Commissioner Smith commented that she has been hesitant to assume the risk of the Universal Service Build plan. She said that as a result of the testimony tonight, she was very supportive of the metered approach included in the business plan. She expressed appreciation for those who provided testimony. She said that she felt this was the best approach to bring broadband fiber into Eugene, which will lead to Universal Service Build. She urged the Board to listen carefully to the City Council's concerns and that the spirit of cooperation be continued.
President Anderson said that she has supported the Universal Service Build from its inception, but that she was much happier with the new MetroNet approach.
Commissioner Bishop said that she would like to see three results of the telecommunications plan: 1) universal service, 2) infrastructure should be in public ownership (broadband should be considered an essential service), and 3) fostered competition. Commissioner Bishop acknowledged testimony received tonight which spoke to the competition factor. She said that last year, EWEB did $500 million in turnover and said that EWEB staff includes some of the best financial managers in the Northwest. She said that this conservative approach for these public funds was essential.
Vice President Bartel commented that this process has been a long time coming. He said that it was interesting to note that businesses testified that they had hundreds of customers and that the goal of 127 customers in year one was very doable. He said that the goal was not to make money in year one. He said that the commitment from staff and the Board, provides a keen interest in making this project happen. In addition, the measured approach seemed appropriate for a public utility, and that all of the work which has been developed by EWEB staff has been verified by national technical consultants. The public involvement has been extensive and that it was time to move forward.
Commissioner Lanning also thanked the local community businesses which provided testimony.
Vice President Bartel moved, seconded by Commissioner Smith, to approve the resolution as presented. The motion passed unanimously, 5:0.
President Anderson thanked staff for their work.
The meeting was adjourned at 8:20 p.m.
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Assistant Secretary President