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HomeMy WebLinkAbout2000-11-01 Agenda Packet - Board (12) I I 0TRUCKEE DONNER W[ Public District Staff Report To: Board of Directors From: Peter L. Holzmeister, General Manager Date: October 30, 2000 BROADBAND SERVICES—A STATEMENT OF BUSINESS PRINCIPLES The Board of Directors of the Truckee Donner Public Utility District has been discussing the possibility of offering broadband (telecommunications) services to the Truckee community. The fundamental underlying concept of the business plan has evolved as it has been discussed, suggesting that the process has been creative, open and productive. However, as the business concept evolves it is important to keep our focus on the underlying mission statement. A mission statement describes our purpose in offering broadband services in the community and defines the values we embrace in conducting that business. It springs from a statement of the vision we intend to bring to reality. Following conversations with Board President Hemig, I have drafted this report as a description of the dream held by many in our community. I have done so to help the Board discuss and refine the dream of what Truckee might look like if it were to have a full range of broadband services available to its customers. The dream begins with a recognition that throughout our country a technological revolution is occurring in how we share information. It is the digital revolution, brought about by the development of digital technology that merges voice, video and data and transports them at very high speed to any place that is connected to the information superhighway. The dream also recognizes that a community that is connected to the information superhighway is more likely to prosper. It recognizes that private investors will offer many of the digital services, although they will do so in large communities more readily than in small communities. Therefore, the dream recognizes that Truckee may need to take its destiny in its own hands, acting through a public agency that is focused on service, rather than on profits. The public agency may need to take the initiative to create the infrastructure to connect the community to the information superhighway and may need to offer some of the services itself. The agency may also need to enter strategic partnerships with private investors to provide some of the critical broadband services. Having made the above acknowledgments,following is a statement of the dream. •Page 1 A Dream for Truckee Let's think for a minute that today Nevada County LAFCo met and approved the District's applications, activating its latent power to provide telecommunications and other forms of communication. Further, let's envision that the District Board, at the request of the Truckee community, has voted to begin to construct a metropolitan area network (MAN), a project that will build an infrastructure to support local enterprise, provide for the growth of clean industry and develop new opportunities for Truckee residents. Now, let me take you to Truckee in the year 2000, three years from today. A new transportation system has been built in Truckee. A superhighway carrying digitized information rather than cars, built by a local public agency, not Uncle Sam. The Truckee Donner Public Utility District has invested $10 million to build its own fiber optic broadband network. Truckee Donner Broadband (TDB) is providing local businesses and residents with large-bandwidth point-to-point data service, high-speed open access Internet, local telephone service as well as cable television service. The goal of making Truckee an even better place to live, work and play by offering advanced technology and greater choices has come true. TDB touches every aspect of the community — healthcare, education, entertainment, tourism — and provides a means for existing Truckee businesses to complete in the global economy. In addition, it has attracted new businesses, creating new employment opportunities. In the year 2000, Truckee's economy was based on tourism and new home construction. Today these industries remain critical to Truckee, however they have not provided new employment opportunities to our ever-growing population. With TDB, the community has attracted well paying, high-tech businesses not otherwise likely to locate in Truckee. Due to the high-speed capabilities of the system, residents and businesses alike can videoconference instead of telephone and upload / download in seconds files that used to take hours to transmit. Software companies have moved to Truckee to test their latest state-of-the-art products, developed to make use of TDB's capabilities. The Truckee Donner Public Utility District and Truckee Sanitary District have upgraded their internal water, electric and sewer SCADA systems to increase efficiency and reduce costs. In the case of the TDPUD, annual savings of$120,000 are being realized. Through TDB, Sierra College has opened a new state-of-the-art "teacherless" facility in Truckee. By using TDB's large-bandwidth "classroom-to-classroom" video conferencing has expanded the curriculum available to allow residents the opportunity to receive an Associate of Arts degree in Truckee. Partnerships have been forged. With the use of TDB's facilities, a competitive local exchange carrier (CLEC) partnered with the District in 2001 as the provider of competitive local telephone services. As the system's first customer, TDPUD coordinated the formation of one shared telephone system for all public agencies in Truckee. Here's what some have to say about TDB services. • Page 2 On Internet "TDB Internet is great. It's fun. Everything happens so quickly. I do a lot of e-mail overseas and I do e-commerce. It used to be a problem when I had a telephone dial-up connection because that line was also my fax line. People could not fax me when I was on the Internet. Now I do not have a problem. People can fax me anytime, even when I'm on the Internet all the time." "Documents load so fast. With my telephone dial-up connection, it took forever to upload product information to a catalog I work with. Then in the middle of the transmission, I would lose the telephone connection. It was frustrating. TDB Internet solves that problem." (One of the latest trends in retailing is EDI, electronic data interchange. It is a system by which the entire retail supply chain is linked online. It works like this: When a pair of Levis sells in a Wal-Mart store anywhere in America, that transaction is beamed by satellite, real- time to Wal-Mart headquarters in Arkansas which then automatically transmits the information to Levi headquarters in San Francisco. Levi compiles that information with product demand information from the other retailers it services. Levi then transmits this information to its cotton suppliers with a request to provide more cotton so it can make more Levis.) "I plan to do an EDI link to the retail outlets I supply. Other vendors that I work with are already on EDI." "The great thing about e-commerce is that you can do business around the world from right here in Truckee." "I use the Internet for transferring other information, too. I can send press releases directly to the specialty publications that write about my product. I can send photos and other graphics to catalogs and outdoor equipment magazines that are reviewing our products. We've even been reviewed on publications that are available only on the Internet." "Everything is faster and easier. TDB Internet is making life quicker and easier. No more waiting for things to happen. TDB is incredible. On Cable "It's been great.We thought we needed new glasses. But once we got TDB we realized what we needed was a new TV." "I like to watch tennis on TV, but I couldn't see the ball. Now that we have TDB and its HDTV (high definition television) capability, we can see every detail." "Now we can read the text on Masterpiece Theater. We can even read the small print on the ads. The depth of field is wonderful. The picture is sharper. The colors are great. The sound is better, too. Movies — even the old ones — are better. Even old sitcoms like The Honeymooners look new." "Oh. And we love the digital music." 71D Internet has really speeded up my time on the web. I have an old 166 MHz PC and it used to take me minutes to log on through my dial-up connection. Now it's just ten seconds 0 Page 3 from the time I push the button until I'm on the Internet. I'm buzzin' through this stuff like you can't believe." Increasingly, local consumers find themselves boasting to family and friends off the hill that they have a choice with TDB. What was once a primarily second home community has now become a telecommuter's paradise. While those that have opted to just visit are confident that their home is secure with the use of TDB's home security program. Truckee has continued to grow since the turn of the century, and with it, TDB has and will continue to provide the "big pipe" necessary to keep the community ahead of the curve. As we see advances in telemedicine, TDB will be there to connect the local medical community to the outside world. As entertainment is transformed from a one-way medium to that of an interactive stream of information, TDB will be there to transmit the digital wave of information to every home in the community. Now, what has been written above is not fact, nor is it fiction. Rather it is a shared dream for our community. As reported to you in the past, we are not proposing that the District enter uncharted waters. Many communities across the country are providing the services proposed. We have shared with you the successes of Ashland, Oregon and the plans for Alameda, California. Following the lead of these communities, our District has an opportunity to enter the broadband arena and provide Truckee with services that no other private business or governmental agency will. In doing so we can ensure that Truckee is not left on the wrong side of the "digital divide." Recommendation It is recommended that the Board discuss the concepts found in the previous statement, with the intent to draw from it at a future meeting a vision statement for the proposed broadband business unit. • Page 4 'Jrll,�TRUCKEE. DONNER Public Utility District Staff Report To: Board of Directors From: Alan Harry, Director of Telecommunications Services Date: October 26, 2000 Subject: Consideration of Broadband (Telecommunications) Issues On October 24, 2000 Peter Holzmeister and I met with SR Jones, Executive Director of the Nevada County Local Agency Formation Commission to discuss the District's application for the activation of it's latent power to provide telecommunications services. During our meeting, SR notified us that our application could be placed on the Commission's November 1 e agenda as a workshop item. She further advised us that the Commission would focus on four specific areas: (1) Services to be provided, (2)An evaluation of revenues and expenses to show that the business is self-supporting, (3) Method of infrastructure financing, and (4) Risk mitigation. In other meetings and various telephone conversations, SR has asked us to provide clarification on other issues relating to our entry into the telecommunications business. She asked us to submit a brief letter describing how the District would deal with these elements of the business plan if we were given authority by LAFCo and if our Board ultimately decided to proceed with the project. Staff developed the attached draft letter, which we hope you will discuss and possibly approve, so we can submit it to SR in time for her November 16 agenda. If you approve the draft letter, you are making a series of initial decisions. Approval of the letter to SR Jones means that the Board of Directors has decided that, if it ultimately decides to enter the Broadband (telecommunications) business, it intends to: 1. Offer the following services a. Point-to-Point Data Services •Page 1 b. High Speed Internet Services through multiple partnerships c. Cable Television Services d. Residential and Commercial"Local"Telephone Services through a partnership 2. Rely on the revenue and expense projections contained in the Vectren report 3. Use Certificates of Participation, both taxable and tax free, as the proposed financing mechanism for the construction of the Districts Broadband infrastructure. 4. Utilize a Risk Mitigation measure, as proposed by Vectren Communications Services,to provide a financial exit strategy for the District. It is worth expanding on the description of the key elements LAFCo will focus on: 1. Broadband Services As discussed in both the Navigant and Vectren Studies, the District has the opportunity to provide a wide range of Broadband services to its ratepayers. Through the construction of a Metropolitan Area Network(MAN)the District may provide: 1. Point-to-Point Data Services:Through a new Broadband Business Unit the District could provide a private circuit, a secure connection between specific endpoints,to local businesses, schools and public agencies; 2. High Speed Internet Services: Through multiple partnerships the District could provide high speed Internet services to residential and commercial customers, local schools and public agencies; 3. Cable Television Services:Through a new Broadband Business Unit the District could provide competitive Cable Television entertainment services including network and satellite programming (NBC, ABC, Discovery, Nickelodeon, etc.), premium programming (HBO, Showtime, etc.), Digital Music Express (uninterrupted musical programming), and Pay-Per-View programming (movies, sports, special events, etc.). 4. Local Telephone Service:Through a partnership with a Competitive Local Exchange Carrier(CLEC),the District could provide competitive residential and commercial local telephone services. If the Board were to approve the proposal to provide all of the aforementioned services, the District's infrastructure design would follow that proposed by the Vectren study. However, if the Board were to approve only a portion of the services listed above the Vectren financial analysis would require revision. 2. Revenues and expenses The Vectren study contains a detailed description of the revenues and expenses showing that the business would be self-supporting. We believe the revenues are conservative and the expenses are reasonable. The assumptions used by Vectren are carefully set forth in the document.. 3. Infrastructure Financing The District has the opportunity to utilize Certificates of Participation to finance construction of the Metropolitan Area Network. If the District were to enter into partnerships with private, for profit, companies to provide services, a portion of the projects financing would be taxable, while the balance 0 Page 2 would maintain as tax free. We have been in contact with Bond Counsel and Investment Bankers and have been advised that this form of financing is available to the District, and that the Certificates currently have a market. 4. Risk Mitigation District consultant, Vectren Communications Services (VCS), and AON Insurance have created a risk mitigation guarantee, a backstop, which would remove the District's financial risk of providing Broadband Services. This measure provides a backstop for the proposed Broadband Business Unit if for some reason it is not financially successful, or is found to be a business that the District wishes not to be in. As proposed, if during the first five years of providing Broadband Services the District wished to exit the Broadband business, it could exercise the Risk Mitigation measure, put the system back on AON,thus requiring AON to pay the District an amount equal to its initial capital investment. Recommendation I recommend that the Board authorize staff to transmit the attached letter to SR Jones. In taking this action, it is understood that the Board is not granting its approval to enter into the Broadband (telecommunications) business. This action is just one decision point in the process by which the Board clarrfies its intent if it ultimately decides to proceed with the project. The ultimate decision whether to enter the Broadband (telecommunications) business will depend on many factors not yet fully explored. •Page 3 November 1, 2000 i�yr ® d SR Jones Nevada County Local Agency Formation Commission 950 Maidu Avenue Nevada City, California 95959 Dear SR; This letter is intended to offer Nevada County LAFCo with Truckee Donner PUD's intentions regarding the implementation of its Broadband (telecommunications) plans, and answers to the list of telecommunications issues you have raised. 1. Does the District have the legal authority to provide broadband (telecommunications) services? We believe the clear answer is yes. TDPUD is willing to enter into an indemnification agreement whereby LAFCo is protected from suit if it votes to activate the latent power. 2. Does the District need a franchise from the Town to provide cable TV service? The District does not need a franchise from the Town to provide Cable TV service. A franchise is normally required as a condition for using the Town's rights-of-way. We have authority in state law to use the rights-of-way with no requirement to secure a franchise. Thus, we have no franchise to provide water and electric services. 3. What services does the Vectren Study propose the District enter when providing broadband (telecommunications) services? The Vectren Study proposes that the District itself provide Point-to-Point Data Services & Cable Television Services. Further, the Study proposes that the District enter into partnerships for the provision of High Speed Internet Services and residential and commercial local telephone services. 4. How can the proposal be conditioned to ensure adequate segregation of financial activities of each separate utility or service? Truckee Donner PUD has operated two independent utilities for decades, a water utility and an electric utility. We have always segregated their financial activities. We are required by state law to keep them separate. State law will require us to separate our telecommunications business from our water and electric businesses in the same manner. We will again comply with state law. California law governs our financing practices. In some cases state law has imposed restrictions on us, and in other cases state law has provided us with financing tools. We believe that LAFCo should not tamper with the restrictions or the tools. 5. What kinds of impacts will the proposal have on the District's current services and rate structure? The proposal will improve our current water and electric services by making high- speed SCADA communications available. The proposal will add a utility to our billing system, and will absorb some of our billing system costs. The telecommunications business will provide its fair share of financial support to our organizational overhead, thus making our entire organization stronger. 0 Page 1 State law authorizes the transfer of reserve balances into the District general fund, under very specific conditions. Should the telecommunications business succeed sufficiently we would be able to transfer reserve funds from telecommunications into the District general fund, in turn helping the District's overall rate structures. 6. Is the District's finance plan (including cost and revenue projections) reasonable? The District's finance plan is built upon very conservative assumptions. We think the cost projections are reasonable, and the revenue projections are very conservative. 7. Does the District intend to use Tax exempt financing for the construction of the Metropolitan Area Network? Due to the District's proposed partnerships with privately held, for profit companies, financing mechanisms, such as Certificates of Participation, will likely be both Tax exempt and Taxable. The percentage of Taxable versus Tax exempt financing will depend on the percentage of partnership business the District enters into. 8. What is the proposed Risk Mitigation Plan? As proposed, the Vectren Risk Mitigation Plan will allow the District to turn the Broadband system up to five years after its launch, and in turn receive the entire amount of capital dollars originally invested, financed. In the case of the Study, the investment is $10 million. 9. What impact will the proposal have on maintaining and promoting open competition for telecommunications and cable TV services? This question gets to the heart of why TDPUD has an interest in offering broadband services in Truckee. When Congress enacted the Telecommunication Act of 1996 its intent was to encourage other firms to enter to telecommunications field. The deployment and use of advanced telecommunications systems are critical to the continued vitality of the US economy. Communities that have access to advanced telecommunications systems are more likely to thrive than communities that lack that access. Truckee lacks access to advanced telecommunications. Neither USA Media nor Pacific Bell are deploying advanced telecommunications systems. USA Media is deploying a very limited enhancement to its cable TV system, and will offer limited Internet service. USA Media's infrastructure is staying with a cable TV concept, and is offering Internet service through one provider. Pacific Bell is concentrating its telecommunications investments in larger markets. PacBell may eventually get around to investing seriously in Truckee, but for the foreseeable future it is not. Thus, if Truckee wishes to prosper it needs to take control of its own destiny. Truckee Donner PUD is proposing to deploy a high capacity telecommunications system in the nature of a metropolitan area network. This is vastly different than the cable TV system being deployed by USA Media, and vastly different than anything being deployed in Truckee by PacBell. By doing so we will force USA Media and PacBell to upgrade their offerings in order to compete in Truckee. There will be competition for Cable TV service between USA Media and Truckee Donner PUD. The trend in the industry is for a couple of large cable television operators to dominate the market. TDPUD's presence in the cable television market will guarantee competition in the •Page 2 Truckee area. USA Media will need to lower its prices and offer improved service to remain viable in Truckee. There will be competition for Internet service because TDPUD will open its system and invite numerous Internet service providers to offer service in Truckee. Our system may provide competition in the telephone market should a Competitive Local Exchange Carrier (CLEC) choose to use our system to offer voice services. We are willing to seek out a CLEC and promote use of our system for that purpose. Our proposal is exactly what Congress envisioned when it enacted the Telecommunications Act of 1996. A related question is whether a governmental agency should be permitted to offer services in competition with a privately owned firm. Certain services are critical to a community's prosperity, among which are water, electricity and telecommunications. The system set up by the California legislature and the Federal government allows governmental agencies and private firms to both provide these utility-type services. The governmental agencies that provide utility-type services are not pure governmental agencies; they have many characteristics of entrepreneurial firms. The private owned firms that offer utility-type services are not pure private firms; they have many characteristics of governmental firms. For example, they prefer to have a monopoly on the service they provide. It is not really a question of private enterprise versus government. It is a question of whether a critical service should be provided by one privately owned monopoly offering poor service at an expensive price, or whether the community should be allowed to establish a community owned system and control its own destiny. In the provision of critical community services, customers prefer to deal with a business that has local presence, accessibility and control; places service ahead of profit; maintains high standards of accountability; and produces financial returns that remain close to home. Other thoughts: I wish to suggest that LAFCo be cautious about trying to regulate Truckee Donner PUD in an industry that has recently been deregulated by the Federal government. This is an area already occupied by the Federal government, and national policy has been set. There should not be a unique policy on competition in telecommunications that applies to Nevada County. It will be impossible for Nevada LAFCo to regulate telecommunications in Truckee, because the other participants have been deregulated. USA Media is not subject to regulation of its business practices, rather the condition of its infrastructure. It can use revenues generated in its other systems to support its services in Truckee. In fact, Truckee Donner is far more regulated now than USA Media. We conduct all our meetings in open session under regulation by the Brown Act. Our business plan is a public document. Our directors are elected by our customers. We are required to follow the mandates of the Public Utility District Act. We are subject to review by the Nevada County Grand Jury. 0 Page 3 USA Media has refused to allow Truckee Donner PUD to advertise its water and electric system services on any Cable TV channel it controls. We have energy and water conservation messages that need to be heard by the community, and USA Media has used its control of television to silence us in the community. We need an alternate system in Truckee so we have an opportunity to communicate with our customers. If Truckee Donner PUD is prohibited from entering the telecommunications field, the Truckee community is left with receiving very limited telecommunications services from a private firm having monopoly power in a deregulated industry. It can charge any rate it wishes, offer any Qlevel of service, make decisions in secret, in a meeting held in another state, and is answerable to © no one. Like water and electric service, telecommunications services are critical to Truckee's prosperity. Our customers, recognizing that we have been here for over seventy years and will continue to be for the next seventy years, are overwhelmingly eager for us to enter the telecommunications field. Pursuant to our meeting of October 24`h, I understand that you will be placing the District's Application on your Commission's November 161h Agenda. In that many, if not all of our Board members may wish to attend this meeting, please advise me as to its time and location at your earliest connivance. If you have any additional questions please give me a call. Very truly yours, Peter L. Holzmeister General Manger 0 Page 4