Chelan Will Keep Its Network As Is

As we reported in March, the Chelan County, Washington PUD was seeking input from the customer-owners of their open access fiber optic network to decide what the future would hold. The PUD had considered three options and presented them to the public:

    •    sell the network
    •    maintain ownership of the network, but improve operations and curb expansion until it is self-sustaining over time
    •    continue expanding the network, paying for the expansion by increasing electric rates

After requesting public comment through outreach and community meetings to present information and hear public opinion, the Chelan PUD General Manager John Janney released the recommendation to the PUD Commissioners at an April 9th special meeting. From the press release:

After feedback from customer-owners and extensive analysis around potential alternatives, costs and benefits, General Manager John Janney recommended Monday night that Chelan County PUD continue operating its fiber-optic network and take steps to put it on more stable financial footing before considering any further expansion to unserved areas. The network now offers access to about 70 percent of the county.

On April 16th, the Commission endorsed the recommendation. From the press release:

"It's a way forward," said Commissioner Dennis Bolz in speaking in support of the resolution that outlines steps to be taken to move the fiber system toward being self-sustaining and ending its reliance on dollars from the PUD's overall electrical system. He likened it to commencement that many seniors regard as the end to their high school days but which is really the beginning of their adult lives.

While most customer-owners who expressed themselves showed concern about raising electric rates, they also appreciate the value of the network and want to continue local control. According to Janney, for several years now customers have expressed their desire to protect low electric rates and see self-sufficiency in PUD services that are non-electric. Developing five-year business plans for water, wastewater, and fiber optic services remain one of the priorities in moving each system to long-term financial and operational sustainability.

Significant losses and internal debt must be tackled:

The fiber network now loses about $8 million a year, and impacts from investing nearly $120 million in the system so far will be felt by PUD electric customers for many years. After determining that the fiber network could never repay a $99 million internal loan from the PUD’s electric system, Janney’s recommendation included writing off the loan and treating the investment as a sunk cost. He said that should be contingent on implementing stringent financial policies for the fiber network from this point forward in order to avoid digging another financial hole for the PUD.

Consultants have offered several recommendations that Janney believes should be incorporated. Apparently, there are approximately 8,000 premises, business and residential, where service could extend at relatively low cost, but are not currently served. Part of the recommendations include encouraging ISPs to reach out and service those potential subscribers.

Janney referred to the Chelan PUD 2010 strategic plan as a source of guidance for his recommendation. The plan was developed through public input and created clear financial goals developed for the long-term success of the PUD and its services. So far that plan is working, as evidenced by elimination of a 9% surcharge on electric rates.

The endorsement means that the remaining 30% of the county will not see expansion until the network is on better financial footing. Also from the April 16th press release:

Commission President Norm Gutzwiler said he thought long and hard about selling the system but endorsed this recommendation because it tries to meet the needs of many people. He called turning down the federal grant for expanding the system last year a “blessing in disguise” because it required in-depth financial analysis that led PUD managers to realize cost estimates needed a better look and that led to a new overall strategic plan.

While the network will not be expanding anytime soon, this decision will help the PUD set goals for the future. Now that the PUD has a long term vision, details can be determined on how to achieve a self sustaining community owned network.