HOUSTON – The Natchez Trace Electric Power Association’s Board of Directors is taking a “very cautious” approach to a potentially risky, expensive choice: Whether to offer broadband service to the EPA’s customers.
Said Natchez Trace EPA’s General Manager Shawn Edmondson this week: “Our Board of Directors recognizes that this is an expensive, risky proposition. We’re taking a very cautious approach to it, because any mistakes could hit our members on their electric bill. If there’s any way Natchez Trace can participate, we will.”
Said Natchez Trace EPA’s CFO (Chief Financial Officer) Miller Dendy: “In short, we’re proceeding with caution, but we’re proceeding.”
The Mississippi Broadband Enabling Act signed into law earlier this year allows electric power co-operatives statewide to create subsidiaries to offer high-speed Internet service to their customers.
Under that legislation, a feasibility study is required before a co-op can move forward with offering broadband service.
A feasibility study looks at the overall economic feasibility of the electric cooperative providing Fiber To The Home (FTTH) through a subsidiary and a detailed plan on where to begin.
An ideal feasibility study would be an honest answer to the question, “Can NTEPA provide FTTH without jeopardizing electric rates?” Edmondson said.
Natchez Trace EPA conducted a feasibility study last year, at a cost of $7,000, before the legislation was enacted.
“The study showed NTEPA would have to build out 1,392 miles of fiber in 24 months and float the subsidiary for seven years until it became self-supporting, assuming we have over 7,700 subscribers. Those don’t seem like very reasonable assumptions for a very rural area like Natchez Trace EPA’s service territory,” Edmondson said.
The board recently voted to do a second feasibility study, hoping its results will help Natchez Trace qualify for federal grant money scheduled to become available next year. The grant funds would help pay for getting the project up and running.
Edmondson hopes that study – now under way – will be ready for presentation to the Board of Directors sometime this year.
The current study, like its predecessor, will be financed through general funds.
Grant money is crucial to allowing Natchez Trace to proceed with bringing broadband to this area, Edmondson said this week.
“We’ve got to have grant money in order to bring broadband to this area, because the cost of doing that is more than we can afford. That’s why we’re doing a second feasibility study – we wanted more than one company to look at this and tell us what it will take.
“We also need to have someone to partner with and help us with the FCC reverse auction – called Rural Digital Opportunity Fund – which will be used to disburse about $20 billion in grant funds to applicants nationwide next year. We will have to compete with countless other telecommunication companies for those funds,” the general manager said.
The board must vote whether to approve offering broadband service. The membership must then vote whether to approve it. If both votes are to approve, the Natchez Trace bylaws – which state what a co-op can and can’t do – can then be amended to allow broadband service. The revised bylaws must then be approved by the board and by the co-op’s membership before taking effect.
The amendment must indicate that Natchez Trace EPA has the legal right to form, manage and sell broadband service to NTEPA customers through a broadband subsidiary.
“We’re not sure at this point if we need to change our Articles of Incorporation, Bylaws or both. Our lawyer is studying this side of the issue,” Dendy said.
Voting to change the articles doesn’t require the EPA to move forward with a broadband plan.
Before those things can happen, there several major hurdles to jump, both men said. Among them:
--State law says broadband must be offered to all 12,000 of the co-op’s members. “We can’t pick and choose as AT&T has done. We not only have to provide that service in town, where there’s a higher customer density and other competition will exist, but also out in the country, where there may be like two customers per mile of line, which is pretty bad customer density,” Dendy said.
--There are major economic issues beyond customer density. “As an electrical co-op, we’re given a monopoly on providing electrical service at a low cost. We can spend millions of dollars building up an electrical company, and know we’ll get that money back. In developing a broadband network, however, it’s open market competition between a company with 65 employees and AT&T, which has unlimited global resources,” according to Edmondson.
--There’s a lot of misinformation abroad. Some members think the company already has the equipment in place to create a broadband system. ”They think we just hang something on each end, and we’ve got broadband. That’s completely false. We’d have to start completely from scratch building a fiber optic telecommunication network,” the CFO said.
--There’s a widespread myth that every co-op is the same – if one can do it, all of them can. That’s false, Edmondson said. Each co-op serves a different demographic with different needs. No two are alike, he said.
--There are huge differences between rolling out a broadband network and rolling out simple electricity. “We’re still hooking up customers to electricity using poles and transformers as we did 80 years ago. You can’t have a methodical roll-out with fiber as we do with electricity. Feasibility studies recommend constructing a broadband system in two to four years; otherwise, you’ll be outdated and you’ll have to start over,” Dendy said.
---Said Edmondson: “The current FCC maps show a big chunk of our membership already has high speed Internet available to them. It’s only needed in rural parts of our territory. The construction costs and debt service to build this infrastructure will be significant. If we don’t have enough participants, and the system falls on its face economically, co-op members would have to foot the bill to pay the loan we got for building the broadband system. We would have to bring in money from the electrical system to subsidize the broadband system and keep it afloat.”
Rather than signing a contract, broadband customers would “probably just be bound by an informal agreement that they accept the service that they have requested at the rates that our board deems to be appropriate. There wouldn’t be much to it past this,” Dendy said.
EPA could not cut off electric service to broadband customers with delinquent bills, both men said.
“Broadband is important, but hanging costs of building a broadband system around the local power company’s neck without proper planning could drown it,” Edmondson concluded.