CLICK! CURRENT AND FUTURE STATUS. Presented to City Club of Tacoma July 15, 2015

Transcription

1 CLICK! CURRENT AND FUTURE STATUS Presented to City Club of Tacoma July 15, 2015

2 THANK YOU FOR INVITING US Who s here from TPU Chris Robinson, Tacoma Power Superintendent Bob Mack, Deputy Director for Public Affairs Agenda Click! history Challenges Solutions Next steps Questions and comments 2

3 CURRENT PUBLIC/PRIVATE PARTNERSHIP Tacoma Public Utilities Tacoma Power - Network Owner Click! Network - Operator City Network (I-Net) Tacoma Power Network (Electric system) Retail Cable Wholesale Broadband Wholesale Commercial Broadband Click! Cable TV Advanced Stream (Private, for-profit companies) Net Venture Rainier Connect (Private, for-profit companies) 7 Commercial Broadband Providers 3

4 PROJECTIONS AND REALITY 1997 Click! assumptions Over 80% of Tacoma households had cable TV, less than 20% had Internet Would capture 25% of cable TV market (45,000 customers) Would recover costs, including capital investment Wired network would be used for smart meters Programming costs would not escalate Reality 4 Customer sign-up never reached projections Cable TV use has declined, replaced by Internet Smart meter technology evolved to wireless Hybrid business model, with three private ISPs, prevented Click! from being competitive; margin is on Internet, not cable Cable and Internet rates no longer lower in Click! service area

5 ASSUMPTIONS AT START UP 5 Project shall be operated in a business-like manner (Council presentation) Assumed net profit by nd year of operation If operated in a business like manner, the system would generate sufficient revenues to make the system self sustaining. (Council presentation) Only customers who choose to buy cable TV would be charged for them. No tax money would be used and your electric rates would not increase because of this new system (Council presentation) 1997 Council informed that Click! expenses would include debt service and that annual payments would be made for debt retirements

6 1997 PROJECTIONS VS. ACTUAL 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Fewer cable customers than projected 30,000 25,000 20,000 15,000 10,000 5,000 - ISP customers vs. projected Actual CATV Subscribers Projected CATV Subscribers Actual ISP Customers Projected ISP Customers Lower revenues than projected Higher cable TV programming costs $60 $70 $50 $60 Millions $40 $30 $20 $10 $0 $/ Average Monthly Bill $50 $40 $30 $20 $10 $- 6 Actual Revenue Projected Revenue Actual CATV Programming Cost The projections are from an appendix to the 1997 financial statements The 1997 projection brought to current dollar values using core CPI from the Bureau of Labor Statistics Projected CATV Programming Cost

7 CABLE TV & ISP CUSTOMER COUNTS 30,000 25,000 20,000 15,000 10,000 5, Cable TV ISP 7

8 8 CURRENT COMCAST PRICING TACOMA

9 9 CURRENT COMCAST PRICING SEATTLE

10 RAINIER CONNECT INSIDE/OUTSIDE Click! service area Puyallup & Graham 10

11 TODAY S CHALLENGES Current Internet business model doesn t work Escalating programming costs Higher operating costs Click! Cable TV and ISP Internet rates no longer lower than competitors Declining cable TV customers Need for wired connection to the home is limited Electric customers are subsidizing cable Click is a perennial money loser and remains subsidized by the ratepayers of Tacoma Public Utilities. The News Tribune Editorial November

12 CLICK! COSTS AND REVENUES $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 Imputed Debt Service Capital Taxes O&M Gross Revenues Net Cash $0 ($5,000,000) ($10,000,000) ($15,000,000) Includes imputed debt service Assumes 17.5% cable TV rate increase in 2015 and 10% cable TV rate increase in 2016, and 10% ISP rate increase in August 2016 Numbers may not add up due to rounding

13 ADDRESSING THE CHALLENGES Further build-out of Click! network halted proposed new build areas do not meet financial return requirements Click! financial challenges are growing. Consultant engaged to examine potential future Click! business models. 13 Click! headcount and capital budget significantly reduced. Introduced retail Internet concept (change hybrid model) to Public Utility Board and City Council Click! provision of retail Internet service (Plan A) proposed, but not approved. Cooperative approach with ISPs directed by policymakers (Plan B). Customer growth targets are accepted and modest revenue increases result. Click! financials and customers continue to decline. Consultant reengaged to examine alternatives to Plan B. Consultant developed other options. Leasing to private operator was determined best option. Update on strategy to Public Utility Board members. Approached by Wave Broadband. Negotiated proposal. Proposed leasing Click! Network to private operator. Would eliminate Click! financial losses, provide improved customer products, continue competitive open-access network.

14 ALTERNATIVES EVALUATED 10-Year Value in millions 1. Current operating model ($37.7) 2. Offer retail Internet only ($47.4) ($32.9) 3. Offer cable and Internet ($59.8) ($39.3) 4. Offer cable, Internet and phone ($49.2) ($22.5) 5. Offer wholesale broadband only ($36.9) - $ Shut down Click! ($19.9) 7. 3 rd party operate network $

15 WAVE S PROPOSAL 15 Long-term use of the commercial telecommunications network Tacoma Power would still own the network 40 years with one option to renew for 10 years $2 million per year with CPI in lease payments Minimum $1.5 million per year with CPI in network investments with cash value Wave pays all costs of network operation, saving Tacoma Power customers $5 to $6 million each year Provisioning, support and maintenance of TPU s active fiber infrastructure Total value = $380 million

16 CURRENT PUBLIC/PRIVATE PARTNERSHIP Tacoma Public Utilities Tacoma Power - Network Owner Click! Network - Operator City Network (I-Net) Tacoma Power Network (Electric system) Retail Cable Wholesale Broadband Wholesale Commercial Broadband Click! Cable TV Advanced Stream (Private, for-profit companies) Net Venture Rainier Connect (Private, for-profit companies) 7 Commercial Broadband Providers 16

17 PROPOSED PUBLIC/PRIVATE PARTNERSHIP Tacoma Public Utilities Tacoma Power - Network Owner Wave Broadband - Operator City Network (I-Net) Tacoma Power Network (Electric system) Retail Cable Wave Broadband Wave Broadband Wholesale Broadband Advanced Stream Net Venture Rainier Connect Wholesale Commercial Broadband Wave Broadband 6 Commercial Broadband Providers 17

18 INTERNET PRICE COMPARISONS $100 ISP Average Wave Broadband Comcast $99.95 $90 $89.95 $80 $78.95 $70 $60 $57.28 $61.95 $68.95 $59.95 $66.95 $69.95 $50 $40 $40.95 $39.95 $30 $20 $10 $0 12 mbps 20 mbps 25 mpbs 30 mbps 55 mbps 75 mbps 100 mbps 150 mbps 18 All rates are non-promotional, a la carte pricing

19 PUBLIC OPINION Elway Research conducted a public opinion poll of Tacoma Power customers in May 70% said Click! should be supported solely by subscriber fees 71% favored Click! shut down before ratepayer or taxpayer subsidies 75% opposed increasing rates to keep Click! operating 19

20 CURRENT STATUS Direction must come from policymakers Tacoma Public Utility Board and City Council 20 TPU has presented to policymakers 6 times since March 31 Background, financial info, analysis of options, public opinion Request on July 7: Provide 1-4 creative solutions, including all-in, buying ISPs, wholesale, gigabit service, lease TPU will continue to reach out to the community to provide information, answer questions and hear thoughts

21 THANK YOU We welcome your questions and comments Want more info? ClickCableTV.com/click-proposal 21

22 Tacoma Public Utilities Click! Cost Allocation Consulting Report May 20, 2015 Julie Desimone, Partner Jennifer Chu, Manager MOSS ADAMS LLP 22

23 CONCLUSION The 2015 memo outlines an updated proposed methodology to be used in determining the allocation of telecommunications capital investment and operating expenses between Electric and Click! commercial applications. The overall conclusion of this consultation is that this methodology as applied is consistent with current uses of the telecommunications network. MOSS ADAMS LLP 23