Traverse City’s public utility is comingling sources of funds while trying to go deeper into debt in an effort to keep its broadband network alive.
The government-owned network was originally projected to cost $4.2 million – the loan for which was supposed to be paid back within a few years by customer billings. After repeated delays, far fewer customers than projected, an expansion of the project and several rounds of new loans, the network’s cost has ballooned to nearly $30 million.
Traverse City Light & Power, a public energy co-op, began considering operating a fiber network in 2016. In 2017, the utility commissioned a report and began moving forward. Although Traverse City Light & Power had $14 million in pension debt, the executive director claimed the internet project would not be subsidized by the utility, though it does note on its website that “TCLP is the ultimate financial backstop for the project.”
Traverse City’s fiber network went on to miss all of its projections. And now the utility wants a new loan. “The Ticker” notes:
Traverse City commissioners voted Monday to provide public notice of the city’s intent to borrow an additional $10 million to pay for the buildout of a city smart grid, a project that will include the expansion of fiber Internet citywide. That amount is in addition to $18.2 million already approved in project funding – a $14.7 million USDA loan and $3.5 capital improvement bond – bringing the total project financing up to $28.2 million.
The administrators blame federal loan delays, interest rates, inflation and “contingency costs.” The TCLP is also now comingling the broadband loans with energy infrastructure funding to build out its “smart grid.”
Karla Myers-Beman, chief financial officer at TCLP, said at a recent board meeting that she is “confident” the network’s take rates – the percentage of covered customers who actually sign up for the service – will improve. But if the network fails, debt payments would be covered by an increase in customer electricity rates. TCLPFiber has been below its projections every step of the way.
Originally, the TCLP’s contractor said it needed 40% of residents in the covered region to sign up in order to break even. It projected a 50% take rate in year two.
That didn’t happen. In March 2021, the utility board acknowledged that at that time fewer than 25% of potential customers had signed up. Revenue from those customers came in at less than 40% of the annual goal that year.
TCLP reports that it has 753 customers out of 2,974 total potential customers in the coverage area it has built so far, which includes about 40% of citywide customers. There are a total of 7,041 total broadband customers across Traverse City – 5,768 potential residential customers and 1,273 potential business customers.
The new shortfall in customer signups continues a long trend of failure to meet optimistic goals.
Customers were told they could sign up in fall of 2019, but that deadline slid to January 2020, then May 2020 and beyond.
In August 2020, the then-$3.3 million project needed an $800,000 surprise loan.
In January 2021, the city approved an application for an $18 million loan (later downgraded to $14.7 million) from the U.S. Department of Agriculture. The public entity was using a loan program primarily intended to increase the reliability of the electric grid in order to help pay for the broadband network.
So why is the entity continually missing its projections?
There are several private internet providers in Traverse City already. TCLPFiber currently offers internet packages from $60 to $90 per month, depending on speed (more if you bundle with phone services). Charter Spectrum currently offers high-speed internet for $50 to $90 per month.
The TCLP originally projected in 2019 that by year two of the project, the fiber network would be profitable, bringing in $1.2 million in revenue. It’s now four years into its service and the latest financial documents on the fiber optics fund show revenue of $975,000 last year with expenses of $1.1 million. The system is projected to lose money for the next few years, even if it hits its customer projections.
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