Traverse City Light & Power, a government-owned entity that provides electricity and internet service, is raising its electricity rates by 5%. This increase was approved by the City Commission of Traverse City at its May meeting.

TCL&P Chief Financial Officer Karla Myers-Beman said the rate increase was necessary because of “decommissioning of coal plants, surging electricity demand from data centers, and an accelerating transition to new energy resources.” She added that the increase “would not fully close the utility’s current operating deficit, but is part of a longer-range plan that anticipates incremental rate adjustments in future years.”

There are no significant data centers in the Traverse City region. But what Traverse City does have is a troubled municipal internet project operated by TCL&P, which continues to miss its performance targets.

Despite its track record, Myers-Beman said that the municipal utility is projecting “significant growth in its fiber internet service.” It expects that 40% of households and businesses in its service area will subscribe by “late fall or early winter of 2027.”

As we have pointed out before, these utility officials keep lowering their expectations. At its 2019 presentation seeking approval for the internet project, the utility projected that the fiber network would be profitable by 2021, bringing in $1.2 million in revenue. But the project has yet to turn a profit. TCP&L also projected in 2019 that the internet system would attract 50% of all potential customers. It now appears to have given up on ever reaching that target.

This underperformance has been accompanied by massive underestimates of what the project would cost. City officials approved the initial proposal in 2019 based on a cost of $4.2 million. But by 2023, the cost projection had ballooned to more than $28 million. As we pointed out last year, TCL&P now claims that the project is coming in under the budget of $28 million. It does not, however, acknowledge that the cost is still far greater than its initial projection of $4.2 million.

Who pays when a municipal broadband operation costs more than advertised and performs more poorly than projected? So far, the losses may be covered by the loans TCP&L has received. But the loans will have to be repaid, and the City of Traverse City will probably have only two options. One is to bail out the broadband operation with funds and fees it receives from property taxes and fees it imposes on residents. The other is to shift costs over to the utilities’ electricity customers, who have nowhere else to go.

TCP&L, like most municipal internet operators, does not keep separate financial records for its internet operations. A study by Yoo and Pfenninger found that of the 88 municipal governments they identified as operating both electricity and internet services, 68 of them, or 78%, did not keep separate records. Even more troubling, when Sarah Oh analyzed the financial performance of 528 municipalities with publicly funded broadband systems, she found that only 71, or 14%, provided adequate data for financial analysis. (Most of those municipalities did not also operate electricity services.) Only 22 of the municipalities, or 4%, provided data she could match up with the census data she used for her analysis.

When a municipal utility does not keep separate records for each service, it can more easily hide the subsidies customers of the profitable service give to an unprofitable one. Tacoma, Washington, was one local government that did keep separate records, and it openly acknowledged that it was shifting costs from its internet operations to its electricity customers. This kind of subsidization, a study by the American Consumer Center for Citizen Research found, is quite common. Municipal broadband customers, often price-sensitive, are subsidized at the expense of the less price-sensitive municipal electricity customers.

So when TCL&P raises its electricity rates at a time when its internet operations are badly underperforming, the captive Traverse City electricity customers should ask where their money goes. Are they paying for higher actual electricity costs in a region with no data centers? Or are they being asked to subsidize an underperforming municipal internet operation that costs more than advertised and keeps moving the goalposts?

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